ML20034A676
| ML20034A676 | |
| Person / Time | |
|---|---|
| Issue date: | 04/03/1990 |
| From: | NRC COMMISSION (OCM) |
| To: | |
| References | |
| REF-10CFR9.7 NUDOCS 9004240098 | |
| Download: ML20034A676 (91) | |
Text
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i UNITED STATES OF AMERICA NUCLEAR REGULATOR.Y COMMIS SION
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f Th(16' BRIEFING ON ECONOMIC INCENTIVE REGULATION 0F NUCLEAR POWER PLANTS t
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ROCKVILLE, MARYLAND
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D6kOl APRIL 3, 1990
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NElkR.GROSSANDCO.,INC.
t C O L' R T RtPORfER$ AND TRANSCRISER$
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DISCLAIMER
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This is.an unofficial transcript of a meeting of the United States Muelear Regulatory Commission held.on L
April 3.,
- 1990, in' the Commission's office at One White Flint North, Rockville, Maryland.
The meeting was open to public attendance and observation.
This transcript has not been reviewed, corrected. or edited, and it may contain inaccuracies.
The. transcript is intended solely for general i
informational purposes.
As provided by 10 CFR 9.'103,-it is not part of the formal or informal record of-decision of the matters discussed.
Expressions of opinion in this transcript do not necessarily reflect final determination or beliefs.
No pleading'or other paper may be filed with the commission in any proceeding as the result of,. or addressed to, any statement or argument contained herein, except as the Commission may authorise.
i HEAL R. GRO$$
COURT Rf9ettlRS AND TRAN$thittt$
1333 kHoDI ISLAND AVtNUt. N.W.
(202) 234 44 2 W AlHIN oto N D.C.
2000$
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1 UNITED STATES OF AMERICA
~ NUCLEAR REGUIATORY CONKISSION l
I I
P BRIEFING ON ECONOMIC INCENTIVE REGUIATION OF NUCLEAR POWER PIANTS t
PUBLIC MEETING Nuclear Regulatory Commission One White Flint North Rockville, Maryland.
Tuesday, April 3, 1990 i
The Commission met in open
- session, pursuant to notice, at 2:00 p.m.,
Kenneth M.
- Carr, Chairman, presiding.
COMMISSIONERS PRESENT:
KENNETH M. CARR, Chairman of the Commission THOMAS M. ROBERTS, Commissioner KENNETH C. ROGERS, Commissioner JAMES R. CURTISS, Commissioner FORREST J. REMICK, Commissioner NEAL R. GROSS COURT REPORTERS ANDTRANSCRIBERS 1323 RHODE ISLAND AVENUE. N W (202) 234e WASHINGTON D.C 20005 -
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2 STAFF SEATED AT THE COMMISSION TABLET SAMUEL J. CHILK, Secretary WILI.IAM C.
PARLER, General Counsel JAMES TAYLOR, Executive Director for Operations DOCTOR THOMAS MURLEY, Director, NRR i
FRANK GILLESPIE, PMAS/NRR MARTIN VIRGILIO, PISB/NRR
'[
DARREL NASH, PTSB/NRR i
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1-P-R-0-C-E-E-D-I-N-G-S A
2 2:00.p.m.
3,
CHAIRMAN CARR:
Good morning, ladies and 4-gentlemen.
5 The purpose - of today's1 meeting is for the 6
NRC staff to brief the Commission on the increasing' 7
use of ec'onomic incentives by public utility-8 commissions.
These incentive programs 'are - based 'on -
9 various performance criteria applied to nuclear power-(
f.'
10 plants licenhed by NRC.
11 The Commission
.is concerned that the.
12 potential. financial impact of such programs could 13 result in pl' ant operating decisions' that may not - be 14 primarily based on protecting public health and 15 safety.
Accordingly, at thF February 15th, 1990 16 Commission
- meeting, the staff -was requested to.
17 provide this separate briefing on the subject' of i
18 economic incentive programs.
19 I understand that ' copies of the staff's a
20 presentation slides and the staff. paper on~ this 21 subject, SECY-90-046, are available at the - entrance 22 to the meeting room.
')
23 Do my fellow Commissioners have any opening I
24 comments?
f 25 If not, Mr. Taylor, please proceed.
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'l MR. TAYLORt-Co;d aftornotn.
i With me at the table today, starting:on myL 2
-3 far left, is Darrel Nash, from NRR; and " of-course, -
4 Tom Murley, the Director.of NRRt to my.right, Frank-5
'Gillespie and~Marty Virgilio,.from NRR.
6 Before we proceed in the briefing,. I think 7
it is important = for me to say ' that -- and as g ' was 8
noted in the paper that was provided -- that although
- I 9
at this time the staff cannot make a direct ' link 10 where.a utility performance ingentive plan has caused i
~
11 a
deteriorating safety performance, Lthe-staff 12 certainly acknowledges there is a potential for-this 13 to occur.
And'as we proceed through today and-look 14 at these plans, I think that we certainly have that-15 in our mind.
16 With-that, I'll turn to Frank Gillespie, i
17 l
who will proceed with the briefing,-
[
18 MR. GILLESPIE:
(Slide)
If I could have 19 the first slide, what I'd like to do is to add some 20 historical context which was basically missing from 21 the
- paper, but had a
lot of relevance to the 1
22 conclusions drawn in the paper.
And let me go back 23 to 1983, when we first looked'at this question.
24 In 1983, a-chart very similar to slide lone 25 that's showing was generated in an NRC report.
And NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE N W.
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a 3
1 on3 of tho - things. in ~ tha rcpert, tha ? tcp b:x, wan 2
environment.
=3-
'In the-- environment, iti. recognized' the 4
economic factors in the ' regulation by - PUCs as very j
5' important.
But it recognizcd all of those - elements 6
on.the left side of that page as very-interrelated, 7
not only. incentives but the actual setting of rates 8
themselves.
9 And. the effect on those rates was very, 10 very interrelated with what is called'a context.. And' 11 a context is basically the history and size of the 12 organization, how much are the available funds.
13 organization governance, the philosophy of 14 the corporate level, all-the way down through the 15 organization.
16 And also. organizational design,.which is j
17 more the traditional organization at the. plant level 18 itself.
But within organizational design, that first i
19 one looked at the funds provided to the organization 20 to carry out its job.
l l
21 In that same report in 198',
it tried. to 3
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22 make a
link between the available funds to an 23 organization and the available funds for operation 24 and maintenance of a nuclear power station.
And'it l
25 came to the conclusion that making that link from NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND A/ENUE, N W i
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cvailoblo infcrmttion wOct cxtr=31y_ difficult.
And,-
2-in fact,. in' 'on case they; found over an 80 percent
~
3 difference between what was ~ reported' to Moodys for 4
financial purposes and what1was reported to DOE in an
-5 energy survey they were doing.
The: difference _ was ~
6 hundreds of millions of dollars.
Very difficult to l
l-7 relate directly what'someone is getting from a rate-l l
8 structure to what they're putting into their.
9 operation.and maintenance' budget.
~
10 other things in that context that were 11 found to fit as an integral-were is the utility 12 generally contracting services out or are they doing l
13 them themselves?
How much are they putting into i
14 expense?
How much are they putting into_ capital?
It l-j l
15 basically made for a very muddy picture on the left-16 hand side of that diagram.
1 17 On the right-hand. side of that diagram is 18 our traditional program and in the middle are the 19 types of things which, in the context of the work' 20 that was'done in '83 and to date, are the types of 21 things we make conclusions about.
Safety indicators,.
l 22 in this case, were inspection report, were SALP, were 23 the performance indicators'at the time just starting 24 to get developed, were that integral set.
And that q
l 25 integral set and the evaluation of those things-has NEAL R. GROSS H
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~.
y 1'
grown-_ into ocnier C2n;g cnt' COcting3 cnd' ~ th3 q
a' 2
decisions that come' out of thosei and the short-term l
=t 3
being' every six months and; in the - longer term SALP 4
itself which takes to. integrate those and makes.
f 5
decisions or tries-to 'make decisions 'and inferences 6
on the overall safety operation of a' facility, i
i 7
That's a symptom' and we look at. symptoms l
8 and we're continuing to upgrade our process to look-
~
9 at those symptoms on which we make our decisions.
'10 on the other. side, and lin the paper we 11 didn't explain the. integral' on that left. side, are 12 all of these management elements that also impact the 13 amount of funds available.
Now, we do have concerns i
14 and we raised in several instances and Marty's going 15 to go through those.
When there is a steptdecrease 16 or the penalty is so severe and so rapid, we think we 17 need to look at it.
18 But as we said in the paper, this influence 19 through an organization which is generally set up to 20 be technically competent and responsive and has been 21 getting significant regulatory oversight, we believe 22 we would see any outcome of the symptoms.
That was a-l 23 general finding in
'83.
We've done a similar report 24 in
'84 and right now research has an exploratory 1
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four bicck3 cn thnt ditgrca.
2-They have. tended -- we are not right 1 now.
3 investigating - the economic portion of it.
They're 4
trying to get a handle on what is management, what; 5
are management. influences,. how do L we identify ' that 6
and outside the traditional block diagram kind' of 7
thing.
And the arrow onLenvironment indicates that.
8 those things in the' environment, the PUC interface, 9
the FERC interface, the political.interf ace,- tax 10 structure, everything that costs money,.that's. in 11 economics, can ' have an effect - on the intermediEte j
12 outcome certainly, but we-have not been able to draw 13 a cause and effect relationship.
But it also affects 14 all of these management functions and.the thought 15 process that goes into them.
It has to af fect. the 16 corporate strategy.
How has that leadership gone 17 done through the organization?
18 So, we have focused on symptoms.
The other 19 side is precursors, would we be able to identify 20 based on economics alone?
We~think not and that's
,21 where some of'our conclusions in the paper came from.
22 Economics combined with management philosophy, 23 management leadership, the increase in things like 24 maintenance backlog,.the integral, some of the other
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25
- things, we're investigating that.
- Very, very NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODEISLAND AVENUE N W.
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difficult-cnd coft and tu:hy crca to g;t into which 2
is why 3 t's =. very, very exploratory, ini nature and' l
i that's.centinuing forward.
3,
4 That's -- in a nutshell,cI guess it's - I if.
5 I could give you a quote out of the earlier study,.
6 "If greater environmental,"'and environmental in this 7
case. meant economic,. " volatility is. coupled' With t
'8 fewer. external resources' and ;more dependence upon i
9 outside organization,. nuclear utilities will find it 10 more difficult to promote _ quality innovation,'
11 compliance and ' efficiency in employee maintenance, 12 thus threatening safety."
j 13 So, since - 1983, the staff has recognized 14 there's a connection.
It's the cause 'and effectl 15 relationship of the connection we've been having a 16 very difficult time trying to get our arms-around.and 17 it's still exploratory in' nature even today.
18 So, with that, we are doing,this report, we 19 have been doing it on about in annual basis.
So we, 20 in fact, ourselves are trying to keep ~an eye en it.
21 So, let me turn it over to. Marty.
-He's 22 going to go through the details of the report itself.
t.
23 COMMISSIONER REMICK:
Before that,-
.I l
l 24.
apologize.
You're a very articulate person, I know, 25 but I'm not sure what you just told us.
Are you
(
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b3cically - ccying it'a tcugh to dGtermins - what ths I
i 2
effacts.are-of safety, of something like PUC action, l
there are many things-that enter into -
is that what-
-3 i
4 you're telling us?
5
.MR.
GILLESPIE:
Yes.
The cause and effect-
+
6 strictly between PUC action and a safety outcome has--
f 7
to go. through a whole channel of management chains a
8 and decisions.- If we truly believe, and we said.this
~
9 in the paper, if we'believe in the integrity of'the 9
10
~ people operating the. nuclear power plant, then their 11 decision 'should be appropriate to the-level Lof i
12 resources given.
That's a very difficult. quality to.
f 13 measure and that's where the difficulty comes in.-
14 COMMISSIONER ROGERS:
Well, I think there's 15 another difficulty and that is that you're-looking to-16 pin something down after it's--happened and we're 17 looking to see.that something doesn't ~ happen'in.the
~
e l
18 first place.
(
l l
.19 MR. GILLESPIE:
Yes.
l
-t 20 COMMISSIONER ROGERS:
You know, one is an l
l 21 analysis of ct.n you see anything so far, and if,you 22 haven't seen anything so far, there's the question-i l
23 then whether you. conclude anything about the-future.
24 I think that's really where the question is going tot 25 have to lie.
But admittedly, reading your materials, NEAL R. GROSS a
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1 cnd'I wtnt you'to go en cnd liot0n to~whnt you hr.vo-2 to'say,-but-because.you. haven't'seen anything doesn't 3
say there isn't a-significant potential'.'for something-p i
j.
4
. happening.
l MR.'GILLESPIE:
What I'm saying is,we. agree-5 6=
the potential is there.
.The significance. and. the -
l 7-independence.of that potentialJisSaomethingLwe don't 8
have a very good handle. on right' now.:
9 COMMISSIONER ROGERS:-
Well,; I think'ithei 10 problem is that once it.becomes so easy to measure, 11 that you can measure it easily: and convince everybody -
12 of it,-maybe it's too' late.
13 MR. GILLESPIE:
Marty?
14 CHAIRMAN CARR:
Let's proceed.
15 MR. VIRGILIO:
Very good.
16 (Slide)
Can I have the next slide,' please?
17 Economic performance.-incentive programs are-18 l
mechanisms used by PUCs to measure. efficiencies and l
l 19 financially reward.or penalize the utility.
Today 20 there are 73 nuclear power plants, 27 utilities and 21 18 states involved - in such programs.
The NRC staff 22 has been following increasing involvement of PUCs for 23 several years, as Frank pointed out.
We've_ published 24 two NUREGs to date on performance incentive programs.
25 The first being NUREG-1256 in December of 1987 and
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tho stcond-b3ing:NUREG/CR-5509-in'Dec mb3r'of 1989.
I 1
l 2
(Slide).Next slide, please.-
.[
l On the next' slide, I've' shown a number. of 3 i l
4 i different. types' of ' incentive programs that-are 5
currently in'effect.
As you can see, the performance' 6
incentive programs ~ vary considerably.
PUCs: use' 7
different performance : measures to; assess the amount 8
of ~ reward or penalty, such as heat. rate, capacity-9' factor and availability.
Penalties and. rewards are 10 typically adjustments to replacement fuel. costs,
[
-11 percent of return on common equity. or operating-12 revenues.
13 (Slide)
On the next' slide, what I've shown 14 in a
conceptual performance incentive
- program, 15 conceptual but similar to Idany of the ones - we've 16 seen.
Most of the programs include a formula for
?
17 determining the size of.the reward or' penalty, some q
18 include a dead band where neither reward or penalties 19 accrue, and some include provisions ~ for a detailed 20 review by the PUC if performance falls below a-21 certain threshold.
22 (Slide) on the next slide I've shown one 23 program that's highlighted in our report for Arkansas i
24 Power and Light Company.
This is a program that 25 provides no dead band at all.
Originally designed to NEAL R. GROSS COURT REPORTERS AND TRANSCRIDERS 9
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in3ulcto ratcp y0ra from-rcplccon nt p wcr' cost 6 2-
-resulting from' unplanned-outages, the company.
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essenti' ally keeps. fuel-savings-attributed-to 3 i 4-operation above the target here shown as 72 percent.
5 6
During refueling,.all replacement power 7-costs are passed onto the consumers.. Originally it's 8
designed for the first 30 days'of any outage.~during a'_
9 78 week operating cycle.
AP&L was ' penalized 100-10 percent of replacement power costs. below' once' ' the 11 capacity factor fell below that ~ target - threshold.
'r 12 And then-subsequent-days they-were penalized ten 13 percent of replacement _ power cost.
That program was 14 then recently ' adjusted.
So.now, only the first !30 15 days during the 78 week cycle are subject to_the'90 16 percent replacement power penalty and then subsequent 17 to that it's - a ten percent of replacement - power 18 costs.
l 19 (Slide)
On the next slide,. I've shown 20 another slightly unique program.
This is what the 21 utility and the PUC refers to as performance based 22 pricing plan, currently applied' for-Diablo Canyon-i 23 Units 1 and 2.
Utility profits in this plan-are a 24 function of plant performance based on a price per i
i 25 kilowatt established by the PUC.
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7 14 l
1 (Slido)
On - tho n xt clido, I'vo cert of 2
highlighted the Pilgrim plant. - Here, as'a; result-of j
3 a
settlement ' agreement. proposed by. Massachusetts l'
4 States Attorney-General to-proceedings before the PUC 5
involving replacement power expenses incurred between 6
April '86 and December '88 during the:Pi3 grim outage, 7
a.
formula was developed to determine revenues,;
8 adjustments over.a 12' month period.
A base amount is 9
adjusted by considering capacity factor, SALP scores 10 and a comparison of performance indicators to other 11 facilities.
12 In this particular plant,-. capacity-factors 13 below 60 percent incur a penalty and above 76 percent 14 incur a reward.
As;you can see, SALP is adjusted and 15 performance indicators also provide an adjustment 16 factor.
17 In our analysis, which was done in response 18 i
to a~ Commission request, the staff-provide'd' in our i
l 19 analysis in a paper,. SECY-90-046, ' dated February 20 13th, 1990.
The paper provided an evaluation of..the
,21 plans that could result in -financial stress on 22 regulated utilities.
Most of these plans included 23 targets for capacity factors with no cap ' on poor i
24 performance penalties.
Impacts were calculated for a-i 1
25 few of the indicators used by the financial community NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W.
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and utilitico -in.d:cicien m2 king-cnd,023cc31ng tho l
1 3
2 attractiveness of Anvestments;-
We-lboked'at return-3'.
on" common equity, net cash flow and~ interest coverage 4'
and calculated impacts.
5 (Slide)'.And the next' slide is the first
-l 6
example for_ the impacts' we calculated.
We looked at' i
7 Palisades.
Let me say that the;three examples that 8
we'll-look at in the next three slides all show the.
9 spectrum of-results from our analysis.
Palisades we 10 found to be-a low impact' program.
11 In this case, the _PUC does a' case by case 12 annual review and a special review of the operating 13 history if the capacity factors fall' below 60 14 percent.
15 We looked at performance with no penalties-16 and that was 1988 performance.
We -- looked at 17 penalties with recent capacity factors.
In that case
[
18 we looked at 65 percent.
_That essentially was-the i
19 first half of 1989 that we looked at and'we looked at i
20 historical capacity ' factors which at this facility-l 21 have been running about 40 percent.
i 22 The maximum penalty was a postulated one-23 year shutdown, looking at their plan and the - way i
l 24 their replacement fuel cost disallowances are run if I
25 they were to be shut down for a full-year.
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16-
~1 AD -. you _ can--000, th3y c::uld custein c
2 substantial-penalty ;of about 100 -
well, here we l
show $120 million and maintain an acceptable rate of 3 4 f
4 l return ' on common equity and an acceptable' interest 5
coverage.
Again, based on our analysis,.we felt.that-6 this was a low impact program.-
l 7
(Slide)
In the second examplej we looked _
8 at what we considered a medium or moderate -impact.
9 program.
Here we looked:at Oyster _ Creek and TMI.
10 The' plan that's currently _ imposed here is based.on a
- 11 target capacity factor of 70 percent plus or minus 12 ten percent - for all plants regulated-by _ the ~ PUC.
13 This includes Salem, Hope. Creek, Peach Bottom, oyster 14 Creek and TMI-1.
15
- Again, at recent capacity
- factors, we l
16 looked at the first half of 1989 where Oyster Creek 17 was running about 21 percent capacity factor and TMI-4 l
18 1 had 100 percent.
Historical capacity ~. factors for-19 Oyster Creek were 51 percent in this analysis and.for 20 TMI ' 41 percent.
- Again, for maximum penalty, we 21 looked at a one-year shutdown and looked at the 22 replacement fuel costs as part of that-penalty.
23 Again we saw that a substantial penalty could be 24 imposed.
Here they would be on the order of $140 25 million and it would have significant impacts on NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N W.
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17-1
~ cnamon.' equity.
Interact covercga was l'
roturn en 2:
impacted but " remained '. acceptable and - we saw! a' 40-t 3
percent reduction in net cash flow.
4 (Slide)
The third ' example,.we; considered ; '
5 this to be an example of.a high-impact program where' 6-Nine Mile Point Units 1 and 2 fuel recovery costs are
~
~
7 absorbed-'or passed through tothe consumers based on' i
8 variations-from annual and monthly targets, and. fuel.
9 cost.
Additionally,> the utility must absorb 20-
~
10 percent of the revenues shortfalls if targets for-11 sales'are not met.
Here again, for recent-capacity.
12 factor we looked at the first two quarters of
'89.
13 with Unit 1 at.zero percent and Unit 2Lat'46 percent.
14 For historical capacity factors, we looked at Unitil-I 15 being 56 percent and Unit 2 being 40 percent.
l 16 In this case, a substantial penalty of $220 17 million could be imposed..
What would happen is a 18 marginally acceptable return on common equity and-l l
l 19 interest covered would be ' driven to unacceptable l
20 levels and a 40 percent net cash flow. would also' 21 result.
22 (Slide)
If we went back and tried to 23 summarize or categorize from our paper, which didn't 24 do this but provided essentially the facts, you would 25 see that licensees who would experience a high impact NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVIENUE, N W.
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e 1
if th3 cnxitus penaltico wOro;.irpcOcd includo.NiEgnr3-2 Mohawk, Cleveland Electric ' and - Boston - Edison. -
And-3 licensees who would experience moderate impacts if 4
the maximum penalties were applied included Public l
5 Service Electria.and Gas, Baltimore Gas and Electric' 6
and Jersey Central Power and Light company.
1 7
(Slide)1 In summary, there are cases where4 0
8 financial impact of. PUC programs could be large and'.
9 there. is a ' potential ~ for safety impacts.
- However, l
10 thus far, the staff has not seen.this influence on-11 reactor safety. ' Licensees are obliged to comply with-12 NRC regulations and' license conditionsLregardless.of_
13 the incentive programs that. exist.- Through a variety _.
14 of mechanisms, the staff has and: will-continue-to 15 monitor safety performance.
We believe the' existing 16 programs are sufficient for that objective.
17
.I've outlined here some of the programs-
~
i 18 that we're using.
I've als'o outlined the. fact'that-19 we are continuing our periodic ' update of -PUC l
20 incentive programs-and on' occasion we'have done:more 21 indepth analysis of licensees experiencing financial 22 stress.
23 That concludes the prepared portion of the-24 presentation.
25 MR. TAYLOR:
The only thought that I would' i
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l 19
~ 1' edd.would b3 that tho Otoff dcoa -- b31ng c nccious i
2
.of the. potential. here,-
the staff--and.
I' remain.
'3 concerned.- As an. example,'although not specifically 4
related to the economic performance' criteria, we have 5
in our. regulatory impact survey noted that SALP-6 scores can be misused and misapplied.-
7 It occurs to' me, and there's at~least-one
.i i
8 c a s e',
Boston
- Edison, in' which SALP scores were 9
entered into a PUC action, that it does concern me l
10 that I've at least heard informally of. cases where 11 SALP scores.. may be u s e d. t o.' d e c i d e bonuses within 12 utility plants,,that this type of activity does=not 13 necessarily enhance our concept of keeping the issue 14 like SALP focused on safety performance andLnot use 15
'it for - economic activity, be they bonuses or rate-16 setting or any other way.
It may be a type of policy l-17 statement in which we've contemplated.- and used. the 18 SALP and we mention -that in staff. activities 19 associated with regulatory impact survey.-
This' ' may 20 indeed be an area, if the - staff were able to draft up 21 something, where a
Commission policy' might be i
22 appropriate.
23 That concludes -- Tom, do you have anything 24 to add to that?
25 CHAIRMAN CARR:
-Any questions?
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?
20 1
Ccamicoicnor R3 mick?
L'-
2 ~.
COMMISSIONER REMICK:'
I understand, what.
\\I you're saying...You have.no direct' indication at'thez 3
l 4
moment, but it'seems'to me one of the very difficult'
~
l l
5 things would be able to, determine many plants have. a-l l
6 number of upgrades that they're'either required to=do
-7 or they'd prefer to.do.
Itjustseemslogkcaltome 8
that if you ' have a penalty, and we're talking here-9
$140, $180 million, that that certainly'could impede; 10 the speed with. which you.would. implement-those 11 upgrades'on which you'11'be mandated.
It seems to.me.
i l
l-12 it.would be awfully hard to determine just the exact 13 cause of that delay unless'they specifically tied.it 14 to PUC incentives or lack of. incentives or penalties-15 and so forth.
16 So, it seems to me that there can be 17 effects like that that are awfully-hard perhaps' for 18 us to determine.
But.e could be seeing those w
'i 19 effects right now if we had a way of analyzing them.
20 MR. GILLESPIE:
Yes, we could.
And it goes
, 21 to basically the total amount of funds ava'ilable to 22 the utility, the basic rate. setting itself.
I.will-23 caution that' we used for an example in - this the 24 maximum. penalties.-
In most
- cases, the. maximum 25 penalty doesn't get put in place until there's NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N W
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l 21
.3 1-can2ultttien with'tho PUC. -So,;tha taxinum.penkitiC3L 2
were - not an automatic - function.
- We = didn't have: 'a
~,
3 case, I don't believe, in'the study where the. maximum 4
penalty _was,.in_ fact, imposed.
5 So, the PUCs 'in themselves have shown= some 6
rsstraint,-but we agree that there's an effect.
The-7 effect goes through-a _fi.1ter that gets to the 8
operating _and. maintenance' budget that ~ that plant 9
, manager.has to deal' with.
So,-we agree there's an -
10 effect.
It's understanding -the measure of that 11 effect because most of these utilities, 'and-the 12 analysis shows it, these utilities are much ' ' bigger 13-than a nuclear plant.
14 When we're doing this kind of analysisufor 15 measuring the effect against the total'. utility 16 resources, the net cash flow from the utility and its 17 ability to cope with that' penalty,
'and small' 18 utilities will be impacted ' significantly more _than 19 larger utilities as far as whht might influence their i
20 decisions and what might cause them_to have to delay 21 major fixes and modifications to a plant.
l 22 DOCTOR MURLEY:
Frank, could I add a point?
23 MR. GILLESPIE:
Yes.
24 DOCTOR MURLEY:
It seems to me there's two
?
25 issues here that we're mixing up.
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a 22'
^
Wera you imply' ng, - C mmicciensr, thtt thsy i
1-7' 2
might not have enough money to f implement mandated l
3 i equipment that our regulations --
4 h COMMISSIONER REMICK:
Or' delay it over what' 5
they otherwise might have done.
6 DOCTOR MURLEY:
Yes.
Now, that-- "I'd.like 7
to ask Darrel to--- but my understanding is that most.
i 8
cases: if it's, required by NRC regulations,. it is'
,g I
c 9
allowed to be put in:the rate base.
10 Do you want to comment on'that?
11 MR.
NASH:
- Yes, that.was our general 12 understanding.-
. When we implemented the financial 13 qualifications rule that has been _ in place. since 14 1984, before doing that we did _a survey of state 15 utility commissions and verified'that if a cost w'as 16 necessary for -a safety reason _ that.the utility I
17 commissions looked on that as an obligation t'o cover l
l 18 that cost.
So _ that if they believe -that 'it's l
19 mandated or necessary for safety reasons, then' that 20 cost will be allowed in the rate base.
21 MR.
PARLER:
That certairily is the--
i l
22 excuse me, sir.
23 COMMISSIONER REMICK:
No, go ahead.
24 MR.
PARLER:
foundation on which this i
25 l
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1..
23
_1 qu311ficatien3 rulo, chtnga cGvoral yOOra s.go.. Werdo'-
2-to that'.effect appear _ in_ the statement' of i
3-considerations and indeed.we've applied: that theory 4
in contested _ cases, ~ even recently.when offorts were -
5 made to have the Commission ' revisit ~ the' financial
~
6 qualification issue.-
The presumption is that the
.7 PUCs will ' make enough money: available at - least~ to 8
assure that - the safety requirements arc complied 9
with.
If they-don't, presumably.' -the plant--
10 regulatory action would have to be taken.
3 11 DOCTOR MURLEY:
But these incentives that 12 we're talking _ about in here are based ' on capacity-13 factor performance and they were= generally. meant to 14 exclude any safety requirements that we --
15 COMMISSIONER REMICK:
No, I understand what 16 you're saying on-the true requirements mar. dated, but 17 let's step off a-little bit and. -let's.
say.
i p
18 expectations or encouragement.
Might'~look 'at 19 improving maintenance, improving training,. tremendous 20 investments and so forth, aren't really mandated but 21 they're expected or we indicate that we'd like to see-l-
22 things in those areas.
It seems to me that that 23 could influence the rate that people would be able to 24 do.that.
Am I correct?
25 MR. TAYLOR:
Well, I -- without mentioning, NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE N W (202) N WASHINGTON. D C 20005 -
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.*s..
a w
i 24L 1
cpscific utilitico, I know that. ttlking to.. ' utility -
2-management-of a plant:that was on our problem plant i
l, list' that had many,. many features to fix,= including 3
4 some of the areas that-you~ talked about, that part'of
.l 5
the way that that was achieved was to look across:
6 that utility and go into-rather -large cost control.
'7 efforts just. to support that type' of ' corrective 8
action _and the bottom. word from the utility president
~
9 was. that-the investment in.that plant' was' so 10 important to.the health of the utility.that the rest 11 of the utility, the, distribution, and. fossil plants 12 were engaged -in rather strong cost control measures 13 as they upgraded that problem' plant.
14 We see_that on~ occasion when O&M' costs are 15 increasing at-utilities that-understand: they have 16 training problems and other problems.
One of.the 17 things they note, not that:we keep specific track of 4
18 it, is their O&M costs are higher.
19 COMMISSIONER REMICK:
But am I correct, 20 Jim, you're referring to a problem plant where they 21 had to do something and so it was very obvious - -
22 MR. TAYLOR:
It was pretty clear that they 23 a lot of work to do and a lot of money --
24 COMMISSIONER REMICK:
How about those that 25 maybe aren't a
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25:
1.
onhnnecm:nto and~ might ' do1 cnhtnc003nto if t h 0 y h r.d
.i 2
the proper cash flow and so.- forth?
.This certainly.
3 has to enter into that decision.-
4 MR. TAYLOR:
We had a visit from a utility 5-in the pastifew weeks whose OEM costs L are going up 6
and they.are putting in improvements and - they're -- a 7
small utility.
The reasons.they're doing iti-is 8-looking. at the long-term investment.
They're also 9
looking at the fact.that they're. hopeful for a.-
10-license extension and extend the life of the plant.-
11 So this combination of factors -have, said that the 12 type of work they're doing now is-important.-
13 COMMISSIONER REMICK:
I'm glad to hear that 14 and I certainly am not suggesting by my question-to 15 think that people would not put proper money into 16 safety, but I know at the same time it's one pot' of-17 money and many demands.
l 18 MR. TAYLOR:
Right, there are many demands.
I 19 COMMISSIONER REMICK: -That's right.
l l
20 CHAIRMAN CARR:
Aren't the PUCs by_-law'in a i
21 public utility regulated area, aren't they required
- t 22 to give them a fair rate of return on investment if 23 they're a regulated utility?
l 24 COMMISSIONER ROBERTS:
- Yes, but the 25 argument becomes the rate of return, what's return NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE. N W.
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26-
~
1-cnd cro theco so-callcd things ' dona in tha' nea of 2
safety, are'they justified?. That's~the omission.
l Now, ' the. specific utility you're speaking:
l 3
4 l
4 of, did.they do that with'~ confidence that that-would 5
go into their-rate base?
j.
6 MR. TAYLOR:
You mean the problem-plant?
i
'7 -
COMMISSIONER-ROBERTS:
No,.after that you 8
mentioneda smaller utility.
9 MR. TAYLOR:
No, they felt like.they were 10
' going to get. that coverage 'from-the
'PUC.
for-11 ~
improvements they had in mind.
This utility.was just 12 in in the past few weeks talking.about it.
13 CHAIRMAN CARR:
Well,.they go to court over-14 those all the time.
15 COMMISSIONER ROBERTS:
And ' they - also - add '
l-16 these prudency hearings that last forever and-cost a l
17 lot of. money.
.Sure, your basic -statement is 18 accurate, but people of good will can argue about 19 what goes into the rate base.
20 CHAIRMAN CARR:
Well, I think that's what t
l
,21 he was saying, that-the public utilities commissions-22 so far have not levied the maximum penalties.
~
23 MR.
GILLESPIE:
Maximum penalties.
So 24 there has-been some restraint shown.
They have the 25 l
fair rate of return to consider.
They also have to NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N W.
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275 1
. con'!idar thi obligation thIt-anything that'o.crndat d-2.
by safety has to be.in there.-
l COMMISSIONER ROBERTS:
But again, that's 3 i 4
arguable.-
-5 MR. ' GILLESPIE:
That gets to be arguable.
?
6' Yes, that'sLarguable between the PUC and the L
7:
utility --
8 COMMISSIONER ROBERTS:
Exactly.
when it's above - and'.
t 9
MR.
GILLESPIE:-
)
10 beyond our requirements.
11 CHAIRMAN CARR:
Commissioner-Roberts?
12 COMMISSIONER ROBERTS:
Well,:I don't.have.
13 any questions.
It's disturbing to me that'PUCs would l
s
~
14 use some of. our methods of evaluation for safety purposes and use them for.an economic lever.
But,I 15 16-don't see how we have any control over that at all..
17 CHAIRMAN CARR:
- No, - I think one of the 18 things I'd like to see the utilities do if they're 19 going to do this kind of ' thing is also -. have an F
ll 20 incentive for safety.
Recognize that if the. plant
[l l
21 is proceeding toward-safety,.that also h'as-its value j
l 22 in a grading criteria, but so far I haven't seen any 23 real indication of that.
But if they're going to use 24 the rest of_ our scores, they might as well use that 25 one too.
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28:
I
~*
1 COMMISSIONER'ROBERTSs YO3,,but thut'O.tho-2-
argument that's incumbent upon~.them-to make to their
'l 3
PUC.
You know, just in veryl general terms --
t 4
CHAIRMAN CARR:
We may. have to make. that 5
argument on the safety. side.
6 Commissioner Rogers?
7 COMMISSIONER ROBERTS:
I think you get into l
8 some questions about-what 'our dutie's and r
9 responsibilities are.-
10 CHAIRMAN CARR: 'That's safety --
11 MR. PARLER:
That's right, but that -is. a 12 point that could - be - emphasized- ;in the kind of a 13 policy statement.that I think that Jim referred to.
14 That could be an element in that, emphasizing the 15 good and try to point out as specifically as we can 16 the bad.
Certainly, when there is a clear conflict i
17 between the economic regulators, which we don't have l
18 any jurisdiction over, and the safety regulation in 19 which we have almost exclusive jurisdiction over, 20 then i.
21 that -- when there is a clear conflict, those battles i
22 can.be fought.
I 23 MR.
TAYLOR:
That's why I
raised-the 24 potential for a
policy because this
-is' a
very' l
l difficult area, as you've heard, to put your arms 25 t
I l
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' 29'-
1 caround.-
2 Commissioner Rogers, you made the point by l
3 al. problem, it may be late'in the ' time know there's 3
i 4
the game.to do'a great deal about it.
So, it may be'
~
it's_ difficult.to write a 5
the type of - thing 6
regulation about it, but it may be the. type of thing' 7
a statement of position from' the Commission properly'
'8 worded and. worked on may be ~ a basis - of letting PUCs 9
across the country know the expectations of safety, 10 how difficult it sometimes-11s with.all the elements
.i 11 that work in a plant to provide that, how important.
12 that has to be.
i 13 CHAIRMAN CARR:
Has this come up in your 14 NARUC meetings?
15 COMMISSIONER ROGERS:
I brought it up.
16 CHAIRMAN CARR:
What kind of reception do
..j i
17 you get?
q l
4 18 COMMISSIONER ROGERS:
- Well, people are i
1 19 listening to our concerns.
I wouldn't-say it's been I
20 a dialogue in the sense that it's two way, but I 21 think there's been an interested and-listening to-at-22 least the concerns that I've expressed at the NARUC
{
23 meetings with respect to various kinds of economic-24 incentives as they might affect safety.
5 L
25 Let me say a few words here.
I've been l'
i NEAL R. GROSS i
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[-
30
~
concarntd cbout thic potcntial for ccm3-tin 3.
I'voL 1
l 2
seen PUC people come: through my office' on a fewl a
-3 occasions when I talked to them about some of these 4'
safety impacts of economic. regulation and it sounded 5
to me as if they'd never thought about the safety lj 6
issue at all, never thought about it.
7 COMMISSIONER ROBERTS:
That's not
.. i 8
. encouraging.
b I
9 COMMISSIONER ROGERS: ~
. It was. a new idea., -
.i 10 that there might be a potential for a safety issue.
11
- Now,
.I think there's'more attention. being.
12 paid to this now,.but certainly I'd sayltwo years.ago 13 I was shocked to find this.a new idea in the minds of.
14 some utility. commissioners who talked to me.
15 CHAIRMAN CARR:
Well,-isn't it fair to say.
16 that this is not something that's just particularcto
~
17 the nuclear plants, it's also on their. coal-fired '
- plants, their oil-fired plants and: their ' hydro-l 19 I
plants.
I'm sure they haven't worried - about.the 20 impact of safety on those.
As I understand it, these 21 things are standard across the production. of 22 electricity across the board.
So, it's just'. kind of l
l 23 recently they've applied it to nuclear.
l 24 COMMISSIONER ROGERS:
Yes.
Well, I think.
l l
25 that the question was what are the utility I
l NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHOOE ISLAND AVENUE, N W l
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31 4
1 commiO31ontra thinking cbout with r:Cpect t3 thio 2
sort of thing that I've met with at NARUC and I think i
3 that they are interested in the safety aspects.
I 4
think they are concerned.
I don't know that they 5
have any common way of assessing what might be a i
6 reasonable incentive plan and what might be an 7
unreasonable incentive plan.
l B
My own view is that an incentive plan is 9
not necessarily a bad thing from safety point of view 10 at all.
It depends very much on how it's constructed 11 and where the built-in disincentives for safety are 12 have to be looked at very carefully.
I don't see that we should particularly have a position about 13 i
14 whether a utility that is not delivering what it's i
15 supposed to to its customers is penalized by a PUC. I i
l 16 don't have any concern about that in itself.
It's a 17 i
question of whether there is a formula constructed in i
18 i
some way to implement that, that might possibly P
l produce a safety disincentive.
19 20 So, it's the detailed nature of the plan t
21 that I'm concerned about.
I'm very concerned about, 22 for
- instance, any steps in step-wise penalty 1
23 situations such that operating for one day more will 24 save you a few million dollars and one day less will 25
{
cost you several million dollars,-just like that.
It NEAL R. GROSS i
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32 1
Ccem3 tS me thOt thtt'O O YOry b2d kind of : fCraulo.
f 2
But a smooth transition dcmward, I don't have any 3
problem with at all.
But it's -- the thing that I'm i
4 worried about is when somebody says, "You know, if we 5
ran this plant one more day, we wouldn't be hit with 6
that penalty."
I don't really think that the 7
somebody that I'm concerned about is the CEO.
My i
8 guess is the CEO would say, "That's tough.
We're i
9 just going to have to bite it."
i 10 I'm worried about the impact inside the 11 organization -of somebody who really thinks that 12 they're doing the best thing for the company by l
patching something up for one more day or something 13 i
14 and maybe doesn't even tell anybody about it.
They 15 may be even not in a managerial position.
I don't 16 know.
But I
think that we know that it's the 17 l
behavior of people' in these plants that makes them 18 l
safe or unsafe when all is said and done and it's the 19 l
whole group, it's everybody that's involved.
20 It's certainly something -- we talk about 21 safety culture, we talk about a commitment to safety
'[
22 throughout the organization and everything that's 23 implied by that and anything that creates any 24 incentive for anyone in the organization to make a 25 decision of some sort that's negative to safety ought NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE. N W (202) 234 4433 WASHINGTON' D C 20005 (K2) 232 66D0
33 I
to b3 of c:nc rn to u3.
I'D c necrned with cny. kind-2 of a. formula that' allows for that without consciously 3
making that decision, just because nobody ' thought 4
about it.
5 So, I
think that one has to be very 6
vigilant on these recipes.
They're not all automatic 7
disincentives to safety by any means and I don't 8
oppose them.
Just the very nature of them, what 9
they're trying to accomplish, I don't have a position 10 on.
I think that they may be a very good idea in 11 some ways.
l 12 What I'm very concerned about are a
13 misconstructed formula of some sort that somehow 14 of*ers the potential for someone in the organization.
15 to decide that if we ran this thing for another day 16 or another week we'd be home free on something.
And 17 that decision may not even be something that is made 18 Ij at a high level.
You know, "We'll do the boss a i:
19 favor.
We won't tell him about it."
20 So, we all know that organizations have l
l 21 those problems within.
Every organization has that l
22 kind of a problem within.
"We'll do the boss a l
23 favor.
We won't tell him he's got a problem," and 24
-that's where the real problems begin.
That's what we l
25 tell our licensees, "Tell us about your problem if 4
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N W (202) 234-4433 WASHINGTON.D C 20005 (202) 232. % 00-i
33 l
1 to be of cinc rn to u3.
I'D c:nocrn:d with cny kind 2
of a formula that allows for that without consciously 3
making that decision, just because nobody thought 1
4 about it.
5 So, I
think that one has to be very 6
vigilant on these recipes.
They're not all automatic
}
7 disincentives to ' safety by any means and I don't-8 oppose them.
Just the very nature of them, what 9
they're trying to accomplish, I don't have a position
[
10 on.
I think that they may be a very good idea in 1
11 some ways.
12 What I'm very concerned about are a
l 13 misconstructed formula of some sort that somehow f
14 offers the potential for someone in the organization l
15 to decide that if we ran this thing for another day or another week we'd be home free on something.
And 16 I
17 that decision may not even be something that is made q
18 ll at a high level.
You ' know, "We'll do the boss a l
19 favor.
We won't tell him about it."
20 So, we all know that organizations have 21 those problems within.
Every organization has that 22 kind of a problem. within.
"We'll do the boss a 23 favor.
We won't tell him he's got a problem," and 24 that's where the real problems begin.
That's what we 25 tell our licensees, "Tell us about your problem if I
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34 1
yCu'v3 g:t Cn3.
Don't try to fix it Cnd th n toll us 2
that you failed to fix it."
So, it's subtleties of 3
this sort that I think are very important and that 4
gives me considerable concern.
5 I think the Arkansas formula starts to come I
6 pretty close to what I would say an example of a very 7
bad formula.
The disincentive here is to a short 8
outage.
There should be, in my view, no.disincentive 9
to a short outage whatsoever.
If there's something 10 that needs to be fixed, shut that plant down and fix it and then get it back up again.
Don't create a 11 l
12 disincentive up to 30 days.
Look at the slopes of l
13 those curves, you know.
The longer than 30 day 14 j
outage, well, the penalty falls off slowly, but it's 15 still falling very sharply as you go into that 30 day 16 outage.
I'd say that would be an even worse formula i
l 1
17 if it just took a step down and went flat there at 18 i!
that point.
It apparently avoids that disaster, but
[
19 j
I'd say that's an example of a bad formula, in my i
20 l
view, because there should be no disincentive to shut i
21 down, correct something and get back up ' again and 22 l
plants can do it.
They do it all the time.
i 23 So, I think it's the detailed nature of the l
24 formula that's being applied and that's why I'm l
1 if we appear to be taking a 25 concerned when we NEAL R. GROSS COURT REPORTERS AND TRANSCR$ERS 1323 RHODE ISLAND AVENUE, N W (202) 234 4 33 WASHINGTON, O C 20005 (202) 232 6600
35 1
po3iticn thSt th:00 thing] cra co for ck;y cnd th:y 2
don't seem to be posing a problem.
I think the 3
potential for a problem is there.
Every -- I didn't 4
think every state that's got a nuclear plant has a 5
program of -- capacity factor program, do they, or do 6
they'l I
t 7
MR. GILLESPIE:
That's correct, there are 8
some that don't.
t 9
COMMISSIONER ROGERS:
Some that don't.
I 10 think that it's very important to look at all of them l
11 and I know that you are doing that.
But I'd like to 12 head off or turn around bad formulas and get people 13 to take a look at them again and see whether -- they 14 might be able to accomplish exactly the same thing in 15 terms of protecting the customer and the customer's
)
16 interest without sacrificing the customer's safety 17 e
inadvertently, h
18 i
So, I think that this, in my view, needs 19 j
some more study.
I'm concerned about what appears to 20 me to be coming out as an NRC position that we don't 21 really see a problem, and I'm concerned about the 22 potential there very much.
23 I'd like to come back to this, on your 24 slide 2, where you are -- you say you're maintaining 25 contact with PUCs and affected utilities.
How do you NEAL R. GROSS COURT REPORTERS ANDTRANSCRIBERS 1323 RHODE ISLAND AVENUE, N W (202) 234-4433 WASHINGTON. D C 20005 (202) 232-6600
m m
36 1
d3 th2t?
H:w cro y;u carrying th;t cut, th;t j
l 2
contact?
1 3
MR.
GILLESPIE:
With the PUCs and the 4
utilities?
5 COMMISSIONER ROGERS:
With PUCs, yes.
6 MR. GILLESPIE:
Call them up.
7 COMMISSIONER ROGtRS:
Pardon?
8 MR. GILLESPIE:
Call them up.
9 COMMISSIONER ROGERS:
How often do you do i
10 that?
11 MR. GILLESPIEt We call on the inspected 12 ones --
i 13 MR. NASH:
It's not a routine thing.
We 14 try to maintain contact with most of them less than 15 once a year, but then it's the formal surveys where we get down every one year or 18 months, something 16 17 y
like that.
ll 18 But when we first became aware of these 19 performance incentives, I guess in the early '80s, we 20 were much more concerned about how they were 21 developing, because they were developing on a more 22 rapid pace.
And we've felt, I guess, in the past 23 years since then that there weren't a lot of changes 24 l
in them and we didn't feel like it was quite so 25 necessary to keep a, you know, real time contact on NEAL R. GROSS COURT REPORTERS ANDTRANSORIBERS 1323 RHODE ISLAND AVENUE, N W.
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37 1
th000 C;ttOro.
2 COMMISSIONER ROGERS:
Well, I wonder if, 3
for instance, it would be possible for us to at least 4
think about what might be benign aspects of an 5
incentive plan and what might be troublesome aspects 6
of an incentive plan and communicate that to the 7
PUCs, rather than communicate to them that so far we 8
don't see a
problem.
I don't know.
I'm 9
uncomfortable here, because I do think that we're --
10 CHAIRMAN CARN; A policy statement may be 11 in order.
3 12 COMMISSIONER ROGERS:
Yes.
I think that we 13 l
know that it's --
i 14 l
CHAIRMAN CARR:
It would be better if we f
I i
15 communicate it than the staff communicates it.
i 16 l
COMMISSIONER ROGERS:
Yes.
But I think we I
al may need some guidance there as to what we see as 17 I!
18 i;
potential pitfalls in one of these and why.
19 l
DOCTOR MURLEY:
I might add that we have, 20 Commissioner, twice that I know of communicated with 21 PUCs in this area.
Chairman Zech did in the New York i
22 State issue where they winted to use SALPs for i
23 bonuses and penalties and things.
And then I don't 24 remember the exact case, but my predecessor, Harold i
25 Denton, wrote a letter to California, as I recall --
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l 38 1
MR. NASH YCo, th t'c c rrOct.
YOo. -
2 DOCTOR MURLEY:
-- where he expressed-our 3
3 views.
4 I
think we are concerned about the 5
potential, and we have in the past said so.
6 CHAIRMAN CARR:
Well, I don't think'we're 7
in a position to want you-to say you see a problem if 8
you don't see a problem, and I think you've assured 9
me that you're aware of the potential for the problem 10 if you've been looking at it ever since 1983.
11 MR. NASH:
If I could add something, we i
12 didn't concentrate so much in this NUREG that we did i
13 l
most recently on this matter of looking at the i
14 various kinds of performance incentives, but if you-15
- the one before that, NUREG-1256, we did look more p:
l 16 into this and indicated the kinds of performance-l 17 incentives which we consider to be good, so to speak, 18 and which were bad.
And essentially what we'said at g
E that time was those programs that force the utility 19 i
to look at the long-run so that they're looking to 20 l
21 making investments so that their plant will operate-t
~
in the long run are to be preferred but those 22 well 23 plans that make them look at, you know, next hour or 24 l
next week, can we keep this thing going another day 25 or so, those are the ones that we think should be NEAL R. GROSS COURT REPORTERS ANDTRANSCRIDERS 1323 RHODE ISLAND AVENUE, N W (202) 234 4433 WASHINGTON, D C 20005 (202) 232 6600 m
e e
=
y e+-'r a-
-e
39 1'
Gvoid:d.
2 Now there were some talks given by NRC
{
3 officials in the mid-1980s expressing-our viewpoints 4
on these things and we did not go back to specific l
5 utilities and say, "This we don't like."
But we did, i
6 in public forums, give our evaluations of what-we--
7 the kind programs we - thought were preferable and 8
those that weren't.
But we didn't, as'I say,'go to 9
specific PUCs and express those concerns.
10 COMMISSIONER POGERS:
But it's the PUCs who 11 set these things --
12 MR. NASH:
Yes.
l 13 i
COMMISSIONER ROGERS:
-- not the utilities, l
14 s o --
15 CHAIRMAN CARR Well, in some cases it's--
16 there is a difference.
I have zero sympathy with l
17 j
Pilgrim and Diablo Canyon.
They made an agreement, h
18 and it's their agreement.
They sat down and agreed 19 with the PUCs, this is the way we're going to run it.
20 So if they made a bad agreement --
21 COMMISSIONER ROBERTS:
It wasn't an i
22 agreement.
It was their proposal, wasn't it?
23 CHAIRMAN CARR:
Well, in one case it was, l
but it's a -- you know.
I mean, if they're going-to 24 25 sign a bad contract, I can't hold -- all I can do is
+
NEAL R. GROSS COURT REPORTERS ANDTRANSCRIBERS 1323 RHODE ISLAND AVENUE. N W.
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40
~
1 h0ld th31r f00t to th3 cofGty fira.
Cut th3t'O i
2 different than the PUC that levies something.
l 3
COMMISSIONER ROGERS:
That's right.
And l
4 I'm talking about the PUCs now.
I'm not talking 1
5 about -- I think those other instances, I think we l
6 should go af ter them.
But particularly the Rancho 7
Seco action was a particularly nefarious one that we i
i 8
all were very dismayed about when that was simply put 5
9 in place.
But that's past history.
10 I think that it would be useful to try to 11 convey maybe what it is that we are concerned about i
12 and what we're not concerned about with' respect to 13 capacity factory type of incentives.
There are other l
14 issues, such as the use of SALPs and then other state 15 initiatives of various kinds, and it seems to me we
{
16
.ought to sort those out, not try to mull them all 17 q
together.
They are different and they have different i
18 l
impacts in different directions, and I would say that u
19 we shouldn't just try to mix those all up in terms of i
20 state incentives.
There's a lot going on out there.
21 and I don't think we should miz them all up into one 22 muddle, but try to look at each of them separately 23 and try and analyze them.
24
{
And I know that you are focusing here on L
}
the, essentially, capacity factor type of programs, 25 I
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, - _ ~
e..-
t 41 1
cnd th ro I w;uld ccy -- I wculd think thtt wo cught 2
to be able to make some reasonable policy -- simple' 3
policy statements about these programs that could be 4
a useful guide.
5 CHAIRMAN CARR Commissioner Curtiss?
i 6
COMMISSIONER CURTISS:
Let me just pursue 7
two or three lines of questions to make sure I 8
understand what you're telling us, and I will cover 9
the BECO arrangement and the
- SALPs, of
- course, 10 because it's addressed in the SECY paper.
J 11 Let me ask just a mechanical question.
How 12 is it that we know ahead of time with an' arrangement 13 that involves two parties, the licensee and the PUC, 14 about the existence of that -arrangement or the 15 approach that's being talked about.
You've flagged a 16 couple that we've written ahead of time where we,-in j
17
[
the case of the letter to Ann Meade, identified the n
18
~
concerns with the New York arrangement, and one other 19 l
I guess that we knew about.
The BECO arrangement 20 i
seemed to me to be one that we found out after the 21 fact about.
t 22 MR. TAYLOR:
That's right.
i 23 COMMISSIONER CURTISS:
It popped up.
And 24 it was clear that considerable work went into that.
l 25 I want to come back to the question of whether we l
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1 h;va id:ntificd c:mpon:nt3, oith;r in tho incentiva 4
2 arrangement or in the SALP area, that would render an 3
agreement facially troublesome, regardless of how 4
it's implemented, and the factors, Frank, that you 5
addressed in terms of the context of implementation.
6 But just a mechanical question.-
The staff 7
in, I guess, one of earlier SECY papers -- see if I i
back in
'85, indicater'. that it' was 8
can find it 9
working on a tracking, mechanism that would permit you 10 to identify these arrangements when they're - first 11 proposed.
Is there -- do we have that capability 12 today, when we contact the PUCs?
Do we learn about
}
13 it after the fact and then adjust our thinking 14 l
accordingly, or do we know ahead of time what's going 15 on?
?
16 MR.
NASH:
As I
indicated, we were i
17 concerned at that time about the rapid changes in
[
these.
As a matter of fact, we had a tracking plan 18 19 i
in place.
It was an on-line computer system, and it i
i i
20 i
got to be very expensive and we decided that it I
I 21 I
really wasn't useful to continue that.
And~so we don't have an on-line tracking systava in mind or in 22 l
l 23 l
place now.
l l
24 COMMISSIONER CURTISS:
How do we find out, 25 just through the grapevine of the utilities?
NEAL R. GROSS COURT REPORTERS ANDTRANSCRIBERS 1323 RHODE ISLAND AVENUE, N W.
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43' i
1 DOCTOR MURLEY8 W0ll, I'll giv3 en3 Cxrmplo 2
on the New York case.
And then this gets back to--
3 I think it's probably a good idea.
The staff hosted 4
- meetings, regional meetings with public utility 5
commission people.
It started in Region III.
Jim 6
Kepler did it, I
- think, in about 1984 or
'85, 7
something like that.
8 And I hosted one up in King' of Prussia in j
9 early 1987, and Commissioner Asselstine came up at 10 the time.
Peter Bradford came from New York, and the
'll commissioner from New York who was proposing that.
12 And we had a
big open discussion, an-all-day t
13 discussion.
INPO came up.
And the woman from New-14
- York, who was proposing it, made it a
public
{
15 proposal, and we had a long discussion about it.
I 16 was quite vocal about the fact I didn't think it was i
a good idea.
17 l
18 But there were several similar - kinds of t
19 proposals being discussed'at meetings like that,.and I
20 they were being thrown out as possible candidates.
21 So in cases like that where -- I guess I would
--'I I
22 thought it' was a good session, a good meeting.
I 23 would encourage similar kinds of sessions with public 24 utility commission people.
H 25 i
Sometimes the utility themselves Will tell NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N W (202) 234-4433 WASHINGTON, D C. 20005 -
r/02) 2324600
r 44 1
u3 chstd of tico tha kind cf thing thOt ' thry'ra i
2 negotiating, the broad
- terms, not the details 3
necessarily, but in broad. terms.
.I
- think, for 4
example, I was briefed on the Diablo Canyon incentive 5
generally.
And they frequently run things by us to 4
6 be sure that we don't have any fundamental ' safety 7
problems with the approach.
So that's how we find-8 out generally.
9 COMMISSIONER CURTISS:
Okay.
10 DOCTOR MURLEY:
But we don't know all of 11 them, by a long shot.
12 COMMISSIONER CURTISS:
It does seem to me 13 that the first step in the direction of transmitting 14 or conveying any thoughts that we might have -- and I 15 want to get into that in a minute on these 16 agreements is to ensure that we are informed early i
+
17 enough so that if we have concerns of a particular u
n l-18 nature we can communicate those for the participants
~
i l
at a point where the outcome can be influenced, if we 19 20 do have a concern.
I look at the --
21 Go ahead, Tom.
22 COMMISSIONER ROBERTS:
That raises a
23 question.
What obligation, if any, do PUCs have to-i 1
24 consult with us?
25 COMMISSIONER CURTISS:
Well, I don't think NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE. N W (202)234 4 33 WASHINGTON, D C 20005 -
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45
~
1-th0y do.
2 COMMISSIONER ROBERTS:
I think that's the 3
whole point.
4 CHAIRMAN CARR:
Counselor?
5 MR. PARLER:
We would direct our need for 6
information to the utilities.
You don't need any 7
expensive on-line system or worry about the problem 8
if you deal with the utilities and tell them you need I
9 certain kinds of information such as this.
10 COMMISSIONER CURTISS:
It seems to me the i
11 most desirable --
~
12 CHAIRMAN CARR:
There are two different l
kinds of things we're talking about.
The' agreements,
{
13 14 I
it's all right.
We could get the utilities to tell-I i
l us about agreements they might be entering into.
15 l
16 l
That's one case.
But the case where the PUC just l
17 says this is what we're going to allow and what we're g
ll 18 h
not going to allow, that's not an agreement, I don't h
19 think.
20 COMMISSIONER CURTISS:
Where that's the i
l case with Nine Mile, I guess, with the construction 21 1
22
- cap, and that's one of the ones that they've i
23 discussed here.
j 24 l
What I'm, I guess, encouraging is that, 25 rather than some sort of legal mechanism that. wo NEAL R. GROSS COURT REPORTERS ANDTRANSCRIBERS 1323 RHODE ISLAND AVENUE. N W.
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46 1
would h;va to.raatrt to, it d:ca Crem t3 se th;t thic.
2 is an area where fruitful cooperation -- the kind of t -
i 3
thing that Tom talked etout in terms of extending 4
ourselves, both with NARUC and the individual PUCs, 5
get to know them and they can get to know us -- it 6
does strike me that there's some need for at least 7
additional informal communication so that we can r
8 expand the grapevine, if you
- will, in a
more 9
effective way.
I'm not sure what we do if we just 10 find that that's insufficient to communicate 'the r
11 l
information.
12 But it does seem to me, as I look at the 13 discussion here over the last four or five years and 14 the problems or the concerns that have been 15 identified in the cases that we've talked about here 16 that are problematic, Arkansas and Diablo and BECO, 17 what the staff I think is proposing is to monitor i
18 those situations to ensure that the implementation of 19 the agreement doesn't lead to safety problems.
i 20
{
Let me ask you, not on those three in i
21 particular, but are there any agreements that have 22 been entered into that, if we had known ahead of 23 time, we would httve objected to?
For example, the 24 concerns that have been-identified of ~
generic a
25 nature on the use of SALPs lead me to conclude that NEAL R. GROSS COUAT REPORTERS ANDTRANSCRIBERS 1323 RHODE ISLAND AVENUE, N W.
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th3 ctoff h33 thro 3 c:nc3rna with th3 u23 Cf SALP 2
scores in these arrangements.
i d
3 MR. TAYLOR:
I think I would have taken 4
exception to the BECO agreement.
They use t
5 performance indicators, which are in direct 6
relationship to safety performance and could be a 4
7 basis for somebody making an incorrect ' decision, 8
which you alluded to.
We were not consulted.
9 COMMISSIONER CURTISS:
If there are cases 10 like that it does seem to me that the discussion 11 of the SALP issue is maybe an example of that, where 12 we've got generic concerns, but we've got a specific l
agreement that uses that approach that's already on-13 14 l
the books.
We learned about it after the ink was i
15 dry.
I If there are arrangements like
- that, 16 j!
i perhaps they lend themselves to discussion in some i
17 h
18 kind of communication, whether it's a formal-policy i
19 statement or the informal interaction that we've 20 talked about here, to convey the three points that 21 are discussed in the NUREG or the SECY paper in more 22 detail to the individual commissions, so that they at 23 least know ahead of' time what our concerns are in 24 those areas.
4 25 I
I'm not
- sure, in looking at the other NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N W (202) 234 4433 WASHINGTON. D C 20005 (202) 232 6600
48 1
cgrocaento, th0t I c2n id:ntify cpecific iccu;3 th0t, j
2 outside of the implementation of the agreement, I i
3 would say raise objections. just on the face of the j
4 agreement before it's even implemented, outside of 5
the context of the kinds of concerns that Frank 6
discussed.
7 But I can say that, in looking back, I r
8 think-I hear the staff saying that there have-been 9
arrangements that after the fact have been 10 troublesome for us.
The Nine Mile construction cap 11 arrangement is one.
The BECO arrangement in the use 12 of SALPs raises a different aspect of that.
The 13 Rancho Seco referendum or the 50 percent target, 14 those kinds of things it seems to me are useful to 15 identify an early stage, and maybe with a greater i
degree of informal interaction with the PUCs somehow 16 i
17 communicate rather than respond in an ad hoc way as 18 these crop up, and in some cases when they've already 19 been signed.
I 20 I guess that's all I have.
21 COMMISSIONER REMICK:
I certainly agree 22 with what commissioner Rogers has said today.
I 23 share the concern that the SECY paper gives the 24 j
signal that we don't see the potential for a problem, 25 i
and I personally feel there is a potential for a i
NEAL R. GROSS COURT REPORTL#t$ AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE. N W (202) 234-4433 WASHINGTON. D C 20005 (M2) 2324600
49 l
1 probica.
I und rct:nd ycu'ra c ying y:u don't - cee 2
the evidence of a problem currently, but it gives you 3
the impression I think that the potential is not 4
there.
5 I also personally feel that it is a misuse 6
of SALP and performance indicators.
And the idea of 7
a policy statement to try to lay some of these out, I 8
think, would be worthy of a try, at least.
9 CHAIRMAN CARR:
Okay.
10 Well, I'd like to thank the staff for the 11 informative briefing.
The potential financial impact 12 of thie kind of economic incentive regulation appears 4
13 so great in some cases that it becomes extremely l!
14
'i important for the staff to continue monitoring the i
1 15 i
licensees for those effects.
16 I urge the staff to remain cognizant of new b:
17 agreements of this
- kind, changes to existing h
18 agreements, and significant penalties-which may have 19 resulted from such agreements.
We must be ready _to 20 exercise whatever options may be necessary to ensure
!l that l
economic incentive programs do not adversely 21 22 affect public health and safety.
23 Any of my fellow Commissioners have any l
other comments?
24 25 9
Thanks.
O NEAL R. GROSS I
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C3 ctOnd Cdjcurned.
2 (Whereupon,
.at 3:00 p.m.,
the above--
3 entitled matter was adjourned.)
4 5-6 7
8 i
9 10 11 12 13 14 15 16 l
l 17' li l
- l 18 ll i
19 l
20 f
.21 l
l i:
-i NEAL R. GROSS COURT REPORTERS ANDTRANSCRIBERS 1323 RHODE ISLAND AVENUE. N W.
(202) 234 4433 WASHINGTON. O C. M -
(202) 232 4 600
CERTIFICATE OF TRANSCRIBER This is to certify that the attached events of a m: sting of the United States Nuclear Regulatory Comunission entitled!
TITLE OF MEETING BRI'ETING ON ECONOMIC INCENTIVE REGULATION OF NUCLEAR POWER PLANTS PLACE OF MEETINGt ROCKVILLE, MARYLAND DATE OF MEETING APRIL'3, 1990 were transcribed'by me. I further certify that said transcription is accurate and complete, to the best of my ability, and that the transcript is & true and accurate record of the foregoing events.
A Al W/'
_. y Reporter's name!
Peter Lynch 1
l l
l l
l l
l' l
NEAL Ri GROS $
covet neeoareas Awo reAwsenteens 1923 kHoDt ISLAw0 AYtNUI. W.W.
(202) 234-4433 WASHIN0rON. D.C. 2000$-
' (202) 232 6600
79
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e ECONOM I C I NCENT I VERREGULMT I ON DE NOCLEAR POWER PLANTS!
~
J
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j
' APRIL 3,-
-1 9 9.O.
4 FRANK GILLESPIE:
l-MARTY VIRGILIO t --
K
Contact:
Darrel Nash Phone 492-1256 i
i t
c 8
PL-
.E i_ -
SLIDE 1 t
i f
I
=
Environment
=
INTERMEDIATE OUTCOMES i
)
4 c&
Context
=
l Efficiency i
)
i Compliance Safety Organizational
=
Governance Quality Indicators-Innovation Organizational l
Design L
Emergent l
Processes i
FRAMEWORK FOR LINKING ORGANIZATIONAL FACTORS WITH SAFETY l
l t
SLIDE II TIE FINANCIAL SITUATION T UTILITIES-IS AFFECTED BY fRNY FACTORS STAFF MAINTAINS CONTACT WITH RE'S Af0 AFFECTED UTILITIES IN ORER TO CBTAIN IFDATED IffMMTION AIO TO CONSIDER FOTENTIAL SAFETY EFFECTS OF llE INCEhTIVES a
b 1
t 4
i i
.v~.
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SLIDE III TYPES T INCENTIVE PROGRAMS A)
INCE?ITIVES BASED ON CONSTRUCTION DISALLOWANCES
-D)
IPEENTIVES BASED ON VARIOUS PEASURES T FLEl. EFFICIENCY 4
C)
IfEE161VES BASED ON SALP - Oft.Y OE CASE D)
INCENTIVES BASED ON SALES T ELECIRICITY - ONLY OfE CASE 1
E)
PEKARDS OR PEM LTIES GIVEN FOR CAPACITY FACTORS FALLING OlITSIDE A CERTAIN ACCEPTABLE ZOE (DEADEAPD)
F)
A SlESET T E WITH AN INDEIDMINATE liYl. T PEMLTY APE)
TIEREFORE POTENTIALLY LARGE G)
RD'ARDS OR THALTIES FOR CAPACITY FACTORS WITil SHARP ClIT0FF CRITERIA 1
1
. ~
., _... _ _.~.
4 I
CONCEPTUAL PERFORMANCE INCENTIVE PROGRAMS 2
BASED ON CAPACITY FACTORS SLIDE IV i
t DEADBAND IS TYPICALLY 60-80% CAPACITY FACTOR ~
E PUC REVIEW TYPICALLY IS TRIGGERED AT ABOUT 8
40% CAPACITY FACTOR r
i 4
NO REWARD DEADBAND
--~
OR-PENALTY A
' PENALTY-TO BE tDETERMINED BY
/
'PUC REVIEW
/
i
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\\
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0 CAPACITY FACTOR (%)
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,,, ~,
-=.- -. - _
i i
PERFORMANCE INCENTIVE 1
PROGRAM
$ MILLION FOR ARKANSAS POWER AND LIGHT CO.
SLIDE V 50 A
i s
om 2
w x
~
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OR PENALTY O
e.
I e-I 30-DAY e
e z
- T OUTAGE w
OUTAGE LONGER l
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SLIDE VI DIABLO CANYON 1 AND 2
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1 SLIDE VII FOR PILGRIM 1.
INCREASES IN PERFORMANE
+
4 ADJUSTENT FACTOR FOR 1990, 1991 8-1992
~
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$0.5X10 REWARD'
- 2..SALP-BASED:
OR FDIALTY FOR EA010.1 POINT lllAT AVERAGE StiP.
SCORE FALLS OUTSIDE 1.6 TO 1.8 3; RR FIVE PERFORMANCE
- INDICATORS: FORPULAS FOR
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ELIDE IX t
EXAFFLE 1 PLANT:
PALISADES i
1 l'
OktER/LICEIEEE:
CONSTERS POLER C&FANY PENALTY WITH -
PENALTY AT.
FifWEIAL NO-ECENT CAPACITY HISTORICAL.
PAXirlf1 IFPACT PENALLY-FACTOR
- CAPACITY FACTOR PENALTY
- E NAllY ($ MILLION).
0 0
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'16.4
-14.9 11.8 EQUITY C)
IfGEKST COVERAGE 2.39X 2.39X 2.27X' 2.03X PET CASH FLOW 1027.0 8.27.0 -
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1-SLIDE X f
EXAFPLE 2 PLANTS:
OYSTER CEEKs TNI 1 4
OWNER / LICENSEE:
JERSEY CENTRAL PCMER a LIGIT C&PANY PENALTY WITH PENALTY AT FINANCIAL NO RECENT CAPACITY llISTORICAL MAXilUI IPPACT PENALTY FACTOR CAPACITY FACTOR PENALTY PENALTY ($ MILLION) 0
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0 140 RETURN ON CGt0N l14.3 6.7.
-14.3 4.6-EOUITY G) 4 i
.4.34X 2.09X 4.34
. 2.24X-INTEREST COVERA E
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NIE MILE POINT 1 & 2
- OWER/ LICENSEE:
' NIAGARA PEAR POLER CORFORATION l
r PENALLY WITH PENALTY AT FINANCIAL NO
.ECENT CAPACITY llISTORICAL MAXI M IPPALT PENALTY FACTOR CAPACITY FACTOR PENALTY l_
PENALTY ($ MILLION) 0 1110 11 0 -
220 1
EIURN ON C0rP0N
. 8. 11 2.7 6.8
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SLIDE XII LICENSEES M0 WOUW EMHIENCE HIGI IPPACT IF 17,XIlWI s
FE ALTIES APPLIED.
NIAGARA IDIAWK POWER CORP.
CLEVELAfD ELECTRIC ILLtF11NATING CD.
TOLED0 EDISON CO.
BOSTON EDISON CO.
LICENSEES WHO WOULD EXPERIENCE P00ERATE IPPACT IF MAXIPtM.
!BIALTIES APPLIED k
PUBLIC SERVICE. ELECTRIC & GAS CO.-
BALTIf0RE GAS & ELECTRIC CO.
JERSEY CENTRAL' POWER APO LIGIT.CO.
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SLIDE XIII 4
PRINCIPAL NAfG T ASSURING SA PUWT OPERATIGS RGULATIONS i
INSPECTION PROGRAM KRFORMANCE If0lCATORS SYSTD% TIC ANALYSIS OF LICENSEE PERFORWICE '(SALP)
IMNAGEMNT REVIEWS OiER REVIEWS Af0 ITNITORING KRIODIC UPDATE OF PUC
- INCENTIVE PROGRAMS If0EPTH ANALYSIS OF LICENSEES EXPERIENCING SEVERE FIfMNCIAL STRESS m
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POLICY ISSUE February 13, 1990 SECY-90-046 g
g:
The Comissioners From:
James M. Taylor Executive Director for Operations
Subject:
ECONOMIC INCENTIVE REGULATION OF NllCLEAR POWER PLANTS
Purpose:
To report to the Commission on the analysis of economic per-formance incentive plans, in response to Item b. of Staff Requirements Memorandum M8900106 (SRM) based on the Consnission briefing of June 1, 1989.
(
Sumary:
In response to the Commission's request, the staff updated the survey of State perforraance incentive programs and evaluated the potential effects. Although the staff has done no detailed t
safety impact of performance incentive programs, the staff believes these programs have little effect.
The NRC can manage any potential safety concerns that may be posed by implementing performance incentive programs by current regulatory practices and policies and by monitoring, with existing resources, those reactors for which the potential to incur large penalties exists.
A few of the performonce incentives oroarams could have signifi-cant financial impacts on licensees if large penalties allowed by these programs are actually imposed. The 'L ff believes any reouction in safety priority that may resuit. from reduced funds for operating and maintaining plants would occur gradually over time as licensees respond to the imposition of penalties.
The staff will periodically update the report to reflect changes in programs and imposition of significant penalties or rewards.
The staff has identified a number of options available to the Commission for dealing with potential impacts of incentive programs on reactor safety.
However, based on our assessment of the low potential impact on safety of the existing programs, no Commission action is recommended at this time.
Backaround:
A number of State regulatory commissions have established economic performance incentive programs relating to electric power plants.
Some programs have existed for a number of years, CONTACT:
NOTE:
TO BE MADE PUBLICLI Darrel A. Nash, NRR AVAILABLE IN 10 WORKING a97-1256 DAYS FROM THE DATE OF THIS PAPER
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whereas others have been substantially modified or are newly established.. NRC monitors-the provisions of these' incentive-programs.to ensure that they do not' create incentives for.
reactor licensees to change: operating or maintenance practices i
in such a way that safety-is diminished. The most comon in-centive program is one in which rewards,.in terms of additional revenue allowances, are given'if certain capacity factor goals:
are-exceeded, or penalties, in terms of lower revenue allowances,.
are imposed if these capacity factor-goals are not achieved.-
The staff informed the. Comission in SECY-85-260 of its.
i efforts to (1) track nuclear power plant performance incentives base of these incentives,:(3) y' commissions, (2) develop a data established by State regulator evaluate possible. safety impacts of incentive programs,-and (4)' provide periodic reports of its I
findings. The NRC distributed a-few informal. reports on State-performance incentive programs and,.in December 1987,-issued 9
Vol. 1 of NUREG-1256 " Incentive Regulation of Nuclear Power Plants by State Public Utility Comissions." On April 28, 1988, the Executive Director for Operations sent a memorandum.to the Chairman describing the incentive: programs'and discussing those characteristics of the programs that the staff considered to' q
have a positive or negative' impact on public. health and safety.
j The Commission briefly discussed performance incentives at the Commission mee_ ting on June 1, 1989; for the periodic briefing b
on operating reactors and fuel facilities.
As a result, the.
Commission requested that.the staff provide the following:
i
- 1. an update of NUREG-1256
- 2. a description of types of incentive plans
- 3. an assessment of potential financial-impacts, including any health. and safety concerns
- 4. a discussion of options for Commission. response i
l to such arrangements 1
L This paper responds to that request.
Discussion:
The staff completed the latest update of plant-by.-plant incentive programs that are in place or are being considered.
L This update, NUREG/CR-5509, " Incentive Regulation of Nuclear'.
Power Plants-by State Public Utility Commissions," is enclosed (Enclosure 1).
It covers the first two items of the SRf1 request.
t We found that performance incentives established by State 3
utility regulatory comissions are applicable to the construc-tion or operation of 73 nuclear power reactors owned by 27 utilities in 18 states.
NUREG/CR 5509-describes how specific-nuclear power plant performance incentive programs operate.and S
h I
C i
The Commissioners-3
)
provides background information for use in evaluating the pos-sible safety implications'of.the programs. We did not comprehensively survey information about-the imposition of-'
penalties by previous implementation of these incentive ~ programs.
The staff believes that the majority of-these programs would have an insignificant impact-on the safe operation of-' reactors because of_ the small scale of the rewards or penalties in relation,
_to the financial size of the utility. The staff, therefore, restricted further analysis to those reactors that were subject to programs: that could result in a significant impact on a utility,'s financial status.
I Even for these cases, the staff considers the influence of the incentive plans on reactor safety to be small. We consider-the influence to be small because all utilities owning or-
. operating nuclear power plants are required by the Atomic Energy-Act, to comply with'NRC regulations and requirements regardless of whether incentive' programs exist.
Nevertheless, economic-regulation and, specifically, performance _ incentive programs have the potential to indirectly ' influence a licensee's approach to reactor safety. The-impact of the programs on safety -
is not measurable. Clearly, to attemptoto measure their impact would be an attempt to distinguish __an influence in-decisionmaking
?
whose point of departure is the level of integrity of. utility executives in carrying out their responsibilities _ to _ comply with NRC requirements.
NRC regulations,.together with license ~
requirements; specify an ecceptable sefety design end acceptable-operational conditions.
Furthermore, NRC, through its licensing and inspection activities, verifies that licensees are adhering to safe practices.
~
From the review performed for NUREG/CR-5509, the staff found that programs for 20 recctors wholly or partly owned by 10 licensees have a potentially significant financial impact (see Enclosure 2).
The majority of these programs h~ ave provisions for open-ended t
penalties, so that if reactor capacity factors' fall belowla i
certain level, the State commission will " review the situation."
t For these programs, the staff performed a detailed financial impact analysis of the_ imposition of maximum penalties possible and the penalties that could have been imposed based-on.the operating history of the reactors. We' assumed the maximum penalty to be a total disallowance of' replacement power; fuel-costs if the reactor were shut down for a year because annuci financial impact data are more meaningful, d
4
'?
The Comissioners 4
-Three additional programs of particular concern are discussed-
-4 in more detail in Enclosure 2.
First, for Arkansas Nuclear One,-
there is a sharp " cutoff" on the capacity factor measure (no deadband).
This " cutoff".could provide an incentive for the-utility to " stretch" operation to achieve the precise target capacity factor.
The second case -is Diablo. Canyon,- where the program is structured.
so that the utility must generate; profits strictly based on-electricity sales.. This program was just recentlyl instituted
?
and the possible affect on plant operation is thus uncertain..
l Lastly, the Hassachusetts Department of Public Utilities recently:
adopted a new kind of incentive program for. Pilgrim. This program ties economic rewards and penalties to systematic assessment of licensee performance (SALP) scores and five.per-formance indicators in addition to the capacity. factor. These-t erformance inoicators are (1) automatic. scrams while critical p(2) safety system failures, and (3) safety system actuations, _
all of which are obtained from NRC and two indicators available from INPO, (1) the collective radiation exposure compared to all boiling water reactors, and (2) maintenance backlog greater than i
two months old. The rewards and penalties are' clearly bounded and are at such a level that the licensee, Boston Edison, probably will not have a great financial incentive' to' reduce attention to safety to achieve target performance. levels. The staff concern is that; concentrating on SALP and. performance-Indicators directs utility attention to manipulating the scores themselves rather than to the underlying factors.
The staff ~does not expect an immediate impact on the safe operation of the affected reactors from any of these programs.
Any reduction in safety priority would occur gradually in response-to financial problems.
NRC's inspection ~ program is sufficient to detect degradation in operations before significcnt I
safety problems develop.
Finally, in response to the SRM, the staff has considered o)tions available to-the Commission if performance incentives pose lealth' and safety concerns.
Two general kinds of options (Enclosure 3) are av'ailable and.each can be used if a situation warrants.
The first option includes direct communications with the State regulatory commission and the licensee, enhanced inspecticns, assertion of Federal preemption ofl nuclear safety regulation, and plant shutdowns.
The second option available to.NRC is to change programs that NRC controls to eliminate their misuse, such as the SALP program.
, ~ -
v
sf The' Commissioners-5'
==
Conclusions:==
The influence of-State incentive performance' programs on safe operation of nuclear reactors is considered to be small.
The staff recognizes that-performance incentives change from time to time. The staff will remain abreast of-these changes' by contacts with State regulatory commissions and by formally updating.the report of these programs every 12:to 18 months.
While options are available to the Commission for responding to incentive programs, the; staff believes no action beyond ~ updating of the report is'necessary at this time.
Coordination: This paper-has been reviewed by the Office of the General Counsel and it has' no: legal objection to-it.
/
XV i
J.esM.T[ ore t
xecutive Director for Operations
Enclosures:
i 1.
NUREG/CR-5509 - Commissioners SECY & OGC only.-
2.
Summaryof_PossibleImpactsofEconomic Performance Incentive Programs on Safety Concerns 3.
Options Available.to the Commission where Performance Incentive Programs Pose Potential Health and Safety _ Concerns.
DISTRIBUTION:
Conunissioners OGC OIG LSS GPA l
REGIOlDiL OFFICES 4
ASLAP SECY l
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PNL-7192 BHARC-700/89/057 L
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Incentive Regulation of L
Nuclear Power Plants by L
State Puiic Utility Commissions l
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Manusenpt Completed: December 1989
'Date Published: December 1989 Prepared by R. L. Martin, Battelle Human Affaus Research Centers P. Hendnckson, Pacific Northwest Laboratory J. Olson, Battelle Human Affairs Research Centers Pactfic Nonhwest Laboratory Richland, WA 99352 Battelle Human Affairs Research Centers Seattie WA 98105 Prepared for Program Management, Policy Development, and Analysis Stati l
Office of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission Washington, DC 20555 NRC FIN L1236 e
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4 ENCLOSURE 2.
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SUMMARY
OF POSSIDLE FINANCIAL IMPACTS OF ECONOMIC PERFORMANCE IllCENTIVE
[
PROGRAMS WHICH HAVE A POTENTIAL FOR SAFETY CONCERNS A staff review of the recent survey of performance incentive plans imposed on reactor licensees by State regulatory commissions found that the provisions of some plans were structured or contained uncertainties such that financial stress on licensees and perhaps adverse impact on the safe operation of plants were possible. The licensees subject to these plans were selected for more in-depth review of possible adverse impacts on their plants. The following data describe those licensee-owners of nuclear power plants that appear to be subject to significant economic penalties as a result of performance incentive plans.
Most of-the plans that are cause for concern provide' for the facility tc attain
~
a certain capacity factor.
If performance falls below this level over'a speci-fied time, usually a year, then the Commission disallows cost recovery--usually some or all of the additional cost of replacement energy fuel, flany plans specify maximum penalties, even for very poor plant performance.
However, for most of the plans evaluated below, there is no maximum penalty specifically provided. Therefore, this evaluation assumes a maximum possible penalty of'l full year of additional replacement fuel costs if the reactor does not operate at all.
The impact is calculated on the basis of the percentage ownership of each licensee at three assumed capacity factors: (1) current performance (January to July of 1989), (2) cumulative performance, for the operating life of the reactor through July 1989, and (3) zero capacity factor, assuming the reactor does not operate at all for the year.
Hypothtical financial impacts are shown for each capacity factor assumption and the resulting penalty. The impacts are measured by. typical financial indicators used by the utilities and investors for corporate decisions and for messing the current ir1 vestment attractiveness of. the utility. Utilities have a strong incentive for each of these measures to be in a favorable rance. These measures are (1) the return on common equity, (2) net cash flow, ard (5) interest coverage.
Return on common equity refers to the amount of annual earnings available to-common stockholders as a percentage of the common net. worth of the company. Net cash flow refers to the cash generated from operations after cash expenses and dividends are paid.
Non-cash expenses, such as depreciation, contribute to cash l
flow.
Interest coverage is interest on long-term debt, plus income before i
payment of taxes, divided by interest on long-term debt. An interest coverage l
of 2.0 is generally considered marginally acceptable in the electric utility industry for the issuance of bonds for new construction.
In the tables belew, an interest coverage'of 2.0 would be designated 2.0x (in keeping with common l
practice).
l In addition to these plans that are based on cost disallowances, three other plans are included below because of particular features. The plen for Arkansas Nuclear One causes concern because there is no flexibility in rewards or i
penalties based on the capccity factor. At a precise value (different'for each plant), the program can change from reward to penalty. This provisior provides-du incentive to concentrate on precise capacity factor performance rather than totally on safety matters during operation.
2 Described next is the incentive plan for Pilgrim.
This plan provides rewards and per.alties for capacity factor, outside a deadband, as well as for performance on SALP scores and performance indicators. As with the Arkansas plan, there is no flexibility in rewards or penalties related to capacity factor.
The plan does not seem to provide any particular incentive that would lead to unsafe operation.
The NRC should, however, monitor how this plan is implemented to determine if it is causing unwarranted attention to the SALP scores and performance indicators, tieus diverting attention from the safety performance of the facility.
Finally, the incentive plan for Diablo Canyon calls for the utility to earn its profits strictly as a function of its generation of electricity.
It is quite uncertain hcw strongly this objective will pressure the licensee to keep the plant operating despite safety considerations that would indicate a change in operations. An increased monitoring of this facility seems warranted to view how the incentive plan is being applied.
In the presentation below, where the plan ' specifies " industry target" or a similar basis, a capacity factor of 60 percent is assumed, unless specified otherwise. Costs of replacement fuel are estimates for the period of the spring quarter of 1990 to the winter quarter of 1990-91 taken from NUREG/CR-4012,
" Replacement Energy Costs for Nuclear Electricity-Generating Units in. the United States: 1987-1991." Financial calculations are based on 1988 data from ficody's Utility Manual, the most recent generally available.
Data in the "No Penalty"'
columns below show actual 1988 company performance.
Succeeding columns show-what the performance would have been if the specified penalties had been imposed.-
Numerical values in parentheses indicate negative values.
In the following tables, "1989cf" refers to the capacity factor for the period January to July 1989. The term " cum.cf" refers to the plant capacity factor for the operating period of tne reactor through July 1989.
LICENSEES LIKELY TO BE SUDJECT TO SIGNIFICANT PENALTIES Plant--Palisades Owner - Consumers Power Co.
State Reaulatory Commission - flichigan Public Service Commission Provisions - If the capacity factor falls below 60 percent, the facility is subject to a staff review. The Palisades capacity factor has been below 60 percent in most years. A capacity factor below the target can result in disellowance of replacement power costs.
Capacity Facter for 1989 (January-July) - 65%
Cumulative Capacity factor - 40%
p
1 3
impact of Pcnalties on Censumers Power if Unit Operates at Indicated Capacity Factors Penalty Penalty I
No at at MAXIMUf1 Penalty 19P,9ef cum.cf PENALTY.
- Penalty ($ million) 0 0
40 120
' Return on Common Equity (%)
16.4 16.4 14.9 11.8 Interest' Coverage 2.39x 2.39x 2.27x 2.03x Net Cash Flow ($ million) 827.0 827.0 799.7 74a.8 Plant - Nine !!ile Point, Units 1 and 2 Owners subject to Incentives
- Niagara Mohawk Power Corp., Unit 1 1001-Niagara Mohawk Power Corp., Unit 2 41%
State Regulatory Commission - New York Public Service Commission Provisions - First, fuel cost recovery depends on a sliding scale of any month's variation in the perforranca. compared to the targeted fuel cost.. This ecst recovery is limited to $15 million to the utility. Second, the' utility must absorb 20 percent of revenue shortfall if the targeted sales for resale are not-attained.
Further, the utility is subject to pruaency proceedings-for extended.
outages. Annual replacement power cost is about $350 million for both units.
Capacity Factor for 1939 (January-July) - Unit 1 zero Unit 2 46%
Cumulative Capacity Factor - Unit 1 56%
Unit 2 40%
9 i
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Impact of Penalties on Niagara Mohawk if Units Operate at Indicated Capacity
' Factors
\\
Penalty Penalty No at at F%XIMUM Penalty 1989cf' cum.cf PENALTY Penalty ($ million) 0 140 40 220 Return on Common Equity (%)
8.4 2.7 6.8
(.006)'
Interest Coverage 2.02x 1.49x 1.86x
.95x 1
Net Cash Flow (S million) 291.0 182.3 259.9 118.2 Comment
- Incentive program is said to be limited; however, replacement fuel costs were disallowed for a 6-month period in 1989 and recovery of operation and maintenance costs for 1988 and 1989 were denied..
..........................n_.................................................
Plants - Davis Besse, Perry, and Beaver Valley 2 Owners Subject to Incentive - Davis Besse, CEI 51.3%
Toledo ~ Edison Co.
48.7%~
Perry, CEI 31.0%
Tolede Edison Co.
20.05 Beaver Valley 2, CEI 24.0%
Toledo Edison'Co.
-20.0%
CEI is Cleveland Electric Illuminating Co.
State Regulatory Commission
. Ohio Public Utilities Commission Provisions - If average availability factor does not meet industry average availability, replacement power costs will be disallowed. An industry average of 60 percent capacity factor is assumed.
(This program will take -effect in.
1991.)
Capacity Factors for 1989 (January-July) - Davis Besse 90%
Perry 21%
Beaver Valley 2 88%
Cumulative Capacity Factors Davis Besse 41%
Perry 52%
Beaver Valley 2 71%
5-Impact of Penalties on CEI if All Units Operate at Indicated Capacity Factors Penalty Penalty ~
No at at MAXIMUM Penalty 1989cf
-cum.cf PENALTY Penalty ($ million) 0 30 20 100 ReturnonCommonEquity(%)
3.0 2.2 2.4 0.2 Interest Coverage 1.84x 1.71x 1.76x 1.40x Net Cash Flow ($ million)
(13.8)
(28.8)
(23.80)
(64.0)'
Impact of Penalties on Toledo Edison if All Units Operate at Indicated Capacity Factors Penalty Penalty No at at MAXIMUM ll 1989cf cum.'cf PENALTY Penalty Penalty ($ million) 0 20 20-50 Return on Common Equity (%)
(15.0)
(17.3)
(17.3)
(19.2) t Interest Coverage (J.34)x (0.47)x (0.47)x (0.67)x-Net Cash Finw ($ million) ll23. 5 )
(105.0)
(105.0)
(122.2)-
3 3 3 3 E E3 3 3 3 3 3 3 3E 3 3 3 3 3 3 3 3 3 33 3 3 3 3 3.15 33 3 3 3 3 3 E 33 3 3 3 3 3 33 3 3 3 3 3 3 33 3 3 E3E3 3 3 33 3 3 3 3 3 33 3 3 33 Plants -
Salem Units 1 and 2
~
Hope Creek Peach Bottom Units 2 and 3 Oyster Creek TMI Owners Subject to Incentives Salem,PublicServiceElectricandGasCo.(PSE&G) 42.5%
Hope Creek, PSE&G' 95 %
Peach Bottom, PSE&G 42.5%
Oyster Creek, Jersey Central Power & Light Co. (JC) 100 %
TMI,(JC) 25 %
II Toledo Edison experienced financial losses in 1988, unrelated to penalties-from the performance incentive program.
L L
's 6
State Regulatory Commission - New Jersey Board of Public Utilities Provisions - The Commission will disallow replacement power costs. Disallowances will be greater percentages for lower capacity factors.
For capacity factors under 40 percent, a special review of the circumstances will be n:ade.
Capacity Factor for 1989 (January-July) -
Salem Unit 1 48%
Salem Unit 2.
79%
Peach Bottom Unit 2, 11%
Peach Bottom Unit 3, zero Hope Creek 87%
Oyster Creek 21%
Till 102%
Cumulative Capacity Factor Salem Unit 1 55%
Salem Unit 2, 53%
Peach Botton Unit 2, 48%
Peach Bottom Unit 3, 50%
Hope Creek 79%
Oyster Creek 51%
[410]
Impact of Penalties on PSE&G if Units Operate at Indicated Capacity Factors Penalty Penalty No at at MAXIMUM Penalty 1989cf cum.cf PEllALTY Penalty ($ million) 0 140 10 470-Return en Common Ecuity (%)
13.8 11.8 13.6 4.0 i
Interest Coverage 3.37x 2.45x 3.34x 1.78x-liet Cash Flow (! aillion) 483.1 377.4 477.5 123.3
7 Impact of Penalties on Jersey Central if Units Operate at Indicated Capacity Factors Penalty Penalty _
No at at fMXIMUM
_ Penalty 1989cf cum.cf PENAL TY Penalty ($ million) 0 110 0
140 Return en Common Equity (%)
14.3 6.7 14.3-4.6 Interest Coverage 4.34x 2.69x 4.34x 2.24x liet Cash Flow (! million) 160.8 88.6 160.8 68.8~
Connent Penalties depend on outcome of reviews. This provision makes sizable penalties possible.
Plant - Calvert Cliffs Owner - Baltimore Gas and Electric (BG&E)
State Regulatory Commission - flaryland Public Service Commission Provisions - On the basis of subjective evaluation of the company's perfornance in implementing cost and maintenance measures, the Commission can deny recovery of replacement energy. costs. Maximum penalties are unspecified in the program.
Capacity Tactor for 1989 (January-July) - Unit 1317 Unit 2 34%
Cumulative Capacity Factor Unit 1 70%
Unit 2 76%
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Impact of Penalties on BG&E if Units Operate at Indicated Capacity Tactors Penalty Penalty Mc at at HAXIMUM Penalty 1989cf cum.cf PENALTY l
Penalty ($ million) 0 130 0
280 keturn on Conmon Equity (%)
14.5 8.8 14.5 2.1 Interest Covera 9e 3.66x' 2.70x 3.66x 1.60x-
-l Net Cash Flow ($ million) 289-5 180.5 289.5 54.5'
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1 6
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OTHER POTENTIAL PROBLEMS Plant - Pilgrim Owner -
Boston Edison Co.
State Regulatory Commission - Massachusetts Department of Public Utilities Provisions.- Penalties and rewards are based on capccity factor,.SALP scores, and five performance-indicator targets.
Capacity Factor for 1989 - 10%
Cumulative Capacity Facter 46%'
s Impact of Missing Capacity Factor Deadband and Maximum Penalty on Doston Edison Penalty for Missing Deadband by.
.liAX1 HUM No Penalty 5 Percentage Points PENALTY l-Per.alty ($ millien) 0 5'
64 Return on Common Equity (%)
9.5
-9.0 2.4 Interest Coverage 2.37x 2.31x 1.53x-Het Cash Flow ($ nillion)'
118.4 114.6 66.6-l Comment - Plan appears to bound economic penalties. ' Concern involves L
l relating incentives to safety indicator targets.
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10-l PlantL-Arkansas Nuclear One Units 1 and 2 Owner - Arkansas Power and Light Co.
State Regulatory Commission - Arkansas' Public Service Commission-Provisions -: Sharp cutoff of _~ capacity factor measure; no deadband. 'For Unit.1,
~
capacity Tactor is 72.923 percent and for Unit 2 it is 71.55' percent.-. Fort i
outages other than refueling,-penalty is 90 percent of. replacement fuel costs for-first 30 days of each year and 10 percent thereafter.
Capacity Factor for 1989 (January-July) - Unit'l
~39%-
Unit 2.
'76%
Cumulative Capacity Factor -
Unit 1 57%-
Unit 2 64%
Highest Possible Penalty - $30 million Impact of Missing Capicity Factor Target and Maximum Penalty on Arkansas ~ Power and Light Penalty for111ssing _
Ho Target by 5.PercentageJ NAXIMUM Penalty Points-PENALTY' I
Penalty ($ million) 0 9
30 l
l Return on Common Equity (1) 10.7 10.0
' 8.2 t
Interest Coverage 2.29x
'2.21x 2.04x Net Cash Flow ($ million) 221.6 195.8 213.9 i
Comment - The concern is not about the size of the. penalty but the lack-of a.
deacband, thus providing additional incentive to stretch time-of operation to?
achieve target capacity factor.
~
11 Plant - Dfablo Canyon Units.1 and 2 a
1 Owner - Pacific Gas and Electric Co.
State Regulatory Comission ' California Public Utility Commission:
Provisions - Utility must generate profits strictly on_ electricity sales..
A Capacity Factor for 1989 (January-July)
. Unit 1 55%
Unit 2 63%
i Cumulative Capacity Factor Unit 1-69%-
Unit 2'
'67%
Highest Possible Penalty - Unknown t
Comment 'There is a large unknown factor regarding how the profit provisions.
may affect incentives for safe operation.
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OPTIONS AVAILABLE TO THE COMillSSION WHERE PERFORMANCE INCENTIVE PROGRAMS POSE o
POTENTIAL HEALTH AND SAFETY CONCERNS The staff believes that the possible impact of the existing performance incen-tive programs on safety is low and that any safety concern can be effectively monitored through existing NRC programs. Therefore, we recommend no action at iLhis time.
If safety concerns should develop, either from implementing existing programs or new or modified programs, a number of options are available to the Comission. The particular circumstances would dictate which option would be appropriate. The available options and their appropriate uses fo11cw. Most of available options include (1)previously to deal with regulatory concerns.
these options have been used The communication with State regulatory comissions, (2) expression of NRC concerns through speeches, distribution of 11UREG/CR-5509 (Enclosure 1), etc., (3) issuance of a Comission Policy Statement, (4) letters to licensees reminding them of their regulatory obligations) (5) enhanced inspections at affected facilities, (6) plant shutdowns, (7 investigction of whether any Federal oreemption issues exist (8) elimination of numerical SALPratings,and(9)eliminationoftheSALP. program.
Except for the SALP issues, a discussion of each of these options follows.
A separate Commission Paper on the SALP program is being prepared.
LETTERS TO OR O! RECT PERSONAL PERSUASION WITH STATE REGULATORY COMMISSIONS State regulatory commissions operate under State laws, independent of Federal and, in particular, NRC oversight.
Each agency has its own mandates. Except for Federal preemption of nuclear safety regulation, covered separately below, NRC has no control over policies adopted by these commissions. Nevertheless, State commissions do at times adopt policies or programs, the incentive program being one example, where nuclear regulatory concerns arise.
A letter or personal persuasion mey.be useful as.an initial step to urge reconsideration of provisions of incentive plans that the NRC finds may raise a safety concern or may interfere with the performance of NRC programs.
This was the approach taken in 1987 when the Chairman sent a letter to the New York State Public Utilities Commission urging that they not adopt a plan osing SALP scores and rewards for individual employees for good performance.
This approach shuuld be taken caly after specific safety concerns have been identified and solutions developed. Such letters should deal specifically with the regulatory or the safety concern and the suggested NRC solution, for example, modify or delete the provisions causing concern.
[UBLIC121tl00FNRCCONCERNS NPC can publicize concerns in a number of ways; two possibilities are public speeches and distribution of documents such as NUREG/CR-5509 to the State regulatory commissions.
There have been a number of speeches by staff and Commissioners since the ir.ception of State incentive programs in the early 1980's. This approach is more effective before plans are adopted so that NRC concernsarefakenintoaccountanddifferencesavoided. The recent adoption of the flassachusetts plan was a case in which there was bpparently no regard fur the earlier concerns communicated by NRC tc. the State of New York. These speeches and NUTsEG-1256, Vol.1, were available to the Massachusetts Department of Public Utilities staff and to the negotietors who developed the plan.
e 2
!$$UANCE OF A POLICY STATEMENT l
The Comission could issue a policy statement that reaffirmed the primary responsibilities of licensees to operate reactors safely, regardless of pressures or incentives of any kind from other regulatory agencies. A policy statement could be worded as f.0110ws.
"The Comission's policy is that safety must be the highest priority consideration in the operation of nuclear power plants.
While we ao not believe there need be an inherent conflict between economics and safety, it is possible that poorly constructed performance incentives could adversely affect safety if they were allowed to cause undue pressure on utility management or plant employees to place financial goals or job security ahead of safety considerations.
In a situation where it is judged that performance incentives are so poorly forinulated that they could adversely affect safety, the Commission will take whatever action it believes necessary to ensure that the plant is optrated safely."
LETTERS TO LICENSEES HRR can at any time send letters to licensees reminding them of their obligation to fulfill all the regulatory requirements and that requirements of State regulatory comissions, such as found in performance incentive plans, do not relieve them of any NRC requirements or comitments.
Such letters most likely would be used after an incentive plan was in place and the NRC had reason to believe that the application of an incentive plan could pressure a licensee to operate the reactor in an unsafe manner. Similar actions have been taken on a number of occasions, not because of incentive plan concerns but for other issues.
For example, in a case in which the State regulatory comission had impneed tevera financial enntiitinns on the licensee such that it appeared that capabilities for continued safe operation were strained, the staff of NRR requested and received a comitment in writing from the licensee that the current financial situation will not impact the safe operation of the reactor.
(Letter from W. J. Cahill, Culf States Utilities Company to Harold R. Denten, July 29, 1986.)
E,NHANCED INSPECTIONS Enhanced inspections could be initiated at any time; however, they most likely would be used if HRC determineo that communications to the licensee as described above had not relieved NRC's concerns.
The inspections would be used to determine whether the licensee was continuing to operate the plant safely and whether any enforcement actions should be taken, up to and including ordering plant shutdowns.
ORDER PLANT SHUTDOWN The NRC has the ultimate authority to order a reactor te be shut down, if it i
concludes that continued operation is unsafe.
This drastic action has beer used sparingly, and wnuld most likely not be used to resolve a performance incentive i
0 3
plan concern. Even though NRC cannot direct the actions of State conoissions, it can order a plant to be shut down if it a spears there would be a danger to the public health and safety by the way in w11ch a plan was being implemented.
This option probably would be used only after confrontation with the State and perhaps the licensee when none of the other options had been successful in resolving the issue.
FEDERAL PREEMPTION Safety regulation of nuclear plant operation is preempted by the Federel Government under the Atomic Energ Act.
If a regulation exists purely to regulate economic issues, Federal preemption does not apply. Where it appears to NRC that a performance incentive plan tends to usurp safety regulations, NRC can first urge the State to change ifs plan to delete the problem provisions, as specified by the first option oiscussed above.
If this step does not satisfactorily resolve the issue, then legal proceedings can be instituted to force the State to retract that part of the plan in which Federci preemption is at issue.
a 5
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1
e DELEGATION OF THE COMMISSION OF THE EUROPEAN COMMUNITIES O
EURATOM SUPPLY AGENCY Washington, D.C.,
- April, 6,
1990 Mr John M. ROONEY
' ' /J fnDJ 5'O C Director of politico-Military ActinftyAffairs
// C h M b secur Office of International Security Affairs US DEPARTMENT OF ENERGY DCS / DF02. h Q Forrestal Building - Room 4B014
\\
1000 Independence Ave.,
S.W.
J. Becker, OGC Washincton, D.C.
20585 G, Sanstow, OROO B. Siaut, MM Subiect:
XSNM02520
- application
- COG-E-1 introduced by Edlow International Co. on April 3,
1990 for Bugey-3 power. reactor
Dear Mr Rooney,
We certify that the terms and conditions of the Additional Agreemment for Cooperation, dated July 25, 1960, as amended, will i
apply to the material mentioned in the subject application, namely:
- 13,065 kgs U, in UF6, enriched to 3.30 % max.
Further, we certify that Fragema, Lyon/ France, as intermediate consignee and Electricito de France, 01980- Loyettes/ France, as ultimate consignee, are authorized by Euratom to receive and possess this material pursuant to the aforementioned Agreement for Cooperation.
The above material will be used as fuel in Bugey-3 power reactor.
r e
Yours sincerely, own93MS 11HI mWI 180dX3 u
(
cc.: Mr Robin DeLaBarre 41 DEPARTMENT OF STATEEL LW LL &W 06, Mrs Betty Wright - US NRC C,:,a,u,.s,..
,.. o...... m Mb 0 IlUCUliE SUiYiY Mr R.H.
Fisk Edlow Intern. Co.
2100 M Street NW Sutte 707 Washington DC 20037/ telephone: (202) 862-9500 Teh 89539 EURCoM WSH (Domestic) 64215 EURCoM UW Ontemationan
I DELEGATION OF THE COMMISSION OF THE EUROPEAN COMMUNITISS / DF02 o
J. Becker. OGC EURATOM SUPPLY AGENCY G. Sanslow, OROO B. Stout, MM Washington, D.C.,
- April, 6,
1990
)( SrJ nwos~m Mr John M. ROONEY Acting Director of Politico-Military
//004'#82 Security Affairs Office of International Security Affairs US DEPARTMENT OF ENERGY Forrestal Building - Room 4B014 1000 Independence Ave.,
S.W.
Washincton.
D.C.
20585 Subiect:
XSNM02521
- application # COG-E-2 introduved by Edlow International Co. on April 3, 1990 for Fessenheim-2 power reactor
Dear Mr Rooney,
We certify that the terms and conditions of the Additional Agreemment for Cooperation, dated July 25, 1960, as amended, will apply to the material mentioned in the subject application, namely:
- 33,065 kgs U, in UF6, enriched to 3.30 % max.
Further, we certify that Fragema, Lyon/ France, as intermediate consignee and Electricito de France, 68740 Fessenheim/ France, as ultimate consignee, are authorized by Euratom to receive and possess this material pursuant to the aforementioned Agreement for Cooperation.
The above material will be used as fuel in Fessenheim-2 power reactor.
Yours sincerely, MV0033VS 11NI
/
' OdWI 18CdX3 ec.: Mr Robin DeLaBar DEPARTMENT OF ST N lI U M CHRISTitJ:E TLliiGT)
Mrs Betty Wright - US NRC.S.fi IJUCLEAR SUPPLY d
Mr R.H. Fisk 2100 M Street NW Sulte 707 Washington DC 20037/ telephone: (202) 962-9500 Telex: 89539 EURCoM WSH (Domestic) 64215 EURCoM UW (Intomational)
'}
TR At45.MITTED FROM S
04.02.90 12:02 P.02 e
i DELEGATION OF THE COMMi$$lON OF THE EUROPE.AN COMMUNITIES o
EURA10M SVPPL.Y AGE.NCY Washington, D.C.,
November 29, 1989 X;5 U n1Ollc 4 T !
US DEPARTMENT OF ENERGY
/'
office of International security Affairs DOS / DF02 dt Attn.: Mrs Nataly Martin J. Becker, OGC \\h Forrestal Building - Room 4B044 1000 Independence Ave., s.W.
G. Scnslow. OROO B. Stout, MM washinat.en.
D.C.
205&5 subiect: Application for an export licence introduced by General Electric Company on October 6, 1989.
i Ref.:
XSNM01645 - amendment 03
Dear Mrs Martin,
We acknowledge receipt of the copy you sent us of the subject application fm an export license.
Following our inquiry with Brussels regarding assurances from the Supply Agency for the above transaction, we were informed that since this license covers material to be sent directly from the US to Spain, deliveries should take place under the US/ Spain bilateral agreement. Consequently, the authorization letter to DOE should emanate from the Spanish Embassy in Washington D.C. as was the case for amendment 2.
Thus in order to accelerate the procedure, we are-sending to the Spanish Embassy (attn.
Mrs Mercedes Ray) copy of this letter as well as copy of General Electric's letter dated October 26, 1989 to NRC together with enclosures.
L Yours sincerely, t
A CHRl5TIMIE FUNG 0lj NUCLEAR SUPPLY F100 M Street NW Sutte 707 WesNaston DC 20037/ telephone (302) es24600 Teest. 00630 EURCOM W9H (Domeet c) 64216 EURCOM UW (Intemationel)
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The Public Document Room l
CATE:
////6 / 90 l
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FROM:
SECY Correspondence & Records Branch g
i Attached are copies of a Comission meeting transcript and related meeting document (s).
They are being forwarded for entry on the Daily Accession t.tst and placement in the Public Document Room. No other distribution is requested or g_
required.
I Meeting
Title:
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~ Meeting Date:
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Copies i
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- 2. A OW
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CLR Branch files the original transcript, with attachments, without SECY i
papers.
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