ML20127B886

Informs Commission of NRC Attempt to Determine Number of USNRC Licensees That Might Be Able to Comply W/Any self- Guarantee Criteria Proposed

ML20127B886
Person / Time
Issue date:	05/16/1991
From:	Taylor J NRC OFFICE OF THE EXECUTIVE DIRECTOR FOR OPERATIONS (EDO)
To:
Shared Package
ML19342A261	List: ML20127B886 ML20127C321 ML20128H171 ML20128H224
References
FRN-58FR3515, FRN-58FR3516, RULE-PR-30, RULE-PR-40, RULE-PR-50, RULE-PR-70, RULE-PR-72 AE16-1-002, AE16-1-2, SECY-91-142, NUDOCS 9105230010
Download: ML20127B886 (60)

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POLICY ISSUE May 16, 1991 OMM SECY-91-142 Fy: The Comissioners From: James H. Taylor Executive Director for Operations

Subject:

COMMISSION REQUEST FOR STAFF'S ANALYSIS OF CRITERIA FOR SELF-GUARANTEE OPTION BY NRC LICENSEES

Purpose:

To inform the Comission of the staff's attempt to determine the number of the U.S. Nuclear Regulatory Comission (NRC) licensees that might be able to comply with any self-guarantee -

criteria proposed.

Sumary: This paper presents the staff's responses-to the Staff.:

Requirements Memorandum (SRM) dated February 12, 1991,-in- 1 which the Comission directed the staff to attempt to determine the number of NRC licensees that might be able to' comply with any self-guarantee criteria proposal. The-staff, with contractors support, examined' alternative financial test criteria as measured by various= levels of net worth, bond ratings and combinations of-the two. The-number of licensees who could meet various.self-guarantee criteria vary substantially depending on the choice of criteria.

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Background:

-On December 24, 1990, the. staff submitted SECY-90-420, informing the Comission of-the staff's intent'to deny the- -1 General Electric Company (GE) and Westinghouse Electric d Corporation (WE) requests.that the Comission reconsider and NOTE: TO BE MADE PUBLICLYJAVAILABLE

Contact:

Louis .Bykoski, NMSS IN 10 WORKING DAYS FROM THE 1

.492-0572 DATE OF THIS PAPER-s_ -

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The Comissioners 2 l

reverse the denial of specific exemption from the financial assurance instrument requirements of certain parts'of the decomissioning rule. The Comission determined (see enclosure) to adopt the staff's recomendation and deny the requests. CE and WE were notified of the decision by letters dated March 7, 1991.: The letters stated that if GE and WE wished to pursue the acceptability of self-guarantees in relCion to the decomissioning rule, they should submit a petition for rulemaking, and that the Comission would conduct such a rulemaking on an expedited basis. -On March 22, 1991, GE and WE submitted their financial assurance mechanisms to the NRC to come into compliance with the decommissioning rule. The financial assurance submittals are under review by the Office of the General Counsel for-adequacy. GE and WE have notified the NRC that they intend to petition for rulemaking in May 1991.

Discussion: In the Staff Requirements Memorandum (SRM) dated February 12, 1991, the Comission directed the staff to attempt to -

determine the number of NRC licensees that might be able to comply with any self-guarantee criteria proposed. A first alternative for responding to the Comission's question would be to use the existing criteria for parent company guarantee. Under this assumption a large number of the larger private materials licensees and most of the commercial nuclear power plants would probably qualify.

The existing financial test is limited to companies having a tangible net worth of greater than $10 million that can meet specific financial ratios or alternatively a.high bond rating. While specific licensee financial information is not reported to the NRC, we consider that a large fraction of our licensees who are subject to the decomissioning rule-are larger companies that could potentially meet the financial test requirements. A large number of companies use a similar financial test to meet the Environmental protection Agency's (EPA's)financialassurance.self-guaranteerequirementsunder the Resource Conservation and Recovery Act. Since-EPA does not maintain a central data base on financial-assursace, the -

exact number of qualifying companies has not been obtained.

The staff believes however, that a stronger test for self-guarantee should apply to increase our assurance that the burden of decomissioning costs will-not be borne by the public taxpayer. The staff obtained the support of a contractor in order to prepare an analysis of some potential alternative self-guarantee criteria that would provide the stronger test.

The approach the staff asked the contractor to take was to compare various alternative proposed financial test criteria by developing the relationship between corporate 1

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The Commissioners 3 size (as measured by' net worth) and business failure rates (defined as the percentage of corporations likely to go bankrupt in any given year), and to investigate the relationship between bond ratings and bur.iness failures.

It should be emphasized that the results presented here have large degrees of uncertainties and represent only information from a very limited study. In presenting their results, the contractor has repeatedly qualified its conclusions due to the lack of an adequate information data base and uncertainty in the interpretation of the data. It is not cleu that additional attempts to clarify these deficiencies will be successful.

Based on an ana x

. of business failures for manufacturing firms for the timo period 19B4 through 1990, the contractor noted that failure rates are lower for firms with high net worth.

For example, firms with net worth of less than $10 million had a failure rate of 1.6 percent, while firms tith net worth greater than 1200 million had a f ailure rate of only 0.6 -

percent. Failure rates appear to be even lower for firms with net worth greater than $2 billion, but there are insufficient data to quantify the rate with confidence.

The contractor's bankruptcy research has identified only-six failures, over the last decade, involving firms with net worth of more than $1 billion. Two utilities accounted for two of these six failures (Washington Public Power Supply System and Public Service Company _of New Hampshire).

The bankrupt firm sample included only 11 firms.that had }

rated bonds in at least 1 of-the 3-years before bankruptcy. 1 Based on such a small sample, it is not possible.to quantify reliable failure rates by bond-rating category. In addition, recent growth in'the use of structured credits (bonds backed by collateral or third-party guarantors) makes bond ratings less reliable as a measure of the financial strength of the bond issues. However, the contractor observed that failure rates are lower for firms with high bond ratings in one~of three years before bankruptcy. Four of the 11 had investment grade (BBB or Baa) or better ratings in 1 of 3' years before-bankruptcy. No firm was identified with a bond. rating of A or better in the three years'before bankruptcy.

No firm was identified with a bond rating of A or better in the three years before bankruptcy.

To identify potential self-guarantee criteria, the staff - '

considered information from the following three sources:

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The Comissioners 4 o Exemption requests and petitions from GE and WE; o Nonstandard Submissions of decommissioning funding plans and certifications of financial insurance; and o Bankruptcy analysis described above.

The staff did not consider all potential alternative self-guarantee criteria, such as alternative financial ratios, due _to time constraints and .the difficulty of obtaining detailed financial information for a large number of firms for th <e years. The staff also did not evaluate alternative criteria proposed by NRC licensees in non-standard financial assurance submissions when such criteria were determined to contain technical defects.

These criteria included the use of total assets, ratings on commercial paper and annual expenditures on nuclear activities. Because assets may be encumbered by liabilities, the use of total assets as an alternative criterion does not necessarily assure sufficient reserves to pay for decommissioning obligations and therefore was not evaluated further. Ratings on commercial paper is not currently included in either the NRC or EPA list of acceptable instruments and, because of its short-term characteristics, this alternative was not analyzed. Finally, the use of annual expenditures on nuclear activities was not evaluated because it fails to account for either the possibility of bankruptcy or that decommissioning costs could involve an increase in nuclear-related expenditures.

The analysis of potential alternative criteria concentrated-on evaluating different levels of net worth, bond ratings, and Combinations of the two. In estimating the number of NRC licensees that could comply with potential self-guarantee criteria, a sample of 340 licensees was developed by matching licensee 1ist with lists of financial data on forms obtained from Dun and Bradstreet,-contractor data bases, and nonstandard financial assurance submissions received by NRC. The following results were obtained:

1. There were 257 licensees with over $200 million in net worth; 131 licensees with over $1 billion in net worth; and 28 licensees with over $5 billion in net worth.

2. There were 38 licensees under 10 CFR Part 50 with over

$1 billion in net worth.

3. Eleven licensees have an AAA_ bond rating, 41 have an AA .

bond rating, and 130 licensees have " investment grade" bond ratings.

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The Commissioners 5 4 Seven licensees have both an AAA bond rating and over

$1 billion in net worth (including GE); 28 licensees have both an AA bond rating and over $1 billion in net worth (including WE); and 107 licensees have investment-grade bond rating and over $1 billion in net worth.

In sumary, the staff has received preliminary data from its contractor which explored whether there was a relationship between firm size and business failure rates and between investment grade bond ratings and business failures. No final conclusion can be reached at this time as to the number or percentage of NRC licensees that might be able to comply with any self-guarantee criteria. This matter wil? be considered further in the course of responding to a petition for rulemaking.

GE and WE indicated they wish to pursue a petition for rulema king. The Office of Nuclear Regulatory Research will' submit a plan for proceeding with an expedited schedule for rulemaking, if appropriate, in a separate Comission Paper.

The staff has requested GE and WE to provide their views of the criteria for self guarantee.

Once the GE/WE petition is received, RES will publish a Notice of Petition for Rulemaking. The Notice will seek public comment on: 1) the criteria and basis for allowing a self-guarantee; 2) the GE and WE proposed criteria; and 3) the public's views on the petition.

Coordination: The Office of the General Counsel has reviewed this paper and has no legal objection.

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ecutive. Director for Operations En:losure:

11emorandum to J. M. Taylor, EDO DISTRIBUTION:

from Samuel Chilk, Secretary. Commissioners dtd February 12, 1991 OGC org GPA REGIONAL OFFICES EDO ASLBP-ASLAP SECY ACRS

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_ Action: Bernero. NMSS CyS: Iaylor l o NUCLEAR REGULATORY COMMISSION Sniezek

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-] February 12. 1991 stentTAny ~"" Meyer ADM Bykoski, NMSS MEMORANDUM FOR: James M. Taylor Executive Director for rations i

FROM: Samuel J. Chilk, Secret I O

SUBJECT:

SECY-90-420 - GENERAL E 2 'RIC AND WESTINGHOUSE PETITION FOR 2 CONSIDERATION OF COMMISSION'S DENIAL OF.fdQUEST FOR EXEMPTION FROM REQUIREMENTS OF THE DECOMMISSIONING RULE This is to advise you that the Commission (with Chairman Carr and Commissioners Rogers and Remick agreeing) has not objected to the.

denial of the GE and Westinghouse petition for reconsideration.

Commissioner Curtiss believes that these particular licensees have made a convincing case in support of their request that they be allowed to meet the decommissioning funding requirements through the use of self-guarantees and would therefore have granted these licensees' requests for reconsideration and exemption.

The staff should revise the proposed responses to General Electric and Westinghouse, ar indicated in the attached mark-up, and indicate to General Electric and Westinghouse the willingness to treat their petitions for reconsideration, with any supplements they deem necessary, as petitions for rulemaking if f, they so desire. The staff should also indicate that such ,

rulemaking would be conducted on an expedited basis. The staff- '

should report to the Commission whether General Electric or Westinghouse has indicated that it wishes to pursue rulemaking and, if so, the staff should propose an expedited schedule with.

completion in six to twelve months or earlier.

FEDC)- (NMSS) (SECY Suspense: 3/6/91) 9100030 If Generar. Electric or Westinghouse desire to pursue rulemaking, the staff should solicit their views, as well as the vicws of the -

public, orr what criteria might be proposed for self-guarantee and -

the basis for the criteria. The staff should attempt to v a :

determine the number or percentage of NRC licensees that might be able to. comply with any self-guarantee criteria proposed by petitioners, commenters, or the staff. ,

(SECY Suspense:

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FEBO)- (NMSS) 3/ 29/ 9 1) 9100031 SECY NOTE: THIS SRM AND SECY-90-420 WILL BE MADE PUBLICLY AVAILABLE 10 WORKING DAYS FROM.THE DATE OF THIS SRM Md Off. EDO r.sts _ 21 - / L - 7 /

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As stated cc: Chairman Carr Commissioner Rogers Commissioner curtiss

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NRC continues to believe that the GE request is tantamount to seeking an informal rule change.h;.e;rs; it: p.mp::a; -u u ri;citly cer.eit 04

-iM M -"! -+ a; d ;; r;.j;;td. If GE wishes to pursue the acceptability of self guarantees in relation to the decommissioning rvit, it should submit a petition for rulemakingg In a letter dated August 7,7, 1990, NRC granted you request for a time extension to the August 31, 1990, filing deadline. We said tc3 NRC would notify you of the Commission's decision regarding your petition request and that the extension j would expire 15 days from the time you are notified. Therefore, you should

- cceply with the financial assurance requirements of the decommissioning rule by (insert date of 15 days following EDO signature).

Sincerely, James M. Taylor Executive Director for Operations Enciczure: As stated d [MM M, A u,nfo q - & 'D

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PETITION FOR RULEMAKING UNDER 10 C.F.R. 2.802 r x,~'  %

. _$ g I. INTRODUCTION General Electric Company (" General Electric" or "GE") and Westinghouse Electric Corporation (" Westinghouse"),

collectively referred to herein as the Petitioners, hereby request that the Nuclear Regulatory Commission (the

" Commission" or "NRC") exercise its rulemaking authority and l

promulgate a rule providing a means for self-guarantee of decommissioning funding costs by certain NRC licensees who meet stringent financial assurance and related reporting and oversight requirements. The Commission's current decommissioning rule U permits licensees to provide financial assurance of decommissioning funding through several-mechanisms, including prepayment, establishment of a sinking fund, insurance, a line or letter of credit, and a parent company guarantee. The Petitioners . propose that the. NRC's Decommissioning Rule be revised to . permit an additional means

.1/ Eq.g neneral Requirements for Decommissioning Nuclear Facilities,. 53 Fed. Reg. 24018 (June 27, 1988)

(" Decommissioning Rule" or " Rule").

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2-of providing such assurance of - decommissioning f unding : --- a self-guarantee for decommissioning costs by a licensee, other than an electric utility reactor licensee,_that_has no_ majority owner, is subject to the reporting requirements of 'the: '

Securities Exchange Act of 1934 (the " Exchange Act"),U and meets certain stringent financial criteria far in excess of those required by the Commission for a parent company guarantor.

Petitioners' efforts to obtain NRC A resume of the approval of self-guarantees provides the administrative context of this Petition for Rulemaking. In March of 1990, GE and Westinghouse, respectively, sought specific exemptions from the financial assurance instrument requirements of Palts 30, 40, 50-and 70 of the Decommissioning Rule.M Under those requested-exemptions, GE and Westinghouse would have been able_to satisfy .

the subject financial assurance requirements in those Parts :by submitting a self-guarantee that otherwise met or exceeded the- ,

for qualifying parent company guarantees under 10 criteria C.F.R. Part 30,. Appendix A (" Appendix A") . On July 31, 1990, denied the requests for exemptions.- -on the Commission August 20, 1990, GE and Westinghouse each submitted a Petition.  :

for Reconsideration. On March 7, 1991, the NRC denied - those ,

t L 2/ Sag 15 U.S.C. 5 78 et seq. (1988).

l-l M Note that _ the March 1990 GE specific exemption

-request addressed only Parts 50 and 70.

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i. petitions. In the Commission's denial of the reconsideration petitions, it invited a petition for rulemaking to address the issues raised by GE and Westinghouse concerning self-guarantecs for decommissioning tunding. This Petition responds to that invitation.O II. PETITIONERS' GROUNDS FOR AND INTEREST IN TIIE RUTIMAKIHQ GE and Westinghouse hold NRC and/or Agreement State licenses under Parts 30, 40, 50, 70, and 72 and, accordingly, have a direct interest in the revisions to the Rule that are proposed herein. Each of the petitioners has resources that adequate to provide the Commission, and are more than u

(ultimately) the public, with the degree of financial assurance necessary to effectuate the declared aims of the Decommissioning Rule. Moreover, both GE and Westinghouse have a recognized standing in the financial community, earned over decades of successful operation, that further supports that tha Commission's objectives in establishing confidence that Rule can be met through a self-guarantee by them and other licensees of similar financial substance.

U Petitioners incorporate herein by reference their for Requests for Specific Exemptions and their Petitions Reconsideration, as well as the NRC's responses thereto ~and dissent from the denial- of- the GE Commissioner Curtiss's request for exemptions.

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GE and Westinghouse are, by the most exacting standards for measurement, in excellent financial condition; they possess vast asrets, enjoy premier cretit standing, and have long-lived records of prosperity. As of December 31, 1990, the end of its most recently completed fiscal year, GE had total assets (on a consolidated basis) in excess of $153 billion and total share owners' eglity of nearly $21.7 billion. As of the end of its most recently completed fiscal year, Westinghouse had total assets (on a consolidated basis) of $22 billion and total share

$3.9 billion. Very few banks or other owners' equity of financial institutions in the business of cxtending letters of credit or other forms of third-party guarantees can demonstrate financial capacity of such magnitude.

Under the Rule, companies like the Petitioners, which are of unquestionable financial strength and are capable of satisfying the most stringent measure of that strength, are unable to guarantee decommission.ng furding costs when they themselves are NRC licensees. By contrast, less financially strong institutions (such as insurance companies, banks, and associations) are not only permitted to savings and loan guarantee the decommissioning funding costs of NRC licensees, but they are permitted to do so without evidencing to the NRC any degree of financial strength whatsoever. Moreover, and at i

the heart of this Petition, licenseos' parent companies whose capacities pale in the face of those- of the financial Y: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ . _ _ . . _ _ _ _ _ _ _ _ _ _ _ _

5-are nonetheless permitted by the Rule U to Petitioners

" parent guarantees" solely because such provide qualifying are entities distinct from the parent companies legal whose decommissioning funding they subsidiary-licensees Paradoxically, although GE is, and Westinghouse guarantee.

would be, able to provide a guarantee for subsidiary-licensees under the Rule, the Petitioners are nonetheless required to funding assurances because, in seek external decommissioning most instances, they themselves are the licensees.U The anomalous nature of the Rule is thus readily apparent. What is proposed in this Petition is a means by which licensees like the Petitioners can provide a level of assurance of timely and decommissioning funding that is at least the adequate functional equivalent of that provided by the

" parent-guarantee" mechanism.

The Petitioners show herein that it is reasonable to dispense with external methods of funding assurance when U Even without assuming that any particular parent company's guarantee will be accepted by the Commission, it is reasonable for the Petitioners to expect (and to base their assertions herein on such expectation) that a parent guarantee which meets all of the express requirements of the Rule will be so accepted.

& Commissioner Curtiss's dissent to the denial of the GE request for specific exemption recognites that the current Rule, and its failure to provide for a se'f-guarantee to anomalous licensees like the Petitioners, has led for results. Ep_q Commissioner Curtiss's comments on SECY-90-217 (a copy of which is attached, at Annex A). +

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4 overwhelming , financial stability.

dealing; with licensees of Licensees like the Petitioners simply do not present moro than-a remote riskU of near-term, unanticipated- bankruptcy or other severe financial distress that might otherwise make self-assurances less than reliance on a licensee's allowing a self-guarantee in the-reasonable.U By not advocated by the Petitioners, the limited circumstances unnecessarily increases the cost to - the existing Rule and other- similarly situated licensees, of Petitioners, achieving the Commission's stated objective in promulgating _the Rule.

U The risk of near-term- failure presented by_-

licensees such as Petitioners,- agg infra notes 20, . 27-3 2 and -

accompanying text, compares f avorably, for-- example, with the projected risk of failure ~ associated with letters of credit As calculated in - a report _ recently prepared -

issued by-banks.  ;

for ' the Commission Staf f by an - outside - contractor, the failure "

rate of such bank letters of credit is estimated to be 0.5

" Report on Analysis' of Criteria for Self-Guarantee by ,

percent.

NRC Licensees," ICF Incorporated (darch - 1991) , NRC-02-91-001, at 27) (hereinafter,- ICF Report).

Note that such letters of credit are an- acceptable form of providing ' decommissioning funding assurances under the present Rule.

' As noted by. Commissic' fr Curtiss, licensees of a-U seem to financial strength such as the c. _itioners do not present the problem of diversion- of decommissioning reserves to other purposes in the face of financial difficulties.that apply gag- CommissionerL to less financially secure licensees.

Curtiss's comments, guora note 6.

l General Electric and Westinghouse sub'mit- this Petition U because they are affected adversely and unreasonab1" by the limitations in - the Decommissioning Rule.

The lack of an internal method of decommissioning funding assurance imposes unwarranted compliance costs upon them. In sum, the Petitioners currently are being affected adversely by the terms of the Rule due to the business form they havn r adopted to conduct licc.nsed activities. The existing Rule i compels GE and Westinghou either to restructure their C

licensed activities into less financially secure licensee-subsidiaries (for which the Petitioners could then provide parent guarantees) or to obtain external assurances at a cost (in future years, literally hundreds of thousands _ of dollars annually in non-recoverable charges) that vill be quite 1 significant over the lives of their licensed activities. __

For these reasons, GE and Westinghouse ask that the-NRC.

recognize a- new, appropriately limited- category- -of U Since this is a Petition for Rulemaking,; rather than a - request - for - a specific exemption, the - Petitioners need not demonstrate herein (as.section 50.12: of.the NRC regulations required in the exemption context) that they: are adversely affected vis-a-vis their competitors in nuclear ' fuel-i fabrication or other businesses who have availed themselves of a . no-cost method of providing financial assurances . under ' the -

Rule 1-- a method that is unavailable to the Petitioners. In a rulemaking, ,it- is enough to show ' that the Petitioners'1 proposal _

meets the commission's declared goal of rc.uonable assurance _ of. '

adequate funding for decomuissioning by providing an equivalent degree of protectioni Dr public health and safety to that currently required by the Rule. ,

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_9 The Petitioners propose that the Commission amends Part 30' of_its regulations by-- adding a new " Appendix B," setting _' forth -

the stringent financial test that must be met by licensees seeking- to avail themselves of the self-guarantee method of providing decommissioning funding ~ assurances. The financial test that the Petitioners urge the Commission to adopt for this t

" Appendix B" would require that the licensee meet all of the <

following standards:

(i) a current rating for its most recent bond issuance.of AAA, AA or A as issued by Standard and Poor's

, Inc. ("S&P") or Aan, Aa or A' ' as '

issued by Maody's Investors Service _ (" Moody's") ;

(ii) tangible net worth of at least- 10 times the current decommissioning cost estimate (or prescribed amount if a certification is used):

(iii) tangible net- worth of at .least

$1 billion; and (iv) assets located in the __ United States amounting to at least 90 i percent- of total. assets or at  !

least 10 times the_ current decommissioning cost : estimate (or j

' prescribed amount if a-

. certification is used).  ;

i The Petitioners further propose that, under " Appendix B",

y procedures found in licensees- be required to follow the Sections. II B, II C and (to' the extent germane) III _of Appendix A in the same manner as those sections are applicable -

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to parent companies under the -existing Rule. D In Addition, licensees u' sing a self-guarantee would be required to forward-promptly to both the NRC and the licensee's independent auditot-all reports filed with the Securities and Exchange Commission (the "SEC"). Finally, in the event that the licensee's most recent bond issuance at any time ceased to be rated "A" or above by either Moody's or S&P, the licensee would be required to provide the NRC with notice of that fact within 20 days after the change was published by the relevant rating service.

11/ Section II B states that the company's independent . certified public accountant must have compared the statistics used by the company in the financial test with the amounts reported on the company's independently audited, year-ond financial statements for the most recent fiscal year.

The licensee is required to inform the NRC within 90 - days if-

.,that comparison reveals that the company no longer satisfies the financial test. Section II C states that the company must repeat its passage of the financial test within 90: days of the end of each fiscal year and that-if at that time the company does not pass that test, the. company-must send the -NRC . notice that the company will provide alternative financial- assurance within 120 days of the end of such' fiscal year. Section III provides that the terms of a qualifying guarantee _ must :inc.lude remain ;in force' unless statements that the guarantee- will -

cancelled,- such cancellation- to take - ef fect 120 days . af ter -

notice thereof to the NRC, and within 90 days of such notice, alternative - financial assurance must be provided.Section III further provides that the financial test provisions remain .in force until the NRC terminates a licensee's license and any-trust established for decommissioning costs must be acceptable '

to the NRC.-

y IV. STATEMENT IN EllP19RT OF TIE PETITION FOR RUU'MAKIt{g A. Further Refinement _o f the Decommissionina Rule is Needed Sanctioning a mechanism for self-guarantees is fully-consistent with the fundamental objective of the decommissioning funding assurance requirement as stated in the Rule. The Rule was promulgated expressly in order to " provide reasorable assurance that, at the time of. termination of operations, adequate funds are available so that decommissic,ning can be carried out in a safe and timely manner . . . .

" The Petitioners submit that, if coupled with an appropriately demanding financial test and . annual

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re-certification, a self-guarantee by a licensee can clear 1y provide " reasonable assurance" that such funds will be available.

The crux of the rationale for denial of the Petitioners' August 20, 1990 requests for reconsideration lay in the conclusion that a self-guarantee, like an internal reserve, did not provide the same degree of assurance of the timely av&ilability of funding for decommissioning as would a parent company guarantee. This conclusion was, in turn, premised on

\' the view, stated in the Staff's Safety Evaluation Report (SER) accompanying the March 7, 1991 denials, that "a parent company 12/ 53 Fed. Reg. at 24033.

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4 can isolate -its assets from- claims against assets- of 'a subsidiary in bankruptcy" leaving the parent -company " free - from these claims and possessing assets to assure- timely decommissioning of its subsidiary's facility."

Petitioners submit that whatever incremental assurance of decommissioning funding availability may be achieved by the NRC obtaining a separate, secondary parent guarantee can also be-achieved by a licensee's self-guarantee when thgt licensee GAD show, through the very indicia relied on by the financial markets, that it is substantiall.y less likely to face bankruptcy than is a parent guarantor qualifying under Appendix A. Put another way, the stricter financial test criteria proposed herein by the Petitioners more ' than_ of fset those benefits described in the SER as deriving from the possible segregation of a parent company's assets in the event of - a bankruptcy limited to its subsidiary-licensee. Thus, the-proposal urged by the Petitioners vill result -in no reduction of the level of assurance of decommissioning funding ? compared to that achieved by the present; Rule.

The Rule, as currently drafted, needs refining because financially stable and substantial NRC licensees without

" parents".do not have any means to comply with the Rule 'other-than prepayment, creating an external sinking '. fund or paying a-third party - to secure insurance- or : some other s arety device, each of which is highly burdensome financially. Under the

g existing Rule, however, such licensees are able _ to provide guarantees for their subsidiaries that hold NRC licenses. .If, as ~ Petitioners believe, an -adequate "early_ warning system" can be established to foreshadow a licensee's slide toward inability to meet its financisl obligations, no reason.vould remain not to accept the assets of the licensee itself as the basis for deconmissioning funding assurance for its own licenses, once the reliability of such an "early warning" is recognized, a rule that uniformly rejects all forms 'of-self-guarantees, but permits parent guarantees by less financially stable entities, is clearly arbitrarily discriminatory against qualifying licensees - that . elect not'to, reorganize their corporate structures to create a parent / licensee relationship. E clearly, there is nothing inherent in a . self-guarantee that makes it an inappropriate means of assuring financial responsibility for the future clean-up of contaminated W Such reorganizations are by no means simple or cost-free exercises to be lightly undertaken. They would disrupt existing chains of command and long-established-customer relationships. In some instances, they.h.-ght require the consent-of lenders or customers (and such consents might be obtained - only if _ commercial parent ' guaranteesa were given for the new . subsidiary's -obligations). At a minimum, such reorganizations would require parallel ,and duplicative structures (e.g., Boards -of Directors, managers, . reporting requirements) that would be inherently : wasteful. We question, moreover, whether it lis sound regulatory policy, to provide encouragement for fractionating responsibility for .the conduct:

cf NRC-licensed activities.

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facilities. The U.S. Environmental Protection Agency, fromL standards for- the- parent which the : Rule's financial -test company guarantee were borrowed, accepts-the self-guarantee as a method of providing financial assurance of funding the closure of hazardous vaste facilities. E What is called for ,

in refining the Rule is not the rejection of - all self-guarantees, but the identification of the appropriate criteria for their use.

The existing Rule imposes costs upon licensees-- without parents that are significantly in excess of the costs incurred by licensees who are otherwise similarly situated, except that they do have a majority shareholder. As detailed in the August I

1990 reconsideration petitions, various licensees, including certain competitors of GE and Westinghouse, met the-decommissioning funding assurances requirement of the Rule either by obtaining guarantees from-existing parents, which are of much less financial capacity than Petitioners, or by forming parents that could provide' a guarantee at no expense to the-licensee or its parent. In other cases, state governmental licensees provided the' Commission with virtually no-cost i

assurances in the form of mere promises -to obtain the. funds when necessary. Meanwhile, those companies', such as the Petitioners, -that, for -significant and valid coumercial W . Egg-40 C.F.R. Parts 264 and 265. The Petitioners also . note that even the Commission's own rules permit self-guarantees by licensees, through annual certified financial-statements, of payments of deferred premiums which might become due- under - the - Price-Anderson Act's nuclear liability regime.

Esa 10-C.F.R. 5140.21(e). l

_ _ _ _ _ _ - - - _ - - _ _ _ - - _ _ - - - - - _ - - _ - - - - - - - _ - - _ _ _ . - - . - - - . - - _ - - - - - - - . - - _ _ - - - ___a

reasons, have not reorganized their corporate s tructures ~, ,

incurred the cost of obtaining a line or' letter of credit. The cost of satisfying the Rule through a-line-or letter of credit is significant to Petitioners -- especially when compared with other licensees who are able to satisfy the Rule through essentially no-cost methods. When the licensees required to incur such extra cost are manifestly capable of satisfying the objectives of the Decommissioning Rule through an annually re-certified self-guarantee, the unnecessarily disparate treatment resulting from the Rule is inconsistent with the public interest in cost-effective regulation. 1 The Petitioners also propose that the revision to the Rule a be limited to li,::ensees other than electric utility licensees under Part 50 of the Commission's regulations. Electric utilities licensed under Part 50 do not need the requested alternative to the present Rule. Under 10 C.F.R. $-50.75, electric utilities are permitted to build up their- financial ,

assurances for decommissioning over the life of the reactor, ,

periodically placing such monies as are accumulated in an external sinking fund. E other - (i.e. , non-utility) Part 50 W This " step-wise" procedure available to electric- ,

utilities under 5 50.75 was apparently recognized by the 1 commission as ' a basis for less diversity in the acceptable methods by which such a_ utility licensee - could provide financial assurance for decommissioning, because the Rule does not permit electric- utility reactor _ licensees _ to provide assurance through a. parent company guarantee. Sag 10 C.F.R.

5 50.75(e) (3) .

I l

licensees - and all materials -licensees must provide .the full amount of financial assurance required for decommissioning-from the commencement of -operations (or from July - 26/27, 1990 for pre-existing licenses). Thus, electric utility- Part 50 licensees are not subjected to the same level of immediate financial burden under the Rule as are other licensees.

Accordingly, relief from the strictures of the current Rule, in the form of the Petitioners' proposal, is not sought on behalf of Part 50 licensees who are electric utilities.

The modifications proposed by the Petitioners will remedy the current shortcomings of the Rule described above. In sum, the Rule should be revised because it imposes costs on 1 Petitioners and other financially sound licensees that arc not -l necessary to achieve the Commission's goal of reasonable assurance of the timely- availability of adequate funds for decommissioning.

B. NRC Concerns Respectina Self-Guarantees Will Be Satisfied by the Proposed Rule Commissioner Curtiss, in" his -strong disagreement with the Staff proposal to deny GE's exemption request, expressly recognized "that the concerns that the Commission had (during the original rulemaking) about internal reserves. and.

self-insurance should not preclude GE from. using- ouch.

-decommissioning funding methods here." He- specifically explained that- concern "that a financially-troubled licensee might find it necessary to divert its decommissioning reserves to other purposes . . . would not seem to apply to a licensee that has exhibited the level of financial stability and assets of GE." Commissioner Curtiss correctly saw - as anomalous the fact that G E ' s assets and financial qualifications far. <_.

exceed those required-to satisfy the Appendix A financial tests for parent company guarantees," but that it could not rely on those same *,ssets to guarantee decommissioning under its own licenses. In sum, he concluded that, notwithstanding the concerns expressed by the Commission in . 19 88 about internal reserves, "the degree of financial assurance that we would have if we were to grant this exemption is no less than that which would be af forded _ by the option of a parent company guarantee . . . .

" Commissioner Curtiss's comments are, if anything, even mora compelling in the present context, where-the Petitioners propose even higher financial standards for a -

self-guarantee than are required by the Rule for a parent-company guarantee.

W commissioner Curtiss's comments, auDr.a note ,6 (Annex-A).

D 151A W Ida.

i n,

1

l As noted above, when the Commission denied the exemption and reconsideration petitions submitted by General Electric and l Westinghouse, the Staff expressed concern over potential i

)

bantruptcy of a self-guarantor licensee. The SER concluded ,

that one protection agair.st that eventuality (and, assertedly, a better protection than the licensse's own self-guarantee) is a guarantee issued by the licensee's parent that potentially is not responsible for the licensee's other debts. The instant Petition presents means by which a self-guarantee can be given by certain licensees that will be of at least equal reliability with a parent guarantee permitted by the Rule.

Congress has mandated that the NRC protect the public health and safety, and has given the Commission broad authority in that regard. In promulgating the Decommissioning Rule, the Commission found that the public health and safety could be protected best by requiring licensees to provide " reasonable assurance" that sufficient funds would be available to effect decommissioning in a manner that was both safe and timely. D The rule revision proposed by the . Petitioners.

meets that same regulatory objective. -

The amendment to the Rule that GE and Westinghouse-advocate provides, principally- through the stringent financial-criterin proposed in " Appendix B", more than just " reasonable

}

12/ '53 Fed. Reg. 24033.

assurance" that timely and edequate decommissioning funding will be availabic. As discussed in detail below, the minimum bond rating required by proposed Appendix B - "A" as issued by Hoody's or S&P -- provides significantly greater protection than the minim 1m ting currently required by Appendix A. The tangible not worth requirement of the proposal is one hundred times that specified in Appendix A.D Moreover, companies that could provide assurances through a self-guarantee would be required to have a tangible not worth that is ten times the estimated decommissioning costs (or prescribed level of certification) rather than six times such amounts, which is required by the Appendix A parent company guarantee financial test. The Petitioners' proposal would also raquire that companies forward to the commission all periodic reports filed with the SEC.

The most compelling reason the proposed rule is justified and in the public interest lies in the bond rating requirement. Bond ratings are assigned by independent entities, such as Moody's or Standard & Poor's based on their evaluations of relative investment qualities of bonds and the 2E/ According to the ICF Report, the failure rates of manufacturing firms (such as the Petitioners) fall markedly as net worth rises above $10 million. ICF Report, suora note 7, at 6-8.

I

creditworthiness of their issuers. Bond rating systems were originated to provide investors with a method of assessing the relative investment qualities of bonds. Ilowever, Moody's also notes that bond ratings are used by bank regulators "to classify bonds in their bank examination procedure." D Rating symbols are used by the rating services to indicate

- gradations of investment quality (i m , reliability of payment of principal and interest obligations of the issuer) . In broad terms, ratings ranging f rom "Aaa/AAA" to "Baa/BBB" as issued by Moody's and S&P, respectively, are considered to be " investment grade," while ratings ranging from "Ba/BB" to "C/C" are

" speculative grade."

In assigning ratings, Moody's and S&P collect statistics and information about an issuer and its bond issuances, such information being provided by that issuer as well as being 2.1/ Egg, n, Ratina Bondst A Fev NoteJ on Who and-Haw, Points of Interest, Vol. III, No. 3, (Spring 1991) (Dean Witter Publication) (both Moody's and Standard & Poor's rate bonds by looking "primarily at the overall financial health of the issuer, its repayment history, and what kind of collateral, if any, stands behind the bond").

22/ Moody's Corporate Bond Ratings. The first several pages of Moody's rating publications contain a key to Moody's rating system and investor services. That key includes the following topics: Moody's Corporate Bond Ratings; Key to Moody's Corporate Bond Ratings. Egg, n, Hoody's Public Utility Manual, Vol. I, vii (1989); Moody's Transportation Manual x (1989). Citation in this Petition to information found in those topic sections shall be to Moody's Corporate Bond Ratings or to Key to Moody's Corporate Bond Ratings.

gathered by the rating services f rom other sources that those services consider reliable. D The rating symbol ultimately accorded to an issuance reflects past, present and futuro risks. As explained by Moody's, " ratings involve judgments about the future . . . (but are also) used by invastors as a means of protection . . . (therefore) the effort is made when assigning ratings to look at ' worst' potentialities in the

' visible' future, rather than solely at the past record and the status of the present." U An issuer's financial condition may change over time; therefore, the bond rating for any issuance is not static.

Moody's describes the requirement for bond rating review and revision as follows:

The quality of most bonds is not fixed and steady over a period of time, but tends to undergo change. For this reason changes in ratings occur so as to reflect these variations in the intrinsic position of individual bonds. A change in rating may thus occur at any time in the case of an individual issue. Such rating change should serve notice that Moody's observes some alteration in the investiaent risks of the bond or that the previous rating did not fully reflect the quality of the bond as now seen. While because of their very nature, changes are to be expected more frequently among bonds of lower ratings than among bonds of higher ratings, nevertheless the D Egg Standard & Poor's Bond Guide 10 (July 1989)

(hereinafter Bond Guide).

W Moody's Corporate Bond Ratings, suora note 22.

w n'

2 user of bond ratings should keep close and i constant check _on all ratings -- both high I and low ratings -- thereby to be able to note promptly. any signs of change in investment status which may occur. W Bond ratings may be suspended or withdrawn by a rating service, for example if "new and mater M circumar.ances arise, the effects of which preclude satisfactory analysis" or it!

available data are not sufficiently up to date to allow an opinion of investment quality to be formed. E Thus, bond ratings are infinitely sensitive to a broad range of.. factors relating to an issuer and a particular debt issuance. In addition, statistics show that the- rating. systems work = as-predictive tools -- bonds holding ratings of "A" or better have an extremely low default rate over both short and long periods of time.

In a study published by Moody's on: corporate Bond Defaults and Default Rates D from 1970 through 1990, it is reported that average one year default. rates over that entire-

'W' .L W L

& Corporate -Bond Defaults and- Default, 'Ra'tes 1970-1990,.- Moody's Special Report - (Jan'. 1991)- -(hereinafter Moody's Report). iRelevant excerpts ~ from the Moody'sl- Report are attached -(at Annex _ B) for- the commission's . information; xand _

convenience.- The= Moody's -Report usad the actual- _or implied (i.e., adjusted) rating on each issuer's senior unsecured' debt,

. intended - to _" yield an assessment. of risk that -is relatively unaf fected' by_ - special considerations of collateral'

~

or of a subordinated position wathin the capitol structure."--- & at-7.;

c i

L

twenty-one-year period for bonds rated "A" or better are loss  ;

than four one-hundredths of a percent (i.e., less than four in-ten thousand). D Moreover, the Moody's Report also demonstrates that the incidonea of any issuor rated "A" or better defaulting within 31% years following recalpt of such an "A" or better rating is still Icen .than Qua cercent. D Those statistics attest to both the financial quality of issuers that are rated "A" or htter and the integrity of the ratings system as a method of assessing the current and future creditworthiness of issuers. The "A" rating is assigned to bonds with a " strong capacity to pay interest and repay W SJLs isk at 32, Table 2. These data reflect just-three such defaults during the period studied. Sjts note 36, below. The Moody's Report calculated .one-year default rates based on the rating assigned to an issuer on January 1 and followed that- rating through the calendar year. Moody's defines default very broadly to include any missed or delayed disbursement of interest and/or principal.. This definition includes distressed exchanges where (1) the.

issuer offered bondholders a-new security or package of securities containing a diminished financial obligation (such' as preferred or common stock or debt with a lower coupon or par amount) and (ii) the exchange had the apparent purpose of helping the borrower avoid default.... Moody's default definition also includes companies that make a elayed payment within.the grace period provised in the indenture.

Isk at 6.

W S3tg isk at 33, Table 4.

r--

principal" N and the Moody's Report clearly shows the accuracy with which such ratings have been assigned in the past.

In contrast, the average one year default rates since 1970 I for issuers rated "Baa", which constitutes an acceptable rating for parent company guarantors, is man tbAD fou.r tinga liigher than the average one year default rates for issuers rated "A" or better. D Statistics in the Moody's Report also show that average cumulative default rates for issuers rated "Baa" are approximately 2 1/2 times greater than such default rates for issuers rated "A" or better six years after such ratings were issued; that three to five years following the issuance of such ratings, "Baa" rated issuers' average default rates are approximately 3 times such default rates for issuers rated "A" or better; and that in the second year following the issuance of such ratings, "Baa" rated issuers have average cumulative W Debt carrying a rating of "A" is described by St.P as follows:

Debt rated 'A' has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.

Bond Guide, EMDIA note 23, at 10. Moody's defines "A" rated bonds in a similar fashion. Sag Key to Moody's Corporate Bond Ratings, supra note 22.

W Egg Moody's Report, AMDn note 27, at 32, Table 2.

,i

default rates that are at least 5 times such default rates for issuers rated "A" or better. D It has been stated that the mortality rates for bonds rated BBB/ Baa "begin to increase almost im:nediately after issuance," D and the statistics in Hoody's Report bear that out ~~ from 1970 through 1990, fourteen issuers had a rating of "Baa" on the January 1st of the calendar year during which they defaulted. D Such statistics are not surprising; bonds rated "Baa" constitute the lowest level of investment grade, and, indeed (unlike bonds rated "A"), have " speculative characteristics" according to Moody's. D W Egg 1sk at 33, Table 4.

W E. Altman, Measurina Coroorate Bond Mortality and Performante, The Journal of Finance, vol. XLIV, no. 4, at 913 (Sept. 1989).

W Moody's Report, supra note 27, at 8, Figure 5.

W As explained in the Key to Moody's Corporate Bond Rating, (b]onds which are rated Baa are considered medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payment and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great .ength of time. Such bonds lack cutstanding investment characteristics and in fact have speculative characteristics as well.

Key to ' Moody's Corporate Bond Ratings, aupIn note 22. S&P describes bonds rated BBB in a similar manner. Egg Bond Guide, supra note 23, at 10.

O Statistical comparisons cicarly demonstrate that a guarantee issued by a lice'see holding an "A" bond rating provides substantially greater protection than a guarantee issued by a parent company holding a "Baa" bond rating. Thus, the ratings required in the rule revision proposed by the Petitioners provide the NRC with moro than " reasonable assurance" of decommissioning funding, not only over the course of the year during which the annual certification required for a self-guarantee would operate, but also, in light of the very low long-term default rate of bonds rated "A" or better, for several years into the future. Moreover, the proposed rule offers further protection over the test for parent-guarantors because, under the proposed rule, the commission -would be promptly informed by the licensee of any change in its bond rating that removed a licensee using the self-guarantee from-the "A" or better rating category as issued by either rating service.

The independent bond- rating agencies .are exceedingly vigilant, reviewing and/or revising the ratings of issuances as needed throughout the year _to account for changes that affect the creditvorthiness of the issuer. Their- reputations, and therefore their livelihood, depend on the reliability of these ratings. As the - Moody's Report shows, they have a very good record for predicting the approach of def ault. Thus, if the commission adopts the proposed rule revisions, it canL have a

i

~27-high level of assurance of ample warning of future financial difficulties of licenseen using the self-guarantee and will be able to require a suitable alternative method for assurance of funding long before any such licensee might become unable to meet its financial obligations. Bonds with a rating of "A" or botter virtually never go into default in the near term, W nor do their issuers descend into bankruptcy without ample prior warning signs -- ample enough for the commission .than to require alternative means of financial assurance for decommissioning funding in future years.

Specific questions might be raised during the requested rulemaking about the large-scale and much publicized defaults of Te.vaco Inc. (" Texaco") and the Washington Public Power supply System ("WPPSS"). The bond rating history of those well-known def aults, in fact, further supports - the reliability-of the rating system.

W The Moody's Report indicates that in the entire twenty-one-year period covered, only three issuers def aulted within the calendar year at the beginning of which they held a- '

rating of "A" or better. FJ_t Moody's Report,.suora note 27,.at a, Figure 5. . The default of DFC-New-Zealand and its subsidiary DFC New -Zealand Overseas Investment _ (collectively, "DFC"),

a which held "Aa" ratings at the beginning.of-.the year in which they defaulted, occurred as a result of:. the New ~ Zealand' Government's privatization of DFC. The- detault of Manville Corporation ("Manville") , . which held -an A rating at the- time it:

defaulted,- occurred when that company . declared bankruptcy to avoid potentially vast liability resulting from . asbestos poisoning litigation. .The DFC a'nd Manville . def aults - clearly.

represent highly unusual instances, and are consistent with-the Petitioners' position that the proposed rule revision offers

" reasonable assurance" of adequate. and timely decommissioning funding. y e

T w- "8' T M r- -q.-J g - ...rg.g,

l 3

Texaco originally commanded a " triple A" rating. That rating declined over a five-year period,- ending in

" default" D (bond payments were deferred) as a result of ,

litigation over its acquisition of Getty 011. In January of ,

1984, Texaco acquired Getty Oil, taking on $9 billion of debt.

Pennzoil Co. brought suit against Texaco for tortious interference with Pennzoil's allegedly pre-existing-_ merger agreement ~with Getty oil. In late 1985, Pennzoil won the suit _

and was awarded $10.53 billion in damages. In 1987, Texaco-filed for bankruptcy protection under Chapter - 11 and bonds issued by both Texaco and Getty 011 were in' default. The-following table ' documents the downrating, as issued - by - S&P, -

suffered by Texaco and its subsidiary, Getty 011, overL - the course of that suit and its aftermath. Both issuers lost their "A" ratings more than a full year before the Texaco default.

i 12/ -Texaco. went' - into "def ault" becaur.e 'it deferred interest payments on- its bonds. However, eventually bothL '

principal: and interest were paid _ by Texaco ' on those. obligations;-

when Texaco emerged from bankruptcy.

4

^ ,c-ar +.h',

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q.

29 -

DATE TEXACO RATING GETTY OIL RATING oriclinal 'AAA Rat;.ng AAA 1983 AA+

E Mar 84 AA- -AA-May 85. A+ A+ .

Jul 85 NR Dec 85 B Apr 87 D

- \ .;

The WPPSS default on bonds issued - for nuclear . projects (4 -

and 5 involved a similar history of repeated ^downratingiover.f a?

long period of time. The bonds issued for projects '4 -and D5' were originally rated "A" by Moody's.

Due to cost overruns;.and-diminished demand for power, WPPSS debt . issued on projects:.-[4' .

and 5. experienced rating' cuts over a two-year;; period. WPPSSa '

debt' issued on' projects'.4'and 5;ultimatelyLwent into; default in:

July of 1983, when a' Washington State: court determined'that the-:

contracts funding the bonds'- r e p a y m e n t'; o h l i g'a t i o n s " w e r e .:

unenforceable. The table-below documents WPPSS rating; cuts 2byL Moody's.- Again, a rating below "A"- long. pre-dated l'the. bonds' m '

default.

y.

. -- g .

^

i-

-,?

'=

b 1

__-~._.u_. _ _ - - - _ _ . - .. _-

A

-i WASHINGTON PUBLIC POWER SUPPLY SYSTEM (WPPSS)

RATING OF BONDS FOR PROJECTS DATE 4 &_5 Original Rating Al- .

Jun 81 Baal Jun 83- Ca e.

The history of the rating agencies'-successlin predicting! .

the likelihood of default in any year, 'and their ability _' toj J

keep pace with changing conditions, indicate that' the : judgments

' t of the-financial marketplace are_a highly reliable predictor of.

an ' issuer's ability to meet its - future - financial' obligations [

(even- ' obligations many years into the future); they shouldThe s [Ir no less reliable as: a : predictor of a : licensee'af capacity _ to , a provide timely. and' adequate; decommissioning funding.D L Thel

• rating agencies clearly are very adept at_ gauging' changes in;anj ,

is' suer's . creditworthiness.- Thus, the nbond rating n requirement, of the proposed ritle provides _ a sound' means for the NRC to .be II/ _

Indeed,--the' rating agencies. take2 an issuer's etner- financial- Lobligations. ~ ;into _Jaccount, Jincluding:

environmental' cleanups :and-1 decommissioning =: responsibilities,i ,

zwhen_ issuing =and_ adjusting.the ratings they publi'sh.

hw> > . . , f ,3 ,r q g w n

,y

r assured of the future D availability of decommissioning funding. In addition, the downrating notice requirement will assure that the NRc can monitor and gauge closely the value of a licensee's self-guarantee over time. N Under tihe proposed rule the NRC would also receive, - on a timely basis, copies of periodic reports filed by the licensee m

under-the Exchange Act. Notably, in addition to the licensee's audited annual reports, the Commission would receive the licensee's Quarterly Reports filed with the SEC on Form 10-Q

("10-Q") and Current Reports filed with the SEC on Form 8-K

("8-K"). The 10-Q must be submitted to the SEC within 45 days after the end of each of the issuer's first three fisc'al quarters. The 10-Q contains, among other things, unaudited interim financial statements and a discussion of the 12/ The licensee's current capability. to provide.

decommissioning funding vill be amply demonstrated by the other financial test criteria in proposed Appendix- B, all of which are much more stringent than are requLred of a parent company gur.rantor .

W If the certification could not be provided.at the end of the licensee's fiscal year, an alternative means of providing financial assurance of decommissioning would- be required of the licensee. . Moreover, since the licensee might still have an " investment grade" bond rating, there is no reason to expect it would then have difficulty in providing an alternative means of assurance. Again, by_ contrast, if a parent company holding the lowest bond rating accepted under the existing Rule experienced. a downrating, that downrating necessarily would: remove it from the " investment grade" rating category. As a result, the parent company could no-longer give a parent guarantee and its subsidiary might well have a greater degree of difficulty obtaining a line or letter of credit.

1 '

r:

L registrant's financial condition, changes in financial condition and results of operations. N The discussion must be focused' on " material events and uncertainties known to management that would cause reported financial -information not to be necessarily indicative of - future - operating results or of future financial condition." D The 8-X must be filed within 15 days after the occurrence of an event that is required to be reported. Such ~ events include changes in control, the acquinition or disposition of assets, bankruptcy or receivership proceedings, the resignation or dismissal of the certifying accountant (including information about any disagreement over accounting principles),

and the resignation of a director if the director sent the registrant a letter describing a disagreement and the director requests that the matter be disclosed. In addition, the registrant may use Form 8-K to report any other material changes that it deems. of importance to its shareholders.- The-general instructions to Form 8-K Lcaution . registrants to "have due regard for the accuracy, completeness and currency-of the W The Q also contains information. about - legal'-

proceedings,. changes .in ~ securities,- defaults upon; senior securities,- matters: submitted for shareholder vote, and- other-information, not: reported' on an 8-X, that _ the ; registrant -is required to report.

W 17' 'C.F.R. 5 229.303, Instructions to Paragraph 303(a) (1990).

information" previously reported to the SEC when considering whether to report events of material importance on Form 8-K. D Moreover, federal securities regulations require that no officer and director "make or cause to be made a materially false or misleading statement" on reports required by the federal securities laws. N Through the receipt of those reports, the NRC would be apprised of significant events occurring during the course of the year. These reports would equip the NRC with another mechanism to monitor continuously the licensee's ability to satisfy its decommissioning funding obligations. Furthermore, these same reports are used by the bond rating agencies, who review their ratings in light of, inter alia, the information therein.

The stringent requirements of the financial test in proposed Appendix B -- the high bond rating coupled' with a notification requirement should a campany fall below the specified bond rating from either ratings service during the W Exchange Act Release No. 26589 (Mar. 2, 1989).

W 17 C.F.R. I'240.13b2-2 (1990).

files with the Investors rely on SEC when deciding the reports a registrant whether to purchase or sell that . registrant's securities. In this regard, the antifraud provisions of the federal securities laws prohibit misstatements of material facts and omissions of material facts if such facts make previous statements misleading in connection with the purchase or sale of securities. Egjit 17 C. F . R. $ 240.10b-5 (1990).

course of a fiscal year, and the forwarding of all periodic reports required under the federal securities laws --

operate to provide the NRC with assurance of decommissioning funding .

equal to or greater than the assurances already accepted by tne >

NRC under the present Rule. The rule proposed by the Petitioners is sufficiently demanding to outweigh the concerns expressed in the SER over the lack of a separate guarantor entity with segregated financial resources. As noted - above, '

the Moody's Report demonstrates that " Baa/BBB" issuers have a significantly greater likelihood of default within the course -

of a calendar year after being so rated than companies with "A" or better ratings have. Thus, parent companies that merely satisfy the "Baa/BBB" bond rating requirement in - Appendix = A . l clearly cannot provide better financial assurance, merely by.

virtue of their " separateness," than can qualified self-guarantors under proposed Appendix B.

Not only does the proposed rule adequately alleviatei concerns over the lack of a separate entity as guarantor, but any possible risk caused by that -lack of segregated- financial.'

resources-is no different in kind or substance from the risk of  ;

a carent.that supplied a guarantee for -its subsidiary-licensee -

going bankrupt. A parent company could declare bankruptcy . and put decommissioning funds at . the risk of creditors' superior- ,

claims in the same< manner a licensee could. Irdeed, it,is not at all unusual that, when a parent company -enters bankruptcy,

. 4 w- g- f Tt + -we-' "-Tu-=w

• - t-'

(__

many (if not all) of its majority-owned subsidiaries likewise enter bankruptcy. In the case of wholly-owned subsidiaries, resort to bankruptcy simultaneous with the parent is even more frequent. In the words of commissioner curtiss, "the commission found that risk to be tolerable for a parent company guarantee; I see no reason to differentiate the situation (of a-self-guarantee), particularly in view of the undisputed financial health of (one of the Petitioners)." D other concerns expressed by the NRC are equally inapposite in light of the stringency of the proposed rule revisions.

When the commission promulgated the Decommissioning Rule, it-was concerned over the internal reserve method of providing funding assurances. N The Staff raised those issues again when the NRC rejected the exemption and reconsideration petitions submitted by. GE and Westinghouse. Ilowever, the rule revisions proposed by the Petitioners do not involve the same issues that concerned the NRC when it rejected the internal reserve method in the original Rule. The internal reserve was-rejected, at least in large part, in light of the financial risks taken, and financial difficulties experienced, by utilities. The proposed rule revisions to Part 50 do not cover 15/ commissioner curtiss's comments, nunra note 6 (Annex A).

ift/ E23 53 Fed. Reg. 24032-33.

3

r l

electric utility licensoos. Moreover, the NRC did not considor whether a self-guarantoo or internal reserve would have boon adoquato 11 the licensoo had (and demonstrated annually) the financial strength required by some test more demanding than s that for a parent company guarantor. The proposed rule  :

revisions are supported by empirical evidence that demonstrato such adequacy.

Moreover, the NRC now has inf ormation about the financial capabilities of its licensoon that was unavailable at the timo the Decommissioning Rulo was adopted. D This information l demonstratos that the number of licensees who could qualify to -.

give a self-guaranteo under the proposed rule is relatively small, D meaning that the administrative burdon on the NRC staff of monitoring continuing fulfillment of the financia) critoria would likewise be quito modest. The Commission no longer f aces uncertainty about a licenson's ability to provida decommissioning funding assurances, and licensoon capable of satisfying the proposed rule have financial strengths far in excess of companies from which the NkC has stated that it will accept parent company guarantees. The Commission should also 42/

- SECY-91-142 (May 16, 1991); ICF Report, tumrA noto 7.

d0/ Using the information in the ICF Report, it seems very likely that fewer ti.an 100 HRC licensons would qualify an self-guarantors under the proposed rulo revision.

I i

~37-note that, because the proposed rule revisions require a cor.pany to be subject to the Exchange Act and to forward to the NRC copies of all SEC f111ngs made by that company, the NRC would receive fi%ncial information on a timely basis that it was not assured of receiving at all when it rejected an internal reserve method of assurance. Finally, as explained in previous petitions, the self-guarantee of the proposed rule is different from, and mure demanding than, an internal reserve because of the annual re-certification requirement.

C. The Rule Recuested By the Petitioners is in the Public Interest The proposed rule encourages direct- licensee responsibility by financially strong companies rather than by structural artifices possibly conjured up to meet the letter of the Rula's parent company guarantee requirements. As discussed in previous petitions, the failure of the current Rule to allow for self-guarantees by. financially strong, independent (i.e.,

non-subsidiary) companies may discourage such companies from becoming licensees, due to the additional cost of the available decommissioning funding assurances methods if they becomo licensees. The current Rule thereby appears to provide such companies with an incentive to create less financially secure subsidiaries .to hold NRC licenses.. Quite the contrary,.

consolidation of financial resources in a single licensed organization is in the public interest because the performance of all licensee responsibilities is thereby enhanced.

a

(

l The proposed rule further promotos the public interest by allowing licensees without parents to conserve valuable resources by executing a self-guaranteo rather than expanding increasing amounts of money for a letter or line of credit (the cumulativo cost of which, during the next 40 years, is estimated to be in excess of savoral million dollars for each of the Petitioners). runds exponded on a letter or line of credit are unrecoverable and, although it is expected that each of the Petitionors will continue to be financially strong throughout this period, the expenditure of such funds is unwarranted. It cannot be in the best interest of the public to have such Inrge amounts devoted to the Petitioners' providing funding assurance when a self-guarantee provides the NRC with more than adequato doccmmissioning funding assurance.

V. CONCLUSION The re11of sought by GE and Westinghouse in this Petition is the promulgation of a revised rule providing for decommissioning funding assurancos through the execution of self-guarantees by certain NRC licensees under 10 C.F.R. Parts 30, 40, 50, 70 and 72, subject to their satisfying strict financial criteria. The Petitioners have attached a copy of such a rulo revision as Exhibit A.

In this Petition, GE and Westinghouso have shown that, should the Commission adopt- the proposed rule revision, I

concerns over the absence of a segregated fund source or the risks of an internal reserve would be more than overcome by the creditworthiness of the qualifying licensee /obligor. This creditworthiness, after all, goes to the heart of the level of assurance that timely and adequate decommissioning funding will be provided. A licensee who can meet all the tests established' by the proposed revised rule must -- by virtue of meeting those demanding criteria -- more than satisfy the standard of-

" reasonable assurance,a Accordingly, and because to do so would further the commission's statutory mandate and better serve the overall public interest, the Petitioners urge the commission to adopt the attached rule revision.

045*,w/0463W b#

e -

EXHIDIT A ATTACHMENT TO PETITION FOR RULEMAKING Proposed Rule,

1. dection 30.35( f )( 2 ) is amended to read as follows:

(2) A surety metnod, 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 to 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 to this part. A guarantee by the applicant or licensee may not be used'(1) in combination with any other financial methods to satisfy the requirements of this section or (2) 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 assuranca for decommissioning must contain the following conditions , . .

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

Appendix B -- Criterie Relating to Use of; Financial: Tests.and Self Guarantees for Providing Reasonable Assurance of Funds for Decomunissioning I. Introduction Jus applicant or licensee may provide reasonable assurance of-the availability of funds for decommissioning based' on. furnishing'its own guarantee:that funds will De available for decommissioning costs and on a demonstration'that-the company passesLa financial test. This appendix ~ establishes criteriaEfor passing:the financial test for the self. guarantee.-

II.- Financial ~ Test A. To pass the financial test, the company must maet all.

lof the following c'titeria:

f.

The company must haves (1) A current rating for its most recent bond isst'snce of AAA, AA, or A, as issued by Standard Poor's or Aaa, Aa, or A, as issued by Moody's; and (ii) Tangible not worth at least ten times the current decommissioning cost estimate (or prescribed amount if a certification is used); and (iii) Tangible net worth of at least S1 billion; and (iv) Assets located in the United States amounting to at least 90 percent of total assets or at least ten times the current decommissioning cost estimates (or prescribed amount if certification is used).

B. 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, year end 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 auditor's attention which 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.

C. The company must have at least one class of' equity securities registered under the Securitten Exchange Act of 1934.

D. 1. After the initial financial test, the company must repeat the paseS2e of the test within 90 days after the '

close of each succeeding fiscal year.

2. If the company no longer meets the requirements of paragraph A of this section, the licensee must send notice to the Commission of intent to establish' alternate financial assurance as specified in the Commission's regulations. The notice must be sent by certified mail within 90 days after the and of the fiscal year for which the year and financial data show that the company no longer.-meets the financial test' requirements.- The licensee must provide-alternatei financial assurance within 120 days after the end of such fiscal year. 'l III. Company Guarantee

'The tccms 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 Commissien. Cancellation may r.ot occur, however, during the 120 days beginning on the date of receipt of the notice of cancellation by the Commission, as evidenced by the return receipt.

B. The licensee will provide alternate financial assurance as specified in the Commission's regulations within 90 days after receipt by the Commission of a notice of cancellation of the guarantee.

C. *he guarantee and financial test provisions must remain in effect until the Commission has terminated the license or until another financial assurance method acceptable to the Commission has been put into effect by the licensee.

) D. The licensee will promptly forward to the Commission  !

and the licensee's independent auditor all reports flied by the licensee (in its capacity as a registrant) with the Securities and Exchange Commission pursuant to the requirements of section 13 of the Securities 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 Poor's or Moody's, the licensee will provida notice in writing of such. fact to the Commission within 20 days after publication of the change by the rating service.

\

l

3. Section 40.36(e)(2) is amorded to read as follows:

(2) A surety method, insurance, or other guarantee method. These methods guarantee that decommissioning costs will be pr4d. 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 decoinmissioning costs based on a financini test may be '

used if the guarantee and test are as contained in Appendix A of 10 CFR Part 30. A parent con.pany guarantee may not be usud in combination with other financial methods to satisfy the requirements of this section. A guarantee of funds by the applicant or licenses 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 licensee may not be used (1) in combination with any other financial methods to satisfy the requirements of this section.or (2) 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 ... .

4. Section 50.75(e)(1)(iii) is amended to read.as follows:

(111; A surety method, insurance or other guarantee method.

Triese methods guarantee that decommissioning costs will be paid. A surety method may ha in the form of . . .

5. Section 50.75(e)(2)(iii) is amended to read as follows:

(iii) A surety method, insurance, or other guarantee method. 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 licenses 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 licensee may not be'used.

(1) in combination with any-other financial methods to satisfy the requirements of this section or'(2)~1n any situation where the applicant or licensse has a parent company holding majority control of the voting stock of the company.

j

6. Section 70. 25( f )( 2 ) is amended to read as follows:

(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 tho requirements of this section. A guarantee of funds by the applicant or licenses for decommissioning costs based on a financial test may be used if the guarantse and test are as contained in Appendix B of 10 CFR Part 30. A guarantee by the applicant or licensee may not be used (1) in comDination with any other financini methods to satisfy the requirements of this section or (2) 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 . . .

7. Section 72.18(c)(2) is amended to read as followst (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 licensee may not be used (1) in combination with any other financial methods to satisfy the requirements of this section or (2) in any situation where the applicant or_ licenses 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 . . .

carnissioner Curtiss' cor.nents on SECY-90-217: j

1 disapprove the sterf's proposal to deny ot's request for an exemption from the regulations requiring licensees to establish .

ex ernal funds or use Sgae other indopendant, external aschanism  ;

to ensure the avails.hility of funds for decommissioning.  ;

Altneugn I as aware 98 the fact that the cotaission specifically  ;

onsidarna and rojasted ruleenking proposais-that woulf have l per:ntsted the use of internal pesan.. ur ' sear-insurance" for t socen=issioning funding, as GE proposes in its application-for 1 oxemption, several considerations lead me to the conclusion that the concerns that the commission had about internal reserves and 1 nelf-insurance should not preclude GE from using such decommissioning. funding methodq here. In particular, ! kould i note tha following:

1. ine ime start's consultant on-methods to finance  !

decommissioning has 99nsluded that the use of internal  ;

cenerves "is acceptable and provides excellent assurance-of availability of funds." (NURE0/CR-3499 - '

Utility Financial stability and 'che Availability of runds for Decommissioning, september 1984, p. 13).

Despite the fast that internal reserves cannet be -

effectively protected from creditors;in'the event-of r bankruptcy by the licensee, the NRC staff concluded that the internal reserve typreach-provides reason.ide ,

asauWalgg tha'. eennemisgsen&ng fuhde-.will se available wash tsey are needed by licensees and recommended that -

the final decommissioning rulee allow-the-use~of 1 '

internal reserves (8ECY=$7a309I proposed Final Rules'on Demosmissioning, December 17,-1987, Appendix.pp. 5-7, 8-13). The Consission's -concern in re$eeting that a staff recommendation == that a financially-troubled.

licensee-night. find it necessary to: divert its-would:ngt, decommissioning reestves to other~ purposes - '

pesa to apply to a lisanese that nas exhibited the~

level of.flnancial stability and' assets of GE.c

2. In promulgating.decemaissioning. funding requirements in the low-level weste area, the Commission decided not 49 -

perinit, gn g . generic basis, the Huse of stand alonei_

self-insurance" to fund low-level-waste site: '

stabilisation and closure. At'the same time',ethe commission did indicate thatiit'would evaluate the use- 'i of financial tests and self-insuranse " proposed.by. '

licensees on a-case-by-caseebasia." (statements of consideratient Licensing Re q&gements for Land Disposal-of Law-!.mvel L waste, 47 Fad mas- 5744 6,- Desenhor 27, 1982), Thus,jdespite its lack.of condidence;that-the i self-insurance approach would provide tan =necessary a reassnable assurance that al.1 licensensivould have site closure-funds available when needed, the. Commission held.open theipossibility that the selt insurance approacn could t,e-Justified for licensees vno q

't

2- (SECY 90-217) demonstrate their (inanG1A1 qualificatisms. _ llh gy view, tna logie ef th6 ap9 roach saMan for low lovel vaat,decommissioningappklesWithequalfor:ahere, where GE has made just such a demonstration with. regard to the licenses which it holds.

3. While the decommissioning regulations do not allow the use of internal rasarves or sel(=gvarantan , they as paruiL non-Licensee parent company quarantees where a parent organization =eets certain financial testa sat out in 10 CFR Part 30, Appendix A. GE's assets and-financial qualifications f ar exceed those required to ,

satisfy these financial tests for parent company guarantees. In fact, GE vill satisfy the decommissioning funding requirenants for a GE-subsidiary, ReuterostoXes, by providing a parent cor.pany-guaractee based on GE's own internal financial capabilities. It would be _an anomaly to . permit GE to provide an internally-funded _ parent company guaggnies '

for a subsidian hut raquire 45 to esta 311sh -external 26 serves to fund decommisioning where GI itself is - the named licensee.

4. U. 'f , it appears to me that the degree of fin-30..1 e -.alance that we would have if we were to graat this er.emption is no-less than that.which would be afforded by the option of a parent company guarantee, an option that is explicitly allowed by the d9g0amissioning rules.- Eh fact, uns very-concerns that have-been expressed about granting this type of exemption - .that -

a company might declare bankruptcy, thereby_ placing decommissioning funds at the risk'of creditors' ruperior claims -- are no different-than the situation that we wsuld-face under the option of a parent company guarantee. The. commission found that risk to be-tolerable for a parent ccupany guarantee; I-see no reason to differentiate-the situation-here, particularly in view of the undisputed financial health cf the applicant, ror the foregoing reasons, I would grant the exemption, subject to the requirement that GE ba re p ired to gggettify on an annual basic that it Losts the rinancial test criteria as required by 10 OTR Part 30, App. h, gestions II A.1.and A.2 0, i

......,yv..o.neru6

, D' k

January f 99f Contaets Jerome S. Fons (212) 553 1655I Andrew E. Kimtall Susan M. Kulakowski Corporate Bond Defaults and Default Rates 1970-1990 Summary This study bnngs previous Moody's studies of corporate cond defaults current l through 1990. The purpose of these studies is twofold. First, the data are I intended to provide bond market investors with bench mark guidelines on histoncal default expenence by rating category. Second, t_ hey aid in assessing the credit support needed for structured securities backed by pools of corporate bonds.

Briefly, the study found:

l- . .

e in 1990,96 corporata issuers defaulted on $22.0 billion of Moody's rated and public corporate debt. Of this total,78 issuers were rated by Moody's all were rated speculative grade as of January 1,1990, These companies had

$20.4 cillion of debt outstanding at default.

e The default rate for speculative grade issuers rose to 8.8% from 1989's 5.6%.

These represent the highest back to back default rates on record.

a Average default rates across investment horizons spanning one to twenty years clearly show that def ault rates for lower. rated issuers exceed those of high grade issuers.

s Defaults reached across many industries, with casinos & hotels, retail, and airunes particularly hard hit.

m Many ill conwelved LBOs came apa.11n 1990. The year also saw an Ir;:rease in the use of distressed exchange offers and grace pened payment delays to extract concessions from bondholders.

In view of the current recession and Middle East conflict, Moody's anticipates a continued high pace of defaults for 1991 - Through the first three weeks of 1991, 11 firms have defaulted on $2.9 billion of pubtic or Moody'e rated bonds. As further evidence of potential difficulties, Moody's reports that Caa outstandings grew by 23% in 1990 to $27 billion, three times the level at the beginning of 1989.

., s, .

AEW I ~

Fedecal Registne / Vol. 56. No.100 f Wednesday, September 25,1091/ PmposedTthus -

48445'-

., NUCl 7AR REOut.ATORY (Westinghouse).ne petition was lived records of prosperitWThe * * "

COW 1tSSION assigned Docket No.PRM-30-69 on july petitioners contend that few financial 11,1991.The petitioners request that the institutions in the business of extending 10 CFR Parts 30,40,50,70, and 72 NRC amend its decommissioning letters of credit or other forma of third.

- regulations contained in 10 CFR parts party guarantees can demonstrate the (Docket No. PRM-30-6s] 30. 40. 50,70. snd 72 to provide a means same degree of hnandal capacity, De -

General Electric Co, and for self gustantee of decommissioning petitioners bel! eve that this tsoognized Westinghouse Electric Coep.; Filing of fun &ng c sts by certain NRClicensees atending in the financial communit a Petition for Rutamaking who meet stringent financial assurance supports their contention that telf.y and related reportmg and oversight guarantee by licensees of r!milar

. actNcy: Nuclear Regulatory requirements. Electric utility reactors financial substance is more than Commission. licensees under to CR part 50 are sufficient to meet the financial.

ACnott Notice of receipt of peudon for excluded from this petition. assurance requirements of,the rulemaking. On June 27.1968 (53 FR 24018), the decommissioning rule. .

NRC ubtlahed a final rule that 1 i suwuAntt ne General Electric estab ished general requiren ents for Need for the Suggestad AE r mots, 5, Coinpany and the. Westinghouse Electric decommissioning nuclear facilitiesc

~

De petitioners have subudtted thla- .

ys: Corporation requeet that the Nuclear These re@irements ' provide assurance petitioh for rulemaking because they _

, P.cgulatory Commission (NRC) amend ~ that licensed facilities Will be believe that'they have been adverselb

, its r,egulations establishing general ,

decommissioned in a enfe end timely' ,. . a'nd un' reasonably-affected by thg . .

. ~ requwe'ments.for decommissioning sanner artd that.ade'quate funds will be' . limiliations in the ciarrtnt "

../

• V . !icefdee fac& ties.'lle pe'titioners *

',avadable for decommiss'ioning. Under

' derommissioning ruli The gietitionen .

request that the NRCissue a rule that the current decommissioning '

state that. under the current rule.

would provide a means for self- . requirements, licensees are permitted to companies like the petitioners are

_ id guarantee of decommissioning funding provide financial assurance of unable to guarantee decommissioning costs by certain NRC non-electne utthty decommissioning funding through funding costs when they themselves are reactor licensees who meet stringent prepayment. lasurance, a surety bond, a NRC licenseesa However,(secording to financial assurance and related letter of credit, a line of credit, a parent the petitioner. less financially strong reporting and oversight requiremants. compr.ny guarantee, or tho institutions, such as insurance oaTes: Submit comments by November establishment of a sinking fund. companies. bank s, and savings and loan 12.1991. Comments received af ter this In March 1100, the petitioners each institutions, are permitted to guarantee date will be considered if it is practical sought a specific exemption from the the decommissioning funding costs of d to do so, but assurance of consideration financial assurance instrument NRClicensees without providing any cannot be given except as to comments requirements discuased in the previous evidence of financial strengdt. ~

j received on or before this date, paragraph.The requested exemptions Furthermore, according to the Anoatssts: Submit comments to: w uld have enabled the petitioners to petitioners, licensees without the 4 , Secretary, U.S. Nuclear Regulatory dem nstrate financial assurance by financial capabilities of the p'e titioners Commission, Washington, DC 20555. submuting a se5guarantu that may provide therwise met or exceeded the criteria guarantees cly so1ualifying parent Attention: Docketing and Service because these parent company

, Dranch. For a copy of the petition, write: I '9""IIIi"8P"" Y ICD *P""Y companies are legal entitles distinct Rules Review Section. Regulatory arante u ppendix A 0 CIR

g. fron, the subsidiary licenses whose _

publications Branch. Division of decommissioning funding they-F reedom of Ir. formation and requests for exemptions on July 31,1990.

The petitioners each submitted a E""'""'"

INblications Services, Office of The petitioners state that the lack of Administra tion. Washington. DC 20m. pet tion for Reconsideration on August 20,1990. The Commission denied these an tnternal decommissioning funding Fon runturn ikFORMATION CONT ACT: petitions for Reconsideration on March method imposes unwarranted 4 a jmeph Wang Chief. Engineering and 7.1991, but invited CE and compt;ance cost upon them The current ga Decommissioning Section, Radiation Westinghouse to submit a petition for rule compels the petitioners to either a protection & lleelth Effects Ilranch- rulemaking to address the issues raised restructure their licensed activities into Division of Regulatory Applications- concerning self. guarantee for less financially secure bcensees

-g, Office of Nuclear Regulatory Research. decommissioning funding, subsidiaries for which the petitioners U,S. N;. clear Regulatory Commission, could then provide parent company -

Washington DC 20555. Telephone (301)~ The petitioners guarantees or to obtain external he 62-sm r Michael T. Lesar, Chief. The petitioners euch hold NRC financial assurance at a cost that would .

Rules Review Section. Regulatory lic.enses issued under the regulations in be significant over the term of their 1%blications Dranch, Division of 10 CFR chapter I or comparable licenses licensed activities, g$ Freedom of Information and issued by an Agreement State. -

pubhcotions Services Office of The Solution Therefore, the petitioners are subject to

. Administratwn. Washington. DC 20555. the Commission's requirements. The The petitioners suggest that the NRC Telephone:1301) 492-7758 or Toll Free: petitioners state that they have amend its regulations pertaining to ono-anr>-srA2. sufficient resourcen to provide the decommissioning funding to permit an

$UPPLEMENTaRY QNFORM ATION: degree of financial assurance necessary additional method for providing the 4 to meet the stated requirement that required finanetal assurance.The

Background

adequate funds be available for petitioners also sugest that the NRC The NRC has received a loint petition decommissioning.The petttioners assert add provisions in which it would for rulemaking submitted by the General that they are in excellent financial establish the criteria to be used in Electnc Company (gel and the condition. possess vast assets, enjoy determining the quahfications of a Westinghouse Electric Corporntmn premier credit standing. and have long. licensen to provide a self-guarantee of I.

a se.

,a

{

.48446 Federal Register / Vcl. f>0. No. Its / Wednesday,, Sept:mber 25, 15191 / Proposed Rul:s "

i funds. Accord 4 to the peutioners, the 1. In 5 $0.35. the introductory text of (ii) Tangible net worth at least ten i-

- r.uggerded cnterta for self. guarantee of paragraph (f)l2lis revised to read as times the current decommissioning cost 1 pt f unds are more stringent than those follows: estimate (or prescribed amount if a . ti" currently required for a parent company Section 30.35 Tinancial Assurance und

" ** "** I' "*'0 h *"0 ~

M TangW nn wotM at hast M. un-8"*'***' Recordkeepingfor Decommissioning billion; and Ci The suggested amendment would *

. provide for the selfiruarantee of fund for (iv) Assets located in the United ib decommissioning costs by any licensee - (f) ' ' ' States amounting to at least 110 percent tither than an electric uuhty licensed to (2) A surety method. insurance, or of total assets or at least ten times the to operate a reactor under 10 CFR part 50, other guarantee method.nese methods current decornmissioning cost estimates i tr.

that- guarantee that decommissioning costs (or prescribed amount il certificauon is in (t) lies no majority shareholder, that will be paid. A surety mt Tod may be in used). er-is. a ocmpany without a parent the form of a surety boni letter of 11W company,e independent 13 -

compe ny,' credit, or line of credit. A parent - certified public accountant must have rt -

company guarantee of funds for - compared the data used by the company . { S.

in the financial test, which is derived re of th cu71eExchange daommissioning costs based on a financial test may be used if the from the independently audited, yar to Act of m and guarantee and test are as contained in end financial statements for the latest d gr

,(3)Derponstrates alevelof present and Iuture finrncial stability sufficient ,

appendix A to this part; A pare'nt hscal year, with the amounts in auch

' finantial statemeriL in connection wit'h 4 "in

's com[any co, inationguarantee may nqt be'used'that in procedure,the licenset shall infornt .n'_

~

to mc6t the required linkncial test. . with bther financial .

NRCwithlgiigdays of any matters (

. Nerd fid the'Ankedtknts - .

methnds to satisfy the requirements of .

et J ' -

e this section;Ahua'rantee'of fuhda by'the tor 6ius to the andatot's attention.whiEh ,,,, '! if.. ,

', %e petitioners bebeve that their . ~

applicant'or 14cn,see for cause the auditor 10 beheve4 hat the

• sugscated a==nAmants are in the pubhc decommissioning costs based on a data specified in tha knancial test 4 interest.The petitioners state that the . Imancial test may be used if the should be adjusted and that the f*-

proposed amendments would encourage guarantee and test are as contained in company no longer passes the test.

directlicensee responsibihty by appendix il to this part. A guarantee by C.The company must have at least . b financially strong companies.%e the appl cant or the licensee may not be one class of equity securities registeied li petiuoners believe that the current rule used in combination with any other under the Secunties l'.xchange Act of ,

may encourage a financially strong, financial methods to satisfy the 1934.

Independent company to create less requirements of this section or in any D. L Af ter the Inltlal fmancial test. the -

financially accute subsidiaries to hold situation where the applicant or licensee company must repeat the passage of the NRClicenses in order to avoid the - has a parent company helding majority teit within 90 days after the close of l 'o additionalcostof available control of the voting stock of the each succeeding fiscal year. ,

F1 decommia=1=== funding assurance company. Any surety method or 2. lf a company no longer meets the  %

methoda.%e petitioners assert that the - insurance used to provide financial requirements of paragraph A of this it !

consolidation of !1nqndal resources in 8 assurance for decommissioning must section, the licensee must send notice to CI smgle hctssed organization would contain the following conditions: the tkmmission of intent to establith - 8<

enhance the performance of alllicensee , , , . . alternate financial assurance as L responsibilities thereby better achieving - specified in the Commission's I 2An ap dix Ilis added to part the stated purpose of the, required ,

f nancial assurance provtsions. -

certified mail within 90 days after the -

in addition, the suggested Appenda F to Port M-Criteria Relatin# end of the fiscal year for which the year 5 amendments would permit licensees To Use of Financial Tests und Sell end data show that the company no without parent companies to conserve Guorontees for Providing Reasonable longer meets the Gnancial test -

valuable resources by execuung a self- Assurance of funds for requirements The licensee must provide guarantee rather than expending Decommisswnin# alternate imancial assurance within 1::0 '

increasing amounts of money for a hne days alter the end of such fiscal year. t

! Introduction or letter of credit. Accordmg to the petitioners, the cumulative cost of a line An apphcant or licensee may provide  !!!. Company Guarantee

- or letter of credit is estimated to be in reasonable assurance of the availability The terms of self guarantee which an .

I excess of several million dollars for of funds for decommissioning based on applicant or licensee furnishes must each license over the next 40 years. furnishing its own guarantee that funds provide that: ,

hese funds would be unrecoverable will be available for decommissioning A. The gurarantee will remain in Intre . 1 and. In the petitioners' view, this costs and on a demonstration that the unless the licensee sends notice of-represents an unwarranted expenditure company passes a financial test. This cancellation by certified mail to the -

of funds. appendix establishes criteria for passing Cummission. Cancellation may not -

the financtui test for the self guarantee. occur, however, during the 120 days

% PW ' Suggested Amendments beginning on the date of receipt of the  ;

11. Financml Test he peutioners have suggested notice of canceuation by the, specific ammodments to the provisions A. To pass she (mancial test. the ' Commission, as evidenced by the return of to CFR diapter i to accomphah their company must meet all of the followmg receipt.

Suggested amendments.The suggested criteria. The company must have: 11. The lici.msee will provide alternate amendments, with mmor editorial (l) A current rating for its most recent ' nnancial assurance as specified in the adjustments to codification und bond issuance of AAA. AA,or A as Commission's regulations within to days

- amendatory language necessary to meet issued by Standard and Poor's or Ana, after receipt by the Commistion of a publicauon requiremente, are as follows: Aa or A. as issued by Moody's: aral notice of canceUntion of the guarantee I

i,

'm s '- ' - - - - , , . _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ , _

(.- - *t e h Federal. Register / Vol IA. Nrs..asa /, Wednesday..Septeinber 2.s.1991 / Propae d. Rich 4am , .

a.

- e I: - -

u # . _ _ _ 4

5. . C,The guarantee and financial test Section 50.75 lieporting and guarantee and test are as WH ir

' ost provisions must remain in effect until RecordAcepingfor Decomm!ssioning appendix B of to Cm part 30. A the Commission has terminated the Plann/ny guarantee by the applicant or the .

license or until another financial . . . . . licensee may not be used in combination assurance method acceptable to the with any other financial methods to

. it (e) . . ._

satisfy the requirernents of this section Commission has been put into effect by (1) . . .

the licensee. (iii) A surety method, insurance or or in any situation where the applicant -

other guarantee method. nese methods or licensee has a parent company

.. nt . D.ne licensee will promptly forward guarantee that decommisstoning costs holding majority contro' of the votics e to the Commission and the hcensee's stock of the company. Any surety les independent auditor all reporn filed by will be paid. A surety method may be in the fann of a surety bond. letter of method or insurance used to provide is the licensee (in its capacity as a financial as:urance for da-lastoning registrant) with the Secunties and credit, or line of credit. Any surety method of Insurance need to provide must contain the following conditions:

Exchange Commission pursuant to the * *

• requirements of section 13 of the fina.aialinsurance for decommissioning *

• cny Securities Exchange Act of 1934. must contain the 'ollowing conditions. 6. In i 72.30 the introductory text of paragraph (c)(2) is revised to read as 11 If at any time the licensee's most (2) * ' ?  ; folkws: .

recentOnd issuance cessei to be rated

. (iii) A' surety meth6d. Insurance, or

'I in anf category of A or ab'ove by eith'er ' Section 73..id Decommissluning +

other guarantee method. A parent Standard and Poor's or Moody's, the planningsincludingfinancing and ih icensee will provide nctice in writing of mmpany guarantee of funds for -

decommissioning costs based on a stich fact to the Comrmssion within 20 * * * *

• imancial test may be used if the days after publication of the change by ,

th guarantee and test are as contained in (c) * *

• the rating service.

app nd x A i10 Cm part 30. A parent (2) A suicty method. Insurena, or

3. In i 40.26. the introductory text of mmpany guan ce may n t be used in other guarantee method.Deee methods paragraph (t)(2)is revised to read as combination with other finanual g9gg; guarantee that decommissioning mets methods to satisfy the requirements of will be paid. A surety method may be in ,

Section ,r0.3s financw/ Assurance and this section. A guarantee of funds by the the form of a surety bond.letterof ed RecordAcepingfor Deccmmissioning applicant or dcensee for credit, or line of credit. A patent decommissioning costs based a company guarantee of funds for financial test may be used if ik decommissioning costs based on a the (e) , , , guarantee and test are as contair J la financial test may be twedit the the (2) A surety method insurance, or appendix !! of 10 CB part 30./* guarantee and test are as contained in other guarantee method.'lliese methods guarantee by the applicant or the appendix A of10 CFR part alL A parent guarantee that decommissioning cests licensee may not be used in combination company guarantee may not be used in will be paid. A suret? method may be in with any other financial methods to combination with other flaannial the fo m of a surety bond. letter of satisfy the requirements of this section- sts of to credit, er !!ne of credit. A parent or in any situation where the applicant methods this section.toA satisfy guarantee the n 'of funda by the company guarentee of funds for or licensee has a parent cornpany applicant or licensee for decommissioning costs based en a holding majorit* control of the voting decommissioning costs based on a financial test may be used if the stock of the company. financial test may be used if the

- iy guarantee and test are as contained in *

• guarantee and test are as mntained in appendix A of to CI'R part 30, A parent 5. In i 70.25. the introductory text of appendix 11 of 10 CFR part 30. A wr company guarantee may not be used in paragraph (fl(2) is revised to read as ruarantee by the applicant or the combmation with other financial follows: . licensee may not be used in combination methods to satisfy the requirements of Section TO.JS Financial A3surunce and with any other financial methods to, I ide 'this section. A guarantee of funds by the RecordAeeping for Decommissioning satisfy the requiremems v. Ud. muon

- 20 applicant or licensee for , , , , ,

or in any situation where the applicant decommissioning costs based on a or licensee has a parent company financial test may be used if the III , , , holding majority controlof the voting I- guarantee and test are as contained in (2) A surety method. insurance, or stock of the company. Any surety I n other guaranten method.These methods method or insurance used to provide appendix U of to CFR part 30. A guarantee that decommissi ning costs financial assurance for decommissioning guarantee b'v the applicant or the will be paid. A surety method may be in must contain the followmg conditions: '

licensee mav not be used in enmhination the form of a surety bond. letter of ,

• rc with any other financial tnethods to ,

credit, or line of credit. A parent g ,g g g l l satisfy the requiremects of this section or in any snaation where the applicant a n amendment t t CTR part n was presented or hcensee has a parent company -

c[{(a g 8o d a n an amenoment to I 72.ta which was b financial test may be used if the amended by the hnal rule pubbshed june 27 holdimt maiority control of the voting guarantee and test are as contamed in t%a tsa FR 240sst when part n was remed l' stock of the company. Any surety method or msurance used to provide "" ^ E# # A E "^*'***" #

cor.tauung the proustons opphcable to t

g company guarantee may not be used in g

cn nab n w hnancial hmnemng wu mwd u i M us cont n the llo n ii n methods to satisfy the requirements of ag , , , , , Supportmg Information this section. A guarantee of lands by the t in l '0J~>. the int:oductory text of appbcant or licensee for The petitioners assert that, coupled

,n with en oppropnately demanding pa racraphs le!(1)(iii) and (c][21(iii) are decorumissioning costs based on a revised to read as follows:. financial test may be used if the financial test and annual recertificatiun.

I a

,c  ;%*

g.n N'h@" " #"

45

~

self-guarant'es by a ficeh,sdcleirly provides rea6onable assurance'that

% htyhehiNti

[, default d rates alhkeM970Tbrised i[r(d*h 141.ed pines sufficient decommissioning funds 3 vill be,t ."Ilaa"is more than four times higherN available.%e petitioners state that Acci,um( @ Ate ,g ' f than the average one year default;tates , ;lDt DdyQ whatever incremental assurance of , ... , ofissuers rated "A" or better. In . ., 4, co,, mm 6M

, c. W a

g funding availability may be achieved by " addition. 6 years after the ratings were ,a > W L .6.. ,, , e , eg a separate parent guarantee may also be issued the average cumulative default ' -y achieved by a licensee's sell guarante" "' ""

when the licensee can show that it is rales for issuers rated " Des" are '

hjNu s substantially less likely to face approalmate! Mp and OaN tir'nek, ' ^f fgn ne ban ptcy than s parent guarantor . greater than t elefauldates for lasuersj'  !

rate d Sib

, .: .g c. t"-M.W th E,nens c

2dested be. peuubnen,ln au*d "A" su,g"sJctl,"n*ma'M'M

="

"#d cibettd,314 M

• e,

'W W5 ynrg WWafter th their view more than offset the benefits derived frorn ergregating a parent , *pproximately three times_ ..Jegetyt tasuers rated A" or better, andla the t ..A the rates-f*or _ %.q a.: Pr 9 company's assets in the event of f second year after the ratings were * ' Orh Appecablepagestody .,ypp

' bankruptcy by the subsidiary licensee. Inued the default rates for lasuers rated hiercharma .WW i 3,.. t r; y

% 3,i, 3 m.a wem eiieasilive times the raies , . * #

adequate e thy arnin kof n be for issuers rated TA" or better. The , ,

Cu9 toms , cpartm%g.

established to predict a licensce's petidoners point out that a rating of . A{t reasury; ,, ,g;q[b, g w o

inability Io meet its financial Toa" consmutes an acceptable rating acTIO*c Notice of; proposed rulemaking. .

obligations.nerefore, there is no for parent company guarantors under

. s., m , I reason not to accept the pesets of the . the current decommissioning rule. SuomaAar.%ls docunwntproposes to . ,

licensee itself as the basis for . %e petitioners state that these

• decommissioning funding auurance for statisucal comparisons clearly * .ameryl,the forth a uniformCustomq rula governing P,; y=+hetopela.q t ..w 3 its own licenses. Accothg to the demonstrate that a guarantee by a, petitioners, the Environmental , determination of }heyousntry of origin of.,

licensee holding an "A" bond rating

• Imported merchandie4Which'la wholl ' ' -

Protection Agency accepts self+ ,a offers substantially greater protection . obtained or' p roducedjnYdngle4 guarantee as a method of providing_ than a company holding a " Bas? bond country,De document also'proposesko "

financial assurance of funding of the rating. %erefore, the petitioners believe amend the Customs lat'ons to '+g

closure of hazardous waste f acilities. that thelt suggested amendments -'

De petitioners believe that the bond provide more than reasonable assurance establish rules, app _ , ,,J'or all l,hp d

j rating requirements contained in their suggested amendments provide an

,. of adequate funda for decomtidsstanlag, O actionGou@itt In 'additida, alia ' petitioners believe purposes'except_ffog^

.; Governmen E-w] n p

effective early warning concerning changps system ,a that the suggestod requirement'that a in a licensee certain duty prefe y.ma, lori w financial condition which may adversely licensee notify the NRC of a chtnge in affect the availability of funds for its bond rating that removed the determining,thepo(ueQef,e imported base tuetals,and articles o 03 decommissioning.Dond ratings are lleensee using a self-gu.*antee of "A" or assigned by independent entitles such better provides the NR, C ample early base obtainedmetal whicha are or producedin a noty}lngle,co gg I and which are classifiable la chapters 72 - l c . Ive in estm al tie f nds r orts C d ueo ne proposed rules ant intended to W

and the creditworthiness of their issuers. receive if the suggested amendments The bond rating given an Inuance were adopted, the petitioners believe replace the present country of origin i reflects past, present, and future dike, that the NRC would be apprised of mks with mom opche aml liond ratings are not static.They change significant finar.clal developments in transparent sts nd.ds athlch will , ,

in time to reflect the changing financial time to require a licensee to take any e ta n ~,

condition of an issuer. +

appropriate corrective action, d()

gg g 9 Q gg ; ;

"su a Request for Comments Ind ca e at rat n ey te or as making country of origin determinations .

predictive tools.The petitioners state la addition to comment on the , required under existing laws and 4 ., $

that bonds holding ratings of "A" or proposed petition and the petitioners * '#3"I"'I " '

9H '

better. the petitioners' suggested proposed criteria. the NRC is soliciting paTts:Cornments thiss't kreceived on threshold, have an extremely low public comment on- or before November 25,1991.

def ault rate over both short and lona (t) What other criteria. lf any, might periods of time.The petitioners indicate be proposed for self guarantee and the anoatsars: WdHen comments l{

that the incidence of any issuer rated basis for the criteria; and (preferably in triplicate) may be I within 6 years addressed to and inspected at the "A" or better following defaultinfa the receipt o rating of p)rc "A" " ' ^"

I t of bc ces t m ht Reguladone am! EsclosuWw Wani I or better is less than one percent.The room 2119. tLS. Customs Service.1'101 petitioners state that this attests to both be able to comply with the self--

. guarantee criteria proposed by the Constitution Avenue. NW., Washington.

the financial quality of the issuers who ~ '

petitioners of any other self. guarantee DC 20229.

are rated "A" or better as well as the integrity of the ratings system as a criteria proposed by the commenter. FOR FURTMR WFOR AATION COMrACT:

rnethod of assessing the current and Dated at Rod ville, Maryland, this 17th day John Valentine. Office of Regulations future strength of the issuers. of ScMemtwr tyn, and Hulings (202-5048530).

4 h