ML20085M335
| ML20085M335 | |
| Person / Time | |
|---|---|
| Site: | Fort Saint Vrain  |
| Issue date: | 11/01/1991 |
| From: | Crawford A PUBLIC SERVICE CO. OF COLORADO |
| To: | Chilk S NRC OFFICE OF THE SECRETARY (SECY) |
| References | |
| FRN-56FR41493, FRN-57FR30383, RULE-PR-50 56FR41493-00004, 56FR41493-4, AD89-2-008, AD89-2-8, P-91388, NUDOCS 9111060113 | |
| Download: ML20085M335 (14) | |
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of a Denser Co 80201 OMO November 1,1991 A. Clogg Crawf ord Fort St. Vrain gjg;o;ag, Unit No.1 P 91388 Mr. Samuel J. Chilk, Secretary I
U.S. Nuclear Regulatory Commission Washington, D.C. 20555 ATTN:
Docketing and Service Branch Docket No. 50 267
. SUlUECT: PSC COM51t'NTS ON NRC PROPOSED RUlI:
" DECOMMISSIONING FUNDING FOlt PREMATUllEIN SilUTDOWN POWER REACTORS" Ref:
(1)
NRC letter, Crutchfield to Crawford, dated February 26, 1991 (G 91038)
(2)
PSC letter, Crawford to Weiss, dated April 5,1991 (P-91096)
Dear Sir:
The NRC published its proposed rule for " Decommissioning Funding for Piematurely Shutdown Power Reactors" in 56 FR 41493, dated August 21, 1991.
In its proposed rule, the NRC requested that comments be provided to the NRC by November 4,1991, NRC conecrns related to funding for prematurely shutdown power reactors had been previously transmitted to Public Service Company of Colorado (PSC) for comment in Reference 1.
PSC's response to O
the NRC conecrns were forwarded to the NRC in Reference 2.
- PSC has reviewed the proposed rule, and apart from minor changes, the NRC position _ has remained essentially the same as that originally proposed in Reference 1. Therefore, the conecrns identined by PSC in Reference 2 remain relevant and should be considered by the NRC prior to promulgation in a. final rule. - Reference 2, _ updated to reflect PSC's position on the proposed rule, is included as an attachment to this letter.
9111060113 911101-PDR PR 50 56Fh41493 PDR p
4 P 91388 November 1,1991 Page 2 In particular, the premature shutdown of a nuclear power reactor, by its scry nature, almost guarantees that the contributing circumstances sunounding, each licensee's decision will be very in>iividualistic and unique to the situation, and will reqeite case-by case review for each utility.
ThS has been cleaily demonstrated by the diverse circumstances accompanying each of the three utilities that own (Se nuclear power reactors currently involved in prematme
+
decommissioning:. Fort St. Vrain, Rancho Seco and Shoreham. To attempt to apply " generic" evaluation criteria (such as minimum bond ratings), without more in depth evaluation of other factors, is not consistent with the guidance of j
the Commission to evaluate these licensees on a case by-case basis.
b in the proposed rule, the Commission proposed the use of three criteria for evaluating funding options for the licensees of prematurely shutdown nuclear power reactors:
I
"(l) All Jbnds needed Jbr decum vissioning sh<ndd be available or guaranteed in e.rternal accounts before the start of DECON operations.
,":)
. lhe Gnnmission will considerfactors other than availability ef decommissioningJhnds, such as the nwnber of pmeer plants in a licensee's system that continue to generate recenues, f3)
The Commission will allow those licensees who chow to accumulateJimds over the life cf the fbcility and subsequemly select a period of safe storage... to collect jimds in enernal
^
accounts into the safe storage period.
- It is PSC's position that the NRC should focus its case-by-case review on these three criteria. In particular, each licensee's case should be primarily based on "other factors" which may be present, rather than on generic criteria based on use of bond ratings as proof of financial solvency.
t
- PSC, as well as any other utility that may elect to pursue premature shutdown, desires to maintain its-option to ' pursue the SAFSTOR decomminioning i
alternative, if current circumstances change signincantly and preclude the ability to pursue DECON. Thercfore, the NRC's proposed position regarding use of L
- bond ratings as a basis for determining an acceptable period to accumulate
- decommissioning-funds for plants that select the SAFSTOR decommissioning alternative is of considerable concern to PSC.
It is PSC's ~ further position that substantial NRC regulations and-guidance r
l
P 91388 November 1,1991 Page 3 r
regarding funding plan contents are currently available. These NRC controls are embodied in 10 CFR 50.75(c),10 CFR 50.82 and NRC Regulatory Guide 1.159
" Assuring the Availability of Funds for Decommissioning Nuclear Reactors" These NRC regulations and guidance, coupled with requirements for NRC approval pnor to initiating any decommissioning activities, eliminate the need for additional restrictions regarding the period of fund accumulation. The attachment p
to this letter provides further detail on PSC's concerns related to the proposed additianal restrictions.
if you have any questions concerning this submittal, please contact h1r. hl. H.
!!olmes at (303) 480 6960.
Very truly yours, f
'- ~;; ; ws /
A. Clegg Crawford Vice President, Nuclear Opet.aions ACC/CRil:cb Attachment ec:
Regional Administrator, Region IV hir. J.it-11aird Senior Resident inspec*or Fort St. Vrain Air, Robert hl. Quillia, Director Radiation Control Division Colorado Department of 11calth 4210 Fast lith Avenue Denver, CO 80220 -
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November 1,1991 Page 3 l
regarding funding plan contents are currently available. These NRC controls are j
embodied in 10 CFR 50.75(c),10 CFR 50.82 and NRC Regulatory Guide 1.159
" Assuring the Availability of Funds for Decommissioning Nuclear Reactors".
These NRC regulations and guidance, coupled with requirements for NRC approval prior to initiating any decommissioning activities, eliminate the need for additional restrictions regarding the period of fund accumulation. The attachment to this letter provides further detail on PSC's concerns related to the proposed additional restrictions.
If you have any questions concerning this submittal, please contact Alt. bl.11.
Ilolmes at (303) 480 6960.
Very truly yours, d - Mg 4f.-
i A. Clegg Crawford
- Vice President, Nucler Operations ACC/CRB:cb Attachment cc:
Regional Administrator, Region IV hir. J.B. Baird Senior Resident inspector Fon St. Vrain hir Robert hl. Quillin, Director Radiation Control Division Colorado Department of Health 4210 East lith Avenue Denver, CO 80220 pe
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NITACIIMENT TO P-91388 USE OF IlOND RATINGS AS A IIASIS TO DETERAIINE PERIOD OF FUNDS ACCUAIULATION P
1.
INTRODUCTION -
Publie-Service Company of Colorado (PSC) believes that there are numerous issu. that should be considered prior to establishing an additional restriction on the period fm accumulation of funds for' decommissioning based upon corporate bond ratings.
This attachment brieny discusses tnv NRC proposed rule and provocs relevant background information related to PSC's site.mai. Following these discussions, PSC has identified several major concerns diat should be considered before the NRC implements the proposed rule related to restricting-decommissioning fund accumulatiori periods on the basis of corporate bond ratings.
These concerns can be summarized as follows and are discussed-in further detail in the following paragraphs:
(1)
Existing regulations provide adequate guidance ard controls without the need to implemeat additional restrictions.
(2)
Use of bond ratings as a discriminator was not considered in the original rulemaking.
(3)
Application of this restriction to utilities is not consistent with treatment of other guarantors that issue financial instruments.
(4)
. Restricting the ocriod for accumulation of funds for SAFSTOR may effectively limit decommissioning alternatives.
(5)
Reliance on bond ratings may result in unsound business decisions to avoid accelerated fund accumulation.
(6)
The proposed restriction (mplements a generic approach to review of licensee funding plans, rather than a case by-case review as directed by the NRC in its decommissioning rule and comments
-thereto.
(7)
The proposed restriction v.s not prcaide allowances for favorable changes in bond sudnr-
-(S)
Effects of the diff4 aco
. ratings between external investment rating services are n' ahessed.
(9)-
Use of bond ratings as a basis for determining a fund accumulation period may represent an inappropriate use of these ratings.
(10)-
The NRC position may be inconsistent with operating nuclear plants and may unfairly penalize prematurely shutdown plants.
(11)
Use of bond ratings may be inappropriate, since the ratim may be based _to a great extent on subjective rather than qa atitative evaluations.
'(12)
Establishing the threshold -as ' single A' may be inconsistent with --
previous NRC eriteria for investment grade debt instruments.
~
P Attachment to P 91388 November 1,1991 Page 2 PSC believes that it would be inappropriate for the NRC to establish these additional restrictions regarding use of bond ratings.
listablishment of this restriction will place utilities in a situation where competing oblig: ions create an inherent conflict - such as making imprudent business decisions solely to maintain bond ratings in-lieu of implementing sound business decisions based on the best long-term interests of the utility, its ratepayers and its shareholders.
11.
NRC PROPOSED RULE In 56 FR 41493, the NRC staff has provided a proposed rule related to acceptable Snancial assurances and vrsible effects on the allowable periods for accumulation I
of funds for decommissioning beyond that previously provided in 0 CFR 50.75(e), _10 CFR 50.82, and NRC Regulatory Guide 1.159 " Assurmy the Availability of Funds for Decommissioning Nuclear Reactors", in 56 FR 41493, the NRP staft has inAsted, for plants selecting the SAFSTOR decommissioning alternative, thy.t 'he decommissioning funding plan must provide reasonable assurance that funds will be mailable to decommission the licensee's facility within a reasonable period of time iased on the licensee's financial and rate ren.. w environment.
s pn-osed rule, the NRC staff indicated that for licensee's that select the P
- 3. OK Iternative, the licensec hjkSI provide reasonable assurance that funds wi he n lable within a reasonable period of time, and that the licensee would demem.trui such assurance by accumulating extemal funds for decommissioning for a < aod not extending beyond the full remaming term of the licensce's operating license. Howe"er, to use this approach, the proposed rule requires that the licensee must mainta. _ bond rating of at least " single A" or equivalent as determinea by the Moody's Investment Service, Standard and Poors, or another national bond rating agency. If the licensee's bond rating drops below " single A" more than once in any 5-year period, the licensee would be required to externally fund the entire remaining balance within or.e year after being downrated.
III. - PSC CURRENT AND lilSTORICAL llOND RATINGS PSC st Mortgage Bonds, the senior corporate debt, are now rated as 'BBil+'
.ndard and Poor's investment rating service. PSC's bond ratings since
'oe provided in Table 1 of this attachment.
O d
Attachment to P-91388 November 1,1991 Page 3 IV.
DISCUSSION
-The following paragraphs identify the more significant conectns identified by PSC related tr use of bond ratings as a basis for determining the period of funds accumulauon.
1.
I'xisting_llegulatiODs Provide Adequate Guidance.JudDaimls Guidance related to decommissioning funding plans is pravided in 10 CFR 50.75(e) and 10 CFR 50.82, which identifies the intent as well as the required contents of these funding plans.
Additional guidance and staff interpretation is provided in NRC Regulator / Guide 1.159, " Assuring the Availability of funds for Decommissioning Nuclear Reactors."
Guidance contained in these documents impresses upon the licensee their responsibilities with respect to providing adequate fmancial assurance for decommissioning, as well as reiterating the intent of the decommissioning rule: to ensure that sufficient funds are available to decommission the reactor in a manner that protects public health and safety.
The regulations also clearly defmc the period of collection of decommissioning funds.
110 wever, since premature shutdown was not considered in the origirul rule, the NRC has provided additional guidance (NRC letter dated October 4, 1989 (G-89338)) to allow licensees of prematurely shutdown plants to collect decommissioning funds until the expiration of the original operating license, so as to limit the financial hardship on the licensee and current ratepayers, yet provide the NRC and the public reasonable assurance that all necessary funds will be accumulated within a limited (but reasonable) period of time and thus provide the financial assurances originally intended by the NRC.
Additionally, current regulations provide suitable and sufficient controls and accountability beyond specifying the required content of decommissioning funding plans. Since the NRC must approve the Proposed Decommissioning Plan (which includes the Funding Plan) prior to allowing any licensee to place the plant in a SAFSTOR configuration, the NRC is assured that the financial assurance will be provided before the plan is implemented.
Subsequent to this approval for plants selecting SAFSTOR, 10 CFR 50.82(c)(2) requires the licensee to adjust the cost estimate and associated funding levels over the storage and surveillance period.
Therefore, the NRC retains the authority to periodically evaluate these plans and confirm l
Attachment to P-91388 November 1,1991 Page 4 the continued adequacy of the original financial assurances.
The combination of regulatory guidance for financial assurance. NRC approval of funding prior to implementing SAFSTOR, and continued periodic monitoring of funding plans by both the licensee and the NRC will provide the necessary reasonable assurance originally intended by the rule, without the necessity for additional restrictions in the form of corporate bond ratings.
2.
Iknd Ratings Were Not Considered in Oricinal Rulenukkig Evaluation of licensees on the basis of their bond rating goes beyond the underlying original intent of the rule, which is to ensure that sufficient funds are available to decommission the reactor in a manner that potects the public health and safety. Acceptable mechanisms were establisned in the decommissioning rule that would provide funding prior to the permanent cessation of power operations.
Reviewing the rule and supplemental information, there is no requirement or perceived need to evaluate the credit worthiness of the licensee before determining the period for accumulation of funds.
Decommissioning funding plans based on the SAFSTOR alternative that provide full funding of decommissioning by the expiration of the original operating license period will provide reasonable assurance of the timely availability of funds for decommissioning. Such a plan meets the underlying intent of the decommissioning rule.
3.
Application of This Resiriction to Utilhits_13_LinLfansinendub Treatment of Other Guarantor Institutions A decision on the part of the NRC to impose special funding restrictions on utilities based on bond ratings is also not consistent with treatment for guarantors issuing other acceptable means of financial assurance, specifically surety bonds, insurance, letters of credit, or lines of credit.
Reg. Guide 1.159 impases the following limited requirements for guarantor methods:
(1) surety bond companies must be listed by the US Department of the Treasury in Circular 570 and have a coverage limit sufficient to cover the cost estimate.
(2) issuing institutions for letters of credit are regulated and examined s
4 Attachment to P-91388 November 1,1991 Page 5 by a Federal or State agency.
(3) insurance companies must be licensed by State regulatory authorities to transact business as an insurer in one or more states, Since no similar provisions have been identined to verify the credit worthiness of any Onancial, lending or insurance institution that might issue these financial guarantees, it appears arbitrary to impose such restrictions only on utilities, especially in view of the ample evidence of instability in both the Gnancial and insurance industlies.
Attempts on the part of the NRC to impose such restrictions on lending or insurance institutions could result in either higher costs associated with these guarantees (as well as increases in the cost of decommissioning), or result in loss of this potential source, since guarantors may elect not to provide assurances due to the uncertain and Ductuating regulatory environment.
4.
Brditted SAFSTOR Accumulatign_feties! May Effecivsly I.imit DeCR01missioning_AlicIntitins Requiring utilities to fund-within one year as a result of low bond ratings will effectively eliminate SAFSTOR as a
Onancially attractive decommissioning alternative.
If SAFSTOR is climinated as a Onancially attractive alternative, the NET EFFECT of the NRC position will be that the
- DECON alternative will be the only Snancially attractive decommissioning alternative for prematurely shutdown plants.
This does not provide the
" alternatives" originally intended, nor is it consistent with the intent of the decommissioning rule.
5.
Unsound Business Decliipns to Avo:J Afss!cated Fund A,ccumulation Potentially adverse effects of this restriction may occur with utilities that are operating economically inef0cient nuclear facilities, due to the high cost of s
power resulting from such factors as age of the plant, high maintenance costs, costs of improvements, or high annual operating costs. A situation may occur where a utility has not completely recovered decommissioning costs, but would be faced with accumulating decommissioning funds within Ove years or less if the plant is prematurely shutdown.
Faced with this possibility, the utility may be influenced to make an unsound business decision to continue to operate the plant. Such a decision is irresponsible to both the PUC and the utilities' ratepayers, and would not have been made in
l Attachment to P-91388 November 1,1991 Page 6 the absence of a limited period of funds accumulation for SAFSTOR.
In this instance, a utility may make an imprudent business decision to avoid the short term effects of the NRC's proposed restriction, while avoiding long-term (and potentially benencial) investment opportunities. The NRC potentially could insert itself as a major factor affecting business decisions within electric utilitic:; which may result in unsound business decisions that are not in the best interests of the utility, its ratepayers, and its shareholders.
6.
Generie vs. Case by-Case EvalualiRn in response to SEC"90-386, "NRC Policy on the Accumulation Period for Decommissioning Funds for Prematurely Shut Down Reactors", the NRC Commissioners directed the NRC staff to evaluate each plant on case-by-case basis.
However, in establishing the NRC staff restriction related to complete funding in one year if a licensee does not have an 'A' bond rating, the staff has established an arbitrary and artificial threshold that may not be consistent with the intent of the Comrnissioner's directive.
The NRC proposed restriction will allow the staff to evaluate all plants with an 'A' rating or higher on a case-by-case basis, whereas all other plants below this rating will be required to accumulate funds over a Oxed, non-negotiable period.
7, Allowances for Chan.ges in Bond Ratings Not Clearly Dingsj Based on the limited information available, it appears that the NRC's proposed approach is very innexible to improvements in bond ratings. The licensee must continue to maintain good credit worthiness, since the occurrence of any adverse event may jeopardize the bond rating and will require the licensee to rapidly provide (within one year) Onancial assurances for decommissioning funding, which in turn may cause further deterioration in bond ratings and a corresponding increase in the cost of capital. On the other hand, for a licensee required to fund decommissioning within one year (due to bond ratings below ' single A') who may improve its bond rating to
'A' or higher, there is no method identified in the proposed NRC staff restriction that would allow relief from the funding commitment.
i Additionally, the Gnancial " damage" would have already been done when the NRC imposed the funding requirement.
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Attachment to P-91388 November 1,1991
- Page 7 8.
Di((glences in External Ratine Service 1NnLMk!tened it is also important to note that there are at ' cast five different major investment rating services (~ including Standard & Poor's, Moody's, Duff &
Phelps, and Fitch Investor Services) which may determine different ratings for the same utility. Table 1 identifies one such instance where this has occurred to PSC in late 1986, following the Fort St. Vrain Settlement Agreement.
9.
Propossd.lbc of the Bemi Ratings May Be Inappfepflaic Investment rating agencies provide the bond rating service at the request of the utility as an indicator for major mvestment institutions.
Potential borrowers (in this case utilities) request that their prospective debt issues be rated by the investment rating service. One component of the evaluation is the ability of the bond issuer to make bond principal and interest payments over the life of the bond, typically 30 years.
Use of this rating service as a basis for determining periods of accu'nulation of decommissioning ftmds was clearly not considered by investment rating services. The proposed use of bond ratings to determine fund accumulation periods is analogous to State PUCs using NRC SALP ratings to reward or penalize nuclear power utilities. The NRC's objection to this practice is
- well documented.
10.
IIeatment. May Be inconsistent With That of Open11ing Nucir;tt Plants In preliminary discussions with the NRC, the staff has indicated that they do not feel that this treatment is necessary for operating plants, since operating plants will continue to enjoy a steady revenue stream from ratepayers, However, this may be a rather generic treatment of operating plants, since there may be utilities / plants in financial distress that could go into default and bankruptcy as easily as any utility with a prematurely snutdown nuclear
- plant, i
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Attachment to P 913SB November 1,1991 page 8 11.
IktenninationallkU1Lilatings_ltichtdcLSuWeetireJivahationith LimiteLLegaLStauditig Bond ratings are prepared by outside investment rating services at the request of the utility, in preparing their rating, the rating service relies primarily upon information prepared and submitted by the utility, and upon the findings of the independent auditor's report. Unlike the annual audit, the rating agency usually does not have open and unencumbered access to all of the corporation's records. Additionally, this service is unlike other outside evaluations (e.g., annual auditor's report or NitC regulatory criteria) in that it does not represent a legally binding or enforceable agreement between the utility and the rating service.
In preparing its rating, frequently there are areas of the rating criteria that may not be quantifiabic. I! valuations performed by the investment service in these areas are largely subjective, based on their imST liSTIMN1'll of the present situation, PROPOSiiD plans of the utility, and market conditions, in this instance, the utility may be penalized with a lower bond rating, although the utility may have excellent financial history and may be in excellent financial health.
Additionally, during the preparation of financial information and records for submittal to the investment rating service, insufncient information may be made availabic (or inadvertently omitted), since the utility is unaware of specific areas of concern on the part of the rating service. This lack of information may result in a lower bond rating until the utility is able to provide the investment rating service more detailed information in the arca(s) of concern. The bond rating could be restored to its previous level (or higher) in a short period of time after the utility resolved the rating service uncertainties, llowever, as a result of the NitC proposed restriction, the utility would be required to provide accelerated funds accumulation or financial assurances within one year.
Furthermore, since rating agencies do not have the resources necessary for the continuous analysis of rated issues, their periodic reviews, bond ratings, and revisions must almost necessarily lag behind the utility's actual Gnancial.
situation, o
r Attachment to P 91338
-November 1,1991 Page 9 12.
Definition of Investinent Grade The NRC selection of single 'A' as the lowest investment grade is inconsistent with major investment rating services, Standard and -Poor identifies 'BBB' as the lowest investment bond rating, while Moody's recognizes 'Baa' as its lowest investment grade. Selection of 'A' as the lowest investment grade is also inconsistent with criteria for parent companies, identified in Appendix B 6.5 of Reg. Guide 1.159, which identifies a minimum rating of 'BBB' by Standard and Poor's, or 'Baa' by Moody's.
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Attachment to P-91388 November 1,1991 Page 10 TAllLE 1 PSC CURRENT AND lilSTORICAL IlOND RATINGS FOlt PSC FIRST MORTGAGE IlONDS IlOND RATING AGENCY:
v MOODY'S STANDARD & POOR'S DUFF & PliliLPS tmm I,g Qate Chanced From la Date Chanced fans Im DueCh;fgj AA A
2/01/80 A A-A 2!06/80 A+
AA-2S5 A
A2 4/26/82 A
A+
4!;S/33 AA-Ar
$/86 A2 At 4/07t?
A+
BBB+
11/20.46 A+
A.
12/66 Al AA3 3/44/85 A.
BBB+
7/90 AA3 Al 7/30/86 Al A2 11/18/86 A2 A3 6/21/90 A3 BAAL 2!06/91
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