ML20196H648
| ML20196H648 | |
| Person / Time | |
|---|---|
| Issue date: | 12/08/1998 |
| From: | Richter B NRC (Affiliation Not Assigned) |
| To: | NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM) |
| Shared Package | |
| ML20196H655 | List: |
| References | |
| FRN-63FR50465, RULE-PR-30, RULE-PR-50 AF41-2-001, AF41-2-1, SECY-98-164-C, NUDOCS 9812090129 | |
| Download: ML20196H648 (1) | |
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NUCLEAR REGULATORY COMMISSION WASHINGTON, D.C. 20665-0001 l
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December 8,1998 A
MEMORANDUM TO: Nuclear Docume S stem (NUDOCS)
FROM: Brian J. t'er, enericissues and Environmental Projects Branch Division of Reactor Program Management !
Office cf Nuclear Reactor Regulation
SUBJECT:
REGULATORY HISTORY (63 FR 50465)
Attached for your processing are the regulatory documents comprising the regulatory history of the Final Rulemaking entitled: " Financial Assurance Requirements for Decommissioning Nuclesr Power Reactors," which amended 10 CFR Pads 30 and 50. This rulemaking was published in the Federal Reaister on September 22,1998 (63 FR 50465). Please retum the documents to me upon the completion of the processing.
If you have any questions or need any additional information, please call me at 415-1978 or e-mail me at bjr@nrc. gov, i Attachments: As stated (Please remember to include a copy of this memo in the package.) MEMORANDUM TO: l Nuclear Document System (NUDOCS) l
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The Secretary of the Commission U.S. Nuclear Regulatory Commission Washington, DC 20555-0001 Attention: Rulemakings and Adjudications Staff Re: Financial Assurance Requirements for Decommissioning Nuclear Power Reactors-Proposed Rule (Federal Register, September 10, 1997)
Dear Secretary:
These comments are submitted by the Illinois Department of Nuclear Safety (IDNS) in response to NRC's proposed rule amending 10 CFR Part 50 regarding financial assurance requirements for decommissioning nuclear power reactors.
IDNS has primary responsibility for the coordination and oversight of all State governmental functions in Illinois concerning the regulation of nuclear power, including low level radioactive waste management, environmental monitoring, and transportation of nuclear waste. IDNS implements Illinois' responsibilities under the Agreement State program and memorandums of understanding with the NRC regarding regulation and inspection of nuclear power plants in Illinois. Rate regulation of public utilities in Illinois is the responsibility of the Illinois Commerce Commission.
Electric utility deregulation is presently being considered by the Illinois General Assembly, as in other states. IDNS is following legislative developments, although the focus of deregulation relates more specifically to economic issues than radiation safety issues. The outcome of efforts to deregulate electric utilities is unclear at the present time and will likely be h ,,m F7HZ/DBZ w oa L
i Secretary of the Commission l' j Page 2 i I
! unclear for several years. Nuclear power plant licensees, like other persons licensed to use radioactive material, must be responsible for properly l decommissioning licensed facilities at the end of their productive lives. l l
Although NRC is not responsible for setting rates charged by operators of i nuclear power plants, NRC is justifiably concerned that the public health and !
safety may not be adequately protected if sufficient funding for decomnussionmg l is not provided. NRC should coordinate its efforts with public utility :
, commissions (PUCs) to the extent that PUCs continue to have rate settmg '
l responsibilities which include provision of funds for nuclear power plant j decommissioning.
l Snecific Comments f
j Rectructurino of Derecmistion Scennrio l t
t Deregulation of nuclear electric utilities is well underway in Illmots as m :
other states throughout the nation. NRC should act now to be in a position to l l respond to changes resulting from deregulation that could affect protection of the :
l public health and safety. In addition, costs of decommissioning licensed l
l facilities are the responsibility of, and must be borne by, the entities licensed to operate the facilities, not the federal or state treasuries. l When Does an Onerntnr renea to Be a Utility It seems extremely unlikely that any state would deregulate the electric utility industry so completely that there would be no requirements to provide l funds for decommissioning of nuclear power plants. Accordingly, it is l l appmpriate to revise the definition of " electric utility" to provide that should a
, licensee be subject to rate regulation for only a portion of its costs covering only t
. a portion of its decommissioning costs (40% in NRC's example), then the l licensee would be considered to be an " electric utility" for purposes of guaranteeing decommissioning costs only to that same extent. In the example provided, 60% of decommissioning costs would need to be accounted for in a manner consistent with methods acceptable for non-electric utility licensees.
l IDNS suggests that similar flexibility be allowed for assurance options, as will
- be discussed below.
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l Secretary of the Commission Page 3 :
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l l Imnacts I l Nuclear power plant licensees which no longer meet the definition of ,
" electric utility" because they are no longer overseen by a rate-setting regulatory i l authority must comply with the decommissioning funding requirements of 10 CFR 50.75(e)(2). As NRC obtains additional experience with facility decommissioning (both reactor and non-reactor), NRC should validate the fmancial standards in appendices A and C to Part 30. IDNS questions the justification for the prohibition of use of a parent company guarantee in combination with other methods of providing fmancial assurance. IDNS suggests that NRC reconsider allowing use of a parent company guarantee in combination with other allowable assurance methods. See comments under Financial Test Qualifications below.
l NRC should continue to require that licenses for nuclear power plants i shall not be transferred, directly or indirectly, as a result of any merger, ;
reorganization or sale, without the NRC's written approval. Entities without l financial ability to fmance the costs of both safe operations and plant l decommissioning are not good candidates for nuclear power plant ownership.
L Finnncial Test Qualifications l NRC notes that several commenters stated that the fmancial structure of utilities could preclude satisfaction of the parent company guarantee standard. ;
IDNS suspects that at least part of the reason is that portions of the parent company fmancial test require balance sheet amounts equal to six times the entire l current decommissioning cost estimates. If, however, NRC allowed a '
combination of methods, it might be feasible for more licensees to meet the parent company guarantee standards for a portion of the decommissioning cost estimate while providing for the remainder of decommissioning cost estimate with other methods. To illustrate, assume that a licensee's estimated decommissioning costs are $100x million. The second portion of the fmancial test in paragraph A.I. of Part 30, Appendix A requires net working capital and tangible net worth each at least $600x million. If, however, the licensee had a l quilified external sinking fund of $40x million and a combination of methods l were allowed, the net worLing capital and tangible net wonh requirements would i
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Secretary of the Commission Page 4 drop to $360x million [(100-40) x 6]. NRC should reconsider use of parent company guarantees in combination with other allowable assurance methods.
Renortino on the Statnc of Decommiccionina Funde IDNS supports periodic reporting on the status of decommissioning funds and has submitted a comment supporting NRC's endorsement of FASB draft standard No.158-B.
If you have any questions, please contact IDNS' Chief Legal Counsel, Stephen J. England, at 217/524-5652.
Sincerely, Thomas W. Orteiger Director TWO: lam l
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STATE OF FLORIDA !'
c _ ;. % DOCKETED JuuA L JOHNSON,CHAIRM AN OENERAL COUNSEL USNRC SUSAN F. CLARK ROBERT D. VANDIVER J. TERRY DEASoN M4134248 joe GARCIA N EN 21 P1 :58 DIANE K.KIESLINo public herbite Commi6% ion %WL.Wf ADJUD!CEiONS MAFF November 20,1997 DOCKET NUMBER PROPOSED RULE E '50 BY AIRBORNE EXPRESS
[(,a pg 475gg]
Secretary of the Commission U.S. Nuclear Regulatory Commission 11555 Rockville Pike Rockville, Maryland 20852-2738 Re: 10 CFR Part 50, RIN 3150-AF41 - Financial Assurance Requirements for Decommissioning Nuclear Power Reactors - Proposed Rule SP-97-%6
Dear Secretary:
Enclosed are the original and one copy of the Florida Public Service Commission's comments in the above docket. Please date-stamp one copy and retum it in the enclosed self-addressed stamped envelope.
Sincerely, k
Cynthia B. Miller Senior Attorney CBM:jmb CAFTTAL CIRCLE OFFICE CFKTER
- 2540 SHUMARD O AK BOULEVARD + TALLAHASSEE, FL32399-0850 Am Amnemen ActimafrqamlOpportunity Fmployer imeermd EM CONTACr@PSC.STATF. FLUS 47//250557 w q/L os
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UNITED STATES NUCLEAR REGUIATORY CC6 MISSION !
Washington, D.C. 20555-0001 In the Matter of: ) (
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Financial Assurance Requirements ) 10 CFR Part 50 i for Decommissioning Nuclear ) RIN 3150-AF41 l Power Reactors. )
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COtMENTS OF THE FIDRIDA PUBLIC SERVICE CO6 MISSION The Florida Public Service Commission (FPSC) appreciates the l opportunity to submit comments to the Nuclear Regulatory Commission l (NRC) regarding its Notice of Proposed Rulemaking (NOPR) on amendments to the financial assurance requirements for the l l
decommissioning of nuclear power plants in light of the potential !
! regulatory changes in the electric utility industry. While we ;
basically support the proposed rule amendments, we believe several i areas of the rule could be subject to interpretation and should be !
l l clarified. l l
The NOPR proposes a revised definition of " electric utility" f
l l as one that recovers its costs through rates established by a regulatory authority, "such that the rates are sufficient for the licensee to operate, maintain, and decommission its nuclear plant i
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safely." To the extent the NRC finds that its safety standards are not being met, the FPSC agrees the entity should not be classified as an " electric utility" for the purposes of NRC regulation.
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However, we believe the proposed language could suggest state regulatory jurisdictional issues that the NRC does not intend. For this reason, we believe the NRC should clarify that it does not intcad to infringe upon state ratemaking authority. Furthermore, given the revised definition, we believe that some of the language in S50.75(e) (3) is unnecessary and should be removed in order to avoid the potential for confusion and misinterpretation. We suggest that S50.75(e) (3) be revised as follows:
For an electric utility, its rates must bc sufficient to recover the cost of the -clectricity it gcncratcs, transmits, or distributes. Thcsc ratc; must bc cstablishcd by a rcgulatory authority such that they arc sufficient for the liccnacc to opcratc, maintain, and dcccamission its plant safcly. Tthe Commission reserves the right to take the following steps in order to assure a licensee's adequate accumu]ation of decommissioning funds: review, as needed, the rate of accumulation of decommissioning funds; and either independently or in cooperation with either the FERC and the State PUC's, take additional actions as appropriate on a case-by-case basis, including modification of a licensee's schedule for accumulation of decommissioning funds. . . .
The NOPR also proposes a definition for "non-bypassable charges" as " charges imposed by a governmental authority which 2
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associated with operation, maintenance, and decommissioning of a nuclear power plant. ... This definition could be interpreted j that a non-bypassable charge is required to provide recovery for j "all" categories of costs (operation, maintenance, and decommissioning). First, the FPSC believes the NRC should clarify I
that " costs" relate to prudent costs rather than all costs.
Additionally, we believe that clarification is needed that the non- l bypassable charge is not required to recover "all" categories of costs. The charge could, in fact, be designed to only recover l prudent decommissioning costs if the regulatory body decided that operation and maintenance costs should be market driven. In this l case, the entity would qualify as an electric utility in regard to decommissioning funds only and not in regard to operation and maintenance. The regulatory body should have the discretion to l
decide what prudent costs, if any, should be recovered through a l non-bypassable charge.
Finally, the NRC is proposing periodic reporting requirements to monitor the status of decommissioning funds. The initial report will be required to be submitted within nine months after the effective date of the rule, and at least once every two years l thereafter. According to the proposed language, any licensee of a plant that is within five years of the projected end of the plant's operation shall submit a report annually. The FPSC agrees that this reporting requirement is a way for the NRC to be informed of i
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licensees' decommissioning funding status cnd potential underestimates of cost. However, we believe the NRC should clarify that the projected end of the plant's operation includes situations in which a plant shuts down prematurely before the end of its operating license. We believe the annual reporting requirement could be construed to relate only to plants within five years of the end of their operating licenses. Additionally, the FPSC requests that the NRC include the requirement for licensees to also submit a copy of these reports to the state regulatory authority.
Respectfully submitted, A NTHIA B. MILLER
/ Senior Attorney FLORIDA PUBLIC SERVICE COMMISSION 2540 Shumard Oak Boulevard '
Tallahassee, Florida 32399-0850 DATED: November D , 1997 4
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DOCKET NU'TEi%
PROPOSED ROLE.15O poye,3,7 13, 1,,, M'usNSc"Mk 1
((o2FAV75FT) Lynne Goodman 727 Scarlet Oak Ct.
b VI NOV 24 A10:00 Monroe, MI 48162-3473 The Secretary of the Commission OFFIC- ( - I: t t ARy U.S. Nuclear Regulatory Commission RULEM-+i eD Washington, D.C. 20555-0001 ADJUDICAIDNS SIAFF Attn: Rulemaking and Adjudications Staff
Dear Mr. Hoyle:
I am writing to comment on the proposed rule on Financial Assurance Requirements for Decommissioning Nuclear Power Plants (RIN 3150-AF41).
I am writing because of a couple of concerns I have with the proposed rule. I agree decommissioning needs to be properly funded, and that we don't want to leave ourselves vulnerable to abandoned nuclear plants without adequate funding for decommissioning. Deregulation could increase the probability of premature shutdown and inadequate funds for decommissioning.
My main issue deals with how utility is being redefined to only include entities that receive the cost of electricity through rates established by a regulatory authority, and that such rates -
must be sufficient to operate, maintain and decommission its nuclear plant safely, and that only utilities who meet this definition will be allowed to use the sinking fund method of financing the decommission fund. If only a portion of these costs are covered by regulatorily set rates, the entity will only be considered an electric utility for the portion of assets covered in this manner. My concerns are
- 1) Does this mean if the entity recovers decommissioning costs through rates or regulatory fees, but covers operation and maintenance costs through market sales, that it is considered an electric utility for decommissioning purposes or only part of an electric utility? If only part of an electric utility, will the entity need to use a means other than a sinking fund for a part of decommissioning funding even though it is collecting decommissioning costs through fees or rates? If decommissioning costs are being recovered by a regulatorily set rate or fee, the entity should be considered a utility for decommissioning funding purposes.
- 2) If the collection of decommissioning funds is fixed, but the cost estimate or earnings rate fluctuates, will a proportional part of decommissioning funding need to be covered by other than a sinking fund if the analysis in any year shows the collection will not be adequate?
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l This would be very complicated and contrary to the philosophy of collecting at least the majority of the l cost in a fund over the years and then performing more i
detailed analysis to address any additional needs as plant permanent shutdown approaches.
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- 3) I believe that if there is reasonable assurance that all or most of decommissioning costs will continue to be collected, a licensee should be able to use the sinking fund decommissioning funding method. Other methods add significant costs to funding. These costs, especially if unnecessary, will serve to drive the price of nuclear power ever higher and possibly lead to permanent closure. Premature closures are contrary to the purpose of decommissioning funding regulations, since plants that are prematurely closed typically don't have adequate decommissioning funds. Premature closures are also wasteful and will lead to increased carbon dioxide emissions from substitute power.
My second issue deals with the specific wording used to allow a licensee to take credit for earnings on prepaid decommissioning trust funds and external sinking funds using a 2 percent annual real rate of return from the time of the funds' collection through the decommissioning period (if the licensees rate-setting authority does not authorize the use of another rate). I agree with the NRC's proposed allowance for fund earnings from time of collection through decommissioning, however I believe that a licensee should be able to take credit for actual earnings for current and past years since collectior., and up to 2%(with the given exception) for future years predicted earnings. Let me provide to examples to explain what I mean by this comment.
- 1) If a utility has been earning an average 10% income, in predicting future collection needs, they should be able to use their current fund amounts (including funds deposited and 10% income) in predicting future needs.
The future needs prediction should include any future deposits plus up to 2% real rate of return.
- 2) If the utility only wants to use a 1% real rate of return, it should have that choice rather than be limited to 2% or nothing based on the current proposed wording, unless the rate-setting authority authorizes something else.
The latter example concern can be handled by adding "up to" or
" maximum" before "2 percent". The first example concern may be able to be handled by adding " future" and deleting "the" before l " funds' collection".
I I also received draft comments from NEI and agree in general with these comments.
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L I hope these comments will be useful in formulating a final rule that will help ensure adequate decommissioning funding without being excessively burdensome and without contributing to prematurely shutdown nuclear plants.
sincerely i
.Lynne Goodman 1
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sounm cAurontA H:rold B. Ray EDISON *"****
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November 24,1997 Mr. John C. Hoyle OFF C , S n y Secretary R ADJUDICa@.:. ETAFF U.S. Nuclear Regulatory Commission 11555 Rockville Pike DOCKET NU'.iBER
! Rockville, Maryland 20812 PROPOSED RU:E R SO '
(G,AFRy76Sg)
Re: Proposed Rule On Financial Assurance Requirements For Decommissioning Nuclear Power Reactors (Federal Register Volume 62, No.175, September 10,1997)
Attention: Rulemakings and Adjudications Staff
Dear Mr. Hoyle:
In the proposed rule on financial assurance requirements for decommissioning nuclear power reactors, the Nuclear Regulatory Commission (NRC) proposes to amend its regulations as a " response to the potential deregulation of the power generatingindustry." Southern California Edison Company (Edison) supports efforts by the NRC to revise regulations to provide explicit criteria for decommissioning funding assurance for licensees. Edison supports and joins comments offered by the Nuclear Energy Institute (NEI), which it will not reiterate in detail here. The following comments are offered as a supplement to the NEI comments. The NRC should provide specific criteria on this issue during this period of restructuring of electric utilities so that regulatory uncertainty does not impede either the transition to a competitive electric market or the viability of nuclear generation in that market.
I.
EDISON RECOMMENDS ADOPTION OF A NEW APPROACH TO DECOMMISSIONING FUNDING ASSURANCE l A. Edison Recommends That The Term " Electric Utility" No Longer Be Used To Identify Entities Exempt From l Surety Reauirements For Decommissioning Fundine Assurance For a non " electric utility" licensee, the NRC's proposed decommissioning funding assurance rule continues to require pre-funding or other reasonable assurance through a letter of credit or insurance that all NRC-required j P.O. Box 800 2244 Walnut Grove Ave. Rc5emead, California 91770 (626) 302-1695 Fax (626) 302-4717
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Mr. John C. Hoyle Secretary Page 2 November 24,1997 l
l decommissioning funds are currently available. For an " electric utility," the proposed rule continues to allow accumulation of NRC-required decommissioning funds over time through an external sinking fund. Thus, the definition of a j " electric utility" is of critical importance to whether there is a need for additional
- assurance that adequate decommissioning funds will be available when needed.
Industry restructuring includes the development of a competitive generation market including market-based pricing for generation. As a result, disaggregation of at least generation from other utility services, such as transmission and distribution, is likely to occur. There will be progressively fewer traditional vertically-integrated electric utilities owning nuclear generating facilities. These developments, which will proceed in a variety of ways and on a variety of schedules throughout the country, make continued reliance on the defined term, " electric utility," increasingly unclear. For this reason, Edison recommends that the NRC separate its requirements for decommissioning funding j assurance from its definition of" electric utility" and from its financial qualifications :
requirement.
l The need for decommissioning funding is associated with the existence of a nuclear generating facility. The decommissioning obligation is incurred when a l nuclear generating facility is constructed and enters service, regardless of how long !
that facility operates. All existing nuclear generating facilities were constructed to 1 meet a utility's obligation to serve its ratepayers. The decommissioning funding l obligation is a ratepayer responsibility separate from recovery of operating costs.
This is because of the important public health and safety interest in assuring adequate funding to safely decommission nuclear generating fac9ities. The
! decommissioning funding assurance requirement should focus on recovery of ;
decommissioning costs alone. Separate financial qualifications requirements I should provide reasonable assurance of recovery of operating costs.
The proposed rule is an improvement over the existing rule because it i recognizes that some costs may be recovered by a non-bypassable charge mechanism and some may not. However, the proposed rule defines " electric utility" as an entity which " recovers the cost of this electricity through rates." The meaning of the phrase " recover the cost of the electricity through rates"is unclear. Even l under traditional cost of service regulation, an investor-owned utility may not fully l recover the cost of electricity through rates, nor should the cost of electricity be the ;
focus for NRC's def'mition. The appropriate test should be one of reasonable l assurance of recovery of decommissioning funds only.
The proposed rule should adopt a test of reasonable assurance of decommissioning cost coverage. This means that, based on reasonable assumptions, the decommissioning costs will be recovered. Edison recommends I
Mr. Jthn C. Hoyla Secret. ry Pzge 3 November 24,1997 utilizing the definition of" qualified nuclear entity" proposed by NEI with some modifications as the test for the decommissioning funding assurance requirement.
A " qualified nuclear entity," exempt from surety requirements for decommissioning funding assurance, should have reasonable assurance of recovery of decommissioning funding. All other licensees would not be " qualified nuclear entities" and would, therefore, be subject to surety requirements for decommissioning funding assurance. An entity that is not a " qualified nuclear entity" would most likely only be able to recover decommissioning funding through a competitive generation market or through a power sales contract.
The " electric utility" exemption, relative to decommissioning funding, was developed because the NRC presumed that rate regulation agencies have a public interest responsibility to provide reasonable assurance of recovery of all decommissioning costs. A " qualified nuclear entity" has reasonable assurance of recovering decommissioning funds over the entire term of the required decommissioning funding. This definition is consistent with the bases for the original " electric utility" exemption relative to decommissioning funding.
Edison recommends adoption of a modified version of NEI's definition of a " qualified nuclear entity," as an entity meeting one of the following three criteria:
Decommissioning funds being recovered through a rate-setting mechanism or, in the case of public power entities, by that entity's Board of Directors / Governors; Decommissioning funds recovered through a non-bypassable charge established by legislative or regulatory mandate, or in the case of public power entities, by that entity's Board of Directors / Governors; or Decommissioning is funded through a binding contractual agreementh with another party '3to provide reasonable assurance that the other party will continue to fund its share of unfunded decommissioning expenses separate from any requirement to continue power production.3' h The contractual agreement (s) should be equal to the amount required to fund the outstanding decommissioning payment (s), taking into account the earnings on the pre-paid funds, as defined in the NRC proposed rule.
2' The party bound to provide the unfunded balance shall meet one of the first two criteria for
" qualified nuclear entity" or reasonable financial criteria, like those proposed by Edison below for a non " qualified nuclear entity" providing a self-guarantee.
3' For example, there may be instances in which licensees sell one or more nuclear power plants to other entities and, as part of those transactions, the obligation to continue payments into decommissioning funds would remain with the ratepayers who have received, and may continue
Mr. John C. Hoyle Secret:ry Page 4 November 24,1997 l
With regard to the third criterion, Edison modifies NEI's criterion by proposing that the party committing to provide the unfunded balance shall meet ene of the first two criteria for " qualified nuclear entity" or shall meet reasonable tinancial criteria, like those proposed by Edison below for a non " qualified nuclear entity" providing a self-guarantee. Unless the party committing to provide the i unfunded balance is required to meet these criteria, the third criterion would not provide reasonable assurance of the availability of decommissioning funding. In i addition, the binding contractual agreement should be separate from any requirement to continue power production. Recovery of decommissioning funds should not be contingent upon operation. In Edison's view, decommissioning funding is relate d to an existing liability, not to a going-forward cost. Therefore, ;
l decommissicaing funding assurance should be provided through rate recovery, a !
non-bypassable wires charge, or a third-party contract that is binding irrespective j of continued power production.
B. Edison Recommends That New Mechanisms Be Made Available To Entities Reauiring Additional Decommissioning Funding Assurance The functional unbundling of the electric utility industry increases the probability that generating companies with no assured recovery of decommissioning
- costs may become owners of nuclear facilities. New standards are necessary for Congress, State Commissioners, investers and the public to have reasonable assurance that decommissioning funding will be available when needed, while, at the same time, nuclear generating facilities remain a viable source of power in a l restructured industry. In response to the NRC's request in paragraph C.6 of the l discussion of comments, Edison recommends that the NRC consider adopting the l
following additional options for decommissioning funding assurance for either non-
" electric utilities" or non " qualified nuclear entities:"
l Parental guarantee of decommissioning funding from a parent meeting the criteria for self-guarantee Self-guarantee of decommissioning funding assurance for licensees l that meet at least two of the following financial tests:
+ The licensee has an investment grade bond rating, l Continued from the previous page l to receive, electricity from the facility or facilities in question. In such situations, the buyer could (1) assume custodial responsibility for the decommissioning trust fund and any monies
- already collected; (2) receive a contractual commitment, secured either by regulatory or I legislative mandate, the payments into the decommissioning trust fund would continue; and (3)
I acquire responsibility for decommissioning the plant at the end ofits useful life, t
Mr. J:hn C. Hoyle S;cr:.tary Page 5 November 24,1997
+ The licensee's pre tax income before interest expense divided by interest applicable to debt must be greater than or equal to 2;i.e.,
the licensee's pre-tax income before taking any deduction for interest expense must be at least two times the amount required to service the licensee's long- and short-term debt; and
+ The net worth of the licensee is at least twice the current remaining unfunded cost of decommissioning in nominal current year dollars.
Accelerating payments over 5/8 of the remaining period of the license term for the unfunded decommissioning liability, providing there are sufficient company, or parent company, assets equal to twice the unfunded decommissioning obligation.
Case-by-case licensee specific proposals to assure decommissioning funding that had been reviewed and approved by the NRC, and support a conclusion that there is reasonable assurance that the licensee will be able to fund decommissioning.
Unlike NEI, Edison proposes certain specific financial tests to support parental guarantee or self guarantee of decommissioning funding assurance. The development of specific financial criteria for providing decommissioning funding assurance leads to regulatory certainty and stability which will help to assure NRC ,
licensees continued access to capital. However, Edison agrees with NEI that such criteria could be developed in a Regulatory Guide, rather than in the proposed rule i itself.
C. If The Proposed Rule Retains Use Of The Defined Term i
" Electric Utility." It Should Explicitly Include Utilities l
That Can Recover Only Decommissionine Costs Through '
A Nonbypassable Charge Edison supports NEI's "quali6ed nuclear entity" proposal as described l above. However,if the NRC does not choose to adopt NEI's proposal, the proposed rule offered by the NRC still requires some clarification. The proposed rule i suggests that an entity can be " partly" an electric utility and partly a non " electric utility," as follows:
. . . an entity whose rates are established by a regulatory I authority by mechanisms that cover only a portion ofits costs will be considered to be an " electric utility" only for i that portion of the costs that are collected in this manner. . . ." l l
. Mr. John C. Hoyle Secretary Page 6 November 24,1997 l
! This construct requires clarification.
I Under California Public Utilities Code Section 379, all California entities are authorized to recover nuclear decommissioning costs through a non- ;
l bypassable charge, indefinitely. For decommissioning funding assurance purposes, l
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entities which recover decommissioning costs through a non bypassable charge, '
such as that retablished in California Public Utilities Code Section 379, should be defined as "ciectric utilities." This should occur regardless of whether the entities l are assured recovery of other costs through a non bypassable charge.
The proposed rule could be interpreted to mean that whatever l percentage of an entity's costs going forward were recovered through rates would be considered to be " electric utility" costs, not subject to a surety mechanism for decommissioning funding assurance. In Edison's opinion, this is not the l interpretation which the NRC intended, and the language should be clarified to l provide that entities which recover all of their decommissioning costs, but no other '
costs, through a nonbypassable charge would be fully considered to be " electric utilities" for purposes of decommissioning funding assurance. Edison recommends '
i that the following sentence be added to the defimition of" electric utility" to clarify l that entities which recover decommissioning costs through a non-bypassable charge would be " electric utilities" for purposes of decommissioning funding assurance:
For purposes of determining whether an entity is an electric utility for purposes of decommissioning funding assurance, an entity whose decommissioning costs are recovered through a non-bypassable charge mechanism is an electric utility.
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i ASSUMING A REAL RATE OF RETURN OF 2% MAY ALLOW UTILITIES l TO BECOME UNDERFUNDED, AS IT DOES NOT TAKE INTO ACCOUNT l THE EFFECT OF INCOME TAXES l
In the NRC's response to commenters (p. 48),itindicates that a 2%
real rate of return (i.e., inflation adjusted, after tax)" represents as close to a " risk free" return as possible and has increased confidence that the 2% value can be consistently achieved. Edison's review of historical data from 1926-1996 (for intermediate and long-term government bonds from 1997 Ibbotson Yearbook) indicates the average real rate of return from 1926 96 before tax has been about 2%
After taxes, even assuming the recently enacted Qualified Trust tax rate of 20%,
! real rates of return would have been closer to 1%. And, these returns should not be t
,' ' Mr. John C. Iloyle l Secret:ry
! - Page 7 November 24,1997 l characterized as risk-free, even with a long-term perspective. Historically, for 1
annualized periods extending many years, real returns on bonds were negative.
III.
EDISON SUPPORTS A REPORTING REQUIREMENT, BUT l
RECOMMENDS THAT DRAFT FASB NO.158 B NOT BE USED AS A TEMPLATE FOR SUCH REPORTS BECAUSE IT IS NOT YET FINAL l
Edison does not oppose reporting to the NRC on the status of decommissioning in accordance with whatever provisions the . final FASB 158-B j would require to calculate the decommissioning liability to be reported to the shareholders and the Securities and Exchange Commission.
The FASB 158-B exposure draft was published in February 1996, and EEI provided comments and recommendations to the FASB about several of the proposed accounting and reporting requirements called for in the draft, in a letter dated May 29,1996. Edison continues to support the EEI's position on these issues l as it awaits the release of a final standard or new exposure draft from the FASB.
i The project has been inactive in recent months and the FASB has not announced when they plan to reactivate it. Therefore, it is recommended that the NRC not require the FASB 158-B draft to be used for decommissioning status reporting.
Very truly yours,
- arold .
l CAS.sbw LW97*.410.149 l
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OFFICF OF SR FMARYROY A. ANDERSON l RULE tN , . ,, , DD SENIOR VICE PRESIDENT ,
ADJUCCAIME STAFF NUCLEAR OPERATIONS I November 21, 1997 NU 'T I~
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t The Secretary of the Commission U.S. Nuclear Regulatory Commission Washington, D.C. 20555-0001 Attn: Rulemakings and Adjudications Staft' l Re: Comments on Proposed Rule Regarding Financial Assurance I Requirements for Decommissioning Nuclear Power Reactors; l 62 Fed. Reg. 47588 (September 10, 1997) i
Dear Sir:
I 1
Florida Power Corporation (FPC) hereby provides comments on the above-l referenced proposed rulemaking. Given the move toward electric industry restructuring, FPC commends the NRC for addressing this important issue now.
FPC agrees that, in light of restructuring, changes should be made to existing l regulations to more efficiently assure that the eventual decommissioning of l nuclear power reactors is adequately funded. As discussed more fully below, i FPC believes that a number of NRC's proposals will further this goal. FPC, however, disagrees with some of the NRC's proposed changes -- in particular to l the 10 C.F.R. 5 50.2 definition of " electric utility" -- which FPC believes do not provide enough flexibility to nuclear utility licensees in funding future decommissioning costs and unnecessarily link O&M costs to decommissioning funding. FPC appreciates the opportunity to provide these comments and welcomes additional public dialogue on this important issue.
Proposed Chances to the Definition of " Electric Utility" l The NRC's proposed redefinition of " electric utility" under 10 C.F.R. 5 50.2 l is the most important aspect of the proposed rulemaking and has the most far-l reaching impact on utility licensees. FPC believes that the current l definition and proposed revisions to the definition of " electric utility" are l outdated and should be abandoned as they relate to decommissioning funding
- issues. FPC suggests that the NRC replace the current definition with the
" qualified nuclear entity" concept set forth in the comments filed by the Nuclear Energy Institute (NEI) on behalf of the nuclear power industry. FPC further recommends that the NRC develop, based on additional public input, financial criteria, which, if met, would allow a licensee that did not meet i
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The 5:crctcry of the Commission Nov:mb:r 21, 1997 Page 2 the " qualified nuciear entity" definition to nonetheless cover decommissioning costs through an external sinking fund.
Moreover, because restructuring is a fluid process which is still evolving, FPC suggests that any final rule provide broad requirements only. Specific, detailed criteria should be included in a regulatory guide or similar non-binding criteria. FPC believes that flexibility -- in the regulatory process and in the mechanisms for funding decommissioning -- is the key as we move into a quickly changing environment of electric utility restructuring.
Under the current NRC regulations, an " electric utility" is exempt from financial qualifications reviews and may use an external sinking fund to I accumulate decommissioning funds gradually during the life of a plant. A I licensee that is not an electric utility is subject to financial qualifications review, which may be a significant issue in licensee reorganizations and license transfers, and may use an external sinking fund l only if the unfunded balance is guaranteed by some surety method. The Commission would amend the definition of electric utility under 10 C.F.R. $
50.2 to, among other things, (a) include securitization as an acceptable mechanism to assess non-bypassable charges for the purpose of recovering decommissioning and other stranded costs, (b) delete the phrase "directly or indirectly" from the first sentence of the definition, and (c) add a phrase qualifying that an electric utility is a utility that recovers the cost of electricity through rates, "such that the rates are sufficient for the licensee to operate. m_ajntain. and decommission its nuclear olant safelv."
These proposed revisions do not address adequately the rapidly evolving electric utility business environment. NEI's proposed " qualified nuclear entity" concept does and should be given careful consideration by the NRC.
Under this concept, a nuclear utility licensee could continue to utilize an external sinking fund to cover future decommissioning costs if it recovers decommissioning funds through (a) a traditional cost of service mechanism, or (b) a non-bypassable charge set by a regulatory agency, or (c) a contractual agreement to cover outstanding decommissioning funding payments taking into account the earnings on prepaid funds. This new term is somewhat broader than the NRC's revised definition of electric utility. More significantly, however, "quali fied nuclear entity" better captures the changing business environment of electric industry restructuring and more clearly reflects the type of companies that will own and operate nuclear plants in the future.
In addition to this change, nuclear utility licensees shoald be able to utilize the external sinking fund method even if they do not constitute a
" qualified nuclear entity" if they meet some objective tests of their ability to provide the necessary funding. For example, financial tests could be developed taking into account, among other things, the size, assets, liquidity, net worth, bond rating, or other indicia of financial ability of the nuclear utility licensee. Such a test would allow large, financially stable nuclear utilities (which may not technically meet the definition of "quali fied nuclear entity" or "el ect ri c utility") to continue to fund decommissioning through external sinking funds while providing the desired financial assurances.
Th2 52cratary of the Commissien November 21, 1997 Page 3 Standards are currently being developed by credit rating agencies and the financial investment community to assess the financial strength of a merchant power plant and whether money will be lent to such an entity. These criteria, which consider, among other things, bond ratings, company coverage ratios, net worth, and long-term contracts, which provides reasonable assurance of covering decommissioning costs, should be carefully reviewed by the NRC, the industry, and the public, prior to issuance of a final rule. After additional , critical review, it may be evident that such criteria provide needed flexibility to a licensee while still assuring the NRC that the company has the financial means and ability to cover its outstanding decommissioning liability.
In this regard, the Commission noted in the proposed rule that it "will ,
continue to evaluate this issue, but is not presently offering any changes to '
its financial test criteria." FPC recommends that, given the relevance to the fundamental principles driving this proposed rulemaking, the NRC evaluate fully the merits of developing and implementing a revised financial qualification test for nuclear utility licensees prior to issuing a final rul e.
If the NRC nonetheless chooses to retain the definition of " electric utility" under 10 C.F.R. 5 50.2, FPC suggests that the NRC revise its redefinition as l outlined below. While the NRC expands the definition of electric utility in j
~
one regard, its reaefinition unduly restricts a licensee's funding options in 1 two other significant respects. FPC supports the NRC's proposed revision that {
would broaden a utility's ability to use an external sinking fund to cover i decommissioning costs where that utility recovers rates indirectly through a non-bypassable charge mechanism (for example, through securitization). FPC, t however, disagrees with the two other proposed revisions referenced in (b) and !
(c) above, which if implemented would unnecessarily limit the ways in which a i licensee could assure adequate funding and/or could potentially have I unintended consequences in a proceeding involving a license transfer or !
reorganization.
Fi rst , licensees who enter into long-term power sales agreements, which are l approved by their state public service commissions or a federal regulator such !
as the Federal Energy Regulatory Commission, should not cease to be considered an electric utility for purposes of decommissioning funding. Such approved contracts, which constitute an " indirect" cost recovery mechanism, offer adequate assurances that plant decommissioning will be funded. By deleting the term " indirectly" from the 50.2 definition, the NRC would unduly restrict licensees from competing in the open market without any material public health or safety benefit.
Second, the addition of the phrase "such that all rates are sufficient to operate, maintain, and decommission its nuclear plant safely" to the definition of electric utility could significantly weaken the exemption from financial qualification reviews that electric utilities currently receive and unnecessarily allow changes to the sufficiency of the rates and ratemaking
, process. Under the current regulations, a licensee is not subject to a financial qualification review if it establishes that it is subject to rate regulation. The proposed revision would apparently require the consideration of an additional issue concerning the sufficiency of rate regulation. For
~
The S;cretcry of th2 Commission November 21, 1997 Page 4 l
1 I
l exampl e, in a license transfer or licensee reorganization proceeding, contentions could be raised that the licensees are not electric utilities because rates are not sufficient to operate, maintain, or decommission the plant safely. This might result in litigation before the NRC concerning the sufficiency of the rates and the ratemaking process -- an area traditionally and appropriately left to state public utility com6aissions. FPC recommends that the NRC delete this language from the final definition of electric utility.
l This proposed revision also inappropriately links O&M funding to decommissioning. The principal focus of any requirement related to decommissioning funding assurance should be to provide reasonable assurance that a utility will fund its outstanding decommissioning costs.
Decommissioning funding issues are and should be enti rely separate from financial assurances for ongoing nuclear plant operations and maintenance, and licensees should not be required to demonstrate that they can fund O&M costs in the same context as decommissioning. FPC suggests that the NRC delete the words " operate, maintain" from the first sentence of the proposed, revised definition of " electric utility."
Erpoosed Chances to Reportina Reauirements and Rate of Return Credits The proposed rule would also (a) revise reporting provisions to require an i
initial decommissioning funding status report within nina months of the rule's effective date and periodic funding status reports every two years thereafter, and (b) allow a credit for earnings on accumulated trust funds using a 2 percent real rate of return from the time of the funds' collection through the decommissioning period. FPC supports these proposed revisions.
Recouoment of Decommissip_nina Costs in a Restructured Environment Finally, in its response to comments, the' NRC stated that it "will work and consult more closely in the future with the National Association of Regulatory i Utility Commissioners (NARUC), FERC and the Securities and Exchange Commission (SEC) so that the NRC may express its positions on safety and encourage the various regulatory bodies to continue their allowances of adequate expenditures for plant safety." 62 Fed. Reg. at 47,591. .FPC strongly supports continued consultations among the various state and federal agencies.
FPC believes that continued allowances by state public utility commissions of adequate expenditures such as those to fund future decommissioning costs are critical to the competitive position of nuclear utilities in a restructured market and urges the NRC, in such consultations, to recommend + hat state public utility commissions continue to allow recovery of decommissioning costs through some non-bypassable mechanism.
In the event state public utility commissions or legislatures choose not to l allow recoupment of some or all costs associated with decommissioning, FPC believes that accelerated funding of decommissioning costs should be permitted prior to the date of deregulation. In the proposed rule, the NRC emphasized that although it "is not proposing to expressly require accelerated funding to address premature shutoowns . . . [it] expects, however, that PUCs and FERC will address decommissioning funding through cost recovery mechanisms." 62 Fed. Reg. at 47,592. FPC hopes that, in any consultations with state public
-- - ... .- - -. . . - - .- . . _ =. . = _ - . . . . - -
The 5:crctary of the Commission l Novemb2r 21, 1997
, Page 5 i
utility commissions, the NRC support the position that licensees be allowed to i accelerate funding prior to the implementation of any restructuring plan under which decommissioning costs are not re: overed through traditional cost of }
service regulation. i FPC again commends the NRC for addressing an issue of paramount importance in i a timely manner. We appreciate the opportunity to provide the Commission with :
our views and would be happy to discuss this matter further at your l convenience. ,
Sincerely, I
RIoy A. Anderson l l
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U-602875 OFFL,- i + g~ R %
IA.120 RULt k'a-@ .:3 /wo ADJUDC .0% MAFF 1 November 21, 1997 DOClO M:WSH!r... ,
PROPOSL. TL; ~ Icic 3O
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Docket No. 50-461
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Secretary of the Commission, U.S. Nuclear Regulatory Commission, Attention: Docketing and Senice Branch
]
Washington, D.C. 20555
Subject:
Illinois Power's (IP's) Comments on the Proposed Rule for Financial Assurance Reauirements for Decommissionina Nuclear Power Reactors
Dear Madam or Sir:
Federal Register, Volume 62, No.175, Pages 47588 through 47606 requests comments to the NRC's proposed rule change to current financial a:;surance requirements for decommissioning. Listed below are the specific changes that are proposed and IP's comments. The proposed changes are in bold type followed by IP's comments.
Sec. 50.2 Definitions.
Cost ofservice regulation means the traditional system of rate regulation in which a rate regulatory authority allows an electric utility to charge its customers all reasonable and prudent costs of providing electricity services, including a return on the investment required to provide such services.
IP Comment: Cost ofservice regulation: Being a definition that is intended to outline the present system, IP has one comment. It is not likely that a utility will go from a position of complete cost ofservice regulation to no longer having any of the utility meeting the proposed NRC definition ofelectric utility. Therefore, there should be another definition added to define the panicular requirements for when there may be a " partial" cost ofservice regulation.
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1 U-602875 Page 2 Electric utility means any entity that generates, transmits, or distdbutes electricity and that recovers the cost of this electricity through rates established by a regulatory authority, such that the rates are sumclent for the licensee to operate, maintain, and decommission its nuclear plant safely. Rates must be established by a regulatory authority either directly through traditional cost of service regulation or indirectly through another non-bypassable charge mechanism. An entity whose rates are established by a regulatory authority by mechanisms that cover only a portion ofits costs will be considered to be an " electric utility" only for that portion of the costs that are collected in this manner. Public utility districts, municipalities, rural electric cooperatives, and State and Federal agencies, including associations of any of the foregoing, that establish I their own rates are included within the meaning of" electric utility."
IP Comment: Electric utility: IP concurs with this defmition. This definition seems to allow latitude for licensees. This could allow licensees to maintain, at least ,
to some extent, collection abilities of an electric utility for operation and !
decommissioning cons. However, IP believes that not meeting the definition ofElectric utility should not place licensees of power reactors to fall under the same requirement (10 CFR 30, Appendix C, assets of 10 times current decommissioning estimates) as non-power reactors. Since J l
decommissioning cost for power versus non-power reactors is magnitudes l
of order more, IP believes that this section should also be modified to l differentiate non-power reactor operators and lower the 10 times standard l
l for power reactors.
Federallicensee means any NRC licensee that has the full faith and
! credit backing of the United States Government. i l '
IP Comment: Federallicensee: Althcugh not applicable to Illinois Power, IP beheves i that all licensees should operate under the same requirements. ;
f l Non-hypassable charges means those charges imposed by a governmental authority which affected persons or entities are required to pay to cover costs associated with operation, maintenance, ,
and decommissioning of a nuclear power plant. Affected individuals '
and entities would be required to pay those charges over an established time period.
IP Comment: Non-bypassable charges: This change has positive benefits for both customers and utilities / licensees. Only one change to this definition is necessary; " governmental authority," may not be the correct wording. This i should be regulatory authority as used above in cost ofservice regulation ;
l and electric utility definitions.
~
i U-602875
, Page 3 d
i l In Sec. 50.43, paragraph (a) is revised to read as follows:
1
- Sec. 50.43 Additional standards and provisions affecting class 103 licenses for commercial power.
i l (a) The Commission will give notice in writing of each application to
! such regulatory agency or State as may have jurisdiction over the rates and services incident to the proposed activity; will publish notice j of the application in such trade or news publications as it deems appropriate to give reasonable notice to municipalities, private l utilities, public bodies, and cooperatives which might have a potential
! interest in such utilization or production facility; and will publish
, notice of the application once each week for 4 consecutive weeks in the
- Federal Register. No license wiL oc issued by the Commission prior to
{ the giving of such notices and until 4 weeks after the last publication
- in the Federal Register.
1 i
IP Comment: This is practical in that the affected states or those that have potential j legitimate interest in said facilities should be made aware of any actions regarding change of ownership of class 103 licenses within their states.
In Sec. 50.54, the introductory text of paragraph (w) is revised to read as follows:
Sec. 50.54 Conditions oflicenses.
(w) Each power reactorlicensee under this part for a production or utilization facility of the type described in Secs. 50.21(b) or 50.22 shall I take reasonable steps to obtain insurance available at reasonable costs and on reasonable terms from private sources or to demonstrate to the satisfaction of the Commission that it possesses an equivalent amount of protection covering the licensee's obligation, in the event of an accident at the licensee's reactor, to stabilize and decontaminate the reactor and the reactor station site at which the reactor experiencing I the accident is located, provided that:
IP Comment: Illinois Power does not disapprove of this editorial change. This change will be needed to add consinency in terminology regarding the proposed change in the electric utility definition.
In Sec. 50.63, paragraph (a)(2) is revised to read as follows: ,
Sec. 50.63 Loss of alternating current power.
(a) * * *
(2) The reactor core and associated coolant, control, and protection systems, including station batteries and any other necessary support
U-602875 Page 4 systems, must provide sumcient capacity and capability to ensure that the core is cooled and appropriate containment integrity is maintained in the event of a station blackout for the specified duration. The capability for coping with a station blackout of specified duration shall be determined by an appropriate coping analysis. Licensees are expected to have the baseline assumptions, analyses, and related information used in their coping evaluations available for NRC review.
IP Comment: Illinois Power does not disapprove of this editorial change. This change will be needed to add consistency in terminology regarding the proposed change in the electric utility definition.
In Sec. 50.73, parngraph (b)(2)(ii)(J)(2)(iv) is revised to read as follows:
Sec. 50.73 Licensee event report system.
(b) * * *
(2) * * *
(ii) * * *
(y) . . .
(2) * * *
(iv) The type of personnel involved (i.e., contractor penonnel, licensed operator, nonlicensed operator, other licensee personnel.)
IP Comment: Illinois Power does not disapprove of this editorial change. This change will be needed to add consistency in terminology regarding the proposed change in the electric utility definition.
In Sec. 50.75, paragraphs (a), (b), (d), (e)(1)(i), (e)(1)(ii), and (e)(3) introductory text are revised and paragraphs (f)(1), (2), and (3) are redesignated as paragraph (f)(2), (3), and (4) and a new paragraph (f)(1)is added to read as follows:
Sec. 50.75 Reporting and recordkeeping for decommissioning planning.
(a) This section establishes requirements for indicating to NRC how reasonable assurance will be provided that funds will be available for decommissioning. For power reactorlicensees it consists of a step-wise procedure as provided in paragraphs (b), (el (e), and (f) of this section. Funding for decommissioning of electric utilities is also subject to the regulation of agencies (e.g., Federal Energy Regulatory Commission (FERC) and State Public Utility Commissions) having jurisdiction over rate regulation. The requirements of this section,in particular paragraph (c), are in addition to, and not substitution for,
4 l
i U-602875 l
Fage5 i
- l l other requirements, and are not intended to be used, by themselves, j by other agencies to establish rates.
j (b) Each power reactor applicant for or holder of an operating license
! for a production or utilization facility of the type and power level i specified in paragraph (c) of this section shall submit a j decommissioning report, as required by 10 CFR 50.33(k) of this pad 1 containing a cedification that financial assurance for decommissioning will be provided in an amount which may be niore j but not less than the amount stated in the table in paragraph (c)(1) of i
this section, adjusted annually using a rate at least equal to that stated in paragraph (c)(2) of this section, by one or more of the methods j described in paragraph (e) of this section as acceptable to the j Commission. The amount stated in the applicant's or licensee's 1 cedification may be based on a cost estimate for decommissioning the j facility. As pad of the certification, a copy of'the financial instrument 1
obtained to satisfy the requirements of paragraph (e) of this section is to be submitted to NRC.
(d) Each non-power reactor applicant for or holder of an operating license for a production or utilization facility shall submit a decommissioning report as required by 10 CFR 50.33(k) of this part ,
containing a cost estimate for decommissioning the facility, an indication of which method or methods described in paragraph (e) of this section as acceptable to the Commission will be used to provide funds for decommissioning. and a description of the means of adjusting the cost estimate and associated funding level periodically l over the life of the facility.
(e)(1) a a a (i) Prepayment. Prepayment is the deposit prior to the start of operation inte an account segregated from licensee assets and outside ,
the licensee's administrative control of cash or liquid assets such that I 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. A licensee may take credit on earnings on the prepaid l decommissioning trust funds using a 2 percent annual real rate of return from the time of the funds' collection through the decommissioning period, if the licensee's rate-setting authority does not authorize the use of another rate.
(ii) External sinking fund. An external sinking fund is a fund established and maintained by setting funds aside periodically in an account segregated from licensee assets and outside the licensee's administrative controlin which the total amount of funds would be sufficient tu pay decommissioning costs at the time termination of
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U-602875 Page 6 operation is expected. An external sinking fund may be in the form of a trust, escrow account, government fund, certificate of deput, or i deposit of government securities. A licensee may take credit for earnings on the external sinking funds using a 2 percent annual real ,
rate of return from the time of the funds' collection through the decommistioning period, if the licensee's rate-setting authority does ,
not authorize the use of another rate.
eeeae (3) For an electric utility,its rates must be sufficient to recover the cost of the electricity it generates, transmits, or distributes. These rates must be established by a regulatory authority such that they are sufficient for the licensee to operate, maintain, and decommission its plant safely. The Commission reserves the right to take the following steps in order to assure a licensee's adequate accumulation of decommissioning funds: review, as needed, the rate of accumulation of decommissioning funds; and either independently or in cooperation with either the FERC and the State PUC's, take additional actions as appropriate on a case-by-case basis, including modification of a licensee's schedule for accumulation of decommissioning funds.
Acceptable methods of providing financial assurance for decommissioning for an electric utility are-IP Comment: The intended change is of positive benefit to customers and utilities / licensees. The change to allow taking credit for sinking fund earnings between plant shutdown and the conclusion of decommissioning is a reflection of how the fund is expected to perform in the financial markets.
The change has the effect of allowing decommissioning funds to compound earnings for a longer period. Customers throughout the time of collection would benefit to the extent increased earnings reduce the necessary customer contribution for a given funding level. This would also reduce the risk that present customers' contributions far exceed those than the later customers.
The specified annual real rate of return may be too rigid to accommodate the investment strategy of a specific utility. A particularly risk-averse investment strategy in a less than robust economy should be allowed to choose a real rate of return that is no larger than 2 percent. IP suggests that the provision be worded, "...using a rate not to exceed 2 percent annual real rate of return..."
(f)(1) Each power reactor licensee shall report to the NRC within 9 months after [the effective date of the final rele], and at least once every 2 yesn thereafter on the status ofits decommissioning funding for each reactor facility or part of a reactor facility that it owns. The information in this report must include, at a minimum: the amount of
- - - - - - - . - - - - - - - . - . - . - - - . - - - ~ . - . - - . .
i l U.602875 j Page 7 4
! decommissioning funds estimated to be required pursuant to 10 CFR
{ 50.75(b) and (c); the amount accumulated to the date of the report; a
! schedule of the annual amounts remaining to be collected; the
! assumptions used regarding rates of escalation in decommissioning i costs, rates of earnings in decommissioning trust funds, and rates of l other factors (e.g., discount rates) used in funding projections; and j any modifications occurring to a licensee's current trust agreement
~
since the last submitted report. Any licensee for a plant that is within 5 years of the projected end ofits operation shall submit such a report l annuaDy.
l IP Comment: Presently, the Illinois Commerce Commission (IP's state regulatory body) j requires that the decommissioning fund status be reponed annually. Until j such time that this is not required for IP and other utilities, sufficient NRC ,
protective measures already exist. These measures are contained in 10 i j CFR 50.75, "Reponing and recordkeeping for decommissioning planning,"
i C.3d of 10 CFR 140.15, " Proof of Financial Protection," and 10 CFR 140.16, " Commission Review ofProof ofFinancial Protection." These sections require that funds be collected for decommissioning and sufficient funds be present for all phases of operation, to include decommissioning, prior to a license being transferred.
When a utility or licensee or a portion thereofwould not meet the NRC definition of an electric utility, then additional reponing requirements could I bejustified. Much of this information does little to prnvide any additional assurance for sufficient decommissioning funds. There also does not seem to be technicaljustification of added safety for requiring annual reporting within 5 years of decommissioning. IP believes that a report containing less information should be submitted in its entirety once every 5 years.
Since this information will most likely continue to be updated annually, this report could be sent to the NRC annually. These reporting requirements would be equal to that suggested by the NRC. In addition, it could be acceptable to add caveats such as, " Major changes [with definition] must be reponed within 2 years.
In the event the reporting requirements remain as proposed, utilities could I be submitting NRC reports in addition to State PUC repons. When the State PUC speci6es reponing requirements that parallel the NRC requirements, except for the due date of the report, the utility should not be required to undertake the burden cf dual reponing. Illinois Power Company would find itselfin this ituation should the proposed language be adopted in its current form. The dual reporting could be alleviated by the insertion of an additional sentence following the first sentence of Sec.
50.75(f)(1),"For utilities that are required by State PUCs to make similar reports on a frequency of every two years or more frequently, this reporting requirement is satisfied by a copy of the most recent report filed ,
with the State PUC."
U-602875 Page 8 If you have any questions regarding these comments, please contact Jim Pilarski of my staff at (217) 935-8881, extension 3401.
Sincerely yours, oseph V. Sipe Director-Licensing JSP/krk
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l November 20,1997 RULE!.CV% AND i ADJUDIX W fiAFF j Secretary of the Commiss!on , J U. S. Nuclear Regulatory Commission Washington, DC 20555-0C01 000KET M m l PROPOSED EX.E N 5 O_ !
Attention: Rulemakings and Adjudications Staff ( bNFR478EE)
Subject:
Comments on Proposed Rule 10 CFR Part 50," Financial Assurance ?' -
l Requirements for Decommissioning Nuclear Power Reactors," and associated Draft Regulatory Guide DG-10SO," Financial Accounting Standards Board (FASB) Standards for Decommissioning Cost Accounting" CNRO-97/00021 l
Gentlemen: l Entergy Operations, Inc. (Entergy) appreciates the opportunity to comment on the subject proposed rule pertaining to financial assurance requirements for decommissioning nuclear power reactors (62 Fod. Reg. 47588, dated September 10,1997) and associated Draft Regulatory Guide JG-1060. Entergy supports the comments provided by the Nuclear Energy Institute (NEl) anc the Utility Decommissioning Tax Group. In addition to comments from these organizations. Entergy is providing the following comments:
- 1. Entergy has a concern regarding the financial assurance mechanisms required if a licensee fails to meet the proposed definition of an " electric utility". In the proposed rule, non-utility generating companies will be required to satisfy the financial tests specified in 10 CFR Part 30 or prepay the outstanding estimates for funding decommissioning. This requirement will most likely impose upon certain licensees a significant financial burden that may not have been recognized when the regulations were originally developed.10 CFR Part 30, Appendices A and C were developed for material licensees, not for licensees of power reactors.
- 2. Entergy is concemed with the NRC endorsing draft FASB Standard No.158-B, as stated in DG-1060, Section C. We understand the draft standard may not be approved and issued for another year. Because the standard is subject to change, the final approved version may not prove suitable for meeting the NRC's requirements and expectations.
fll25&f f/ DY Co 2'
/*
Comments on Proposed Rule 10 CFR P rt 50," Fin:ncial Assurance Requirements for ,
Decommissioning Nuclear Power R; actors"
\ November 20,1997 CNRO-97/00021 Page 2 of 2
- 3. Also regarding the draft FASB standard, DG-1060 seems to indicate that adopting the l standard will ensure funding of decommission liability. The FASB standard as proposed in the earlier Exposure Draft focuses on recognizing the liability and periodic expense for decommissioning. Entergy does not believe reliance on this standard is appropriate with regard to the adequacy of funding unless the final standard is considerably different from the Exposure Draft version. l Again, thank you for the opportunity to provide our comments on this proposed rule.
Sincerely, f J60 JGD/SJB/GHD:baa / ;
cc: 1 Mr. C. M. Dugger (W-GSB-300) Rules and Directives Branch Mr. J. J. Hagan (G-ESC 3-VPO) Office of Administration Mr. C. R. Hutchinson (N-GSB) U. S. Nuclear Regulatory Commission Mr. J. R. McGaha (R-GSB-40) Washington, DC 20555 Mr. J. W. Yelverton (M-ECH-65)
Mr. Jack N. Donohew Mr. Chandu P. Patel Project Manager (GGNS) Project Manager (W-3)
Office of Nuclear Reactor Regulation Office of Nuclear Reactor Regulation U. S. Nuclear Regulatory Commission U. S. Nuclear Regulatory Commission Mail Stop 13-H-3 Mail Stop 13-H-3 l Washington, DC 20555 Washington, DC 20555 Mr. George Kalman Mr. David L. Wigginton Project Manager (ANO) Project Manager (RBS)
Office of Nuclear Reactor Regulation Office of Nuclear Reactor Regulation U. S. Nuclear Regulatory Commission U. S. Nuclear Regulatory Commission Mail Stop 13-H-3 Mail Stop 13-H-3 Washington, DC 20555 Washington, DC 20555 l
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Comments on Proposed Rule 10 CFR Part 50,"Financlil Assurcnce Requirements for Decommissioning Nuclear Power Reactors
- November 20,1997 CNRO-97/00021 bec: W. B. Abraham (G-SSB1-NSR)
K. A. Courtney (R-GSB-43)
E. C. Ewing (W-GSB-310) l T. J. Gaudet (W-GSB-318)
W. K. Hughey (G-SSB1-NSR)
R. J. King (R-GSB-42)
J. M. Manzella (W-GSB-318)
E. A. Means (N-GSB)
D. C. Mims (N-GSB)
Central File (GGNS) '
Corporate File [ 3 ) l DCC (ANO)
SDC (RBS) i Records Center (W-3) l I
i i
DOCKET NUMBER ~ g
$p$4 ggy kPO+ PD/L 00CKETED UNITED STATES OF AMERICA USNRC NUCLEAR REGULATORY COMMISSION l
Financial Assurance Requirements ) Docket.No. RIN 3150-Ag1 gg 9 for Decommission 2.ng Nuclear )
Power Reactors )
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COMMENTS OF THE PUBLIC SERVICE COMMISSION ADJUDICAHd !b EY4kg OF THE STATE OF NEW YORK The Public Service Commission of the State of New York (PSCNY) appreciates this opportunity to comment on the Notice of Proposed Rulemaking (NOPR) issued by the Nuclear Regulatory Commission (NRC or Commission) on financial assurance for nuclear decommissioning costs in a competitive electric industry. PSCNY requests that the NRC consider the comments contained in Appendix A, which address the specific questions raised in the NOPR. On April 8, 1996, the NRC published its Advanced Notice of Proposed i Rulemaking (ANOPR) soliciting commments by June 24, 1996. On September 10, 1997, the NRC issued its Notice of Proposed Rulemaking (NOPR) and solicited comments due November 24, 1996. l The PSCNY responded to the ANOPR, and we now offer these comments in response to the NOPR.
PSCNY has traditionally taken pains to assure adequate funding of decommissioning costs, and New York State also shares the concerns expressed by NRC that adequate funding mechanisms be assured for the responsible decommissioning of nuclear generating stations. The NRC, therefore, should not attempt to either lock l
states into a particular ratemaking method or dictate levels of cost recovery. As discussed in POINT I infra, such incursions into I
- state regulation would be not only needless but unlawful. The l
l n / / ? / l nuclear issues related to ratemaking, including decommissioning l
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costs, and work with stakeholders, including the NRC, to develop reasonable solutions. Accordingly, there certainly is no reason for the NRC to attempt to preempt New York from exercising rate authority regarding decommissioning funds. Rather, NRC should work I
with New York and the affected owners to address decommissioning needs. For example, the NRC and states should consider proposing legislation that would make decommissioning liabilities first priority in the event of bankruptcy of a private nuclear facility owner.
POINT I AS STATED IN OUR ANOPR REPLY, THE NRC SHOULD NOT SEEK TO PREEMPT STATE EFFORTS TO ASSURE ADEQUATE FUNDING FOR DECOMMISSIONING DURING THE TRANSITION TO ELECTRIC COMPETITION.
Since its enactment, the Atomic Energy Act ("Act") has provided a dual system of regulation in the nuclear power industry.E This dual scheme of regulation extends to nuclear l decommissioning costs, with NRC having authority to assure the
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safety of nuclear decommissioning and the states having power to address decommissioning costs in rates.
The Act vests the NRC with authority to assure the public health and safety with respect to nuclear generation through 42 U.S.C. Section 2011, _e_t;. sec. , Pacific Gas & Electric Company v. State Enerav Resources Conservation and Development Commission, 461 U.S. 190, 211-212 (1983).
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ownership, licensing and operation requirements.E Concomitantly, l
the economics of nuclear generation, including the need and rates I to be set for nuclear capacity, have always been the domain of the !
i states. The Atomic Energy Act itself provides that: ,
Nothing in this chapter shall be construed to af fect the authority or regulations of any Federal, State, or local agency with respect to the generation, sale or transmission of l
electric power produced through the
! use of nuclear facilities licensed l by the Commission.E The Supreme Court of the United States has upheld state authority over the economics of nuclear generation costs. In Pacific Gas & Electric Company v. State Enerav Resources l
Conservation and Development Commission, the Court upheld, against preemption challenges, a California Statute that required a demonstration of adequate waste storage capacity and federally approved waste disposal techniques before nuclear power plants could be built in the state.E The Court held that the statute l
Il 42 U.S.C. Sections 2012 (d) , 2013 (d) , 2133, 2201, 2232 and 2233.
24 42 U.S.C. Section 2018. The Act also states that each NRC licensee that holds a license for generation of commercial electricity "shall be subject to the provisions of the Federal Power Act." Id., Section 2019. Section 201(a) of the Federal Power Act provides that federal regulation extends to wholesale l
sales of power and transmission in interstate commerce, and l necifically reserves to the states authority over retail 16 U.S.C.
e2 ctric rates and local distribution of electricity.
Section 824 (a) ; Federal Power Comm'n v. Southern California
! Edison Co., 376 U.S. 205, 211 (1964), Reh'a denied, 377 U.S. 913 l
(1964).
3' 461 U.S. 198, 222-223 (1983).
8
J legitimately addressed state concerns regarding the economics of
< nuclear power, and did not interfere with the NRC's authority to reaulate the nuclear industry.E Thus, the NRC does not have statutory authority to l 1
preempt the states' rate treatment of nuclear decommissioning i
Costs. Moreover, inasmuch as the treatment of particular costs are simply intermediate steps to the development of actual retail rates, which plainly remain the domain of the state commissions, such preemption would serve no useful purpose.
POINT II THE NRC SHOULD WORK COLLABORATIVELY WITH THE STATES TO ASS'TRE NUCLEAR DECOMMISSIONING ,
l a FUNDING DURING AND AFTER THE TRANSITION TO COMPETITION IN THE ELECTRIC INDUSTRY.
In the ANOPR and NOPR, NRC proposes to require non-
" electric utility" licensees to meet equivalent financial assurance requirements for nuclear decommissioning costs as " electric utility" licensees. PSCNY agrees that funding assurance is needed where, because of competition, " licensees are no longer subject to rate regulation by PUCs or FERC."E )
concern that states will not have j However, NRC's authority to assure nuclear decommissioning funding during or after the transition to electric competition is unfounded. The New York Commission has authority to address potential threats to health and II Id. at 216.
25 61 Fed. Reg. 15427, 15428 (April 8, 1996).
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( safety posed by electric generation.E Recently, PSCNY determined l
- that- the best way to assure just and reasonable rates in the future is by implementation of a competitive industry model that will enable generators to compete for end use customers at the wholesale and retail levels.E PSCNY also determined, however, that it will continue to exercise its authority to ensure'that the competitive market meets the needs of New York's ratepayers. Moreover, in its I
opinion and order, PSCNY decided that stranded costs it determines to be recoverable will be assured recovery through rate mechanisms, such as a non-bypassable wires charge on the local distribution system.E In fact, the Final Generic Environmental Impact Statement issued by PSCNY in the state competition proceeding recognized
' inadequate funding for nuclear decommissioning as a potential adverse impact of competition.E The New York Commission determined that decommissioning funds could be assured through a wires charge.E NRC and the states should work collaboratively to assure i
that adequate funding for nuclear decommissioning is available.
PSCNY is committed to the efficient and safe decommissioning of I
l II N.Y. Pub. Serv.. Law, Sections 65-66.
i E N.Y.P.S.C. Case No. 94-E-0952, Opinion and Order Regarding Competitive Oooortunities for Electric Service, Opinion No. 96-12 (May 20, 1996). i M 14. at'52.
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'l N.Y.P.S.C. Case No. 94-E-0952, Final Generic Environmental l
l Impact Statement, Vol. I, at 5-88. )
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% 'Id. at 6-45.
e nuclear power plants. The states have substantial experience designing the most cost-effective means to ensure the availability of sufficient funds for utility decommissioning.
POINT III NRC SHOULD CONSIDER ADDITIONAL STEPS THAT WOULD ASSURE FUNDING FOR NUCLEAR DECOMMISSIONING COSTS THROUGH CHANGES IN BANKRUPTCY CODE PROVISIONS.
NRC is taking important steps to promote the responsible decommissioning of nuclear generators during and following the transition to competition. As separation of generation from monopoly transmission and distribution functions proceeds under competition, some nuclear plants could become independently-owned.
In the event of bankruptcy of a privately-owned nuclear generator, 1
assuring adequate decommissioning funds will be imperative.
The Supreme Court has held that a Bankruptcy Court cannot authorize abandonment of a hazardous waste site "without formulating conditions that will adequately protect the public's ;
I health and safety."E Given that public health and safety imperatives for decommissioning nuclear reactors are equally great, NRC or state commissions would seek funds for decommissioning costs in a bankruptcy proceeding. Nevertheless, the current Bankruptcy Code does not explicitly create a priority for nuclear decommissioning costs.E To assure adequate decommissioning funds in bankruptcy, NRC and the states should consider proposing Il Midlantic National Bank v. New Jersey Department of ,
Environmental Protection, 474 U.S. 494, 507 (1986).
25 11 U.S.C. Section 101, et_ sea.
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legislation that would amend the bankruptcy law to expressly require payment of nuclear decommissioning liabilities over other creditors.
In sum, the NRC should not upset the federal balance of nuclear regulation, but seek collaboration with states.
Additionally, PSCNY suggests examination of certain bankruptcy provisions that may aid in the aseurance of adequate decommissioning funding. Finally, Appendix A provides specific commentary on the issues raised in the NOPR.
CONCLUSION For the reasons stated above, the Nuclear Regulatory Commission should consider the views of the Public Service Commission of the State of New York in determining how best to assure adequate decommissioning funds for nuclear power plants. l l
Respectfully submitted, W h NM f Lawrence G. Malone, General Counsel New York State Public Service Commission j Penny Rubin, Managing Attorney i William Derasmo, Assistant Counsel Three Empire State Plaza Albany, New York 12223-1350 Dated: November 24, 1997 Albany, New York APPENDIX A UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION Financial Assurance Requirements )
For Decommissioning ) Docket No. RIN 3150-AF41 Nuclear Power Reactors )
In light of the aforementioned legal authority and responsibility regarding the economics of nuclear regulation, the PSCNY of fers the following comments concerning the NOPR discussion of the proposed rules and the actual language contained in the proposed regulation.
A. Timing and Extent of Electric Utility Industry Deregulation PSCNY agrees that the NRC "must act now to be in a position to respond to the upcoming changes in the electric utility environment that could affect protection of public health and safety. "E It now appears reasonable to assume that increased competition will result in economic pressures which will, in turn, affect how all generators of electricity (hydro, nuclear and fossil) address all aspects of the generation business, including operation and maintenance. Because cost-of-service regulation has resulted in marked differences in the cost of electricity on a regional basis, competition is considered, by rate regulators in high cost regions, to be worth pursuing to bring energy costs in line with national averages. The role of state and federal rate regulators is to establish a level financial " playing field" by introducing competition into the business of generating electricity.
It now seems likely that the electric ceneration industry will change from cost-of-service rate regulation to a system that allows market pressures to pervade all generation business decisions. It remains to be seen whether nuclear power will survive in a competitive environment. Should the nuclear option prove to be uncompetitive, then it will not be helpful for any stateResponsible or federal agency to continue to advocate its financial support.
government should ensure that uneconomic options are retired safely and efficiently. Accordingly, the NRC should expect its licensees to develop innovative methods for making the nuclear option profitable in a competitive environment, without reducing safety margins.
E62 Fed. Reg. 47590.
.__ m _ . . _ . _ _ . _ _ _.~._ _ _ . _ . _ _ _ _ . . _ . _ _ . _ . _ . _ _ _ .
The NRC should ensure that regardless of the economic l
pressures that are now being put in place during the transition to competition, managers of nuclear plants will continue to be faithful stewards of nuclear power by ensuring that plants are
, safely operated or retired. In the end, NRC regulations should l
enable the nuclear option to compete without sacrificing safety, and allow uncompetitive plants to retire on a least-cost basis. 1
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B. Stranded Costs l f The NRC is not responsible for determining the economics of I continued operation of nuclear plants, nor is it empowered to l resolve issues related to stranded, sunk, running, or !
decommissioning costs where the solution involves electric rates.E !
Therefore, even if the NRC "see[s] a need to interfere in the financial regulation of nuclear power plants with respect to the ;
l question of stranded costs"E PSCNY maintains that the.NRC has no l
authority to take action in an area traditionally regulated by j
state commissions. While we expect that it is not the intention of the NRC to interfere in financial regulation of traditional
! electric utilities, rate-regulators are understandably sensitive to l language, such as the quotation above, which can be interpreted to l mean otherwise. j C.1 Funding Assurance if Plants Shut Down Prematurely Funding nuclear plants which elect to shut down prematurely, where decommissioning funds would not have been fully collected, is i an important issue. In the event that such funding is needed, however, PSCNY believes that rate regulatorsE are in the best
! position to evaluate the reasonableness and best method of i
collecting such funds.
C.2 When Does an Operator Cease To Be a Utility According to the NRC's proposed regulations, an operator apparently ceases to be a " electric utility" when it does not recover the cost of electricity that it delivers through rates established by a regulatory authority either through traditional cost of service regulation or through a non-bypassable charge mechanism.E PSCNY has already articulated its objection to the i
E See POINT I above.
E 62 Fed. Reg. 47591 (emphasis added).
E e.g. state commissions.
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l l proposed definition of " electric utility."E PSCNY offers further comment on the effects of that definition were it to be adopted. First, PSCNY agrees that responsibility for ensuring that non " electric utility" licensees are able to fully fund nuclear plant decommissioning costs rests with the NRC where a license is transferred to a non-rate regulated entity. Alternatively however, PSCNY feels that state regulatory commissions remain the best evaluators of the reasonableness of operation and maintenance costs for " electric utilities."E Second, after positing that a licensee may find itself i recovering only a portion of its cost of operations under the l jurisdiction of a rate-regulating authority, the NRC's proposed l rule implies that decommissioning fund costs can be separated from I all other nuclear costs. The NRC proposes that licensees will be considered an " electric utility" only for the fractional part of its annual decommissioning costs received under the jurisdiction of the rate-regulating authority. The result is that licensees no longer provided an opportunity to recover decommissioning costs either through cost-of-service regulation or a non-bypassable charge will have to provide for decommissioning costs under one of the methods specified in 10 CFR 50.75 (e) (2) . The four methods
' include: (1) prepayment of fees;(3)(2) an external sinking fund a surety method; or (4) for combined with a surety method; federal, state, or local government licensees only, a statement of 1
intent indicating that the funds will be obtained when needed.
C.3 Assurance Options PSCNY does not oppose the NRC's proposed position that "new l
owners and operators should assume the obligation to safely operate the facility and assure adequate funding for decommissioning, as l
they have the incentives to properly manage and operate the units."E We assume that the NRC means that ratepayers would be l
l E Suora, pp. 1-2.
l E The NRC should be aware of Consolidated Edison Company of New York, Inc . ' s (" Con Edison") October 16, 1997 reply to PSCNY's l
Notice Soliciting Comments on Nuclear Power. Con Edison's reply cites the proposed language for the NRC's definition of an electric utility and states the utility's opinion that the rates established by a regulatory authority must be sufficient to recover both operations and decommissioning costs, either through cost-of-service regulation or a non-bypassable charge mechanism.
Such a position, if adopted, would likely frustrate efforts to subject nuclear generation to competition.
E62 Fed. Reg. 47594.
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responsible for no more than prudently incurred decommissioning costs, as opposed to "all ... decommissioning obligations."E :
C.4 Financial Test Qualifications To the extent that the PSCNY allows non-bypassable wires charges, plant owners will meet the definition of an " electric utility" for decommissioning purposes. To the extent that a ;
licensee no longer qualifies as an " electric utility" under the new l 1
definition, the entity will need to provide the NRC with the appropriate financial assurance for both decommissioning using one l of the four options provided under 10 CFR 50.75 (e) (2) , as discussed i 2'
earlier C.6 Impact of Accelerated Funding Depending upon the methods of financial assurance imposed upon i non " electric utility" licensees, and the competitiveness of a ;
particular plant, financial assurance mechanisms may precipitate early closure or impact the marketability of particular nuclear ,
plants. PSCNY is considering recovery of nuclear decommissioning l costs through non-bypassable charges, a process that would presumably satisfy the NRC's decommissioning funding concerns, and to attempt to optimize the market value of nuclear plants in an auction.
When a licensee continues to be a rate-regulated company with ,
recovery of operations and maintenance expenses subject to the !
competitive market rather than cost-of-service regulation, that utility" for licensee would be considered a non " electric operations and maintenance expense (and all other " running costs")
purposes and an " electric utility" for decommissioning purposes. !
The standard, sought here by the NRC, for decommissioning funding assurance should not be applied to other non " electric utility" l licensees (i.e. commercial nuclear plants) for adequate funds for safe operation. The proposed definition of " electric utility" ,
should be modified to allow electric utilities and non-electric utilities to recover operations and maintenance costs from the competitive market, without the support of a non-bypassable charge.
If adequate revenues are not available from the competitive market to cover nuclear plant " running costs," the licensee has the option of closing the plant. :
C.7 Potential Shortfalls From Underestimates of Costs PSCNY has traditionally supported a process to allow a reasonable opportunity for the recovery of prudently incurred I
, 2/ See Section C.2.
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decommissioning costs. The NRC can apprise state rate regulators of underfunding, but the states are responsible for the collection and. timing of decommissioning costs in rates.
C.9 If PUC or FERC oversight is either substantially limited or eliminated, are there other options for financial assurance of decommissioning that the NRC should consider?
Four mechanisms have already been proposed. The PSCNY does not oppose these four mechanisms.
E.1 Real Rate of Return See comments under C.7.
E.2 Appropriate Time Period See comment under C.7.
F. Reporting on the Status of Decommissioning Funds NRC should avoid duplication of state requirements. The PSCNY currently requires that its nuclear utilities report annually on the status of decommissioning funds for the plants they own.
Specifically, New York utilities must report the yearly change in the qualified, non-qualified, and internal decommissioning funds to include activity related to deposits, earnings, expenses, and withdrawals for decommissioning. New York also requires specific information about decommissioning allowances granted in the utility's most recent rate proceeding, estimated decommissioning costs, and the progress of the fund in accumulating decommissioning dollars as compared to the time remaining until the scheduled date of decommissioning.
F.1 Contents Rate regulators understand that the NRC has issued a draft regulation guide on the proposed requirement which would endorse FASB draft standard No. 158-B " Accounting for Certain Liabilities Related to Closure or removal of Long-Lived Assets." The PSCNY notes that in case the FASB standard is not adopted in a timely manner, other reporting requirements may need to be imposed in the interim.
F.2 Frequency PSCNY feels that reports should be submitted annually for units nearing or in the process of decommissioning. This is
. consistent with FASB standards.
KYCENB1H.WDC/kyc l
REID & P it i E s T L L P A8[' 1PN 9 l
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701 PENN SYLVANIA AVENUE. N.W.
WAS111NOTON. D.C. 20004 0 1 E TELEPHONE 202 SOS 4000 N OFFICz FAX 202 508 4328 i W3W YORM. N.Y.10089 4097 212 603 2000 rAx:2:2 oos.aoon r
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November 24,1997 HAND DELIVERED /O DOCKET NUMBER C. Hoyle M,,J PROPOSED SULE h 3 O ,
U.S. Nuclear Regulatory Commission ( b2fgy7ggg}
l1555 Rockville Pike l i
Rockville, Maryland 20852 Re: Financial Assurance Requirements for Decommissioning Nuclear Power Reactors
Dear Mr. Hoyle:
Enclosed are the comments of the Utility Decommissioning Tax Group (Group) to the Proposed Rule of the Nuclear Regulatory Commission concerning Financial Assurance Requirements for Decommissioning Nuclear Power Reactors. A listing of the members of the Group is attached to the comments.
If you have any questions regarding the enclosed comments, please contact the undersigned or Martha G. Pugh at (202) 508-4000.
Very truly yours, l 0 & A b.
Patricia M. Healy j PMH/bd Enclosures cc: .Mr. Brian J. Richter (w/ enc.)
lit?4N7/lks[r06507/txf2/II1TIA%ib71 t/M271 i f
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'a mi n a P o r n o r 1.i.e COhBfENTS OF UTILITY DECOMMISSIONING TAX GROUP
- CONCERNING l TIIE PROPOSED RULE l ON FINANCIAL ASSURANCE REQUIREMENTS
! FOR DECOMMISSIONING NUCLEAR POWER PLANTS I
Introduction I The Utility Decommissioning Tax Group (Group) through its attorneys, Reid & Priest LLP, i
l submits these comments to the Proposed Rule (Proposed Rule) concerning the Financial Assurance Requirements for Decommissioning Nuclear Power Plants (62 Ecd. Reg. 47,588 (September 10, 1997)). The Group is comprised of 38 nuclear electric utility companies and 29 trust companies or investment management / consulting firms involved in the administration and management of i
external nuclear decommissioning trust funds. A list of the members of the Group is attached.
I Because the Group primarily focuses on tax and funding issues affecting nuclear decommissioning i
trust funds, these comments are limited to those sections of the Proposed Rule dealing with these i issues.
General Comments .
The Group commends the Nuclear Regulatory Commission (NRC) for proposing to amend its regulations on financial assurance requirements for the decommissioning of nuclear power plants in response to the deregulation of the electric utility industry. In particular, the Group views the expanded definition of electric utility set forth in the Proposed Rule at 10 C.F.R. 6 50.2 to be a positive change which, if promulgated as proposed, will include entities that recover the cost of generating, transmitting, or distributing electricity indirectly through a non-bypassable charge mechanism in addition to those entities that recover that cost through traditional cost-of-service l
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- regulation. The Group believes this revised definition of electric utility will permit many entities l
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. l Ren o & P ts nor LLP j l
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that currently meet the definition of electric utility to continue to do so by recovermg <
1 decommissioning costs through a non-bypassable charge in a deregulated environment.
As previously stated in the comments of the Group with regard to the Advance Notice of Proposed Rulemaking on the Financial Assurance Requirements for Decommissioning Nuclear Power Reactors (61 Eed. Reg.15,427 (April 8,1996)), the Group continues to believe that, notwithstanding the collaborative efforts of the industry and the NRC, the issue of appropriate financial assurance requirements for an entity not meeting the definition of an electric utility may not be fully resolved by a single alternative applicable to all licensees nor within one set of regulations; ultimately the scope of permissible financial assuiance methods may need expansion as deregulation proceeds. For example, the NRC should note that there are situations in which licensees which meet the current definition of electric utility under 10 C.F.R. s 50.2 either will no longer meet the revised definition under the Proposed Rule or will qualify as an electric utility for .
1 only a portion of their decommissioning costs. These situations may occur where the licensee does not recover decommissioning costs through rates established by a regulatory authority or recovers only a portion of such costs in this manner. Therefore, the Group continues to urge the NRC to provide for adequate transition time to allow for legislative or regulatory changes to accommodate the revised NRC definition of electric utility. Additionally, the NRC should continue to evaluate licensees on a case-by-case basis when necessary and to offer a variety of mechanisms from which licensees may select to satisfy the financial assurance requirements of the NRC. The Group also commends the NRC for allowing licensees to take credit for earnings on the decommissioning funds using a two percent annual real rate of return under the Proposed Rule at 10 C.F.R. 650.75(e)(1),
where the licensees' rate setting authority does not authorize the use of another rate.
R o a n C2 Porcar LLP The Group suggests the following items present issues that arise from the changes made by the Proposed Rule.
Dennitions (10 C.F.R. 6 50.2)
The definition of non-bypassable charges included in the Proposed Rule includes those charges imposed by a governmental authority which affected persons or entities are required to pay to cover costs associated with operation, maintenance and decommissioning of a nuclear power plant. The Group submits that the definition instead should require that cors associated with operation, maintenance or decommissioning of a nuclear power plant be included within the definition of non-bypassable charges.
The Group notes that the trend developing under state legislative or regulatory action causes costs associated with decommissioning nuclear units to be addressed separately from costs associated with the operation and maintenance of nuclear plants. This direct attention and provision by state action to recover decommissioning costs is a positive development in the recognition of the obligation to decommission. The Group therefore believes that the specific identification of decommissioning costs with respect to financial assurance for the recovery of decommissioning costs should be encouraged. Thus, the dermition of non-bypassable charges should acknowledge that the costs may be associated with operation, maintenance, QI decommissioning of a nuclear power plant.
Rate of Return (10 C.F.R. 6 50.75(e))
The Group supports allowing licensees to take credit for earnings on the decommissioning funds using a two percent annual rate of return. The Group believes that the flexibility to use an
Rus n & P:ta net LLP alternate annual real rate of return authorized by the licensees' rate setting authority is particularly useful. The NRC provided the following in response to comments regarding this issue:
Therefore, the Commission proposes to use a 2 percent real rate of return throughout the decommissioning collection period as a default earnings amount and in the safe storage period as a specified amount.... Higher earnings amounts will be allowed during the period of reactor operation if specifically approved by a rate setting authority.
62 Ecd. Reg. 47,599 - 47,600 (September 10, 1997).'
The Group submits that in certain circumstances a different earnings rate might be appropriate for the safe storage period as well as throughout the decommissioning collection period.
1 For example, a particular nuclear unit in a plant may no longer be in operation and, therefore, the unit may be in a safe storage period until the other reactors at the same plant shut down and begin decommissioning. Thus, the Group urges the NRC to permit greater flexibility and conformity with l
ratemaking determinations by allowing a different rate of return throughout the safe storage period l l
if specifically approved by a rate setting authority.
l Reportine and Recordkeepine for Decommissionine Plannine (10 C.F.R. 6 50.75(f)(1))
Under 10 C.F.R. Q 50.75(f)(1), as set forth in the Proposed Rule, each power reactor licensee shall report to the NRC within nine months after the effective date of the final rule and at j least once every two years thereafter on the status of its decommissioning funding for each reactor facility it owns. T'. tis reporting requirement specifies that the amount of decommissioning funds accumulated to the date of the report is to be provided. The Proposed Rule is silent regarding the
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- 1. The NRC should note that there is a discrepancy between the Proposed Rule at 10 C.F.R. 6 50.75(e)(1)(i) and (ii) which state that the licensee may take credit from the time of collection of the funds only through the decommissioning period and this l response which refers to the safe storage period. The Group suggests that the NRC resolve this discrepancy in the final rule.
H a s .2 & PannorLLP 3 reference date as of when the additional mformation is to be provided. The Group submits that licensees generally gather and accumulate the information that must be included in this report on ;
a calendar year basis. The Group therefore suggests that all information required by the report be presented on the basis of the licensees' most recent calendar year end in order to relieve any unnecessary administrative burden associated with re-processing the information for submission to 1
the NRC. 1 d
l Conclusion The Group appreciates the opportunity to submit these comments to the NRC. If further information is required, please contact Patricia M. Healy, Esquire or Martha G. Pugh, Esquire, of Reid & Priest LLP by mail at 701 Pennsylvania Avenue, N.W., Suite 800, Washington, D.C.
. 1 20004, or by telephone at (202) 508-4000, i
Respectfully submitted, 0& k.
Patricia M. Healy Reid & Priest LLP 701 Pennsylvania Avenue, N.W.
Suite 800 Washington, D.C. 20004 (202) 508-4140 Fax: (202) 508-4321 k m kl. TL A Martha G. Pugh O Reid & Priest LLP 701 Pennsylvania Avenue, N.W.
Suite 800 Washington, D.C. 20004 (202) 508-4147 Fax: (202) 508-4321 79644.I
l
. Raio C Pasuor LLP MEMBERS OF THE UTILITY DECOMMISSIONING TAX GROUP Alliance Capitel Management, L.P.
American Electric Power Service Corp.
Arizona Public Service Company Baltimore Gas & Electric Company Bankers Trust Company BlackRock Financial Management, Inc.
Brown Brothers Harriman & Company Capital Guardian Trust Company Carolina Power & Light Company Central & South West Services, Ine; Central Hudson Gas & Electric Corporation Commonwealth Edison Company Consolidated Edison Company of New York Delaware Investment Advisers Delmarva Power & Light Company The Detroit Edison Company Duke Power Company Duquesne Light Company.
El Paso Electric Company Entergy Services, Inc.
Fidelity Management Trust Company Florida Power Corporation FPL Group, Inc.
The Glenmede Trust Company IES Utilities Inc.
Illinois Power Company
. J.P. Morgan Kansas City Power & Light Company Lehman Ark Management Long Island Lighting Company L.oomis Sayles & Company Inc.
Maine Yankee Atomic Power Company Mellon Bank Mercer Investment Consulting, Inc.
MidAmerican Energy Company NBD Bank, N. A.
New York State Electric & Gas Corporation Niagara Mohawk Power Corporation NISA Investment Advisors, L.L.C.
' Northern States Power Company Nuveen Asset Management Ohio Edison Company
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Pacific Gas & Electric Company PanAgora Asset Management ;
PECO Energy Company Phoenix Duff & Phelps Investment Advisors l Provident Investment Counsel ,
Public Service Company of New Mexico l Public Service Electric & Gas Company j San Diego Gas & Electric Company Sanford Bernstein & Company, Inc.
Schoenke & Associates Scudder, Stevens & Clark, Inc.
Southern California Edison Company Southern Company Services, Inc. ,
State Street Bank and Trust Company j Strong Capital Management, Inc.
Summit Strategies Group T. Rowe Price Associates Texas Utilities Services, Inc.
TradeStreet Investment Associates U.S. Trust Company Vermont Yankee Nuclear Power Corp.
Western Resources, Inc.
W.H. Reaves & Co., Inc.
Wisconsin Electric Power Company Yankee Atomic Electric Company l 1
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Via Hand Delivery DOCKET NUMBER 1 Office of the Secretary PROPOSED PULE NI 50 l U.S. Nuclear Regulatory Commission One White Flint Nonh,16th Floor (l0NE8D68'8) 11555 Rockville Pike Rockville,MD 20852 ATTN: Rulemaking and Adjudications Staff Re: Financial Assurance Rcquirements for Decommissioning Nuclear l Power Plants,10 C.F.R. Part 50
Dear Sir or Madam:
Pursuant to the Commission's Notice of Proposed Rulemaking (published on September 10,1997,62 Fed. Reg. 47588), I enclose for filing in the captioned docket an original and twelve copies of the Public Systems Group's Comments on Proposed Rule.
Please time stamp two of the copies and return them to our messenger for our files.
Thank you for your attention to this matter.
Ve y yo . l
] *b ary J. Newell Attorney for the Public Systems Group j Enclosure cc: Brian J. Richter, Of$ce of Nuclear Regulatory Research l
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UNITED STATES OF AMERICA BEFORE THE NUCLEAR REGULATORY COMMISSION Financial Assurance Requirements for 10 CFR Pan 50 Decommissioning Nuclear Power Reactors COMMENTS OF THE PUBLIC SYSTEMS GROUP ON PROPOSED RULE i
Pursuant to the notice published by the Commission in the Federal Register on September 10,1997 (62 Fed. Reg. 47588), the Public Systems Group hereby sul;mits its comments on the proposed amendments to the Commission's regulations on financial assurance requirements for the decommissioning of nuclear power reactors. The publicly-owned utility systems sponsoring these comments as members of the Public Systems Group are listed in Attachment A.
The Commission states in the preamble to its proposed mie that the amendments are "in response to the potential deregulation of the power generating industry and respond to questions on whether current NRC regulations conceming decommissioning funds and their financial mechanisms will need to be modified." As a preliminary matter, the Public Systems Group wish to express their support for the Commission's decision to take the initiative in addressing the fundamental changes now sweeping the electric power markets. The restructuring of the electricity industry presents numerous challenges to the regulatory agencies that have interfaced with the industry in various ways over the years. The Commission is to be applauded for taking early action to address the manner in which restructuring may affect the funding of nuclear
. decommissioning costs. However, the Public Systems Group is concemed that the proposed rule may unintentionally impede certain activities and potential transactions that will be essential to an effective restructuring of the industry. The proposed rtue should be modified so that the assurance of decommissioning funding can be maintained without impeding the industry's momentum toward restructuring or conflicting with other national policy goals.
COMMENTS ON PROPOSED RULE l
I. DECOMMISSIONING ASSURANCE REQUIREMENTS FOR l NON-REGULATED ENTITIES l A. The Proposed Decommissioning Assurance Requirementsfor Non-Regulated Entities May Impede Transactions that are l
Essentialfor an Effective Restructuring of the Electricity l Industry.
In the preamble to its proposed rule, the Commission states its conclusion that the advent of deregulation in the electric utility industry requires a modification to the Commission's decommissioning funding regulations. The new funding assurance requirements applicable to non-regulated entities, in particular, are a direct outgrowth of this determination.
The principal change proposed by the Commission is a modification to the regula- i tory definition of" electric utility" set forth in 10 CFR { 50.2. Under the modified I definition, a licensee will be considered an " electric utility" only to the extent that decommissioning costs are recovered through cost-of-service rates or non-bypassable 1
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1 charges.3 If a licensee loses the status of an " electric utility" because its rates are deregu-l t ,
l lated, the licensee may be required to comply with more stringent funding requirements.2 .
i Specifically, a licensee that loses its status as an " electric utility" could no longer comply with the funding requirements by showing a plan to deposit decommissioning funds into j i
j an external trust fund over the life of the facility. Instead, such a licensee may be ,
i i l required to provide decommissioning assurance through "up-front" means, such as f
(i) prepayment of decommissioning costs, (ii) use of an extemal sinking fund coupled ;
J with a surety method or insurance that would cover any unfunded balance, or (iii) a surety method, insurance or other guarantee method for the full amount of decommissioning l costs.
i The Commission recognizes that imposing the requirement of up-front assurance l
would severely reduce the field of entities who could become licensees of nuclear power l
plants. In this regard, the Commission states as follows:
l The Commission understands that financial assurance
- would put a burden on licensees that may affect their competitiveness in a deregulated environment. The Commission has chosen to take an approach that would create no additional financial impact over present regulations for electric utilities. It has also expanded the definition of electric utility to accommodate types of rate regulation not previously anticipated. There are also l ' The examples of a "non-bypassable charge" given by the NRC are a wires charge, or a non-bypassable customer fee, inclu ling securitization or exit fees.
2 An exception is ande for self-regulated municipal and state-owned systems. The proposed regulation l states that "public .rtility districts, municipalities, rural electric cooperatives, and State and Federal l l- agencies, includin g associations of any of the foregoing, that establish their own rates are included within I
the meaning of'e sectric utility.'"
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sufficient existing options to demonstrate financial j assurance for non-electric utilities. Entities without adequate financial capital may f'md it difficult to finance j up-front decommissioning funding and operate nuclear .
power plants safely. These newly formed companies may !
not be good candidates for nuclear plant ownership. i 62 Fed. Reg. at p. 47594. (
The Public Systems Group is concemed that, while this element of the proposed l rule may have a laudatory goal, it could severely impede transactions that are essential to I an effective restructuring of the electricity industry. The above quotation suggests that the Commission's principal concem is that regulated utilities will spin off their nuclear l I
generation assets to unregulated enterprises that are thinly capitalized and might go out of l
existence without having provided for decommissioning costs. However, the rule also }
would inhibit transfers to more substantial, well-capitalized entities that may be attractive I i
transferees of nuclear assets.
As the Commission is aware, a number of operating nuclear plants have been l t
plagued in recent years by inadequate maintenance, spotty performance, and poor overall l management. As the Public Systems Group argued in their comments in response to the !
Advance Notice of Proposed Rulemaking, these poorly performing plants have acted as a ,
drag on the industry as a whole. For this reason, the transfer of poorly performing plants l to more capable and efficient operators should be encouraged. Many substantial, well-capitalized entities (PECO Energy and Duke Energy, for example) have, in recent years, investigated or expressed interest in the purchase of operating nuclear plants. These l
entities may be hcgr equipped to run a plant in a safe and efficient manner than the l
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l incumbent operator. However, to the extent that the up-front assurance requirement l specified in the proposed rule might apply, it would impose such a financial burden that it l
would likely prevent the sale of a nuclear plant even where a sale is the best course of action for consumers, the public, and the utility involved.
There is no reason to obstruct beneficial transfers to substantial entities simply because the new operator proposes to sell a plant's output into competitive (as opposed to regulated) markets. The Commission is fully capable of dealing on a case-by-case basis with the specific circumstances presented by any particular case.3 An inflexible approach will inhibit beneficial transfers of ownership along with the " problematic" transfers. This impact, in tum, may serve to impede industry restructuring since the divestiture of generating assets is becoming an increasingly common ingredient in state-level restructuring plans.
In many ways, the proposed rule will have serious anticompetitive effects. The up-front funding requirement would erect a huge " barrier to entry" to plant ownership by any new entrant to the field. This could result in a plant remaining in the hands of the current owner regardless of that owner's skill or diligence in operating the plant, or even its willingness to continue operating the plant. There is no good reason to hinder the sale of a plant by a regulated utility company to a non-regulated entity if the utility has managed the plant poorly and if the new operator is capable ofimproving the plant's 8
in this regard, there should be some commitment to prompt action by the NRC since regulatory delay can often be fatal to a business transaction.
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i operations and selling its output in competitive markets. The Commission should seek to ;
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facilitate beneficial transfers of ownership, or at least refrain from erecting barners to i l l such transfers.'
B. The Commission ShouldInvestigate a Government-Sponsored Insurance Planfor Decommissioning Costs.
The Public Systems Group's concem about the impact of the proposed rule arises, ,
l in part, from skepticism about the availability of the altemative funding methods (surety bonds, for example) that the NRC claims could be used by unregulated entities to meet the up-front funding obligation. (See 62 Fed. Reg. at p. 47596.) There is real doubt, or at least uncertainty, as to whether an insurance product or a surety bond could be procured to secure a non-electric utility's share of decommissioning costs.5 The cost of procuring j i
such a bond could potentially exceed the cost of pre-funding decommissioning expenses l in cash. In any case, we are unaware of any evidence that the financial markets will provide such instruments at a reasonable cost. In the absence of such evidence, it would be wrong for the Commission to assume the availability of these instruments to justify its decision.
- Nonh Carolina Municipal Power Agency No. I and Nonh Carolina Eastern Municipal Power Agency l believe that the Commission also (i) should consider providing its views to legislators and regulators in i states that are engaged in industry restructuring activities, and (ii) should express the position that the states ,
should seek to provide assured revenues for the operation and decommissioning of nuclear plants. !
' The Commission seems to share the concem, at least in pan, in requesting additional comment on forms ,
of financial assurance, the Commission refers to the mechanisms described in 10 CFR 50.75(e)(2) and l states that it "is concemed that these financial assurance mechanisms may not be available to some :
i licensees .. 62 Fed. Reg. at p. 47596. The truth of the matter is that these mechanisms may not be available to many licensees, or even at all, at a reasonable cost.
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! The NRC should consider other ways of ensuring the availability of l decommissioning funding without obstructing beneficial transfers of nuclear plants or l otherwise impedmg competition. While the NRC has rejected the Public Systems Group's suggestion that the Commission seek to classify well-run and poorly-run plants,'
such distinctions among plants may be necessary in order to balance the competing i i
i l objectives sought to be addressed in the proposed rule. In any event, one result of the Commission's proposed rule would be to deprive existing licensees of the value of their i ownership shares by establishing hurdles that cannot be met or by so restricting the l
! market that there can be no buyers.
One concept that should be investigated by the Commission is the creation of a l i government-managed decommissioning insurance plan, in which a licensee could purchase from the government a surety bond or insurance policy of the sort that the NRC i l seems to assume may be purchased in the open market. The cost of the bond or policy l
l could be geared to each plant's performance history or SALP rating, with licensees of ;
l poorly run plants paying a higher premium, and licensees of well-run plants paying a I
lower premium.' The goal of ensuring decommissioning funding would be satisfied, l while also introducing an additional economic incentive for the transfer of poorly run 1
i plants to more efficient operators, and encouraging contmued good operations by the I
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' See 62 Fed. Reg. at pp. 47601-02.
' Government participation in the pnvate insurance markets is not unprecedented, especially where the risk is not readily subject to management or the level of potential exposure is large. Federal flood insurance is a pod example.
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l well-run plants. In short, the incentives would be running in favor of preserving well-run !
plants rather than preserving all plants (both well run and poorly-run). !
C. The Commission Should Take Steps to Avoid Possible Double-Charging of Transmission-Dependent Utilities.
l A further concem of the Public Systems Group is the possibility that a I double-charging of certain transmission-dependent utilities -("TDUs") could result under :
i the proposed rule. Specifically, the NRC states that if a utility's nuclear assets are no A
longer subject to conventional cost-of-service regulation, the utility may retain eligibility 1 as an " electric utility" ifit has been authorized to collect a non-bypassable " wires charge" l for the cost ofits nuclear assets. (See 62 Fed. Reg. at pp. 47592-3, and the revised definition of" Electric utility" in proposed 10 CFR f 50.2).
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However, in many instances ofjointly owned nuclear plants, the minority owners of a plant are also TDUs. That is, the minority owners rely on transmission over the l system of the majority owner (or other utilities) to obtain their share of plant output and other power resources. If these minority owners are directly funding their own share of decommissioning costs while also paying a portion of another owner's costs through a l
" wires charge," the minority owner is being double-charged for decommissioning. This 4
would have an anti-competitive cost-shifting effect. The NRC should be alert to this possibility, and should require that licensees make a demonstration or sworn statement (to l l
be reaffirmed annually) that there are no such double charges occurring. l I
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I D. The Commission Should Clanfy its Position on Joint and Several Liability.
Among the other matters addressed in the preamble to the proposed rule is the l
subject ofjoint and several liability for decommissioning costs. The NRC expressly declines to impose joint and several liability, citing potential problems with respect to disagreement on decommissioning methods, the inhibition of flexibility, the weakening i of competitive position, and the difficulty in implementation. The Commission also states thatjoint and several liability may not be needed, in light of other financial l assurance requirements (including the modified definition of" electric utility"). 62 Fed. l l
Reg. at p. 47594. l l
The Public Systems Group agrees with the Commission's decision to refrain from l
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seeking to impose joint and several liability for decommissioning costs. However, it is not entirely clear how the Commission's comments in the preamble to its proposed rule are reconciled with the statements on joint and several liability contained in the I Conunission's recent Final Policy Statement on electric industry restructuring.8 in the !
latter issuance, the Commission states that it " reserves the right, in highly unusual !
l situations where adequate protection of public health and safety would be compromised if such action were not taken, to consider imposing joint and several liability on co-owners of more than de minimis shares when one or more co-owners have defaulted." (62 Fed.
Reg. at p. 44074).
- Final Policy Statement on the Restructuring and Economic Deregulation ofthe Electric Utahty Industry.
62 Fed. Reg. 44071 (August 19,1997). l l
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The " reservation" contained in the quoted portion of the Final Policy Statement could be read to conflict (at least in part) with the Commission's broader rejection ofjoint and several liability set forth in the preamble to its proposed financial assurance rule. For l that reason, clarification of the Commission's position is needed. The Public Systems l Group believes that the industry would benefit from a clarification of the Commission's views on the matter, since the prospect ofjoint and several liability is so directly at odds with numerous contractual arrangements for nuclear plant ownership and operation.'
Such clarification is hereby requested.
II. TRUST FUND EARNINGS CREDIT FOR EXTENDED SAFE STORAGE PERIOD The proposed rule also addresses the question of whether the anticipated eamings on decommissioning trust funds should be credited against the costs, thereby reducing the required level of collections. For example, significant camings could accrue to the fund over the period of time between plant shutdown and the commencement and completion of decommissioning activities (the " safe storage" period). Current NRC pclicy does not permit such earnings to be credited against the estimated decommissioning costs in determining an appropriate level of recovery, i
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' With respect to the issue ofjoint and several liability, certain members of the Public Systems Group also ,
sponsor .he " Publicly Owned Systems' Request for Reconsideration or, in the Alternative, Motion to Delay l Effectiteness of a Portion of the Final Policy Statement in Order to Receive Additional Public Comment." l filed on October 14,1997. That request, which sets fonh the bases for the sponsoring parties' opposition j l
to joint and several liability, is pending before the Commission. l l
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The proposed rule appears to reflect a determination by the Commission that its current policy is too conservative. The Commission proposes to allow a credit for eamings from the time funds are collected through the decommissioning period. The Commission proposes to allow crediting based on an assumed 2% real rate of return. The 2% figure is a " default camings amount" during the period of time of reactor operations; if a higher earnings amount has been approved by a rate-setting authority in establishing l
decommissioning collections, that higher amount may be used by the licensee. (See 62 Fed. Reg. at pp. 47599-600.) The Commission believes that its monitoring requirements and authority to require adjustments in fund collections will be adequate to ensure that sufficient decommissioning funds are collected if realized rates of return are lower than 2%.
The Public Systems Group believes that the proposal to allow crediting of fund eamings is reasonable, and is consistent with regulatory policy at FERC which recognizes both eamings and inflation. Recognizing a reasonable level of earnings relieves some of the burden on current ratepayers to fund decommissioning activities. Moreover, it is reasonable to assume some level of earnings while the fund is being drawn down for actual decommissioning activities. The assumption of a 2% real rate of return seems reasonable (and perhaps even conservative, given current inflation and capital market conditions).
The proposed rule indicates that the assumption of a 2% rate of return is optional.
While the 2% figure appears reasonable, there may be unusual circumstances where a licensee's status causes it to be subject to restrictive investment requirements that result
in a lower rate of real growth in its decommissioning fund. In such instances, the licensee may wish to use a lower growth rate. The Commission should clarify that an eamings rate ofless than 2% may be used, if a licensee demonstrates that it is subject to investment restrictions that limit the return it is able to achieve to less than 2%.
III. REPORTING REQUIREMENTS FOR DECOMMISSIONING !
FUND STATUS The Commission proposes to require periodic reporting on decommissioning fund status so that the Commission has assurance that licensees are achieving the required level of funding. With respect to the content of the required reports, the Commission states that it is in the process ofissuing a draft Regulatory Guide which would endorse FASB Draft Standard No.158-B," Accounting for Certain Liabilities Related to Closure i or Removal of Long-Lived Assets." (See 62 Fed. Reg. at pp. 47600-601.) The l l
Commission also states that it is endorsing the draft FASB standard "as a means of 1
providing guidance for licensees to comply with those portions of the NRC's regulations j l
regarding a licensee's reporting on the status ofits decommissioning funding."
l The required information on fund status is to be submitted on a "per-unit" basis. l (See 62 Fed. Reg. at p. 47601.) The first report on the status of decommissioning funds would be due within nine months after the effective date of the proposed rule. Thereafter, reports must be submitted at least once every two years, except that the licensees of any plants that are within five years of their planned end of operation must submit reports annually. (62 Fed. Reg. at p. 47601.)
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. The Public Systems Group supports the NRC's proposed reporting requirement; indeed, a comprehensive reporting requirement is long overdue. Such a requirement is particularly appropriate given that the FERC and state commissions have not been active in monitoring fund status on an ongoing basis. The monitoring requirement should permit the NRC to determine whether funding targets are being met in a prudent manner, and, if not, whether corrective action is necessary.
It is he.ponant, however, that the periodic reports on fund status be made available to all interested parties. Accordingly, the Commission should require that a licensee's i periodic reports be made available to the public, or, at a minimum, to ener co-licensees l
of the same plant. This information will allow affected parties to take action if, in their j opinion, an appropriate level of funding is not being achieved. Also, other co-owners should have the information to ensure that all co-licensees will be in a position at shutdown to shoulder their share of the decommissioning cost burden.
The Public Systems Group believes that one point of clarification of the proposed reporting requirement is needed. It is not entirely clear from the proposed rule whether ,
individual licensees of ajointly owned plant must submit their own status repons, or i
whether the plant operator can submit a report on behalf of all co-licensees. The statement that reporting will be on a "per-unit" basis appears to be in contrast to an approach where individual co-licensees would submit a report on the status of decommissioning funds for their individual shares. However, this is not entirely clear.
Clarification would be useful as to whether individual co-licensees each must file the periodic reports, or whether the plant operator could file the reports on behalf of all i
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owners. There may be some efficiency or economy in having the operator provide the ;
l data for all owners, where that is appropriate (for example, in a decommissioning situation where the aggregate of available funds is the central element). l IV. CONCLUSION i The Public Systems Group supports the NRC's effort to address the changes i
sweeping the electricity industry. However, aspects of the proposed rule could have j adverse and anticompetitive effects on the transfer of nuclear plant ownership, even in i
cases where a transfer of ownership is the best course of action from the perspective of !
ratepayers and the public at large. The proposed rule appears to have the practical effect t
I oflimiting nuclear plant ownership to electric utilities with cost-of-service rate recovery. )
i Given the vast sweep of electric utility restructuring, that notion is antiquated and not realistic. A "one size fits all" approach to the problem will not do. The Commission i
should recognize that in many instances facilitating the transfer of" problem plants" is good public policy, and for that reason the Commission should avoid interposing regulations that would hamper beneficial transfers of ownership.
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,, Respectfully submitted, j i
i m WU s l
Ga[J. flewell !
l- Frances E. Francis !
l- Attomeys for the Public Systems ;
I Group l l
Law Offices of: r
- Spiegel & McDiarmid i
1350 New York Avenue, NW ,
l' Suite 1100 Washington, DC 20005-4798
.(202) 879-4000 i November 24,1997 l l
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ATTACHMENT A ENTITIES SPONSORING COMMENTS ON BEHALF OF THE PUBLIC SYSTEMS GROUP l
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- 1. North Carolina Eastern Municipal Power Agency ("NCEMPA")is a public body and body corporate and politic under the Joint Municipal Electric Power and l Energy Act (codified as Chapter 159B of the General Statutes of North Carolina).
j NCEMPA is the all requirements bulk power supplier to 32 cities and torms located ;
! in Piedmont or eastem North Carolina that own and operate their own eketic l
distribution systems. NCEMPA owns a 18.33% undivided ownership interest in each of the two nuclear generating units at the Brunswick Steam Electric Plant, and a 16.17% undivided ownership interest in Unit I at the Shearon Harris Nuclear Power Plant.
- 2. North Carolina Municipal Power Agency No. I ("NCMPAl") is a municipal j joint action agency organized in 1976 under North Carolina's Joint Municipal
! Electric Power and Energy Act (Chapter 159B of the General Statutes of North l l Carolina). NCMPAl is the all-requirements power supplier to 19 Nonh Carolina
! cities and towns that own and operate their own municipal electric systems.
l NCMPAl owns a 75% undivided ownership interest in Unit No. 2 at the Catawba j Nuclear Station.
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, 3. Piedmont Municipal Power Agency ("PMPA") is a public body, and body l l corporate and politic of the State of South Carolina organized in 1979 pursuant to l l Chapter 23, Title 6 of the Code of South Carolina. PMPA is the all-requirements l bulk electric power supplier to nine South Carolina cities and towns that own and operate their own municipal electric systems. PMPA owns a 25% undivided l interest in Unit No. 2 at the Catawba Nuclear Station.
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- 4. New Hampshire Electric Cooperative, Inc. ("NHEC") is a consumer-owned electric cooperative that provides service in pans of nine New l Hampshire counties. NHEC is the owner of an approximately 2.17%
undivided ownership interest in Unit No. I at the Seabrook Nuclear l Station. NHEC also has an entitlement to a ponion of the output of the Maine Yankee nuclear generating station.
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. -2o l 5. Massachusetts Municipal Wholesale Electric Company ("MMWEC")
is a political subdivision of the Commonwealth of Massachusetts engaged 4
! in the development of bulk power supply for its municipal electric system i I
members. MMWEC is ajoint owner of Millstone Unit No. 3 (a nuclear electric generating unit located at the three-unit Millstone station operated !
by Northeast Utilities and located near Waterford, Connecticut) and Unit No. I at the Seabrook nuclear power station (a single-unit generating station operated by Public Service Company of New Hampshire and ;
located in Seabrook, New Hampshire). MMWEC's share of Millstone 3 ;
capability is 55.2 megawatts, and its share of Seabrook I capability is 133.3 megawatts. !
- 6. Connecticut Municipal Electric Energy Cooperative ("CMEEC") is a ,
subdivision of the State of Connecticut formed under Connecticut law to serve the bulk power needs ofits five municipal electric utility members.
CMEEC is the owner of a 12.5 megawatt undivided ownership interest in ,
the Millstone Unit No. 3 nuclear generating unit.
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! h DOCKET NLMBER Pip 0 SED pns E 50 ggyggy Office of the Secretary U.S. Nuclear Regulatory Commission One White Flint Nerth,16th, Floor 11555 Rockville Pike Rockville,MD 20852 ATTN: Rulemaking and Adjudications Staff Re: Financial Assurance Requirements for Decommissioning Nuclear Power Plants,10 C.F.R. Part 50 -
Dear Sir or Madam:
Pursuant to the Commission's Notice of Proposed Rulemaking (published on September 10,1997,62 Fed. Reg. 47588), I submitted for filing in the captioned docket the Public Systems Group's Comments on Proposed Rule. This letter is to request that you add the City of Anaheim, California to the list of members of the Public Systems Group set fonh in Attachment A to the Comments. Anaheimjoins in the Public Systems Group's Comments.
Anaheim owns and operates a municipal electric utility system and provides retail electric service to residential, commercial and industrial customers in and around the City. Anaheim is the owner of 3.16% undivided interests in Units 2 and 3 of the San Onofre Nuclear Generating Stetion, which is operated by Southem California Edison Company.
Thank you for your attention to this matter.
- Very y yo c l
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7 Gary J.Newell Attorney for the Public Systems Group cc: Mr. Mark Frazee l City of Anaheim f 5-.0 5 0 $ $ h lla
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00CKETED BEFORE THE NUCLEAR REGULATORY COMMISSION 03N8C i
1 Financial Assurance Requirements for I DOCKET NUMEiER 7 97 gy 24 P4 :31 Decommissioning Nuclear Power Reactors . Proposed Rules PROP @c:Damu"q. : 5o 7 - - wt 10 CFR Part 50 (,(o:2F4475gg OFFO r r y 4 13 RULS,'c q . )
4 ADJUL'!ry r e '- (pp -
i GQMMENTS OF THE ILLINOIS COMMERCE C_QMM1331QH 1 l
The lilinois Commerce Commission, an agency of the State of Illinois which, inittaha, regulates the electric public utilities within the State of Illinois hereby comments on the proposed rules of the Nuclear Regulatory Commission,10 CFR Part 50.
[ Federal Register, Vol. 62, No 175 (Sep 10,1997), pp. 475885 - 47606) The Illinois Commerce Commission will coc ment on two of the amended provisions.
I REVISION / CLARIFICATION OF $50.75(f)(1) 1 I
l The Commission recommends the modification of the NRC revision to $50 75(f)(1) in order to also require the annual I l
reporting to begin if a plant is prematurely decommissioned This modification is consistent with the overall intent of the NRC. As i
modified the provision would read: )
l (f)(1) Each power reactor heensee shall report to the NRC within 9 months after [the effective date of the final rule). and at least once every 2 years thereafter on the status of its decommissioning funding for each reactor j or part of a reactor that it owns. The information in this report must include, at a minimum; the amount of decommissioning funds estimated to be required pursuant to 10 CFR 50.75(b) and (c), the amount i accumulated to the date of the report, a schedule of the annual amounts remaining to be collected, the assumptions used regarding rates of escalation in decommissioning costs, rates of eamings in decommissioning trust funds, and rates of other factors te g., discount rates) used in funding projections; and any modifications occumng to a licensee's current trust agreement since the last submitted report. Any licensee for a plant that is within 5 years of the projected end of its operation or where conditions have chanced suGtt l that it will close within 5 years (before the end of its hcensed hfe) or has alresdv closed (before the end of its licensed li'el shall submit such a report annualty 7 :d.* -
1' e ,
REVISION /CLARIFICATlON OF $50.75(e)(3) V
- ,,w in its October 16th,1997 reply to the New York Pubhc Service Commission's August 1997 Staff Report on Nuclear' a '
Generation, a utility cited the proposed NRC Rule in pages 5 and 6 of its reply,on page 5 that utihty stated. .
It is unlikely under these circumstances that the divestiture sale purchaser would be deemed an electnc ,
utihty under the NRC's definition set forth at 10 CFR $50.2. The NRC definition requires that operational and decommissioning expenses be accumulated through traditional cost-of-service mechanisms. ,
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The utility makes the argument that unless R can recover all of Rs costs to operate, maintain, and decommission through either rates established through some regulatory authonty by traditional cost of service regulation or by some l
non-bypassable charge mechanism, then:
l l t(T)he consequences to decommissioning funding requirements of loss of troddional cost-of-service ratemaking status are substantial. A license holder that does not quahfy as an electric utility under the NRC's definition is not permitted to accumulate decommissioning funds ratably over the 40-year hoense te m of the unit, but is instead obhgated to supply significantly stepped-up decommissioning funding under 10 GFR $50 75 j amounting to either prepayment or a surety, insurance, or other guarantee method. According to ti,e NRC, to the extent that heensees no longer quahfy, in whole or in part, as electnc utildes, they will, in efter1, have to
' accelerate
- funding by getting 'up front' forms of financial assurances,62 FR 47592.
1 This utihty raises a senous question that imples that the only answer for the State PUC's is to bar nuclear units from competdion because the State PUC's must provide for the recovery of costs to operate and decommission these facihtes. The utihty emphasizes its position on page 6 of its reply to the New York Commission Staff, when it says.
The NRC has recently issued a proposed rule entitled Financial Assurance Requirements for Decommissoning Nuclear Power Reactors, 62 Federal Register 47588 (September 10,1997). If the proposed rule is adopted, A would revise the definition of electric utihty to more clearly impose operational cost sufficiency cntena, as well as to include license holders recovenng funds sufficent to operate, maintain and decommission its nuclear plant safety through a non-bypassable charge mechanism, see 62 FR 47606. .
I lt is clear that the NRC's proposed rule reaches to both operations and decommissioning funding, requiring b91b categories of costs to be recovered under either cost-of-service or non-bypassable charge l
mechanisms. Proposed new regulation 10 CFR $50.75(e)(3) would mandate in pertinent part that:
[fjor an electric utihty, Rs rates must be sufhcient to recover the cost of the electricdy R generates, transmits, or distributes. These rates must be estabhshed by a regulatory authorty such that they are sufficient for the hcensee to operate, maintain, and decommission its plant safely. See 62 FR 47606.
This utshty hfted parts of the NRC definition of an electric utihty out of context in order to make its argument. If one tums to the third sentence in the proposed NRC definition, there is a clarification of the previous two sentences: An entity whose i rates are estabhshed by a regulatory authorty by mechanisms that cover only a portion of its costs will be considered to be an electric utihty only for that portion of the costs that are collected in this manner. This language explains that, if decommissioning funds are collected through either rates or some non-bypassable charge, then in regard to decommissioning funds the entity will be considered an electric utilty.
I i
! The proposed language in 10 CFR Section $50.75(e)(3) imples in its first two sentences that rates must be estabhshed
i l
. l l by a regulatory authorty such that a licensee can operate, maintain, and decomrnission its plant safwly. This language conflicts i
with the NRC definit 6on of an electnc utility in $50.2. The Commission beleves that this confhet can be easily clanfed by deleting 1
most of the first two sentences of $50.75(e)(3). Since an electnc utihty is defined in $50.2, it is understood by its definition that, if s l
its rates are not sufficent to recover costs, then it is not an electric utility for those cost classes (operation, maintenance, or j l
decommissioning) and financial requirements for other entites would come into play.
I l The proposed revtsion roads as follows:
l For an electric utility, it: r:te: met be cu5 bnt te tr~ter the ert Of the l :!:Me*/ t ;;ener i tr, trenerhe, Or di tribute:. Ther ret:0 meet be l er'"!!:5-d by : r ;;e!:teri cetheritj rech th t they ::: eeMebnt fe' the l !! nce: te Oper:te, meinte!n, 2nd de^^mmi:0!Or it: ?!:rt ::f !'/, T *he Commission reserves the right to take the following steps in order to assure a licensee's adequate accumulation of decommissioning funds:
review, as needed, the rate of accumulation of decommissioning funds; and either independently or in cooperation with either the FERC and the l
l State PUC's, take additional actions as appropriate on a case-by-case l basis, including modification of a licensee's schedule for accumulation of
! decommissioning funds.- Aacceptable methods of providing financial assurance for decommissioning for an electric utility are ,
l Thank you for your consideration, !
Respectfully submitted, l
i Received by Electronic Mail I i
JAMES E. WEGING I Special Assistant Attorney General Office of General Counsel lilinois Commerce Commission 160 North LaSalle Street Suite C-800 Chicago, Illinois 60601 (312) 793-2877 Attomey for the Illinois Commerce Commission i
l
-Nctignal Associatisn cf Regulatory Utility Commissisners 4 Irc:rporated 7,g p BRUCE B. ELLSWORTH, President MARGARET A. WELSil New Hampshire Public Utilities Commission Executive Director 8 Old Suncook ' Road. Building No.1 ,
Concord, New flampshire 03301 7319 g GAR.E ARGIRO l Treasurer
]OLYNN BARRY BU TLER. First Vice President ,
Ohio Public Utihties Commission 5 i ilM SULuvAN, second vice President MM h S j Alabama Public Service Commission DROPOSED RA.E N 60 , ,,, 4 '
(G2 FR415 88) ooanit90 N
November 24,1997 g24 W -
\H - ~
< I Secretary D Nuclear Regulatory Commission Washington, D.C. 20555-0001 #/ $
i Attention: Rulemakings and Adjudication Staff l Re: Financial Assurance Requirements for l Decommissioning Nuclear Power Plants l
Dear Sir or Madam:
l Enclosed for filing in the referenced proceeding, please find the comments of the l National Association of Regulatory Utility Commissioners (NARUC). The comments l l
were also sent electronically today to Mr. Brian Richter, the NRC staff person referenced in the September 10,1997 Federal Register notice in this proceeding.
Thank you for your assistance in this matter.
i Sin y 'ours, Charles D. Gray '
[
General Counsel ;
Enclosure l I
1100 Penns3t vania Ave., N.W., Suite 603, Washington, D.C. 20004 Mailing Address: Post Omce Box 684, Washington, D.C. 200444684 Telephone: 202-898-2200 Fax: 202-898-2213 http://www.erols.com/naruc "l20/025/ v. 04
BEFORE THE J NUCLEAR REGULATORY COMMISSION Washington, D.C.
Financial Assurance Requirements for ) 10 CFR Part 50 Decommissioning Nuclear Power P.eactors ) RIN 3150-AF41 ;
i COMMENTS OF TIIE NATIONAL ASSOCIATION OF l REGULATORY UTILITY COMMISSIONERS The National Association of Regulatory Utility Commissioners (NARUC) hereby submits 1
its comments in response to the Notice of Proposed Rulemaking (Notice) issued by the Nuclear l Regulatory Commission (NRC or the Commission) in the above-captioned proceeding on September 4,1997. 62 Fed. Reg. 47588-47606 (September 10,1997).
NATURE OF THE PROCEEDING By the Notice, the Commission has proposed to amend 10 CFR Q 50.2,50.43,50 54,50,63, 50.73, and 50.75 to establish new standards to provide financial assurances for the decommissioning of nuclear power plants. The proposal is part of the Commission's initiative to review its regulatoy policies in response to the ongoing econoraic restructuring of the electric utility industry.
Specifically, the Commission proposes to require utilities licensed to own or operate nuclear generating stations to repon periodically on the status of their decommissioning funds and on the changes in their extemal trust agreements. The Notice alto proposes to allow utility licensees to take credit for earnings on their decommissioning trusts.
Finally, to provide assurance of decommissioning funding in cases in which power sales l
from a nuclear facility are subject to market risks, the Commission proposes to amend the definition l
l
3 in which those stations are operating. We have been pleased and honored to provide State comrnissioners to participate in the Commission's periodic workshops on restructuring issues. We have filed written comments in NRC proceedings, including comments in response to the Advanced Notice of Proposed Rulemaking in this proceeding. We have strongly supported a close working relationship between NRC personnel and State commission and NARUC staffers. We commend the Commission for its efforts to reach out to State regulators through the public briefings it has convened, attendance of NRC commissioners and staff at NARUC meetings, and more informal
- ontacts. In each case, we believe that the public interest in safe, reliable and efficient operation of nuclear facilities has been well served.
COMMENTS The NARUC deeply appreciates the opportunity to respond to the issues raised by the Commission in its Notice. We again wish to express our suppon for the Commission's decision to reconsider its regulatory policies in light of growing competition in wholesale and retail electric markets. Clearly, to the extent NRC requirements to ensure safe operation and decommissioning of power reactors were premised on traditional " rate base / rate of retum" methodologies, they should be reexamined as market-based pricing and policies promoting customer choice are implemented.
Moreover, we continue to support the Commission's decision to adopt a deliberative approach to reforming its financial regulatory policies.
In our comments in response to the Advanced Notice of Proposed Rulemaking, we provided l
our views on a series of questions posed by the Commission conceming decommissioning funding
4 and broader questions of industry performance in a more competitive economic environment. We l
l are pleased that the September 1997 Notice is generally consistent with our earlier recommendations and observations.
1 In fact, as the attached memo from the NARUC Staff Subcommittee on Nuclear issues and Waste Disposal indicates, we would recommend only two modi 6 cations of the Commission's proposed regulations. First, proposed section 50.75(f)(1) should be revised to make clear that the I annual reporting requirements should begin if a nuclear generating plant is prematurely j i decommissioned. This revision is consistent with our understanding of the NRC's goal of ensuring that adequate information on decommissioning status be made available in a timely manner.
j Second, proposed section 50.75(e)(3) should be revised to clarify the scope of the regulations in light of the proposed revision to the definition of" electric utility" in section 50.2. Under that ,
l section, a licensee may qualify as an electric utility for its decommissioning costs even in cases in l
which other costs are subject to market risks. To eliminate any possibility of confusion, section 50.75(e)(3) should be revised as recommended by the Staff Subcommittee. ,
I in both cases, the Staff Subcommittee's memo provides additional explanation for these !
l proposed revisions and includes specific amendments for the Commission's consideration and l
I f
l adoption in final regulations. We urge their inclusion in any final regulations issued in this t
proceeding.
l l
1 5
CONCLUSION The NARUC appreciates this opportunity to provide its views on the issues raised by the Notice. We pledge to build on the progress that the Commission, the nuclear industry and all affected parties have made in ensuring that changes in the structure and operation of the electric l utility industry are consistent with the safe operation of nuclear facilities and adequate funding for their safe decommissioning. We look forward to a continuing dialogue with the NRC as the restructuring process goes forward.
Res ctfully submitted, Charles D. Gray <
Gen ral unsel /
nf (i'
. Bradford Ralpsay Assistant General Counsel National Association of Regulatory Utility Commissioners Suite 603 Old Post Office Pavilion 1100 Pennsylvania Avenue, N.W.
Post Office Box 684 Washington, D.C. 20044-0684 (202) 898-2200 November 24,1997 l l l
MEMORANDUM 1
TO: NARUC Subcommittee on Nuclear issues & Waste Disposal l FROM: NARUC Staff Subcommittee on Nuclear issues & Waste Disposal l
l DATE: November 10,1997 l
SUBJECT:
NUCLEAR REGULATORY COMMISSION (NRC): PROPOSED l
RULES FOR FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISSIONING NUCLEAR POWER REACTORS Introduction in a series of teleconferences and meetings the NARUC Staff Subcommittee on Nuclear issues and Waste Disposal has discussed the NRC proposed rules for financial assurance requirements for decommissioning nuclear power reactors and recommends that the following issues be addressed in a NARUC Response to the NRC.
The proposed rule appears to need only slight modification in @50.75(e)(3) and
$50.75(f)(1).
REVISION / CLARIFICATION OF 550.75(f)(1)
We would recommend the modification [ double underlined] of the NRC revision [ single underline) to 50.75(f)(1) to also require the annual reporting to begin if a plant is prematurely decommissioned. This modification seems to be consistent with the intent of the NRC. @50.75(f)(1) as modified would state:
(f)(1) Each power reactor licensee shall report to the NRC within 9 months after Ithe effective date of the final rulel. and at least once every 2 years on the status of its decommissionina fundina for each reactor or cart of a reactor that it owns. The information in this reDort must include. at a minimum: the amount of decommissionina funds estimated to be reauired oursuant to 10 CFR 50.75(b) and (ci: the amount accumulated to the date of the report: a schedule of the annual amounts remainina to be collected: the assumptions used reaardina rates of escalation in decommissionina costs.
rates of eaminas in decommissionina trust funds. and rates of other factors (e a.. discount NUCLEAR REGULATORY COMMISSION (NRC): PROPOSED RULES FOR FINANCIAL ASSURANCE REQUIREMENTS FOR c
DECOMMISSIONING NUCLEAR POWER REACTORS PAGEi
reta=) used in fundina orciactinns: and any modifications occurrina to a licensee's current trust acreement since the last submitted report Any licensee for a plant that is within 5 years of the projected end of its operation or where conditions have chanced such that it will cinea within 5 vaars (before the end of its hcensed hfe) or has alrandv einead (before the end of its hconsed hfe) shall submit such a report annually :t c' 25! 5 pert per to l Se FWM nd of c; stb - trM FO!!-5 r/ MO--k&&g cNtest+ mate Meh M& n up te dete crerment of % .ejor frters th:t ceuM St the cast 40 h
REVISIONblARlFICATION OF $50.75(e)(3) in its October 16*,1997 reply to the New York Public Service Commission's August 1997 Staff Report on Nuclear Generation, a utility cited the proposed NRC Rule in pages 5 and 6 of its reply. On page 5 that utility stated:
. . It is unlikely under these circumstances that the divestiture sale purchaser would be deemed an ' electric utility
- under the NRC's definition set forth at 10 CFR 950.2. The NRC definition requires that operational and decommissioning expenses be accumulated through traditional cost-of-service mechanisms.
The utility makes the argument that unless it can recover all of its costs to
... operate, maintain, and decommission ..." through either rates established through some regulatory authority by traditional cost of service regulation or by some non-bypassable charge mechanism then:
. . t(T)he consequences to decommissioning funding requirements of loss of traditional cost-of-service ratemaking status are substantial. A license holder that does not qualify as an ' electric utility
- under the NRC's definition is not permitted to accumulate decommissioning funds ratably over the 40-year license term of the unit, but is instead obligated to supply significantly stepped-up decommissioning funding under 10 CFR 550.75 amounting to either prepayment or a surety, insurance, or other guarantee method. According to the NRC, "to the extent that licensees no longer qualify, in whole or in part, as electric utilities, they will, in effect, have to ' accelerate' funding by getting 'up front' forms of financial assurances,62 FR 47592.*
This utility raises a serious question that implies that the only answer is for State PUC's to NOT expose nuclear units to competition because of its interpretation that State PUC's must provide for the recovery of costs to operate and decommission these facilities. The utility emphasizes its position on page 6 of its reply to the N:.w York Commission Staff when it says:
The NRC has recently issued a proposed rule entitled " Financial Assurance Requirements for Decommissioning Nuclear Power Reactors,' 62_F_gdg.ral Reaister 47588 NUCLEAR REGULATORY COMMISSION (NRC): PROPOSED RULES FOR FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISSIONING NUCLEAR POWER REACTORS PAGE2
.e e..
(September 10,1997). If the proposed rule is adopted, it would revise the definition of
- electric utility" to more clearly impose operatKmal cost sufficiency entena, as well as to include licanse holders recovering funds sufficient "to operate, maintain and decommission its nuclear plant safely" through a "non-bypassable charge mechanism,"
see 62 FR 47606.
It is clear that the NRC's proposed rule reaches to both opersbons and decommissioning funding, requiring kgth categories of costs to be recovered under either cost-of-service or non-bypassable charge mechanisms. Proposed new regulation 10 CFR
$50.75(e)(3) would mandate in pertinent part that:
"[fjor an electnc utility, its rates must be sufficient to recover the cost of the electncaty it generates, transmits, or distnbutes. These rates must be established by a regulatory authonty such that they are sufficient for the licensee to operate, maintain, and decommission its plant safely." See 62 FR 47606.
i This utility lifted " parts" of the NRC definition of an " electric utility" out of context in order to make its argument. If one tums to the third sentence in the proposed NRC definition we find clarification of the previous two sentences: "An entity whose retaa are a-*Miiahed by a reaulatory authority by mechanisms that cover only a portion of its costs will be conaidared to be an "f::-tric utility" only for that portion of the costs that are collected in this manner." This language explains that if decommissioning funds are collected through either rates or some non-bypassable charge then iri regard to
! decommissioning funds the entity will be considered an " electric utility."
l The proposed language in 10 CFR Section $50.75(e)(3) may be more problematic because it does seem to imply that lates must be established by a regulatory authonty such that a licensee can operate, maintain, and decommission its plant safely.
(3) For an electnc utility, Jes rates m?* be aufpaht en r-mr the cent of the abctricifv Jr =enerseas. e :---t or.a .esene. 7hese raeme M 6e
^ " "'":"
l bv a reautaearv authoeftv ?"*h that C.;,^ ann TL"'_ _':_ ^ far the Reeneen en ^ - ^ ^
mainemen. and decommisalon its cient safefv. The Commission reserves the right to
^de the M -:-;re sinos in cm: r to assure a lionneen's " " ==w ' ~ -, of
'--#,s C+:9rir' '-, iris funds: rn:n.. as needed. the rate of ==e ' ~ - . of '=--. . '
fur.J.: and ;;r.er ;, '=+,d.r;"i or in tw=arahm with alther the PERC and the C--
PUC's. *E = r=,e; =r is as =--c.,,--
^
^
on a case-by case " . Ir*.s -
modificabon of a noensee's ec.r+w for -e * ^ -, of "----r-v =2.s funds ,
l 6 acceptable methods of providing financial assurance for decommissionMg for an elecinc utillk.are-temphase added)
This language certainly appears to be in conflict with the NRC definition of l
an electric utility in 50.2. We believe that this can be easily clarified by deleting
! ' 10 CFR Sechon 50.2. I l NUCLEAR REGULATORY COMMISSION (NRC): PROPOSE 6 !
i RULES FOR FINANCIAL ASSURANCE REQUIREMENTS FOR
- DECOMMISSIONING NUCLEAR POWER REACTORS l
PAGE3 l __ _ - . - . - . _ . , _ __ -
some of the language in the first two sentences of $50.75(e)(3) to state:
(3) For an electric utility, it: r:!r meet be sufdent 10 rre /: the4est of N :'rt92/ *!
gem:tr, tr:ntmt, O' Sthhte. Thee retet meet h et9" 5M by : rq&tr/
OuN'!*y tech t t they are =?rin' 'O' the !Mer te vete, mil 9, 2nd decommten !!: p!2nt c':!y. T the Commission reserves the right to take the following steps in order to assure a licensee's adequate accumulation of decommissioning funds: review, as needed, the rate of accumulation of decommissioning funds; and either independently or in cooperation with either the FERC and the State PUC's, take additional actions as appropriate on a case-by-case basis, including modification of a licensee's schedule for accumulation of decommissioning funds. Acceptable methods of providing financial assurance for decommissioning for an electric utility are -
Since an electric utility is defined in @50.2 it is understood by its definition that if its rates are not sufficient to recover costs. Then it is not an electric utility for those cost classes (operation, maintenance, or decommissioning) and financial requirements for other entities would come into play.
l l
l t
NUCLEAR REGULATORY COMMISSION (NRC): PROPOSED RULES FOR FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISSIONING NUCLEAR POWER REACTORS PAGE4 l
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November 24,1997
- DOCKET NUMBER I5 PROPOSED Rum PR 50
.Iohn C. Hoyle Secretary, U.S. Nuclear Regulatory Commission ((o R FR ff688)
Washington, D.C. 20555 <
ATTN.: Docketing and Service Branch Re: Utility Decommissioning Group Comments on Proposed Rule on Financial Assurance Requirements for Decommissioning i Nuclear Power Reactors (62 Fed. Rec. 45788: Sentemher 10.1997) !
Dear Mr. Hoyle:
On September 10,1997, the Nuclear Regulator, Commission ("NRC") published in the Federal Register a Proposed Rule regarding NRC financial assurance requirements for l decommissioning nuclear power reactors to address issues associated with electric dity deregulation. On behalfof the Utility Decommissioning Group (" Group"),F and Niagara Mohawk Power Corporation, we submit the attached comments on the proposed rule. j l
Re pectfully submitted,
! t O )
Joseph B. Knotts i William A. Horig , ,,,,,
l w.,. i Wall:mlf Enclosure -
l F The members of the Utility Decommissioning Group are 15 uke Power Company Texas i Utilities Electric Company, and Northeast Utilities. Each Group member company owns or operates one or more nuclear power plants subject to NRC regulation.
i 9 7 ii 2se e k om
l l
WINSTON & STR AWN I
l Attachment l
l l Utility Decommissioning Group and Niagara Mohawk Power Corporation l Comments on Proposed Rule on Financial Aasurance Requirements for Decommissiosing l Nnelear Power Rearlors (62 Fed. Reg. 45798: Sente==her 10.199"A i
I. Definition of"Electrie Utility" 1
NRC Proposal ne definition of" electric utility" would be revised such that an entity would be an !
electric utility, and therefore permitted to continue to fund for decommissioning on a " pay-as-you-go" basis, if the entity " generates, transmits, or distributes electricity and . . recovers the cost of this electricity through rates established by a regulatory authority, such that the rates are sufficient for th: licensec to operate, maintain, and decommission its nuclear plant safely. Rates must be established by a regulatory authority either directly through traditional cost of service regulation or indirectly through another non-bypassable charge mechanism." Non-hypassable charges means those charges imposed by a govemmental authority which affected persons or entities are required ,
to pey to cover costs associated with operation, maintenance, and decommissioning of a nuclear !
power plant.
Comanent ;
i In its June 25,1996 comments on the Advance Notice of Public RulemWng (61 Fed.
R.g.15,427 (April 8,1996)), the Group encouraged the Commission to offer licensees as much flexibility as possible regarding qualification as an " electric utility"l' and suggested a number of
" regulatory" and "non-regulatory" tests that could be applied in making such a determination. While the Group supports the proposed use of"non-bypassable charge" as a meaas of demonstrating decommissioning funding assurance, in general the Group believes that the Commission has pmposed too narrow a definition.
In this regard, the Gmup does not consider appropriate or necessary the Commission proposal that "any license no longer overseen by a rate-setting regulatory authority, i.e., a licensee other than an electric utility, would need to comply with the decommissioning funding assurance l l quirements of 6 50.75(e)(2) unless that licensee can otherwise dem~o ristMe a'govemment-manA*d guarant=A revenue stream forall unfunded decommissioning obligationg." (62 Fed. Reg. .
at 47,594, col.1). NRC regulations have never required a " guarantee" of aalability of
- decommissioning funds, but rather " reasonable assurance" of such availability. r~ w m l
l - . - . ~ . .
t
. . v..
2' l As noted below, we agree with NEl that it may be better to use another term such h' ' '
" qualified nuclear entity." ,
l l
l l
WINSTON & STRAWN i
)
John C. Iloyle Attachment November 24,1997 Page 2 For example, the Commission should reconsider its dismissal of the possibihty of some sort of PUC or FERC certification as a basis for retaining or achieving "elemric utility" status.
In support ofits proposal not to pursue this optien, the Commission notes the views of commenters that no current cornmission can bind a future commission" and that a PUC "could not give a blanket guarantee that all licensees would be allowed to collect revenues to complete decommissioning funding" (62 Fed. Reg. at 47,595, col.2). However, these uncertainties arguably are no greater than those associated with cost of service regulation, which certainly does not constitute a " guarantee i of availability of sullicient decommissioning funds. The underlying regulatory standard is i
" reasonable assurance," and the various tests to be built into the rule (e.g., in the definition of
" electric utility") should be no more stringent than that underlying standard 7 Further to these principles, the NRC should allow for case-by-case approval of decommissioning funding arrangements for those licensees who can establish that they have provided an adequately high degree of assurance through whatever method may be developed.
including methods involving the approval of the state PUCs and the FERC, or in the case of entities setting their own rates (e.g , public power authorities er others) the appropriate rate body or Board, to provide the requisite reasonable assurance called fu by NRC's historic safety standards. In particular, a licensee should be afforded the opportunity :o demonstrate that ample margins exist following restructuring to cover decommissioning funding contributions during the operating life of the facility, including extended outages, and to cover decommissioning costs in the event of premature shutdowm.
Accordingly, any contemplated changes to the NRC regulatory framework goveming decommissioning funding should accommodate, to the maximum extent possible. reasonable regulatory showings other than cost-of-service rate recovery, or non-regulatory showings, as a basis for allowing power reactor licensecs to continue to fund for decommissioning on a " pay as-you-go" basis. Examples of reculatorv circumstances which may support continued " pay-as-you-go" funding could include mandated or allowed stranded cost recovery for decommissioning costs (e.g., through a charge on distribution or transmission or some other special charge on all electric power or energy l
F The proposed rule commentary suggests that securitization of a licensee's interest in
" irrevocable, non-bypassable" charges may be an acceptable method of providing decommissioning funding assurance (62 Fed. Reg. at 47,$91). His seems to suggest that the mere existence of a licensee's entitlement to such irrevocable, non-bypassable charges l
l may no.1 be sufIicient to allow that licensee to avoid *up-front" funding and that the licensee would instead be required to securitize its interest in the revenue stream associated with such charges and apply the proceeds to decommissioning fimding. His result seems inconsistent with the basic tests proposed in the definition of " electric utility," as set forth above, which, if met, would to allow a licensee to annd up-front funding.
%7NSTON & STRAWN John C. Hoyle Attachment I November 24,1997 i Page 3 l
sales), a regulatory " certification" that such costs will be recovered, or other arrangements involving continued regulatory control, such as priority dispatch for nuclear units, which provide assurances l that nuclear decommissioning costs will continue to be funded. ,
1 Examples of non-regulatory showings which could be used to support ongoing contributions to a decommissioning fund could include, for example, self-guarantees, parent or affiliate guarantees, or other tests of the financial strength and prospects of the licensed entity (ics),
such as ownership of other revenue-generating assets (e.g., where nuclear assets are consolidated with electricity transmission and/or distribution andor natural gas operations). Another relevant factor may be whether the licensee has insurance for premature decommissioning caused by an accident. At bouom, in considering whether the current " pay-as-you go" decommissioning funding system will remain appropriate for power reactor licensees. the NRC should not frame the discussion !
simply in terms of whether licensees' nuclear operations will cominue to be subject to cost-of-scrvice rate making, but rather should consider other regulatory arrangements or economic showings that can provide an altemative basis for finding reasonable assurance that decommissioning funds will be available when needed.i i
The rule also should make clear that responsibility for decommissioning funding rests entirely on those entitics having an ownership interest in a nucicar facility to the extent of and in I proportion to their ownership share or contractually assumed liability for decommissioning. As I presently drawn, the mie could be interpreted to impose decornmissioning funding obligations on companies that are mere operators, with no ownership interest (or contractual assumption of decommissioning liability) in a particular facility. Clarifying this matter is essential to preserving the option of having nuclear plants operated by specialized nuclear operating companics with no ownership interest in the facilities they operate.5' i
Further, the Group endorses the comments ofN El encouraging much more flexibility l for demonstrating reasoaable assurance of availability of decommissioning funds and urging the Commission not to foreclose at this very early stage in the deregulation restructuring process what f NRC's st;pport may be needed for revisions to Intemal Revenue Code Section 468A, since under present law, contributions to an extemal trust are deductible in the year made only if collected from ratepayers per a PUC order. .
1 f The Commission could accomplish this by adding language to 10 CER. j 50.75(a) that would make clear that decommissioning funding is the obligation of the owners of a facility subject to decommissioning requirements and that applicants that would provide, or licensees that do provide, only operating services without an ownership interest are nol subject to decommissioning obligations.
i 1
l
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WINSTON & STitAWN I
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[ John C. Hoyle Attachment November 24.1997 Page 4 l
l may prose to be sound, reasonable alternatives for making the necessary regulatory showing. Lastly, the Group endorses the comments of NEI that suggest use of a term other than " electric utility" for decommissioning funding purposes and that encourage separate treatment of the subject of fmancial qualification #
l H. Commission Discretion To Require Alternative Funding Accumulation Rates l NRC Pronosal The proposed rule would amend 10 C.F.R. Q 50.75(e)(3) to provide that "[t]he l Commission reserves the right to take the following steps in order to assure a licensee's adequate l accumulation of decommissioning funds: review, as needed, the rate of accumulation of decommissioning funds; and either independently or in cooperation with either the FERC and the State PUC's take additional actions as appropriate on a case-by-case basis, including modification of a licensee's schedule for accumulation of decommissioning funds" (62 Fed. Reg. at 47,605).
Cornment This proposal is troublesome in that it contemplates the exercise of Conunission discretion in a manner which could undermine the " generic" nature of the rulemaking and result in inequitable regulatory treatment among licensees. A principal purpose of establishing decommissioning funding requirements applicable to all, or particular categories of, licensees is to ensure predictability and fairness in the implementation of the regulatory framework. To date, the decommissioning regulations have given licensees assurances that, during the operating life of their reactors and at least until premature shutdown or five years prior to cessation of commercial opemtions, they can satisfy regulatory requirements by fiuxiing for decommissioning in accordance with the certification amounts and adjustment formulas provided in 10 C.F.R. 50.75. The proposed amendment to 10 C.F.R. { 50.75(c)(3) contemplates that the Commission may impose some attemative funding requirements (including those with respect to the rate of accumulation of t' The proposed defmition of" electric utility" seems somewhat self-fulfilling or circular in requiring that the entity's rates be " sufficient for the licensce to operate, maintain, and decommission its nuclear plant safely." First, it is arguably impossible to demonstrate during the operating life of the plant that such rates are sufficiem to decommission the facility.
- Second, even if such a showing were possible, it would be at odds with the " reasonable l assurance" standard that underlies the rule. In other words, the regulations are not intended
! to require showings during the operating life of a facility that a licensee niu have sufficient
( funds to decommission; accordingly, it seems inappropriate to offer " electric utility" status
- only to entities that can make a showing that their rates are sufficient to ensure that result.
l
%7NSTON & STRAWN John C. Hoyle Attachment j November 24,1997 Page 5 l funds) on a case-by-case basis during this operating period.1 While the Commission cenainly has the authority to take docket-specific action to ensure compliance with its regulations and protection ,
ofpublic health and safety (which itself supports the view that the proposed amendment to 10 C.F.R. I 50.75(e)(3) is unnecessary), the provision is unsettling in that it does not specify or give examples of the types of situations that would subject a licensee to such altemative funding requirements. The possibility that decommissioning funding requirements may vary from licensee to licensee based on unspecified factors is particularly troubling in the present deregulatory environment, where a licensee's operating costs, relative to its peers', may be especially significant. The Commission should either delete this proposed language and rely on its traditional administrative powers to monitor compliance with the regulations or should develop more specific requirements or guidance to e .sure that this provision cannot be applied inadvertently in a manner that results in inequitable regulatory compliance costs among licensees.
III. Alternatives for Non-F.lectric-Utilitics to Providing "Up Front" Assurance NRC Proposal Power reactor licensees not qualifying as " electric utilities" would be required to fund -
for decommissioning in accordance with one of the methods provided in 10 C.F.R. 6 50.75(e)(2).
The Commission seeks additional comments on alternative methods of financial assurance that would provide assurance equivalent to that already provided under the Commission's regulations (62 Fed. Reg. at 47,596).
Comment Satisfaction of the criteria in 10 C.F.R. Part 30 for providing a parent or self-guarantee of decommissioning funds (which are among the funding methods allowed by 10 C.F.R.
s 50.75(e)(2) for non " electric u:ility* licensees) could be problematic for power reactor licensecs.
In response, the Commission noted only that it "would need to conduct additional research ano analysis to detennine which additional financial measures would be most useful and appropriate if a financial test requirement for parent or self guarantee were pursued" and concluded that it is "not presently offering any changes to its financial test criteria" (62 Fed. Reg. at 47,595). The Commission should undenake such an analysis in connection with this proposed rulemaking and
? In this regard the proposed amendment seems misplaced in Section 50.75(e)(3) of the proposed rule, which concerns rnethods for providing decommissioning funding assurance, rather tlum in Section 50.75(c), which govems the amount of required decommissioning funding (and hence, for licensees employing an extemal trust anangement, the rate of accumulation of funds).
WINSTON & STRAWN John C. Hoyle Attachment November 24,1997 Page 6 before limiting former " electric utility" licensees to use of these pre-existing funding requirements.
Given the uncertainties in the future cause of electric utility deregulation, the Commission should at this carly stage of the pmcess endeavor to consider and accommodate all reasonable attematives for demonstrating financial assurance for decommissioning (whether that flexibility allows a licensee to fall within the dermition of" electric utility" or to use some funding method not previously available to non-power reactor, rum " electric utility" licensees).
! IV. Premature Shaedown NRC Pronessi Le Commission proposes not to mandate accelerated decommissioning funding in l
l all cases of premature shutdown and to continue to rely on the case-by-case appmach set forth in 10 l
C.F.R. 6 50.75(e)(2) (62 Fed. Reg. at 47,592).
Comment l 'lhe Group agrees with this approach.
l, V. Joint Liability for Co-owners /Co-licensees NRC Proposal Re Commission " sees no need to impose an additionct regulatory obligation ofjoint liability [for decommissioning funding obligations] on co-owners or co-licensecs" (62 Fed. Reg.
at 47,594).
Camansat The Group agrees with this much of the Commission's conclusion.
VI. Insurance Pool NRC Propmaal l
i i The Commission proposes to eliminate from huther consideration the concept of a l captive insurance pool to pay unfunded decornmissioning costs.
l WINSTON & STRAWN l
John C. Iloyle Attachment November 24,1997 Page 7 l
Comment The Group urged this result in its comments on the ANPR and agrees with the Commission's decision.
VII. Reporting Requirements h1C Proposal l The Commission is proposing that licensees report to the NRC on the status of decommissioning funding within 9 months after the effective date of the rule, at least once every two (2) years thercafter, and annually beginning five (5) years prior to planned cessation of operations.
The report must indicate the amount of funds identified and available for required decommissioning purposes.
Comraent While the Group supports the NRC pmposed rule reporting terms, the NRC should also ensure that any reporting requirements for decommissioning funding draw upon, and not extend beyond, licensee's current reporting obligations to other entities. The Group encourages the NRC to refrain from imposing new or duplicative reporting obligations.
VIII. Credit for Earnings NRC Proposal The Commission proposes to allow licensces to take credit for cammgs on external sinking funds l' rom the time of the funds' collection through the decommissioning period, using a two (2) percent annual real rate of retum or any higher camings amount approved by a rate-setting ausority (62 Fed. Reg. at 47,599,47,600). ;
Commaant Although clear in the commentary accompanying the proposed rule (62 Fed. Reg. at l 47,599,47,600), the text of the proposed rule should be revised to make clear that a licensee may auume a real rate of retum on fund eamings that is hggbst than two (2) percent if such higher rate is approved by a rate-setting authority. ;
Further, the language "through the decommissioning period" would seem to l encompass an extended intervening SAFESTOR period, especially in light of the discussion in the l
l b
WINSTON & STRAWN John C. Hoyle Attachment November 24,1997 Page 8 Supplementary Information. However, the rule should be clarified that this 2Wate of retum can be adjusted higher during the entire period from the time of the funds collection through the decommissioning period. The discussion of this portion of the rule, on pp. 47599-600 says " Higher eammgs amounts will be allowed dunng the period of reactor operation if specifically approved by a rate-setting authority." This is inconsistent with the actual language of the rule.
l i
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From: Paul Gunter To: Secrgary NRC ~ batabi/2d/9IT5n$e$ 1'6:25N6 ,,.
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- 142416th Street NW Suite 404 Washincton DC 20036 Tel
- 202-32S-0602 Fax: 202-462-2183 Eh[ ,, s[
ADJUDDuk M ETAFF i November 24.1997 1
l CKET NUMBER The Secretarv of the Commission .
16 FROPOSED pu s: E 50 L .S. Nuclear Reculatorv Commissmn Washington. DC 20555
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Attention: Docketing and Senice Branch l By FAX Transmission: 301-415-1672 i
NIRS Comments on NRC Proposed Rule On Financial Assurance Requirements for Decommissioning Nuclear Power Reactors
Dear Sir:
1 In response to the U.S. Nuclear Regulatorv Commission's (NRC) proposed rule on the Financial Assurance Requirements for Decommissioning Nuclear Power Reactors as provided Ihr public comment in the Federal Register September 10.1997 (Volume 62. Number 175). Nuclear J l Infonnation and Resource Senice (NIRS) submits the following comments. !
l I. LACK OF ENFORCEMENT OF CURRENT NRC REGULATIONS WITH REGARD TO t A NUCLEAR POWER STATION OWNER WHO DEFAULTS ON DECOMMISSIONING FINANCE OBLIGATIONS SETS A BAD PRECEDENT FOR THE FUTURE As it pertains to the proposed rule as stated above, it is of major concem to NIRS that the NRC is issuing incremental exemptions from 10 CFR 50.75(e)(2) to Great Bay Power Corporation in response to the company's default on its decommissioning financial obligations for ;
the partial ownership in the Seabrook nuclear power station. + , , > l
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l Great Bay Power, formerly Eastem Utilities Associates Power Inc(NUI):is,a twelvei
, percent (12 'o) joint owner in the Seabrook nuclear power generating station. Great Bay does not l t
l have a franchise area and therefore does not have a captive customer base. Great Bay has only '
l been able to sell 10 megawatts in long tenn contracts of its approximately 150 megaiva'tf disre in l Seabrook generating capacity. This has resulted in a shortfall in paying into the decommissioning l ftmd. As a result Great Bay required increased scrutiny of the NRC. The NRC staff has concluded that the reorganized Great Bay Power did not meet the definition of an " electric utility" under 10 CFR 50.2. Because Great Bay did not meet the definition the corporation is required to meet its share of its financial obligation for decommissioning Seabrook Station as a "non-electric utility" by immediately prepaying their share of the projected decommissioning costs. The corporation also has the option to secure a surety bond through a financial agent which
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From: Paul Gurner Tr: Secretary NRC D211/24/97 Time:16[26b8 Page 2 of 4 NIRS Comments Page 2 will assure that their decommissioning obligation is covered. Since Seabrook' operation commenced in 1990 Great Bay has proved neither assurance.
The NRC has responded by providing the corporation with a series of incremental exemptions. The first one in Februarv.1997 was granted for six months with the proviso that Great Bay secure a bonding agent to cover their liabilitv. Great Bay was unable to secure a surety in that time frame. Great Bay then requested a 5 year exemption and NRC responded by granting an additional exemption for one year with the proviso that the cornpany seek financial options.
Should Seabrook Station shut down early as the result of economic pressure or by some accideatal event, there will be an inadequacy in the decommissioning funds as a result of Great Bay Corporation's shortfall alone.
In a letter dated October 20.1997 from the NRC Commission Chair. Dr. Shirley Ann Jackson responded to Attomey Robert Backus. NIRS Board .\lember. that the incremental exemptions do not set precedent for offering "fmancial succor" to future utilities that might experience adverse effects ofincreased competition arising out of economic deregulation. NRC staff was merely providing Great Bay with additional time to meet the NRC's requirements and that such an exemption is based on the merits of the Great Bay exemption alone. Further. NRC does not believe the current default situation constitutes a crisis.
NIRS responds that ever since the commercial operating license for Seabrook was issued in July,1990, Great Bay Power (fomierly EUA before reorganization from bararuptcy) has demonstrated historical financial problems which have culminated into the current crisis with regard to decommissioning fimancial responsibility. Combined with the fact that the other co-owners in Seabrook have expressed their refusal to either come to the aid of the Great Bay or any sense of respansibility for the emerging default, NIRS believes to be evidence indicating that a crisis situation already exists.
NIRS believes this series ofincremental exemptions to be an abandonment of NRC staffs role to enforce of federal regulatious requiring nuclear power station owners to meet their financial obligation in order to protect the public from underfunded and therefore inadequate decommissioning activities. Therefore, NIRS has grave concems regarding the current effort by NRC to amend any of its requirements if in fact it means that the agency will not serious enforce the outcome.
Therefore:
- 1) NIRS finds that the NRC proposed rule change does not adequately address the need for shared responsibility of a nuclear power station's joint owners to cover a co-owner's default of l its decommissioning financial obligations. While the NRC has recently articulated that the agency reserves the right to impose joint and several liability "in highly unusual circumstances where i adequate protection of public health and safety would be compromised." NIRS is concemed by such vague policy and language referenced by NRC as it pertains the assurance of the availability of adequate funds to protect the public health and safety. This was the intent of specifying the different requirements for an " electric utility" and a "non-electric utility" for setting aside adequate fimds. A specific requirement for joint coverage is the logical mechanism to provide the needed l
From: Paul GuntIr To: $scrttsry NRC Date: 1124 97 Time 16 27.51 Page 3 of 4 NIRS Comments Page 3 additional assurance that the pubhe health and safety will be prioriti/ed by the asailability of adequate limds !br the decomimssioning. Since the construction. operation and maintenance of the nuclear power station is a jointly shared responsibility of all of the owners. it is common sense that the reactor's decommissioning should a tointly held responsibility thr all the owners in the esent of any one owner's delimit. To do otherwise would only represent an ellbrt on the part of lile reglliator to shield the economic inteiests of the other joint owners rather than to live up to the agency's regulators H1andate to plotJet pilblic healill and safety.
- 2) NIRS linds that the NRC reluctance to adequately address i e issues raised by the Great Bay default on its deconunissioning liability and the example which it prosides for a lack of any requirement Ibr joint owner liability of a co-owner's default to be a regulatory obliiscation of an emerging issue pertaining to utility default on the adequate prosision of decommissioning timds.
NIRS believes that the adsent of electrie utility restructuring will exacerbate ploblems to secure decommissioning financial assurance as more and more co-owners in nuclear power stations filee increased competition. NRC needs to establish strict entbreement standards as a regulator with the nuclear power Industr> as 11 pertains to the emerging issue of detitult on decommissioning fund liabilities.
II. CilANGING Tile DEFINITION (W AN El.ECTRIC LTil.lTY The Commission notes that the main component in revising its definition of an " electric utility" is a licensee's rates being established either through a cost-of-service mechanism or through other non-bypassable charge mechanisms. such as wire charges. non-b3 passable customer fees. including securitization or exit fees. by rate regulation authority.
NIRS does not support the inclusion of any mechanis.ms which provide for a stranded cost bailout of the nuclear industrv. Bad managerial decisions made over the past decades resulting in the phenomenal cost over runs and time to completion of many of these nuclear power stations should not be rewarded by a corporate welfare program. Other industries. such as in telecommunications. did not receive a bailout for their losses aller restructuring. thereliore. neither should the nuclear industry. Such a bailout uould destroy real competition. inhibit employment gains. and the economic grow 1h of more viable cost etrective and less polluting power generating technologies. A bailout of the nuclear industry would also further damage the environment by allowing nuclear power stations that might otherwise . shutdown to continue operation.
III. REPORTING REQUIRENIENTS The Commission is proposing that each license submit an initial decommission finance status report nine months aller the elTective date of the rule and a minimum of a two year reporting requirement with an additional annual liling requirement when the licensee comes within
- 5 years of closure. Given a number of reputable electric utility investment finns have the
! projected a broad range of numbers ihr early closures nuclear facilities in the United States and l the rapidly accelerating cost projections !br nuclear decommissioning operations. NIRS feels it would be prudent for NRC to require annual lilings from all station co-owners as an appropriate measure to address these uncertainties as they potentially impact public health and safety.
It TINilNG OF TIIE RUI.E.\l3 KING
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I From: Paul Gunter To; Secrcary NIC . .11 Date: . .24c97 Tune:..16.29.0$. . . . . Ptge 4 of 4
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NIRS Comments Pace i -
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NIRS believes the rulemaking to be timely given the example prosided by the Great llay l delhult ofits .lecommissioning obligation. Theretbre. an appropriate rulemaking is recessarv and
! timely .
Sincerely.
I Paul Gunter. Director l Reactor Watchdog Prqieet j 1 i 1
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Is '97 NOV 25 A8 38 cSOUTHERN November 24, 1997 OFF E t , ? . ; AMPANY RULFMi'
. pggggqQ;;, 7jgs;,,ey,w,w,,u, l Docket Nos, 50-321 50-348 50-424 HL-5524 I
' 50-366 50-364 50-425 LCV-1132 Mr. John C. Hoyle Secretary ofthe Commission gggNN g pin s j
U.S. Nuclear Regulatory Commission l ((, p gg ,M S$F) l l Washington, DC 20555-0001
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! l ATTENTION: RulmaWgs and Adjudications Staff Comments on Proposed Rule
" Financial Requirements For Decommissioning Nuclear Power Reactors" (62 Federal ReRister 47588 of Scotember_i_0.1997)
Dear Mr. Hoyle:
l Southern Nuclear Operating Company (Southern Nuclear) has reviewed the proposed rule l regarding the financial requirements for decommissioning nuclear power reactors published in the Federal Register on September 10,1997 as well as draft Regulatory Guide 1060, Financial Accounting Standards Board (FASB) Standards for Decommissioning Cost Accounting. In
- accordance with the request for comments, Southern Nuclear is in total agreement with the l NEI comments which are to be provided to the NRC.
In addition, Southern Nuclear believes that the same decommissioning fundmg security l required ofinvestor-owned licensees should be required ofpublic power agencies. The
! definition of" Electric Utility" in the proposed mle does'not appear to require that such l
agencies recover all of their costs in their rates, only that they set picir gyy,n rates. In a .,
i competetive market, it does not follow that the authority of su::h ageticgsid Ef tlieir own rites, ; 2 will, in and ofitself, provide assurance of decommissioning funding. Such agencies should be.c.
deemed to meet the definition of" Electric Utility" only to the extent that the rates theyd u establish provide security for the payment of decommissioning costs equivalent to that.r,egyired i ofinvestor-owned licensees.
. . _ x1 cm.e Finally, although the intent of the definition of Federal Licensee as expressed in the Federalw ma Register notice is appropriate, the actual definition is ambiguous in that the term " full faith and , m f .
- N T-C'Ps?T E'T31P11 50UTnEPH IUCLEE t..UL W I 6105 h0.501 P.2 2 U.S. Nuclear Regulatory Commission Page 2 credit backing" of the government is neither defmed nor commonly used in other legislation relating to federal agencies. The intent of the definition of Federal Licensee is obviously to i exclude from the definition any federal agency whose obligations do not constitute the obligations of the United States and, therefore, are not supported by the full faith and credit of ;
the United States. Therefore, the definition should be modified as follows: " Federal Licensee means any NRC licensee, the obligations ofwhich are guaranteed by and supported by the full faith and credit of the United States Government."
Should you have any questions, please advise.
Respectfully submitted, 1 1
C. K. McCoy// )
1 CKM/JMG l cc: Southern Nuclear Onerating Comp.10%
Mr. D. N. Morey, Vice President, Plant Farley Mr. H. L. Sumner, Jr., Vice President, Plant Hatch Mr. J. B. Beasley, General Manager - Plant Vogtle Mr. R. D. Hill, General Manager - Plant Farley Mr. P. H. Wells, General Manager - Plant Hatch U S. Nuclear Regulatory Commission. Washington, DC Mr. J. I, Zimmerman, Licensing Project Manager - Farley Mr. N. B. Le, Licensing Project Manager - Hatch Mr. L. L. Wheeler, Senior Project Manager - Vogtle l
U. S. Nuclear Renulatory Commission. Recion 11 '
Mr. L. A. Reyes, Regional Adminictrator Mr. T. M. Ross, Senior Resident Inspector - Farley Mr. B. L. Holbrook, Senior Resident Inspector - Hatch Senior Resident Inspector - Vogtle l
HL-5524 LCV-1132
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, SHAW PITTMAN No
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- ADJUDt JVF November 24,1997 DOCKET NlMRFR paopogro ppsPI 5 O Secretary, Nuclear Regulatory Commission /8 (6,2 FR 976 8"8)
. Attn: Rulemakings and Adjudications Staff l U.S. Nuclear Regulatory Commission Washington, D.C. 20555-0001 Re: Comments on Proposed Rule " Financial Assurance Requirements for Decommissioning Nuclear Power Reactors"
Dear Sir:
l As provided for by Federal Register notice of September 10,1997 (62 Fed.
Reg. 47,588), Great Bay Power Corporation (" Great Bay") is submitting these verit-ten comments on the Nuclear Regulatory Commission's ("NRC") proposed rule concerning " Financial Assurance Requirements for Decommissioning Nuclear Power Reactors." Among other things, the proposed rule would revise the NRC's regulatory definition of electric utility found in 10 C.F.R. S 50.2 with direct impli-cations for the decommissioning financial assurance requirements applicable to en-tities no longer considered to be electric utilities under the revised definition. Such entities would be required under the proposed rule to provide decommissioning funding assurance in accordance with the requirements for non-electric utilities set forth in 10 C.F.R. S 50.75(e)(2), which could in the extreme require, as a practical matter, up-front funding of the total expected decommissioning costs.
Great Bay would be directly affected by the proposed rule, if it were adopted as proposed. Great Bay has always believed and continues to believe that it is an electric utility under the NRC's current definition of electric utility, and, until re-cently, the NRC Staff had agreed. Under the proposed regulation, Great Bay and similarly situated electric utilities would now, for the first time, be required to comply with the decommissioning funding assurance requirements for non-electric utilities set forth in 10 C.F.R. S 50.75(e)(2), which the NRC itself recognizes are t burdensome. Indeed, the NRC has expressly acknowledged that the financial assur-ance mechanisms set forth in 10 C.F.R. S 50.75(e)(2) through which non-electric i utilities are required to demonstrate reasonable assurance of decommissioning 1
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SHAW PITTMAN POTI5eTROWBPJDGE A PARTNI ASH 91NCLUTNNC PROF tSWOPdAL CC*R EATKW6 Secretary, Nuclear Regulatory Commission
! November 24,1997 l Page 2 funding may be unavailable. Great Bay has experienced first-hand the difficulty in l attempting to obtain decommissioning funding assurance in accordance with the l requirements of 10 C.F.R. 5 50.75(e)(2) and, to date, it has been unable to do so.
This predicament, in which Great Bay and similarly situated currently li-censed electric utilities would find themselves as a result of the proposed rule, raises .
l serious questions of both law and public policy. The application of 10 C.F.R. 50.75(e)(2) to currently licensed entities, once considered but no longer viewed as electric utilities, could directly or indirectly result in the premature shutdown of nuclear plants and bring about the very result that the Commission seeks to avoid, ir, a nuclear power plant that is prematurely shut down with insufficient funds set aside to pay for its decommissioning. Such a result would be unsound as a matter of public policy. Moreover, for the Commission to require existing licensees to l provide financial assurance through mechanisms it knows are unavailable, thereby ,
causing premature plant shutdowns, would be arbitrary and capricious agency ac-tion under the Administrative Procedure Act. <
Great Bay recognizes that the NRC has a legitimate public health and safety function in ensuring licensees continue to provide reasonable assurance of adequate decommissioning funding as the electric utility industry restructures. However, the Commission's rules should retain flexibility for the provision of such assurance and should not require immediate decommissioning funding up-front for currently licensed entities that would no longer qualify as an electric utility, which could, as a i
, practical matter, be the result under the proposed rule. It is unfair to require up-front decommissioning funding for existing licensees, such as Great Bay, who have j proceeded under the NRC-authorized presumption that they could set aside funds l for decommissioning on an annual basis over the life of the plant. Moreover, there l is the practical matter of whether existing licensees - never having contemplated or planned for up-front funding - could provide such funding. Thus, both as a matter of fairness and to avoid triggering the very result that the Commission seeks to avoid, as well as avoiding agency action that would be declared arbitrary and capri- l cious, such ent.ities should be allowed a reasonable extended period of time to pro-vide adequate assurance of decommissioning funding.
The Commission in the Statement of Considerations to the proposed rule expressly recognized the dilemma that would be faced by licensees no longer con-sidered to be electric utilities under the proposed rule and requested comments on l 1 1
SHAW PITTMAN IOT15eTIOWBRIDGE i A PARTNERSHIPINCLUDINC PROFts510NAL COKf0KATO94 ,
Secretary, Nuclear Regulatory Commission :
I November 24,1997 Page 3 ;
allowing such entities to partially accelerate their payment of decommissioning ;
funds into a sinking account instead of requiring a surety or a similar up-front guar- l antee. Great Bay supports such an approach provided a sufficient period of time is !
allowed for the accelerated payment of decommissioning funds to the sinking ac-count. Further, the Commission should amend its decommissioning financial as- i surance requirements for non-electric utilities to allow greater flexibility in the [
alternatives that could be used by such entities to provide financial assurance. For )
example, individual states may undertake initiatives not expressly contemplated by ;
the NRC rules that ensure adequate decommissioning funding for nuclear power l plants within their states. New Hampshire is currently considering such initiatives i with respect to Seabrook. Any rule promulgated by the NRC should retain suffi- i cient flexibility to allow such state initiatives or similar initiatives by individual li-censees to satisfy the NRC's fm' ancial assurance requirements for decommissioning funding. As the Commission has recognized, those requirements call for "' reason- l able assurance of funds for decommissioning,' not an absolute guarantee of such !
funds."2 Great Bay elaborates further on these points below. In Part I, Great Bay dis-cusses in greater detail why it believes that the proposed rule should not be adopted l as presently crafted. In Part II, Great Bay discusses potential changes to the pro- l posed rule which could both ameliorate its concerns while providing reasonable as- :
l surance of adequate decommissioning funding.
I. The Commission Should Not Adopt ,
The Proposed Rule As Drafted I A. Recul2 tory And Factual Background The nuclear plants currently operating in the United States were financed and constructed by the electric utility industry. Although the NRC required elec-tric utilities to establish their financial qualifications to construct their plants, since the 1984 amendment of the financial qualifications rule, the NRC has presumed that entities falling within its regulatory definition of electric utility are financially qualified to operate and maintain their plants.
2 Yankee Atomic Electric Company (Yankee Nuclear Power Station), CLI-96-7,43 N.R.C. 235, 262 (1996) (emphasis in original).
l l
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SHAW PITTMAN
,- PCTl'SeTFOVBFJDGE o, _ _ _ _
Secretary, Nuclear Regulatory Commission November 24,1997
! Page 4 Funher, until the promulgation of its decommissioning rules in 1988, the NRC did not require its licensees, whether considered to be electric utilities or not, to set aside monies for the decommissioning of their nuclear power plants. The ini-tial NRC financial qualification rules (prior to the adoption of the 1984 amend-ments) required applicants for an operating license, including electric utilities, to demonstrate:
reasonable assurance of obtaining the funds necessary to cover estimated operation costs for the period of the license, plus the estimated costs of permanently shutting the facility down and maintaining it in a safe condition.
10 C.F.R. S 50.33(f)(2) (1980). In addition,10 C.F.R. 5 50.82 (" Applications for termination of licenses") provided that a licensee could submit an application "to surrender a license voluntarily and to dismantle the facility and dispose of its 2 component parts." 10 C.F.R. 5 50.82(a) (1980). The Commission could require
. \
information as to proposed procedures for the disposal of radioactive material, decontamination of the site, and other procedures, to provide reasonable assurance that the dismantling of the facility and disposal of the !
component parts . . . will not be inimical to the l 4
common defense and security or to the health and safety l of the public.
Id. Upon such a showing, the Commission could " issue an order authorizing such dismantling and disposal, and providing for the termination of the license upon completion." 10 C.F.R. S 50.82(b) (1980).
Thus, as acknowledged by the NRC in NUREG-0436, its regulations ad-dressed decommissioning "in only a limited way."2 In particular, its financial qualification provisions only addressed the " financial qualifications of prospective licensees," did not require licensees to set aside monies for decommissioning, and did not even " speak directly to final disposition of the facility, but only of shutting u NUREG-0436, Rev.1, " Plan for Reevaluation of NRC Policy on Decommissioning of Nuclear i Facilities" at 3 (Dec.1978).
1 SHAW PITTMAN l POTI5eTROWBRIDGE l
.,_ m, - - u m _ j l Secretary, Nuclear Regulatory Commission November 24,1997 j Page 5 l down and maintaining it in a safe condition."2 As reflected in NUREG 0584, the l l Commission assumed "in evaluating the financial qualifications of reactor licensees that if an applicant for a reactor operating license [were] financially qualified to construct or operate a nuclear facility, it [was] also qualified to shut [the facility]
down" and decommission it.2 In 1977, the Public Interest Research Group ("PIRG"), and others, requested .
the Commission to initiate rulemaking to promulgate regulations for nuclear j power plant decommissioning. The petitioners sought the promulgation of regula- i' tions that would require licensees "to post bonds to be held in escrow, prior to each plant's operations, to ensure that funds [would] be available for proper and ade-quate isolation of radioactive material upon each plant's decommissioning."2 The petitioners argued that this arrangement would " ensure that the cost of decommis-sioning is paid for by current beneficiaries and not by future generations."2 The Commission did not adopt the regulatory approach proposed by the pe-titioners. Rather,it promulgated regulations that allowed electric utilities to pro-vide financial assurance for decommissioning by setting aside funds on a periodic basis into external sinking funds dedicated to covering plant decommissioning costs /2 In adopting this approach, the NRC expressly rejected the posting of surety bonds as sought by PIRG and others because the NRC found upon review that " surety bonds were not generally available in the amounts necessary for de-commissioning power reactors."2 The NRC's finding was based on inquiries to the ten largest bonding compa-nies on "whether surety bonds in the amount of $50 million for a term of 40 years E Id. a: O E NUREG-0584, Rev. 3, " Assuring the Availability of Funds for Decommissioning Nuclear Facilities" at 2 (March 1983) (hereinafter NUREG-0584).
E 43 Fed. Reg. 10,370,10,371 (1978) (Advance Notice of Proposed Rulemaking)
(" Decommissioning Criteria for Nuclear Facilities").
l 2 Id, E 53 Fed. Reg. 24,018 (1988) (Final rule) (" General Requirements for Decommissioning Nuclear l
Facilities"): see also 50 Fed. Reg. 5,600 (1985) (Proposed rule) (" Decommissioning Criteria for Nuclear Facilities").
E 53 Fed. Reg. at 24,034 (ntmg NUREG-0584).
SHAW PITTMAN POTFSeTPC)WBRIDGE A PfJLTNERSHIP INCWDINC FLOfL1510NAL COMURADONS Secretary, Nuclear Regulatory Commission November 24,1997 Page 6 would be available, and if so, what would be their cost."21 The unanimc,us response of all the companies was that such " bonds would not be available in that large an amount for that long a term."* Accordingly, the NRC adopted rules which al-lowed its electric utility licensees to provide financial assurance for decommission-ing funding through external sinking funds, which to date has been the usual and accepted method for nuclear power plant licensees to provide decommissioning funding assurance.10 C.F.R. $ 50.75(e)(3).
The decommissioning regulations promulgated by the NRC in 1988 also in-cluded 10 C.F.R. S 50.75(e)(2) which requires non-electric utility licensees to pro-vide decommissioning funding assurance either through surety bonds or similar third party guarantees, or by prepayment, or by self or parent guarantees. Histori-cally, however, the NRC's reactor power licensees have been deemed to be electric utilities falling within the current definition set forth in 10 C.F.R. $ 50.2. Indeed, the draft regulatory impact analysis accompanying the proposed rule states such is still the NRC's current belief as follows:
NRC believes that, at this tune, all power reactor licensees meet the current definition of electric utility.*
In this regard, as set forth in Great Bay's October 20,1997 letter to Chairman Jackson, both Great Bay and its predecessor, EUA Power Corporation ("EUA Power"), were considered and treated as electric utilities for over a decade - from 1986 to January 1997 - even though the NRC was fully aware that both Great Bay NUREG-0584 at 36-37.
- Id. at 37 (emphasis in original).
- " Regulatory Analysis on Decommissioning Financial Assurance Implementation Requirements for Nuclear Power Reactors," Draft Report for Ccmment at 44 (1997) (emphasis added)
(hereinafter " Draft Regulatory Impact Analysis"). Great Bay notes that this statement is inconsistent with the NRC's treatment of Great Bay beginning with the issuance of its January 22, 1997 exemption order and its subsequent exemption order of July 23,1997. See Exemption Order, North Atlantic Energ,y Service Corocration and Great Bay Power Corooration (Seabrook Station Unit No.1), Docket No. 50-443 Gan. 221997) (hereinafter " January 22,1997 Exemption Order");
Exemption Order, North Atlantic Enercy Service Corooration and Great Bay Power Corocration (Seabrook Station Unit No.1) Docket No. 50-443 Ouly 231997) (hereinafter " July 23,1997 Exemption Order").
SHAW PITTMAN POTT 5eTROWBRIDGE ,
A PAR TNilL1HIF INCLUDINC PROF 1354%AL CORPORATICNS Secretary, Nuclear Regulatory Commission November 24,1997 ,
Page 7 and EUA Power sold power at wholesale at market based rates established under j the jurisdiction of the Federal Energy Regulatory Commission ("FERC").*
Under the NRC's proposed rule, however, restructured entities such as Great Bay would no longer be electric utilities. Therefore, they would be faced with providing decommissioning assurance funding under 10 C.F.R. S 50.75(e)(2).
However, the only mechanism provided for in 10 C.F.R. $ 50.75(e)(2) conceivably available to Great Bay and similarly situated licensees are surety bonds or similar i third-party guarantees which the NRC correctly found were not reasonably avail-able alternatives in promulgating its existing decommissioning regulations.*
Indeed, the NRC acknowledges that surety type mechanisms under 10 C.F.R. 50.75(e)(2) may not be available to licensees who would no longer be con-sidered electric utilities under the NRC's proposed rule. In Section 3.2.4 of the i draft regulatory impact analysis - which addresses the impacts of the proposed rule on licensees that "are no longer defined as ' electric utilities'" - the NRC notes the difficulty entailed in obtaining a surety and other third party guarantees as follows:
There are likely to be limits on the availability of surety bonds and other third-party guarantee financial mechanisms, such as letters of credit and lines of credit, to nuclear reactor licensees that are required to obtain b Letter to Chairman Jackson of the NRC from Gerald Charnoff, counsel for Great Bay dated October 20,1997 (hereinafter " October 20,1997 Great Bay Letter"). Thus, until the NRC Staff's issuance of its January 22,1997 Exemption Order with respect to Great Bay, the NRC Staff had never viewed one of its nuclear power plant licensees as falling outside the regulatory definition of electric utility and subject to the requirements of 10 C.F.R. 5 50.75(e)(2). As set forth in Great Bay's pleadings and other communications with the NRC, Great Bay believes that the NRC Staff's determination is wrong and that it is an " electric utility" as that term is defined in 10 C.F.R. 5 50.2. See October 20,1997 Great Bay Letter; Letter to Samuel J. Collins, Director of Office of Nuclear Reactor Regulation, from Gerald Charnoff, counsel for Great Bay dated August 11, 1997; Petition Of Great Bay Power Corporation For Partial Reconsideration Of Exemption Order, dated February 21,1997; Supplement to Great Bay Power Corporation's Petition for Partial Reconsideration of Exemption Order to Submit Requested Cost Data and to Request, in the Alternative, a Further Exemption, dated June 4,1997.
- Great Bay does not have sufficient funds to prepay its decommissioning funding obligation nor does it satisfy the requirements for parent or self-guarantee of its decommissioning funding obligation set forth in 10 C.F.R. 5 50.75(e)(2). ,
SHAW Ph iMAN
- IUFI5eTROWBFJDGE Secretary, Nuclear Regulatory Commission November 24,1997 Page 8 such mechanisms to demonstrate financial assurance for 4
the difference between their external sinking funds and the full amount of required assurance if the licensee no longer qualifies as an " electric utility." These limits may be created by the possibility, on the one hand, that the nuclear reactor licensees will no longer have recourse to the asset base of the utility, and that, on the other hand, providers of such financial mechanisms will require high levels of collateral and security before they will make such mechanisms available.
[T]he providers of financial mechanisms such as surety bonds and letters of credit have frequently required collateral for a portion or the full amount of the mechanism, and there is no reason to expect that they will relax this requirement for mechanisms assuring the very large decommissioning costs of nuclear generating facilities. Generating [ companies] without access in substantial assets may find it difficult to provide the :
necessary collateral.*
Similarly, in the Statement of Considerations, the Commission exprestly recognizes that surety bonds and other financial assurance mechanisms allowed non-electric utilities under 10 C.F.R. S 50.75(e)(2) "may not be available to some l licensees." 62 Fed. Reg. at 47,596.
Great Bay's recent experience in attempting to obtain a surety, as required l by the exemption orders, confirms the difficulty alluded to above by the NRC in obtaining such third-party guarantees. Great Bay has met, and is continuing to meet, with various insurance and bonding entities in an attempt to obtain a surety j bond or other third-party guarantee for its outstanding decommissioning funding obligation. However, so far the only terms under which Great Bay could obtain such a third-party guarantee would require it to fully fund or collateralize the in-surer for the entire decommbsioning obligation. As observed by the NRC Staff in
- Draft Regulatory Impact Analysis at 32-33 (emphasis added).
l SHAW PITTMAN IOTTSeTROMSRIDGE A FALTNLRSHIF INCLUMNC PRO 8L5540NAL CCE f0 RATION 5 Secretary, Nuclear Regulatory Commission November 24,1997 Page 9 the July 23,1997 Exemption Order, such terms "would make it difficult, if not im-possible, for Great Bay to meet its day to-day obligations." Thus, although Great Bay is continuing its efforts to obtain a surety or similar third-party guarantee, to date its efforts have been unsuccessful.
B. The Proposed Rule As Currently Drafted Is Unsound Both As A Matter Of Policy And As A Matter Of Law The above discussion of the regulatory and factual background establishes three salient points. These are:
- Eint, the NRC has found, and continues to believe, that surety bonds and similar third-party guarantees are not reasonably available to reactor power licensees for providing decommissioning funding assurance. The difficulty in obtaining such third-party guarantees is confirmed by Great Bay's ongoing effons to obtain a surety or similar third-party guarantee.
- Second, as a result, the NRC has never sought to require existing licensees (until recently Great Bay) to obtain a surety or similar third-party guarantees in order to provide the necessary financial assurance for decommissioning funding. Rather, historically, the NRC has always considered its existing licensees (including until recently Great Bay) to be electric utilities for whom the NRC did not require the obtaining of a surety in part because ofits unavailability and high costs.
- Third, as the Commission has observed, none of the financial assurance l mechanisms provided for by 10 C.F.R. S 50.75(e)(2) may be reasonably available to some existing licensees, such as Great Bay, who would be considered non-electric utilities under the proposed rule and thus subject i to the financial assurance requirements of 10 C.F.R. S 50.75(e)(2). Such existing licensees were licensed by the NRC without requiring such l surety, or similar guarantees, or up-front funding and thus they never contemplated or planned their business ventures to be able to accommodate and to meet such requirements. Indeed, such requirements would have likely caused entities, such as Great Bay and its predecessor, 1
l l
SHAW PITTMAN POTISeTFOWBFJDGE a ,_ __ _
Secretary, Nuclear Regulatory Commission November 24,1997 Page 10 EUA Power, not to have filed a license application or transfer application with the NRC in the first place.*
l In these circumstances, the Commission's adoption of the proposed rule as it is currently drafted would be unsound both as a matter of policy and as a matter of law. As a matter of fundamental fairness,it would be unfair for the NRC to re-quire a surety or analogous up-front decommissioning funding for existing licen-sees, such as Great Bay, who relied upon the presumption that they could set aside funds for decommissioning on an annual basis over the life of the plant. The pro-posed rule imposes major new requirements on those existing licensees no longer classified as electric utilities that were not in existence at the time oflicensing. Fur-i ther, there is the practical matter of whether existing licensees - never having con-templated or planned for up-front funding - could provide such funding, and even assuming that they could, whether they would be able to remain in business. As recognized by the NRC, Great Bay could not do so.
l Thus, the proposed rule as drafted could place current reactor licensees who I l
would no longer be classified as electric utilities in a difficult if not an impossible l situation. As the NRC has recognized in both the Statement of Considerations and l the Draft Regulatory Impact Analysis, the required financial assurance mechanisms '
l for non-electric utilities provided for by 10 C.F.R. S 50.75(e)(2) may not be avail-
! able to some licensees. Accordingly, strict and literal application of the require-ments of 10 C.F.R. $ 50.75(e)(2) to existing licensees, such as Great Bay, once considered but no longer classified as electric utilities, could result in the shutting down of nuclear plants with decommissioning funding not fully assured - the very result which the Commission seeks to avoid with the proposed rule. Such a result !
would be contrary to the public health and safety mandate and policies underlying the Atomic Energy Act. Therefore. both as a matter of fundamental fairness and to
- Applying the current requirements of 10 C.F.R. 5 50.75(e)(2) to a new licensee would not result in such inequities, for the new licensee's owners could factor such requirements into their 7
determination of the economic viability of the pusiness venture before undertaking the venture.
i With respect to Great Bsy, the new shareholders in 1994 provided additional capital and undenook an ownership role in Great Bay in reliance on the NRC's approval of the transfer, which treated Great Bay as an electric utility and did not require a surety or similar guarantee or l
up-front funding for Great Bay's decommissioning obligation. Sec October 20,1997 Great Bay Lener.
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1 SHAW PITTMAN POTTSeTFOWBFJDGE A F'JL TNLRSHlf (NCLUDING PR4WU6KWAL CCEPCRATKAS Secretary, Nuclear Regulatory Commission November 24,1997 Page 11 avoid triggering the very result that the Commission seeks to avoid, the proposed rule should not be promulgated as currently drafted.
Moreover, such a result would most likely be deemed arbitrary and capri-cious agency action. Under the arbitrary and capricious standard, which would be applicable if the proposed rules were adopted, an agency must consider the relevant factors, examine the relevant data and information, and aniculate a rational connec-tion between the facts found and the choice made. See, e.g., Motor Vehicle Mfrs.
Ass'n v. State Farm Mut. Auto. Ins.,463 U.S. 29,43-44 (1983); New England Coali-tion on Nuclear Pollution v. NRC. 727 F.2d 1127,1130-31 (D.C. Cir.1984).
Here, if the proposed rule were adopted as it is currently written, existing li-censees, such as Great Bay, who were previously considered but would no longer be classified as electric utilities, would be required to demonstrate reasonable assur-ance of decommissioning funding through use of one of the financial assurance mechanisms set forth in 10 C.F.R. S 50.75(e)(2). However, the Commission itself has acknowledged that these mechanisms "may not be available to some licensees."
62 Fed. Reg. at 47,596. For the NRC to order action that it knows is not possible would be arbitrary and capricious. The net result would be the shutting down of nuclear plants with decommissioning funding not fully assured - the very result the Commission purportedly seeks to avoid by promulgating the rule. Thus, there is no rational connection between the facts as found by the Commission and the im-plementation of the rule as drafted, and the rule would be subject to being struck down on grounds of being arbitrary and capricious agency action.
In short, the NRC should not adopt the rule as currently drafted because it would leave existing licensees, who no longer would be deemed electric utilities, in an untenable positic 1 that would be unsound as a matter of policy as well as a mat-ter of law.
II. Proposed Changes To Draft Rule For Entities Which No Longer Would Be Consideced Electric Utilities The Commission in the Statement of Considerations to the proposed rule recognizes the dilemma faced by licensees that would no longer be classified as elec-tric utilities. It acknowledges and expresses concern that the financial assurance
SHAW PITTMAN !
- - POTTSeTROWBPJDGE ]
t Secretary, Nuclear Regulatory Commission l November 24,1997 i
Page 12 mechanisms provided for by 10 C.F.R. S 50.75(e)(2) may not be available to some licensees no longer classified as electric utilities and it requests comments on alter- )
native methods of financial assu:nnce for such entities, such as allowing them to ac-l celerate their payment of decommissioning funds into an external sinking account.
62 Fed. Reg. at 47.596.
L i
Great Bay strongly suppons the Commission's initiative for developing, as l
part of this rulemaking, alternatives to the financial assurance mechanism currently l provided for non-electric utilities under 10 C.F.R. S 50.75(e)(2). Additionally, l Great Bay believes that 10 C.F.R. S 50.75(e)(2) should generally be amended to be made more flexible in order to take into account that individual licensees or states
! may develop satisfactory decommissioning funding assurance mechanisms that do not fall within the categories of mechanisms provided for by the regulation.
A. Alternative Financial Assurance Mechanisms l
l Great Bay believes that the accelerated payment of decommissioning funds l into an external sinking fund could be a viable financial assurance mechanism for non-electric utilities provided a sufficient period of time is allowed for the acceler-(
[ ated payment of funds into the sinking account. Currently, electric utilities must l make periodic payments into the sinking fund such that the total amount of the l funds in the sinking fund at the time termination of operation is expected - the end of the 40-year operating license - are sufficient to pay decommissioning costs. See 10 C.F.R. S 50.75(e)(1). If the time frame for the accelerated payments for non-electric utilities is too short, the large accelerated payments will put the non-electric :
utility at a significant competitive disadvantage in the deregulated generation mar-ket compared to an electric utility which can both spread decommissioning pay-ments out over the 40-year operating license time frame and recover those funds l from sources other than its sales of electricity in the deregulated market. The Commission should therefore recognize that to accelerate significantly decommis-sioning funding payments by non-electric utilities would greatly exacerbate the competitive disadvantage that such non-electric utilities will already face in the de-l regulated market. This in turn could potentially cause the insolvency of non-
! electric utility licensees and possibly early closure of a plant and thus create the l very result the Commission seeks to avoid. l l
SHAW PITfMAN POTTSeTROWBFJDGE A PAATNt99tlF INCLUINNC PR(W%iLWAL CC4PURATlOrg Secretary, Nuclear Regulatory Commission November 24,1997 Page 13 The Commission's Statement of Considerations suggested the possibility of accelerating payments into a sinking fund over a ten year period. This would be far too short and would create a non-level playing field with all the advantages to
" electric utilities," and in a non-regulated market, make it difficult for utilities such as Great Bay to compete. An accelerated payment alternative would be helpful but only if it is extended over a period of time approaching the end of the licensed pe-riod.
B. The Commission Should Amend 10 C.F.R. 50.75(e)(2) To Allow The Use Of Financial Assurance Mechanisms Other Than Those Set Forth In The Regulation To Provide Reasonable Assurance Of Decommissioning Funding Finally, the Commission should amend 10 C.F.R. S 50.75(e)(2) to allow the use of financial assurance mechanisms other than those specifically authorized by the regulation. As a practical matter, as the electric utility industry restructures, in-dividual states are likely to develop various different mechanisms or means for as-suring the funding of decommissioning costs for nuclear power plants located within their borders. States have just as great an interest as does the NRC in assur-ing adequate funding for the decommissioning of nuclear plants within their bor-ders. In this regard, New Hampshire is currently undenaking a review to ensure that decommissioning funding will be available for the Seabrook plant. Further, individual licensees may develop singly or jointly different methods for assurmg i the funding of decommissioning costs for particular nuclear plants. ;
l Thus, the NRC's decommissioning regulations should be flexible enough to
, allow the use of any financial assurance mechanisms developed by individual states or licensees which provide reasonable assurance of the adequate funding for nuclear power plant decommissioning. Specifically, Great Bay urges the Commission to l
amend 10 C.F.R. S 50.75(e)(2) to include a new subsection which provides as follows:
(2) For a licensee other than an electric utility, l
acceptable methods of providing financial assurance for decommissioning are -
+ + + + . . .
I 1
SHAW PFITMAN POTTSeTROWBFJDG A PARTNt RJHIP ING UDING FROFlaitONAL CtWJORATION5 Secretary, Nuclear Regulatory Commission November 24,1997 Page 14 >
(v) Any other method or methods that provides reasonable assurance that adequate funds will be available to decommission the nuclear facility.
CONCLUSION Great Bay appreciates the opponunity to provide comments on the pro-posed rule. For the reasons expressed in these comments, Great Bay believes that the rule should not be adopted as it is currently drafted because, as the Commission recognizes, it could place licensees that would no longer be classified as electric utilities in an untenable position in which they could not provide reasonable assur-ance of decommissioning funding as required by the NRC's regulations. For the NRC to order action that it knows is not possible would be arbitrary and capri-clous agency action subject to being struck down under the Administrative Proce-i dure Act. Instead, the Commission should allow existing licensees that would no longer be classified as electric utilities, such as Great Bay, a reasonable time in which to make accelerated payments to an external sinking fund, and funher, the l Commission should modify its regulation for non-electric utilities to provide gener-ally greater flexibility in the methods available to such licensees for providing rea-sonable assurance that adequate funds will be available to decommission their nuclear facilities.
\, 7 i
4 l t p
Gerald Charnoff !
(
Paul A. Gaukler Counsel for Great Bay Power Corporation cc: Dr. Shirley Ann Jackson, Chairman
. Office of the Chairman l
Nils J. Diaz, Commissioner l l
Office of the Commissioners 1
1 l
.. .-.-.-- .. . - . . . . . . ,. _ . . . - . . - = . - . - - . - - - . . .-.
i.
! SHAW PITTMAN POT 13eTROWBRIDGE Secretary, Nuclear Regulatory Commission
- November 24,1997 -
Page 15 l
Greta J. Dicus, Commissioner
( Office of the Commissioners l Edward McGaffigan, Jr., Commissioner i Office of the Commissioners l
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- 1. INTRODUCTION ................. 1
- 11. STATEMENT OF THE ISSUES ..................3
- A. Cost Estimates for Radiological Decommissioning . ....3 l
B. Planned Operating Life for Susquehanna . . . . . . . . . . . 11 l
l C. Generic Challenges . . . . . . . . . . . . . . . . . . . . . . . . 14 l
l D. Spent Fuel Disposal . . . . . . . . . . . . . . . . . . . . . . . 16 E. Low Level Radioactive Waste Disposal . . . . . . . . . . . . . 19 Ill. STATEMENT OF FACTS AND LAW . . . . . . . . . . . . . . . . . . 22 i
! IV. ARGUMENT ............................. 28 V. CONCLUSION .............................32 l
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BEFORE THE NUCLEAR REGULATORY COMMISSION NUCLEAR REGULATORY .10 CFR 50.2,50.75, & 50.82 COMMISSION : Proposed Rule Making Amendments
- RIN 3150-AF41 l THREE MILE ISLAND ALERT COMMENTS on FINANCIAL ASSURANCE REQUIREMENTS for .
DECOMMISC:ONING NUCLEAR POWER REACTCRS l
- 1. INTRODUCTION Three Mile Island Alert (TMIA) has been actively involved with issues pertaining l to nuclear decommissioning since the March 1979 accident at Three Mile Island (TMI)
Unit-2. Specifically, who should pay for the cost of nuclear decommissioning and l
radioactive waste management. Three Mile Island Alert does not dispute the nuclear industry's contention, as evidenced in the AnnuaIReports 1996 of Pennsylvania nuclear utilities (1) , that radiological decommissioning and radioactive waste isolation l expenses are subject to change and likely to increase. However, the fact of this matter is that the management, together with the shareholders of nuclear utilities, aggressively pursued he licensing, construction and operation of nuclear generating
! l i
i l 1 Duquesne Light Company (DLC); General Public Utilities (GPU); Pennsylvania f Power Company (PPC): Pennsylvania Power & Light Resources, Inc. (PPL);
Philadelphia Electric Company Energy (PECO). Also, the Allegheny Electric j Cooperative's (AEC) 10% stake in the Susquehanna Electric Steam Station (SESS).
)
i .
l
stations fully cognizant that no commercial nuclear reactor had been decommissioned and that a solution to nuclear waste disposal did not exist. Furthermore, the industry has not actively sought a solution to the permanent storage and isolation of low-level and high level radioactive waste. The industry has thus willfully pursued a financial investment in nuclear energy which was knowingly fraught with huge uncertainties.
Therefore, it is grossly unfair and inequitable to request the rate payers to provide a financial safety net for the utilities' risky nuclear investment strategy. TMIA argues that rate payer equity and corporate accountability necessitates that a substantial portion (See Proposed Formula on Decommissioning, p.29) of what is being referred to as
" stranded costs," (2) relating to nuclear decommissioning and nuclear waste disposal, should be borne by the entities that are traditionally held responsible for imprudent and unreasonable management decisions -- the electric industry shareholder, j
- l l
2 PECO Energy stated: "This legislation [ Pennsylvania] provides the possibility of, but I does not assure, full recovery of uneconomic or stranded costs." Reoort to
. Shareholders: Third Quarter 1996. J.F. Paquette, Chairrnan of the Board, December, '
1996.
For the purpose of clarity, " stranded costs" are " uneconomical" costs that utilities would not recover in a competitive market place.
I 2 l
~
II. STATEMENT OF THE ISSUES A. Cost Estimates for Radiological Decommissioning The wild fluctuation in the cost estimates for radiological decommissioning are based, in large part, upon the lack of any prior decommissioning activity in nuclear plants. The largest commercial nuclear power plant to be decommissioned, Shippingport, a 72 megawatt (MWe) light-water breeder reactor is substantially smaller than the Beaver Valley-1& 2 (833 Net MWe; 836 Net MWe); Limerick (1,055 Net MWe at each unit); Peach Bottom-2&3 (1,065 Net MWe at each unit)
Susquehanna Electric Steam Station-1 & 2 (1,050 Net MWe for each unit); and Three ,
Mile Island Unit-l (819 MWe) During Pennsylvania Power & Light's Base Rate Case (1995) (PA PUC v. PP&L, Docket No. R-00943271; R 00943271 COO 1, et seq.),
Company witness Thomas LaGuardia President of TLG (3) admitted that Shippingport was "almost like a pilot plant." (Transcript, page 2103, Lines 17-20) Shippingport was ;
owned and operated by Duquesne Light Company under special agreement with the Department of Energy. The entire core was removed and replaced three times prior to I
decommissioning, and as noted by Company witness LaGuardia during cross examination, "[T]here were several cores at Shippingport starting out as a pressurized water reactor and later being converted to a light water reactor." (Page 2105, Lines 19-21). Furthermore, the reactor vessel was shipped to the Hanford Reservation (through an exclusive and unique agreement with the Department of Energy) thus depriving the industry of critical hands-on decommissioning experience. In fact, Shippingport ivas l
3 TLG contracts with most commercial nuclear utilities in to provide fundint,:argets for nuclear decommissioning and nuclear waste disposal.
3
dismant!ed and not decommissioned. The immense differences between Shippingport and commercial nucl. ar power plants currently operating; therefore, make any financial comparison between the two inadequate and baseless. !
l Several other nuclear reactors are being prepared for decommissioning but i
provide little meaningful decommissioning experience that could be used reliably to predict the decommissioning costs of large nuclear generating stations.
For instance, Yankee Rowe was cited during the 1995 PP&L Base Rate Case as a reliable predictor of the decommissioning cost estimates associated with a large commercial reactor. Yankee Rowe, however, is a small commercid plant (167 MWe) that had two unique advantages which make it an unlikely predictor of decommissioning costs at other nuclear plants: 1) Barnwell, the regional low-level radioactive waste disposal site, has increased its tipping fees; and, 2) The most significant component removal, steam generators, was completed without Nuclear Regulatory Commission (NRC) approval. The PP&L's witness, Thomas LaGuardia, ,
i i
admitted, "[t] hat's correct, at the time. They [ Maine Yankee Atomic Power Company) l didn't have the decommissioning plan approved at that time." (PP&L Base Rate Case,-
l Page 2095, Lines 17-18.) Moreover, this plant is only in the initial phase of decommissioning and costs have already mushroomed from $247 to $370 million from j 1993 to 1995 primarily for spent fuel management costs. (PP&L witness, Thomas
)
LaGuardia, confirmed the figures on page 1029, Lines 16-22.)
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t
1 Shoreham, a large Boiling Water Reactor (809 MWe), was decommissioned after two full power days of operation or 1/7,300 of the " expected" operating life of Pennsylvania nuclear generating stations, thus making it; too, an unpredictable and unstable indicator of future decommissioning costs.
l As of this filing, no commercial nuclear power plant has been decommissioned, decontaminated and returned to free-release. Nuclear decontamination and decommissioning technologies are in their infancy and several identifiable industrial trends are apparent when reviewing the Nuclear Regulatory Commission's treatment
, of prematurely shutdown reactors: 1) There is a reluctance to undertake, initiate or finance decommissioning research; 2) Prematurely shutdown reactors place an additional financial strain on the licensee; and,3) These reactors have been retired for mechanical or economic reasons. (United States Nuclear Regulatory Commission, Advisory Panel for the Decontamination of Three Mile Island Unit-2, September 23, 1993.]
Pennsylvania Power & Light contracted with the nuclear industry's decommissioning consultant, TLG, to construct decommissioning cost estimates based on work completed at Shippingport, Shoreham, Yankee Rowe and small, prototype reactors such as: BONUS (17 MWe) placed in ENTOMBMENT; Elk River (20 MWe) a reactor approximately 2% of Susquehanna's size which operated for five
, years; and, Pathfinder (60 MWe), which operated for 283 full power days (PP&L Base Rate Case, LaGuardia, Page 1044, Line 1) before being placed in SAFESTOR in 1989.) These estimates, made by LaGuardia, relied on: 1) The development of l
nonexistent technologies; 2) Anticipated projected cost of radioactive disposal; and,3) 5 l
l
[
l The assumption tha' costs for decommissioning small and short lived reactors can be accurately extrapolated to apply to large commercial reactors operating for forty years.
l t
At the Susquehanna Steam Electric Station, projected costs for
- decommissioning have increased by 553% since 1981. In 1981, PP&L engineer Alvin l
Weinstein predicted that PP&L's share to decommission SESS would fall between l S135 and S191 million. By 1985, the cost estimate had climbed to $285 million, and by
! 1991 the cost in 1988 dollars for the " radioactive portion" of decommissioning was
$350 million. The Company then contracted out for a site-specific study which projected that the cost of immediate decommissioning [DECON) would be $725 million in 1993 dollars. The 1994 cost estimate remained steady at $724 million, but the market value of securities held and accrued in income in the trust funds declined, and l
l thus the estimate reflected another increase in decommissioning costs. (PP&L Base Rate Case, Page,1016, Lines 7-27 and Page 1017, Lines 1-24.)
Additionally , the impact of the review of the Financial Accounting Standards l
Board (FASB] (Security Exchange Commission) has yet to be configured into the decommissioning formula. "As a result, current electric utility industry accounting practices for decommissioning may change, including the possibility that the estimated cost for decommissioning could be recorded as a liability on a basis other than an l
accrual over the estimated life of the plant."( Pennsylvania Power & Light Company, 1994 Annual Reoort " Nuclear Decommissioning Cost, p.34.) According, to I General Public Utilities: "The FASB is expected to release an Exposure Draft in early 1996, and a final statement is expected to be effective for fiscal years beginning after l
December 15,1996." (General Public Utilities,1995 Annual Reoort . p. 36.)
6 l
One of the most disturbing and bizarre aspects of the radiological decommissioning is the "Who's on first? What's on second relationship?" between majority and minority shareholders of nuclear power plants. For example, the l Susquehanna Electric Steam Station is owned by PP&L (90%) and the Allegheny Electric Cooperative (10%). The Allegheny Electric Cooperative (AEC) AEC is l
l scheduled to contribute 10% of the cost of decommissioning. Company consultant, l
TLG, estimated PP&L's decommissioning share to be $724 million for 90% of the total cost of decommissioning. Based on this calculation, AEC 's 10% share of $804 million l should be $79 million. However, Allegheny is setting aside a figure based on 5% of i
l the final decommissioning costs even though Laurence V. Bladen, Director of Finance and Administrative Services told Epstein that AEC is basing its decommissioning costs on data supplied by PP&L. (Telephone conversation, March 30,1995.) " Allegheny's portion of the estimated cost of decommissioning SESS is approximately $37.8 million l
j and is being accrued over the estimated useful life of the plant." (Allegheny Electric Cocoerative 1994 Annual Reoort. The Power of Initiative: Seizing Oooortunities on the Horizon. Decommissioning Trust Fund, Cost of Decommissioning Nuclear l Plant, p.49.) The cost projections have not changed since the AEC's 1993 Annual Reoort (p.27). (See 1995 Annual Reoort: Beyond Electricity. p.29.)
l L Unfortunately, PP&L has adopted a distant and negligent attitude toward AEC's l obligations. Mr. Ronald E. Hill, senior vice-president of Finance for PP&L was l questioned by Mr. Epstein during the PP&L Base Rate Case (1995) on the relationship i between AEC and PP&L, and he exhibited this distant and negligent attitude:
l Q: Have you read Allegheny Electric Cooperative's annual report from last year by any
- chance?
Witness: I believe i glanced at it, but I can't recall specifics. (Page 448, Lines 15-22.)
7 4
O: Can you tell me why they're [AEC) only putting aside $37.8 million?
Witness: Not specifically except they're probably using a different estimate than we used. (page 449, Lines 5-8.)
O: Allegheny could be planning it [ decommissioning) on entomb, they could be planning it on decon?
Witness: They could be basing they're estimate on the NRC required funding level, too. There are several different methodologies of coming up with the estimate to decommission plants.
O: But it's possible that you could be putting aside money -- I believe, actually, your method is decon and their method is safe store.
Witness: I don't know what their method is. I don't believe it's safe store. (PP&L Base Rate Case, Page 450, Lines 11-25 and Page 451, Lines 1-12.)
Unfortunately, AEC does not know what method it is employing to calculate decommissioning costs either. On March 30,1995, Mr. Epstein contacted Mr. Bladen of the Allegheny Electric Cooperative. Mr. Bladen informed Mr. Epstein that decommissioning costs were based on estimates supplied by PP&L. Bladen noted:
"It's not like we could decommission [Susquehanna] using a different method."
However, Mr. Bladen could not identify the decommissioning mode. Mr. Epstein called on May 12,1995 and Mr. Bladen informed him that the method for decommissioning Susquehanna was "Greenfield." Mr. Epstein informed Mr. Bladen that Greenfield is not a decommissioning mode and Mr. Bladen responded, "I'll have to do some further checking." Mr. Epstein recontacted Mr. Bladen on June 5,1995, at which time Mr.
Bladen replied, "I keep asking the engineers. I know its not ENTOMBMENT." Mr.
Bladen is charged with financial oversight of AEC, and although sincere and responsive, has absolutely no idea about the method and financial expectations associated with the decommissioning of Susquehanna.
8
The impact of this uncertainty between derommissioning partners is clear.
Since PP&L has no enforcement mechanism to compel Allegheny Electric to fund 10%
of the decommissioning costs for SESS, the question of financial responsibility looms large. Mr. Epstein queried the Company witness during PP&L Base Rate Case (1995),
Mr. Ronald Hill, about the relationship:
Q: But there is actually no coordination?
A: There is coordination, but they're under no obligation to accept our estimate and to fund in the same manner that we do. They are obligated to come up with their share of the money at the end.
Judge Christianson: Coordination but not control.
Witness: That's right your honor.
O: Do you know what method right now they're anticipating Susquehanna will be decommissioned as?
A: No, I don't.
O: So it's possible they may be envisioning the decommissioning of Susquehanna say, entomb, whereas right now you're envisioning it as decon?
Witness: They may be. (Page 450, Lines 11-25 and Page 451, Line 1-12.)
The Allegheny Electric Cooperative is owned and controlled by fourteen (14) distribution cooperatives. AEC is not regulated by the Public Utility Commission nor does the company have publicly traded stock. Therefore, there is no behavior modifying mechanism afforded to state regulators or shareholders to oversee AEC's contributions. If current trends continue unabated, AEC's expected decommissioning savings will be grossly inadequate and will therefore undermine PP&L's
\
decommissioning plans for Susquehanna.
In addition, the Allegheny Electric Cooperative " generates approximately 64%
of the power it delivers to its members through operation of the Raystown Hydroelectric Project...and its 10% ownership of the Susquehanna Steam Electric Station..."
(Allegheny Electric Cooperative, Annual Reoort 1995: Beyond Electricity. p. 9.)
9 I
l
Any sudden and unexpected interruption in electric distribution, e.g., premature shutdown of Susquehanna, would further erode AEC's ability to make decommissioning contributions.
AEC's~ tenuous financial position in regard to inadequate decommissioning savings will place a greater fiscal burden on PP&L and, thereby; 1) Create further uncertainties about PP&L's ability to meet its financial commitments to decommission SESS; 2) Undermine TLG's net decommissioning estimates; and,3) Dilute TLG's contingency factor.
This case example is not unique among Pennsylvania electric utilities. Peach Bottom is owned by four companies, i.e. PECO (42.5%), Public Service Electric and Gas Company (42.5%), Atlantic City Electric Company (7.5%) and Delmarva Power and Light Company (7.5%). Regulatory oversight is dispersed among four state utility ,
commissions and two federal authorities, i.e. Nuclear Regulatory Commission and the Federal Energy Regulatory Commission (FERC). Yet there is no coordination in decommissioning planning among owners or regulatory agencies. If any one entity is unable to fund its portion of decommissioning, the entire process is in jeopardy. This fragile arrangement is replicated at majority of the nation's nuclear generating stations.
Additionally, Three Mile Island is carved up among three utilities operating in two states, i.e., Metropolitan Edison (50%), Jersey Central Power & Light (25%) and Pennsylvania Electric (25%). And in the case of TMI 2, decommissioning funding strategies vary from company to company. Met Ed is planning for SAFESTOR while Jersey Central Power & Light presumes DECON will be the mode of decommissioning. Further complicating the equation at TMI-2, is the fact that rate 10 t
payers were charged $700 million for a unit that was on-line for 90 days (1/120 of its expected operating life.) At the time of the March 1979 accident, TMI 2 had set no j monies for decommissioning. Rate payers also contributed three times as much as !
General Public Utilities toward defueling the crippled reactor, i.e., $246 million to $82 million (GPU Nuclear, Press Release, January 10,1985).
l l
The cost estimates for non-radiological decommissioning, (an imprecise term),
are not mandated by the NRC although the agency stipulates that all nuclear power plants be retumed to Greenfield, i.e. the original environmental status of the facilities prior to construction of the nuclear power plant. The fact that Greenfield has not been achieved by any large commercial nuclear plant and utilities are not required to save l l
for this phase, places additional strain on the companies ability to finance radiological and non-radiological decommissioning.
t :
B. Planned Operating Life for Nuclear Generating Stations
{
Experience at large commercial nuclear power plants over 200 MWe has clearly demonstrated that TLG's assumption, which is shared by the nuclear industry, l that nuclear units will operate for 40 years is a cruel fantasy that will penalize hostage rate payers, in fact, PP&L's counsel, Mr. David MacGregor conceded during the 1995
! Base Rate proceedings, "He [ Thomas LaGuardia) knows nothing about the operations of the Susquehanna plant."(PP&L Base Rate Case, Page 455, Lines 22-25 and Page i j 456 Line 1). The Company's witness, Thomas LaGuardia, was asked by Mr. Epstein. 1
"[H)ow many commercial nuclear power plants in this country have completed their full operating lives?" Mr. LaGuardia replied: "[N]one, essentially." (PP&L Base Rate Case, i Page 1023, Lines 20-22.) Additionally, George T. Jones, Vice-President of Nuclear Engineering, was asked by Mr. Epstein:
11 l
l l
0: "In your experience, which is rather extensive at TVA, Energy and CE, can you at least let me know what is the longest life of a plant you've been associated with?"
Mr. Jones: "I've never been associated with one that -- none of them have ever reached the end of their licensed life.
There has been a lot of work done and continues to be done on life extension, not by us but by the industry. I don't know." (Page 2272, Lines 8-16.)
Even Mr. MacGregor wavered on Susquehanna's ability to operate for its fuli-life. Mr.
Epstein asked him: "But his [LaGuardia) methodology is based or the fact the plant will operate for 40 years; is that not correct." Mr. MacGregor answered, "I'm not sure that's true." (Page 456, Lines 15-18.)
Mr. LaGuardia's and Mr. Jones's acknowledgments are confirmed by empirical data. The following reactors have been shut down prematurely: Shoreham,809 MWe, operated for two full-power days (which is .000136986% of the estimated life of Pennsylvania nuclear units) and closed before it could begin commercial operation in May 1989; Trojan,1095 MWe which operated for 40% of its operating life (May 1976 to November 1992); Three Mile Island-2,792 MWe which operated for 1/120 of its operating life (December 1978 to March 1979), Dresden,200 MWe which operated for 45% of its operating life (July 1960 to October 1978); Indian Point-1,257 MWe which operated for 30% of its operating life (January 1963 to October 1974); San Onofre-1,436 MWe which operated for 35% of its expected life (from January 1968 to November 1992); and, Fort Saint Vrain,330 MWe which operated for 27.5% of its expected life (January 1979 to to August 1989). [World List of Nuclear Power Plants:
Ooerable. Under Construction. or on Order (30 MWe and Over) as of December 31.
1924, " Nuclear News," March,1995, pp. 38-42.]
12
i
, On December 4,1996, Haddam Neck, a 582 MWe Pressurized Water Reactor l
l operated by Connecticut Yankee Atomic Power Company, closed prematurely in the l hope of saving rate payers $100 million (" Nuclear Monitor", p.4, December 1996.) The l
plant came on-line in January 1968 and operated for 72.5% of its predeted life.
A sense of fiduciary accountability and fair play dictate that utilities plan for decommissioning based on the assumption that their nuclear units will be prematurely shut down. The chief indicators that the nuclear industry relies on to measure plant longevity are spurious and imprecise. There is no clear nexus between operating capacity (measure of electricity actually produced compared to what would have been generated if the plant had operated continuously at full power) and plant longevity. As previously noted, operating capacity and historical evidence from commercial nuclear power plants give no indication that nuclear generating stations will operate for 40 years. On the contrary, empirical data has resoundingly demonstrated that nuclear power plants have not operated for the term of their license. (See infra ll-A Discussion.)
Obviously, there is chronic shortfall between ' targeted" funding levels and actual costs for nuclear decommissioning. The burden of proof rests squarely on the shoulders of the nuclear utilities to demonstrate that a 40 year operating life, which they predicate their financial planning upon, is realistic. Furtherrnore, the nuclear industry has exasperated this problem by resolutely refusing to put aside adequate funds for nuclear decontamination and decommissioning.
l 13
l l.
C. Generic Challenges Commercial Nuclear power plants in the United States are predominately boiling water reactors (BWR) or pressurized water reactors (PWR) supplied by General i
Electric, Westinghouse, Combustion Engineering or Babcock & Wilcox. Historically, l each vendor has encountered generic challenges at the reactors they construct.
)
The most serious potential generic issues that face BWR's are vessel shroud cracks
! and containment vessel integrity.
l Vessel shroud cracks are a serious problem which were first identified at Carolina Power & Light's Brunswick-2 in 1991 (767 MWe; began operation in March 1977) and Brunswick-2 (754 MWe; began operation November 1975) in September 1993. .The cracks at this facility were attributable to stress corrosion and irradiation.
i
[ Both are signs of premature aging. Cracks have also been identified at the following l
l General Electric Boiling Water Reactors: Dresden-3 (794 MWe which came on line in i i
November 1971) and Quad Cities-1 (789 MWe which came on line February 1973), in addition, on June 30,1994, PECO Energy Company reported vessel shroud cracking ;
l in Unit-3 (1034 MWe; began operation in December 1974). [World List of Nuclear {
( Power Plants. See supra).
J i
The BWR Vessel and Internals Project owners group has announced " cracking j of the core shroud is a warning that additional safety-class reactor internals are j l increasingly more susceptible to the same age related deterioration." [" Nuclear j i
Monitor," November 21,1994, pp.1-2.) As Boiling Water Reactors age, they become more vulnerable to age-related problems such as vessel shroud cracks, which have 14 i
i i
begun to appear at General Electric Boiling Water Reactors. Stan Maingi of the Pennsylvania Department of Environmental Resources told Mr. Epstein on June 9, 1995: "That's an issue that can shut them [BWR's) all down. They formed BWR Vessel and Intemals Project."
PP&L settled out of court with General Electric (GE) in March 1992 for $55 million for problems relating to generic flaws in the Mark I containment structure.
(PP&L Base Rate Case, Page 1038, Line 23-25 and Page 1039, Lines 1-18.) "Certain designs have prompted the NRC and others to raise questions about potential safety problems. These include General Electric's Mark I containment shell and the Babcock
&Wilcox designed reactors." (See "The Wall Street Journal," Wednesday March 18, 1987, p.63.)
The nuclear industry has yet to resolve generic challenges caused by the faulty fire barrier, Thermo-Lag. The NRC declared this faulty fire retardant " inoperable" in 1992.Yet Pennsylvania's nuclear plants continue to endanger citizens to replace Thermo-Lag. For example, PP&L deployed over 15,000' (linear) of Thermo-Lag in Susquehanna (Robert G. Byram, Letter to the US NRC, Document Control Desk, December 22,1994) and conducted tests that demonstrated that the material would not comply with regulations as admitted by Mr. Gorge Jones during surrebuttal cross examination on May 26,1995 (PP&L Base Rate Case, Page 2276, Lines 1-10.) In addition, Robert G. Byram, senior Vice President-Nuclear for PP&L acknowledged in a letter to the NRC that the performance record of Thermo-Lag "has led us to the conclusion that Thermo-Lag elimination through reanalysis is the only realistic approach to resolving this issue.(Robert G. Byram, see supra. )
15
Kent Walker, Chairman, OlG Thermal Sciences Inc. Task Force, NRC stated:
During OlG inspection team reviews with Pennsylvania Power & Light Company (PP&L) fire protection engineers on January 29 & 30,1992, regrading the Thermo-Lag 330-1 installed at Unit-1 at Susquehanna, George Mulley and Harold Fossett learned that PP&L is using a failed test to qualify test to qualify 0 percent of the Thermo-Lag installed on cable trays in Unit-1...in summary, based on the above information provided by the PP&L engineers, it appears possible that Susquehanna Unit-1 has been operating since 1982 with an unqualified Thermo-Lag fire barrier configuration which may not perform adequately.
(MEMORANDUM FOR: Frank J. Miraglia, Jr., Deputy Director, Office of Nuclear Reactor Regulation, February 3,1992.)
Unfortunately, the nuclear industry has failed to respond properly to NRC initiatives. As a consequence, the Nuclear Energy Institute has assumed responsibility for interfacing with licensees on this issue. On October 1,1996, the Nuclear Regulatory Commission fined Thermal Science, Inc. (TSI) $900,000 for " deliberately providing inaccurate or incomplete information to the NRC concerning TSI's fire endurance and ampacity testing programs." (James Ueberman, Director, NRC's Office of Enforcement, October 1,1996.)
To date, the above mentioned generic issue remains unresolved.
D. Spent Fuel Disposal l
There is no location to permanent'y store spent fuel generated by nuclear j power plants. This is a significant problem for Peach Bottom, Susquehanna and Three Mile Island where the fuel storage capacity will be exhausted before their license expires. Licenses' expire at Peach Bottom's 2-3 in 2013-2104; Susquehanna 1-2 in 2020; and, Three Mile Island-1 in 2014. These facilities have become a high-level, ;
1 16 )
l l
j radioactive waste (HLW) disposal sites and are seeking to increase storage capacity through an untested commercial technology, i.e., dry cask storage.
Even if spent fuel storage is increased, the additional cost will have a sigrlificant l impact on decommissioning. For example, at the Susquehanna Steam Electric Station cost was omitted from TLG's decommissioning estimate: *None of the estimates we have prepared include the cost of disposal of spent nuclear fuel," PP&L Base Rate l Case, Page 1032, Lines 20-12). But spent fuel is the main contributing factor in the
! escalation of decommissioning costs at Yankee Rowe. Thomas LaGuardia, the Company's witness, admitted the increase during cross examination:
Mr. Epstein: "Are you aware that the cost has increased for the decommissioning of Yankee Rowe from $247 million to $370 million over the last two years?"
Witness: "Yes. I'm aware of what the estimate concludes."
Mr. Epstein: "And half of the cost was attributable to spent fuel storage?"
Witness: "That's correct." (PP&L Base Rate .tase, Page 1029, Lines 16-22.)
l Aggravating the critical shortage of HLW storage space is the bleak estimate for l
j the completion of Yucca Mountain, the designated repository for high level nuclear I
waste. The earliest date this site could be available is 2010. Lynn M. Shishido-Topel, commissioner of the Illinois Commerce Commission testified on behalf of the National Association of Regulatory Commissioners before the House Subcommittee l
on Energy and Mining Resources and the House Committee on Oversight and Investigations (March 17,1995.) She told the panel that she was " fairly certain that DOE would not meet its revised 2010 deadline to begin accepting spent fuel from commercial reactors."(Bureau of National Affairs (BNA), " Federal Facilities:
Industry, DOE Struggle to Find Acceptable Solution to Interim Storage of Spent Fuel, I
17
~
Daily Environment Report News, March 18,1994 (1994 DEN 52 d10) .) Shishido-Topel also predicted that the amount of spent fuel generated by 2000 will be 40,000 metric ;
tons (MTU).
i The State of Nevada has demonstrated that Yucca Mountain will probably hold I about 20% of the total 85,000 MTU of spent fuel earmarked for the facility. (PP&L Base 4
i
. Rate Case, Page 2287, Lines 4 -19.) [ State of Nevada, Nuclear Waste Project Office, l Scientific and Technical Concerns, pp.8-11.]
! Despite the overwhelming evidence that Yucca Mountain will not be operational I
by 2010, the NRC recently submitted a Revised Program Plan (10 CFR 960,1996) which points to a " Viability Assessment" to make "a reliable appraisal of the prospects
- for geological disposal." This revised strategy will ask the President of the United States of America for a site recommendation authorization in 2002. .l 4
1 Isolation of high-level radioactive waste, which is primarily composed of spent ,
l nuclear fuel, can not be separated from nuclear decommissioning. At the earliest, !
)
Yucca Mountain will be available 2015. Nuclear generating stations can not be j l
immediately decontaminated and decommissioned with the presence of spent fuel on- l site or inside the reactor vessel. Aggressive and destructive decontamination clean-up processes will be unavailable until the spent fuel is removed the nuclear generating stations' temporary storage facilities. Additionally, front-end generic decommissioning tasks require skilled workers for site-specific tasks. Labor costs are erratic and should be linked to inflationary indices. Finally, the NRC and the nuclear i
industry devote scant resources to decommissioning research and development. This j laissez-faire approach should not be rewarded by financially penalizing rate payers.
18 j
As noted earlier, certain generic challenges face every nuclear power plant i
[See infra Discussion Il-C.) Spent fuel storage is no exception. Two consulting i engineers for Pennsylvania Power & Light warned that flaws at Susquehanna and the other 37 BWRs (including Limerick 1-2 and Peach Bottom 2-3) could result in a loss of pool cooling water that shields the partially spent uranium fuel. Their concerns languished for almost a year; yet, both engineers assert that PP&L is the best utility
( they've ever worked for. These flaws already exist at Pilgrim and the Washington Nuclear Power-2 reactors. In fact, PP&L who originally played down the engineers report, agreed in June 1994 to modify both their spent fuel pools to make them less likely to boil. [ Andrew Maykuth, The Dal/as Moming Star, 4A, July 31,1994.]
If a long term solution to spent fuelisolation is not found in the next several years, Peach Bottom, Susquehanna and Three Mile Island nuclear generating stations )
in Pennsylvania will most likely be shut down prematurely due to a lack of storage space. (See E. Low-level Radioactive Waste Disposal for further discussion.) ,
I E. Low Level Radioactive Waste Disposal Most nuclear generating stations currently serve as a temporary repository for i
Iow-level radioactive waste (LLRW). (The term is " low-level" is not analogous to low-risk.) PP&L's attitude of waste disposal mirrors that of that industry and government.
" Storage at the plant is an interim measure until a permanent, monitored above-i ground [actually the facility is specified to be above grade ) disposal site is ready in l Pennsylvania. That facility, expected to open in 1999, will serve nuclear power plants, hospitals, medical research labs, universities and hundreds of industries that use I
a
- 19
i radioactive materials." (PP&L, "Inside Susquehanna," Special Office of the President, ;
I l p.2) l i
TLG provides nuclear waste storage and nuclear decommissioning costs estimates for all Pennsylvania utilities regulated by the Public Utility Commission.
l However, TLG's recent testimony during the PP&L base rate case discredits their l projections. Mr. La Guardia based his cost estimates for low-level radioactive waste l disposal on the assumption that the Appalachian Compact would be available when j the SESS closes (PP&L Base Rate Case, Page 1034,17-20). He concluded that the !
disposal of LLRW is the most expensive component in the decommissioning formula (Page 2091, Lines 2125.) Furthermore, Mr. LaGuardia conceded it may be necessary i to recomputate cost estimates for disposal because it now appears imminent that l Barnwell will open for seven to ten years for all states except North Carolina (Page ]
2108, Lines 4-9.)
- in addition to recomputing the cost of LLRW disposal downwards, the reopening of Barnwell could further postpone the siting of a regional waste facility in Pennsylvania. Marc Tenan, Appalachian Sates LLRW Commission executive director observed
- "If Bamwell's going to open to the entire country for at least the next 10 l
years, is there really a pressing need to continue work on regional disposal facilities?"
("ACURIE Newsletter, About Low-Level Radioactive Waste Management," May 1995, p.1.)
20 l
l
TLG's decommissioning estimates from a dose assessment concentrated on the half-life of the radionuclides cobalt-60 and cesium-137. The timing of decommissioning is based to a large degree on the period in which the above mentioned isotopes decay and present an amenable workplace. However, Mr.
LaGuardia stated his unfamiliarity with the term hazardous life during the 1995 PP&L Base Rate Case:
Witness: "The half-life is the period of time a radionuclide takes to decay to half the radioactive level that occurred during that period. The hazardous life generally is referred to chemical hazardous materials which don't go by the same definition. I'm not familiar with that term with respect to radionuclides of concern."(PP&L Base Rate Case, Page 2118, Lines 1-6.)
This is a glaring and costly omission. The hazardous life is ten to twenty half lives.Therefore, the hazardous life of cobalt-60, (mostly a gamma medical source) is at least 52.7 years and cesium-137, (fission product) is at least 301 years. (Projected hazardous life is based on half life values in the CRC Handbook of Chemistry and Physics.1988). Moreover, as Mr. LaGuardia attested (Page 2100, Line 24), there are conflicting radiation clean-up standards for soil, water and surface as defined by the Environmental Protection Agency and the Nuclear Regulatory Commission and each agency has conflicting cleanup standards for site restoration. (PP&L Base Rate Case, Witness, LaGuardia, Page 2099, Lines 20-25 and page 2100, Lines 1-18.)
(For further discussion see FR 52061, October 23,1981; 42 FR 60956, November 30, 1977; 40 CFR 192,12, July,1989 and US NRC, " Guidelines for Decontamination of Facilities and Equipment Prior to Release for Unrestricted Use of Termination of Licenses for Byproduct, Source, or Special Nuclear Material." Policy and Guidance Directive FC 83-23, Division of Industrial and Medical Nuclear Safety, Washington, DC, August,1987.)
21
lil. STATEMENT OF FACTS AND LAW A. Imposition of Nuclear Operating Costs onto Rate Payers ;
I United States jurisprudence has never recognized the right of utilities to recover ,
imprudent, highly speculative utility expenditures. Bluefield Water Works &
Improvement Company v. Public Service Commission of the State of West Virginia, 262 U.S. 668,678 (1923) (no " constitutional right to profits such as are realized or anticipated in highly profitable enterprises or speculative ventures"); State of Missouri ex rel. Southwestern Bell Telephone Company v. Public Service Commission of -
Missouri,262 U.S. 276,289 91923) (an " abuse of discretion . . . by the corporate ;
officers" disallows recovery for those expenditures). This emphasis, not on micro management of the corporate leadership of the utility, but on the preservation of the legitimate regulatory authority of the states, was magnified in Pike County Light and
{
Power Company v. Pennsylvania Public Utility Commission, 465 A. 2d 735 (Pa. .
Cmwlth 1983), in which the Commonwealth Court of Pennsylvania stated that:
The electric utility's reliance on its parent company as a source of power represented an abuse of management discretion in consideration of available alternative supplies of electricity, thus requiring a reduction in its purchase power expense.
In the same case, the court stated that the *PUC has broad discretion in rate making matters" and that the actions of the utility were imprudent based upon the availability of lower cost power and the failure of the utility to pursue this alternative. Id. at 739.
22 y-w m----- + _ _ -= -
l l
This " prudent investment" approach was also explored in New Orleans Public Service, Inc. v. Council of the City of New Orleans,491 U.S. 350 (1989), in which the l State utility commission questioned the utility's actions in undertaking an investment in a nuclear generating station. The Supreme Court was asked by the utility to force the !
New Orleans City Council to grai.t the utility an increase in retail rates as determined l l
by the FERC, after the District Court had refused to rule on the basis of the abstention doctrine. Id. at 355. The Council had refused to grant the retail rates, and stated that j the utility's " oversight and review of its Grand Gulf obligation . . . was uncritical and
- severely deficient." Id. at 356 (citing App. 24)(citation omitted). The Council also stated that the utility " acted imprudently in failing to reduce the risk of its Grand Gulf j commitment, in the wake of the Three Mile Island nuclear accident in March,1979, 'by (not) selling all or part of its share (in Grand Gulf] off station."Id. at 357. The Court declared that the abstention doctrine did not apply to the case, and reversed and l
remanded the case for further consideration to the District Court.
l Other courts have also held that the imprudent activity of the utility in investing in I
nuclear generating capacity is a relevant factor to be taken into consideration when determining the amount of a rate increase request. In Pa. PUC et al. v. Metropolitan l l
Edison Company,141 P.U.R. 4th 321 (1993), the Commission was f aced with a request from Met-Ed for a rate increase prompted by the TMI-2 accident and l subsequent need for decommissioning. In its threshold inquiries, the Commission explored whether the decommissioning costs were a "necessary and reasonable cost i of doing business."Id. at 328. In addition, the Commission sought to determine whether the actions following the TMI accident were " imprudent or improper." Id. The Commission then noted that "no challenge ha[d] been made to the overall l reasonableness of decommissioning costs."
23
Given the uncertainty surrounding decommissioning, radioactive waste costs, i unavai; ability of radioactive waste disposal facilities, and increased safety concerns surrounding nuclear plant operation, the pudency of the utility's decision to dedicate large amounts of capital to the nuclear venture are called into question.
l The wild fluctuations of decommissioning costs based in large part upon the inability of the nuclear industry to maintain a nuclear generating plant for its full predicted operating life offered sound reasoning for a deviation in energy planning by corporate management. Reasonable and prudent utility decision-making demand more than a simple acknowledgement of an industry-wide change in the form of a rate i
hike request. As stated by the Court in Duquesne Light Co. v. Barasch,488 U.S. 299 (1989), the proper scope of analysis for the Commission is whether the decisions at
)
the time, were " reasonable and prudent."
i As reflected by the Commissions and the courts in many of the above cases, an extensive prudence inquiry is undertaken by the Public Utilities Commission under Sections 515 and 1308(f) of the Public Utility Code whenever a utility requests rate recovery based in whole or in part on the cost of constructing an electric generating unit. The roots of this prudence inquiry were discussed by the Commission in Pa. PUC
- v. Pa. Power Company,85 PUR 4th 323 (1987), in which the Commission explained that a prudence review is demanded by the premise that "[l]t is the utility, not its rate payers, which selects the firms which work on a construction project. Therefore, the utility, not its rate payers, must bear the consequences of a firm's failure to perform adequately." Id. at 336. In addition, the Commission stated that rate recovery may be denied even if a utility has acted prudently on the basis of inadequate performance by 24
l l l
sts agents, contractors, or subcontractors. Id. In the instant case, the decisions involving i
investment alternatives in the nuclear field were not made by the rate payers, but by the corporate management. A solid analogy can be drawn from the reasoning in Pa.
Power to the issue of " stranded costs" at nuclear power plants concerning the hands in which the decision making powers reside and the subsequent allocation of costs.
An extensive prudence review is necessary in rate increase request or
" stranded investment" proceedings to determine whether corporate mismanagement l has resulted in costs that are then unjustly transferred to the rate payers. In a forceful dissent filed by Commissioner Joseph Rhodes, Jr., to the decision of the Pennsylvania PUC in Pa. PUC v. Metropolitan Edison Company,141 PUR 4th 321 (1993),
Commissioner Rhodes disagreed with the balance struck in the Majority opinion between costs borne by the shareholder and costs borne by the rate payer. In )
discussing the equity of the arrangement by which Met-Ed rate payers were forced to pay rates which included the costs of decommissioning TMI-2, Rhodes stated the relevance of this case to future nuclear plant decommissioning cases:
Premature retirements bear great similarities to TMI-2 because they involve liabilities for premature retirements and decommissioning.
Therefore, the policy set forth in determining who should pay for TMI-2's decommissioning grows in significance because it may well establish a precedent for additional early retirement cases that might involve substantial rate increases.
Rhodes characterized the equitable considerations in this case between the rate l
payers and the shareholders in a simple but direct question: *ls it fair to impose these l
l costs on rate payers?"
l 25 1
I i
l -
in Re Wolf Creek Nuclear Generating Facility,70 PUR 4th 475 (1985), the Kansas State Corporation Commission was confronted with the pudency of the construction of a nuclear generating plant. The Commission discussed risk assumption and risk sharing through a summary of the test; mony of one of the intervener's witnesses, who testified to the proper role of regulation in the determination of rates. The witness, Dr. Sturgeon, explained that:
One of the goals of public utility regulation is to create the same results within the regulated industry as would occur in a competitive market. In a competitive market, if a firm does not use the efficient alternatives, it must either exit the market or receive a lower than normal return. Id. at 528.
Another witness, Mr. Drazen, argued that "Even without a showing of imprudence, shareholders should bear a portion of the cost of Wolf Creek since regulation is a surrogate for competition." Id. at 529 The Corporation Commission declared that the " risk-sharing" approach advocated by the witnesses had considerable merit. It continued to discuss the need for " clear, equitable, and strong risk-sharing policies to be established by regulatory commissions to be able to deal with the consequences of poor planning, even when no imprudence is demonstrated."
On the issue of decommissioning, the Commission stated that
" Decommissioning cost estimates are inherently uncertain and speculative" and that
"[t]o date, there has been no actual experience decommissioning a large, commercial nuclear plant and cost estimates have been traditionally low."In addition, the Commission held that "The current shortage (indeed nonexistence) of the site for the disposal of large quantities of radioactive waste makes detailed estimates of shipping 26
I distance and cost virtually impossible."Id. at 540-41. In the Wolf Creek rate case, Mr.
I LaGuardia (also a Company witness in the 1995 PP&L Base Rate Case) failed to include inflation in his cost estimates and assumed a forty year operating life for the
. nuclear plant. Id. On the basis of this omission and the speculative predictions of operating life, the Commission chose a " midpoint" of LaGuardia's testimony.
The Commission also declared, "We believe that the FRC and general industry estimates of 30 years is a valid and realistic life to utilize for purposes of j decommissioning estimates." Id. at 541.
1 l Additionally, the Commission cited to NRC guidelines that suggested five i
criteria for evaluating alternative financing mechanisms for nuclear decommissioning .
One of the components of analysis in the discussion was titled "Intergenerational l equity - that the cost of decommissioning be spread equitably to all rate payers throughout the life of the facility."Id. (See Discussion on p. 32.)
l The concerns expressed in the various cases discussed by the Commissions vested with the responsibility of approving rate hike requests, and recovery of new construction costs, are valid and applicable to the issue of imprudent " stranded costs."
An extensive prudence review of the costs incurred by nuclear utilities in the
! construction of nuclear generating stations and the subsequent decision by the owners and operators in their continuing operation is mandated by the speculative l and imprudent nature of the corporate management. Duquesne Light Company, l General Public Utilities, Pennsylvania Power & Light (and the Allegheny Electric l
Cooperative) and Philadelphia Electric Company, aggressively pursued nuclear l
27 l
l
ventures at Beaver Valley, Three Mile Island, Susquehanna Steam Electric Station, Limerick and Peach Bottom with full and complete knowledge of the uncertainties that serve as the economic foundation of the nuclear industry. The present operating status of U.S. nuclear facilities bear out this premise: no commercial nuclear generating facility has completed its full operating life, due to safety and economic considerations, nor has a safe, permanent repository been found for the disposal of high-level and l
low-level radioactive waste. Clearly, the rate payer should not be made to bear the brum oI expenses incurred by premeditated imprudent and speculative management decisions. Once again, the admonishment of Commissioner Rhodes is pivotal: "[A] side from whether it is legal, is it fair to impose these costs on rate payers?"
l l
IV. ARGUMENT Objective empirical data clearly demonstrate commercial nuclear power ' plants will not operate for their projected life of forty years. While the electric industry is i entitled to recover a portion of decommissioning funding through the rate making process, the industry is not entitled to a full and complete rebate on " stranded i
investments." These companies must assume responsibility for its business decisions. l l The industry aggressively sought to license, construct and operate a nuclear facility despite the fact that the riddle of how to resolve the "back-end" of nuclear power l
l production, i.e. (nuclear waste disposal and decommissioning) had not been solved.
l To allow nuclear utilities to recover 100% of decommissioning funding from the rate payer would be a de facto endorsement of corporate socialism. That is, shareholders l
l profit from their investment decisions but are accorded rate relief when their imprudent and speculative decisions become uneconomical. Additionally, complete rate recovery i
28
\
on speculative investments such as " stranded costs," penalizes electric uHlities such l as West Penn Power which pursued a non-nuclear electric portfolio, 1
1 l TMIA encourages the adaptation of Batelle Pacific Northwest laboratories (PNL) 1993 generic decommissioning formula by the Nuclear Regulatory Commission in regard to " stranded cost" rate recovery for the decommissioning costs of nuclear generating stations. Allow full recovery for the Nuclear Regulatory Commission's official projections for the minimum cost to decommission l Boiling Water Reactors. That figure is currently set at $131.8 million (1986 dollars) for DECON; SAFESTOR $128.3 million (ten years), $131.4 million (30 years) and $106.1 million (100 years). PNL estimates the l minimal cost to decommission a Pressurized Water Reactor at $105 1
- million. These figures are based on a 3,400 MWT or greater. For the j purpose of the study, Batelle Pacific Northwest Laboratories, the
! contractor, used WNP-2 (Washington Nucicar Power Plant-2) (1112 MWe) (operated by the Washington Public Power Supply System) as a l reference reactor. The inflation factor formula is: (0.75 L + 0.07 E + 0.18 B ) + TAXES / INSURANCE t Where:
l L = Labor & materials l
E= Energy & Transport, i
B= Waste burial.
This formula allows the costs to be indexed to any generic increases projected by the l
Commission. [ Decommissioning Costs Reassessment: Briefing for the TMI Advisory Panel, September 23,1995, Dr. Carl Feldman.] Funding in excess of the NRC's i
29 i
l financial goals should be paid into an external, segregated sinking fund by the ;
i I shareholders. However, should any individual nuclear unit shut down prematurely,
- the entire residue of decommissioning funding must necessarily be derived from '
l shareholder contributions.
i PNL's formula is sound and is periodically readjusted. Three Mile Island Alert j encourages the study as a baseline counterweight to TLG's estimates. In fact, TLG examined the same reference reactor as PNL and the only significant cost differential L ,
i was in relation to labor costs. !
1 The issue of rate payer equity and mandated feasibility of shared costs was l l highlighted in PP&L's 1995 Base Rate request before the Pa. PUC. The Company went on record during the hearings as being disgruntled with the manner in which l l
decommissioning costs are unfairly distributed among rate payers. Mr. Douglas A.
i l Krall, Manager-Integrated Resource Planning for PP&L is on record decrying the current decommissioning formula during the PP&L Base Rate Case:
Mr. Epstein: "That if the rate increase for decommissioning fossil fuel plants are ;
l delayed future customers would unnecessarily be at risk."
Mr. Krall: "Yes. There would be an exposure that a customer who came on the last day of operation of the plant would get very little service from the plant and end up paying )
l the whole cost of decommissioning." (Page 1925, Lines 16-24.) ;
i Mr. Epstein:"But you would not be adverse to assessing future customers who got no 1 electrical benefit from a plant decommissioning costs?" i Mr. Krall: "It doesn't seem to me to be an equitable situation." (Page 1927, Lines 9-13.) l
)
The nuclear industry has been pursuing a billing policy articulated by Luther J. !
l Carter:
i 30 i
e
l I
1 These industry actors, for the most part, find themselves nicely insulated from l l the costs of waste management. The Price-Anderson Act, for example limits ;
industry liability, and the nuclear waste policy act allows utilities to pass waste '
management costs through to rate payers. Thus nuclear waste I l management costs, like nuclear wastes, are a residue of the 1950s nuclear I l promotion policy. Moreover, a portion of nuclear wastes and their management i costs is the result of improperly underpricing nuclear electricity and creating an over-investment in nuclear plants and equipment. As a result, more waste than optimum was created. Furthermore, waste management costs are to be absorbed by taxpayers and rate payers instead of the shareholders of )
the industry actors who put their externality-creating products on the market without fully accounting for social costs. [ Luther J. Carter, "Jurimetrics Journal," Fall , 1988. 29 JURIM J 97.]
Unless a more equitable funding formula for decommissioning is established, rate payers who are not yet born will be burdened for payment for the cleanup of a plant that they derived no benefit from. Society as a whole, and the industry in specific, must assume responsibility for the decisions it makes. Creating and perpetuating intergenerational problems is not constructive , prudent or equitable.
Future generations may be exposed to gross rate payer inequity if adequate decommissioning funding based on realistic estimates (and not " funding targets") are not assured. The solution should not simply be foisted on the backs of immediate hostage rate payers. The industry must assume financial responsibility for its decision to invest in nuclear power which necessarily means the shareholder should bear a substantial portion of decommissioning expenses. Clearly, a formula must be established that recognizes rate payer equity.
31 1
l l
l V. CONCLUSION 1 l l 1
l In summation, Three Mile Island Alert invokes the comments of Peter Bradford, !
l former Nuclear Regulatory Commission Member, former Chairman of the New York
\
Public Service Commission and current member of the Vermont Department of Public l Service.
There never was such a regulatory compact (to ensure recovery of prudent, though ' stranded' costs). This statement may surprise anyone whose involvement in utility regulation predates 1985. Since that time, the breaching of the regulatory compact has been described and decried :
so often and so vociferously that a casual observer might easily believe I l
that this compact was a lesser known outcome of the original Constitutional Convention.
The utility claim seems to be that they have an entitlement [for stranded costs] despite this history because the particular traumas of retail competition could not have been foreseen. As a factual matter, this claim l I
is dubious. Furthermore, it mocks the notion of risk, which is by its nature not entireable foreseeable.
Utilities assert that they have the right to recovery extends to every dollar not disallowed as imprudent. However, regulators know how small a percentage of the total utility revenue stream is ever actually reviewed for prudence. In many states, utilities actively harass regulatory budgets and appointments in a manner hardly consistent with a statesmanlike compact. Even where such conduct is absent, the probability that regulators have actually disallowed every imprudent dollar is zero.
Strandable investment is the public's best leverage to an effectively competitive and an environmentally acceptable future. Regulators, legislators and others in public sector must not give it away until that future is well secured.
(Peter Bradford, Presentation before the Vermont Department of Public Service, July 16, 1996.)
l 32
l l Respectfully submitted, *
.ay 9
,Q I
0 \(
Eric Joseph ps f'
~ ~ Chairman Three~ Mile Island / Alert .
315 Peffer Street Harrisburg, PA 17102 NOVEMBER 20,1997 i 1
Enclosure ~
P I
33 I
~. ., _. _. _ _ ._. ,. . . - . . _ - - - _ . . . ,. --
! i O THREE MILE ISLAND ALERT, INC.
l a 315 Peffer St., Harrisburg, Penna.17102 (717) 233-7897 HISTORY OF THREE MILE ISLAND ALERT Three Mile Island Alert (TMIA) is a non profit citizens' organization formed in 1977 after the construction and licensing of Three Mile Island Unit-1 and after TMI-2 l
was constructed. TMIA is the largest and oldest safe-energy group in central Pennsylvania. TMIA has enjoyed widespread public and political support in its role as a watchdog of the Three Mile Island Nuclear Generating Station. In the spring of 1987, TMIA was recognized by the Pennsylvania House of Representatives for 10 years of I community service. The House, along with the City of Harrisburg, formally applauded l TMIA's efforts on behalf of the community at their 20th anniversary.
Since the March 1979 accident at TMI 2, TMIA has been actively involved with l l
many Three Mile Island related issues including: a' ctive intervener before the Nuclear l
)
Regulatory Commission (NRC) in hearings involving safety, technical and managerial issues; monitoring and tracking chronic safety, technical and managerial problems at Unit-1 and Unit-2; tracking adverse health effects as a result of the TMI-2 accident and l the normal operation of Unit-1 (since 1974); participating in two radiation monitoring networks; evaluating security problems at the Island; and, providing information, research and educational materials to the general public, media and elected officia s.
l l
TMIA also serves as regional clearinghouse on a broad spectrum of issues l relating to nuclear power production including problems at Peach Bottom-2 and -3, i
Susquehanna-1 and -2 and the proposed siting, licensing and construction of a low-
- level radioactive waste dump in Pennsylvania.
t TMIA's policy is generated by a seven member planning council which meets quarterly. TMIA meets regularly with the NRC and Pennsylvania Department of I
Environmental Resources to discuss issues and problems relating to TMI-1 and -2.
' The organization has two part-time volunteers who staff the office. In addition, several individuals write, edit and mail TMIA's newsletter which is issued five to six times a year. All of TMIA's funding comes from membership dues, private contributions and I fund raising events.
l TMIA's office is open Monday through Friday from 10:00 am to 6:00 pm.
l Weekend visits are available by appointment. The public and all interested parties are encouraged to stop by or contact the group by phone or mail.
l l
l
P.2/3 l
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l l BALCH & BINGHAM LLP ATT02ktYS AND COUNSELOR 5 TENT , neo. 00CKETED 1875 #ENNSYLVAsstA AVE NQc. ... USNRC WASHINGTON. 0.C. 20004 TELEPm0NC tacal 3470000
,a t .1. a . . . . , . . ,.4 . . , W NW 25 AU :37 November 24,1997 OFACJ RULM.%ne 5 ':% .?
ADJUD'CATQ 's($pp Mr. John C. Hoyle Secretary of the O==i== ion 30
- U.S. Nuclear Regulatory Commission DOCKET EME Washington, DC 20555-0001 pgyggg) pus E 6O ATTEN110N: Rulesnakings and Adjudications Staff !
Comments on Proposed Rule
" Financial Requirements For D-=i==ioning Nuclear Power Reactors "
(62 Fadaent Reai=*ar 47588 of Raata=her 10.1997)
Dear Mr. Hoyle:
This letter constitutes comments by TVA Watch Coalition (TVA Watch). TVA Watch which consists of the following companies, American Electric Power Services Corp., Southem Company, SCANA C+ ration, Duke Energy, Carolina Power and Light, Kaa=+y Utilities and Entergy, has reviewed I) the proposed rule regarding the financial reqnwi, for decommissioning me.laar power reactors published in the Federal Register on September 10, 1997, ii) the draft Regulatory Guide 1060, Financial Ace-*iae Stanclards Board (FASB)
Standards for Decommissioning Cost Accounting, and iii) the draft enmmante of the Nuclear Energy Institute (NEI) and the Edison Electric Institute (EEI). TVA Watch supports the commenen ofNEI and EEI to be filed with the Nuclear Regulatory Commission today.
In addition, TVA Watch believes that the same decammininning funding security required of :
investor-owned licensees should be required of public power agencies, Such agencies abould meet the definition of" electric utility" only to the extent that the rates they establish provide i security for the payment of decornminaioning costs equivalent to that required ofinvestor-owned licensees. 'Ihe definition of" electric utility" in the proposedale does not appear to require that such agencies recover all of their costs in their rates, onittifat they set their own rates. In a E =f=Gnve market, it does not follow that the authority of suckQcacies to set their own rates will, in and ofitself, provide assurance of decomminaioning funding.
s.;. . .
Finally, ahhough the intant of the definition of Federal Licensee as expressed in the response to comments is appropriate, the actual definition is ambiguous in that the tirm " fuil faith and
- credit backing" of the government is neither defined nor en==aah used in other legislation '
relating to federal agencies. The intent of the definition of Federal I icensee is obviously$
exclude from the definition any federal agency whose obligations do not constitute'the l
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.. I obligations of the United States and, therefore, are not supported by the full faith aad credit of '
the United States. Therefc:c, the definidon should be modified as follows: " Federal Licensee means any NRC licensee, the obligations of which are guaranteed by and supported by the full faith and credit of the United States Government."
Should you have any questions, please advise. f Respectfully sahmi"~l.
DOS l Karl R. Moor i
M Ck cc: Members ofTVA Watch l
i l
l i
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BALCH & BINGHAM LLP ATTORNEYS AND COUNSELORS TENTH FLOOR 1275 PE NNSYLVANI A AV E NUE, N W.
WASHINGTON, D.C. 2 0004 TELEPHONE (2027 347 6000 F ACS* MILE (202) 3476001 November 24,1997 Mr. John C. Hoyle Secretary of the Commission U.S. Nuclear Regulatory Commission Washington, DC 20555-0001 ATTENTION: Rulemakings and Adjudications Staff Comments on Proposed Rule
" Financial Requirements For Decommissioning Nuclear Power Reactors "
(62 Federal Register 47588 of Se_ o tember 10.1997)
Dear Mr. Iloyle:
This letter constitutes comments by TVA Watch Coalition (TVA Watch). TVA Watch which consists of the following companies, American Electric Power Services Corp., Southern Company, SCANA Corporation, Duke Energy, Carolina Power and Light, Kentucky Utilities and Entergy, has reviewed I) the proposed rule regarding the financial requirements for decommissioning nuclear power reactors published in the Federal Register on September 10, 1997, ii) the draft Regulatory Guide 1060, Financial Accounting Standards Board (FASB)
Standards for Decommissioning Cost Accounting, and iii) the draft comments of the Nuclear Energy Institute (NEI) and the Edison Electric Institute (EEI). TVA Watch supports the comments of NEI and EEI to be filed with the Nuclear Regulatory Commission today.
In addition, TVA Watch believes that the same decommissioning funding security required of investor-owned licensees should be required of public power agencies. Such agencies should meet the definition of" electric utility" only to the extent that the rates they establish provide security for the payment of decommissioning costs equivalent to that required ofinvestor-owned licensees. The definition of" electric utility" in the proposed rule does not appear to require that such agencies recover all of their costs in their rates, only that they set their own rates. In a competitive market, it does not follow that the authority of such agencies to set their own rates will, in and ofitself, provide assurance of decommissioning funding.
Finally, although the intent of the definition of Federal Licensee as expressed in the response to comments is appropriate, the actual def mition is ambiguous in that the term " full faith and credit backing" of the government is neither defimed nor commonly used in other legislation relating to federal agencies. The intent of the definition of Federal Licensee is obviously to exclude from the definition any federal agency whose obligations do not constitute the ,
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' obligations of the United States and, therefore, are not supported by the full faith and credit of I
- the United States. Therefore, the definition should be modified as follows
- " Federal Licensee means any NRC licensee, the obligations of which are guaranteed by and supported by the full faith and credit of the United States Government." i
^
l Should you have any questions, please advise.
l Respectfully submitted, 41 W05 t
Karl R. Moor KRM/ck cc: Members ofTVA Watch l
L
~
NOV-25-1997' 11:43 ~ 685 75f 4478 P.0iN2/009
$hb Y 00CKETED j9 i _
USNRC l
I l l 71 NOV 25 All:37 l
l Tennesete Valley Authority,1101 Market Street, Chauanooga, Tennessee 37402 200gggg y g, g g l - RULFNF ~ ~ND 1
ADJUD0AlG6 STAFF November 24, 1997 d DOCKET Nt rl PROPO6ED 111g riik 50
! ( WFM7S18) l Mr. John C. Hoyle, Secretary l U.S. Nuclear Regulatory Commission ATTN: Rulemakings and Adjudications Staff Washington, D.C. 20555-0001 l
Dear Mr. Hoyle:
NRC - REQUEST FOR COMMENTS ON PROPOSED RULEMAKING - FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISSIONING NUCLEAR POWER REACTORS TVA is pleased to provide comments on the subject rulemaking published at 62 Federal Register 47,588 (September 10, 1997).
As stated in the "
SUMMARY
" portion of the proposed rule, NRC l 1s proposing to amend its regulations on financial assurance !
requirements for the decommissioning of nuclear power plants 4 in response to potential deregulation of the power generating 4 industry. In general, the proposed rule changes would require power reactor licensees to report periodically on the status l of their decommissioning funds and on changes to their l external trust agreements, and would also allow licensees to take credit for the earnings on decommissioning trust funds.
In regard to TVA in particular, the proposed rule would redefine the term " Federal licensee" in a manner that would foreclose TVA's ability to use statements of intent as a method by which to provide funding assurance fdr-its future '
decommissioning activities. '
I NRC earlier published an Advance Notice of Proposed ROlemaking (ANPR) at 61 Federal Register 15,427 (April 8, 199,6), in.which it questioned, among other things, whether to continue to allow Federal Government electric utility licensees to use statements of intent to provide financial assurance for decommissioning. TVA responded by letter dated June 24, 1996, and explained why continuing the use of these stat'ements of intent under current regulations was entirely a.ppropriate and reasonable in TVA's case.
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NSS2# 11:42 615 751 4478 P.003/009 Mr. John C. Hoyle Page 2 Novatber 24, 1997 In regard to the overall changes contemplated under the proposed rule, TVA agrees with the. comments of the Nuclear Energy Institute (NEI). TVA agrees that the term " qualified nuclear entity" as defined by NEI has greater relevance in the framework of providing financial assurance for decommissioning. Those entities, so defined, should be permitted to use the full range of methods to provide assurance of decommissioning funding consistent with the provisions of the Atomic Energy Act. This would include, for Federal Government licensees, the statement of intent.
In regard to the specific proposed rule change which would define " Federal licensee" in a manner that would preclude TVA's use of the statement of intent, we oppose such change and believe that there are ample reasons to support its continued use by TVA. The enclosure to this letter explains, first and foremost, that distinguishing TVA from other Federal licensees on the basis of their having the " full faith and credit" backing of the Federal Government is without merit.
Insofar as providing decommissioning funding assurance is concerned, the key fact is that Federal law requires TVA to adequately fund the conduct of TVA's power activities, and this includes operating, maintaining, and decommissioning its nuclear facilities. Well before NRC began to address the decommissioning responsibilities of nuclear licensees and insist upon some type of funding assurance, TVA was taking action to meet its responsibilities to ensure that funds would be available to decommission each of its nuclear units. We will continue to meet our decommissioning obligations.
Absolutely no public health or safety benefit would be gained by imposing separate regulatory requirements to oversee the manner in which TVA is meeting its statutory obligations to the citizens of the Tennessee valley.
The enclosure to this letter also describes the actions that TVA has taken over the years to reinforce its commitment to ensure adequate funds for decommissioning. As we explained in our June 24, 1996, response to the ANPR, TVA's mast recent establishment of external trusts provide additional confidence that TVA's decommissioning funds will continue to grow to meet future needs. Finally, the enclosure to this letter describes the most recent actions TVA has taken to ensure that it will remain a competitive force, and fully able to meet its decommissioning obligations in the upcoming deregulated electric utility environment.
~wm
R $ % d5 % # - EEY7JM 615 751 4478 P.004/009 Mr. John C. Hoyle Page 3 Novmaber 24, 1997 TVA also recognizes NRC's interests in being kept informed 1 about the status of TVA's decommissioning funds. Accordingly, -
we would agree to inform NRC about the status of our >
l
' decommissioning funds in the same frequency as that described '
in the proposed rule. -
For these reasons, as they are explained in greater detail in I the enclosure, we believe that no worthwhile purpose would be '
served by changing the decommissioning funding requirements as they presently apply to TVA. Accordingly, we recommend that :
NRC not adopt the definition of " Federal licensee" described in the subject proposed rulemaking. ,
We appreciate the opportunity to respond to the subject I proposed rule.
t
! Mark Manager
[.Burz ski Nuclear Licensing -
3
, Enclosure l l cc (Enclosure)- :
Mr. R. W. Hernan, Senior Project Manager ,
U.S. Nuclear Regulatory Commission ,
One White Flint, North {
[ 11555 Rockville Pike ~
l Rockville, Maryland 20852-2739 l Mr. R. E. Martin, Senior Project Manager !
l U.S. Nuclear Regulatory Commission ,
i One White Flint, North 11555 Rockville Pike Rockville, Maryland 20852-2739 I NRC Senior Resident Inspector Browns Ferry Nuclear Plant j 10833 Shaw Road !
Athens, Alabama 35611 l
cc:
{ Continued on page 4 j
, j l
1
~
N 2 R 997 lit 44 615 751 4478 P'005/009 Mr. John C. Hoyle Page 4 Nov<mber 24, 1997 i cc (Enclosure):
NRC Resident Inspector l Sequoyah Nuclear Plant 2600 Igou Ferry Road Soddy Daisy, Tennessee 37379 !
I NRC Resident Inspector Watts Bar Nuclear Plant l 1260 Nuclear Plant Road l Spring City, Tennessee 37381 U.S. Nuclear Regulatory Commission Region II 61 Forsyth Street, SW, Suite 23T85 '
Atlanta Federal Center ;
Atlanta, Georgia 30303 l Mr. J. F. Williams, Project Manager !
U.S. Nuclear Regulatory Commission i On White Flint, North !
111555 Rockville Pike l Rockville, Maryland 20852-2739 l U.S. Nuclear Regulatory Commission l ATTN: Document Control Desk '
Washington, D.C. 20555-0001
Enclosure TVA's Use of Statements of Intent Section D of the " SUPPLEMENTARY INFORMATION: Discussion of Comments" portion of NRC's proposed rulemaking entitled,
" Federal Government Licensee Use of Statement of Intent,"
contains the discussion of Federal licensees ability to use statements of intent to provide financial assurance for decommissioning. This section specifically eliminates TVA's ability to use such statements. As justification for its position, NRC questions whether the Federal Government would
' pay the financial obligations of TVA should it be unable to do so. The assumption that the Federal Government would pay the financial obligations of TVA is cited as key to NRC's past decision to allow TVA to use the statement of intent.
As TVA has pointed out in the past, however, the question that NRC asks itself is misplaced. From NRC's perspective, the question should be whether there is reasonable assurance that the licensee, in this case, TVA, will have adequate funding to ensure the conduct of decommissioning activities.
The unqualified answer is yes, and the reason is because Federal law requires TVA to provide such funds.
Section 15d(f) of the Tennessee Valley Authority Act of 1933, 16 U.S.C. SS 831-831dd (1994), mandates that TVA charge rates for power which will produce gross revenues sufficient to cover, among other things, all operating expenditures of the power system. This section also allows TVA to charge such additional margin as may be considered desirable for any other power system purposes. TVA has also explained on several occasions
decommissioning TVA's nuclear units. We have also made it clear that the TVA Act provides the TVA Board with the authority and unfettered ability to set TVA's electric power rates to meet power system obligations, including those :
associated with decommissioning. It is only if one assumes that TVA would act contrary to its clear, legal obligations and would also fail to exercise its legal authority to set As noted previously, TVA responded to this issue in our June 24, ;
1996, response to the Advance Notice of Proposed Rulemaking (ANFR) . In addition, TVA has engaged in separate discussions with representatives f rom NRC's office of Inspector General, the most recent discussion held 4 in the TVA Nuclear offices in Chattanooga, Tennessee, on January 26, 1996. .
i l
tCJ-25-1937 11:44 615 751 4478 P.007/009 I
E-2 appropriate power rates, could one justify the imposition of separate, duplicative legal requirements to oversee the collection of decommissioning funds. Nonetheless, NRC now proposes to institute a regulatory scheme which would oversee another Federal agency's exercise of its statutory duty. This constitutes unnecessary and duplicative government regulation.
TVA has also made it clear that it has long understood its responsibility to provide adequate decommissioning funds.
Beginning in 1977, TVA was one of the first electric utilities in the United States to collect and set aside funds for future decommissioning expenses. A separate, dedicated decommissioning fund was established in 1982. In its " Discussion of Comments" section of the proposed rule, NRC recognizes the existence of this fund, but notes that, "However, because this is an internal fund it can be used for other purposes. In fact, TVA had at one time temporarily dcpleted its decommissioning fund." On several occasions, nowever, TVA has provided NRC with a full explanation of the reasons for the sale of this fund. TVA explainen that, at the time it maintained and administered this internal decommissioning fund, it did so in the same responsible, prudent manner as any skilled investment manager. With the dramatic drop in interest rates in 1993, the market value of the securities in this fund became significantly higher than their book value, and they were sold to capture this gain in value. At that time, the TVA Board put in place a plan to reinvest the proceeds of that sale over the subsequent three years. In 1994 and 1995, TVA reinvested $150 million and $100 million, respectively; and in 1996, the TVA Board approved the contribution of an additional $123 million to this internal fund. To make the unqualified statement that TVA sold its decommissioning fund without also providing this explanation in the proposed rule is incomplete and misleading. To refer to the sale of the fund as a means of implying irresponsible behavior on TVA's behalf is unfair and unwarranted.
As TVA also explained in its June 24, 1996, response to NRC's ANPR, last year TVA transferred all monies that had been contained in the internal decommissioning fund to external trust agreements established with three trustees.
These external trusts will ensure that TVA is in an even stronger position to meet its future decommissioning obligations for each of its licensed nuclear units.
l Rather than relying on TVA's clear, statutory obligation to provide for decommissioning funding, and rather than taking into account TVA's long-standing collection of
E-3 decommissioning funds in accordance with the requirements of '
the law, NRC has proposed to define " Federal licensee" in a manner that would limit the use of statements of intent to only those Federal licensees having the " full faith and credit backing of the Federal Government." We agree with NRC that the risk is remote that a Federal licensee, so defined, would not be able to fund its decommissioning expenses. However, we are unable to see how the risk is any less remote that a Federal agency such as TVA, having thi statutory obligation to sufficiently fund its operations, including its decommissioning obligations, and having historically done so, would not be able to fund its decommissioning expenses. Moreover, placing greater reliance on the future ability of a Federal licensee to obtain what will likely continue to be dwindling Congressional appropriations.may not, necessarily, prove i valid. This is especially so in TVA's case where an established, growing, dedicated decommissioning fund already exists, and TVA is legally required to maintain adequate l
decommissioning funding in the future.
I TVA would also like to comment on the points raised by other ~
commenters that Federal licensees should be treated in the same way as nonTederal licensees, that there are competitive advantages associated with use of statements of intent, that j l Federal licensees should be required to set aside funds i
l rather than rely on statements of intent, and that NRC l should regulate this area in a way that maintains a " level playing field." It is.first worth mentioning that while it is NRC's responsibility to regulate licensees equitably in order to protect the health and safety of the public, it is i not the responsibility of the NRC to regulate licensees in a manner that will " level the playing field" to account for any perceived economic.or competitive advantage.
Furthermore, the fact of the matter is that both Federal law and the history of TVA's decommissioning funding activities make it clear that TVA has never stood back and merely relied upon statements of intent to cover its decommissioning obligations. As mentioned above, TVA has long collected funds to meet its decommissioning obligations, and it will continue to do so in the future.
As such, TVA agrees with NRC's statement that it does not believe that the elimination of the statement of intent option for a Federal licensee can be justified on a public j health and safety basis. However, making TVA l distinguishable from other Federal licensees from a
- full
! faith and credit" standpoint in no way supports NRC's i decision to disallow TVA's ability to use statements of i intent. Rather, NRC should recognize that TVA's legal
- =_, _
E-4 obligations, and TVA's history of meeting those obligations, provides more than reasonable assurance that adequate decommissioning funds will be available and that TVA's ;
continued use of statements of intent is appropriate.
As the NRC statos in its "
SUMMARY
" portion of the proposed rule, the proposed changes are in response to the uncertainties raised by upcoming deregulation and the need to modify financial mechanisms regarding decommissioning funds. In our June 24, 1996, response to the ANPR, TVA explained how it was positioning itself to compete in a deregulated environment. Since the time of our response to the ANPR, TVA has taken a significant additional step to strengthen its competitive position. In 1997, TVA unveiled a ten-year business plan with the objective of achieving a 50 percent reduction in debt and setting a target of reducing the total cost of power by 15 percent by 2007.
These actions have been taken to ensure that TVA will l continue to play a major role as a competitive electric utility in the upcoming deregulated environment. The implementation of the ten-year business plan began when the Board of Directors approved an electric rate increase effective October 1, 1997. This rate increase, the first in over a decade, will produce a 5.5 percent increase in firm power revenues. In accordance with Board directives, all revenue from the price increase will be used for debt reduction. The plan also calls for a continuation of building customer allegiance and satisfaction for a competing environment by developing opportunities for mutual support and partnership. The plan also recommends an offer to TVA distributor customers to change their power contracts after five years from a rolling ten-year tern to a rolling five-year term. In total, we believe that implementation of this business plan will significantly further TVA's ability to meet the challenges of the coming restructured marketplace.
For all of the above reasons, TVA should continue to be able to rely on statements of intent as a means of providing NRC with assurance of adequate decommissioning funding. No public health and safety benefit would be served by extending NRC's regulations to oversee TVA's decommissioning funding obligations. However, TVA recognizes the benefit, and NRC's interest, in keeping informed about the status of TVA's decommissioning funds. Accordingly, it would agree to inform NRC about the status of its decommissioning funds in the same frequency as that described in the proposed rule, i.e., within nine months after the effective date of the final rule and once every two years thereafter.
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L Secretary of the Commimmian ( W M Y76II ;
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Washington, D.C. 20535-0001 4
i Attn: Rulemaldngs arh Adjudications Staff
, i t
! Re: I Cornmaata on Pioposed Rule " Financial Assurance Requirements i for DecommissiM' Nuclear Power Reactors" I i I ,
Dear Sir:
l
- I i s-As provided by dederal Register notice of S r'--i 10,1997 (62 Fed. Reg. 47,588), we i
are submitting written conunents on the Nuclear Regulatory Comunission's ("NRC") prop rule cc.c
' ir," Financial Assurance Requirements for D -z= '-^': ='-g Nuclear Power Reactors." These comusets are being submitted on behalfofBoston Edison Company,
( Cleveland Electric ComN, 'Ihe Toledo Edison Ca==ay, Centerior Semce Company, -
i Consolidated Edison Coinpany of New York, Duquesne Light Company, MidAmerican E
' Company, Northern Statas Power Company, Rochester Gas & Electric Company, Wisconsin Electric Power Company, Wolf Creek Nuclear Operating Corporastion, Kansan Gas and Electric Co., and Kansas City Power & Light Co., (referred to hereinaRar as " Utilities").
I '
'Ihe propoemd mic would, among other things, revise the C wm jegulatory
[ definition of" electric utility" found in 10 C.F.R. i 50.2. Those entitles remain electric utilities under the new definition would continue to provide decommissioning. funding assurance i
under 10 C.F.R. I 50.75())(3). Those anuCa which are no longer canaidared electric utilities
[ under the revised definit accordance with 10 C.F.q' u woukt be required to provide decommissioning furididu 1
R. 5 50.75(e)(2). For non-electric utilities, this_could require _up-front. .
funding of daeamml=eardag costs. The proposed rule would also require. licensees to repo periodically on the status }of their decommissioning funds. Finally, the NRC's proposal would .
allow licensees to take a two percent (2%) credit for their earnings on decommissioning trust-i funds. -
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1 Secretary of the Commission l
November 24,1997 !
Page 2 i As discussed more specifically below, the Utilities appreciate the Commission's c for adequate decommidssoning funding in the face ofelectricity restructuring an the power generating industry. The Utilities mairmain, however, that the Cornmission ca achieve its desired results without some of the changes it has proposed and should provide as much flexibility as possible to accommad=*= the differing approaches that may emerge in different states. Moreover, since electricity restructuring is still in process of being implernented, the Utilities maintain that the Commission should set not ove.
by imposing requiremerits that eru ao restrictive that they impose unreasonable e on entities no longer qualifying as electric utilities. It makes no sense subjecting de licensees to economic requirements they cannot meet. Such an approach merely incre risk ofpremature shutdowns and exacerbetes the possibility of unfunded decom liability. It its therefore; imperative that the NRC allow deregulated licensees to cho funding options (options that provide reasonable, not absolute assurance, of fundi I.
The enmminind mula cnuw Maitiani Arm. .mAa=
The NRCs proposed rule does not consider other attematives to address the pote ~
impact ofderegulation on decommissioning funding. In particular, rather than es burdensome and prescriMive financial requiremenu that may be imposed suddenly o as a result of state deregulation (and that may produce other unintended results), the Cornm should consider exerciaising its broad authority under the Atomic Energy Act (section 1 Atomic Energy Act of 1954) to require the continuing recovery of decommissimung costs through rates. The NRC!already recognizes that it has the authority to take actions as wa to protect the public heahh and safety. 61 Fed. Reg.185 (September 23,1996). Indeed,the Commission said it intemis to work with state and federal agencies as electric utilities facel deregulation st 49,713. to minimizd the possibility of actions that would hoe an adverse safety i
{
\
The public health and safety is much better served by assuring continued ratepayer funding than by establishing fmancial requirements that cannot be enet. We, thereforj '
suggest that the NRC codsider a proactive rather than reactive approach to the decor issue. The NRCs decondnissioning funding regulations relied for nearly a decade on ra funding, which the NRC has recogniaod as providing the requisite level of financial assuran this liability. If, as it appears, this established funding mechanism is the best method of 5
As the Convaission recedtly explained, the NRC's deconunissioning funding regulations require reasonable assurmee o{lhading, not en absolute guarantee. Ya=* #" C' = k ca (Yankee Wclea Power Station), CLI-96-7,43 7.R.C. 233,262 (1996).
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SHAW Pf1TMAN l 101 IMvTBOWNUDGE Secretary of the Commission November 24,1997 Page 3 providing decommissioning funding assurance, the Commission should take ac continuation even in a deregulated market.
For these remanne, the Utilities urge the Commission to consider exercisin to maintain ratspayer funding as a manns ofpmtecting the public health and safety. W suggest that this and other reasonable alternatives be comprehensively considered regulatoryandanalysis appropriate, to ensure that any new -f+:c-T- -- t-noning requirements are re cost effisctive.
II. N NRC huid Clarify the E=.r- of the ',.. -- ' Ruta l
The Commission has described its proposed rule as an arnentiment of the regu l financial assurance for- h issioning (ses 62 Fed. Reg. 47,588). His characterization is l unfortunate, because the proposed chariges sre not limited to decommissioning iim l requirernants but also affect the financial quali6 cations requirements for openeha changing the definition of electric utility, the NRC will affect the scope of financial I l
qualifications review under 10 C.F.R. 5 50.3)(f) and thus establish a new test applica licensing, to transfers ofcontrol under 10 C.F.R. { 50.80, and to operating reac have made this impact c: car, the NRC's description of the change has the pan ==*: 8 ofmisleading sorne interested parties and does not adequately explain or analyze tha implications of t For this reason the NRC may wish to consider renoticing the proposed rule (with a m description and analysis of the changes) before proceeding further.
III.
h W D=8EaW--- of F'--4 Utiliev huld b Revia-d in its proposed rule, the Cornrnission is proposing to amend the definition of electlic utility in 10 C.F.R. l 50.2 as fbilows:
Electric utility means any entity that generates, insarmits, or distributes electricity and which recovers the cost of this electricit/. N - 210:
= "-:ij, through rases established 5; t d, '::?' = by a sepssano reg"*n'y authority, such that the rates are sadlcientfor the licensee to operate, mainneln, anddecommission its nuclearplantsafely. Rates must be established by a regulatory authority either directly throagh traditional cost ofservice regulation or Indirectly through another non-b> passable charge mechanism. An entity whare rates are established by a regulatory authority by mechanisms that cover only a 2
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Secretary of the Commission November 24,1997 Page 4 portion ofits costs will be conskieredto be an " electric utility"onlyfor thatportion ofthe costs that are collected in this m b; ::: :
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-tig.a blic utility districts, municipalities, rural electric cooperatives, and State and Federal agencies, includmg associations of any of the foregoing, rhar establish their own rates are included within the meaning of" electric utility."
See 62 Fed. Reg. at 47605. In addition, the Commission is adding the following d
" cost ofservice regulation" and "non-bypassable charges" to 10 C.F.R 6 50.2.
Cost of service regulation means the traditional system of rate regulation in which a rate regulatory authority' allows an electric utility to chnige its customen all reasonable and prudent costs of providing electricity services, including a retum on the investment required to provide such services.
Non-bypassable charges means those charges imposed by a governmental authority which affected persons or entities are required to pay to cover costs associsand with operation, maintenance, and decommissioning of a nuclear plant. Affected individuals and entities would be requimd to pay those charges over an established time period.
Id.
'Ihe Utilities have a number of concems with the NRC's proposed changes to the definition ofelectric utility in 10 C.F.R. 6 50.2. First, the phrase "directly orindirec noteliminssing as be deleesd from the the exemption fromfirst sentence financial of the qualification definition requirements because applicable to no that such non owner operators are " electric utilities" exe reviews because they recover their costs indirectly fmm the regulated rates of the ow contractually committed to pay the operators' expenses.
Not only should the NRC leave the phrase "dueetly or indirectly" in the first senten the definition, the NRC should fhrther revise its 4 1r2,n6 to raske it clear that the fina qtalifications and decommissioning funding requirements are the obligations oflice His is important both to clarify where the real financial responsibility lies and also to fa gI/9 at001-1#808888Iggcalcic%YKMId MVitS
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- l SHAW PITTMAN FCl15eTRO W 5UDGE c,.
l Secretary of the Comnussion i November 24,1997 Page 5 the formation deregulatad of market. operating service companies, which may be particularly importar:t in a Where an operator has no ownership interest and is merely operating a nuclear plant under contract with the owners,1 hat entity should not be liable for decommissioning funding and should not be subject to these regulations.*
Retuming to the proposed dennition of electric utility, the phrase "such that the rate sufficient to openne, maintan, and decommission its nuclear plant safety" should be deleted from the first sentence because it unnecessarily invites challenges to the unde of the rates established by the regulatory authority. For example, in a prMae invo license transfer or reorganization, an intervenor might contend that the licensees are utilities because the rates established by a state are not sufficient to operate, maintain or l dewa. mission the plant safely. As a result, litigation might result before the N the sufficiency of the rates established by a state pubife utility commission (PUC), and
! might find itself acting as an arbiner of the state ratemaking process. The Utilities do not that the NRC or the licensees which recover their costs via rate regulation (and he electric utilities) should be subjected to the possibility of such litigation.
Similarly, a challerige to the sufficiency of the underlying rate regulation could result from the addition of the second sentence of the proposed definition for electric uti with the new dennition for cost of service regulation. Specifically, a requirement that rates established through traditional cost of service regulation which requires that "all" reasonabl
- prudent oosts be recovered invites a challenge to the sufficiency of the licensee's rate i Also, it is inconsistent with the ongoing practice ofratemaking agencies which, while generally allow the inclusion ofreamanahle i and s.t a costs in the rate base, only require th
'he end result for cost of service regulation bejust and reasonable. The Utilities, thesefore maintain regulation. that the modifier "all" should be deleted from the definition for the c Finally, the Utilities question why the Conunission is proposing to delete investor owned utilities, including generation and distribution subsidiaries, from the list of entities tAat m quahfy as electric utilities. The reason for this deletion is not explained, and the change cou imply or be construed as an indication either that investor-owned utilities can no long er qualify l
as an electric utility, or that investor owned utilities are subject to different " electric utility" 8
in particular, we recommend adshng a new, thini sentosos to sectoa 50.75(s) stating. "The ibadin i decomunissioning is en obligation of the owner or owners ofibcilities subject to this Part, and appli
} holders of an operanas license for a production or utillantion facility that provkle opershag s and have no regulanons." ownership interest therma are act subject to any decommissionlag Ibading responsibilities u i
l i i l
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SHAW PITTMAN POTTSsTF,0WBFJDCE j a ,-- ~ ,,,-o = -o,.
j Secretary of the Commission j November 24,1997
- Page 6 a
1 criteria that are public utility districts, electne cooperatives, and other types oflicen Clearly, either inference would be inappropriate. '
i The Utilities support the Commission's proposed definition of electric utility in l l particular aspects. First., the third wan-* of the definition allowing a licensee to electric utility with respect to those portions ofits costs recoverable through rate; '
understand to be a provision allowing the NRC to decouple its review of dec funding from other financial qualifications reviews,is very beneficialin concep I provision also could be misconstrued as requiring review of the sumciency of rate j For example, suppose a public utility commission only allowui a ten percent
- decommissioning amount included in rates, as opposed io 25% often used
{ NRC. Moreover, the third sentence could be misconstrued as requiring further fina assurance (g& prepayment, surety, or guarantee) for this unfunded contingency. Such j approach could rapidly ~ alate into complex proceedings and second-guessmg of stat j ratemaking decisions. To avoid this misinterpretation, the NRC should revire the th 4 so that it avoids referring to " portions" ofcosts and instead states, "An entity whose ra I established by a regulatory authority by mechanisms that cover only decommissio be considered to be an ' electric utility' with respect to its decommissioning funding responsibilities."
l
! The Utilities also suppott as a prudent concept the provision in the proposed definitio
' allowing qualification as an elecaic utility based on non-bypassable charges. The Utiliti believe, however, that the definition of oon-bypassable charges should be expanded i those instances in which state public service commissions or other agencies establish j mechanisras for recovery of such costs in lieu of assessing them as " charges." F i decommissioning liability might be covered by so-called state "securitization" legislat assumed by the state, or recovered through a tax.
5 5
For the foregoing reasons, the Utilities submit that the proposed definitions of electric utility, cost of service regulation and non-bypassable changes in 10 C.F.R. { 50.2 should b revised as set forth below: '
Electric maility useams any entity that generates, transanits, or distributes electricity and which recovers the test of this electricity, ettber directly or indirwetly, thrwegh rates established by a regulatosy matherity. Rates must be established by a regulatory authority ettber directly through traditional cost of servlee regulation er indirectly through another non-bypassable charge C1/8 a:001'l#8sgasstCIC#151C M K111d MVHS hYUI II g_gg_;g: NYK111d myHS:AH IN3S
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SHAW PITTMAN FOI 15eTN m r eiem,c --,
Secretary of the Commission November 24,1997 i
Page 7 meebaansa. An entity whose rates are established by a regulatory authority by mechanisms that cover only decoussaissieming costs wat be considered to be an " electric utHity" with respect to its decomedesieming fuading responsibuities. Invester owned stuities, lacledtag generosies or distdbution subsidiaries, public stuity distdets, municipalities, rural electric cooperatives, and State and Federal agencies, includlag associations of any of the foregoing, that establish their own rates, are imeladed within the asemaing of
" electric utiMey." i l
Cost of service regaistion means the traditiemal system of rate regulation la which a rate regulatory authedty allows an eleetdc stility to charge its customers those reasonable and prudent costs of l
providing electricity services, including a return on the investment required to provide such services.
Non-bypeasable charges amenas those charges imposed by a goverammental authority which nSected perseas or entitles are required to pay to cover costs associated with operaties, malateannes, and deconnaissioning of a aselaar plant. Afliseted ,
individuals and entities weald be required tu pay these charges ever )
se established time period. Charges shall aise nacinde any other funding mechaatsas haposed or established by a governmental authority to provide for payment of such costs.
IV.
The Prnnnead Ch=a- to Man 50.75feVM are RaA=:'=r: and cc..d.> in.
I The proposed rule inserts several new sentences in section 50.75(eX3) (the provisio establishing funding methods for electric utilities) rupesting language from the proposed definition of electric utility. 'Ihe first two acutences of this proposed provision shouki be de for several raeaan First, they are redundant sad add nothing to the W: the term " electric utility" has aheady been defined and there is no need to repeat the definition. Secon particularly confusing in this context. They suggest that to qualify as an electric utility fo purposes ofdecommissioning funding, a licensee's rates must be sufHeient for the licensee "to operste, maintain, and d+y- ---- ission its plant safely." Sss 62 Fed. Reg. at 47,606. There is no reason why Snencial assurance for operations and maintenance should be mentioned in this section when the definition of electric utility allows the decommissioning inquiry to be
{ decoupled from other aspects of financial qualifications. Moreover,like the troublesome k
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SHAW PlTTMAN 4 4
- POTI5eTROWBiUDC-- E l Secretary of the Commission i j November 24,1997
! Page B j i
4 language in the definition (as discussed earlier in these comments), these se
- qualifying as an electric utility requires a factual " sufficiency" review of a stat i
decisions - a result that would inject unnecessary complexity and controversy into .
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j Flevihte to Accc.r.mada** = Renui _ - =en Cc. alatinn for Non hetric Utilitia= Are Not Sufhientiv
! In promulgating a new definition for electric utility, the Commission stated in the l proposed rulemaking that it is concerned that the financial assurance mechanisms av
{
C.F.R. ( 50.75(e)(2) may not be available to some licensees who do not qualify as j utilities. This regulation limits non electric utilities to providing decommission j assurance through (i) prepayment, (ii) an external sinking fund coupled with a surety i third-party guarantee for the outstanding balance, or (iii) a parent or self guarantee. 'the
! Commission asked for additional comments on alternative methods of financial ass including accelerating funding, which might provide the desired financial assuranc i Reg. at 47,596). .
, i i
i 'Ihc Utilities strongly support the idea of amending 10 C.F.R. { 50.75(e)(2) to allow I, - non-electric utilities more flexibility in establishing alternative financial mechanisms to fun i decommissioning of a nuclear facility. As stated at the beginnmg of our comments, sense to impose economic requirements on deregulated entities if those requirements cann met. Unreasonable or unrealistic economic requirements will simply increase the stress on deregulated entities, inctesse the possibility of prernature shutdowns, and exacerbate the possibility of unfunded deconunissioning liabilities. In sum, rather than promoting th health and safety, unreasonable requirements may in fact diminish such protection. For reasons, unless the NRC takes steps to require the continuation of ratepayer funding, it is imperative for deregulated entities to have available to thern reasonable, flexibl For instance,10 C.F.R. 6 50.75(e)(2) should be amended to pmvide greater flexibilit the parent company guarantee or self guarantee provisions of Appendix A and Append C.F.R. Part 30 respectively. Among other tests, Apperuhx A requires for a parent com guarantee that the parent have a net worth of at least six times the estimated cost of )
decommissioning. Appendix C requires, among other tests, that the licensee have a net worth at least ten times the estimated decommissioning cost. Both of these amounts were o developed for materials licensees and the Utilities submit that they are excessive for dwssissioning funding by reactor licensees. Lowering the required amounts to one or two times the estimated decornmissioning costs would be more than adequate. ,
t 1
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SHAW PrITMAN
- PCITSErN Secretary of the Commission November 24,1997 Page 9 Further,10 C.F.R. { 50.75(e)(2) should be amended to allow a licensee to or selfguarantees in conjunction with other authonzed financial assurance mec C.F.R. f 50.75(cX2). The regulation currently precludes the use of a parent combination with any of the other financial assurance mechanisms provided fo regulation. It is, however, unreasonable, particular(y in the era of the comp ,
prohibit a licensee from combining the different authorized financial amuranc tha most economical package in order to provide the reasonable assur .
fumhng required by the NRC regulations. Nor does it make sense to allow has already been accumuisted in trust.a guarantee for the entire decomm is also an approach that could be reasonable, provided .
l However, too great an acceleration (and in particular, prepayment) could a non-electric utilities' competitiveness in the marketplace and force early closure io t nuclear facilities. The Utilities also suggest that the timeframe for the accelera should not be based solely on an arbitrary number of years but should co operating license life of the plant. For example, the accelerated funding might r accumulation of rh y funds either within ten years or utilities which have many years renininine on their m, operating u l
In addition to the above-suggested arnendments to 10 C.F.R. { 50.75(eX2), Uti
! believe that the regulations should also be amended to allow other mecha by a govemmental authority (s.g., states) or the licensess thernselves and app Commission once reasonable assurance of dsecsoruissioning funding has been esta VI, p.= of R.*mn on FA.. l Rintria. Fn=A=
The Commission has proposed that a two percent (2%) annual real rate of return be allowed to licensees on external sinking funds from the time of the funds' colle h.
issioning period. The Utilities i mifally submit that this rate ofreturn is inadequa and inconsistent with priorpromulgations by the agency. In the Regulatory Analysis Gu of the Nuclear Regulatory Commi== ion, NUREO/BR 0058, Revision 2 (Decemb Conunission adopted a real discount rate of 7% as recommended in the latest version o Office of Management and Budget Circular A-94 (October Moreover,in 29,1992). a prior version ofits own regulatory analysis guidelines (SECY93-167, June 14,1993), the Com
{ stated that a 7% discount inte should be used unless there are unique circumstances where t
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- FOI
- - 15tsTBOWIRIDCE Secretary of the Commission
] November 24,1997
] Page 10 1
1
- regulatory analysis considers consequeca,es in excess of 100 years (an
{ extends beyond 100 years,3%, not 2%, should be used for present worth analy
{ prornulgations provide evidence not only that a 2% real rate of return on i
funds is inadequate but also that a 7% annual real rate rerma is both reason .
j VII. Cnaci=;=
1 1
Utilities appreciate the opportunity to provide these comments on the prop
- financial assurance requirements for A-~~=i==%Iag fundmg.d Utilities reco i concerns ansing as a result of electricity restructuring that the Commission seeks to a this proposed rule. Utilities, however, caution the Commission to not promul 3
rnore stringent than necessary, especially when implementation of electricity r i frorn complete. Otherwise, the adverse effects could not only be detrunenta
- already in the industry but could also result in early nuclear plant closings. It would j
liability, but this could indeed be the result if unreaso -
! premature plant closures. Utilities respectfully submit that the suggested amendme
{ herein would greatly assist the industry and still provide the Commission with the adequate funds will be available to d= m=ission nuclear facilities.
i.
Sincerely yours, i .
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i SHAW, PITIMAN, POTTS & TROWBRIDGE t
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ACCESSION NBR:9712050040 DOC.DATE: 97/12/01 NOTARIZED: NO DOCKET #
FACIL:
AUTH.NAME AUTHOR AFFILIATION WHITFIELD,M.B. Shaw, Pittman, Potts & Trowbridge RECIP.NAME RECIPIENT AFFILIATION Docketing & Services Branch
SUBJECT:
Comment on proposed rule 10CFR50, " Financial Assurance Requirements for Decommissioning NPP." Suggested amends C provided would assist industry & provide NRC w/ assurance that adequate funds would be available for decommissioning. A DISTRIBUTION CODE: DS10D COPIES RECEIVED:LTR 1 ENCL SIZE: [! I TITLE: SECY/DSB Dist: Public Comment on Proposed Rule (PR)-10CFR g NOTES:
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ADJUD'Cs ; _; 0F 37 December 1,1997 DOCtET M=
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Secretary of the Commission Nuclear Regulatory Commission U.S. Nuclear Regulatory Commission Washington, D.C. 20555-0001 Attn: Rulemakings and Adjudications Staff Re: Comments on Proposed Rule " Financial Assurance Requirements for Decommissioning Nuclear Power Reactors"
Dear Sir:
On behalf of a number of utilities, our firm filed comments on November 24,1997 on the above-referenced miemaking. A copy of these comments are enclosed for your reference. Also, I subsequently received correspondence from your agency that our comments have been docketed as Comment No. 20.
The purpose of this letter is to advise you that another utility, Vermont Yankee Nuclear Power Corporation, should be designated as a sponsor of these comments.
Sincerely yours, SHAW, PITfMAN, POTfS & TROWBRIDGE By:
Milton B. Whitfi Counsel for Utili[ ties Enclosure
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- mason..h com November 24,1997 Secretary of the Commission Nuclear Regulatory Commission U.S. Nuclear Regulatory Commission Washington, D.C. 20555-0001 Attn: Rulemakings and Adjudications Staff Re: Comments on Proposed Rule " Financial Assurance Requirements for Decommissioning Nuclear Power Reactors"
Dear Sir:
As provided by Federal Register notice of September 10,1997 (62 Fed. Reg. 47,588), we are submitting written comments on the Nuclear Regulatory Commission's ("NRC") proposed rule conceming " Financial Assurance Requirements for Decommissioning Nuclear Power Reactors." Rese comments are being submitted on behalf of Boston Edison Company, Cleveland Electric Company, ne Toledo Edison Company, Centerior Service Company, s
Consolidated Edison Company of New York, Duquesne Light Company, MidAmerican Energy Company, Northem States Power Company Rochester Gas & Electric Company, Wisconsin Electric Power Company, Wolf Creek Nuclear Operating Corporation, Kansas Gas and Electric Co., and Kansas City Power & Light Co.,(referred to hereinafter as " Utilities").
The proposed rule would, among other things, revise the Commission's regulatory definition of" electric utility" found in 10 C.F.R. f 50.2. Those entities which remain electric utilities under the new definition would continue to provide decommissioning funding assurance under 10 C.F.R. { 50.75(e)(3). Those entities which are no longer considered electric utilities under the revised definition would be required to provide decommissioning funding assurance in accordance with 10 C.F.R. Q 50.75(e)(2). For non-electric utilities, this could require up-front funding of decommissioning costs. The proposed rule would also require licensees to report periodically on the status of their decommissioning funds. Finally, the NRC's proposal would allow licensees to take a two percent (2%) credit for their camings on decommissioning trust funds.
- = - _ _ . . - - - . . - . - - __ -- _ _ _ -
SHAW PITTMAN POTT 5eTROWBFJDGE
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Secretary of the Commission November 24,1997 Page 2 As discussed more specifically below, the Utilities appreciate the Commission's concem for adequate decommissioning funding in the face of electricity restmeturing and deregulation of the power generating industry. The Utilities maintain, however, that the Commission can achieve its desired results without some of the changes it has proposed and should endeavor to l
provide as much flexibility as possible to accommodate the differing approaches to deregulation l that may emerge in different states. Moreover, since electricity restructuring is still in the process of being implemented, the Utilities maintain that the Commission should not overreact by imposing requirements that are so restrictive that they impose unreasonable economic burdens on entities no longer qualifying as electric utilities. It makes no sense subjecting deregulated l licensees to economic requirements they cannot meet. Such an approach merely increases the risk of premature shutdowns and exacerbates the possibility of unfunded decommissioning liability. It its therefore imperative that the NRC allow deregulated licensees to chose reasonable l funding options (options that provide reasonable, not absolute assurance, of funding').
I, he Committion Should Consider Additional Anproaches The NRC's proposed rule does not consider other alternatives to address the potential l impact of deregulation on decommissioning funding. In particular, rather than establishing very
- burdensome and prescriptive financial requirements that may be imposed suddenly on a licensee as a result of state deregulation (and that may produce other unintended results), the Commission should consider exercising its broad authority under the Atomic Energy Act (section 161 of the Atomic Energy Act of 1954) to require the continuing recovery of decommissioning costs through rates. The NRC already recognizes that it has the authority to take actions as warranted to protect the public health and safety. 61 Fed. Reg.185 (September 23,1996). Indeed,the Commission said it intends to work with state and federal agencies as electric utilities face deregulation to minimize the possibility of actions that would have an adverse safety impact. Id.
at 49,713.
The public health and safety is much better served by assuring continued ratepayer funding than by establishing financial requirements that cannot be met. We, therefore, strongly j suggest that the NRC consider a proactive rather than reactive approach to the decommissioning issue. The NRC's decommissioning funding regulations relied for nearly a decade on ratepayer funding, which the NRC has recognized as providing the requisite level of financial assurance for l this liability. If, as it appears, this established funding mechanism is the best method of As the Commission recently explained, the NRC's decommissioning funding regulations are intended only to require reasonable assurance of funding, not an absolute guarantee. Y mkee Atomic Electric Co. (Yankee Nuclear Power Station), CLI.%7,43 N.R.C. 235,262 (1996).
. SHAW PITTMAN POTTSeTFOWBFJDCE :
.... _ m _ _
Secretary of the Commission November 24,1997 j Page 3 1 l
providing decommissioning funding assurance, the Commission should take actions to require its I continuation even in a deregulated market. '
I l
For these reasons, the Utilities urge the Commission to consider exercising its authority l
to maintain ratepayer funding as a means of protecting the public health and safety. We also suggest that this and other reasonable alternatives be comprehensively considered in the NRC's regulatory analysis to ensure that any new decommissioning requirements are reasonable, i appropriate, and cost effective.
r i
- 11. The NRC Should Clarify the Scone of the Pronosed Rule Die Commission has described its proposed rule as an amendment of the regulations on I financial assurance for decommissioning (scs 62 Fed. Reg. 47,588). This characterization is unfortunate, because the proposed changes are not limited to decommissioning funding ]
requirements but also affect the financial qualifications requirements for operations. By changing the definition of electric utility, the NRC will affect the scope of financial l
qualifications review under 10 C.F.R. } 50.33(f) and thus establish a new test applicable to initial licensing, to transfers of control under 10 C.F.R. { 50.80, and to operating reactors. By failing to have made this impact clear, the NRC's description of the change has the potential of misleading some interested parties and does not adequately explain or analyze the implications of the rule.
For this reason the NRC may wish to consider renoticing the proposed rule (with a more accurate description and analysis of the changes) before proceeding further.
111. The Pronosed Definition of Flectric Utility Should Be Revised l
I In its proposed rule, the Commission is proposing to amend the definition of electric l utility in 10 C.F.R. 6 50.2 as follows:
l Electric utility means any entity that generates, transmits, or distributes ;
electricity and which recovers the cost of this electricity. :!$:: f=::!y !
er ::Sn::!y. through rates established by h: :n !:, ::::!f c: by a separece regulatory authority, such that the rates are sufficientfor the licensee to operate, maintain, and decommission its nuclearplant safely. Rates must be established by a regulatory authority either directly through l
- traditional cost ofservice regulation or indirectly through another l non-b> passable charge mechanism. An entity whose rates are
{ established by a regulatory authority by mechanisms that cover only a l
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. SHAW PITTMAN .
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Secretary of the Commission l November 24,1997 Page 4
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portion ofits costs will be considered to be an " electric utility"onlyfor thatportion ofthe costs that are collectedin this manner, v-
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&!fi pPublic utility districts, municipalities, rural electric cooperatives, and State and Federal agencies, including associations of any of the foregoing, that establish their own rates are included within i the meaning of" electric utility."
See 62 Fed. Reg. at 47605. In addition, the Commission is adding the following definitions of l
" cost of service regulation" and "non-bypassable charges" to 10 C.F.R. { 50.2. l Cost of service regulation means the traditional system of rate regulation in which a rate regulatory authority allows an electric utility to charge its customers all reasonable and prudent costs of providing electricity ;
services, including a retum on the investment required to provide such j services.
Non bypassable charges means those charges imposed by a governmental authority which affected persons or entities are required to pay to cover costs associated with operation, maintenance, and decommissioning of a nuclear plant. Affected individuals and entities would be required to pay those charges over an established time period.
Id.
The Utilities have a number of concerns with the NRC's proposed changes to the definition of electric utility in 10 C.F.R. ( 50.2. First, the phrase "directly or indirectly" should not be deleted from the first sentence of the definition because the deletion could be interpreted as eliminating the exemption from financial qualification requirements applicable to non-owner operators who cover their costs under contracts with the owners. The NRC has traditionally held that such non-owner operators are " electric utilities" exempt from further financial qualification reviews because they recover their costs indirectly from the regulated rates of the owners who are contractually committed to pay the operators' expenses.
Not only should the NRC leave the phrase "directly or indirectly" in the first sentence of the definition, the NRC should further revise its regulations to make it clear that the financial qualifications and decommissioning funding requirements are the obligations oflicensed owners This is important both to clarify where the real financial responsibility lies and also to facilitate
1 i*
l SHAW PITTMAN 1 l POTTSeTROWBFJDCE l .... w .. c. - - . - c , I I Secretary of the Commission November 24,1997 Page 5 the formation of operating service companies, which may be panicularly imponant in a deregulated market. Where an operator has no ownership interest and is merely operating a nuclear plant under contract with the owners, that entity should not be liable for decommissioning funding and should not be subject to these regulations.:
Returning to the proposed definition of electric utility, the phrase "such that the rates are sufficient to operate, maintain, and decommission its nuclear plant safely" should be deleted :
from the first sentence because it unnecessarily invites challenges to the underlying sufficiency of the rates established by the regulatory authority. For example, in a proceeding involving a license transfer or reorganization, an intervenor might contend that the licensees are not electric utilities because the rates established by a state are not sufficient to oper-te, maintain or ;
decommission the plant safely. As a result, litigation might result before the NRC concerning the sufficiency of the rates established by a state public utility commission (PUC), and the NRC might find itself acting as an arbiter of the state ratemaking process. The Utilities do not believe that the NRC or the licensees which recover their costs via rate regulation (and hence qualify as electric utilities) should be subjected to the possibility of such litigation.
Similarly, a challenge to the sufficiency of the underlying rate regulation could result from the addition of the second sentence of the proposed definition for electric utility coupled with the new definition for cost of service regulation. Specifically, a requirement that rates be established through traditional cost of service regulation which requires that "all" reasonable and prudent costs be recovered invites a challenge to the sufficiency of the licensee's rate regulation.
Also, it is inconsistent with the ongoing practice of ratemaking agencies which, while they ,
I generally allow the inclusion of reasonable and prudent costs in the rate base, only require that the end result for cost of service regulation be just and reasonable. The Utilities, therefore, maintain that the modifier "all" should be deleted from the definition for the cost of service regulation.
l l Finally, the Utilities question why the Commission is proposing to delete investor-owned utilities, including generation and distribution subsidiaries, from the list of entities that may l qualify as electric utilities. The reason for this deletion is not explained, and the change could I imply or be construed as an indication either that investor-owned utilities can no longer qualify I as an electric utility, or that investor-owned utilities are subject to different " electric utility" l I 8
in particular, w e recommend adding a new, third sentence to section 50.75(a) stating. "The funding of )
decommissioning is an obligation of the owner or owners of facilities subject to this Part, and applicants for or I holders of an operating license for a production or utilization facility that provide operating services for such facility j and have no ownership interest therein are not subject to any decommissioning funding responsibilities under these :
regulations."
1 I
l
, i SHAW PITTMAN POT 75eTROWBFJDGE
, . . . ~ . . _ _ . _
Secretary of the Commission November 24,1997 Page 6 criteria that are public utility districts, electric cooperatives, and other types oflicensees.
Clearly, either inference would be inappropriate.
The Utilities suppon the Commission's proposed definition of electric utility in two panicular aspects. First, the third sentence of the definition allowing a licensee to qualify as an )
electric utility with respect to those ponions ofits costs recoverable through rates, which we understand to be a provision allowing the NRC to decouple its review of decommissioning l funding from other financial qualifications reviews, is very beneficial in concept. However, the provision also could be misconstrued as requiring review of the sufficiency of rate treatment.
For example, suppose a public utility commission only allowed a ten percent contingency in the !
decommissioning amount included in rates, as opposed to 25% often used by the industry and l NRC. Moreover, the third sentence could be misconstrued as requiring funher financial !
assurance (tg. prepayment, surety, or guarantee) for this unfunded contingency. Such an !
approach could rapidly escalate into complex proceedings and second guessing of state ratemaking decisions. To avoid this misintegretation, the NRC should revise the third sentence 1 so that it avoids referring to " portions" of costs and instead states, "An entity whose rates are i established by a regulatory authority by mechanisms that cover only decommissioning costs will 1 be considered to be an ' electric utility' with respect to its decommissioning funding responsibilities." i The Utilities also suppon as a prudent concept the provision in the proposed definition i allowing qualification as an electric utility based on non-bypassable charges. The Utilities do l believe, however, that the definition of non-bypassable charges should be expanded to cover those instances in which state public service commissions or other agencies establish mechanisms for recovery of such costs in lieu of assessing them as " charges." For example, a j decommissioning liability might be covered by so-called state "securitization" legislation, assumed by the state, or recovered through a tax.
For the foregoing reasons, the Utilities submit that the proposed definitions of electric utility, cost of service regulation and non-bypassable changes in 10 C.F.R. Q 50.2 should be revised as set forth below :
Electric utility means any entity that generates, transmits, or distributes electricity and which recovers the cost of this electricity, either directly or indirectly, through rates established by a regulatory authority. Rates must be established by a regulatory authority either directly through traditional cost of service regulation or indirectly through another non-bypassable charge
! =
1 i SHAW PITTMAN l i POTI5eTFOWBFJDQ Secretary of the Commission I j Nosember 24,1997 -
Page 7 l
1 mechanism. An entity whose rates are established by a regulatory l
5 authority by mechanisms that cover only decommissioning costs will j be considered to be an " electric utility" with respect to its ]
decommissioning funding responsibilities. Investor-owned utilities, including generation or distribution subsidiaries, public utility 3
- districts, municipalities, rural electric cooperatives, and State and I j Federal agencies, including associations of any of the foregoing, that l l establish their own rates, are included within the meaning of l 5 " electric utility."
i Cost of service regulation means the traditional system of rate '
! regulation in which a rate regulatory authority allows an electric l utility to charge its customers those reasonable and prudent costs of
- providing electricity services, including a return on the investment required to provide such services, i
4 i
Non-bypassable charges means those charges imposed by a
{
governmental authority which affected persons or entities are required to pay to cover costs associated with operation, maintenance, and decommissioning of a nuclear plant. Affected individuals and entities would be required to pay those charges over an established time period. Charges shall also include any other l
' funding mechanisms imposed or established by a governmental authority to provide for payment of such costs.
IV. The Pronosed Changes to Section 50.75(eV3) are Redundant and Confndng l
The proposed rule inserts several new sentences in section 50.75(e)(3)(the provision establishing funding methods for electric utilities) repeating language from the proposed definition of electric utility. De first two sentences of this proposed provision should be deleted for several reasons. First, they are redundant and add nothing to the section; the term " electric utility" has already been defined and there is no need to repeat the definition. Second, they are j
particularly confusing in this context. Hey suggest that to qualify as an electric utility for '
purposes of decommissioning funding, a licensee's rates must be sufficient for the licensee "to operate, maintain, and decommission its plant safely." Ssg 62 Fed. Reg. at 47,606. There is no reason why financial assurance for operations and maintenance should be mentioned in this section when the definition of electric utility allows the decommissioning inquiry to be ;
i decoupled from other aspects of fmancial qualifications. Moreover, like the troublesome i
SHAW PITTMAN POTT 5eTROWBFJDGE
. . . . ~ , _ . , _ _
Secretary of the Commission !
November 24,1997 Page 8
)
l language in the definition (as discussed earlier in these comments), these sentences suggest that qualifying as an electric utility requires a factual " sufficiency" review of a state's ratemaking decisions -- a result that would inject tmnecessary complexity and controversy into these rules.
V. The Financial Assurance Reauirements for Non-Electric Utilities Are Not Sufficiently Flexible to Accommndate Deregulation in promulgating a new definition for electric utility, the Commission stated in the proposed rulemaking that it is concemed that the financial assurance mechanisms available in 10 C.F.R. @ 50.75(e)(2) may not be available to some licensees who do not qualify as electric utilities. This regulation limits non-electric utilities to providing decommissioning funding assurance through (i) prepayment, (ii) an extemal sinking fund coupled with a surety or similar i third party guarantee for the outstanding balance, or (iii) a parent or self guarantee. The l Commission asked for additional comments on alternative methods of financial assurance, l including accelerating funding, which might provide the desired financial assurance (62 Fed. !
Reg. at 47,596).
The Utilities strongly support the idea of amending 10 C.F.R. { 50.75(e)(2) to allow non-electric utilities more flexibility in establishing alternative financial mechanisms to fund decommissioning of a nuclear facility. As stated at the beginning of our comments, it makes no sense to impose economic requirements on deregulated entities if those requirements cannot be met. Unreasonable or unrealistic economic requirements will simply increase the stress on !
deregulated entities, increase the possibility of premature shutdowns, and exacerbate the possibility of unfunded decommissioning liabilities. In sum, rather than promoting the public health and safety, unreasonable requirements may in fact diminish such protection. For these reasons, unless the NRC takes steps to require the continuation of ratepayer funding, it is imperative for deregulated entities to have available to them reasonable, flexible funding options.
For instance,10 C.F.R. 50.75(e)(2) should be amended to provide greater flexibility in the parent company guarantee or self guarantee provisions of Appendix A and Appendix C of 10 C.F.R. Part 30 respectively. Among other tests, Appendix A requires for a parent company guarantee that the parent have a net wonh of at least six times the estimated cost of decommissioning. Appendix C requires, among other tests, that the licensee have a net worth of at least ten times the estimated decommissioning cost. Both of these amounts were originally developed for materials licensees and the Utilities submit that they are excessive for i decommissioning funding by reactor licensees. Lowering the required amounts to one or two times the estimated decommissioning costs would be more than adequate.
l i
l
SHAW PITTMAN POTT 5eTROWBFJDGE
. . .. ~. ., m.e. c ., m.om, ~,c u Secretary of the Commission November 24,1997 Page 9 Further,10 C.F.R. @ 50.75(e)(2) should be amended to allow a licensee to utilize parent or self guarantees in conjunction with other authorized financial assurance mechanisms under 10 C.F.R. Q 50.75(e)(2). The regulation currently precludes the use of a parent or a self guarantee in combination with any of the other financial assurance mechanisms provided for by the regulation. It is, however, unreasonable, particularly in the era of the comptitive marketplace. to prohibit a licensee from combining the different authorized financial assurance mechanisms into the most economical package in order to provide the reasonable assurance of decorr.missioning funding required by the NRC regulations. Nor does it make sense to allow a licensee to provide a guarantee for the entire decommissioning liability but not for a lesser amount when a portion has already been accumulated in trust.
A modest acceleration of decommissioning fund payments into an extemal sinking fund is also an approach that could be reasonable, provided the period of time is not too short.
However, too great an acceleration (and in particular, prepayment) could adversely impact the non-electric utilities' competitiveness in the marketplace and force early closure of the affected nuclear facilities. The Utilities also suggest that the timeframe for the accelerated payments should not be based solely on an arbitrary number of years but should consider the remaining operating license life of the plant. For example, the accelerated funding might require accumulation of necessary funds either within ten years or within two-thirds of the remaining license term, which ever is greater. This approach would avoid prejudicing those non-electric utilities which have many years remaining on their operating licenses.
In addition to the above-suggested amendments to 10 C.F.R. Q 50.75(e)(2), Utilities believe that the regulations should also be amended to allow other mechanisms to be developed by a governmental authority (tg., states) or the licensees themselves and approved by the Commission once reasonable assurance of decommissioning funding has been established.
VI. Rate of Return on Extemal Sinking Funds The Commission has proposed that a two percent (2%) annual real rate of return be allowed to licensees on extemal sinking funds from the time of the funds' collection through the l decommissioning period. The Utilities respectfully submit that this rate of return is inadequate and inconsistent with prior promulgations by the agency. In the Regulatory Analysis Guidelines of the Nuclear Regulatory Commission, NUREG/BR-0058, Revision 2 (December 20,1995), the Commission adopted a real discount rate of 7% as recommended in the latest version of the i Otlice of Management and Budget Circular A-94 (October 29,1992). Moreover, in a prior I version ofits own regulatory analysis guidelines (SECY93-167, June 14,1993), the Commission stated that a 7% discount rate should be used unless there are unique circumstances where the
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. 1 SHAW PITTMAN I POTT 5eTROWBFJDG
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Secretary of the Commission November 24,1997 i Page 10 regulatory analysis considers consequences in excess of 100 years (and even where the analysis extends beyond 100 years,3%, not 2%, should be used for present worth analysis). These promulgations provide evidence not only that a 2% real rate of return on the extended sinking funds is inadequate but also that a 7% annual real rate retum is both reasonable and justifiable. j VII. Conclusion Utilities appreciate the opportunity to provide these comments on the proposed rule on financial assurance requirements for decommissioning funding. Utilities recognize the legitimate concems arising as a result of electricity restructuring that the Commission seeks to address in this proposed rule. Utilities, however, caution the Commission to not promulgate a rule which is more stringent than necessary, especially when implementation of electricity restructuring is far from complete. Otherwise, the adverse effects could not only be detrimental to companies already in the industry but could also result in early nuclear plant closings. It would be unfortunate if the NRC's regulations had the effect ofincreasing unfunded decommissioning liability, but this could indeed be the result if unreasonable or unrealistic requirements force premature plant closures. Utilities respectfully submit that the suggested amendments provided herein would greatly assist the industry and still provide the Commission with the assurance that adequate funds will be available to decommission nuclear facilities.
Sincerely yours, SHAW, PITTMAN, POTTS & TROWBRIDGE By: M [.
piton B. Whit Counsel for U ies
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November 24,1997 <r a .m Mr. John C. Hoyle o DOCKET NLMBER I 6 Pfl0P06ED ft#.E ll 5 o Secretarv U.S. Nuclear Regulatory Commission (6,a FR y 7588)
Washington, D.C. 20555 0001 l ATTENTION: Rulemakings and Adjudications Staff i SUNEcT: Nuclear Energy Institute's comments on (1) the Nuclear j Regulatory Commission's Proposed Rule on Financial Assurance Requirements for Decommissioning Nuclear Potter Reactors (62 Fed. Beg. 47588: September 10,1997); and (2) Draft {
Regulatory Guide 1060, Financial Accounting Standards Board (FASB) Standards for Decommissioning Cost Accounting.
4
Dear Mr. Hoyle:
These comments are submitted by the Nuclear Energy Institute (NEI)' on behalf of the nuclear energy industry in response to the Nuclear Regulatory Commission's Notice of Proposed Rulemaking on Funding Assurance Requirements for l Decommissioning Nuclear Power Reactors and the Draft Regulatory Guide 1060, Financial Accounting Standards Board (FASR) Standards for Decommissioning Cost Accounting.
The industry commends the Nuclear Regulatory Commission (NRC) for its initiative in addressing the issue of providing reasonable assurance of decommissioning funding as the electric power industry is restructured. The industry also commends the NRC fo proposing to allow nuclear power plant licensees some additional flexibility in how they provide that reasonable assurance. NEI's comments build on the NRC proposal and, if adopted, will result in a regulatory process that (1) continues to provide reasonable assurance of decommissioning funding, and (2) is
! compatible with the new electricity generating business environment.
' NEI is the organization responsible for establishing unined nuclear industry policy on muucrs afTecting the nuclear energy indumy, including regulatory aspects of generic operational and technical issues. NEl members include all utilities licensed to operate cornrnercial nuclear power plants in the United States, nuclear plant designers, major architect / engineering firms, fuel fabricati.on facilitica, rnaterials licensees, and other organizations l
and individuals involved in the nuclear energy industry.
05
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7 wnnm - wmu m, w myrr rs= n Mr. John C. Hoyle .
l November 24,1997 l l Page 2 l' 1
The industry agrees that decommissionmg of nuclear power reactors is a pubhc l health and safety necessity. There must be reasonable assurance that decommissioning will be funded, regardless of whether a plant is operating or shut l l down, and regardless of the market uncertainties associated with industrv restructuring. I The industry also believes that decommissioning funding assurance should continue to be separated from other Gnancial qualification issues as it is in existing regulations and recommends that this proposed rule should focus solely on decommissioning funding assurance.
Industry restructuring is still evolving. As a result, it is impossible to predict the broad variety of corporate structures and ownership arrangements that might, develop in the future. Therefore, we strongly recommend that the rule provide a general framework, with specific implementation details to be described in a regulatory guide that could be developed in parallel with the rulemaking process.
The industry has been actively discussing possible financial criteria that might be included in such guidance, but at this time we are not in a position to propose specific criteria, methodologies, or assumptions. The industry will continue its efforts to develop implementing guidance and will share our findings with NRC nt the appropriate time so that the industry document could become the basis for a future NRC regulatory guide.
It is apparent that the traditional structural model of exclusive franchise territories and vertically integrated companies is changing. In the future, the term " electric utility" may correctly apply only to a regulated local distribution company with no ownership interest in generation. For this reason, we recommend that in 10 CFR 50.75, the term " electric utility" be replaced by the term " qualified nuclear entity.'
We believe this term more accurately describes the kinds of companies that will own and operate nuclear power plants in the future. The term " nuclear entity" was chosen to describe the essential characteristics without unduly constraining the type of ownership or form of operating company. The term " qualified" was chosen to make clear that approved NRC criteria would have to be met to achieve the status of being " qualified" with respect to decommissioning funding assurance.
In addition, the 10 CFR 50.2 definition of" electric utility" should remain unchanged. The possible need to change the 50.2 definition should be resolved i when etmsidering other changes to NRC regulations to address other industry restructuring matters.
Any entity that meets the definition of" qualified nuclear entity" should be permitted to continue to accumulate decommissioning funding in an external trust fund over the licensed life of the facility, or by any other means that satisfies the requirements of the Atomic Energy Act.
( wnna a~=rm v .n o w- m- r u Mr. John C. Hoyle l November 24,1997 Page 3 Licenseen should also be permitted to use any combination of acceptable methods to l provide reasonnble assurance that decommissioning will be funded. A licensee should be allowed the flexibility to provide that reasonable assurance in ways that are commensurate with the many business structures and practices that are
- emerging in the course ofindustry restructuring.
l From a practical perspective. the proposed rule would require a "non-electric utility" l to satisfy the criteria in 10 CFR Part 30. Appendix A and Appendix C. or prepay the full decommissioning estimate. The tests in Part 30 were developed for materials licensees, and are not reasonable or workable for power :eactor licensees. We bebeve that a better approach is to establish a three tier framework:
(1) funding options for licensees that satisfy the criteria for a " qualified nuclear entity;"
(2) funding options for licensees that satisfy a new set of financial criteria; or (3) case-by-case review and approval by the NHC staff of other innovative funding options that would provide reasonable assurance that
- decommissioning will be funded.
l The enclosure to this letter provides additional details and comments.
We commend the Commission for having taken a leadership position on industry restructuring issues, for having recognized early the need to revise its regulations and requirements to accommodato changing conditions, and for encouraging public discussion and dialogue on these important and evoking issues. The detailed i comments enclosed provide the industry's proposais to improve the effectiveness of the NRC's existing and proposed rules for assuring decommissioning funding. We Imk forward to continuing the regulatory interactions that will establish an appropriate process to provide reasonable assurance of decommissioning funding.
Sincerely, i .S i
l Marvin S. Fertel
- Enclosures )
c: The Honorable Shirley Ann Jackson, Chairman, NRC The Honorable Greta Joy Dicus. Commissioner NRC The Honorable Nils J. Diaz, Commissioner. NRC l The Honorable Edward McGaffigan, Jr., Commissioner, NHC l Mr. Leonard J. Callan, EDO/NRC 1
esw,m. m, . c~rnru .
w m ENCLOSURE i
NFJS DETAILED COMMENTS ON THE NOTICE OF PROPOSED RULEM AKING I Foa FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISS10NINO NUCLEAR POWER PLANTS i (62 FED. REG. 47588. SEPTEMBER 10,1997) !
I. GENERAL PRINCIPLES 1
The foundation principles on which these comments rest are as follows: l First, the industry agrees with the NRC on the need to revise and improve existing NRC regulations to reflect changes that are occurring, and are likely to occur, in the electric power business.
Second, the industry, like the NRC, considert, decommissioning a public health and safety issue. l l
Third, the industry, like the NRC, believes that there must be reasonable assurance !
that funds will be available for decommissioning at the end of the license. l Decommissioning funding is a regulatory obligation and, as such, unfunded decommissioning requirements should not be subject to significant market risks that are associated with industry restructuring activities.
II. THE QUALIFIED NUCLEAR ENTITY: A NEW CONCEPT AND FRAMEWORK FOR A NEWINDUSTRY ENVIRONMENT To the extent that new models ofindustry structure are emerging, new regulatory models must be developed that properly reflect the industry being regulated, while preserving the NRC's legitimate role as the guardian of public health and safety.
Industry Concerns over the Proposed Definition of" Electric Utility" Existing NRC regulations to assure decommissioning funding proceed from the assumption that an " electric utility"-broadly defined in f 50.2 as an entity subject to rate regulation and thus presumably assured of recovering prudently incurred costs through rates-is permitted to fund the decommissioning obligation over the full license term in an external trust fund. The current regulations establish other
- standards and requirements for entities that do not meet the definition of" electric utility."
The industry does not believe that the term " electric utility" represents an accurate.
appropriate, or acceptable classification at a time when industry structure is 1
xww rr em rma w ;5manmm.: 6a changing. The term " electric utility" was a useful regulatory convenience when first adopted, at a time when the electric power business consisted largely of vertically integrated companies with interests in generation. transmission and distribution and protected franchises. From the early restructuring activities in those states that have acted, it appears that such a structural model may not endure. Indeed, a broad variety of corporate structures may develop as different jurisdictions tailor their approaches to accommodate local needs and interests. The time may be approaching when the term " electric utility" sigmfies only a regulated k> cal distribution company with no direct ownership mterest in generation.
As proposed, however, the revised definition of" electric utility" could create difficulties for licensees, and could inhibit licensee flexibility in addressing the issues emerging during industry restructuring activities. The proposed definition explicitly links operation, maintenance and decommissioning activities, and could unnecessarily invite challenges tn the underlying sufficiency of the rates established by a regulatory or rate setting authority. Thus, as a federal agency, the NRC could become unnecessarily involved in state or local rate setting activities. Moreover, the definition does not adequately express the intent of the proposed rule that an entity that can " conclusively demonstrate a government-mandated, guaranteed revenue stream for all unfunded decommissioning obligations." by virtue of a mm-bypassable charge which covers only decommissioning costs, would provide adequate assurance of decommissiomng funding. Also, the proposed definition could create confusion regarding the responsibility of a non. owner operator for providing reasonable assurance for the financing of decommissioning. Although we are sure it is not the intent, we are concerned that the proposed definition could result in a non-owner operator being required to assume the responsibility for providing financial assurance for decommissioning. We emphasize that the responsibility for providing assurance for decommissioning funding rests with the plant owners. The possibility of such a contrary interpretation could inhibit the formation ofjoint operating companies. Therefore, the proposed alternative definition introduces significant uncertainties, and may unnecessarily place nuclear power plants at a disadvantage.
Industry Proposals on " Electric Utility" Definition We recommend that for the purpones of this rulemaking, and only in 10 CFR 50.75, the term " electric utility" should be replaced with the term " qualified nuclear entity," which more accurately describes the kinds of companies that will own and operate nuclear power plants in the future. Any entity that meets the definition of
" qualified nuclear entity" should be permitted to continue to accumulate ,
decommissioning funding in an external trust fund over the licensed life of the facility, or through any other means that satisfy the requirements of the Atomic Energy Act.
2
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l 1 l
l l There is no need to change the existing 10 CFR 50.2 dc6nition of" electric utility" in i this rulemaking. The existing definition of" electric utility" should remain in 50.2 l l for the present time. The possible need to change this definition can be resolved later when the industry and NRC have gained additional experience with the new l corporate entities that are evolving as a result ofindustry restructuring.
Scope and Qualifying Criteria for a " Qualified Nuclear Entity" l
We recommend that 50.75 be amended to include a definition of" qualified nuclear entity." To be considered a " qualified nuclear entity," a licensee must satisfy one of !
i the following criteria; e the entity is subject to rate regulation with decommissioning funds recovered through a rate-setting mechanism, or in the case of public power entities by that !
entity's board of directors / governors; or l m decommissioning is funded through a non bypassable charge established by l
legislative or regulatory mandate, or in the case of public power entities, by that i entity's board of directors / governors: or a the entity must have a binding contractual agreement: with another party to provide reasonable assurance of the collection ofits share of the unfunded decommissioning obligation. For example, there may be instances in which a licensee sells its ownership interest in one or more nuclear power plants and, as i part of that transaction, the obligation to continue payments into decommissioning funds would remain with the customers who have received, and may continue to receive, electricity from the facility or facilities in question.
In such situations, we expect the buyer would (1) assume responsibility for the decommissioning trust fund and any money already collected; (2) receive a contractual commitment from the seller that payments into the decommissioning trust fund would continue over the remaining license term (or some agreed-upon shorter period of time); and (3) assume responsibility for decommissioning the plant at the end ofits usefullife.
New General Framework for Financial Assurance for Decommissioning i
f The industry believes the existing general regulatory approach for financial assurance for decommissioning-defining a broad category or classification under which a licensee can fund decommissioning over a plant's lifetime, then specifying alternate means of providing assurance of funding-is conceptually sound.
However, the proposed rule is still too rigid, and in some cases impractical, for the 2 The contractual agreement (s) should be equal to the amount required to fund the unfunded decommissioning j
i obligation. taking into account the ramings on the prepaid funds, as dermed in the NRC propmed rule.
l 3
[ M ENI Na %i- s .)
broad variety of new corporate structures and ownership arrangements that are evolving as a result ofindustry restructuring.
As proposed, the new rule would unnecessarily place additional burdens on nuclear licennees that do not satisfy the proposed definition of electric utility. Licensee.s that do not satisfy the conditions for an " electric utility" would b'e required to (1) l prepay the unfunded decommissioning obligation; (2) provide a surety method, insurance or other guarantee; or (3) provide a parent company or self-guarantee if the parent or the licensee can meet the financial tests in Appendix A and Appendix C of 10 CFR Part 30. From a practical perspective, there is only one option for n "non-electric utility" licensee, and that is prepayment. This would place such licensees at a significant and unnecessary financial disadvantage since other options could be made available that would provide reasonable assurance that decommissioning will be funded.
The financial tests in Part 30, Appendix A and Appendix C, were developed for Part 70 materials licensees, where decommissioning costs are measured in millions of dollars, at most, not hundreds of mdlions of dollars as is the case with power reactors. These financial tests are neither practical nor appropriate for power l reactors. The industry's preliminary analysis suggests that even the largest electric j power companies in the United States could not meet these tests. The NRC is also l aware of this, for the Notice of Proposed Rulemaking states that "these financial i assurance mechanisms may not he available to some licensees"(62 Fed. Eg, l 47596).
l We recommend that a better approach is to create a three-tier framework based on the existing regulatory concept; (1) funding options for licensees that satisfy the criteria for a " qualified l nuclear entity":
l (2) funding options for licensees that satisfy a set of new, standard financial
! criteria; or (3) a case-by-case review and approval by the NRC staff of other innovative funding optionm The implementation details and criteria for items (2) and (3) would be described in l a regulatory guide. Given the evolving nature ofindustry restructuring, it is difficult to predict with any degree of certainty the broad variety of corporate structures and ownership arrangements that might be developed over the next several years. As a result, we strongly recommend that the rule provide a general framework, with specific implementation details to be described in a regulatory guide that could be developed in parallel to the rulemaking process.
The industry has been actively discussing possible financial criteria that might be l l included in such guidance, but at this time we are not in a position to propose 4
i
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l specific criteria, methodologies, or assumptions. The industry will continue its efforts to develop implementing guidance and will share the fmdings with the NRC at the appropriate time so that an industry guideline could become the basis for a future NRC regulatory guide.
Funding Options for a Qualified Nuclear Entity l.
A heensee that satisfies the criteria for being a " qualified nuclear entity" can use an external sinking fund, as currently described in 50.75, or any other methods that are consistent with the Atomic Energy Act. These could include:
a prepayment of the unfunded decommissioning liability. Although the industry does not regard this as a particularly attractive alternative, licensees should be permitted this option. In some cases, for example, minority owners that wish to sell their share of a nuclear unit or units may wish to exercise this option in order to extinguish their responsibilities as licensees.
e acceleration of payments 3 for the unfunded decommissioning liability. In this
( instance, the schedule of accelerated payments would be at the discretion of the licenwe.
e a surety method, as presently described in f 50.75.
. other methods that are consistent with the provisions of the Atomic Energy Act.
l l
Assurance Mechanisms for Entitles That Are .Not " Qualified Nuclear Entities"
! The proposed rule on decommissioning funding assurance makes no change in the requirements imposed by 550.75(e)(2) on entities that do not meet the definition of l " electric utility." This could place an unnecessary and additional burden on licensees when other options and alternatives could be available to achieve the overall objective-namely, providing reasonable assurance that funding will be l available for decommissioning. Otven this fact, the industry proposes that a j licensee that does not meet the definition of" qualified nuclear entity" should first j make a determination on whether it can satisfy a new set of standard financial !
l criteria that are described in a regulatory guide.
l l
l l
A licensee that satisfies the set of financial criteria on a pro rata basis would be permitted to accumulate funds for decommissioning in an external sinking fund over the facility's lifetime, or use any of the other methods that are available to a i qualified nuclear entity.
! A licensee that cannot satisfy the financial criteria described in the regulatory guide ,
would have the following options:
I 3 Depending on the specific circumstances, accelerated payments to the decommissioning trust may create adserse i tax consequences. 1 l
acerw 2nr m yr ,rmre e arancszzrsmro'Y5 l
m prepayment of the unfunded decommissioning liability; e acceleration of payments 4 for the unfunded decommissioning liability; e a surety method, including a corporate guarantee; or a case by-case licensee-specific proposals to assure decommissioning funding that have been reviewed and approved by the NRC, and support a conclusion that there is reasonable assurance that the licensee wiu be able to fund l decommissioning. The industry is pleased that the NRC's Notice of Proposed Rulemaking acknowledges that such a case-by-case approach may be necessary:
"new and unique restructuring proposals will necessarily involve ad hoc reviews by the NRC" (62 Fed. Hm,47602).
The industry has had extensive discussion >, on the issue of what might constitute appropriate and acceptable financial tests and criteria to support a corporate or self guarantee of fmancing for decommissioning, or a case-hy-case submission. Such things as coverage ratios, measures of cash flow, or the existence of bilateral contracts for the sale of power from a nuclear power plant might represent some of the plausible tests and criteria. However, with industry restructuring still evolving, we are uncertain whether any tests or criteria we defme today would remain valid in the future to support a conclusion that there is reasonable assurance that I decommissioning will be funded. This also applies to the criteria for developing and I assessing a case-hy-case submission that a licensee can assure decommissioning funding.
The major credit rating agencies are stillin the process of defining the risk factors associated with stand-alone generating companies and with merchant plants, and developing criteria on which to rate such companies' creditworthiress. These j criteria will likely change as industry restructuring proceeds. As such, we do not helieve it would be appropriate or prudent to include in the NRC rule any specific proposals or criteria, which willlikely be changed. The NRC appears to have recognimd this point in the Statements of Consideration accompanying the proposed rule: " Criteria could be developed and thresholds developed, but evolution l of the industry might mean that the criteria would become outdated and misleading i relatively quickly"(62 Fed. Reg ,47595).
1 The industry suggests that it work with NRC staff to develop appropriate and i ucceptabh tests and criteria. The industry proposes that such tests and criteria be developed in a Regulatory Guide, separate from this rulemaking. Such guidance could also assist licensees in preparing, and NRC staffin assessing, case by case submittals.
4 The schedule for accelerated fundmg would be contingent on the fmancial strength of the corr.pany as determined through the process desenbed in a NRC regulatory guide.
6
r acww tr=mr=w nun . Tu- 30nnr5msnm l III. COMBINATION OF FUNDING METHODS l
l The industry supports and endorses the concept that a licensee should only be responsible for its pro rata share of decommissioning funJing based on the licensce's percentage ownership interest in the power plant (s). In this regard, the industry endorses the NRC's proposal that a licensee should be sui. ject to alternate financial assurance requirements only for the portion ofits decommissioning obligation that is not provided for under the " qualified nuclear entity" (electric utility) framework.
In addition, we strongly recommend that licensees be allowed to use a combination of methods for assuring that funds are available for decommissioning.
In the new electricity business environment, co owners may use different collection and funding mechanisms to meet the decommissioning obligation for a single plant.
In such cases, decommissioning funding would be assured through a combination of methods. The current requirements for electric utilities allow licensees to use a combination of methods for assuring decommissioning funding. However, under the proposed rule and from a practical perspective, a non-electric utility would be unnecessarily limited by the restrictions on combining methods for assuring decommissioning funding. In the new restructured business environment, licensees for a specific power plant may represent a broad spectrum of corporate structures.
Each type of corporate structure should have the same degree of flexibility to provide rea.wnable assurance for funding decommissioning.
The NRC should allow a combination of methods-for example, a non bypassable charge for some portion of decommissioning costs, a contract for revenue for some portion, and a corporate guarantee for some portion-to assure funding for decommissioning whether or not the licensee can be categorized as a qualified nuclear entity. The objective is to provide reasonable assurance that funds will be available for decommissioning IV. PERIOD FOR REASSESSMENT AND EVALUATION In the changing business environment, a licensee may determine that it no longer satisfies the criteria for a qualified nuclear entity (electric utility). Under the current regulations, a licensee has 30 days in which to develop a NRC submittal ,
that describes how, under the new circumstances, funding for decommissioning will l be assured. In some cases, a licensee may be faced with raising substantial sums of money in the f'mancial markets. The 30 day limitation is not a practical i requirement. l l We recommend that licensees be given 180 days in which to prepare a formal NRC ;
submittal that demonstrates continuing reasonable assurance that i decommissioning will be funded. Further, a licensee should be permitted to '
! continue to make payments into the decommissioning fund until the NRC t
ENir'L@J - Or*21T"N . g uena t1- aNJ determines whether the alternative proposal is sufficient to provide reasonable assurance of decommissioning funding. The 30-day requirement could remain a notification requirement for a change of circumstance.
V. SEPARATION OF FINANCIAL QUALIFICATIONS ISSUES FROM DECOMMISSIONING The current regulations separate financial requirements for decommissioning and financial qualifications for applicants for an operating license. We believe decommissioning should continue to be treated separately because ofits significant importance from a public health and safety perspective. We fully support the premise that decommissioning must he funded, whether a plant is operating or shut down, and regardless of the market uncertainties associated with industry restructuring.
The criteria for determining whether a nuclear power plant can be operated safely are different from those required to assure decommissioning funding. The industry does not believe there should be any connection between assuring decommissioning funding assurance and financial qualifications for safe operations. We believe it is necessary to address each of these areas separately.
The NRC has a large array of monitoring, inspection and enforcement resources and programs at its disposal, and those resources and programs have proven to be capable of detecting a lapse in 6afety performance that might represent a threat to public health and safety, That comprehensive program provides necessary j assurance of adequate protection of public health and safety from any cause, including reduced revenue situations.
In recent regulatory discussions on criteria for identifying declining performance, the public and the industry have emphasized that O&M spending levels are not a valid measure or predictor of operational safety. Funding for operations and maintenance is, at best, only a secondary means of assuring safety in nuclear power plant operations. It has not been demonstrated that there are pinusible or credible financial" indicators" that would signal potential safety performance problems at a nuclear power facility. l The NRC itself acknowledged this fact in its Final Policy Statement on Restructuring and Economic Deregulation of the Electric Utility Industry:
"In its previous experience, the NRC has found that there is only an indirect relationship between financial qualifications and operational safety ... " (62 Fed. Reg, 44073).
i 8
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...it is not clear that enhanced financial qualifications programs by !
themselves would be a sufficient indicator of general ability to operate a j facility safely ...."(G2 h5L h 44073) i For all these reasons, we strongly recommend that issues associated with financial qualification should be treated separately, and that this rulemaking should focus solely on decommissioning funding assurance.
VI. REPORTING REQUIREMENTS l The industry agrees with the requirement in the proposed rule that NRC be kept fully informed on the status of nuclear facilities' decommissioning funds. We also agree that the mechanism for making reports should not be prescribed in the rule, !
but in a regulatory guide.
The industry generally accepts the scope and frequency of reporting described in the proposed rulemaking, with a number of caveats. i We agree that the industry should not be subject to additional and unnecessary administrative costs to provide information that is already available elsewhere. A standard reporting mechanism that does not add burden should be adopted. At this time, the industry does not believe the NRC should endorse the use of FASB standard 158-B because it is stillin draft. The final standard may not provide the information that is required by an amended 50.75, or provide the required information in a manner that is readily retrievable.
We recommend that the language in the rule remain unchanged, but that draft ,
Regulatory Guide 1060 be changed to reflect options that will not add to a licensee's l reporting burden by allowing the use of an established form or process.
VII. SITE-SPECIFIC DECOMMISSIONING ESTIMATE !
As the NRC and the industry modify the financial assurance requirements for decommissioning, it is equally important to ensure that other NRC requirements associated with decommissioning reflect current practices and estimates of decommissioning costs.
I We recommend that the NRC include in this rulemaking a provision that allows licensees the option to develop and submit alternative site specific decommissioning funding estimates that better reflect current industry practices and estimates for decommissioning. As such, these estimates may be greater than or less than the prescribed NRC methodology in f 50.75. Naturally, a licensee would describe the assumptions and bases for any new site-specific estimates that are lower than the prescribed NRC methodology. ,
9 l
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1 VIII. SEPARATION OF REQUIREMENTS FOR FINANCIAL ASSURANCE !
FOR DECOMMISSIONING OF POWER REACTORS AND l NON-POWER REACTORS l When the regulations governing financial assurance for decommissioning were last l revised,it was not recognized that an entity other than a utility might operate a ;
I nuclear generating station. Generally decommissioning costs for non power reactors and matorials licensees are several orders of magnitude below those for ;
power reactors. The imposition of financial tests-such as requiring assets 10 times the decommissioning estimate (10 CFR 30, Appendix C)-presents an i insurmountable burden for most generating companies. The current regulations mix power reactors, non-power reactors and materiallicensees in the same regulations. While this may have been appropriate and more efficient in the past, it is no longer practical or appropriate, given the changes underway in the business environment. ;
We recommend ihat the decommissioning funding requirements for power reactor !
licensees and non power reactor licensees be separated-either by having specific and separate paragraphs relating to power reactor licensees and non power reactor licensees, or by having new and separate sections within Part 50 and Part 30. We emphasize that we are not proposing to change the criteria for non-power reactor licensees.
IX. TAX-RELATED ISSUES As the NRC is aware, the methods chosen to provide decommissioning funding can have significant tax related implications. Specifically, under current tax law, entities subject to cost-of service regulation are permitted to deduct for income tax purpue,es certain qualified amounts collected for decommissioning. In addition, earnings on decommissioning trust funds are taxed at a lower rate than the corporate tax rate.
The industry suggests that NRC use every opportunity to stress with federal, state and local economic regulators the importance of collection of decommissioning costs in what are defined by the IRS as cost-of service proceedings.
X. ALLOWABLE RATE OF RETURN The industry acknowledges the NRC's proposals for allowing a two percent annual l
real rate of return, if the licensee's rate-setting authority does not authorize the use of another rate. Rate setting authorities have sometimes allowed a higher rate of l
return based on general accounting principles or information from the Securities l
and Exchange Commission. In the future a licensee may not be subject to a rate-etting authority, even for the collection of decommissioning funds. As such, we suggest that the NRC consider allowing a real rate of return in excess of the two 10
M- M. An- Omnnf72Z' T5mrTia l
l percent proposed, providing the licensee can justify such a rate to the NRC on a case by-case basis.
XI. CONCLUSION These comments are offered as constructive recommendations to improve the regulatory process, and satisfy the NRC's legitimate need for providing reasonable assurance that decommissioning funds will be available when needed.
We emphasize the importance of recognizing that industry restructuring is still evolving. While it is important to provide early guidance and requirements, and to establish predictability in the regulatory process, it is also important to provide reasonable Ocxibility in implementing those requirements so that licensees have the flexibility to reposition their nuclear generating assets should they choose to do so.
I 11
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l Af@r FF a 00CKETED 10 CFR 50.75 USNRC PE& RAS-97-098 W IG 26 All :32 November 24, 1997 / OFEE , ; .T y.
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ADJUDui.'..% iTAFF
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The Secretary of the Commission U.S. Nuclear Regulatory Commission N MANER Washington, DC 20555-0001 PROPOSED RULE S 6O Attn: Rulemakings and Adjudications Staff (642 Fg e/76gg)
Subject:
Proposed Rule on Financial Assurance Requirements for Decommissioning Nuclear Power Reactors [62 FR 47588] ,
Dear sir:
Carolina Power & Light Company (CP&L) respectfully submits the following comments regarding the subject proposed rulemaking:
- The proposed rulemaking should be crafted to be as flexible as possible since electric industry restructuring is still at a relatively early stage and i
is rapidly evolving. The im)act of decommissioning funding on electric utilities during and after t1e transition from a regulated to a deregulated environment must be viewed from a broad perspective. Specifically, issues such as stranded costs, tax liabilities and other significant financial issues associated with decommissioning funding must be fully understood and addressed. The industry is in the process of developing a draft guidance document for a decommissioning funding framework that could be the basis for a NRC regulatory guide. Such guidance could assist licensees in preparing, and the NRC staff in assessing, case by case submittals. This approach will reduce ;
unnecessary confuian in the coming years. '
- CP&L notes that the rule, as amended, still only leaves a licensee with the option of funding at the NRC minimum. SECY-95-223. Attachment 3. has acknowledged serious shortcomings with the current process of establishing a minimum level of funding: .t s.u .. ,
Regulatory problem to be resolved %.
The decommissioning cost estimates derived from *50.75 are at variance with recent studies from Battelle Pacific Northwest Laboratories (PNL-).
Consequently, the present regulations, which require more funds than presently estimated, may' represent an unnecessary financial burden-en-power reactor l licensees. -- - -
Both the current and the proposed rule state that licenseeL aay use a ,
, site-specific estimate to establish the appropriate level o.f_ funding provided ,
i
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v.
it is greater than or equal to the NRC minimum in 10 CFR 50.75(c). No ,
provision is made for funding at lower though justifiable levels. CP&L i proposes that, in the course of re)orting on status of funding, licensees l should be allowed the option of su)mitting site-specific estimates for NRC l approval of their use in establishing adequate funding.
NRC's current approach of waiting for data from currently ongoing l decommissioning projects to be analyzed is of concern. These data in their i final state will not be available for many years to come. The industry needs l a rule that addresses current needs on a current basis, and holding to an outdated minimum funding assumption (cf. SECY-95-223. Attachment 3) while waiting for "more reliable data" is not helpful. Electric utilities are permitted by their ratemaking authorities to fund at levels commensurate with their site-specific studies, and tax laws agree with that conceptually. The rule should allow electric utilities to fund accordingly rather than be caught between conflicting regulatory jurisdictions. i
- The proposed rulemaking amends 10 CFR 50.2 to revise various definitions in $
response to deregulation of the electric generating industry. In particular. ;
" Federal licensee" is defined. so that the characteristics of a licensee that may make use of a statement of intent as a mechanism to satisfy financial assurance requirements for decommissioning, is clarified. At this time, some
-Federal licensees are considering privatization. In a deregulated market, the 3roposed rule should ensure that at such a time as these Federal entities
)ecome private enterprises. they are subject to the definition of " electric utility." In doing so, they must provide the same measures of financial assurance currently required of electric utilities, i.e . they must provide the same level of external funding or other assurance that would otherwise -
have been required of them from the initial issuance of their operating license.
- CP&L does not favor providing a specific funding schedule as the new rule suggests because it unnecessarily interferes with a licensee's business t
)lanning. CP&L is concerned that providing a set schedule becomes a licensing Jasis commitment that would be difficult to modify as business needs may ;
dictate. The reporting scope of the proposed rule provides adequate measures for determining whether a licensee is providing adequate funding based on balances available over time.
this could be accomplished )y allowing a licensee to use the average historical after-tax return on the fund and the average historical change in the Consumer Price Index (CPI) to determine the real rate of return. Such guidance could be incorporated into the future regulatory guide as discussed above.
l
- 10CFR50.75 (f)(1), as proposed, would require each power reactor licensee to
- submit a biennial report on the status of its decommissioning funding for each reactor facility or part of a reactor facility that it owns. Additionally, any licensee for a plant that is within 5 years of the projected end of its
operation shall submit such a report annually. CP&L notes that Draft i
i l
l
7 t .
l Regulatory Guide DG-1060, for which comments are also requested today, also contains annual reporting requirements as part of each power reactor licensee's annual financial statement. These statements are required to be submitted to NRC in accordance with 10 CFR 50.71(b). To avoid unnecessary work CP&L urges NRC to determine if both reporting requirements are necessary.
CP&L supports NRC's intentions of addressing this issue in a proactive manner and apareciates the opportunity to provide comments on this significant rulemacing. If you have any questions regarding our comments, please contact me at (919) 546-6901.
Sincerely yours.
[ Received via interactive Rulemaking website on 11/24/97]
Donna B. Alexander Manager Performance Evaluation and Regulatory Affairs MLM/
c: Mr. L. J. Callan. Executive Director for Operations Mr. S. J. Collins. Director USNRC Office of Nuclear Reactor Regulation Mr. L. A. Reyes. Regional Administrator. Region II Mr. J. B. Brady. USNRC Resident Inspector - HNP. Unit 1 :
Mr. B. B. Desai. USNRC Resident Inspector - HBRSEP. Unit 2 l Mr. V. L. Rooney USNRC Project Manager - HNP. Unit 1 Ms. B. L. Mozafari. USNRC Project Manager - HBRSEP. Unit 2 Mr. C. A. Patterson USNRC Resident Inspector - BSEP. Units 1 and 2 Mr. D. C. Trimble. USNRC Project Manager - BSEP, Units 1 and 2 Chairman J. A. Sanford - North Carolina Utilities Commission USNRC Document Control Desk ,
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b5- ? h3 Pacific Gas and Electric Company 77 Beale Street Mnstopher J Warner San Franccco. CA 41sn73.es95 Chiet Counsel-GenD' "UdK E TEO Telecopier 415!973-9271 USNRC Telecopier 415/973-5520
%m i.h November 24,1997 PO 3an F nc sco CA 94120 37 EV 26 P1 :47 Via Federal Express OFALF - '
F i RU1.m u 2 (' ADJUDI.a . . ::AFF The Secretary of the Commission 90GKET NUMBERm U. S. Nuclear Regulatory Commission PROPOSED RR.E rn 50 ,
Washington, DC 20555-0001 Attn. Rulemakings and Adjudications Staff (H F476Sff)
Re. Comments on Proposed Rule. Financial Assurance Requirements for Decommissionine - Nuclear Power Reactors. 62 Fed. Rec. 47588 i
Dear Secretary of the Commission:
Pacific Gas and Electric Company (PG&E) hereby provides its comments on the U. S. i Nuclear Regulatory Commission's (Commission's) proposed rule amending fmancial l assurance requirements for decommissioning nuclear power reactors, published on September 10,1997, at 62 Fed. Reg. 47588. In particular, PG&E provides the following ,
comments on the Commission's proposal to revise the definition of" Electric Utility," and j to add the new definitions of" cost of service regulation" and "Non-bypassable charges" !
I at 10 CFR 50.2.
PG&E believes that the proposed definition of electric utility is unduly punitive and restrictive in its requirement that rates established by a regulatory authority be sufficient for the licensee to " operate" and " maintain" as well as decommission the nuclear power plant safely. This definition does not reflect the reality of electric industry restructuring j in California, under which utilities like PG&E are assured continued and full cost of !
service ratemaking recovery of decommissioning costs in distribution rates on a i non-bypassable basis, while the " going forward" costs of operating and maintaining the . ;
nuclear plant will be recovered in raarket prices after 2001. See California Pubhc !
Utilities Code Sections 379,8325(c).
These California statutes assure that the decommissioning costs for PG&E's nuclear ;
facilities are fully recoverable on a traditional cost of service basis as an independent, I
nonbypassable obligation of PG&E's electric distribution ratepayers, and that PG&E's overall distribution revenues remain available to fund these decommissioning costs, even though the operating and maintenance costs of the nuclear facilities are recovered in the j
marketplace. PG&E believes that this statutory ratemaking requirement provides more than adequate financial assurance for recovery of decommissioning costs, and therefore the Commission's proposed definition should delete the requirement for traditional cost of service recovery of operating and maintenance costs in order for a licensee to qualify as an " electric utility" under 10 C.F.R. 50.2.
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'Ihe Secretary of the Commission November 24,1997 l Page 2 I
Funhermore, PG&E believes that the Commission's proposed definition of" cost of )
I service regulation" is too narrow and unintentionally may exclude the types of l
" performance based" and " incentive" ratemaking adopted by utility commissions in California and other states. These a'ternative forms of utility commission ratemaking actually enhance and increase the financial security of nuclear power plants based on I I
performance and reliability benchmarks. This is because, under these benchmarks, improved plant performance results in higher economic returns. Because of the positive nature of these types of ratemaking, PG&E believes that the Commission's proposed definition should be clarified to add the phrase: "' Cost of service regulation' includes, but is not limited to, altemative forms of ratemaking which provide for a portion of costs to I be recovered based on reasonabic benchmarks and incentives for good performance."
Other than these changes and clarifications, PG&E believes that the Commission's proposed rule is reasonable and well thought out, and the Commission should be commended for moving forward to update its requirements in light of electric industry restructuring.
i Very truly yours,
/ . hp Christopher J. W er CJW:rvdt cc: Steven D. Bloom Ellis W. Merschoff Kenneth E. Perkins David L. Proulx Diablo Distribution i
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. svursti NUMBER l Office of the Secretary of the Commission l ATTN: Rulemakings and Adjudications Staff PROPOSED RX.E N 50 U.S. Nuclear Regulatory Commission Mail Stop O-16 G15 ggg Washington, D.C. 20555-0001 l Gentlemen:
On September 10, 1997, the Nuclear Regulatory Commission issued a proposed rule on the " Financial Assurance Requirements for Decommissioning Nuclear Power Reactors". We support the Commission's effort to issue rules on financial requirements for decommissioning. We share the Commission's concern regarding adequate decommissioning funding and continued emphasis on safe operations in a changing and uncertain utility environment.
However, we do offer comments to improve the proposed rule. Our comments are contained in the attachment to this letter.
Sincerely, ,
E. E. Fitzpatrick Vice President
/vlb Attachment c: A. A. Blind A. B. Beach MDEQ - DW & RPD NRC Resident Inspector J. A. Abramson
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ATTACIBfENT TO AEP:NRC:0508AW r
COMMENTS REGARDING PROPOSED RULE ON
" FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISSIONING NUCLEAR POWER REACTORS"
e Attachmenc to AEP:NRC:0508AW Page 1 The following comments are offered on the Nuclear Regulatory Commission's (NRCs) proposed rule on " Financial Assurance Requirements for Decommissioning Nuclear Power Reactors", as reported in the federal register on September 10, 1997. ;
i l 1. The definitions section provides that an entity whose rates are established by a regulatory authority by mechanisms that l cover only a portion of its costs will be considered an
" electric utility" only for that portion of the costs that are collected in that manner.
There should be a de-minimus modification where the portion not covered is small (perhaps 10%). Then the entity will still be considered an electric utility for the entire plant if it treats for decommissioning purposes the portion not covered on a similar and proportional basis consistent with the basis that qualifies as an electric utility.
- 2. The regulation proposes requiring the first report within nine months of the effective date of the rule, and annually af ter that. It is desirable to report trust fund balances on a calendar year basis rather than some " odd" fiscal year. !
The rule should be changed to establish the report to be due on or before March 31 each year a report is required for the amount collected as of December 31 of the preceding year. If the final rule is issued in the first three months of the year, the report should not be due that March 31 (first year) , but should be due on March 31 in the second year.
- 3. The financial requirements in 10 CFR 50.75(b) and (c) were ;
developed using actual plant data and the adjustment factors i are based on the change in labor rates, energy costs, and disposal costs. The most dominating cost is now the disposal costs, and while it is true that the costs have risen .
substantially, it is also true that volume reduction i technology has improved such that the net impacts are not as ,
severe as the increase in these unit costs alone would suggest. The adjustment factors need to be revised to reflect the true cost rise in radioactive waste disposal. i The proposed rule should allow site-specific studies to be done to assure adequate funding is being collected. If site- l specific studies are not allowed, the initial reports should not occur until the updates to the studies or factors are completed. ,
- 4. The reporting interval should be extended from two to three :
years as long as decommissioning is expected to commence more than five years in the future.
- 5. It should be clarified that the amount accumulated to the date of the report means the "as of" date, and not the date of the report. .
- 6. We believe there would be considerable merit in limiting this report to the single item of accumulated trust fund be. lances.
The Commission's general expertise and its specific knowledge of the nuclear plant, its size, type, and age, should be i
adequate for the Commission to determine whether the dollars
' collected for decommissioning to date represent a reasonable '
total. Where the Commission has concerns based on this overview that the funding program is not adequate, it should
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I Attachment to AEP:NRC:0508AW Page 2 i
then require the particular licensee to file more complete information such as that proposed. This step-wise approach would avoid burdening the Commission and the licensee with preparing and reviewing numerous detailed reports where the l adequacy of the decommissioning funding program can be evaluated from the status of fund balances.
- 7. The reference to a funding schedule of the amounts remaining to be collected, and the assumption used regarding rates of escalation in decommissioning costs and rates of earnings on decommissioning trust funds and other factors, may not fully recognize the complexities of various decommissioning studies. Some utilities are multi-jurisdictional and prepare decommissioning studies at different dates for different utility commissions. The different regulatory commissions, based on their evaluation of this comprehensive information, establish provisions for decommissioning, or they conclude that previously established recovery levels remain appropriate and should be continued.
This problem might be resolved by authorizing filing copies of reports filed with regulatory commissions, rather than filing a new report with the NRC.
- 8. The Commission's right to take action to modify the schedule for accumulation of decommissioning funds should be subject to appropriate notice, hearing, due process, and appeal provisions.
- 9. The requirements to include in the report any modification to a licensee's current trust fund agreements since the last report submitted to the NRC. appears excessive and unnecessary. There can be revisions to these agreements for any number of reasons. If the Commission decides to retain this item in some form, it should be restricted to modifications that materially adversely impact funds for nuclear decommissioning. The existing requirements that trust agreements be available for inspection by the Commission should be adequate for the Commission's purposes.
- 10. The projected reporting burden of eight hours per response may or may not be accurate. Eased on our suggestion regarding data content in the periodic report, it is reasonable. Based on our concern of what might be involved considering some of the language in the rulemaking, this time estimate could be substanti. ally more than 100 hours0.00116 days <br />0.0278 hours <br />1.653439e-4 weeks <br />3.805e-5 months <br />.
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November 21,1997 10 DOCKET NUMBER
<2 q PROPOSED P H:!! 6 O Mr. John C. Hoyle (ggggf 7ggg}
Secretary Nuclear Regulatory Commission Washington, D.C. 20555-001 Re: Docket RIN 3150-AF41. Financial Assurance Reauirements for Decommissionine Nuclear Power Reactors
Dear Mr. Hoyle:
Commonwealth Edison Company (" Comed") respectfully submits the following comments on the Proposed Rule of the Nuclear Regulatory Commission ("NRC" or the " Commission") in Docket No. RIN 3150-AF41, Financial Assurance Reauirements for Decommissionine Nuclear Power Reacto_rs,62 r Fed. Reg. 47,588 (Sept.10,1997)
("Pronosed Rule").
Comed is the largest operator of nuclear power reactors generating electric power in the United States. All of Comed's nuclear generating stations are located in the State ofIllinois, where the General Assembly recently passed, and the Governor is currently considering whether to sign, legislation that would make fundamental changes to the way Comed and other utilities in the Illinois will be regulated in the decades to come.
Accordingly, Comed is vitally interested in the Commission's Proposed Rule on financial assurance requirements for decommissioning, and is also vitally interested in the impact that this Proposed Rule could have on the NRC's financial qualifications requirements generally. Comed previously provided comments on the Comraission's Advanced Notice of Proposed Rulemaking on Financial Assurance Reauirement; for Decommissionine Nuclear Power Reactors,61 Fed. Reg.15,427 (Apr. 8,1997), and incorporates those comments here by reference. Comed is also a member of the h'uclear Energy Institute
("NEl") and joins in the NEI's comments in this docket.
I. Comed Generally Supports the Proposed Rule Although Comed suggests in the next section of these Comments that the Commission clarify aspects of, and make changes to, the Proposed Rule, Comed generally is very supportive of the Commission's Proposed Rule. As discussed below in this section, i
Comed believes that the Commission is correct to revise its rules now so that they do not WhYfY;':, 0I Y \
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Mr. John C. Hoyle November 21,1997 Page 2 become obsolete in the face of changes in the electric power industry, that the Commission is right to provide licensees with greater flexibility in meeting the financial assurance requirements for decommissioning, and that the Commission's reporting requirements are realistic and helpful in monitoring licensees' compliance with decommissioning financial assarance requirements.
EiIs, Comed believes that it is appropriate for the Commission to re-examine its financial assurance requirements for decommissioning in light of the changes that are occurring and will likely occur in the electric power industry at the federal level and in the fifty states. See Pronosed Rule 62 Fed. Reg. at 47,591. When the Commission promulgated its decommissioning financial assurance regulations in 1988, the electric power industry was composed almost entirely of heavily regulated companies which recovered their capital, operating, maintenance, and other costs through rates set by federal and state regulatory bodies. While Comed agrees with the Commission that even under deregulation " regulators are likely to allow prudently incurred stranded costs to be recovered in some manner" (i_.), d there can be little doubt that the industry will be different in the future than it is today. It is, of course, important and appropriate for the Commission to tailor its rules to the changing regulatory environment. Therefore, Comed agrees with the Commission that a revision ofits cunent iulet, *is necessary and timely, given utility restructuring and the deregulation legislation being proposed or enacted in several states or Congress." Pronosed Rule,62 Fed. Reg. at 47,590.
Second, Comed strongly supports the Commission's steps to introduce additional flexibility for licensees in meeting their decommissioning financial assurance obligations. In particular, the proposed new definition of" electric utility" is a significant improvement over the existing definition. As the Commission recognizes in its Proposed Rule, the existing definition could conceivably be interpreted to strip a licensee of" electric utility" status under 10 C.F.R. 50.2 -- and thus require the licensee to " conclusively demonstrate a government-mandated, guaranteed revenue stream" through, for instance, prepayment of all decommissioning obligations, an external sinking fund coupled with a surety method or insurance, or a surety method -- simply because a small portion of the licensee's costs were recovered through competition and not "through rates established by .
. a separate regulatory authority." Pronosed Rule. 62 Fed. Reg. at 47,594.
The proposed definition would eliminate the possibility of that incorrect interpretation, by making clear that, so long as a licensee recovers its decommissioning costs through cost-of-service ratemaking or through "other non-bypassable charge mechanisms, such as wire charges, non bypassable customer fees, including securitization or exit fees," it remains an " electric utility" as to the Commission's decommissioning financial assurance regulations, even ifit also recovers other costs through competition or other means. Id. at 47,952-53. This change will ensure that a licensee such as Comed, which currently has a dedicated, non-bypassable decommissioning funding stream (and will almost certainly continue to have such a revenue stream under the pending legislation
Mr. John C. Hoyle November 21,1997 Page 3 recently passed by the Illinois General Assembly') does not have to provide up-front i funding or other assurances to the Commission simply because the licensee recovers its other capital, operating and maintenance costs through other means.
Third, Comed strongly agrees with the Commission's decision to permit licensees to assume real rates of retum approved by state regulatory bodies in setting their decommissioning collections. Seg Pronosed Rdg,62 Fed. Reg. at 47,599. Comed agrees with the Commission that permitting licensees to establish decommissioning collections accords with the economic reality that decommissioning collections placed in dedicated trust funds (as is the case with Comed's decommissioning trust funds) will be invested in financial instruments, which over the long term will likely earn returns well above the rate
- ofinflation. M. at 47,599-600. The Commission's proposal also has the benefit of requiring lower decommissioning collections than would be required using an unrealistic assumption that decommissioning trust funds earn no interest. M. at 47,600. Finally, the Commission conectly concludes that the proposal does not materially increase the risk that "there will be major shortfalls in decommissioning funds." M.
Fourth, although Comed continues to believe that the existing federal and state reporting requirements are sufficient to permit interested parties to ensure that licensees are collecting adequate fimds for decommissioning, Comed understands the Commission's desire to impose appropriate periodic reporting requirements of the sort suggested in the Proposed Rule. Under existing Illinois law, Comed must annually provide -
to the Illinois Commerce Commission information of the sort suggested in the Proposed Rule. Sgg 220 ILCS 5/9-201.5. Moreover, as the Commission notes, Comed will be required to collect the information in order to maintain compliance with Generally Accepted Accounting Principles under the FASB's draft standard No.158-B. Therefore, providing the information likely to be required under the new reporting requirements on a biannual basis should be minimally burdensome for Comed.
Finally, Comed respectfully states that the Commission was correct to reject some of the more onerous suggestions from some commenters: requiring accelerated funding for all plants to cover the possibility of premature shutdown (Proposed Rule,62 Fed. Reg. at 47,592); requiring full up-front assurance of all decommissioning funding (M.);
imposing joint and several liability on all owners of nuclear plants (M. at 47,594); and requiring licensees to contribute to an " insurance pool" (M. at 47,957) . All of these suggestions would have the pen'erse effect of financially weakening licensees, which would disserve the ultimate objective of ensuring that adequate funds are available to
'As the Commission notes in its Proposed Rule, " experience to date indicates that PUCs and FERC are addressing decommissioning costs through various recovery mechanisms."
Proposed Rule,62 Fed. Reg. at 47,954. This is true in Illinois, where legislation restructuring the electric power industry recently passed by the General Assembly (and awaiting the Governor's signature) contains a provision for a non-bypassable decommissioning charge imposed on every kilowatt hour sold at retail in the state.
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Mr. John C. Hoyle November 21,1997 l Page 4 decommission nuclear power plants. At the same time, given the Commission's recognition that most states, including Illinois, have put in place non-bypassable decommissioning ,
funding sources, there is no need to impose additional and draconian federal requirements. !
1 In sum, with the clarifications and modifications discussed in the next section, Comed generally supports the Commission's Proposed Rule. The Proposed Rule i appropriately introduces additional flexibility into the existing rules, and rejects some of the more onerous proposals by some commenters.
II. Comed's Succested Clarifications and Modifications to the Proposed Rule While Comed is generally supportive of the Proposed Rule, it does propose that the Commission modify its Proposed Rule in several respects. Some of these modifications are in the nature of clarification; others are minor but necessary changes to !
the Proposed Rule.
1 A. Chances to the Definition of" Electric Utility" and "Non-Bvnassable l Charce" l
As the Commission recognized in its Final Poliev Statetpent on the Restructurine and Economic Dereculation of the Electric Utility InQty,62 Fed. Reg.
44,071,44,075 (Aug. 9,1997) ("Poliev Statement"), the Section 50.2 definition of" electric )
utility" has consequences not only for decommissioning funding assurance but also for financial qualification requirements. If a licensee loses all or part ofits " electric utility" status, it is required not only to provide heightened decommissioning funding assurance (gs 10 C.F.R. Q 50.75(e)(2)), but also to provide the NRC with " additional or more detailed information" regarding its financial status (Policy Statement,62 Fed. Reg. at 44,073). l Accordingly, the Commission must ensure that any changes it makes to this definition are appropriate not just for decommissioning funding assurances but also for financial qualifications requirements.' As discussed above, the Proposed Rule's definitions are a definite improvement over the existing definition, as the Proposed Rule makes it more likely that a licensee will be able to maintain its " electric utility" status even after a restructuring or deregulation. However, Comed believes that the rule would be further improved with two modifications:
EiIg, and foremost, Comed believes that the Commission should modify somewhat its definitions of" electric utility" and/or "non-bypassable charges" to make clear
'The NErs comments propose decoupling the decomnussioning ano financial qualification issues by creating a new term, " qualified nuclear entity," to be used only for decommissioning purposes, and using the term
" licensee" elsewhere in the NRC's rules. As discussed in the text, Comed believes that NErs approach would i meet Comed's objectives in a different manner, and thus joins in NErs comments. Comed's approach seeks l to meet these same objectives without fundamentally revising the Commission's proposals in the Proposed j Rule. If the Commission were to accept NErs proposal, Comed respectfully suggests that its comments on l
, the definitions of " electric utility" and "non-bypassable charge" would be applicable to, and should be considered in developing, the definition of a " qualified nuclear entity." j l
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Mr. John C. Hoyle November 21,1997 Page 5 j
l which sons of"non-bypassable charges" are sufficient to maintain electric utility status.
This modification is important because, under the current proposed definition, it is not completely clear that mechanisms such as wire charges, stranded cost or transition charges, exit fees, and securitization are "non-bypassable charges" within the meaning of the decommissioning and financial qualification requirements.
The proposed definition states only that " rates must be established by a regulatory authority directly through traditional cost-of-service ratemaking or indirectly ,
through another non-bypassable charge" (Proposed Rule,62 Red. Reg. at 47,605), and then defines "non-bypassable charge" vaguely as " charges imposed by a governmental authority which affected persons are required to pay to cover costs associated with operation, maintenance, and decommissioning of a nuclear power plant" (M.). These definitions do not make clear, as the discussion of the Proposed Rule elsewhere does, that "non-bypassable charge" includes specifically " wire charges, non-bypassable customer fees, including securitization or exit fees." M. at 47,952-53. Nor do these proposed definitions make clear that alternative forms of regulation used in many states, such as " price cap" or incentive regulation, are sufficient to ensure cost recovery. Given that the federal govemment and 50 states will likely put in place many different means of collecting stranded costs and decommissioning charges, the Commission's rule should not unnecessarily exclude any of the many ways in which regulatory authorities can facilitate cost recovery. As the Commission stated in the Policy Statement, "other mechanisms that involve non-bypassable charges may provide comparable levels of assurance and should not be excluded from consideration by state officials." 62 Fed. Reg. at 44,073. If the Commission is to defer to state regulatory officials (ge M. at 44,076), it should make clear in the final rule that a utility that collects costs through state-imposed mechanisms such as wire charges, stranded cost charges, securitization, exit fees, or price cap regulation continues to qualify as an " electric utility" as to those costs. Therefore, the Commission should modify its proposed definitions to eliminate any possible misunderstanding as to this issue.
Second, the language in the Commission's proposed definition of" electric utility" concerning an entity which has only a ponion ofits costs recovered through cost-of-service ratemaking or non-bypassable charges could possibly be misconstrued in one respect. The proposed rule's definition states that "[a]n entity whose rates are established by a regulatory authority by mechanisms that cover only a portion ofits costs will be considered to be an ' electric utility' only for that portion of the costs that are collected in this manner. " (E at 47,605). As the Commission states in its discussion, the meaning of this statement is that a utility that collects 100 percent of, say, its decommissioning costs is treated as an electric utility for purposes of decommissioning funding assurance requirements. Sn M. at 47,953 ("Should a licensee be under the jurisdiction of a rate-regulating authority for only a portion of the licensee's cost of operations, covering only a l portion of the decommissioning costs that are recoverable by rates set by a rate-regulating i authority, the licensee will be considered an ' electric utility' only for that can of the Commission's reculations to which those portions of the costs pertain."). But the rules could be misconstrued to state that even a utility that collects 100 percent ofits
Mr. John C. Hoyle
- November 21,1997 Page6 decommissioning costs through a non-bypassable charge is not an " electric utility," even for purposes of the decommissioning funding requirements, if a substantial " portion" ofits other costs are not recovered through such a charge or traditional ratemaking.
1 A hypothetical assists in understanding this possible misinterpretation.
Suppose 5 percent of a licensee's costs are decommissioning-related costs, which are fully recovered through a non-bypassable charge, while the remaining 95 percent of the licensee's costs are capital, operations and maintenance costs, which are recovered solely through competition. Although Comed believes that this hypothetical licensee should maintain its
" electric utility" status for purposes of the decommissioning rules, parties could conceivably maintain that the licensee was only an " electric utility" as to 5 percent ofits overall costs, that it is predominantly not an " electric utility," and thus that it should be subject to both the 10 C.F.R. Q 50.75(e)(2) funding requirements and the 10 C.F.R. 50.33(f) detailed financial qualifications review. Comed is confident that this was not the intent of the Commission, and thus urges the Commission to eliminate this possible misinterpretation of its rules.
Finally, in addition to its proposal to spell out types of"non-bypassable '
charges" in the definition of such charges, Comed proposes other, minor changes in the definition of"non-bypassable charges." The verb "means" should be con ected to "mean" to l agree with the plural subject. The word "and" in " operation. maintenance, and l decommissioning" should be changed to "or," as a charge could be non-bypassable even if I it only applied to, for instance, decommissioning costs but not other costs. And the last I sentence, which would impose a requirement that a non-bypassable charge be collected over an " established time period," is incorrect when applied to mechanisms such as exit fees and securitization, which the Conunission elsewhere categorizes as "non-bypassable charges."
Accordingly, Comed proposes that the Commission modify its proposed definitions as follows:
Electric utility means any entity that generates, transmits, or distributes electricity and that recovers the cost of this electricity through rates established by a regulatory authority, such that the rates are sufficient for the licensee to operate, maintain, and decommission its nuclear plant safely.
Rates must be established by a regulatory authority either directly through traditional cost-of-service ratemaking or similar ratemakine. including orice-cap or incentive reculation. or indirectly through another non-bypassable mechanism (includine. but not limited to. wire charees. stranded cost charces. transition charces. exit fees. other similar charnes. or the securitized oroceeds of a revenue stream). An entity whose rates are established by a regulatory authority by mechanisms that cover only a portion or discrete i catecorv ofits costs will be considered to be an " electric utility" only for that l portion or catecorv ofits costs that are collected in this manner. Public utility districts , municipalities, rural electric cooperatives, and State and
O Mr. Ahn C. Hoyle November 21,1997 Page 7 Federal agencies, including associations of any of the foregoing, that establish their own rates are included within the meaning of" electric utility."
Non-bypassable charges means those charges imposed by a govemmental l authority which affected persons or entities are required to pay to cover costs associated with operation, maintenance, and gr decommissioning of a l nuclear power plant. Such charees include. but are not limited to. wire charges. stranded cost charges. transition charees. exit fees. other similar charees. or the securitized nroceeds of a revenue stream. Affec:cd l indhiduo and entitie: vould be required to pay those charges over v. I c;tabli;hed time peried.
B. Real Rate of Return i As discussed above, Comed strongly supports the Commission's proposal to permit licensees to assume rates of return approved by state commissions in setting the levels of their decommissioning funding collections. However, the Proposed Rule contains one unexplained exception to this rule: it states that licensees will only be permitted to assume state-approved rates of return "from the times of the funds' collection through the decommissioning period" but n91 during the safe storage period. Pronosed Rule,62 Fed.
Reg. at 47,600. Because the Commission provides no explanation for this distinction, it is difficult to provide comments on it. However, Comed believes that there is no basis to distinguish between the pre-decommissioning time period and the safe storage period.
Indeed, given that SAFSTOR could involve time periods even longer than operation and decommissioning of a plant, there would seem to be even stronger reasons for assuming higher earnings during the SAFSTOR period than during the operation period.
Accordingly, Comed respectfully suggests that the Commission permit licensees to assume the same state-approved rate of return through the end of decommissioning, regardless of the decommissioning methodology a licensee chooses.
Comed commends the Commission for tackling these difficult and complex issues, and appreciates very much the opportunity to comment on these important rules.
Resp trully submitted, N 4 hael J. Wallace Senior Vice President
1633 Broadway New York. New York 10019 l l e 212 468 6000 00CKETED l USNRC A NewYorkPower 97 NOV 28 P12:36 (sf Authority or -
00CKET N'M Rt9 p g pays $ 60 - ADJX ' "
November 24,1997 ((o 2 F/2 il7S 88) -
The Secretary of the Commission, 704 U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, Attention: Rulemakings and Adjudication Staff
Dear Secretary Hoyle:
t Enclosed please find the comments of the New York Power Authority's on the Commission's proposed rule on Financial Assurance Requirements for Decommissioning Nuclear Power Reactors which was noticed in the Federal Register on September 10, 1997. 62 FR 47588.
Sincerely, wh l James D. Lyons j Ct A I 7 h 7 ^ L , n i.
T !!vv'^ . a GIV l
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NEW YORK POWER AUTHORITY COMMENTS ON PROPOSED RULEMAKING FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISSIONING 1 NUCLEAR POWER REACTORS l
- 62 FR 47588 - SEPTEMBER 10,1997 i 1
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l The Authority has review the proposed changes to 10 CFR 50.2,50.75, and 50.82, 62 FR 47588 September 10,1997. Two issues, the defmition of" electric utility" and the
" rate of return allowed on investments" warrant further consideration or clarification.
The Authority supports the comments of the Nuclear Energy Institute. These include the substitution of" qualified nuclear entity" for " electric utility," the criteria for inclusion of J public power entities in such category and the assurance mechanisms necessary to j demonstrate financial ability to decommission a licensee's facility.
l If the present concept of" electric utility" is retained, however, the proposed definition should be amended. In attempting to clarify and restrict the meaning of
" electric utility" with respect to entities that establish rates themselves, the proposed rule has created an ambiguity for political subdivisions of the state such as the Power Authority. By stating that the proposed definition includes only cenain listed entities, i.e., public utility districts, municipalities, rural electric cooperatives, and State and Federal agencies, the proposed regulation creates uncertainty. Entities like the Authority or other entities with characteristics and powers similar to the listed entities but whose authorizing statute does not describe them in the exact words of the proposed regulations are left to informal interpretation. To provide for entities that are similar to the listed entities, the fcilowing revision to 10 CFR 50.2 is proposed:
Electric utility means. Public utility districts, municipalities, rural electric cooperatives, and other Local, State and Federal governmental entities, including i associations of any of the foregoing, that establish their own rates are included :
within the meaning of" electric utility."
The Authority continues to believe that while it should be made clear that a rate of !
l return can be applied in estimating Decommissioning Fund (Fund) requirements, NRC should not specify a single allowable rate of return, but should allow licensees to take credit for any rate they can justify. If a specific rate of return is specified in the l
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regulations, it should be a default figure rather than a ceiling for estimating future Fund requirements. We agree with other comments that a rate of 3 percent is reasonable and achievable and consistent with historical real return on Treasury bonds. l The proposed regulations provide that 10 CFR 75 (e)(ii) be revised to specify a 2% rate of return applied to funds collected thru igh the decommissioning period. Since it is contemplated that a licensee will periodically reevaluate its sinking fund to assure that it meets the requirements of 10 CFR 50.82, the net result is that the same amount of money should be in the sinking fund when the facility ceases scheduled operations ,
regardless of what rate of return is used. The rate of return essentially determines the proportion of financial burden carried by electric users through time. A low rate of return imposes higher burdens on current users to the advantage of future users. While the Authority believes that historical evidence supports the use of at least a 3% rate of return, ,
it would accept 2% ifit were a default value. The Authority reevaluates its decommissioning sinking fund annually. In the case of the Authority's facilities equity would dictate that the Authority use a 3% historical rate of return rather than a
" conservative" 2% rate of return. Licenses for the Authority's two facilities expire in 2014 and 2015. By that time the total funds required by Part 75 must be in the sinking fund. Since annual assessments are based upon future needs (projected 15 years in the future), underestimating the rate of return by 1% per year for the life of the reactors produces significant cost to current electric users that will not be recovered until the end of the licensed period. Even though adjustments could be made annually, most of the benefits of the overpayment would not be realized until the final years of reactor 1 operation. The burden therefore shifts to the current electric users. On the other hand, if a reasonable rate of return were not realized in a given year an immediate adjustment in payments could be made that affect primarily the current electric users, i.e., those who would most likely benefit from the overestimate. The Authority therefore proposes 10 CFR 75 (e)(ii) be revised as follows:
(ii) External sinking fund. An external sinking fund is a fund established and maintained by setting funds aside periodically in an account segregated from licensee assets and outside the licensee's administrative control in which the total amount of funds would be sufficient to pay ,
decommissioning costs at the time l l
termination of operation is expected. An extemal sinking fund may be in the form of ,
a trust, escrow account, government fund, l certificate of deposit, or deoosit of l government securities. A licensee may take credit for earnings on the external sinking funds using a 2 percent annual real rate of return from the time of the funds' collection j through the decommissioning period, unless 2
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the licensee can demonstrate that use of ;
another rate of return in coniunction with :
ceriodic reevaluation of the funds collected will orovide similar assurances or the ,
licensee's rate-setting authority does not !
authorize the use of another rate.
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APW' YU}
G Florida Power & Light Company. P O Box 16000. Juno Beach. FL 33408-0420 00CKETED USNRC I:PL
'97 N0v 28 P12:36 November 24,1997 ors. . e . L-97-302 Secretary R U 8 .i- %
rrF ADg;c . -
U. S. Nuclear Regulatory Commission OCKET NiMRFR pp % 60 _..
4 Washington, DC 20555-0001 ATTN: Rulemakings and Adjudications Staff (9aFA V75M)
Subject:
Proposed Rule on " Financial Assurance Requirements for Decommissioning Nuclear Power Reactors" (62 Esd. Rgg. 47588; September 10, 1997)
Florida Power & Light Co. (FPL) is a licensed operator of two nuclear power plant units in Dade County, Florida and two units in St. Lucie County, Florida.
FPL endorses the comments of the Nuclear Energy Institute (NEI) regarding the subject rulemaking. FPL agrees with the NRC's overall proposal to allow power reactor licensees with additional flexibility for providing fmancial assurance for decommissioning in a changing economic marketplace and regulatory environment. However, FPL is concerned that the proposal does not sufliciently address the types of entities that may own and operate nuclear plants in the future. FPL believes that these concerns would best be addressed by adopting the cornments and changes proposed by NEI.
FPL offers the following comment on one aspect of the proposal not specifically addressed by NEI The proposed rule would adopt a two percent real rate of return allowed to licensees on external sinking funds from the time of collection through the decommissioning period. In other promulgations by NRC, (NUREG/BR-0058, Rev. 2; SECY 93-167, June 14,1993) the agency has adopted real discount rates up to seven percent. Based on these promulgations, a rate of return greater than 2% on external sinking funds is reasonable and a higher rate should be adopted in the final rule.
FPL appreciates the opponunity to comment on the proposed rulemaking.
Respectfully submitted,
~ Harry N. aduano Q bc% .
Manab Licensing and Special Programs IINP:dcr
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an FPL G up company /
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4/We P3A Duke Power Company g
, ! A Duke Entry Cenpm Elv R ., DOCKETED "C"Y EC07s N~w Gw-r 526 South Church Street P.O. Box 1006 Chulotte. NC 28201 1006 i M. s. na== l Executive We hesiden, 77 NOV 26 P 2 :0g.,382-2200onscr - i Nudear Generation (704) 382-4360 m l OEF :
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ADJ. j 00CKET NtMBER PROPOSED 19 s E 50 November 21,1997 gl (w FM7S88)
Secretary of the Commission U. S. Nuclear Regulatory Commission Washington, D. C. 20555-0001 Attention: Rulemaking and Adjudications Staff
Subject:
Financial Assurance Requirements for Decommissioning Nuclear Power Reactors; Duke Energy Corporation Comments In response to the proposed rulemaking on the financial assurance requirements for the decommissioning of nuclear power reactors which appeared in the September 10,1997 Federal Register, Duke Energy Corporation offers the following comments.
Comment 1 The Commission states at 47594 that a licensee other than an electric utility, ". .would need to comply with the deconunissioning funding assurance requirements of
$50.75(e)(2) unless that licensee can otherwise conclusively demonstrate a government-mandated, guaranteed revenue stream for all unfunded decommissioning obligations."
This statement raises the question of whether a licensee can assure' adequate funding through proof of decommissioning funding assurance through means other than a
" government-mandated" revenue stream. It would seem that on a proper showing of such a private contract or contracts, the onerous provisions of $50.75(e)(2) should not apply.
Comment 2 The definition of" electric utility" found in 550.2 seems to contain a requirement to have not only decommissioning costs recovered through " traditional cost of service regulation or indirectly through another non-bypassable charge mechanism", but ALSO operating and maintenance costs. This definition does not allow flexibility for a utility to operate in J'l jZ O E d M c5 4 % ci,o t
t U. S. Nuclear Regulatory Commission ;
November 21,1997 Page 2 a deregulated market where the utility may obtain funds to operate and maintain the plant through the market clearing price for energy / capacity and obtain funds to decommission through a ron-bypassable charge or other satisfactory mechanism.
As long as decommissioning costs are assured, there is no need to provide any additional advance funding of anticipated operational and maintenance costs. Section 50.75 limits itself to providing financial assurance for decommissioning. It does not implicate operation and maintenance, and neither should the Commission with respect to deregulated electric utilities. Thus, by way of example,if a licensee recovers ,
decommissioning requirements through a non-bypassable lines charge or other satisfactory mechanism, the licensee should have no other prepayment / guaranteed funding requirements, even though the cost of operating ar.d maintaining the plant are not recovered through rates established by a regulatory authority.
Comment 3 In 650.75(f)(1) the Conunission proposes that each power reactor licensee shall report to the Nuclear Regulatory Commission " ..at least once every 2 years thereafter on the status ofits decommissioning funding for each reactor facility or part of a reactor facility that it ,
owns." Once every five years would be a sufficient frequency to report on the status of the decommissioning funding. Five years provides a reasonable time period to ensure that the funds are performing as projected and that the collections are on schedule. A five year time period would also coincide with the recommended f' /e year adjustment to site specific cost estimates in Nuclear Regulatory Commission Regulatory Guide 1.159.
Duke Energy generally agrees with and endorses the comments of the Nuclear Energy Institute and the comments of Winston & Strawn on behalf of the participating members of the Utility Decommissioning Group.
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i U. S. Nuclear Regulatory Commission i
. November 21,1997 ;
Page 3 1 i
Conclusion
! Due to the importance of nuclear power in the generation mix and the funding of decommissioning, it is imperative that the proposed rulemaking allow the flexibility for i nuclear to compete in a deregulated market while still allowing recovery of the ;
l decommissicning costs. Duke Energy Corporation appreciates the opportunity to i comment on the preposed rulemaking and believes that nuclear power can play a viable !
t I- role in the deregulated industry.
Very imly yours, j l
- h. . - -
M. S. Tuckman j l
xc: Richard J. Myers Nuclear Energy Institute !
17761 Street, NW - Suite 400 !
Washington, D. C. 20006-3708 Joseph B. Knotts, Jr. I Winston & Strawn i 1400 L Street, N. W.
Washington, D. C. 20005-3502 l
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November 24,1997 '
l OYN VMGMA POWER l Ri d gun . 5F g Serial No. GL 97-104/107 !
Mr. John C. Iloyle
. .,4rW1 NLMBEfl Secretary of the Comm.ission l .
PROPOSEDim 5 50 U.S. Nuclear Regulatory Comm.issmn -
Washington, DC 20555-0001 ((a2F4#75gg)
L Attn: Rulemakings and Adjudications Staff ,
Re: 10 CFR Part 50 l Financial Assurance Requirements for Decommissioning Nuclear Power Reactors Proposed Rule (62 Eed. Reg. 47588: September 10,1997) ;
and ,
Draft Regulatory Guide DG-1060 Financial Accounting Standards Board (FASB) '
Standards for Decommissioning Cost Accounting
Dear Mr. Hoyle:
This letter and enclosure set forth Virginia Power's comments in response to the above >
referenced Proposed Rule and Draft Regulatory Guide as issued by the Nuclear Regulatory Commission (NRC). Virginia Power is most appreciative of the opportunity to provide comments on the proposed changes and commends the NRC for involving the industry prior to
! implementing regulatory modifications.
Virginia Power agrees that adequate financial coverage for an entity's future decommissioning Q. ligation is a vital issue of public safety and health, and as such, requires careful regulatory
..ursight. Recent moves toward deregulation in the electric utility industry provide sufficient impetus to question the propriety of current NRC requirements for decommissioning financial ;
assurance. The Proposed Rule, with certain caveats, is an admirable attempt to add flexibility to !
the regulations by broadening the definition of" electric utility." Such actions are appropriate steps in addressing expected changes in the industry. As developments unfold, the incorporation l of additional flexibility may be desirable.
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The enclosure discusses two primary issues raised by the Proposed Rule that Virginia Power has ;
identified as requiring further consideration. One is the notion of segregating a utility's total decommissioning liability based upon its source and level of revenues. The other is the !
precipitate reliance upon a draft standard published by the Financial Accounting Standards i Board.
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Mr. John C. Iloyle November 24,1997 Page 2 As we have commented in previous correspondence, the minimum financial assurance amount ,
currently prescribed by NRC regulations is dated and requires instant review with this Proposed l Rule. The final outcome of the Proposed Rule would be incomplete if the NRC did not also l address the recognized deficiencies in the current presribed amount for decommissioning financial assurance.
While the enclosed comments detail specific concems of Virginia Power, we also generally endorse the comments of the Nuclear Energy Institute, which represents the nuclear energy l industry from a broader perspective.
We look forward to continued interactions regarding this and related issues as the industry moves ,
along the path of deregulation. Again, thank you for the opportunity to provide comment. !
Very truly yours, James P. O'Hanlon Enclosure 1
cc: Rules and Directives Branch Office of Administration J U.S. Nuclear Regulatory Commission Washington, DC 20555 Mr. Brian J. Richter i l
OtTice of Nuclear Regulatory Research U.S. Nuclear Regulatory Commission Washington, DC 20555-0001 1
i Mr. Marvin S. Fertel Vice President Nuclear Infrastructure Support & l Intemational Programs !
Nuclear Energy Institute Suite 400 l 1776 i Street, NW l Washington, DC 20006-3708 Mr. Timothy Lough Commonwealth of Virginia State Corporation Commission P. O. Box 1197 Richmond, VA 23209-1197 i
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Virginia Pswir Ccmments en NRC Propo:ed Rub FinInchl Asturenca R:quir;ments fer Decomminioning Nucinr Powar Ratctors And Draft Regulatory Guide DG-1060 F
I, Overview f i
i Virginia Electric and Power Company (Virginia Power) is providing these comments in !
response to the publication by the Nuclear Regulatory Commission (NRC) of the Proposed Rule l for the Financial Assurance Requirements for Decommissioning Nuclear Power Reactors,10 !
l CFR Part 50, in the Federal Register, Volume 62, No.175, September 10,1997, Page 47588 et ;
L seq. and the Draft Regulatory Guide DG-1060, Financial Accounting Standards Board (FASB)
Standards for Decommissioning Cost Accounting in the Federal Register, Volume 62, No.178, l
September 15,1997, Page 48322 et seq.
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l Virginia Power is a regulated public utility engaged in the generation, transmission, '
distribution and sale of electric energy (over 65 million megawatt-hours in 1996) to nearly 2 l million retail and wholesale customers within the states of Virginia and North Carolina, it owns-
{
and operates four nuclear units, which provided over 30 percent of the company's total system output in 1996. Nuclear energy represents a substantial investment and commitment on the part ;
- of Virginia Power. More specifically, the future decommissioning obligation for the company's [
nuclear units is recognized as an important and significant item that must be adequately addressed during these preliminary stages to the deregulation of the electric utility industry as -
well as the ultimate era ef deregulation. i Virginia Power provided comments to the Advance Notice of Proposed Rulemaking l (Advance NOPR) on Financial Assurance Requirements for Decommissioning Nuclear Power l Reactors published in early 1996 (Federal Register, Volume 61, No. 68, April 8,1996, Page 15427 et seq.) and is appreciative of this additional opportunity to provide input prior to the f promulgation of final regulations. The Proposed Rule reviews the comments received to the Advance NOPR, summarizes the NRC's position and response, and specifies proposed !
modifications to the current regulations regarding decommissioning financial assurance.
L One of the primary modifications being proposed is a broadening of the definition of an i
" electric utility" for decommissioning financial assurance purposes to include recent alternate
, ratemaking/ regulatory recovery mechanisms for decommissioning costs, specifically non-e, I bypassable charge mechanisms. In general, such inclusion is supported by Virginia Power. 3 However, the proposed language introduces several distinctions or segregations of an entity's ;
total decommissioning cost with unintended and possibly undesirable consequences. l
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Virginia P wer Cc,mments en NRC Pr:p sed Rule Fin:nci:1 Asrur nce Requirements for Decammiri:ning Nucl=r PowIr R=ctors And Draft Regulatory Guide DG 1060 Another primary thrust of the Proposed Rule is to institute periodic reporting requirements. The NRC published Draft Regulatory Guide DG-1060 to provide guidance for licensees to comply with the proposed reporting requirement. The Draft Regulatory Guide endorses a draft of a FASB standard, presumably under the assumption that a final FASB standard will not be significantly altered from the draft and will be forthcoming in a timely manner. This presumption may be untenable.
II. Segregation of Costs The proposed definition of an " electric utility" implies that a company's total decommissioning cost obligation must be segregated in at least two different dimensions. One dimension involves the revenue source for decommissioning cost recovery. If the revenue source is derived from rates developed through traditional " cost of service regulation" or the more recently devised mechanism of "non-bypassable charges" (both defined terms in the Proposed Rule), then for that ponion of the total decommissioning cost, an entity will be considered an electric utility and thus permitted to use a sinking fund in addition to other options as a mechanism for providing financial assurance. For remaining portions, the entity must rely solely upon other, more onerous financial assurance mechanisms. Another dimension deals with the sufficiency of the revenues to cover costs to operate, maintain, and decommission the nuclear plant. Ilowever, prior to implementation, further clarification is needed to define acceptable methods to perform such segregation of an entity's total decommissioning obligation and to determine sufficiency.
As to the first dimension, a multi-jurisdictional utility, which determines rates for its various jurisdictions based upon varying allocation methodologies, may find a nominal portion ofits decommissioning costs "unallocated." If the proposed definition is taken literally, a utility could arguably be prohibited from the continued use of a sinking fund to meet the NRC's financial assurance requirements for this "unallocated" portion of its decommissioning costs.
Such unallocated amount varies from year to year and from rate case to rate case. In point of L fact, it is more likely that the sum of the allocation factors used under traditional ratemaking falls short or exceeds, rather than equals,100%. This situation gives rise to the questions: would an annual assessment have to be made and actions taken to address shortfalls? Would an excess Page
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Virginia Pcwir Ccmmints on NRC Propond Rula Fintncial Aeeurtnc3 Requircments for Decommis ioning Nucl:ar Powsr Rscctors And Draft Regulatory Guide DG-1060 amount create a situation wherein monies in an extemal trust could be withdrawn? Virginia :
Power submits that such an outcome was not intended when the proposed language was crafted.
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The avowed purpose of the new definition of" electric utility"is to
" introduce additional flexibility to address potential impacts of electric industry deregulation. The Commission notes that the key component of the revised definition is a licensee's rates being established either through .
cost of service mechanisms or through other non-bypassable charge mechanisms... .
62 Ecd. Reg. 47,592 (emphasis added). As suggested by such comment, the Commission's primary concern is that future changes in the nature of the electric industry may produce increased uncenainty as to the funding of nuclear decommissioning. Implicit in this opinion is the principle that absent such change in the industry, there is not a need to change the current requirements imposed on electric utilities. Indeed, the Commission recognized this very principle in its comments:
With respect to the question of impacts, the Commission has considered the comments relating to potential impacts in arriving at the positions ,
taken. The Commission mderstands that financial assurance would place-a burden on licensees that may affect their competitiveness in a ;
deregulated environment. The Commission has chosen to take an approach that would create no additional financial impact over present regulation for electric utilities and has also expanded the ,
definition of electric utility to accommodate types of rate regulation not l previously anticipated.
Id. 47,594 (emphasis added). Virginia Power is concemed that, notwithstanding the Commission's clear intent to the contrary, the proposed definition of" electric utility" can be misconstrued to impose new obligations on licensee's even in the absence of any change in the regulatory environment in which the licensee operates.
This is of particular concern for those utilities that already, prior to deregulation, recover l
l a portion of their decommissioning costs from customers whose rates are established through l contractual negotiations. Virginia Power has a monopoly service territory in Virginia within which'it is the sole provider of electric service, llowever, within that service territory, governmental entities purchase electricity at rates that are negotiated by the parties. Such non-t Page 3-
Virginia Power Comments on NRC Proposed Rule i Financial Accurance Requirements for Decommi:sioning Nuclear Power Reactora ,
And Draft Regulatory Guide DG-1060 l
l jurisdictional customers in Virginia include state and local government facilities, state
]
universities and the federal government, including military installations. Even though these sales ;
are made within Virginia Power's exclusive service territory, they seemingly might not be treated l' as " electric utility" sales merely because the rates themselves are not set in the context of a regulatory proceeding.
I These customers are not currently free to choose their supplier of electricity. Prior to i deregulation of retail electric sales, the expected revenues from these contract customers are as i certain as the revenues from the company's jurisdictional customers. All of these contracts have !
a provision for nuclear decommissioning costs specified either in the contract itself or in the i 1
working papers supporting the resulting rates. Although contractually arranged, the rates are ;
essentially based upon traditional cost of sersice methodologies. As an example of the specific )
language contained in Virginia Power's contracts, the following is an excerpt from the company's contract with the Military Services (MS) class of non-jurisdictional customers:
The MS Class shall be responsible for decommissioning costs associated with the MS Class. The Parties are in agreement that the Contractor shall track such costs as a separate liability with a charge to a depreciation expense subaccount so that the amount of decommissioning costs recovered may be readily identified and assigned. The total annual decommissioning revenue recovery component included in the rates in Schedule MS and MS Alternate for the entire MS Class shall be...
Thus, Virginia Power submits that it should be allowed to continue to use a sinking fund to meet decommissioning financial assurance for these non-jurisdictir nal customers and recommends expansion of the proposed definition of" electric utility" to include contract customers.
Virginia Power joins other nuclear utilities in fully expecting that there will be fhll recovery of nuclear decommissioning costs in a restructured electric industry through either non- j bypassable charge mechanisms or other regulatory and/or contractual provisions. If, however, such expectations do not come to fruition, then it is at that time (rather than now) that a utility should have to abandon the sinking fund method of providing decommissioning financial assurance and rely upon the more onerous options as currently prescribed by the NRC.
l As to the second dimension of revenue segregation, the proposed definition of" electric
- i utility" implies a requirement that rates, even if established through traditional cost of service regulation, must be " sufficient for the licensee to operate, maintain, and decommission its i
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Virginia P wer CommInts en NRC Prcpoacd Rule ;
Fin:nci:1 Asturtnca Requirements far Decommimioning Nuctrar Powsr Ra:ctors And Draft Regulatory Guide DG 1060 nuclear plant safely " Id. 47,605. The issue of sufficiency of traditional ratemaking is not adequately discussed in the Proposed Rule. This requirement would seemingly require some type of separation or allocation and possibly prioritization of the components of bundled rates for electric service that has not heretofore been a part of the traditional ratemaking process. The apparent inclusion of costs related to operation and maintenance in addition to decommissioning is particularly confusing since this particular rulemaking's focus is decommissioning financial assurance. Clarification and guidance as to acceptable methods to determine rate sufficiency is needed.
Additionally, current Regulatory Guide 1.159, Assuring the Availability of Funds for Decommissioning Nuclear Reactors, recognizes the time lag inherent in the traditional ratemaking process and provides for a reasonable time period (not to exceed five years) wherein any required ch=;;es in customer collections (and commensurate deposits to a sinking fimd) to address shortfalls in meeting decommissioning financial assurance can be implemented. Virginia Power submits that such a time period is still needed, most especially during this transition period to deregulation. The Proposed Rule could be interpreted in a manner that would force a utility to immediately switch (presumably at the effective date of the final rule) to an attemate financial assurance mechanism for a relatively short, interim period; only to switch back to a sinking fund methodology once a required change in rates is implemented.
111. . Reliance on FASH Exposure Draft I
The Proposed Rule and the Draft Regulatory Guide DG-1060 state that the NRC er.dorses the draft FASB standard No.158-B and plans to endorse the final standard when issued. The premise being that companies' adoption of FASB's standards for accounting and financial reporting purposes will provide the NRC with sufficient information to monitor the status of decommissioning funding for those who elect the external sinking fund as their financial assurance mechanism.
Virginia Power is in agreement that the listing of disclosure items, as contained in l
. paragraph no. 25 of the draft standard, are appropriate items to be included in a report to the NRC. These items are essentially listed in revised paragraph 50.75(f)(1) included in the Proposed Rule. The company also agrees that submittal of annual financial statements as required by other NRC regulations will aid the NRC in generally tracking the status of funds.
However, Virginia Power does not believe that the methodologies described in FASB's draft Page - . _ .
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l Virginia Pcwer Ccmments en NRC Propcsed Ruta
. Fin nci:1 Acaurines Requir:monts f:r Decommisel:ning Nucle:r P:wer Racetors l
And Draft Regulatory Guide DG 1060 standard, which establishes accounting procedures, are the appropriate computations to be used in determining cash flows (i.e., appropriate funding levels to external trusts). As addressed in ;
i paragraph no. 22 of FASB's draft standard, there are significant differences in the ratemaking ,
treatment of decommissioning costs primarily as a result of timing differences in recognition of I costs. !
There are other issues encompassed in FASB's draft standard that are at odds with !
computations relevant for NRC purposes. One is that FASB's draft standard presumes a site- ;
specific study, a concept the Company endorses; whereas, the NRC is concerned primarily with l the NRC's defined minimum for decommissioning financial assurance. Another is FASB's ;
proposed use of a constant, risk free discount rate; whereas, computations relevant for the NRC l of necessity would make use of a discount rate based upon the expected earnings of the external trusts.
1 Also, further FASB deliberations on the myriad and complex issues raised during the comment period for their drafl standard have been impeded by higher priority items. The NRC ,
should be cognizant that the scope of the draft standard has been somewhat broadened since its i initial publication and that implementation of a final standard is not expected in the near term. !
.i IV. Summary !
The NRC's stated concerns regarding deregulation of the industry and its impact upon !
decommissioning financial assurance are shared by Virginia Power. We agree that decommissioning funding must be secure. However, any imposed change in financial assurance options for an electric utility should be the consequence of a change in law or regulation related to decommissioning cost recovery. Deregulation efforts to date have recognized the need for
. continued recovery of decommissioning costs through regulated means, which provides the same assurances as traditional cost of service based rates.
Virginia Power has identified several specific issues wherein implementation of the j Proposed Rule, without added clarification, could cause unexpected and undesired results that are ;
! at odds with the NRC's stmed intentions. Given these issues, the company requests the NRC to l further refine its proposed definition of an " electric utility" as proposed herein, and suggests that f
- a substantial expansion of the Draft Regulatory Guide needs to be developed prior to implementation.
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[' 3 North 00CKETED usNac North Atlantic energy service corporation na no soo J $V Atlantic Seabrook, Nil 03874 (603) 474-9521 77 DEC -1 P1 :54 The Northeast Utilities System OFF G v' a: "- 4 November 24,1997 RUE t.' s ADJUDR % . AFF '
Docket No. 55-443 NYN-97116 4 00CKET NUMBER The Secretary of the Commission 3- Pa0Po6EDp9 R 5o --
U.S. Nuclear Regulatory Commission (GAFAy1Spp) ;
Washington, D. C. 20555-0001 Attention: Rulemakings and Adjudications Staff Seabrook Station ,
Comments on the Proposed Rulefor Financial Assurance Requirements for Decommissioning Nuclear Power Reactors (62 FR 47588 - September 10,1997).
These comments are submitted by North Atlantic Energy Service Corporation (North Atlantic)in *j response to the subject Federal Register notice. North Atlantic is the managing agent and operator of Seabrook Station. Enclosure 1 provides detailed comments and recommendations on l the proposed rule. ,
Seabrook Station is jointly owned by 11 investor-owned, municipal-owned and cooperatively- l owned utilities whose sales are regulated by four states and the Federal Energy Regulatory Commission. Although some are further along than others, each of the states is in the process of l restructuring its electric industry to establish competition among electricity suppliers.
Even at this early stage of deregulation we believe that the revisions proposed by the NRC do not fully address how future nuclear plant owners will be structured and how they will recover their decommissioning costs. As a first step, we believe that the financial assurance and decommissioning funding tests must be separated. In particular, we believe that the term electric utility should only be applied when the determination of financial qualification is made. For
. decommissioning, we believe that financial assurance tests specific to decommissioning should l be used. l l
l It is important to note that many of the arrangements for the recovery of decommissioning costs i have yet to be worked out between the affected utilities and their regulators. These arrangements I will all have the same fundamental goal of providing reasonable assurance that decommissioning l
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The Secretary of the Commission U.S. Nuclear Regulatory Commission NYN-97116/Page 2 will be fully funded. It is very likely, however, that some funding assurance arrangements will take forms that are not even being discussed yet. The NRC should ensure that its regulations provide licensees the flexibility to employ these creative solutions while at the same time achieving the underlying goal of full decommissioning funding assurance. The specific comments made in the enclosure are not meant to limit the NRC's consideration of even more flexible arrangements but simply address mechanisms and issues that we are aware of today.
North Atlantic has had the opportunity to input substantively into the comments being provided by the Nuclear Energy Institute and supports those comments. North Atlantic considers the concept in those comments of a " qualified nuclear entity" as determined by certain tests to be sound. We endorse this approach. Further, we believe that flexibility in the NRC's regulations is essential and the NEl proposal provides such flexibility. Our comments represent a somewhat less comprehensive apprcach than NEI's towards achieving the separation of the fimancial qualification and decommissioning funding assurance regulations. The detailed comments provided in the enclosure to this letter are meant to support NEI's comments.
Should you have questions regarding these comments, please feel free to contact Mr. Terry Harpster, Director of Licensing Services at (603) 773-7765.
Very truly yours, NORTil AT LANTIC ENERGY SERVICE CORP. l
/^. -
2 b [R/dc& ^
(ed C. Feigenbaum Executive Vice Presid t and Chief Nuclear Officer cc: Adrian Heymer, NEl Nuclear Energy Institute 17761 Street, NW Suite 400 l
Washington, DC 20006-3708 Craig W. Smith, NRC Project Manager, Seabrook Station R. K. Lorson, Senior NRC Resident Inspector, Seabrook Station United States Nuclear Regulatory Commission Document Control Desk Washington, DC 20555-00021
ENCLOSUREI'ro3*g,3,, g i
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M Enclosure 1 l
l Detailed Comments on Proposed Rule Changes Regarding Funding i Assurance for Decommissioning l I. Definition of Electric Utility !
l The Proposed Rule Needs to be Revised to Reflect Industry Restructurme The NRC's proposed rule revises the definition of an electric utility to reflect the anticipated ;
form of NRC licensees under the restructuring of the electric utility industry. However, applying the revised definition creates several difficulties for both licensees and the NRC in achieving the underlying objective of the decommissioning rule, namely the guarantee of the availability of decommissioning funds. As explained in the following, the rule as proposed unnecessarily limits a licensee's ability to demonstrate financial assurance and unnecessarily complicates the NRC's review of a licensee's assurance of decommissioning tunding.
The Definition of an Electric Utility was Intended as a Financial Oualification Test Not a ,
Decommissionine Fundine Asmrance Test The definition of an electric utility that exists today was added to the NRC's regulations in support of a revision to the NRC's rules that eliminated NRC financial qualification reviews for electric utilities (49CFR35747). The inclusion of the definition of an electric utility was intended solely to address the test that a prospective licensee have assurance of the funds necessary to safely operate a nuclear plant. This was made clear in the statement of considerations that accompanied the rule where the NRC stated its concerns. Examples of the NRC's intent can be seen in the following statements:
"Even though the rate process does no more than assure that regulated utilities will have the financial resources needed to operate safely, this limited assurance is all that the financial qualifications rule was intended to achieve."(49CFR35749) (Emphasis added), and, l
l l "Its (the NRC's) concern is that reasonable and prudent costs of safely maintaining and ooerating nuclear plants will be allowed to be recovered l through rates."(49CFR35749) (Emphasis added) .
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The NRC continued this philosophy of applying the electric utility test when it issued the 1985 proposed revisions to its rules that added decommissioning criteria for nuclear facilities (50CFR5600). There, the NRC proposed adding requirements for what constituted acceptable 2
decommissioning funding assurance mechanisms. The reason why the definition of electric Page 1 of 6 i
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utility was applied to oecommissioning appears to have occurred because the decommissioning funding assurance rules were originally proposed as an addition to S 50.33. Contents of '
Applications. Since the NRC's regulations already considered a licensee's status as an electric i utility as the seminal criteria for whether a potential licensee was financially qualified, it >
followed that tha NRC would use this as a test of the certainty of a licensee's recovery of ,
decommissioning costs on an ongoing basis. The NRC based its distinction between the i financial assurances required for electric utilities and non-electric utilities on the " guarantee" that l recovery of operating costs allowed by state utility commissions presented. i in the 1988 Snal rule that established the requirements for the decommissioning of nuclear facilities (53FR24018), the NRC moved its criteria out of 5 50.33 into a new section. S 50.75. ;
Reporting and Recordkeeping for Decommissioning Planning. The criteria that established }
which decommissioning funding assurance requirements applied to a licensee still. however. ;
contained the financial qualification test of whether the entity was an electric utility. l The NRC fully understood that FERC and the state utility commissions had the established !
responsibility for setting rates to allow the recovery of decommissioning costs. Illustrative of l how the NRC saw the utilities commissions' roles is a statement in the section addressmg unfunded decommissioning costs. There the NRC stated. "because nublic utility commissions :
are to set a utility's rates such that all reasonable costs of serving the nublic may be recovered ;
and because NRC reouirements concerning termination of a license are nart of the reasonable cost of having onerated a reactor, it is reesonable to assume that added costs beyond those in the -
prescribed amount could be obtained if the latter were too low as suggested by the commenters? {
i The linkage between the electric utility test and the objective of assuring full decommissioning funding merely recognized the then-existing regulatory " guarantee" established by the FERC and l state utility commissions' allowance of the recovery of decommissioning costs. .
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The Proposed Rule Should Decouple the Financial Oualification and Decommissionine i Fundine Assurance Tests j The NRC, in its proposed rules has modified its definition of an electric utility to include [
recognition of the recovery of costs through either traditional cost of service rate recovery or through the establishment of a non-bypassable cost recovery mechanism (e.g. wires charge).
This approach does not recognize that cost recovery under restructuring will not be as well l defined as the NRC's proposed rules anticipate.
L The restructuring of the electric utility industry is still in its early stages, however, several l j examples exist which point out the unnecessary results that will arise from the rule as proposed. '
l L in Massachusetts, utilities are restructuring in accordance with the model rules issued in L Massachusetts Department of Public Utilities (MDPU) Docket 96-100. Those model rules ,
encourage the filing of offers of settlement as a way to expedite the restructuring process.
i Individual utility restructurings, therefore, are being carried out in accordance with specific j i
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settlement agreements involving the Massachusetts Attorney General, other parties and the utility.
Typically, these Massachusetts settlement agreements, which are currently pending before the Massachusetts Department of Public Utilities for approval, distinguish between recovery of decommissioning costs for nuclear plants and the going fbrward operating and capital additions costs fbr nuclear plants. The settlement agreements provide fbr full recovery of post-shutdown, decommissioning and site restoration costs of nuclear plants through a contract tennination charge (CTC). This CTC is a non-bypassable " wires charge" llowever, under these settlements, the going forward costs of operation of nuclear plants are typically divided with a ponion of those costs recovered through the same non-bypassable CTC and the remainder subject to market based sales which result in either the over- or under-recovery of the going fbrward costs. Thus, despite the fact that these settlement agreements assure a Massachusetts licensee of recovery of 100% ofits decommissioning costs through the CTC. it is not clear whether the NRC proposed revision of $50.75 would impose a prefunding requirement upon such a licensee because the new definition of electric utility combines all costs "to operate, maintain and decommission its nuclear plant" and 550.75 appears to incorporate that combined concept rather than fbeusing on decommissioning costs alone. Since the Massachusetts settlements assure 100% recovery of decommissioning, no prefunding is necessary to achieve the purposes of 550.75.
In New llampshire, the utility restructuring order issued by the New llampshire Public Utilities Commission (NiiPUC) contained an approach that anticipated less than full recovery of nuclear operating costs as stranded costs, but that nonetheless recommended full recovery of decommissioning costs via a stranded cost approach. The NilPUC's Plan on Restructuring the Electric Industry, issued February 28,1997 contained the following:
"In all instances, companies will not be allowed to add the going forward costs of nuclear operation as stranded costs, with the excention of decommissioning costs. We believe the public good is served by allowing distribution companies to recover decommissioning costs through stranded cost charges...."
While this order has been temporarily stayed pending litigation, this specific provision would l create more " partial electric utilities" that nevertheless had full regulatory guarantee of decommissioning cost recovery.
The Solution is to Separate the Financial Oualificatinn and Decommissionine Funding Assurance Tests The tests that the NRC has established in its proposed definition of electric utility are useful ones and would give a clear indication of the assurance that a licensee (or potential licensee) needed to
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provide.- However, by referring solely to the definition of electric utility as a matter of convenience could create " partial electric utilities" and require unnecessary prefunding. )
A solution is to adopt the definition of electric utility proposed by the NRC as the test applied solely for financial qualification. In addition, 550.75 should be modified to apply financial tests !
specific to decommissioning funding in determining whether "prefunding" should be required. ,
The concepts used by the NRC in modifying its definition of electric utility should be included in 550.75. North Atlantic believes that the NEl concept of a " qualified nuclear entity" provides a l suitable replacement to the use of the tenn " electric utility" Another acceptable alternative is to ;
use the suggested language provided as Attachment 1.
North Atlantic also endorses the three-tiered approach being proposed by NEl which grants j additional flexibility ' in the evaluation of a licensee's ability to reasonably assure !
decommissioning funds. l
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II. Unavailability of the Financial Assurance Mechanisms Envisioned Under f 10CFR50.7McM2) i f
r As the Commission is well aware, Great Bay Power Corporation (Great Bay), a 12.1324% owner !
in Seabrook Station has been found to not meet the definition of an electric utility contained in
$ 50.2. As a result, Great Bay must satisfy the more stringent funding requirements of l
- 550.75(e)(2). !
' As of July 1997, Great Bay had been unsuccessful in locating any of the funding mechanisms described in the decommissioning regulations and has sought and received a continued j
' temporary exemption from those requirements. It is continuing to search diligently for a j financial instrument that would satisfy the Commission's requirements but has been- i unsuccessful. ,
The only alternatives that Great Bay has been able to identify would have required them to fully '
fund or collateralize the insurance company or surety in the form of a pre-funding of the total obligation by Great Bay. More recent discussions with insurance companies have found that the ;
shifting of decommissioning risk to them is a difficult hurdle. The insurance companies have l been focesing on an annuity type of product that is based on cash security provided by Great Bay l up front. This in essence becomes simply another form of prepayment.
l- Great Bay's experience is consistent with the Commission's own findings that the_ forms of [
L guarantees called for in 550.75(e)(2) were not available. In the statement of considerations for :
the final rule on General Requirements for Decommissioning Nuclear Facilities the Commission f found:
"Use ofinsurance for non-accident related decommissioning was found m an earlier study performed for the NRC, NUREG/CR-2370'(Ref.16), to '
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t have potentially serious problems of insurability and moral hazard and is not currently available."(53FR24034) and,
" Finally, earlier studies in NUREG-0584 found that surety bonds were not generally available in the amounts necessary for decommissioning power ,
reactors."(53FR24034).
While it is impossible to predict with certainty the form that restructured nuclear plants :
ownership will take, the examples we have to date in Massachusetts and New Hampshire !
indicate that it is likely that the vast majority of generating companies that will exist after i restructuring will have an assured recovery mechanism through a non-bypassable charge. The .
result will be that there will be no new market created for such financial instruments leaving those few utilities that must seek them saddled with an extremely large operating expense that !
their competitors will not have to incur. .
111. Alternative Methods of Financial Assurance In its proposed rulemaking, the Commission has asked for comment on altemative methods of financial assurance given that some entities may not be able to obtain the assurance required under $50.75(e)(2). We believe that additional consideration of such attematives is warranted. l Assienment of Rights to Decommissionine Funds Collected ;
in the example cited above involving Massachusetts utilities, should a new entity purchase a portion of a nuclear plant owned by a Massachusetts utility the resulting licensee would not be ,
part of the fomier corporate organization. in that case, under the terms of the settlement l agreement the distribution companies of the former owner would continue to collect decommissioning costs under a non-bypassable charge. The monies collected under that charge ,
would then need to be assigned to the new owner of the nuclear plant. The NRC needs to recognize that this type of arrangement is likely in those cases where interests in nuclear plants are sold and the distribution company is collecting the decommissionmg cost. i 1
l i The language as proposed in Attachment I addresses this event. ;
I Accelerated Funding Accelerated funding has been offered as one potential alternative to the funding assurance requirements of $50.75(e)(2). While this mechanism has some attraction, there are certain aspects that appear problematic.
i-The period of time over which the accelerated funding would occur is undefined by the NRC.
i Clearly, this would vary depending on how long a nuclear plant had been operating when this l new requirement was imposed. For a newer unit with greater than 25 years remaining on its 1
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'l license, it may be appropriate to accumulate funds over a 15 or 20 year period. The unfunded- I decommissioning obligation for a plant early in its life is very large and spreading that cost over i a short time period of 5 or even 10 years would impose competitive inequities when compared to licensees recovering funds via a cost of service or non-bypassable charge mechanism or those accelerating the far smaller balances of older plants.
The tax implications of accelerated funding must also be considered and we would request the NRC to approach the Internal Revenue Service for a ruling on this matter.
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I ATTACIIMENT 1 TO NYN-97116 i
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Proposed Revisions to the NRC's !
Financial Assurance Proposed Rulemaking !
i E 10CFR50.2 Non-bvvassable charees l l
- 1. Insert two new sentences at the end of the definition as follows. - Monies collected under a ;
non-bypassable charge must be available to a licensee through assignment or some other i mechanism. Other state-mandated provisions that impose guarantees of decommissioning -
funding (e.g. imposition of joint and several liability) on the owner (s) of a nuclear power plant are to be considered to provide guarantees equivalent to non-bypassable charges.
G 10CFR50.75(e)(2) i
- 1. Renumber section as (e)(3)
- 2. Delete "For a licensee other than an electric utility, acceptable methods of providing ;
financial assurance for decommissioning are " ;
- 3. Insert "For a licensee that does not recover any ofits decommissioning costs through rates t established by a regulatory authority either directly through traditional cost of service regulation or indirectly through another non-bypassable charge mechanism as defined in i
$50.2, acceptable means of providing financial assurance for decommissioning are described :
in (i) through (iv) of this section. ;
i
$ 10CFR50.75(eV3)
- 1. Renumber section as (e)(2) ) '
- 2. Delete "For an electric utility, acceptable methods of providing financial assurance for decommissioning are " ;
- 3. Insert "For a licensee that recovers all or pan of the costs to decommission its nuclear plant j through rates established by a regulatory authority, either directly through traditional cost of j service regulation or indirectly through another ncn-bypassable charge mechanism as defined ;
I in $50.2, acceptable means of providing financial assurance for decommissioning are described in (i) through (iv) of this section. An entity whose rates as so established cover only l a ponion of its decommissioning costs may use the methods described in (i) through (iv) of l c this section for only that portion of the decommissioning costs collected through such rates.
l The Commission reserves the right to take the following steps in order to assure a licensee's L adequate accumulation of decommissioning funds: review, as needed, the rate of accumulation I of decommissioning funds: and either independently or in cooperation with either the FERC or the State PUCs, take additional actions as appropriate on a case-by-case basis, including
- ' modification of a licensee's schedule for accumulation of decommissioning funds."
J Page1of1 1
get D(L 3, O PSEG DOCKETED Public Service Electric and Gas Company P.O. Box 236 Hancocks Bridge New Jersey 08038-023 Nuclear Business Unit November 25,1997 LR-N970772
[(.f ADJUU.C# - " 6T/EF Mr. John C. Hoyle Secretary (
MEl MM U.S. Nuclear Regulatory Commission NE !
Washington, DC 20555-0001
[G#FW76FF)
ATTENTION: Rulemakings and Adjudications Staff
Dear Mr. Hoyle:
PSE&G'S COMMENTS ON (1) THE NUCLEAR REGULATORY COMMISSION'S PROPOSED RULE ON FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISSIONING NUCLEAR POWER REACTORS (62 FED. REG. 47588; SEPTEMBER 10,1997); AND (2) DRAFT REGULATORY GUIDE 1060, FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) FOR DECOMMISSIONING COST ACCOUNTING PSE&G is pleased to provide the following comments in response to the NRC's Notice of i Proposed Rulemaking on Funding Assurance for Decommissioning Nuclear Power Reactors.
In general, PSE&G agrees with the comments submitted by the Nuclear Energy Institute to the NRC on. th- subject rulemaking. Additionally, PSE&G submits the following specific comment .
for NR C's consideration:
]
Decommissioning of nuclear power reactors is a public health and safety imperative and the l
funding for decommissioning must be assured. Funding must be secured and insulated from j market risk. Therefore, PSE&G's preferred method of assuring proper funding is through a non- i bypassable charge established by a regulatory mandate. This position is consistent with the filing .
of PSE&G's Energy Master Plan to the New Jersey Board of Public Utilities. This funding -
mechanism will create a win situation for all involved. It will assure the NRC, the utility and the I state regulatory body of continued and adequate funding at all times which of course is the prime )
objective of all parties. It will also allow the regulatory body to adjust the non-bypassable charge l up or down, following the adoption of a new decommissioning cost estimate, thus making the ,
- fund accumulation eqmtable. The non-bypassable charge will effectively remove the c
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4 Mr. John C. Hoyle 11/25/97 i decommissioning issue out of the electric competition equation, and thereby facilitate utilities in making optimal business decisions in the competitive environment.
Please do not hesitate to call me ifyou have any questions.
Sincerely, ,
3 2.ko M Nis.Wrg i David R. Powell Director- Licensing / Regulation & ,
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l U. S. Nuclear Regulatory Commission !
475 Allendale Road !
King of' Prussia, PA 19406 i t
Mr. Patrick Milano, Licensing Project Manager ;
U. S.~ Nuclear Regulatory Commission I One White Flint North 11555 Rockville Pike Mail Stop 14E21 ,
Rockville, MD 20852 l Ms. Brenda Mozafari, Licensing Project Manager -!
- 13. S. Nuclear Regulatory Commission !
One White Flint North i 11555 Rockville Pike !
Rockville, MD 20852 !
l Ms. M. Evans (X24) !
USNRC Senior Resident Inspector !
Salem Generating Station j t
Mr. S. Morris (X24) !
USNRC Senior Resident Inspector !
Hope Creek Generating Station I I
Mr. K. Tosch, Manager, IV :
Bureau'of' Nuclear Engineering !
PO Box 415 ;
Trenton, NJ 08625 !
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Mr. John C. Hoyle Secretary U.S. Nuclear Regulatory Commission Washington, D.C. 20555-0001 Attention: Rulemaking and Adjudications Staff RE: Edison Electric Institute's Comments on the Proposed Rulefor Financial Assurance Requirementsfor Decommissioning Nuclear Power Reactors (62 Ecd. Ecg. 47588
- September 10,1997), and the Draft Regulatory Guide 1060, Financial Accounting Standards Board (FASB) Standardsfor Decommissioning Cost Accounting.
Dear Mr. Hoyle:
The Edison Electric Institute (EEI) appreciates the opportunity to respond to the NRC's proposed rulemaking on providing assurance of adequate funding for decommissioning of nuclear power plants. As part of the ongoing process of adapting to a transforming electricity market, this is an important step in the process. The enclosure provides EEI's
)
comments. I Edison Electric Institute is the association of the United States investor-owned electric utilities and industry afliliates and associates worldwide. Its U.S. members sene 97 percent of all customers served by the investor-owned segment of the industry. They generate approximately 74 percent of all the electricity generated by electric utilities in the country and senice 73 percent of all ultimate customers in the nation. Its members own or partially own a high percentage of the nuclear power reactors with operating licenses.
We are in full accord that the adequacy of funding for decommissioning is a public health 1 and safety issue. The adequacy of funding also raises economic and environmental issues.
It will take soundjudgment to weigh these important issues and arrive at optimum solutions.
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I l Mr. John C. Hoyle ;
December 11,1997 :
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l With the significant amount of restructuring underway, there is uncertainty as to how the l
industry will evolve. Retail electricity markets arejust commencing to be developed in some states. Thus, v>e would recommend an evolving and flexible anproach to assuring decc:: dn=ingf==di=g in order to recognize the current enlution ofelectricite marketc=
1 Sincerely, W (O M David K. Owens DKO:lk:ms Enclosure ec: Honorable Shirley Ann Jackson, Chair,NRC Ms. Greta Joy Dieus, Commissioner, NRC Mr. Nils J. Diaz, Commissioner, NRC Mr. Edward McGaffigan, Jr., Commissioner, NRC Mr. Leonard J. Callan, EDO/NRC l
1 i
Enclosure FFI's Detailed Comments on the Notice of Pronosed Rulemaking for Financial Assurance Reauirements for Decommissioning Nuclear Power Plants (62 Fed. Reg. 47588 - September 10.1997)
Intrcduction EEI appreciates the opportunity to comment on the Notice of Proposed Rulemaking for Financial Assurance for Decommissioning Nuclear Power Plants. We commend the NRC for raising important issues that must be discussed and understood concerning restructuring. These inquiries will lead to rule changes that will protect the public interest with regard to health and safety as well as recognize the economic issues involved. Also, the decisions should, to the extent consistent with l
protectinF Public health and safety, recognize the importance of nuclear power in maintaining a diversified energy mix.
Our comments are based on the following principles: -
The adequacy of decommissioning funding is a public health and safety issue. Thus, reasonable assurance should be provided that there will be adequate funds for decommissioning.
Nuclear plants were built to serve customers for a number ofpublic policy reasons under a rate regulatory regime that is now rapidly changing. Thus, nuclear decommissioning cost recovery, if not part of cost of service rates, should be dealt with as part of a rate order associated with the current transition to competitive electricity markets.
Because of the potentially varying methods of calculating required revenues and setting rates or prices, consideration of decommissioning and O&M costs should be decoupled rather than serially linked in the process of determining decommissioning funding assurance.
License transfer and decommissioning cost assurance proceedings should allow added methods that provide reasonable assurance ofdecommissioning funding. This will provide a flexibility to allow workable solutions in a restructured environment.
Flexibility is required because much is unknown about the future shape of electricity markets.
Any decommissioning assurance rules issued should treat all competitors equally.
14uclear power is an important part of our nation's energy infrastructure. It is used to generate more than 20 percent of the electricity in the country. It contributes to an energy portfolio that, because of the importance of energy to our nation and the vitality of our economy, must be diversified in order to provide reliability. The federal government encouraged the use of civilian nuclear power to generate electricity in order to promote energy security and reliability . The installation ofour nation's nuclear power capability was accomplished and facilitated in a rate-regulated environment.
Construction was begun on all nuclear plants before retal i and wholesale competition in the electricity industry was ernisioned. Some plants had many years ofservice when the Energy Policy l
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l, Act of 1992, which began the formal introduction of competition, was enacted. Nuclear powered plants have provided service for many years under a wholesale rate regulatory regime that is now ,
rapidly changing.
l Based on this history, we also want to emphasize our support for the concept that the full amount ofnuclear decommissioning costs should be considered a cost of the transition to competition and, thus, should be fully recovered through regulatory mechanisms that will allow the licensee to continue to be considered an electric utility by the NRC. Thus, EEI fully agrees with and supports i NRC's policy of conducting liaison with state and federal rate regulators so as to urge them to recognize the full amount of nuclear decommissioning costs as a transition cost as both a matter of equity and sound public policy. This will allow the most workable method of fund assurance to remain in place.
The Definition of an Electric Utility 8 As electricity market restructuring proceeds, regulators generally have recognized that transition costs should be recovered as a matter of market efficiency and equity. In the cases so far, decommissioning costs generally either have been recognized as one of the transition costs or have been assured using other regulatory methods.
i in this proceeding, the NRC correctly recognizes that the process of recovering competition transition costs is part of the regulatory process by adding to the definition of an electric utility, non-bypassable wires charges as a method of recovering costs. EEI agrees with this. Additionally, an entity may have a binding contract with another organization to provide full funding for its share of decommissioning costs. In most cases, this will be secured by legislation and/or a regulatory utility commission order. eel recommends that this option also be recognized as acceptable assurance of decommissioning cost recovery.
For some cases, the transition from one method of collecting decommissioning costs to another may ,
not be direct for some small period of time. In this case, the NRC should look to the overall intent i
- of the legislation or order.
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EEI believes that the definition of an electric utility for nuclear decommissioning purposes should be one that is separate from the determination of the ability to safely operate the plant. The definition of an electric utility for decommissioning assurance purposes should be one that is concemed only with recovering the costs of decommissioning (but not also O&M costs) through rates established by a regulatory authority. Using the criterion of recovering electricity costs in the ;
definition adds significant complications. As an example, a non by-passable charge to recover
'In EEI's comments, we continue to use the term " electric utility". However, we agree with NEI that this term may not accurately characterize the entity that will emerge. We endorse NEI's suggestion of the term " qualified nuclear entity." This term and its definition should apply for purposes of nuclear decommissioning funding assurance only and, therefore, should be 1
contained in Q 50.75.
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stranded costs would be designed to reduce costs to the market price level. Some of the costs of electricity would be recovered through the non-by-passable charge and some of the costs would be l recovered through the market. Yet, the non-by-passable charge or some other mechanism could l allow separately for the full recovery of decommissioning costs. For this and other reasons, we agree with NEI's comments that safe operation and decommissioning fund assurance should be decoupled in this rulemaking. As we have stated in footnote 1, the definition of an electric utility should be in {50.75 because it pertains to nuclear decommissioning fund assurance.
Finally, the same level of assurance required ofinvestor-owned licensees should be required of public power agencies. Such agencies should be allowed to meet the definition of an " electric utility" only to the extent that the rates they establish provide assurance of the payment of decommissioning costs equivalent to that required ofinvestor-owned licensees.
Assurance of the Adequacy of Decommissioning Funding If an electric utility no longer meets the definition of an electric utility for decommissioning l assurance purposes, then it would have to provide the up-front assurance as described in 50.75 l (e)(2). The up-front assurances - prepayment, insurance, a smty method or guarantees - are problematical in that they could be difficult if not impossible to provide. Any financial criteria, either those as part of the self or parent guarantees or newly proposed criteria, are difficult to evaluate because a relatively definitive view of the shape of dectricity markets and the future structure oflicensees is mainly conjectural at this time.
EEI recommends a multi-part process in order to meet the significant difficulties of Q 50.75(e)(2).
This process would include the development of financial qualification criteria that would be used to evaluate if there would be reasonable assurance to permit periodic deposits to an extemal trust fund or some other perm' .?ble method.
If the financial criteria wod no: 1 satisfied, then the licensee should be permitted to demonstrate to the NRC that it could provide reasonable assurance of adequate funds to decommission the plant.
These methods should include prepayment, accelerated payments2 , a surety method, a case-by-case basis and a demonstration that power sales contracts are in place that would provide a partial source of decommissaning funding. A combination of methods should be considered. These methods would provide the flexibility to consider a wider range of options that would be reflective of the evolving business environment.
For a licensee that does not meet the definition of an electric utility, the process would be somewhat similar to that which fixed income rating agencies use to assess the ability of a securities-issuer to continue to pay interest or dividends and repay principle. While these agencies use financial criteria as part of the process, the criteria do not provide hard and fast boundries by which to assess ratings.
The rating agencies use other evaluative criteria in their process so as to obtain a more comprehensive view of the firm.
I 2The facts and circumstances of an accelerated payment plan could lead to negative tax l consequences.
3
The current financial criteria are for materials licensees. Because the situations of materials licensees and power licensees are very different, separate financial criteria are needed. The development of financial criteria will not be easy given the current and projected changing nature ,
of electricity markets and the variations in ownership and operating structures that might take place. I Security analysts and fixed income rating agency personnel who follow the industry are finding that their methods and criteria are evolving to match the changes the industry is undergoing. EEI proposes that a draft regulatory guide for the industry's proposed new decommissioning funding assurance framework be developed. Periodically, the financial qualification criteria should be reviewed to determine if they are relevant and workable. EEI is working with industry groups to address the financial qualification criteria that would be appropriate to provide the necessary assurance and flexibility. We will share the outcome of this effort with the NRC.
Joint Liability EE! agrees that there should not be joint liability among the owners. Joint liability presents numerous difficulties. First, it would be unfair to have to assume another company's obligations.
Second, this liability adds risk to alljoint owners and raises their cost of capital. We agree with the NRC that other methods of assurance are adequate and, therefore, there is no need to impose an added obligation.
Combination of Fundine Methods eel recommends that the NRC allow a combination of assurance methods to satisfy its requirements. The proposed regulations place restrictions on the ability of licensees to use a combination of methods to assure decommissioning funding. However, using a combination of methods may more adequately reflect the reality of funding methods and of future market and ownership situations. Also, allowing for a variety of methods represents diversification which in l itselfis a method of reducing the risk of depend nce on only one method and so serves to increase funding assurance.
Renorting Reauirements EEI agrees with the need for a report on the status of nuclear decommissioning funding and trust fund balances and with the proposed reporting frequency. At this time, EEI does not support the use i of the Financial Accounting Standards Board's (FASB) proposed accounting Statement " Accounting for Certain Liabilities Related to Closure or Removal of Long-Lived Assets" (FASB File Reference No.158-B) as the FASB Statement is still a draft and subject to change. We suggest that a draft regulatory guide be issued after the FASB Statement ofFinancial Accounting Standards on Removal of Long-Lived Assets is issued in final form. When initiated, all NRC-required reports should be as of the end of a calendar year to match the financial accounting report time period.
Real Rate of Retum EEI agrees that it is appropriate to use a real rate of retum of two percent, after-tax, with the exception that, if a rate-setting body authorizes another return, then that return can be used.
Alternatively, there may be some companies that have a situation which would indicate that they should use a return lower than two percent. An example is a company that has a short period of time to decommission and thus, would switch to lower risk, lower return investments. This lower retum should be allowed. Also, we believe that there should be a procedure to allow an entity that no i
4
1 longer meets the definition of an electric utility, and thus would not have the assumed fund rate of return set by its regulators, to use another rate of return.
With respect to the tax aspects of the fund camings in a qualified decommissioning trust, we suggest that the NRC conduct dialogs with economic regulators to stress the imponance of the collection of decommissioning costs in what are defined by the IRS as cost of service proceedings in order to take advantage of the current deductibility of certain contributions to decommissioning trusts and the lower tax rates on trust fund earnings. eel also suggests that the NRC discuss with the Treasury Department and the Joint Committee on Taxation the public policy issues involved in securing for investor-owned electric utilities the ability to continue to contribute to qualified nuclear decommissioning trusts, funds derived from rate payers which are ordered as a result of regulatory proceedings which serve to collect nuclear decommissioning costs. The proceedings that should allow for qualificefion and current deductibility include those that would order the collection of nuclear decommissioning charges through stranded cost proceedings, non by-passable wires charges, charges ordered by legislative or regulatory authority to be collected by a power exchange or other similar methods wherein a state or federal authorite sets the rates for recovering deconnnissioning costs.
Definition of Federal Licensee Although the intent of the definition of federal licensee as expressed in the response to comments is appropriate, the actual definition is ambiguous in that the term " full faith and credit backing" of the government is neither defined nor commonly used in other legislation relating to federal agencies. The intent of the definition of federal licensee is obviously to exclude from the definition any federal agency whose obligations do not constitute the obligations of the United States, and, therefore, are not supported by the full faith and credit of the United States. Therefore, the definition should be modified as follows:
" Federal Licensee means any NRC licensee, the obligations of which are guaranteed by and supported by the full faith and credit of the United States Government."
Conclusion The NRC's nuclear decommissioning cost assurance rulemaking recognizes that the potential new environment in which nuclear power licensees would operate requires changes to nuclear decommissioning funding regulations. We agree that the definition of an electric utility should include nuclear decommissioning costs collected through a non-bypassable wires charge. We have suggested that contracts for the collection of nuclear decommissioning costs also be included in the definition of an electric utility. We are recommending that new financial criteria and workable assurance methods be added to the NRC's proposed methods in order to provide both flexibility and reasonable assurance for decommissioning funding.
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I l CHARLts H, Cause M i i DOCKETED Baltimore Oas and Electric Company l Vice President USNRC , ,, yg,,, p,,, pi,,,
NuclearEnergy 1650 Calven Cli#s Parkway Lusby, Maryland 20657 !
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'97 DEC 15 P2 52 l
OFFICE OF SECir_lARY 300KET NlAllEl ;
j NR hIMAKINGS cal'ONS STAFFAND PM) POSED RULE N 8 O;
((o 3FA 4 7668)'
l December 11,1997 r
N l U. S. Nuclear Regulatory Commission Washington, DC 20555-0001 l
l ATTENTION: Secretary, Rulemakings and Adjudications Staff
SUBJECT:
Calvert Cliffs Nuclear Power Plant Unit Nos.1 & 2; Docket Nos. 50-317 & 50 318 Comments on Proposed Rule for Financial Assurance Requirements for l
Decommissioning Nuclear Power Reactors (62 FR 47588 September 10,1997) and the Draft Regulatory Guide 1060, Financial Accounting Standards Board !
Stantineds for Decommissionina Cost Accountina l Baltimore Gas and Electric Company is pleased by the opportunity to provide comments on the subject proposed rule and draft regulatory guide. Baltimore Gas and Electric Company commends the Nuclear Regulatory Commission for proposing to allow licensees some additional flexibility in how they provide financial assurance for decommissioning in an era of deregulation. However, the NRC's approach could result in a substantial and unnecessary financial impact on licensees. A more flexible approach would l still ensure reasonable financial assurance for decommissioning without placing unnecessary financial l burdens on them. In this regard, Baltimore Gas and Electric Company has reviewed and endorses the comment. prepared by the Nuclear Energy Institute.
l Should you have questions regarding this matter, we will be pleased to discuss them with you.
Very tmly yours, )
1 l
CHC/SJR/bjd cc: Document Control Desk,NRC H. J. Miller, NRC R. S. Fleishman, Esquire ResidentInspector,NRC
! l. E. Silberg, Esquire R. I. McLean, DNR l
' Director, Project Directorate I-1, NRC J. H. Walter, PSC -
A. W. Dromerick, NRC i
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