ML20058L753

Transcript of 931209 Meeting in Rockville,Md Re Affirmation/Discussion & Vote.Pp 1-4.Related Info Encl

ML20058L753
Person / Time
Issue date:	12/09/1993
From:	Office of Nuclear Reactor Regulation
To:
References
REF-10CFR9.7 NUDOCS 9312170178
Download: ML20058L753 (74)

Text

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DISCLAIMER 3

This is an unofficial transcript of a meeting of the United States Nuclear Regulatory Commission held on December 9, 1993, 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 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 authorize.

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1 UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION J

AFFIRMATION / DISCUSSION AND VOTE PUBLIC MEETING Nuclear Regulatory Commission One White Flint North Rockville, Maryland Thursday, December 9, 1993 The Commission met in open

session, pursuant to

notice, at 3:37 p.m.,

Ivan

Selin, Chairman, presiding.

COMMISSIONERS PRESENT:

IVAN SELIN, Chairman of the Commission KENNETH C.

ROGERS, Commissioner E.

GAIL de PIANQUE, Commissioner NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N W (202) 234-4433 WASHINGTON. D C 20005 (202) 234-4433

2 STAFF SEATED AT THE' COMMISSION TABLE:

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SAMUEL J.

CHILK,. Secretary j

KAREN CYR, Office of the General Counsel k

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3:37 p.m.

3 CHAIRMAN SELIN:

We have an affirmation 4

question before us.

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5 Mr. Chilk, would you lead us through the i

6 affirmation?

7 SECRETARY CHILK:

The SECY paper 93-284 i

8 before the Commission, it's a final rule,10 CFR Parts i

9 30, 40, 50, 70 and 72, "Self-guarantee as an 10 Additional Financial Assurance Mechanism."

i 11 The Commission is being asked in. this i

12 paper to approve a final rule amending its regulations f

13 to allow certain non-electric utility licensees to use 14 self-guarantee as a means of financial assurance'.of l

15 the adequacy of funding for decommissioning costs.

I 16 All Commissioners have approved the final 17 rule.

The Commission will also direct.the staff to 18 study the development of an alternative financial j

19 criteria which can be used by non-bond issuing 20 licensees seeking to use the self-guarantee option.

-f 21 Commissioner Remick, who is not here, has i

22 also voted for this.

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-c 23 would you please affirm your

votes,

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J 24 please?

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25 CHAIRMAN SELIN:

Aye.

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NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE. N W.

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COMMISSIONER ROGERS:

Aye.-

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COMMISSIONER de PLANQUE:

Aye.

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SECRETARY CHILK:

I have nothing.

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CHAIRMAN SELIN:

Okay.

We're adjourned.

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entitled matter was adjourned.)

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CERTIFICATE OF TRANSCRIBER This is to certify that the attached events of a meeting f

of the United States Nuclear Regulatory Com:nission entitled:

i TITLE OF MEETING:

AFFIRMATION / DISCUSSION AND' VOTE j

PLACE OF MEETING:

ROCKVILLE, MARYLAND I

DATE OF MEETING:

DECEMBER 9, 1993

' t 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 a true and accurate record of the foregoing events.

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Reporter's name:

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October 15, 1993 SECY-93-284 (Affirmation)

FOR:

The Commissioners FROM:

James M. Taylor Executive Director for Operations i

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SUBJECT:

FINAL RULE, 10 CFR PARTS 30, 40, 50, 70, AND 72, "SELF-GUARANTEE AS AN ADDITIONAL FINANCIAL ASSURANCE MECHANISM" 1

PURPOSE:

To obtain Commission approval of the publication of the subject final rule in the Federal Reaister.

BACKGROUND:

On January 11,1993, (58 FR 3515), a proposed rule that would allow self-guarantee as an additional means of compliance with the decommissioning regulations was published in the Federal Reaister.

The proposed rule was in response to a petition for rulemaking submitted by the General Electric Company and the Westinghouse Electric Corporation (PRM-30-59).

In accordance with Commission direction in the Staff Requirements Memorandum, Samuel J. Chilk to James M. Taylor, December 2,1992, the Federal Register Notice also requested comments on an alternative to the financial criteria in the proposed rule-- the proposed financial criteria without the 51 billion net worth requirement.

DISCUSSION:

Fourteen comment letters were received: eight from industrial nuclear materials licensees, three from university nuclear materials licensees, and one each from a State, an electric utility, and an individual. All but one letter supported the concept of self-guarantee. Most of the public comments CONTACT:

Clark Prichard, RES (301) 492-3734 NOTE:

TO BE MADE PUBLICLY AVAILABLE k' HEN THE FINAL SRM IS PADE AVAILABLE.

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The Commissioners 2

strongly favored lowering or eliminating the $1 billion net' worth criterion.

A detailed analysis of public comments is included as Enclosure A.

The staff is recommending deleting the $1 billion net worth criterion in the final rule.

i This change was supported by the comments, and would allow additional l

licensees to qualify to use self-guarantee.

RESOURCES:

I Resources to conduct this rulemaking are included in the FY 94-98 Internal Program / Budget Review document, and no additional resources would be required for its implementation.

COORDINATION:

The Office of the General Counsel has reviewed this Commission Paper and has no legal objection.

RECOMMENDATION:

That the Commission:

1.

Approve publication of the Notice of Final Rulemaking in the Fgderal Reaister (Enclosure B).

2.

Certify that this rule will not have a significant economic impact on a l

substantial number of small entities in accordance with the Regulatory Flexibility Act.

3.

Note:

a.

The information collection requirements subject to the Paperwork Reduction Act of 1980 (44 U.S.C. 3501, et seq.) in the final rule have been approved by the Office of Management and Budget.

b.

That a regulatory analysis has been prepared for this rulemaking action (Enclosure C).

c.

That neither an environmental impact statement nor an environmental assessment and finding of no significant impact has been prepared for this final rule because it meets the criteria j

for a categorical exclusion under 5 51.22(c)(10)(i).

j d.

That the Subcommittee on Nuclear Regulation of the Senate Committee on Environment and Public Works, the Subcommittee on Energy and Power of the House Committc on Energy and Commerce, and the Subcommittee on Energy and the Environment of the House Committee on Interior and Insular Affairs will be informed of-this rulemaking action (Enclosure D).

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The Commissioners 3

e.

That the Chief Counsel for Advocacy of the Small Business Administration will be informed of the certification and the reasons for it as required by the Regulatory Flexibility Act.

f.

That a copy of the final rule will be distributed to all affected licensees and other interested persons.

i g.

The Office of Public Affairs has prepared a draft public announcement (Enclosure E).

h.

Publication of this final rule will grant PRM-30-59 and complete action on the petition.

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.oes M. T lor ecutive irector r

for Operations

Enclosures:

A. Public Comment Analysis B. Federal Register Notice C. Regulatory Analysis D. Congressional letters E. Public Announcement cc:

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The Commissioners 4

i Commissioners' comments or consent should be provided directly'to the I

Office of the Secretary by COB Monday. November 1. 1993.

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Commission Staff Office comments, if any, should be submitted to the Commissioners NLT October 25, 1993, with an information copy to the Office of the Secretary.

If the paper is of such a nature that it requires additional review and comment, the Commissioners and the Secretariat should be~

apprised of when comments may be expected.

This paper is tentatively scheduled for affirmation at an Open Meeting during the week of November 1, 1993. Please refer to the appropriate Weekly Commission Schedule, when published, for a specific date and time.

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ENCLOSURE A

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SUMMARY

AND ANALYSIS OF PUBLIC COMMENTS ON SELF-GUARANTEE AS AN ADDITIONAL FINANCIAL ASSURANCE MECHANISM The comment period for the proposed rule to amend the regulations for decommissioning licensed facilities to allow certain non-electric utility licensees to use a self-guarantee as a means of financial assurance (58 FR 3515, January 11, 1993) ended on March 29, 1993.

Comments were received from 14 individuals and public entities.

Commenters included eight private companies, one regulated electric utility, three universities, one State governmental agency, and one private citizen.

Several of the letters contained similar comments and i

have been grouped together and addressed as a single issue.

All comments have been grouped into nine broad issues.

For each issue, this document provides a summary of the comments received and an analysis and response to those comments.

1.

Use of Self-Guarantee by Electric Power Utility Licensees Comment.

One commenter indicated that nuclear electric utilities licensed under 10 CFR Part 50, who are prohibited under the proposed rule from using the self-guarantee, should be allowed to adopt that option.

The commenter, pointing to the Regulatory Analysis, argued that NRC's stated reasons do not create a strong technical basis for not allowing nuclear power licensees to use the self-guarantee.

That is, the higher decommissioning costs that nuclear power utilities must pay, their different financial characteristics from other materials licensees under 10 CFR Parts 30, 40, 70, and 72, and the possibility that allowing nuclear utilities to self-guarantee would substantially alter the balance of costs attributable to the regulation, in the commenter's opinion should not preclude utilities from using the self-guarantee.

Response.

The objective of the rule is to reduce the licensee's cost burden without adverse effects on public health and safety.

The Commission already allows electric utilities to accumulate decommissioning funds in an external sinking fund.

Unlike other licensees subject to financial assurance for decommissioning, therefore, electric utilities do not have to provide the full amount of required financial assurances "up front" but instead can build up their sinking funds over time.

Thus, electric utilities already are permitted a cost-reducing financial assurance mechanism.

2.

Use of Self-Guarantee by Non-Profit Entitles Comment.

Several commenters suggested that NRC should amend the proposed rule to allow universities and other non-profit

I 2

entities to use the self-guarantee.

They argued that many non-profit entities have been in existence and financially stable for l

long periods of time.

These commenters~ proposed several alternative criteria that they said could be used to assess the financial strength of non-profit entities, including size of i

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endowments and various measures of assets.

i Response.

NRC plans to begin shortly a study of extending the availability of cost-saving financial assurance alternatives l

to non-profit entities other than universities.

A similar study l

for universities will be deferred until after planned rulemaking

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on fee recovery.

In order to extend the use of self-guarantees to non-profit entities, however, new criteria would have to be developed to assess the financial strength of the non-profit licensees.

In addition, more than one set of criteria might be necessary, since the non-profit entities include a broad range of institutions that may not employ identical financial accounting procedures.

r NRC's review of decommissioning financial assurance submissions identified third-party financial mechanisms, such as surety bonds and letters of credit, as well as escrows and i

trusts, as the financial mechanisms used most often by private non-profit entities.

In a few instances, private non-profit i

entities have sought to use parent company guarantees.

Publicly

'I owned non-profits, particularly public universities, have sought to use statements of intent.

To the extent that non-profit entities have been able to make use of guarantees or statements of intent, cost-savings financial assurance alternatives already-exist for those licensees.

t Development of financial criteria to assess the qualifications of a non-profit entity'to provide a self-guarantee is likely to require detailed consideration of the different financial accounting methods used by me ical institutions.

The 3

financial accounting and reporting of non-profits are unique and substantially different from the accounting and reporting of for-l profit entities.

The financial reporting practices of public and private hospitals generally follow standards established by the American Institute of Certified Public Accountants.

Hospital reports, however, also provide information on a fund basis that generally is not compatible with the current and proposed financial tests that establish eligibility for parent or self-guarantees.

Development of financial criteria for self-guarantees for hospitals also could involve analysis of the various accounting funds utilized and establishment of adequate criteria for evaluating them.

Currently, such criteria have not been identified and evaluated.

NRC has sought information on other financial

3 assurance programs that might involve non-profit entities.

However, few such programs appear to exist.

EPA financial assurance requirements for various waste-related programs, for example, apparently have developed little experience concerning non-profit entities.

The RCRA hazardous waste program does not, in general, include non-profits in its universe of regulated entities.

Those universities and hospitals that generate hazardous waste typically arrange for off-site waste management (treatment, storage, or disposal) and also seek to qualify as so-called small quantity generators.

EPA encounters numerous local governments as regulated entities in its solid waste program.

These governments apparently have not been able to qualify to self-guarantee using EPA's current criteria.

In the past, municipalities have encouraged EPA to develop a special criteria for municipal self-guarantees to accomodate municipalities with regulated solid waste la~ndfills that must provide financial assurance, but to date EPA has not promulgated such criteria.

The EPA underground storage tank (UST) program does encounter entities, particularly universities, with underground tanks containing petroleum.

Such entities apparently have sought unsuccessfully to self guarantee, but EPA has required them instead to use alternative financial assurance mechanisms.

NRC anticipates that in the future it will carry out a study of potential self-guarantee criteria for non-profit entities other than universities.

Because of the time required, however, it cannot do so in this rulemaking.

Those non-profit entities that can qualify to use either a parent guarantee or a statement of intent will continue to have access to those financial assurance alternatives.

The NRC will review the situation relative to universities after its planned rulemaking on fee recovery.

3.

Elimination of Bond Rating Criterion Comment.

One commenter recommended eliminating the bond rating component of the criteria for determining if a firm meets the requirements for self guarantee.

The commenter argued that a bond rating requirement unfairly discriminates against companies that have not issued bonds, and creates an incentive to firms to raise capital through publicly traded debt rather than through equity or commercial lines of credit.

Furthermore, according to the commenter, a firm's audited year end financial statement is the best indicator of financial strength, and NRC should use standard financial ratios contained in the year end report or derivable from it to determine the ability of the firm to self-guarantee.

Response.

NRC believes that a bond rating requirement is a strong and useful measure of the ability of a firm to self-guarantee because the rating is developed by an independent third J

4 party, and relates to the ability of the firm to satisfy its long-term debt obligations.

In addition, a bond rating requirement can be implemented efficiently because the necessary information is publicly reported and the ratings constitute a clear and unambiguous criterion.

NRC recognizes that firms that finance their activities through equity or short term commercial lines of credit may be as financially strong as firms that issue bonds.

However, no equivalent third-party assessment of that financial strength is available.

Although the financial test used to determine if a parent company may provide a guarantee for its subsidiary might serve that purpose, NRC has determined that it currently wants to employ a more stringent set of criteria.

NRC's analysis indicated that the requirement that a self guarantor demonstrate a bond rating of AAA, AA, or A as issued by Standard and Poors (S&P) or Aaa, Aa, or A as issued by Moodys is substantially more stringent than the parent corporation financial test.

4.

Revision of Bond Rating Criterion Comment.

One commenter, while supporting the use of a bond rating criterion, proposed that the criterion should be lowered from a bond rating of AAA, AA, or A as issued by Standard and Poors (S&P) or Aaa, Aa, or A as issued by Moodys to a rating of AAA, AA, A, or BBB as issued by Standard and Poors or Aaa, Aa, A, or Baa as issued by Moodys.

The commenter argued that the requirement of an A or better rating is unnecessarily stringent and unduly limits the utility of the self-guarantee as a means of providing effective assurance and as a means of avoiding significant and unnecessary costs.

The commenter noted that BBB or equivalent is an investment grade rating, that the bonds of a number of Fortune 500 companies have such ratings, and that the BBB rating is a criterion for NRC's parent company guarantee.

Response.

Use of an A or better bond rating, rather than the BBB or better rating criterion, is warranted by two considerations.

First, the A or better criterion provides a stringent measure that will help to ensure that only firms in extremely good financial condition will be allowed to use the self-guarantee.

Second, if firms are required to demonstrate an A or better bond rating in order to self guarantee, some deterioration in their financial situation can occur before their rating indicates that their bonds are no longer investment grade.

Thus, for example, a firm's bond rating might change from A to A-to BBB before dropping below investment grade.

The firm, which would be required to obtain alternate financial assurance when its rating dropped to A, will be procuring such financial-assurance while its bond rating continues to be investment grade.

Thus, NRC will have a better opportunity to ensure that the firm obtains an alternative form of financial assurance than if firms t.

5 are allowed to demonstrate a BBB or betttr rating to qualify for self-assurance, since in that case any deterioration in the firm's bond rating will place the rating outside the investment grade category, with potentially more serious implications for the firm's financial situation.

5.

Requirement that 90 Percent of Total Assets be in the United States comment.

One commenter suggested dropping what it described as the requirement that self-guarantors demonstrate that 90 percent of their assets are located within the United States, because otherwise some large, multinational companies will be excluded from using the self-guarantee simply because a majority 4

of their assets may be outside the U.S.

Response.

The self-guarantee financial test proposed included a provision requiring the self-guarantor to show that it had " Assets located in the United States amounting to at least 90 percent of total assets sg at least 10 times the total current i

decommissioning cost estimate for all decommissioning activities f

for which the company is responsible as self-guaranteeing licensee and as parent-guarantor, or the current amount required if certification is used" (emphasis added).

The commenter appears to have mistakenly interpreted the l

provision to require that a firm must show both assets of 10 times the decommissioning cost add 90 percent of its assets in the U.S.

In fact, however, only one or the other need be demonstrated.

If a firm can show that it has assets in the U.S.

at least 10 times the current decommissioning cost it need not i

demonstrate that 90 percent of its assets are in the U.S.

The option of showing less than 10 percent of assets abroad is intended to reduce costs for firms.

The Securities and Exchange Commission requires firms filing Form 10K to identify i

assets located outside the U.S. if those assets exceed 10 percent of the firm's total assets.

Firms filing 10Ks that have less than 10 percent of their assets located abroad do not need to identify the exact amount of assets in the U.S.

Financial Accounting Standards Board (FASB) standards on reporting of foreign assets under Standard 14 (June 1990) place the cutoff for reporting identifiable assets of foreign operations at 10 percent or more of consolidated total assets.

Therefore, rather than excluding firms or imposing additional costs on them, this alternative method of satisfying the rule should reduce the costs to firms of demonstrating that they pass the financial test for self-guarantee.

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6 6.

Require Additional Written Commitment by Solf-Guarantors Comment.

One commenter recommended adding a requirement i

that self-guarantors execute a binding commitment to make the necessary funds available for decommissioning.

Under this recommendation, in addition to submitting proof that the self-guarantor qualifies under the appropriate financial criteria to use the self-guarantee, the self-guarantor would also submit a i

written agreement providing that, upon issuance of an order by i

the Commission to undertake decommissioning,- the licensee will set up a trust fund in favor of the Commission or obtain other l

surety accessible to the Commission, in the amount of the current cost estimate for decommissioning activities.

The commenter recommended modeling the written commitment on Recital 7 of the existing parent guarantee.

Response.

Addition of a written commitment by self-i guarantors is a useful suggestion.

The provision of a written guarantee to the NRC from the self-guaranteeing licensee will i

provide NRC with a legally binding commitment to make the funds available for decommissioning when and if NRC determines that it i

is time to undertake such activities.

NRC therefore is incorporating a provision in the self-guarantee requirements calling for the licensee to provide the Commission with a written guarantee stating that the licensee will fund and carry out the required decommissioning activities, or, upon issuance of an order by the Commission, it will set up and fund a standby trust with sufficient funds to carry out the required decommissioning activities based on the current cost estimate.

7.

Opposition to Self-Guarantee r

comment.

One commenter opposed the proposed self-guarantee mechanism on the grounds that current capabilities of electronically transferring funds make self-guarantees i

meaningless even if a firm has initially demonstrated that it has the required assets.

The commenter argued that recent failures F

of pensions and health benefits assured by self-guarantees indicate that self-guarantees cannot be trusted.

Response.

NRC does not agree that a well-designed self-guarantee cannot be trusted to provide financial assurance.

Self-guarantees have been used successfully in a number of applications without incurring the problems pointed out by the commenter.

The Environmental Protection Agency, in particular, currently allows use of a self-guarantee as a means of financial assurance for hazardous waste treatment, storage, and disposal facilities.

By basing the qualification to use a self-guarantee in large part on a specified bond rating, NRC believes that it is tying the self-guarantee to a strong measure of the financial

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7 strength of the self-guarantor.

By requiring self-guarantors to notify NRC whenever they cease to qualify to use the self-guarantee, and to obtain an alternative form of financial assurance immediately, NRC believes that potential problem situations will be identified and addressed in a timely manner.

8.

Support for Self-Guaranteo Comment.

One commenter submitted a detailed argument in support of the self-guarantee.

The commenter argued that a self-guarantee by a financially secure licensee is at least the equivalent of financial assurance provided by certain third-party financial assurance mechanisms, including the parent company guarantee, that are currently allowed by NRC.

The commenter stated that, in particular, a study performed for NRC indicating that the parent guarantee might provide a higher degree of certainty than a self-guarantee rested on a questionable assumption concerning the degree of financial independence between parent corporations and their subsidiaries (i.e., the degree to which parent firms will not become involved in the financial difficulties of their subsidiaries or the subsidiaries in the difficulties of the parent).

The commenter argued that a ratio of independent subsidiaries to non-independent subsidiaries of 60:40 is closer to " practical experience and common sense" than the ratio of 97:3 that was employed.

The commenter concluded that a parent guarantee does not provide additional

" defense in depth" compared to a qualified self guarantee.

Response.

NRC agrees that comparisons among financial assurance alternatives, such as parent guarantees and self-guarantees or third-party financial assurance mechanisms such as letters of credit and self-guarantees, are sensitive to assumptions concerning issues, such as the degree of financial independence between parent corporations and subsidiaries, about which little empirical evidence has been collected.

Using the best available information, however, and generally conservative assumptions, NRC concluded that self-guarantees supported by stringent financial criteria present an extremely low risk.

The reason for not allowing electric utilities to use self guarantee has already been covered in (1.) above.

9.

Reduce or Eliminate Minimum Not Worth Requirement Comment.

Several commenters supported adoption of the self-guarantee as a financial assurance option, but suggested changes to the minimum net worth criterion in the proposed rule that would be used to determine if a licensee qualified to use a self-guarantee.

One commenter suggested that the tangible net worth requirement could be dropped from $1 billion to some lower amount, but recommended that a tangible net worth requirement of

8 at least $100 million be retained.

Two commenters recommended dropping the minimum net worth requirement to $10 million.

Other commenters argued that the minimum not worth requirement was i

unnecessary, if the bond rating requirement was retained, because j

net worth is already taken into account as one of the most I

important criteria used to determine the bond rating.

In l

addition, these commenters suggested that a high net worth i

requirement discriminates against smaller companies.

Response.

Based on its analysis, NRC has revised the net worth criterion.

Because the criteria for determining when firms may use the self guarantee include the requirements that a self-guarantor demonstrate a bond rating of AAA, AA, or A as issued by Standard and Poors (S&P) or Aaa, Aa, or A as issued by Moodys,.

and because tangible net worth is a very important factor in the assignment of bond ratings, a separate tangible net worth requirement does appear to be sufficiently considered with the l

bond rating requirement.

Thus, the requirement that a self-guarantor demonstrate that it has at least $1 billion in tangible net worth has been dropped.

This will help ensure that smaller t

firms with the necessary bond ratings will have the opportunity to use the self-guarantee.

To ensure that all firms using the i

self guarantee have a sufficient amount of net worth to cover their decommissioning obligations, however, irrespective of their overall size, NRC is retaining the requirement that self-guarantors must demonstrate that they possess tangible net worth at least 10 times the current decommissioning cost estimate or the current amount required if certification is used.

10.

Compatibility Comment.

One State commenter requested that if NRC incorporates a self-guarantee into the financial 1ssurance requirements it not consider the self-guarantee provision to be i

an item of compatibility that requires Agreement States to adopt similar requirements.

Response.

NRC currently considers 10 CFR Sections 30.35, 40.36, and 70.25 to be Division 2 compatibility.

The addition of the self-guarantee mechanism for prov2 ding the required financial guarantee does not change the division of compatibility.

Division 2 compatibility allows the Agreement States to be more stringent.

The Agreement States must provide financial assurance mechanisms in their regulations, but due to the specific States' financial regulations, certain mechanisms may not be acceptable in their States.

Limiting the mechanisms to a subset of those provided for in the NRC regulations is within the flexibility provided in Division 2 compatibility.

NRC currently assigns 10 CFR Section 72.30 Divis# 3n 4 compatibility, since regulation of independent storage of spent nuclear fuel and high level radioactive waste are functions reserved to the NRC pursuant to the Atomic Energy Act.

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[7590-01]

NUCLEAR REGULATORY COMMISSION 10 CFR Parts 30, 40, 50, 70, 72

[

RIN 3150-AE16 Self-Guarantee as an Additional Financial Assurance Mechanism AGENCY: Nuclear Regulatory Commission.

ACTION:

Final rule.

SUMMARY

The Nuclear Regulatory Commission is amending its regulations for deco.mmissioning licensed facilities to allow certain non-electric utility l

't licensees to use self-guarantee as a means of financial assurance.

The rule reduces the cost burden of financial assurance while providing NRC with sufficient assurance that decommissioning costs will be funded. This rule grants a petition for rulemaking (PRM-30-59) from General Liectric Company and 3

Westinghouse Electric Corporation and completes action on the petition, EFFECTIVE DATE: (Insert Date - 30 days after date of publication in the Federal Register) l i

1 i

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FOR FURTHER INFORMATION CONTACT: Clark Prichard, Office of Nuclear Regulatory Research, U.S. Nuclear Regulatory Commission, Washington, DC 20555, telephone ~

j (301) 492-3734.

i i

SUPPLEMENTARY INFORMATION:

i

Background

l On January 11,1993 (58 FR 3515), the NRC published a notice of proposed i

rulemaking that would allow self-guarantee as an additional mechanism for complying with the regulations on financial assurance for decommissioning.

[

This action was in response to a petition for rulemaking (PRM-30-59) from the i

General Electric Company (GE) and the Westinghouse Electric Corporation j

(Westinghouse).

The notice of receipt of the petition was published on September 25, 1991 (56 FR 48445).

The petitioners requested that the NRC f

amend its decommissioning regulations contained in 10 CFR Parts 30, 40, 50,

=

70, and 72 to provide a means for self-guarantee of decommissioning funding l

costs by certain NRC licensees who meet stringent financial standards and related reporting and oversight requirements. The petitioners proposed that electric utility reactor licensees undar 10 CFR Part 50 not be affected by the proposals in the petition.

i Under the original decommissioning regulations (53 FR 24018; June 27, 1988), licensees were permitted,to provide financial assurance for i

decommissioning funding through prepayment, insurance, surety bond, letter of credit, or parent company guarantee. Electric utilities were also allowed to establish an external sinking fund. The proposed rule sought public comments 2

t on amendments to Parts 30, 40, 50, 70, and 72 to allow self-guarantee as an i

additional method of complying with the decommissioning requirements in those parts.

5 The objective of this rule is to reduce the licensee's cost burden without causing adverse effects on public health and safety. The regulatory i

~

analysi,s developed for this rule estimates that the annual industry cost -

savings would be approximately $730,000 if all licensees meeting the criteria I

use the self-guarantee. This estimate is based on rather conservative assumptions (i.e., $750,000 total decommissioning cost per license); the actual cost savings may be considerably greater.

The cost savings would result from the elimination of the cost of third party financial assurance for licensees qualifying to use the self-guarantee.

Annual fees for letters of credit, surety bonds, and other forms of third party financial assurance typically are approximately 1.5 percent of the i

amount of financial assurance provided.

i r

A. Proposed Criteria The proposed criteria for corporate self-guarantee included these financial criteria:

1 (1)

Tangible net worth of at least $1 billion; (2)

Tangible net worth at least 10 times the current decommissioning cost estimate (or the current amount required if certification is used) for all decommissioning activities for which.the company is responsible as self-guaranteeing licensee and as parent-guarantor; i

(3)

Assets located in the United States amounting to at least

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90 percent of total assets or at least 10 times the current decomissioning cost estimate (or the current amount required if certification is used); for all decomissioning activities for which the company is responsible as self-guaranteeing licensee and as parent-guarantor; (4)

A current bond rating of AAA, AA, or A as issued by Standard and Poors (S&P), or Aaa, Aa, or A as issued by Moodys.

Procedural requirements proposed were:

(1)

The company must have at least one class of equity securities registered under the Securities Exchange Act of 1934; (2)

The company shall provide the Comission with copies of all reports filed with the Securities and Exchange Comission under Section 13 of the Securities Exchange Act of 1934; (3)

The company's independent certified public accountant must compare the data used by the company in the financial test with the company's independently audited yearend financial statements; (4)

The company must repeat passage of the test within 90 days after the close of each succeeding fiscal year; and (5)

The company must notify NRC within 90 days of any matters that may come to the attention of the auditor that may cause the auditor to believe that the data specified in the financial test should be adjusted and that the company no longer passes the test.

The self-guarantee would be available only for an applicant or licensee

[

having no parent company holding majority control of its voting stock.

1 a

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B. Alternative Criteria Because a majority of commenters on the notice of receipt of the petition questioned the need for the financial criteria to be so stringent, the Commission offered an alternative set of criteria to.that of the petition as contained in the proposed rule.

The alternative was the same financial I

criteria presented in the proposed rule, without the $1 billion net worth requirement.

l A company's tangible net worth is an important factor in determining

{

its bond rating. The rating itself, combined with the other criteria, may be l

a sufficient indicator of financial stability.

Because all firms qualifying would need an A or better bond rating, this alternative may not be riskier in terms of financial assurance than the proposed rule.

The regulatory analysis i

examined the effects on availability of the self-guarantee to licensees of deleting the $1 billion tangible net worth requirement from the financial i

criteria in the proposed rule, all other criteria remaining constant. The conclusion was that this alternative, if adopted, would allow an additional 7 firms to use the proposed self-guarantee. (Approximately 20 firms would qualify with the $1 billion criterion included.) The additional availability would save industry an estimated $130,000 annually and, since all firms would t

need an A or better bond rating, would maintain a high level of assurance. An A or better bond rating indicates that a company has substantial net worth. A I

i company which merits an A or better bond rating has passed a stringent review by the independent ratings agencies of its ability to meet its financial obligations. A report by Moody's gives the default rate associated with companies whose bonds are rated A or above in 1 of the 3 years prior to i

I 5

1 default as only 0.13 percent annually.' In addition, all companies, j

irrespective of their overall site, must demonstrate that they possess 1

tangible net worth of at least 10 times the current decommissioning cost estimate (or the current amount required if certification is used) for all decommissioning activities for which the company is responsible as self-guaranteeing license and as parent grantor.

[

The alternate criteria, as well as' the criteria in the proposed rule, do not apply to electric utilities.

Electric utilities would be excluded from using self-guarantee under either set of criteria.

Public comments were requested on this alternative financial criteria--the criteria in the proposed rule without the $1 billion tangible net worth requirement.

i Minor Wording Changes b

The proposed rule deleted the phrase "should the licensee default" from Secs. 30.35(f)(2), 40.36(e)(2), 50.75(e)(1){iii), 70.25(f)(2), and s 72.30(c)(2) to accommodate self-guarantee.

Summary of Public Comments The Commission received fourteen comment letters in response to the publication of the notice of proposed rulemaking. All but one of the letters supported a revision of the Commission's regulations to allow self-guarantee.

l The following is a summary of significant public comments and the Commission's Corporate Bond Defaults and Default Rates, Moody's Special Report, January,

[

2 1991, p. 32.

6 J

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response. A more detailed analysis of public comments has been prepared.

This analysis is available for inspection in the NRC Public Document Room, 2120 L Street, NW. (Lower Level), Washington, DC.

I

)

Opposition to Self-Guarantee One commenter opp; sed the proposed self-guarantee mechanism on the grounds that current capabilities of electronically transferring funds make self-guarantee meaningless even if a firm has initially demonstrated that it

't has the required assets.

The commenter argued that recent failures of pensions and health benefits assured by self-guarantee indicate that self-guarantees cannot be trusted.

Resoonse NRC does not agree that a well-designed self-guarantee mechanism cannot be trusted to provide financial assurance.

Sel f-guarantees have been used in a number of applications without incurring the problems i

pointed out by the commenter.

The Environmental Protection Agency currently allows self-guarantee as a means of financial assurance for cleanup of hazardous waste treatment, storage, and disposal facilities.

Because the qualification to use self-guarantee is based in large part on a specified bond rating, the NRC believes that it is tying the self-guarantee to an accurate measure of the financial strength of the self-guarantor.

By requiring annual recertification, and submission of SEC reports, the NRC believes that potential problem situations will be identified and addressed in a timely manner.

i 7

i Use of Self-Guarantee by Electric Power Utility Licensees One commenter indicated that electric utilities licensed under Part 50, which are prohibited from using the proposed self-guarantee, should be allowed to use tha' option. The comenter, pointing to the Regulatory Analysis, argued that hkC's_ stated reasons do not create a strong technical basis for not allowing nuclear power licensees to use self-guarantee.

Response The objective of the rule is to reduce the licensta's cost 1

burden without causing adverse effects on public health and safety.

The Commission already allows electric utilities to accumulate decommissioning i

funds in an external sinking fund. Unlike other licensees who are subject to financial assurance for decommissioning, electric utilities do not have to provide the full amount of required financial assurance "up front" but can instead build up their sinking funds over time. Thus, electric utilities l

already are permitted a cost-reducing financial assurance mechanism.

[

Requirement that 90 Percent of Total Assets be in the U.S.

One commenter suggested dropping what is described as the requirement L

that self-guarantors demonstrate that 90 percent of their total assets are located in the United States, because otherwise some large, multinational j

companies will be excluded from using the self-guarantee simply because a I

majority of their assets may be outside the U.S.

k Response The proposed self-guarantee financial test included a-

- provision requiring the self-guarantor to show that it had assets located in the United States amounting of at least 90 percent of total assets or at least 10 times the total current decommissioning cost estimate (or the current j

amount required if certification is used) for all decommissioning activities 1

8 l

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for which the company is responsible as a self-guaranteeing licensee and as j

i parent-guarantor-. A licensee using self-guarantee does not have to show that i

90 percent of its assets are in the United States. The licensee could show that it has assets in the U.S. amounting to at least 10 times decommissioning l

costs. A large, multinational corporation should readily be able to j

demonstrate that it has assets in the United States amounting to at least f

IC times the decommissioning responsibilities.

f i

f Net Worth Criterion i

Several commenters favored the self guarantee concept but argued for l

less stringent financial criteria.

Response The Commission has considered various alternative financial criteria.

It has decided to drop the $1 billion tangible net worth criterion.

However, tangible net worth will be an important factor in the requirements i

for self-guarantee for several reasons:

l (1) The financial criteria in the final rule contain the requirement

[

that to qualify to use self-guarantee, a licensee must have tangible net worth j

i at least 10 times decommissioning costs, and i

~i (2) A company must have at least an A bond rating. The A or better j

bond rating indicates that a company has substantial net worth. Net worth is an important factor in comprising a bond rating.

l Bond ratings are reviewed often, and changed in response to changes.in 1

s the issuer's financial condition. A bond rating of A or better assures that the financial strength of a licensee offering a self-guarantee has been j

i independently reviewed and affirmed.

It provides an excellent guide to the i

i ability of a company to meet its obligations. According to Moodys, default j

t i

9

i rates associated with companies whose bonds are rated A or above in 1 of the 1

i 3 years prior to default are 0.13 percent annually.'

j i

The criteria for parent guarantee were given consideration as financial j

i criteria for self-guarantee in the final rule. Under current NRC decommissioning regulations, the parent company. of a licensee that meets the financial criteria in 10 CFR Part 30, Appendix A may guarantee that funds will be available t.o decommission the facility of its subsidiary licensee. The financial criteria for the NRC parent guarantee include a lower bond rating (BBB or Baa) requirement and a lower net worth times decommissioning cost requirement (6, rather than 10 times decommissioning costs) than the criteria in this rule.

t The Commission has decided against using the criteria for parent guarantee in the rule. This is the first instance in which self-guarantee is being allowed under the Commission's decommissioning regulations.

The t

Commission prefers that the more conservative criteria be used. At some future time, when the Commission has gained some experience with self-guarantee, it may consider an appropriate revi.sion of the financial criteria.

i Use of Self-Guarantee by Non-Profit Entities i

Several commenters suggested that NRC should amend the proposed rule to j

allow universities and other non-profit entities to use self-guarantee ~

They I

argued that many non-profit entities have been in existence and been financially stable for long periods of time. These commenters proposed

' Corporate Bond Defaults and Default Rates, Moody's Special Report, January 1991, p.32.

l l

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several alternative criteria, including size of endowments, that they said could be used to assess the financial strength of non-profit entities.

Response.

NRC plans to begin shortly a study of extending the I

i availability of cost-saving financial assurance alternatives to non-profit j

entities other than universities. A similar study for universities will be i

deferred until after planned rulemaking on fee recovery.

However, including i

1 these non-profit entities in the self-guarantee program established by this rulemaking presents certain problems. The analysis which was prepared to i

evaluate the financial criteria in the proposed rule did not include non-profit entities.

In order to ettend the use of self-guarantees to non-profit entities, new criteria would have to be developed to assess the financial

(

strength of the non-profit licensees.

Development of financial criteria to

~

assess the qualifications of a non-profit entity to provide a self-guarantee ir likely to require detailed consideration of the different financial accounting methods used by medical institutions.

The financial accounting and reporting of non-profit entities are unique and substantially different from i

the accounting and reporting of for-profit entities.

The financial reporting practices of public and private hospitals generally follow standards for these institutions established by the American t'

Institute of Certified Public Accountants. Development of financial criteria e

for a self-guarantee for hospitals also would involve analysis of the various accounting funds utilized and establishment of adequate criteria, i

NRC's review of decommissioning financial assurance submissions

- t identified third-party financial mechanisms, such as. surety bonds and letters-of credit, as well as escrows and trusts, as the financial mechanisms used t

most often by private non-profit entities.

In a few instances, private non-l 11 i

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profit entities have sought to use parent company guarantees. Publicly owned non-profit entities, particularly public universities, have sought to use statements of intent (a financial assurance mechanism available only to government licensees). To the extent that non-profit antities have been able j

to make use of guarantees or statements of intent, cost saving financial-assurance alternatives already exist for those licensees.

The Commission anticipates that in the future it will carry out a study of potential self-guarantee criteria for non-profit licensees other than universities.

Because of the time required for such a study however, it cannot include non-profit entities in the self-guarantee program established by this rulemaking. The NRC will review the situation relative to univers' ties after its planned rulemaking on fee recovery.

Recuirino Aoiitional Written Commitment by Self-Guarantors One commenter recommended adding a requirement that self-guarantors execute a binding commitment to make the necessary funds available for decommissioning. Under this recommendation, in addition to submitting proof of the required financial strength, the self-guarantor would also have to submit a written agreement that, upon issuance of an order by the Commission to undertake decomissioning, the licensee will set up a trust fund in favor of the Commission, or obtain other surety accessible to the Commission.

I i

Response The addition of a written commitment is a useful suggestion.

A provision is being included in the self-guarantee requirements calling for the licensee to provide the Commission with a written guarantee (a written commitment by a corporate officer) stating that the licensee will fund and f

carry out the required decommissioning activities, or, upon issuance of an 12 i

order by the Commission, it will set up and fund a standby trust with sufficient funds to carry out the required decommissioning activities based on i

the current cost estimates.

1 Changes From the Proposed Rule There are only three changes from the proposed rule.

First, the specific $1 billion tangible net worth criterion has been deleted from the financial criteria required for a non-electric utility licensee to use self-guarantee.

The financial criteria included in the final rule are-1 i

(1) Tangible net worth at least 10 times the total current decommissioning cost estimate (or the current amount required if certification is used) for all decommissioning activities for which the company is 4

responsible as self-guaranteeing licensee and as parent-guarantor.

t (2) Assets located in the United States amounting to at least 90 percent of total assets or at least 10 times the total current decommissioning cost estimate (or the current amount required if certification i

is used) for all decommissioning activities for which the company is responsible as self-guaranteeing licensee and as parent-guarantor.

l (3) A current rating for its most recent bond issuance of-AAA, AA, or A as issued by Standard and Poors (S&P), or Aaa, Aa, or A as issued by Hoodys.

As used by the ratings agencies, an A rating marks a discrete point on I

the ratings scale, different from A. An A-or lower rating would not be acceptable.

]

The second change is the addition of the requirement for the licensee to l

provide the Commission with a written guarantee.

)

13 i

i

i The-third change is that additional language has been added to Appendix B to clarify procedural requirements for notification of the Commission and l

provision of alternate financial assurance if a licensee no longer meets the requirements for self-guarantee.

Agreement State Compatibility Section 72.30 is assigned Division 4 compatibility, since regulation of independent storage of spent nuclear fuel and high-level radioactive waste are functions reserved to the NRC pursuant to the Atomic Energy Act.

i Sections 30.35, 40.36, and 70.25 are currently considered Division 2-compatibility.

The addition of the self-guarantee mechanism for providing the required financial guarantee does not change the division of compatibility.

Division 2 compatibility allows the Agreement States flexibility to be more stringent.

The agreement States must provide mechanisms in their regulations, but due to the specific State financial regulations, certain mechanisms may a

not be acceptable in their States.. Limiting the mechanisms to a subset of those provided for in the NRC regulations is within the flexibility provided l

in Division 2 compatibility.

I l

l Environmental Impact: Categorical Exclusion i

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The NRC has determined that this regulation is the type of action I

described as a categorical exclusion in 10 CFR 51.22(c)(10)(i). Therefore, neither an environmental impact statement nor an environmental assessment has been prepared for this regulation.

i Paperwork Reduction Act Statement e

This rule amends information collection requirements that are subject to the Paperwork Reduction Act of 1980 (44 U.S.C. 3501, et seq.). These requirements have been approved by the Office of Management and Budget, approval numbers: 3150-0017, -0020, and -0009.

The public reporting burden for this collection of information is estimated to average 19 hours2.199074e-4 days <br />0.00528 hours <br />3.141534e-5 weeks <br />7.2295e-6 months <br /> per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the i

data needed, and completing and reviewing the collection of information.

Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to the Information and Records Management Branch (MNBB-7714), U.S. Nuclear Regulatory Commission, Washington, DC 20555, and to the Desk Officer, Office of Information and Regulatory Affairs, NE0B-3019, (3150-0017, -0020, and -0009),

Office of Management and Budget, Washington, DC 20503.

j Regulatory Analysis i

The Commission has prepared a regulatory analysis on _this _ regulation.

The analysis examines the costs and benefits of the alternatives considered by 15 r

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the Commission. The analysis is available for inspection in the NRC Public Document Room, 2120 L Street, NW. (Lower Level), Washington, DC. Single copies of the analysis may be obtained from Clark W. Prichard, Office of Nuclear Regulatory Research, U.S. Nuclear Regulatory Commission, Washington, DC, 20555 telephone (301) 492-3734.

Regulatory Flexibility Certification In accordance with the Regulatory Flexibility Act, 5 U.S.C. 605(b), the Commission certifies that this rule will not have a significant economic impact upon a substantial number of small entities. The licensees affected by this rule do not fall within the scope of the definition of "small entities" set forth in the Regulatory Flexibility Act or the size standards of the NRC -

applicable to a small business (56 FR 56671; November 6,1991).

Backfit Analysis The NRC has determined that the backfit rule, 10 CFR 50.109, does not apply to this rule and, therefore, that a backfit analysis is not required for this rule, because these amendments do not involve any provisions which would impose backfits as defined in 10 CFR 50.109(a)(1).

List of Subjects 10 CFR Part 30 16 i

Byproduct material, Criminal penalty, Government contracts, Intergovernmental relations, Isotopes, Nuclear material, Radiation protection, Reporting and recordkeeping requirements.

10 CFR Part 40 Criminal penalty, Government contracts, Hazardous materia'is transportation, Nuclear materials, Reporting and recordkeeping requirements, Source material, Uranium.

10 CFR Part 50 Antitrust, Classified information, Criminal penalty, Fire protection, Intergovernmental relations, Nuclear power plants and reactors, Radiation protection, Reactor siting criteria, Reporting and recordkeeping requirements.

10 CFR Part 70 Criminal penalty, Hazardous materials transportation, Material control and accounting, Nuclear materials, Packaging and containers, Penalty, j

1 Radiation protection, Reporting and recordkeeping requirements, Scientific.

)

equipment, Security measures, Special nuclear material.

10 CFR Part 72 Manpower training programs, Nuclear materials, Occupational safety and health, Reporting and recordkeeping requirements, Security measures, Spent fuel.

For the reasons set out in the preamble and under the authority of the Atomic Energy Act of 1954, as amended, the Energy Reorganization Act of 1974, 17

i i

as amended, and 5 U.S.C. 552 and 553, the NRC is adopting the following amendments to 10 CFR Parts 30, 40, 50, 70, and 72.

i 4

PART 30 - RULES OF GENERAL APPLICA8ILITY TO DOMESTIC LICENSING OF BYPRODUCT MATERIAL 1.

The authority citation for Part 30 continues to read as follows:

AUTHORITY:

Secs. 81, 82, 161, 182, 183, 186, 68 Stat. 935, 948,

953, 954, 955, as amended, sec. 234, 83 Stat. 444, as amended (42 U.S.C. 2111, 2112, 2201, 2232, 2233, 2236, 2282); secs. 201, as amended, 202, 206, 88 Stat.

1242, as amended, 1244, 1246 (42 U.S.C. 5841, 5842, 5846).

Section 30.7 also issued under Pub. L.95-601, sec. 10, 92 Stat. 2951 (42 U.S.C. 5851). Section 30.34(b) also issued under sec.184, 68 Stat. 954, as amended (42 U.S.C. 2234).

Section 30.61 also issued under sec. 187, 68 Stat. 955 (42 U.S.C. 2237).

l t

2.

In s 30.8 paragraph (b) is revised to read as follows:

s 30.8 Information collection requirements: OMB approval.

I l

(b) The approved information collection requirements contained in this part appear in 99 30.9, 30.11, 30.15, 30.19, 30.20, 30.32, 30.34, 30.35, 30.36, 30.37, 30.38, 30.50, 30.51, 30.55, 30.56, and Appendix A and B.

s

[

3.

In f 30.35, _ the introductory text of paragraph (f)(2) is revised to read as follows:

i f 30.35 Financial assurance and recordkeeping for decommissioning.

1 18 i

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(f)

(1) l (2) A surety method, insurance, or other guarantee method. These i

methods guarantee that decommissioning costs will be paid. A surety method may be in the form of a surety bond, letter of credit, or line of credit. A parent company guarantee of funds for decommissioning costs based on a

- i financial test may be used if the guarantee and test are as contained in Appendix A of this part. A parent company guarantee may not be used in combination with other financial methods to satisfy the requirements of this section. A guarantee of funds by the applicant or licensee for decommissioning costs based on a financial test may be used if the guarantee and test are as contained in Appendix B of this part. A guarantee by the applicant or licensee may not be used in combination with any other financial methods to satisfy the requirements of this section or in any situation where the applicant or licensee has a parent company holding majority control of the voting stock of the company. Any surety method or insurance used to provide financial assurance for decommissioning must contain the following conditions:

9 4.

A new Appendix B is added to Part 30 to read as follows:

1 Appendix B to Part 30 - Criteria Relating to Use of Financial Tests and Self Guarantees for Providing Reasonable Assurance of Funds for Decommissioning.

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I. Introduction 19 a

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An applicant or licensee may provide reasonable assurance of the e

availability of funds for decommissioning based on furnishing its own guarantee that funds will be available for decommissioning costs and on a demonstration that the company passes the financial test of Section II of this

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appendix. The terms of the self-guarantee are in Section III of this l

appendix. This appendix establishes criteria for passing the financial test for the self guarantee and establishes the terms for a self-guarantee.

l II. Financial Test A. To pass the financial test, a company must meet all of the'following criteria:

f (1) Tangible net worth at least 10 times the total current decommissioning cost estimate (or the current amount required if certification j

is used) for all decommissioning activities for which the company is l

responsible as self-guaranteeing. licensee and as parent-guarantor.

(2) Assets located in the United States amounting to at least 90 percent of total assets or at least 10 times the total current decommissioning cost estimate (or the current amount required if certification is used) for all decommissioning activities for whicn the company is responsible as self-j guaranteeing licensee and as parent-guarantor.

(3) A current rating for its most recent bond issuance of AAA, AA, or A as issued by Standard and Poors (S&P), or Aaa, Aa, or A as issued by Moodys, f

B. To pass the financial test, a company must meet all of the following -

i i

additional requirements:

(1) The company must have at least one class of equity securities registered under the Securities Exchange Act of 1934.

I 20 l

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(2) The company's independent certified public accountant must have compared the data used by the company in the financial test which is derived from the independently audited, yearend financial statements for the latest fiscal year, with the amounts in such financial statement.

In connection with that procedure, the licensee shall inform NRC within 90 days of any matters coming to the attention of the auditor that cause the auditor to believe that the data specified in the financial test should be adjusted and that the company no longer passes the test.

(3) After the initial financial test, the company must repeat passage of the test within 90 days after the close of each succeeding fiscal year.

C. If the licensee no longer meets the requirements of Section II.A. of i

this appendix, the licensee must send immediate notice to the Commission of its intent to establish alternate financial assurance as specified in the Commission's regulations within 120 days of such notice.

III. Company Sel f-Guarantee The terms of a self-guarantee which an applicant or licensee furnishes must provide that.

A. The guarantee will remain in force unless the licensee sends notice of cancellation by certified mail to the Commission. Cancellation may not occur, however, during the 120 days beginning on the date of receipt of the i

notice of cancellation by the Commission, as evidenced by the return receipt.

B. The licensee shall provide alternative financial assurance as specified in the Commission's regulations within 90 days following receipt by i

the Commission of a notice of cancellation of the guarantee.

1 21 l

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4 C. The guarantee and-financial test provisions must remain in effect

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until the Comission has terminated the license or until another financial l

assurance method acceptable to the Comission has been put in effect by the licensee.

D. The licensee will promptly forward to the Commission and the i

licensee's independent auditor all reports covering the latest fiscal year-filed by the licensee with the Securities and Exchange Commission pursuant to the requirements of Section 13 of the Securities and Exchange Act of 1934.

E. If, at any time, the licensee's most recent bond issuance ceases to be rated in any category of "A" or above by either Standard and Poors or

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Moodys, the licensee will provide notice in writing of such fact to the Commission within 20 days after publication of the change by the rating service.

If the licensee's most recent bond issuance ceases to be rated in any category of A or above by both Standard and Poors and Moodys, the licensee no longer meets the requirements of Section II.A. of this appendix.

i F. The applicant or licensee must provide to the Commission a written 4

guarantee (a written commitment by a corporate officer) which states that the licensee will fund and carry out the required decommissioning activities or,

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i upon issuance of an order by the Commission, the licensee will set up and fund I

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a trust in the amount of the current cost estimates for decommissioning.

j PART 40 - DOMESTIC LICENSING OF SOURCE MATERIAL t

l 5.

The authority citation for Part 40 continues to read as follows:

j i

AUTHORITY:

Secs. 62, 63, 64, 65, 81, 161, 182, 183, 186, 68 i

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Stat. 932, 933, 935, 948, 953, 954, 955, as amended, secs. Ile(2), 83, 84, Pub. L.95-604, 92 Stat. 3033, as amended, 3039, sec. 234, 83 Stat. 444, as amended (42 U.S.C. 2014(e)(2), 2092, 2093, 2094, 2095, 2111, 2113, 2114, 2201, 2232, 2233, 2236, 2282); sec. 274, Pub. L.86-373, 73 Stat. 688 (42 U.S.C.

2021); secs. 201, as amended, 202, 206, 88 Stat. 1242, as' amended, 1244, 1246 (42 U.S.C. 5841, 5842, 5846); sec. 275, 92 Stat. 3021, as amended b, Pub. L.97-415, 96 Stat. 2067 (42 U.S.C. 2022).

Section 40.7 also issued under Pub. L.95-601, sec. 10, 92 Stat. 2951 (42 U.S.C. 5851).

Section 40.31(g) also issued under sec. 122, 68 Stat. 939 (42 U.S.C. 2152). Section 40.46 also issued under sec. 184, 68 Stat. 954, as amended (42 U.S.C. 2234).

Section 40.71 also issued under sec. 187, 68 Stat.

955 (42 U.S.C. 2237).

6.

In s 40.8 paragraph (b) is revised to read as follows:

i 5 40.8 Information collection requirements: OM8 approval.

(b) The approved information collection requirements contained in this part appear in $5 40.25, 40.26, 40.31, 40.35, 40.36, 40.42, 40.43, 40.44, 40.60, 40.61, 40.64, 40.65, and Appendix A.

I 7.

In 5 40.36 the introductory text of paragraph (e)(2) is revised to read as follows:

s 40.36 Financial assurance and recordkeeping for decommissioning.

(e) 1 23 i

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(2) A surety method, insurance, or other guarantee method. These methods guarantee that decommissioning costs will be paid. A surety method may be in the form of a surety bond, letter of credit, or line of credit. A i

parent company guarantee of funds for decommissioning costs based on a financial test may be used if the guarantee and test are as contained in l

Appendix A of 10 CFR Part 30. A parent company guarantee may not be used in combination with other financial methods to satisfy the requirements of this

)

section. A guarantee of funds by the applicant or licensee for F

decommissioning costs based on a financial test may be used if the guarantee and test are as contained in Appendix B of 10 CFR Part 30. A guarantee by the applicant or licensee may not be used in combination with any other financial methods to satisfy the requirements of this section or in any situation where the applicant or licensee has a parent company holding majority control of the l

4 voting stock of the company. Any surety method or insurance used to provide I

financial assurance for decommissioning must contain the following conditions:

5 l

PART 50 - DOMESTIC LICENSING OF PRODUCTION AND UTILIZATION FACILITIES

8. The authority citation for Part 50 continues to read as follows-AUTHORITY: Secs. 102, 103, 104, 105, 161, 182, 183, 186, 189, 68 Stat.

936, 937, 938, 948, 953, 954, 955, 956, as amended, sec. 234, 83 Stat. 1244, as amended (42 U.S.C. 2132, 2133, 2134, 2135, 2201, 2232, 2233, 2236, 2239, 2282); secs. 201, as amended, 202, 206, 88 Stat. 1242, as amended, 1244, 1246 l

(42 U.S.C. 5841, 5842, 5846).

i 24 i

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Section 50.7 also issued under Pub. L.95-601, sec. 10, 92 Stat. 2951 (42 U.S.C. 5851).

Section 50.10 also issued under secs. 101, 185, 68 Stat.

936, 955, as amended (42 U.S.C. 2131, 2235); sec. 102, Pub. L.91-190, 83 Stat. 853 (42 U.S.C. 4332).

Sections 50.13, 50.54(dd), and 50.103 also issued under sec. 108, 68 Stat. 939, as amended (42 U.S.C. 2138).

Sections 50.23, 50.35, 50.55, and 50.56 alto issued under sec. 185, 68 Stat. 955 (42 U.S.C.

2235).

Sections 50.33a, 50.55a and Appendix Q also issued under sec. 102, Pub. L.91-190, 83 Stat. 853 (42 U.S.C. 4332).

Sections 50.34 and 50.54 also issued under sec. 204, 88 Stat. 1245 (42 U.S.C. 5844).

Sections 50.58, 50.91, and 50.92 also issued under Pub. L.97-415, 96 Stat. 2073 (42 U.S.C. 2239).

Section 50.78 also issued under sec. 122, 68 Stat. 939 (42 U.S.C. 2152).

Sections 50.80 - 50.81 also issued under sec. 184, 68 Stat. 954, as amended (42 U.S.C. 2234). Appendix f also issued under sec. 187, 68 Stat. 955 (42 U.S.C 2237).

9.

In s 50.8 paragraph (b) is revised to read as follows:

s 50.8 Information collection requirements: OMB approval.

(b) The approved information collection requirements contained in this part appear in f 5 50.30, 50.33, 50.33a, 50.34, 50.34a, 50.35, 50.36, 50.36a, 50.48, 50.49, 50.54, 50.55, 50.55a, 50.59, 50.60, 50.61, 50.63, 50.64, 50.65, 50.71, 50.72, 50.75, 50.80, 50.82, 50.90, 50.91, and Appendices A, B, E, G, H, I, J, K, M, N, 0, Q, and R.

10. In s 50.75 the. introductory text of paragraph (e)(1)(iii) and paragraph (e)(2)(iii) are revised to read as follows:

25

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5 50.75 Reporting and recordkeeping for decornissioning planning.

(e) l (1) i (iii) A surety method, insurance, or other guarantee method. These methods guarantee that decommissioning costs will be paid. A surety method I

may be in the form of a surety bond, letter of credit, c-line of credit. Any surety method or insurance used to provide financial assurance for i

decommissioning must contain the following conditions:

'f (2) r 5

(iii) A surety method, insurance, or other guarantee method. A parent company guarantee of funds for decommissioning costs based on a financial test l

l may be used if the guarantee and test are as contained in Appendix A of 10 CFR

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Part 30. A parent company guarantee may not be used in combination with other financial methods to satisfy the requirements of this section. A guarantee of l

funds by the applicant or licensee for decommissioning costs based on a

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financial test may be used if the guarantee and test are as contained in l

Appendix B of 10 CFR Part 30. A guarantee by the applicant or the licensee may not be used in combination with any other financial methods to satisfy the -

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l; requirements of this section or in any situation where the applicant or licensee has a parent company holding majority control of the voting stock of the company.

I 26 I

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PART 70 - DOMESTIC LICENSING OF SPECIAL NUCLEAR MATERIAL

11. The authority citation for Part 70 continues to read as follows:

AUTHORITY: Secs. 51, 53, 161, 182, 183, 68 Stat. 929, 930, 948, 953, 954, as amended, sec. 234, 83 Stat. 444, as amended (42 U.S.C. 2071, 2073, 2201, 2232, 2233, 2282); secs. 201, as amended, 202, 204, 206, 88 Stat.-1242, as amended, 1244, 1245, 1246 (42 U.S.C. 5841, 5842, 5845, 5846).

Sections 70.1(c) and 70.20a(b) also issued under secs. 135, 141, Pub. L.97-425, 96 Stat. 2232, 2241 (42 U.S.C. 10155, 10161). Section 70.7 also issued under Pub. L.95-601, sec. 10, 92 Stat. 2951 (42 U.S.C. 5851).

Section 70.21(g) also issued under sec. 122, 68 Stat. 939 (42 U.S.C. 2152).

Section 70.31 also issued under sec.

57d, Pub. L.93-377, 88 Stat. 475 (42 U.S.C. 2077).

Sections 70.36 and 70.44 also issued under sec.184, 68 Stat.

954, as amended (42 U.S.C. 2234).

Section 70.61 also issued under secs. 186, 187, 68 Stat. 955 (42 U.S.C. 2236,

?37). Section 70.62 also issued under sec. 108,-68 Stat. 939, as amended (42 U.S.C. 2138).

i

12. In s 70.25, the introductory text of parag,aph (f)(2) is revised to-1 read as follows:

i 6 70.25 Financial assurance and,recordkeeping for decommissioning.

(f) 27 j

(2) A surety method, insurance, or other guarantee method. These methods guarantee that decommissioning costs will be paid. A surety method may be in the form of a surety bond, letter of credit, or line of credit. A parent company guarantee of funds for decommissioning costs based on a financial test may be used if the guarantee and test are as contained in Appendix A of 10 CFR Part 30. A parent company guarantee may not be used in combination with other financial methods to satisfy the requirements of this section. A guarantee of funds by the applicant or licensee for decommissioning costs based on a financial test may be used if the guarantee and test are as contained in Appendix B of 10 CFR Part 30. A guarantee by the applicant or the licensee may not be used in combination with any other financial methods to satisfy the requirements of this section or in any situation where the applicant or licensee has a parent company holding majority control of the voting stock of the company. Any surety method or insurance used to provide financial assurance for decommissioning must contain the following conditions:

PART 72 - LICENSING REQUIREMENTS FOR THE INDEPENDENT STORAGE OF SPENT NUCLEAR FUEL AND HIGH-LEVEL RADI0 ACTIVE WASTE

13. The authority citation for Part 72 continues to read as follows:

AUTHORITY: Secs. 51, 53, 57, 62, 63, 65, 69, 81, 161, 182, 183, 184, 186,-187, 189, 68 Stat. 929, 930, 932, 933, 934, 935, 948, 953, 954, 955, as amended, sec. 234, 83 Stat. 444, as amended (42 U.S.C. 2071, 2073, 2077, 2092, 2093, 2095, 2099, 2111, 2201, 2232, 2233, 2234, 2236, 2237,'2238, 2282); sec. 274, Pub. L.86-373, 73 Stat. 688, as amended (42 U.S.C. 2021); sec. 201, as 28 1

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amended, 202, 206, 88 Stat. 1242, as amended, 1244, 1246 (42 U.S.C. 5841, t

5842, 5846); Pub. L.95-601, sec. 10, 92 Stat. 2951 (42 U.S.C. 5851); sec. 102, Pub. L.91-190, 83 Stat. 853 (42 U.S.C. 4332); Secs. 131, 132, 133, 135, 137, 141, Pub. L.97-425, 96 Stat. 2229, 2230, 2232, 2241, sec. 148, Pub. L.

100-203, 101 Stat. 1330-235 (42 U.S.C. 10151, 10152, 10153, 10155, 10157, 10161,10168).

I Section 72.44(g) also issued under secs.142(b) and 148(c), (d), Pub. L.

100-203, 101 Stat. 1330-232, 1330-236 (42 U.S.C. 10162(b), 10168(c), (d)).

Section 72.46 also issued under sec. 189, 68 Stat. 955 (42 U.S.C. 2239); sec. 134, Pub. L.97-425, 96 Stat. 2230 (42 U.S.C. 10154). Section 72.96(d) also issued under sec. 145(g), Pub. L. 100-203, 101 Stat. 1330-235 (42 U.S.C.

10165(g)). Subpart J also issued under secs. 2(2), 2(15), 2(19), 117(a),

141(h), Pub. L.97-425, 96 Stat. 2202, 2203, 2204, 2222, 2244 (42 U.S.C.

10101, 10137(a), 10161(h)).

Subparts K and L are also issued under sec. 133, 98 Stat. 2230 (42 U.S.C. 10153) and sec. 218(a), 96 Stat. 2252 (42 U.S.C.

10198).

15. In 6 72.30 the introductory text of paragraph (c)(2) is revised to read as follows:

l s 72.30 Decommissioning Planning including financing and recordkeeping.

P (c)

(2) A surety method, insurance, or other guarantee method. These methods guarantee that decommissioning costs will be paid. A surety method i

may be in the form of a surety bond, letter of credit, or line of credit. A parent company guarantee of funds for decommissioning costs based on a financial test may be used if the guarantee and test are as contained in 29

i Appendix A of 10 CFR Part 30. A parent company guarantee may not be used in combination with other financial methods to satisfy the requirements of this section. A guarantee of funds by the applicant or licensee for decommissioning costs based on a financial test may be used if the guarantee and test are as contained in Appendix B of 10 CFR Part 30. _A guarantee by the applicant or the licensee may not be used in combination with any other financial methods to satisfy the requirements of this section or in any-i situation where the applicant or licensee has a parent company holding majority control of the voting stock of the company. Any surety method or insurance used to provide financial assurance for decommissioning must contain the following conditions:

Dated at Rockville, Maryland, this___ day of

, 1993.

For the Nuclear Regulatory Commission.

Samuel J. Chilk, Secretary of the Commission.

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.t REGUIATORT ANALYSIS OF DECOMMISSIONING FINANCIAL ASSURANCE SELF-GUARANTEE OFTIONS FOR NATERIALS LICENSEES July 9, 1993 I

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1.

INTRODUCTION

1.1 Background

The U.S. Nuclear Regulatory Co= mission (NRC) in 1991 received a petition j

from the General Electric Corporation (GE) and the Westinghouse Electric 4

Corporation (Westinghouse) to amend the current regulations establishing general requirements for decommissioning licensee facilities to allow certain NRC non-electric utility reactor licensees to self-guarantee decommissioning funding co'sts.

NRC published a notice of receipt of petition for rulemaking on September 25, 1991, in the Federal Reaister (56 FR 48445), requesting comments on the proposal contained in the petition.

After reviewing the comments and other materials, the Commission in August, 1992, directed the Staff to proceed with reSulatory amendments. On January 11, 1993, NRC published a proposed rule that would amend its regulations for decommissioning licensed facilities to allow certain non-electric utility licensees to use self-guarantee as a means of financial assurance (58 FR 3515).

The comment i

period on the proposed rule ended on March 29, 1993. After reviewing the 14 comments that were received and evaluating the alternatives outlined in the proposed rule, NRC is now taking final regulatory action.

This Regulatory Analysis was prepared pursuant to NUREG/BR-00581 to support NRC's regulatory action and examine the costs and benefits of the alternatives considered by the Commission.

NRC currently administers over 7,000 licenses for the possession and use of nuclear materials under 10 CFR Parts 30, 40, 50 (excluding power reactors),

70, and 72.

Approximately 700 of the licensees who hold these licenses are required to provide financial assurances for decommissioning under rules g

promulgated in 1988 (53 FR 24018, June 27, 1988).

The rules on financial assurance for decommissioning provide that licensees under 10 CFR Parts 30, 40, 50, 70, and 72 =ust provide financial assurance to ensure that decommissioning of licensed facilities will be accomplished in a safe and timely manner and that adequate funds will be available for this purpose. According to the decommissioning regulations,2 financial assurance must be provided by one or more of the following methods:

(1)

Prepayment.

Prepayment is the deposit prior to the start of operation into an account segregated frca licensee assets and outside the licensee's administrative control of cash or liquid assets such that the amount of funda would be sufficient to pay decommissioning costs.

Prepayment may be in the form of a trust, 1

NUREG/BR-0058, NRC Regulatory Analysis Guidelines, Revision 1. U.S.

Nuclear Regulatory Commission May 1984.

2 The same four alternative methods of providing financial assurance are authorized for licensees under Parts 30, 40, 50, 70, and 72 in the.following sections:

10 CFR II30.32(f), 40.36(e), 50.75(e), 70.25(f), and 72.18(c).

2-

escrow account, governm2nc fund, cortificate of dsposit, or deposit of governmsnt occurities.

(2)

A surety method, insurance, or other guarantee method.

These methods guarantee that dacommissioning costa vill be paid should the licensee default. A surety method may be in the form of a surety bond, letter of credit, or line of credit. A parent co=pany guarantee of funds for decommissioning costs based on a financial test may be used if the guarantee and test are as specified in Appendix A of 10 CFR Part 30.

A parent company guarantee may not be used in combination with any other financial methods to satisfy the [ decommissioning financial assurance) requirements.

(3)

An external sinking fund in which deposits are mado at least annually, coupled with a surety method or insuranca, the value of which may decrease by the amount being accumulated in the sinking fund. An external sinking fund is a fund established and maintained by setting aside funds periodically in an account segregated from licensee assets and outside the licensee's administrative control in which the total amount of funds would be sufficient to pay decommissioning costs at any time termination of operation is expected. An external sinking fund may be in the form of a trust, escrow account, government fund, certificate of deposit, or deposit of government securities.

(4) in the case of Federal, State, or local government licensees, a stacament of intent indicatin vill be obtained when necessary.'g that funds for decommissioning With the exception of the financial test component of the parent company guarantee, the terms and conditions of the various financial mechanisms that may be used as proof of financial assurance for decommissioning are provided in guidance.' The financial test requirements are provided in the regulations, at 10 CFR Part 30 Appendix A, and are referenced in other pertinent Parts.5 The parent company guarantee provided for under the decommissioning financial assurance regulations contains two elements:

a guarantee and an underlying financial test submission. Under this mechanism, a corporate parent of the licensee may submit a guarantee to NRC affirming that the corporate parent vill pay the decommissioning costs if the licensee does not pay.

For such a guarantee to be acceptable, the corporate parent must 3 53 Fed. Reg. 24018, June 27, 1988.

• U.S. Nuclear Regulatory Commission, Reculatorv Guide 3.66. Stsedard Format and Content of Financial Assurance Mechanisms Recuired for Decommissioning Under 10 CFR Parts 30. 40. 70. and 72. June 1990.

5 The decommissioning regulations do not define aparent company." h1C has provided in Rerulatorv Guide 3.66 that in order to qualify as a parent company, a firm must demonstrate that it has " majority control of the licensee's voting stock. Rerulatory Guide 3.66, pp. 3-21 and 3-23. !

demonstrate that it has adequate financial resources to cover the costs of decommissioning activities. The corporate parent makes such a demonstration when it provides specified documentation to NRC that it passes a financial test that measures the financial strength of the firm.

The financial test currently requires a parent corporation to meet, on an annual basis, one of two sets of alternative financial criteria. Under the first alternative, the parant company must demonstrate that it possesses tangible net worth of at least $10 million, as well as tangible not worth and net working capital at least six times the decommissioning cost estimate.

Tangible net worth is defined am net worth minus goodwill, patents, trademarks, and copyrights. The parent corporation,must show that it possesses assets in the United States am ounting to at least 90 percent of its total assets or at least six times the sum of the current decommissioning cost estimates being covered by the test.

The parent corporation also must show that it meets or exceeds at least two of three specified financial ratios (total liabilities to not worth less than 2.0; net income plus depreciation, depletion, and amortization to total liabilities greater than 0.1; and current assets to current liability greater thaa 1.5).

Under the second alternative of the financial test, the parent corporation must shew that it possesses tangible nat worth of at least $10 million, as well as tangible net worth at least six times decommissioning costs.

It also must show that f T asesses assets in the United States amounting to at least 90 percent o( its total i

assets or at least six times the sum of tha current decommissioning cost estimates being covered by the tast.

Finally, it must show that it has a current investment grada rating for its most recent bond issuance from one of two major bond rating organizations.

1.2 Statement of the Problem With this rulemakin6, the NRC is seeking to address a number of issues raised in the petition and also presented by the NRC in its Notice of Receipt of Petition for Rulemaking and in the preamble to the proposed rule 6 The primary issues are (1) whether self-guarantees providad by licensees of sufficient financial strength and stability would provide adequate financial assurance, and (2) whether use of self-guarantees would substantially reduce the costs of financial assurance to those licensees that qualify to use of self-guarantee mechanism. A subsidiary issue is whether both a bond rating criterion and a tangible net worth criterion must be included in the financial to be used to determina eligibility to utilize the self-guarantee.

The test petition requests that NRC amend the decommissioning financial assurance regulations to allow licensees to provide self-guarantee of decommissioning funding using a more restrictive financial test than the financial test used in the NRC parent guarantes mechanism. NRC proposed such a test in its proposed rule of January ll,1993, and the alternatives upon which NRC requested cemsent in the preamble to the January ll,1993, proposed rule also

' 56 FR 48445, September 25, 1991.

The Federal Recister Notice summarizes arguments presented in the petition at pp. 4-8.

In the Preamble to the proposed rule. NRC requested public comments on alternative criteria.

Based on the comments received and on its analysis of the costs and benefits of the alternatives. NRC is adopting one of the alternatives raised in the Praamble (58 FR 3518 January 11, 1993). i

were more stringent than the financial test used in the NRC parent guarantee mechanism.

1.3 Objective of the Rulemaking NRC's objective in promulgating a self-guarantee mechanism is to reduce the cost burden of financial assuranca on licensees while providing NRC with sufficient assurance that decommissioning costs will be funded when necessary.

2.

FRELDiINA.RY IDENTIFICATION AND DESCRIPTION OF OPTIOMS in analyzing the petition from GE and Vestinghouse, and in its analysis of the January ll,1993, proposed rule, NRC considered three regulatory options:

(1) no action; (2) adopt the self-grarantes as proposed by the petition; and (3) adopt the self-guarantee proposed in the petition but modified to delete the $1 billion not worth requirement proposed by the petitioners.

2.1 Option 1: No Action Under Option 1, NRC would continue to prohibit the use of any type of self-guarantee mechanism. Licensees that are unable to obtain a parent company guarantee because they do not have a parent company will, as at present, be able to demonstrate financial assuranca using one of the other financial assurance methods currently allowed (i.e., prepayment, surety method or insurance, external sinking fund coupled with a surety method or insurance, and statement of intent).

2.2 Option 2: Adopt the Self-Guarantee Proposed in the Petition and the Proposed Rule Under this option, NRC would allow licensees to use the self-guarantee proposed by GE and Vestinghouse in their petition for rulemaking.

The petition details specific criteria for a self-guarantee, which would be available for any licensee other than an electric utility licensed to operate a reactor under 10 CFR Part 50.

Many of the criteria under the proposed self-guarantee mechanism parallel requirements that are already applicable for parent guarantees and/or other =schanisms. The proposed criteria ata listed below:7 (1)

The self-guarantee may not be used "in any situation where the applicant or licensee has a parent company holding majority centrol of the voting stock of the company."

(2)

The applicant or liennsee must demonstrate that it passes a financial test.

All of the following terms of the test must be satisfied:

(a)

The company must have a current rating for its most recent j

bond issuance of AAA, AA, or A, as issued by Standard and Poor's or Aaa, Aa, or A, as issued by Moody's, 7 56 Fed. Reg. 48446.

1

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(b)

The company must have tangible net worth at least 10 times the total currant decommissioning coat estimate for all decommissioning activities for which the company is responsible as self-guaranteeing licenses and as parent-guaranter, or the current amount required if certification is used.

(c)

The coupany must have tangible net vorth of at least $1 yf billion.

(d)

The company must have assets located in the United States amounting to at least 90 percent of total assets or at least 10 times the total current decommissioning cost estimste for all decommissioning activities for which the company is responsible as self-guaranteeing 11renses and as parent-guarantor, or the current amount required if certification is used.

(3)

The applicant or licensee must continue to satisfy certain procedural requirements:

(a)

The company's independent certified public accountant must compare the nata used by the company in the financial test with the amounts in the company's independently audited year and financial statements.

(b)

The company must notify NRC within 90 days of any matters coming to the attention of the auditor that cause the auditor to believe that the data specified in the financial test should be adjusted and that the company no longer i

passes the test.

d (c)

The company must have at least one class of equity securities registered under the Securities Exchange Act of 1934 (d)

After the initial financial test, the company must repeae the passage of the test within 90 days' after the close of each succeedin5 fiscal year.

(e)

If the company no longer passes the financial test, it must send notice of intent to establish alternate financial assurance. Such notice must be sent within 90 days after the end of the fiscal year for which the year end data show that the company no longer meets the financial test requirements. The licensen must provide alternate financial assurance within 120 days after the and of such fiscal year.

(4)

The applicant or licensee must furnish its own guarantee that i

funds will be available for decommissioning costs.

The terms of this self-guarances must provide that:

i (a)

The self-guarantee will remain in force unless written

)

notice of cancellation is sent to NRC. The self-guarantee, l

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how:ver, must remain in force for 120 days after NRC receives notice of cancellation.

(b)

Alternative financial assurance will be provided within 90 days after NRC receives notice of cancellation of the self-guarantee.

(c)

"he self-guarantee and supporting financial test will remain in force until the Commission has terminated the license or until another acceptable financial assurance method has been put into effect by the license.

(d)

The licensee will provide the Commission with copies of all reports filed with the Securities and Exchange Commission under Section 13 of the Securities Exchange Act of 1934.

(e)

The licensee will provide notice to the Commission within 20 days after the rating of its most recent bond issuance ceases to be A or above by either Standard or Poor's or Moody's.

l 2.3 Option 3: Adopt the Self-Cuarantee Identified as an Alternative in the Preamble to the Proposed Rule (the Self-Guarantee in the Pstition and the Proposed Rule Modified to Delete the $1 Billion Not Worth Requirement)

Under Option 3. NRC would allow a self-guarantee baaed on the financial test criteria proposed in the petition and in the proposed rule, but would omit the requirement that tangible not worth must be greater than $1 billion.

Thus, licensees would still be required to have a current bond rating of A or better, tangible net worth at least 10 times the current decommissioning cost estimate (or the current amount required if certification is used), and assets i

located in the United States amounting to at least 90 percent of total assets or at least 10 times the current decommissioning cost estimate (or certification amount).

3.

ANALYSIS OF OPTIONS 3.1 Methodology The method used by NRC to analyze the three regulatory options described above, to determine the number of licensees able to use each of the self-l guarantee options, and to evaluate the costs and benefits of each option consists of several key steps.

First, NRC developed a financial data base of material licensees subject to financial assurance requirements under 10 CFR Parts 30, 40, 50, 70, or 72.

NRC than used this data base to evaluate the availability and assurance risk of the self-guarantee options.

Finally. NRC calculated and compared the costs and benefits of each regulatory option.

Development of Finsneial Data Base NRC's first acep it. developing the financial data base was to identify all material licensees subject to financial assurance requirements under 10 7-

CFR Parts 30, 40, 50, 70, or 72.s NRC then collected financial data for l

these licenses from Dunn and Bradstreet and Standard & Poor's.

Licensees vere eliminated from the. data base if financial data were unavailable or of questionable quality.

Alt?' ugh the two self-guarantee options include a U.S. assets requirement, data on domestic assets could not be obtained from Dunn and Bradstreet. This may lead to an oversattmate of the nusbar of firms able to a self-guarantee option. Similarly, because no~information is available use on auditors' opinions, the data base could not be used to evaluate whether licensees have their financial statements audited by independent certified accounts to confirm that their accounting practices are in conformity with generally accepted accounting practices.

The absence of this information also could lead to an overestimate of the number of firma able to pass all financial tests.

Availability The " availability" of the two self-guarancea options refers to the i

number of NRC licensees that could use a particular option given their obility to satisfy the financial requirements of the option. Using the data base described above, NRC first determined whether each licensee in the data base would be able to meet the requisite financial criteria. NRC then calculated availability by counting those licensees able to use the self-guarantee option.

Atsurance Risk

" Assurance" is a concept closely related to security:

something given, deposited, or pledged to make certain the performance of an obligation or the payment of a debt. Although the licenses always retains primary responsibility for performance of the decommissioning regardless of the method of assurance used, moat financial assurance mechanisms (e.g., prepayment mechanisms and surety mechanisms) provide a secondary level of protection to guard against the possibility that the licensee may be unable to meet its decommissioning obligation.

Thus. the assurance risk associated with most mechanisms equals the possibility that hgih the licenses and the financial assurance provider (e.g., banks, sureties) will be unable to meet the required obligations.'

t l

e Certain licensees (such as universities) were excluded from the analysis because they generally prepare financial data that is not suited for use in self 6uarantee mechanisms. In addition, federal, State, and local government licensees were excluded because they are eligible to use a statement of intent to assure for decommissioning costs, and would probably opt for the statement of intent over.the self-guarantee. When a Part 50 non-utility licenses also held a license 'under Part 30, 40, 70, or 72, the analysis treated these licensees as Part 30, 40, 70, or 72 licensees.

l

' This analysis assumes that all mechanisms are properly drafted and executed, and are issued b-j qualified providers.

SLmilarly, the possibility of collusion or frr.ud has not been considered.

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In tha ccan of salf-guarentees, the guirantor is not required to set funds aside or obtain a third party guarantee if it can dssonstrate by means of a financial test that its financial resources are sufficient to pay the i

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assured costs whenever those costs come due.

Thus, for self-guarantnes, the assurance risk equals the possibility that the licensee will be unable to meet the required obligations.

In other words, the assurance provided by a self-Suarantee is exposed to the risk that a decline in the financial condition of the self-guarantor will not be identified in time so that a prepayment or third-party financial assurance =schanism can be obtained to replace the self-guarantee. NRC analyzed this risk associated with self-guarantees by evaluating the "misprediction" rates of components of financial tests proposed for use to screen potential self-guarantors, and by evaluating the baseline failure rates for firms calculated by firm size (as measured by not worth).

Costs and Benefits The total cost of the self-guarantee include, in addition to implementation costs, the public and private costs associated with the self-guarantee mechanism.

Private costs consist primarily of the fees that licensees must pay to a third party in order to obtain a financial assurance mechanism.

Thus, firms can avoid much of the private cost of financial assurance if they can obtain a self-guarantee or a parent company guarantee.

Estimates of private costs were derived from the number of licensees able to pass the proposed self-guarantee test and the number of licenses held by such licensees.

Public costs of a self-guarantee include the decommissioning costs that are assured by the self-guarantee but which the licensee does not pay due to bankruptcy.

Although public costs can largely be avoided by not allowing.the self-guarantee, the Iglal cost (i.e., public plus private) may be reduced by allowing the self-guarant,se if private costs decline more than public costs rise.

The public costs of the self-guarantee mechanism are calculated by multiplying the assurance risk by the amount of the decommissioning costs expected to be assured using the mechanism. NRC's estimates of public costs reflect the assurance risk of each self-guarantee by not worth categcry, and the number of licenses covered by fir =s in each net worth category.

The net benefit of a self-guarantee would equal the savings to licensees resulting from use of the self-guarantas mechanism (rather than from a more expensive third-party mechanism) minus any increase in public costs.

3.2 Availability of Self-Guarantee Options NRC's analysis indicates that Option 2, which was the option included in the proposed rule and was the self-guarantee option proposed in the CE and Westinghouse petition, could be used by approximately 20 materials licensees (estimated to hold the equivalent of about 34 licenses at decommissioning costs of $750,000 per license). The option being adopted today, which is option 3, deletes the $1 billion tangible net worth requirement..

This option would allow an estimated additional 7 firms (holding 11 licenses) with not worth less than $1 billion to become capable of satisfying the requirements.

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1 3.3 Assurance Risk The estimated' annual assurance risk for both Option 3 and Option 2 is

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0.13 percent.

In other words, there is a 0.13 percent chance that a licensee using' the self-guarantee proposed by CE and Westinghouse will go bankrupt and j

be unable to cover the costs of decommissioning'in a given year.10 There t

are no available data with which to estimate the default risk of A-rated bonds i

by not worth category of the bond issuer. Furthermore, the premise of the i

bond ratings is that all A rated bonds should be of the same approximate risk l

(i.e., different band ratings are assigned to different risk categories). NRC believes that this indicates that a net worth requirement and a minimum bond

[

rating are redundant, i.e., if not worth is factored into a firm's bond I

rating. Moody's data on the historical default risk of A-rated bonda indicate

'f that risk is about 0.13 percent per year. Although this. risk is slightly l

higher than the risk associated with the third party financial assurance.

lI mechanis'm allowed under current regulations," tha risk associated with the

'I NRC parent guarantee is similar to the risk of the self-guarantee when the parent company / licensee relationship is not independent. NRC believes that the risk of the self-5uarantee is extremely small. Furthermore, allowing use of a self 6uarantee mechanism reduces the sum of public and private costa.(see

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below).

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3.4 Public and Private costs of Self-Cuarantee options In this analysis, public costs are defined as the amount of decennissioning costs that would be required to be paid by the public sector i

due to the financial failurs of licensees and/or their guarantors without the j

substitution of another source of financial assurance.

Private costs are defined as the cost of financial assurance mechanisms that must be obtained by licensees in order to comply with regulatory requirements.

i Mechanisms based on financial tests, such as a parant company Cuarantee and a self-guarantee, reduce private costs by ' allowing licensees to

[

demonstrate financial assurance without incurring the fees associated with the use of third-party mechanisms such as letters of credit, surety bonds, etc.

The private costs associated with financial test mechanisms are assumed to be i

the costs of preparing the necessary submissions' to NRC and the costs of preparation of letters from an independent auditor.

t For the three options, Table' 3.1 presents and compares the estimated private costs, public costs, and total costs (private plus public costs) of NRC's decommissioning financial assurance requirements for materiala licensees i

regulated under 10 CFR Parts 30, 40, 70, and 72.

j M NRC's estimates of the assurance risk associated with Options 2 and 3

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are identical because the assurance risk for option 3 was used to proxy for the risk associated with Option 2 (which could not be calculated.directly).

Because Option 2 contains every requirement in Option 3 plus an additional $1 j

billion tangible net worth requirement, the actual assurance risk associated

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with Option 2 is likely to be slightly less than the-figure cited above.

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For example, the risk associated with small licensees -(those with less than $10 million in tangible not worth) using letters of credit from savings j

i and loans is estimated at 0.055 percent.

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Table 3.1 Public and Private Costs of Financial Assurance With and Without Proposed Self-Cuarantes ($000)12 r

Financial Assuranca option Private Public Total Costs Costs Costs 1: All licensees use parent company guarantee

$3,060

$26

$3,086 i

or bank letter of credit 2: All licensees use self-guarantee with both

$2,453

$78

$2,531 1

$1 billion not worth and bond rating I

requirement, parent company guarantee, or bank letter of credit 3: All licensaas use self-guarantee bond

$2,329

$89

$2,418 rating requirement but without $1 billion requirement, parent company guarantaa, or bank letter of credit Option 1 The first scenario represents the existing baseline, i.e.,

the self guarantee is not allowed, and licensees that are capable of obtaining a parent company guarantee are assumed to use that mechanism. Licensees that are unable to obtain a parent company guarantes are assused to use letters of credit at an annual cost of 1.5 percent of their face value.

Option 2 The second scenario anticipates use of the self-guarantee by all licensees that meet the financial conditions of the self-guarantee.

Similarly, licensees that are capable of obtaining a parant company guarantee are assumed to still use that mechanism.13 Under this scenario, only licensees that are unable to use either a self-guarantee or a parent company guarantea are assumed to obtain letters of credit.

Here, public costs are higher than under the first scenario, but both private costs and total costs are further reduced.

Option 3 The third scenario represents the option based on the financial test criteria being adopted today, which includes an A or better bond rating requirement but does not include the requirement that tangible not worth must be greater than

$1 billion. Under this scenario, the availability of thesa 12 Source:

ICT calculations. The costs in the table do not reflect any decraase in private decommissioning coscs that would occur if the public assumes the decommissioning comte that are unfunded by the private sector.

13 Because the NRC parent comp.ay guarantee is available only to licensees that are subsidiaries, and the proposed self-guarantee is a.ilable only to licensees that have no parent company, the two tests cover separate groups of licensees.

In some cases, hevever, a firm may be both a licenses and a parent company to other licensaas.

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self-guarantee incrcasas to includa a few note licensees.

Public costa rise, but privato costs fall by a greator I

amount, representing an additional decrease in total costs.

l.

As Table 3.1 demonstrates, while private costs decline substantially under the a self-guarantee (option 2) containing a $1 billion or more not

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worth requirement, public costs rise. Total annual costs, however, are lower l

when the self-guarantee mechanism is available. For example, total annual costs are reduced by an estimated $$55,000 under Option 2.

Allowing use of j

the self-guarantee (Option 3) being adopted today reduces total annual costa -

by an estimated $668,000, i

Table 3.2 also shows the total costs of financial assurance under the I

three regulatory options that were considered, but it presents the total costs for 15, 20, and 30 years.

Again, total costs are lowest when the self-guarantee mechanism is available. Under Option 2, which would allow the self-guarantee proposed by the petitioners, total costs would be reduced by an estimated $5,759,000 over 15 years, 56,915,000 over 20 years, and $8,530,000 over 30 years. Dropping the $1 billion net worth requirement further reduces total costs by $1,160,000 over 15 years, $1,392,000 over 20 years, and

$1,718,000 over 30 years, t

These cost savings may not be large relative to total decommissioning costs; however, the cost savings are substantial relative to total financial assurance costs.

q 3.5 Decision Rationale for Selection of Proposed Option On the basis of the analyses summarized above, the Commission has chosen Option 3.

t 4.

FINANCIAL AND ECONOMIC IMPACTS OF SELF-GUAEANTEE RULEMAKING i

4.,1 Impacts on Licensees Adoption of a self guarantee option is not expected to produce any i

negative financial or economic impacts. Because a self-guarantee option will

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generate cost savings for those licensees able to use the self-guarantee, the rulemaking is expected to produce positive financial impacts.

Other licensees that cannot use the self-guarantee, including licensees that qualify as saml1 businesses, will be unaffected by the rulemaking and therefore should not experience significant impacts.

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l' Costs shown represent the not present value of annual costs for 15, 20, and 30 years, assuming a discount rate of 5 percent.

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l Table 3.2 Total Not Present Value of Financial Assurance Costs Over 15, 20, AND 30 YEARS, WITH AND WITHOUT PROPOSED SEi.F-GUARANTEE ($000)"

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Financial Assurance Option 15 Years 20 Years 30 Years i

i 1: All licensees use parant company

$32,027

$38,453

$47.433

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guarantee or bank letter of credit l

2: All licensees use self-guarantee

$25,268

$31,538

$38,903 l

proposed in petition, parent company guarsntee, or bank letter of credit 3: All licensees use self-guarantee with A

$25,098

$30,134

$37,171 or better bond rating but without $1 l

billion requirement, parent company l

guarantaa, or bank letter of credit 4.2 Impacts on NRC and the States No significant impacts are expected for NRC or the States because the l

effort to review and administer the self guarantee is expected to be comparable to that associated with the parent company guarantee or other mechanisms currently allowed.

In each case. NRC or the States will be required to review financial assurance submissions, and the size and scope of self-guarantee submissions are not expected to differ significantly from the mechanisms currently allowed.

5.

IXPI.ICATIONS FOR OTHER NRC REGUIATORY PROGRAMS Currently, self-guarantees are not allowed in NRC's financial assurance programs for low-level radioactive waste disposal facilities, uranium recovery facilities, or for power reactors. While much of the analysis behind the proposed self-guarantee rulemaking may be generally applicable to these other programs, licensees in these programs may also be significant different from materials licensees in at least three ways:

(1)

The decommissionin5 cost estimates typical of~these licensees may be much higher than is typical of materials licensees. Higher costs estimates could alter the optimal balance between public and private costs.

(2)

The number of licensees in these programs is likely to be far smaller than the number of materials licensees.

Fever facilities could alter the balance between public and private costs.

(3)

The financial characteristics of these licensees may be very different from these of materials licensees.

Different financial 13 Source:

ICF calculations.

- 13

_-.-_-__-_---u

characteristics could suggest different financial test criteria and perhaps different baseline failure rates.

i Because the present analysis. for the reasons stated above, may not fully apply to NRC's other financial assurance programs, NRC is not proposing a self-guarantee option for those pro 6 rams at the present time.

6, IMPLEMENTATION SCREDUI.E f

[To be provided.]

1 REFERENCES ICF Incorporated report, Ansivais of Assurance Provided by Current and Proposed Financial Assurance Mechanisms, Draft Report. April 1992.

ICT Incorporated memorandum to Clark Prichard, NRC, from Craig Dean, John Collier, and Rick Nevin, " Responses to Questions Raised in Task 6a " August 5, 1992.

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1 ENCLOSURE D

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U-NUCLEAR REGULATORY COMMISSION

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WASHINGTON, D C. 205$5-0001 t

The Honorable Philip R. Sharp, Chairman Subcommittee on Energy and Power Committee on Energy and Commerce United States House of Representatives Washington, DC 20515

Dear Mr. Chairman:

The NRC has sent to the Office of the Federal Register for publication the enclosed final amendments to 10 CFR Parts 30, 40, 50, 70 and 72.

The NRC is issuing the final rule to allow certain non-electric utility licensees to i

use self-guarantee as an additional mechanism for complying with the Commission's regulations regarding financial assurance for decommissioning.

The self-guarantee would be limited to NRC licensees that meet stringent financial criteria and would not include electric utility reactor licensees.

.j The rule would grant a petition for rulemaking (PRM-30-59) submitted by General Electric Company and Westinghouse Electric Corporation.

Sincerely, Dennis K. Rathbun, Director Office of Congressional Affairs

[nclosure:

As stated cc:

Representative Michael Bilirakis

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0 UNITED STATES

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WASHINGT ON. O.C, 205 % -0001 The Honorable Richard H. Lehman, Chairman Subcommittee on Energy and Mineral Resources Committee on Natural Resources United States House of Representatives Washington, DC 20515

Dear Mr. Chairman:

The NRC has sent to the Office of the Federal Register for publication the enclosed final amendments to 10 CFR Parts 30, 40, 50, 70 and 72. The NRC is issuing the final rule to allow certain non-electric utility licensees to use self-guarantee as an additional mechanism for complying with the Commission's regulations regarding financial assurance for decommissioning.

The self-guarantee would be limited to NRC licensees that meet stringent financial criteria and would not include electric utility reactor licensees.

The rule would grant a petition for rulemaking (PRM-30-59) submitted by General Electric Company and Westinghouse Electric Corporation.

Sincerely, Denpas K. Rathbun, Director Of# ce of Congressional Affairs i

Enclosure:

As stated cc:

Representative Barbara Vucanovich 1

l?,0. ntcuq?*s Y>(YE UNITED STATES

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NUCLEAR REGULATORY COMMISSION

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WASHWGTON, D.C. M55@01 t

i The Honorable Joseph 1. Lieberman, Chairman l

Subcommittee on Clean Air and Nuclear Regulation Committee on Environment and Public Works United States Senate Washington, DC 20510

Dear Mr. Chairman:

The NRC has sent to the Office of the Federal Register for publication the enclosed final amendments to 10 CFR Parts 30, 40, 50, 70 and 72.

The NRC is issuing the final rule to allow certain non-electric utility licensees to use self-guarantee as an additional mechanism for complying with the Commission's regulations regarding financial assurance for decommissioning.

t The self-guarantee would be limited to NRC licensees that meet stringent financial criteria and would not include electric utility reactor licensees.

The rule would grant a petition for rulemaking (PRM-30-59) submitted by General Electric Company and Westinghouse Electric Corporation.

Sincerely, Dennis K. Rathbun, Director Office of Congressional Affairs

Enclosure:

As stated cc:

Senator Alan K. Simpson F

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1 NRC AMENDS REGULATIONS GOVERNING DECOMMISSIONING FUNDING The Nuclear Regulatory Commission is amending its P

regulations to allow self-guarantee as a means of assuring-that

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adequate funds are available for decommissioning NRC-licensed j

i nuclear facilities (except nuclear power plants owned by electric f

utilities).

The action is being taken in response to a petition' for rulemaking submitted by General Electric Company and l

Westinghouse Electric Corporation.

The amendments reflect public comments on the notice of reccipt of the petition for rulemaking and will permit the use of self-guarantee if certain requirements are met.

These requirements include:

tangible not worth at least 10 times the total current cost estimate for all decammissioning activities for which the company is responsible as a self-

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guaranteeing licensee and as parent guarantor; assets located in the United States amounting to at least 90 percent of total assets or at least 10 times the current cost estimate for all l

decommissioning activities for which the company is responsible as a self-guaranteeing licensee and as parent guarantor; a f

i current rating for its most recent bond issuance of AAA, AA or A as issued by Standard and Poors (S&P) or Aaa, Aa or A as issued i

by Moodys.

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In addition:

the company will have to have at least one l

class of equity securities registered under the Securities and Exchange Act of 1934; the company's independent, certified public accountant will have to compare the data used by the company in

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!'i the financial test which is derived from~the. independently-audited, year-end financial statements for the latest fiscal year with the amounts in such financial. statement; the licensee will 1

have to inform the NRC within 90 days of any matters coming to j

i the attention of the auditor that cause the auditor to believe that the data specified in the financial test should be adjusted and that the company no longer passes the financial test; and, after the initial financial test, the company will have to repeat I

passage of the test within 90 days after the close of each succeeding fiscal years.

t Further:

the guarantee will remain in force unless the l

i licensee sends notice of cancellation by certified mail to the Commission but cancellation can not occur during the ~120 days I

following receipt of the notice by the NRC; the licensee will' have to provide alternative financial assurance within 90 days of receipt by the NRC of the notice of cancellation; the guarantee and financial test provisions will remain in effect until the b

Commission has terminated the license or until another financial.

assurance method acceptable to the NRC has been put in effect by' the licensee; the licensee will have to promptly forward to the f

NRC and the licensee's independent auditor copies of.all current I

r reports filed with the Securities and Exchange Commission pursuant to the Securities and Exchange Act of 1934; and if, at r

i any time, the licensee's most recent bond issuance ceases to be j

i rated in any category of A or above by either S&P or Moodys, the licensee will have to provide notice in writing to'the Commission within 120 days.

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4 These amendments to Parts 30, 40, 50, 70.and 72 of the

' i commission's regulations will become effective on (date).

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