ML20127C321

Concurs in Recommending Denial of GE & Westinghouse Petition for Rulemaking to Allow self-guarantee Mechanism for Decommissioning Funding & Has No Comment Related to Commission Paper,In Response to 920406 Request for Review

ML20127C321
Person / Time
Issue date:	04/21/1992
From:	Bernero R NRC OFFICE OF NUCLEAR MATERIAL SAFETY & SAFEGUARDS (NMSS)
To:	Heltemes C NRC OFFICE OF NUCLEAR REGULATORY RESEARCH (RES)
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 AE16-1-003, AE16-1-3, NUDOCS 9204270148
Download: ML20127C321 (15)

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UNITED STATES NUCLEAR REGULATORY COMMISSION a WASHtNGTON. o.C. 20%5 o,

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HEMORANDUM FOR: Clemens J. Heltemes, Jr., Deputy Director for Generic Issues and Rulemaking Office of Nuclear Regulatory Research FROM: Robert M. Bernero, Director Office of Nuclear Material Safety and Safeguards

SUBJECT:

RESPONSE TO REQUEST FOR OFFICE REVIEW AND CONCURRENCE ON A COMMISSION PAPER RECOMMENDING DENIAL OF A PETITION FOR RULEMAKING In response to your request of April 6,1992, aty staff has reviewed the Comission paper and accompanying enclosures. We have been working with your staff in developing a position on the General Electric Company and Westinghouse Electric Corporation petition for rulemaking to allow a self-guarantee mechanism for decomissioning funding. I concur in recomending the denial of the petition for rulemaking and have no coments relqted to the Comission paper.

1 .

Robert M. Bernero, Director Office of Nuclear Material Safety and Safeguards I

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REGULATORY ANALYSIS OF DECOMMISSIONING FINANCIAL ASSURANCE SELF-GUARANTEE OPTIONS FOR MATERIALS LICENSEES November 3, 1992 a

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1,. INTRODUCTION

1.1 Background

q The U.S. Nuclear Regulatory Commission (NRC) has accepted a petition to amend the current regulations establishing general requirements for decommissioning licensee facilities to allow.certain NRC non electric utility reactor licensees to self-guarantee decommissioning funding costsc -In a notice of receipt of petition for rulemaking published in the Federal ReRister (56 FR 48445) on September 25, 1991, NRC requested comments on the_ contents of a petition for rulemaking received from the General Electric Corporation (GE) and the Westinghouse Electric Corporation (Westinghouse) requesting such an1 amendment. After reviewing the comments and other materials, the Commission in August 1992 directed the staff to proceed with regulatory amendments. This-Regulatory Analysis was prepared pursuant to MUREG/BR-0058 to support:the 1

regulatory action and examine the costs and benefits of the alternatives considered by the Commission.

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

70, and 72. Approximately 700 of the licensees who hold these-licenses are required to provide financial assurances for decommissioning under rules promulgated in 1988 (53 FR 24018, June 27, 1988).

The rules on financial assurance for decommiscioning provide:that licensees under 10 CFR Parts 30, 40, 50, 70, and 72 must. provide financial assurance to ensure that-decommissioning of licensed facilities will:be-accomplished in a safe and timely manner and that adequate funds'will be available for-this purpose. According to the decommissioning regulations,2 -

[ financial assurance must be provided by one or more_of the following methods:

(:

k' (1) Prepayment. Prepayment is the deposit prior to the start of operation into an account segregated _from licensee assets and:

L outside.the-licensee's administrative control of' cash or liquid M

assets such that the-amount of funds would_be sufficient'to pay decommissioning costs. Prepayment may be in the form of. a trust, escrow account, _ government fund, certificate of deposit, or deposit of government securities, (2) A surety method, insurance, or other guarantee method, . These methods _ guarantee that decommissioning costs will be_ paid should the licensee. default.. A surety method may be in the form of a surety bond,. letter of credit,lor line of credit. A parent 1 NUREG/BR-0058. NRC Regula' tory Analysis-Guidelines. Revision 1 U.S; Nuclear Regulatory Commission,-May 1984, 2 The same-four alternative methods of'providing financialLassurance are authorized for licensees _under Parts. 30, 40,-50, 70, and 72 in_the following sections: 10 CFR 55 30.35(f), 40,36(e), 50.75(e), 70.25(f), and 72,30(c).

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company: guarantee of-funds 1for< decommissioning costs _ based on at t

financia1 3test may.be used if thefguarantee and. test are as 1specified"in:AppendixLA of:10 CFR!Part.30,S A' parent company.

iguarantee mayfuotabe used in combinationLwith any other financialc methods to satisfy the_-[ decommissioning _ financial; assurance) requireme'nts..

(3) An ext'ernal sinking fund in which deposits are madeL at leasti annually, coupled with_a' surety method'or insurance, the value'of

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which may_ decrease by the amount being accumulated'in the sinking

• fund. An externa 1Lsinking fund is a. fund established andL -

maintained by setting aside funds periodica11yLin an account segregated from licensee assets and outside the_ licensee's administrative. control in which the total amount of funds would be !

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sufficient'to pay decommissioning costs at'any. time termination"ofi operation is expected. An external sinking-fund'may be in the '

form of a, trust, escrow account, government- fund, certificate: of deposit, or deposit of government securities <

• O (4) In the case of- Federal, State, or local government '11censees, 'a-statement of intent . . .-indicating that funds for decommissioning will be obtained when necessary,"3 Vith the exception _of the-financial test component of the' parent companyD guarantee, the terms and conditions of the~various-financial mechanisms that-~ '

may be used as proof _ of financial assurance for _ decommissioning are provided- 4 in guidance.' The financial test _ requirements are'provided'in-the regulations, at.10 CFR Fart 30~ Appendix A, and are referencedcin-other. O pertinent Parts.5 The parent company guarantee provide'd'for under.the decommissioning financial assurance regulations contains:two elements: a guarantee and an-underlying financial test submission. Under this mechanism, a corporate 1 - "

parent of the licensee may submit a: guarantee'to-NRC affirming that tthe ,

corporate parent will- pay -the decommissioning; costs if: theilicenseeL does .noto .

pay. For,such a guarantee to be' acceptable, the1 corporate: parent musti demonstrate that itthas' adequate financial resources-to--cover <the. costs of;

- decommissioning activities. The corporate parent makes'such a demonstration-when it provides specified documentation ~to-NRC-that it passes la financial .

test that measures the financial strength of.the_ firm.

~ '

'3- 53 FR 24018,' June =27, 1988.

U.S. Nuclear Regulatory _ Commission, Regulat'ry o Guide'3.66;-Standard-

- Format and Content of~ Financial Assurance Mechanisms Reautred For Decommissionine Under 10 CFR Parts 30,- 40. 70 c and 72, June c1990. =

F The-decommissioning regulations.do not define " parent company." NRC-has ;provided11n-Regulatory Guide 3.66 'that in' order: to qualify Las- a; parent company a' firm. must demonstrate that it has " majority _ control off the licensee's votin5 stock." Regulatory Guide-3.66 pp. 3-21 and'3-23.

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I The financial test currently requires a parent.ccrporation to meet, on an annual basis, one of two sets of alternativeLfinancial criteria. - Under the first alternative, the parent company must demonstrate thatz it possesses-tangible net. worth of.at least $10 million, as well~as tangible net worth and net working capital at.least six times the decommissioning cost estimate.

Tangible net worth is defined as net worth minus goodwill, patento,:

trademarks,-and copyrights. :The parenc' corporation must show that it-possesses assets in the United States amounting to at least 90 percent of its total assets or at least-six times the sum of the current decommissioning cost estimates being covered by.the test. The parent corporation also must show that it meets or exceeds at least two of three specified financial ratios (total. liabilities to net worth lesn than 2.0; net income plus depreciation, depletion, and amortization to total liabilities greater than 0.1; and current assets to current liabilities greater than 1.5). Under the second alternative of the financial test. the parent corporation muat show that it possesses:

tangib'e net worth of at least $10 million, as vall as tangible net worth at least six times decommissioning cests. It also must show that it possesses assets in the United States amounting to at least 90 percent of_its total assets or at least six times the sum of the current decommissioning. cost.

estimates being covered by the test. Finally, it-must show that it has a current investment grade rating for its most recent bond issuance from one' of two major bond rating organizations.

1.2 Statement of the Problem With this rulemaking, the NRC is seeking to address'a number of. issues raised in the petition and also presented by the NRC in its Notice-of Receipt of Petition for Rulemaking.6 - The primary issues are (1) whether self-guarantees provided by licensees of sufficient financial strength and stability would provide adequate financial assurance and (2) whether use of self-guarantees would substantially reduce the costs of financial assurance to those licensees that' qualify to use a self-guarantee mechanism. The petition '

requests that NRC amend the decommissioning financial assurance regulations to allow licensees to provide self-guarantees of decommissioning funding using a more restrictive. financial test than the-financial test used in the NRC parent guarantee mechanism.

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

2. PRELIMINARY IDENTIFICATION AND DESCRIPTION OF OPTIONS-P-

In analyzing the petition from GE and Westinghouse, NRC considered three

. regulatory options: :(1) no action: (2) adopt the -self-guarantee as proposed by'_

the petition; and-(3) adopt the self-guarantee proposed in the' petition but 6

j 56 FR 48445, September 25, 1991'. The Federal Register Notice:

summarizes arguments presented in the petition at pp. 4-8.

r 4

- modified to delete the $1. billion net worth requirement-proposed by the' ,

petitioners.

2,1 . Option 11: ~ No Action LUnder Option 1, NRC would continue - to prohibit _the- use of any type of = ~

- self guarantee mechanism. Licenseos that are unable =to;obtain a parent company-guarantee because they do'not have a parent company will. as ati

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present, be able to demonstrate financial assurtnce using one ofJthe other financial assurance methods" currently allowed (i.e., prepayment, sucetyLmethod' or insurance, external sinking fund coupled with a surety method or. insurance, and statement of intent).

2.2 Option 2: Adopt the Self-Guarantee Proposed in the Petition Under this option, NRC would allow licensees t.o.use the self-guarantee' 'I proposed.by CE and Westinghouse in their petition for rulemaking. -The petition details _ specific criteria for a self-guarantee, which'would be-available'for any licensee other.than an electric utility licensed ~to operate; a reactor under 10 CFR Part 50. -Many of the criteria under'th iproposed self-guarantee mechanism parallel requirements that are already applicable-for; parent guarantees _and/or other mechanisms. The proposed _ criteria are listed s below;7

1) The self-guarantee may not_be_used "in-say_ situation where the-applicant or licensee has a parent company holding majority control of the voting stock of tho' company."

2) The applicant or. licensee must demonstrate thatfit passes at financial test. All of the following. terms of the test must.be satisfied:

(a) The company must have'a current rating-for:its most recent bond issuance of AAA, AA, or A,_as issued.by Standard and Poor's.or Aaa, Aa,_or:A, as issued by Moody's..

(b) - The company must have tangible _ net worth at least 10 -times ,

the total current decommissioning cost estimato forcall decommissioning activities forivhichLthe company is responsible'as-self-guaranteeing licensee and as parent-guarantor,oor the-current-amount-required:if certification o is used.

(c) The company must have tangible net. worth of at least

$1' billion.

(d)' The; company >must have assets located in the United States amounting to at least 90 percent;of total assets 1or attleastt 10 times.the total current decommissioning cost estimate fot-7

.56 FR 48446.

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s all decommissioning activities for which the company is.

responsible as self* guaranteeing, licensee.and as-parent (

< guarantor, oss the current amount require'd-if certificat1on-

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~is used.

3) The~ applicant or. licensee must continue to; satisfy;certain procedura1' requirements; a) The company's independent certified'public-accountant must compare the data used by the company in the-financial test '

with the amounts in the company's' independently audited year-end financial-statements, b) The company must notify NRC within 90 days of'any matters coming to- the attention of- the ; auditor that 'causeithe' auditor to believe that the data-specified in the financial 1 test - should-be adjusted and : that the : company lno~ loc.ger-passes'the test.

c) The company must have at least one class- of equity securities-registered'under tA- ~ -

ties Exchange Actiof q

'1934 ds After the initial financial test, the company must; repeat:

the passage of the test within 90 days after'the close of-each succeeding fiscal year, e) If the company no, longer passes the financialitest Jit.mustJ

. send. notice of intent to establish alternate 1financialo assurance. Such notice must-be sent within 90 days iaf ter -

the end of the fiscal year formwhich:the: year ~endl data show that the company-no lonSer. meets the financial' test' requirements. 'The licensee must-provide = alternate financial >

assurance within 120 daysraf ter the'end:of suchLfiscal?yedr, -

4) ~ The' applicant or licensee must.furnishfits owniguarantee?that h funds.will be available for decommissioning costs. .The: terms oil this self-guarantee must provide'that: ,

(a) Tha self-guarantee will remain-in force'unless written? . s notice of cancellation is-sent-to NRC; .The selfcguaranter however, must - remain in- force. for '120 days af terL NRC receives notice of' cancellation.

1

'(b) Alternative financial" assurance will be provided within !90 i

days after.NRC receives notice lof cancellation of theiselb

guarantee.

-(c)' .The self-guarantee and supporting financl.) test wil1~, rem.in Ein force until;the' Commission has terminated the licenserot until.another acceptable financial assurance. m -hod'has.td, put into effect by the licensee, a 3 h w

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(d), The licensee will provide the Commission with copies of all

-current' reports filed with-the Securities and Exchange commission under Section 13 of the Securities Exchange Act.

of 1934.

(e) The licensee will provide notice to the Commission.within 20 days af ter the rating of itsLmost recent bond issuance ceases to be A or above by either Standard and Poor's-or Moody's.

2.3 Option 3: Adopt the Self-Guarantee Proposed-in the Petition Modified to Delete the $1' Billion Net Vorth Requirement Under Option 3, NRC would allow a self-guarantee based-on the financial' test criteria proposed in the petition, but would omit the requirement that

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tangible net worth must be greater than $1 billion. -Thus, licensees would still be required to have a current bond rating of A or better, tangible net worth at least 10 times the current decommissioning cost estimate (or the current amount required if certification is used), and assets located in the United States amounting to at least 90 percent of total assets or at least 10 times the current decommissioning cost estimate (or certification-amount), q

3. ANALYSIS OF OFTIONS 3.1 Methodology The method used by NRC to:analy=e the three regulatory options described j above, to determine the number of licensees able to use each of the self- '

guarantee options, and to evaluate the costs and benefits of each option. _

consists of several key steps. First, NRC developed a-financial data base of material licensees subject to financial assurance . requirements under 10- CFR -

Parts 30, 40, 50, 70, or 72. 100; then used this database to evaluate the availability and assurance risk of the self-guarantee options. LFinally, NRC 1 calculated and compared the costs and benefits offeach regulatory option, Development of Financial Data Base NRC's first step in developing the financial data base was to identify.

all material licensees subject to financial assurance requirements under 10:

CFR Parts 30, 40, 50, 70, or 72.s NRC then collected financial data-for 8

Certain licensees (such as universities) wereLexcluded from the-analysis because they generally prepare financial data- that is not suited for.  ;

use in self-guarantee mechanisms. In addition,: Federal,-. State,Jandf local government licensees were-excluded because'they are; eligible to use.a 4 statement of intent to assure for decommissioning costs, and would probably' ~j opt for the statement of; intent over the self-guarantee. When a Part-50 non-utility licensee also-held a license under Part 30, 40, 70, or:72, the' analysis treated these licensees as.Part 30, 40, 70, or 72 licensees.

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---- _ _ _ _ _ _ _ _ - _ _ --- . _ - _ 2 -- ._

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r 3- these licensees'from Dun and Bradstreet and Standard 6 Poor's. Licensees! vere

. eliminated from the' data base'if' financial data were unavailable or of:

questionable quality..

Although the two self-guarantee options include a U.S. assets requirement, data on domestic assets could not be. obtained from Dun and~

Bradstreet. This may lead to an overestimate of theLnumber:of-firms.able-to use a self-guarantee option. Similarly, because no information~is available on auditors' opinions, the data base could not be used to evaluate whether licensees have their financial statements audited by independent-certified-accountants to confirm that their accounting practices are in-conformity with generally accepted accounting practices. The absence lof this information also could lead to an overestimate of-the number of firms able to pass all financial tests.

Availability The " availability" of the two self guarantee options refers to1the number of NRC licensees that could use'a particular option given theirfability-to satisfy the financial requirements of the option. Using the-data base described above, NRC first determined whether each licensee in the data _ base would be able to meet the requisite financial criteria. NRC then calculated-availability by: counting those' licensees able-to use the self guarantee option.

Assurance Risk

" Assurance" is a concept closely related to. security: _something;given, deposited, or pledged to make certain .the performance of an obligation' or ~ the -

payment of a debt. .Although the licenses always retains' primary.

responsibility for performance of the decommissioning-regardless oft the method of assurance used, most financial ~ assurance mechanisms (e.g. , prepayment :3 mechanismscand surety; mechanisms) provideia secondary level.of protection'to H guard against the possibility that the licensee may be unablefto meet-its-decommissioning obligation. Thus, the assuranco risk associated.with most a mechanisms equals the possibility that both the licensee and the -financial-assurance provider =('e .g. , banks, sureties)-_will be unable 'toimeet the:requirad:

, obligations.'

In the case of self-guarantees, the guarantor 71 s not. required to set; ,

funds aside or obtain a third-party guarantee if-it can demonstrate:by'means ,

1 of a financial test that its financial resources are sufficient to 3 pay the assured costs whenever those costs come-due. Thus ,' for ,self-guarantees.,7 the assurance risk equals the possibility that the licensee.will be unableLto me'et-the required obligations. In other words,- the assurance'provided by a_self-guarantee.is exposed to the risk that a-decline in.the financial condition of, the~ self guarantor will not be identified;in time'soLthat a prepayment or-

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1Riis' analysis assumes that all mechanisms are properly _ drafted and-executed and are. issued by qualified providers. S!milarly,-the' possibility off q

' collusion or fraud has not been considered, j

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~ third party financial assurance mechanism'can-be obtained to replace the'self- ';

guarantee. .NRC analyzed this risk associated with'self-guarantees by: ~

evaluatin5 the "misprediction"= rates _ of componentsLof- financial tests: proposed for use to screen potential _self-guarantors, and by.: evaluating =the baseline ,

_ failure rates for firms calculated by firm. size _(as measured by net worth).- '

Costa and Benefits The total cost of the proposed rule includes, in addition to implementation costs, the public and private costs associated .with the 'self-guarantee mechanism. Private costs consist primarily of the-fees that _

licensees must pay to a third party in order.to obtain a financial-assurance-mechanism. Thus,- firms-can avoid much of the private cost of financial'

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assurance if they can obtain a self-guarantee or a parent-company. guarantee.

Estimates of private costs were derived from the: number of licensees able Lto _ 3 pass the proposed self-guarantee test and the number of licenses held by such.

licensees.

Public costs of a-self guarantee include the decommissioningicosts;that are assured by the self-guarantee but which the licensee does not_ pay duelto _,

bankruptcy. Although'public costs can largely be avoided by not allowing thel self-guarantee, the total cost (i.e., public~plus private) may be reduced by.

cu, allowing the self-guarantee if private costs dec_line more than public costs ,

rise. The public costs of the self-guarantee mechanism-are calculated ~by multiplying the assurance risk by the. amount of the decommissioning costs-expected to be assured using the me'chanism. NRC's estimates of public costs reflect the assurance risk of each self-guarantee by net worth' category and the number of licenses covered by firms in each net worth category.

The net benefit of a self-guarantee would equal the savings: to111censees resulting from use of the self-guarantee' mechanism-(rather than from a more expensive third party mechanism).minus any increase in publicEcosts.

3.2 Availability of Self-Cuarantee Options.

NRC's analysis _ indicates that Cption 2, the self guar ntee option . __

proposed in the CE and Westinghouse petition, could be used _by- approximacely--

20 materials licensees (estimated to hold tho' equivalent of about 54 licenses at decommissioning costar of $750,000 per license)', Under Option 3, which deletes the $1 billion tangible net worth requirement, an~ additional 7-firms' 3'

-(holding 111 licenses) with net' worth less than1$1 billion'become capable of' satisfying the requirements.

3.3

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' Assurance Risk

=l The estimated annual assurance risk for Option 2 is 0.13 percent. :In~

other words, there is a 0.13 percentjchance that.a licensee usin5 the.self-guarantee. proposed by CE and. Westinghouse will go bankrupt and be unable:to cover the costs of decommissioning ^in a_given year. The estimated assurance.

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risk for Option 13 is alsol0i13~ percent.10 .There are-noJ available data witha which to estimate- the default: risk of A rated bonds by net worth category of f

the bond-issuer. Furthermore, the premise of the' bond ratings is;that all A rated bonds should be of tha same approximate _ risk (i.e., different-bond ratings are assigned to different risk categories). NRC believes that this:

indicates.that a net.vorth' requirement and a minimum bond rating maylbe' redundant, i.ei, if net. worth is factored into'a firm's, bond rating. l Moody's- J data on the historical default risk of A-rated bonds' indicate :that riskz is about 0.13 percent per year. Although this risk is slightly higher than-the '

risk associated with the third party financial assurance mechanisms allowed. ^

under current regulations,11' the ~ risk associated with the NRC parent L guarantee is similar to the risk of the self-guarantee when tlue parent company / licensee relationship is not independent. NRC believes thac th erisk' of the self-guarantee is extremely small. Furthermore, allowi.sg use of a-self guarantee mechanism reduces the' sum of -public and private costs (see -

• below).

3.4 Public and-Private Costs of Self-Guarantee Options -i In this analysis, public costs are defined as the amount of decommissioning costs that would be required to be paid by the,public sector due to the financial failure of licensees and/or their_ guarantors without the  :

. substitution of another source of financial assurance. JPrivate costs are defined as the cost of financial assurance mechanisms that must be obtained by, licensees in order-to romply with regulatory. requirements.

Mechanisms based on_ financial' tests -such as a parent. company, guarantee- ,

and a self-guarantee, reduce private costs.by" allowing'licenseesi to demonstrate financial assurance withouc incurring the fees: associated with_thec -

use'of third party' mechanisms such as. letters of. credit, surety' bonds,Jetc.

The private coste associated with financial tese: mechanisms?are:assumedito be -

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

For the'three options,-Table 3;l presents and compares the estimated private costs, public costs, and_ total costs ((private;plus'public: costs)sof-NRC's decommissioning financial assurance requirements'for materiale licensees regulated under 10 CFR1 Parts 30, 40,-70,' and_72*.

t

- 10 NRC's estimates of the assurance risk' associated with _ Options:2 arid '3 ~

are identical because the assurance riskifor Optioni3:wasfused to proxy for the risk. associated with option 2-(which_could not,be calculated directly).

Because option ~2 contains every' requirement;in OptionL3-plusLan additional

'$1 billion tangible net _ worth requirerenti 'the; actual assurance risk; associated with Option 2 is likely~~to be slightly(less thanLthe figure cit 4d

- abovei- -

11'.-For example, the risk-associated'with small.licenseesf('those:withi less'than-$10 million.in tangible net worth) using letters of_creditifrom; savings and loans is estimated at 0,055 percent.- -

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s Table 3.1 . . Public and private costs of financial assurance with-and without proposed- self-guarantee -($000)12 Private. Public~ ' Total Financial Assurance Option Costa Costs Costs 1: A111 licensees =use ',,060. $26- $3',086 parent. company guarantee or bank letter of credit 2: All licensees use $2,453 $78 $2,531:

proposed self-guarantee, parent company guarantee, or bank letter of credit 3:.All licensees use $2,329 $89 -$2,418 ,

modified self-guarantee-(without $1 billion:

requirement), parent company guarantee, or bank ,

letter of credit-Option 1 The first scenario represents the existing baseline, i.e...

the self guarantee is notLallowed, and licensees that are- ,

capable of' obtaining a parent company guarantee-are assumed

~

to use that mechanism. Licensaes that are unable to obtain-a parent company guarantee are assumed to use letters of ...

credit at an annual cost of 1.5 percene of their face .value. 3 Option 2 The second scenario anticipates use of'the self guarantee by all licensees that meet the financial conditions of the.

self-guarantee. Similarly,;11censeenEthatfare capable:of.

obtaining a parent company guarantee are: assumed.to sel11 use that mechanism',13 Under'this scenario, only licensees.

that are unable ~to use either a.self-guarantee or aiparent company guarantee are assumed- to Lobtain letters of'eredit ,

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

12 Source:-ICP calculations. The costs in the table do not reflect'any-decrease in private decommissioning costs that would occur if the public y assumes the decommissionin6 costs that are unfunded by the private sector.-

13

-Because~the NRC parent ccmpany guarantee is available only to-licensees that are subsidiaries, and the proposed self-guarantee.is.available.

only to licensees.that have nol parent company, the two tests coverfseparate groups-of licensees, :In some cases, however, a' firm may be both a licensee-ar.d -a parent company to other licensees.

,A 1

d Option 3 . The third scenario represent.s the option based on the, financial test. criteria proposed.in the-petition, but without the requirement that tangible net worth must be greater than $1 billion. Under this scenario, the-.

availability of the self guarantee increases to include'a few more licensees. Public costs rise, but private costa-fall by a greater amount, representing an additional decrease in total costs.

As Table 3.1 demonstrates, while private costs decline substantially under the proposed self-guarantee (Option 2), public costs rise. Total annual costs, however, are lower when the scif guarantee mechanism is available, For.  ;

example, total annual costs are reduced by an estimated $555,000 under Option 2. Allowing use of the modified self guarantee (option 3) reduces total annual costs by an estimated-$668,000.

Table 3.2 also shows the total costs of financial assurance under the three regulatory options being considered, but it presents the total costs for 15, 20, and 30 years.1' Again, total costs are lowest when the self--

guarantee mechanism is available. Under option 2, which would allow the self-guarantee proposed by the petitioners, total costs would be reduced.by an estimated $5,75a,000,over 15 years, $6,915,000 over 20 years, and $8,530,000 over 30 years. Dropping the $1 billion net worth requirement would further reduce' total costs by'$1,170,000 over 15 years, $1,404,000 over 20 years,.and

$1,732.000 over 30 years.

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

3.5 Decision Rationale for Selection of Proposed Option On the basis of the analyses summarized above, the Commission is considering Options 2 and 3 and is asking for public comments on those options.

4. FINANCIAL AND ECONOMIC IMPACTS OF SELF-GUARANTEE RULEMAKING-4.1 Impacts on Licensees Adoption of a - self-guara: ee option is.not expected to produce any:

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

. generate cost savings for those licensees able.to use the self-guarantee, the rulemaking is expected to produce positive financial impacts. Other licensees that cannot use the self-guarantee,-including licensees that' qualify as small-businesses, will be unaffected by the rulemaking and therefore should not experience significant impacts, i'

costs shown represent the net present value of annual costs for 15,.

20, and 30 years, assuming discount rate of 5 percent.

^^ ^ ' ' ~

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pg e 7

%. . -7.. ,.

, . Table'3,2L Total not.presentivalus of financiallassurance. costs

, over.15, 20,A nd730 years, with and without proposed 7 --

self;gvarantee.L($p00)!5 : ,

15z 20, 1301 Financial Assurance Option -years _ .. ye a rs . years ~<

, 1: All licensees use' -$32,027 $38 /45'J . $47;433n M parent company guarantee

,r or bank letter'of credit:

2: All_llcensees use $26,268 $31,538- $38,903 proposed scif-guarantee,

~

parent company guarantee, or bank letter of credit -

3: All licensees use $25,098 $30,134 $37,1711-modified seli-guerantee (without ths $1 billion

~

~

requirement), parent . ,

company guarantee, or bank letter of credit q.

4.2 Impacts on NRC and'the States a k

s No significant impacts 'are , expected. for NRC or; the States becaus'e the( '

effort to. review-and administer the self.guaranteeLis' expected to be comparable to that associated with the parent company guarantee andlother) '

t mechanisms' currently allowed. In each case,-NRC or the; States-will be, required to review financial assurance submissions, 'and: thefsue.andLacope of -

self-guarantee submissions are notiexpected'to' differ 1significantly.from the' - t mechanisms currently allowed.

y x

5. IMPLICATIONS FOR OTHER NRC- REGULATORY: PROGRAMS L Currently, self guarantees are.not; allowed-in NRC's' financial assurance-= .

Lprograms-for low-level radioactive:wasteidisposalifacilities,; uranium recovery l 6 H facilities, or for, power reactors 3 While auch of;the:analysi.s behind the!

~

1 -

iproposed self-guarantee rulemaking may be-genera 11yfapplicable to:these uther-programs,. licensees sin' these = programs may alsolbe :significcatly;different; from . ^d

materisis111censees in at-least-three ways:  ;

.A '

(1). The: decommissioning cost estimates: typical of these licensees.mayj be much1 higher than is" typical of; materials. licensees'.-- Higher.

m t

n4

. 15 Source:'ICF calculations, hN M '_;

,... , 1 1r ,

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, , , , , , j,., 4

cost estimates'could alter the optimal balance between publio and:

private costs.

(2) The number of licensees in these programs is .likely to be;far smaller than-the number of materials licensees. ' Fewer facilities could alter the balance between public and private' costs, (3) The financial characteristics of these licensees may be:very_

different from those of materials licensees. Different financial-characteristics could suggest different financial test: criteria and perhaps different baseline failure rates.

Be:ause the present analysis, for the reasons stated above, may not.

fully apply to NRC's other financial assurance programs, NRC_is not proposing. '

a self-guarantee option for these programs at the present time,

6. IMPLEMENTATION SCHEDULE FOR PROPOSED OPTION This action will be implemented immediately or within several months following the passage of the final rulemaking.

REFERENCES

=ICF Incorporated, Analysis of Assurance Provided by current and' Proposed Financial Assurance Mechanisms. Draft Report,1 November 1992, d

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