ML20058A936

Staff Requirements Memo Re SECY-90-288 on Policy Statement Re Economic Performance Incentive Regulation.Chairman Carr Believes Statement Not Necessary at Time But Approved Statement for Publication for Public Comment

ML20058A936
Person / Time
Issue date:	10/04/1990
From:	Chilk S NRC OFFICE OF THE SECRETARY (SECY)
To:	Taylor J NRC OFFICE OF THE EXECUTIVE DIRECTOR FOR OPERATIONS (EDO)
References
REF-10CFR9.7 NUDOCS 9010290313
Download: ML20058A936 (14)

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TRANSMITTAL TO:

Y Document Control Desk, Pl-24 ADVANCE COPi TO:

Public Document Room *

/0//9,/90 DATE:

SECY,OperationsBrant[f.[.

FROM:

Attached are copies of SECY papers and related documents.

They are being forwarded for entry on the Daily Accession List and placement in the Public Document Room.

No other distribution is requested or required.

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NUCLE AR R EGU L ATORY COMMISSIONS....................,

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October 4, 1990 (a e l og'cfL'"5

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..ee MEMORANDUM FOR:

James M. Taylor Executive Director for Ope ations FROM:

Samuel J. Chilk, Secret h

SUIL7ECT:

SECY-90-288 - POLICY STATl[1!ENT ON ECONOMIC PERFORMANCE INCENTIVE REGUM TION AND ASSOCIATED MONITORING ACTIVITIES The Commission (with all Commissioners agreeing) has approved publication of the proposed Policy Statement for public comment in the Federal Reaister.

The attached editorial changes should be entered prior to publication.

(EDO)

(SECY Suspensen 11/16/90)

Chairman Carr believes this policy statement is not necessary at this time, but has approved its publiention for public comment.

He intends to reserve judgment on the final policy statement until public comments are received and evaluated and a final recommendation is forwarded to the Commission.

Attachments:

As stated cct Chairman Carr Commissioner Rogers Commissioner Curtiss Commissioner Remick OGC GPA SECY NOTE:

THIS SRM, SECY-90-288 AND THE VOTE SHEET OF COMMISSIONER CURTISS WILL BE MADE PUBLICLY AVAIIABLE 10 WORKING DAYS-FROM THE DATE OF THIS SRM 4

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.l Commission Draf t Policy Statenient on the Possible Safety Impacts of Economic Performance Incentives AGEllCY:

Nuclear Regulatory Commission f

ACTION: Draft policy statement SlWMARY: This statement presents the policy of the Nuclear P,egulatory Commission (hRC) with respect to the possible safety impacts of economic performance incentive programs established by State commissions regulating electric utilities. The policy statement (1) contains a discussion of the potential

' impact of the policies cod actions of State regulatory bodies, emphasizing that such actions can have either a positive or negative impact on public health and safety; (2) reflects the Comnitsion's concern that certain forms of economic

.performence incentive regulatico have the potential for adversely affecting nuclear plant operation anc' public heelth and safety;. (3) specifically identi-fies those-methods or approaches that are of particular concern (e.g. Use of sharp thresholds, measurement of nerformance over very short time intervals,

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lack of." null rone," and ir. appropriate reliance on SALP scores); (4) indicates that the NRC will cer,tinue-.to, monitor the application of. economic. performance

-incentives and. performance criteria to nuclear power plant operations; and s

(5) urges.'licens'ees and State, regulatory commissions to apprise the NRC'of h'9

' economic perfornance incentive progrens that are being' considered for appli-s catio'n' to NRC licen' sees.-

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y O DATESi The comment per'od expires %5~ days af ter publication in the fhderAlRecijter.lcommentsreceived'afterthistimewillbeconsideredifit

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' POLICY STATEMENT:

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1 is practice *> 1( do so, but assurance of consideration cannot be given except for comments received on or before this cate.

ADDRESSES: Mail written comments to the Secretary, U.S. Nuclear Regulatory Commission, Washington, D.C. 20555, Attention: Docketing and Service Branch,

A Deliver commer.ts to One White Flint Nortt,11555 Rockville Pike, Rockville, liaryland between 7:30 a.m. and 4:15 p.m. Federal workdays. Comments may also U20 L be del hered to the f1RC Public Document Room, p H J Street NW, Washington, D.C.,

between 7:45 a.m. and 4: 15 p.m.

Copies of comments received may be examined at the NRC Public Docunent Room.

FOR FU M R lilf0Rf1AT!0H 00f. TACT: Martin J. Virgilio, Chief, Policy Development -

and Technical Support Branch, Office of Nuclear Reactor Regulation, U.S. Nuclear

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Regulatory Commission, W6shington, D.C. 20555, Telephone: (301)492-1254 SUPPLEl:EfiTARY N ORMATION:-

l-Intrbduction:- After reviewing the information on economic performance in'entive c

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. programs put in place by State rtgblatory commissions that regulate the economic

' returns of util'ities operating nuclear power plants, the CommissionLhas. decided li; L,

that it would be appropriate' tc ' set forth its views on.the possible safety

. impacts of such programs in a Corrmission Policy Statement.

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andMe Fhderal Energy 943ula.% bmmI5dI8ny

Background:

number of;Statu regulatory commissions have established economic perferrance. incentive programs ~ relating to electric power plants.

Some programs I

In 1he, 48tetige 4 etc Swi$dicheft CVer Nf.

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POLICY STATEffENT-s et.o novnits d M. geof,e6.tioh l

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- pedemana.b CM k Mn is or b ot Pokt in Improving b (C of e(t etc yower flard5 hy en do W i

o.n impact en ee m.ftty of rmdeac paweej lui6. he, f have existed unencnged for a nuriber of y ars, whereas others have been substan-tielly modified or are newly established.7 NRC monitors and evaluates these A

incentive progrens to determine their possible impact on the safe operation of nucleer power reactors. The NRC firmly believes that these programs should not create incentives to operate a plant when it shoulo be shut down for safety

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reasons, policy Statement:

The Commission's views on economic performance incentive programs are es follows:

Potential Impacts The IRC recognizes that the existing programs vary considerably from State to State and that the ;1ans are not easily classified, especia. y as to their pos-sibit impact on stfe plant operations.

However, certhin general characteristics of prcorens can be esbluated and found to be either desirable (or at least neutrel)orundesirableintheirsafety-impact.

.i A desirable plan-provides incentives to make' improvements =in oper:.on and main-

'tenance that result in long-term improvement in the reliability ~of the reactor,

main, generator and their support ' systems. An undesirable' plan provides 1

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jincentives to operate a facility with potential safety. problems or to start up

' before fully ready merely to meet an operational goal.

. Ale'sirable: economic performance incentive rewards a utili.ty for a. sound opera-tions'and.rdaintenance program and for correcting recurrent or predictable

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failures or other potential problems that could lead to an operational transient, aMt.

. unplanned plant outage or derating.

Such an incentive is desirp-Mtt because a well run plant and prompt correction of problems enhance safet".

Unanticipated transients and shutdowns challenge operators and safety systems and, although a low probability, could initiate a more serious event.

Improved performance in a utility's operational organization, which can be encouraged by economic performance incentives, can be conducive to improving both safety and economic performance.

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{However,theCommission'sconcernwithincentiveplansisthat betved 4e be smd.

of real or perceived short-term economic benefit, utilities might hurry work, take short cuts, or delay a shutdown for maintenance in order to meet a deadline, a cost limitation, or other incentive plan factor. Such a program could encourage, p

directly or indirectly, the adoption of actions designed to maximize measured performance in the shor erm at the expense of olant safety (public health and safety)._ _ If. allicensee keeps a reactor online when it should be taken down for p

preventive or corrective maintenance and uses shortcuts or compressed work-L schedules to minimize down time, these actions could adversely impact safety.

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Potential Adverse-Impacts on Plant Operation and Public Health and Safety Some specific features of incentive plans now used'by some States could' adversely

' affect public health and safety.. These features are (1)~ sharp thresholds be-p

~tweenrewardsandpenalt'ies,.(or-betweenpenaltiesandnullzones,orrewards l.

.andnullzones)and'(2)performancemeasurementshavingshorttimeintervals..

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A sharp threshold occurs when a licensee misses a target capacity factor and must bear a large part or ali of the resulting replacement power costs #A sharp

.g threshold provides an incentive to continue plant operation to achieve a target capacity factor to avoid the large replacement power cost or to earn a sub-diveet stantial reward. Thistypeofincentivecouldpfh:'*attentionfromsafe plant operation.

Performance measurements for short-term intervals provide incentives to focus on a short-term target, such as a higher capacity factor or availability factor, This target could become the primary focus, diverting attention from long-term goals of reliability and operational safety.

Ir mtrast, performance measure-ments for long-term intervals provide incentives to the u+,ility to follow sound maintenance and operational practices and make system and component changes so

-that-the licensee improves operating performance in terms of availability and-capacity factors..

Short-term measurements tend to make safety and economic goals conflict;-

long-term measurements tend to make the two goals complementary.

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Specific Features That Cause NRC Concern L

~ Sharp thresholds and short-term performance measures can adversely. impact safety.

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In addition, plans that use;NRC periodic performance assessments and' performance v

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indicators of the NRC industry as a basis for rewards or penalties present hj

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R 4crefora, addre4666 Stje&d areas d liten52 AOity, M does nd nt.t.essael\\y - (over all Sig6Ifimi Keipefnante attas. Further, Oc scores are not bMed on akselute quanfitatiVC ceMiderAMons, and kreh k $ijniMcAnce, i

d 6 acks.1 nwwical score b hi+ea.

several major concerns.

First, e NRC's Systematic Assessment of Licensee Performance (SALP) was develop to assist the NRC in assessing the performance relative to the safety of indi) idual facilities and to serve as a basis for comunicating to the licensee.W The NRC staff expects licensees to focus on the facts in the SALP report, the issues identified, and the apparent root causfofproblems. The prospect of financial rewards or punishments for

-licen:ees based on SALP ratings causes concern in that it may change the focus of the SALP process from the underlying issues, where it should properly be, to the numerical ratings themselves.

If the issues identified in a SALP report are obscured by concerns over the financial consequences incurred as a result ck ediva.

of that rating, the procest may not achieve the desire rnait t Insect B Gem nedym3e 1***cr A fn* ned ea3e-

'Similarly, performance'indicat

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licensees in identifying ends and areas of performance that should receive a more detailed assessment. O n ia; i ;rd; ;r pei,el M 5 eu tb

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h direct a licensee's attention toward improving the scores tiy possibly inappro-priate means rather than toward identifying and correcting underlying safety a

conditions.

L Continued NRC' Monitoring Program L,

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'The NRC will periodically = survey State regulatory commissions having rate regu-l t

lation over power reactors and the Federal Energy Regulatory Comission-(FERC)

. M3.ntih'=~ any ne r substantial changes in prog) rams and to ascertain how-l esistiM -

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. In facticulac whether hans been impoWJ. i l'

the; programs have be'en implemented,g& ding t2 ' pniMer ef'large penalties 4 -

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}j il./ f*kfufther Jnfortnallen E on POLICY TAT MENT.

JW ttist,iny ttstemit. inctntivt grams end Neip$$iblt,tsmpt,tal 4;,n fut ro B

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l INSERT A and may instead result in a licensee adopting corrective actions which produce rapid results rather than those which yield the highest increase in safety in the long term.

INSERT B Inappropriate emphasis on these indicators in an incentive program

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76 ;;-~,. runt e u '1 tc 3,3 6 teg to ige,t ; ry w iciy cuncerns irvo m o ry,,J r iet; pregr:n; eoJ pe m'ti;; th;t Atre;t frea ;;fety pe,-ferg.er,w.0 We plan to update the survey annually. We will periodically assess the frequency of the l

surveys to determine the need for schedule adjustments.

Licensees ar.6 Utility Commissions Urged To inform NRC of Program Initiatives naad54o The NRC b '# be apprised of economic performance incentive prograns that are Leing planned by State rcgulatory concissiont end that can impact safety.

Frequently, these programs are developed in coordination with regulated utilities.

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d 0,i; M, the NRC vill be requesting that licensees report whenever these commissions are developing or substantially revising economic performance N

f int.Entives.f The objective will be that NRC be informed of the principal features

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of the program so that their likely impact on plant safety can be assessed.

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Further,ghhC will be reouesting licensees to report'the pen 61 ties assessed askig also 7

h[N7,C *44 will begn.!*:S th; ;eep;r;t'et

-tbrough these prograr:r as they occur I

disem O e( FERC ard the Statt utility rect?6 tory connissions tep o= the NRC eft.

J initiatives to impose or s.ange an econcmic performance incentive program that-.]

applies-to an NRC licensee.

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. s A free exchange..of information between the 'NRC and' the agencies i

with economic jurisdiction will assist the NRC and those agencies to work:together in their pursuit of the common goal of economical.and safe operation of; nuclear power plants.

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's TEXT Of LETTER TO BE SEtlT TO THE FEDERAL ENERGY REGULATORY COMMISSION AND TO STATE UTILITY REGULATORY COMMISSIONS REQUESTING COMMENTS ON THE PROPOSED POLICY STATEMENT ON ECONOMIC PERFORMANCE INCENTIVES (Heading)

A number of State regulatory commissions and the Federal Energy Regulatory Comission (FERC) have established economic performance incentive programs relating to commercial nuclear reactors.

Some programs have existed for a number. of years, whereas others have been substantially modified or are newly established. The U.S. Nuclear Regulatory Commission (NRC) has monitored these programs through periodic surveys of State commissions and licensees to determine whether they create incentives for reactor licensees to change operating or maintenance practices in such a way that safety is diminished.

in reviewing the programs in effect.in 1989, the Commission has determined that a few economic performance incentive programs have the; potential to direct licensees' attention away from the F =2 responsibility of safe-operation and i

- toward attempting to-meet an operational goal to avoid a penalty or receive a reward. As a result, the Commission directed. the NRC staff td develo;; a proposed Policy _ Statement that describes desirable and undesirable features of, o

these programs with > spect toslicensee's responsibilities for public health and'

safety. Enclosed for your consideration is a copy'of the proposed Policy._

Statement.

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2 Your cooperation in providing comments to the NRC on ttis matter will be greatly appreciated.- The NRC has indicated in the past that properly devised economic enceucaae perfornience incentive progran's cen me+4 beth th; gal: :*, economical and safe optretion.

Sincerely, James M. Taylor Executive Director for Operations e

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