ML20129A336
| ML20129A336 | |
| Person / Time | |
|---|---|
| Issue date: | 08/08/1984 |
| From: | Steyer K NRC OFFICE OF NUCLEAR REGULATORY RESEARCH (RES) |
| To: | Arlotto G NRC OFFICE OF NUCLEAR REGULATORY RESEARCH (RES) |
| Shared Package | |
| ML20129A330 | List: |
| References | |
| FOIA-EAT85-270 NUDOCS 8507270205 | |
| Download: ML20129A336 (3) | |
Text
Q). M mapt-DISTRIBUTIDN: RES ROG/ ALPHA CE8R RDG/SUBJ bec:
R. B. Minogue
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<k D. F. Ross AUG 0 8 584 J. Saltaman,$P J. Mapes ELD 6 -
R. Wood, SP C. Feldman C. Mattsen F. Card 11e 7
MEMORAPl* FDR:
Guy A. Arlotto, Director Division of Engineering Technology i
Office of huclear Regulatcry Research FROP.:
K. G. Steyer, Chief Cherical Ennineering Branch l
Dtviston of Engineering Technology
SUBJECT:
C0ASULTAF.T REP 0k1 ON " UTILITY FIhAhCIAL IkSTABILITY Ahb THE AVAILABILITY DF FUNDS FOR DE00MhlSSIDkIh6" Dr. J. Stepel, Associate Professor at the Wharton Schcol, University of Pennsylvania, has cospleted the enclosed report for RES/CEBR entitled
" Utility Financial Instability ano the Ava11ab111ty of Funos for Decessis-sioning." The purpose of Dr. Siesel's report is to analyze whether the internal reserve funding method as perritteo by the proposed eccessissioning rules provides reasonable assurance of the availability of funds for decom-missioning in light of the current financial instability of some nuclear utilities. An earlier report by Robert Wood of the Office of State Progress of hRC (" Assuring the Availability of Funds for Decossissioning Nuclear Facilities, Draft 3,* P. arch 1983) indicated that, in general, use of any of the four methods of funding (prepayment, enternal sinking funds, internal reserve, and insurance) coule provide reasonable assurance of the availability l
of funds and hence could be termed acceptable nothods of funding.
- However, recent develope'ents in the utility industry indicate a potential weakness in the financial stability of certain utilities. Hence this report was under-taken to answer the question of whether all af these methods should continue i
to be rented as acceptable. The report andresses the questies of'whether financial problems such as bankruptcy of a utility or other financial weak-messes pose a serious enough probler to elleinate the use of any of the funding l
methods, in particular the internal reserve method.
In the report, Dr. Siegel analyzes specific case situations of five utilities which have experienced significant financial distress. These include Long Island Lighting Ccapany, Public Service Corper.y of Inotana, Public Service Corpany of hew Hanpshire, Philadelphia Electric Coe.pany, and Washington Public Power Supply Syster:.
In Section A of the report, Dr. Siegel analyzes the reasons for the financial difficulties, potential bankruptcy scenarios, and irpairrent of utility essets. Sections B and C of the report contain an analysis of the asset values of utilities and how these could be used for financial coverage of decorrissioning during periods of financial distress.
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Section C alsc oiscusses scenarios that cculo affe ct the availability of funos for occow issioning.
Ir Sectice D of the report Dr. 51eoel concludes fror his ar.elysis that tne sarket value of ut111ttes, even those in extrecic financial crisis, is still far it excess cf decorrissioning costs ann that the net value of their recaining a'ssets is escre than aceouate to cover projectec deconcissioning costs.
Baseo or this he incicates that from a financial stencpoint, the funcing rethocs allowee in the rule, including internal reserve, are acceptatic and can provide excellent assurance of the availability of funds for decormissioning.
Basec or his ar.alysis ir Secticn C.2, Dr. Siegel does cauttor that a utility could attempt to sell its proouctive assets to another corporation, leaving the inactive, but nct yet decorrissioned, reactor in a shell corporation with no other assets, although he indicates the possibility of this is very sera 11 He inoicates that by doirs this the utilit) coule seek to rio itself of the financial obligations of decorrissioning.
Baseo on this, Dr. 51esel indicates thet the NK rey wish te strengthen the language of provisions specifying the firr legal oblication of the utility anc of any successor organizations to undertale decorrissioning anc pay decoctissioning expenses. He also indicates NK ray wish to seek prior approval of any corporate change of structures or ownership involving a substantial portion of the utility's assets because such a change could potentially threaten the availability of occorrissionirs funos.
be have reviewed these cor.cerns ano suogestions with OELD and the Office of
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5 tate Progrars.
In particular, we reviewec with OELD these recuirements of the Atocic Energy Act, anc of MC's existir.g anc prcposec rules which coulo serve to address these concerns ano suggestions. Based on this review, we concluded that if the Ml's exist 1rg regulations were arenced as proposec, hRC woulo have acequate legal authority to take any replatcry action necessary to prevent occurrence of the situation oescribec by Dr. Siegel.
Spectfically:
(1) Section St.54(bt)(3) of the proposec rule inoicates that as a concition of license a licensee mill be recuireo to provice a reasonable level of assurance that funds will be available wher neecec to cover the costs of cecowissionino.
Prcposeo sections 50.b? (a) an6 (b) recuire a licensee to subt.it a proposeo cecorrissioning plan that, among other things, indicates how ceconrissioning will be carriec out to protect public health ano safet) and includes a plan for assurirp the availability of adeouste funds to coglete decorrissioninC; Section 50.6?(e) states that upon arproval of this plan the Cortission will issue an oroer authorizing the cecom issioning. CELD indicateo that these proposeo sections irpose a firo legal obligation on the utilities to provice 7"'I cas>
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. M 6g hr. #rlotto funds for decorwissioning ano to carry out the decorrissioning activities Elforts on the part of a licensee to create a corporation with safely.
i no assets for decow issioning or to ric itself of financial obligations would be a violation of proposed Sections 60.64(bb)(3) and b0.112(c).
)
Exis' ting section 60.61 of the regulations, which is based on Section 164 i
(?)
of the Atcric Energy Act of 1964, as esenced, states that an) crecitor is subject to the sare requirements and restrictions as would apply tc the licensee pursuant to provisions of the license and the Constssion's A creditor, as oefined in sectior. 60.81(d)(?), includes i
regulations.
According the trustee under any mortgage, piecge or lien on a facility.
to OLLD, Section 184 of tne Act, which recuires prior approval of a i
transfer subject to reasonable conditions, to protect public health anc safety, anc this inples,enting regulation provice a souno legel basis for recuiricc any successor organizations that e.ight be createc following financial crisis of a utility tu provice oecorrissioning funds and carry out decorrissioning activities.
hith sections 50.64(bt )(3), 60.82, ana 50.61 in place there is (3) no need to ado acoltional recuirenents concerning approval of corporate char.ges which threaten availability of decort:issior.ing funds since the availability of these funch is reautree by these regulations.
be have reviewec the text of the proposed rules it the itsht of the con-clusions reached in the previous discussion, nanely that: (1) utility assets are suf ficiently large that use of an internal rese rve funoing retbcc provides reasonable assurance of funds for decornissioning; (2) the possibility of events occuring that would underwine this assurance is ss.all; and (3) even in this situation, provisions containec in the proposec rule and the MC's existing rules would give hkC aceouate legal Based on this review, it is the authority to take any needea action.
consicereo conclusion of RES/CEbR, ELD anc OSP statf that the decorrissioning rules as currently being proposed in the package to be sent to the Cossission 4
provide a reasonable level of assurance that funds will be availat;1e for de-The staff is of the opinion that Dr. Siegel's stucy supports comissioning.
To the the conclusion that the internal reserve funding pethod is acequate.
extent that Dr. Siegel's study recognizes the irportance of placing cecon-rissiontr.c funoinc on a fire legal basis, it shuule give adottional 1spetus tc 1;ronulgation of these rules.
Ur w usuase nu.Mene Keith C. Stec r, Chief Chemical Eng :tring Branch f,,R,,S,:Cgg, E,
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