ML20196H712
| ML20196H712 | |
| Person / Time | |
|---|---|
| Issue date: | 03/13/1998 |
| From: | NRC OFFICE OF NUCLEAR REGULATORY RESEARCH (RES) |
| To: | |
| Shared Package | |
| ML20196H655 | List: |
| References | |
| FRN-63FR50465, RULE-PR-30, RULE-PR-50 AF41-2-037, AF41-2-37, NUDOCS 9812090162 | |
| Download: ML20196H712 (71) | |
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FINANCIAL ASSURANCE REQUIREMENTS l
FOR DECOMMISSIONING
- NUCLEAR POWER REACTORS l
(10 CFR PART 50) l 39 l l Public Comments Received On !
ProposalRulemaking:
i Analysis ofMajorIssues 1
l l U.S. Nuclear Regulatory Commission 1 Office of Nuclear Regulatory Research March 13,1998 9sy20;g162 vet 20s 30 63FR50456 PDR QQ l2000/f*C ~l/fb, Ob?
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l TABLE OF CONTENTS
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Issue Eage
- 1. Definition of Electric Utility . . . . . . . . . . ............ ... ... ......... .I l
l A. Linkage Between Decommissioning Financial Assurance Requirements and Financial Qualification Requirements (i.e., Linkage Between Costs of Operation, Maintenance, and Decommissioning) . . . .... ... . ....... ...... 1 B. Direct vs. Indirect Cost Recovery . . . . .......... ...... . . . .3 C. Consequences of Not Meeting the Definition . . . . . . . . . . . ............ 3 D. Implications for State Ratemaking Authority . . . . . . . . . . . . . .. .4 E. Regulatory Efficiency . . . . . . . . . . . . . . . . . . . . . .... ...... .. 4 i F. Application of Definition to Public Power Agencies . . . . ....... ...... 4 -
- 2. Definition of Non-Bypassable Charge . . . . . . . . . ........ .......... ... ... 5 j 1
A. Stricter Definition Needed . .. .. ...... . ..... .. ... . . ..... 5 B. Link Between Operation, Maintenance, and Decommissioning . . . . . . . . . . . 5 C. Types of Non-Bypassable Charges . . . ..................... .6 D. Other .. ......... ..... .. . . ............... . . .. . . 7 l
- 3. Definition of Cost of Service Regulation . ... ....... .... . .. ... .. .7
- 4. Need for General Flexibility . . ... . .. ....... . ... ....... 8
- 5. Applicability of Requirements to Plant Owners and Operators . . . . .... .... . .9
- 6. Site-Specific Cost Estimates . .... . .. .... . .... . ... .... . 9
- 7. Alternative Methods of Assurance . .. . . .. . . ... ......... . .... 10 A. Alternative Framewon Proposed by NEI ... .. . ..... . 10 B. Prepayment /Up-front Assurance . . ..... . . . .................... 11 C. Accelerated Funding . . .... . . .. .... ... .. .. .. ........ 12 D. Parent Guarantees /Self-Guarantees . . . . . . . . . . . . . . . . .. ... 13 E. Surety Methods ............... ... ... . .. . .. ...... 15 F. Power Sales Contracts . . . . . . ........ ..... .. .. .......... 15 G. Government-Managed Insurance Plan . . . . . ... ... ... ... .. . 17 H. Regulatory Certification . . ... ..... .. . . .. .... .. .. 18 I. "Any Other Method" . . . . . . . . . . . . .. . .. ..... .. .... . .. 19 J. Combinations of Methods . . . . ..... . . .. .. . . 19 K. Required Timing of Alternative Methods .......... .... . .. . . . . . 21
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i TABLE OF CONTENTS i (continued) -
I Issue Eage ;
- 8. Federal Licensees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ,
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A. Applicability to Federal Licensees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ;
i B. Definition of Federal Licensee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 l
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- 9. Reporting on the Status of Decommissioning Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 j 1
l A. Use of FAS B Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 -1 B. Frequency of Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 C. Contents of Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
- 10. - Rate o f Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 7
- 11. Other...............................................................29 4
A. Cost Recovery through Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 i B. Rate Recovery of Stranded Costs Using PNL's Formula . . . . . . . . . . . . . . . . . 29 i
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- 1. Definition of Electric Utility A. Linkage Between Decommissioning Financial Assurance Requiremen_ts and Financial Qualification Requirements (i.e., Linkage Between Costs of Operation, Maintenance, and Decommissioning)
Several commenters, including the Nuclear Energy Institute (NEI), stated that NRC should not use the term " electric utility"in its decommissioning financial assurance rules because the term is used for different purposes in the s ntext of NRC's financial qualification requirements in 10 CFR 50.33(f). These commenters stress that only decommissioning costs are of concern with respect to the financial assurance requirements, whereas only operation and maintenance costs are of concern with respect to the financial qualification requirements. By referencing all these costs as well as the cost of" electricity," the proposed definition of electric utility is both unclear and problematic.
Commenters cited several specific problems. First, the definition does not adequately express NRC's intent that an entity can demonstrate adequate assurance ifit can " conclusively demonstrate a government-mandated, guaranteed revenue stream for all unfunded decommissioning obligations" by virtue of a non-bypassable charge which covers only decommissioning costs. (For example, one commenter stated that, in Califomia, licensees are assured of recovering decommissioning costs in distribution rates through non-bypassable means, even though recovery of the costs of operation and maintenance may not be assured.)
Second, the definition could unnecessarily invite challenges to the rates established by regulators.
Specifically, by requiring that an electric utility's rates be " sufficient for the licensee to operate, maintain, and decommission its nuclear plant safely," the proposed definition could imply that NRC may in the future evaluate the sufficiency of rates established by other regulatory authorities to cover costs of operations and maintenance. Third, by referencing " operation," the definition could create or imrty some responsibility for decommissioning funding on the part of non-owner operators which, " hey argued, might inhibit the formation ofjoint operating companies.
These comments ei'her misinterpret or fail to account for the third sentence of the proposed definition, which states that "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
'clectric utility' only for that portion of the costs that are collected in this manner." Clearly, NRC did not intend to have all licensees consider only the combined costs of operation, maintenance, and decommissioning. Nevertheless, even some commenters that understood NRC's intent suggested modifying this third sentence as well. One suggestion was to replace it with "An entity whose rates are established by a regulatory authority by mechanisms that cover only decommissioning costs will be considered to be an ' electric utility' with respect to its decommissioning funding responsibilities." (Presumably an additional parallel sentence would
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2 address " costs of operation and maintenance costs . . . with respect to its financial qualification requirements.") Another suggestion was to clarify the third sentence by referring to recovery of a certain portion or discrete category of costs Either of these suggestions would also obviate any need to include the 10 percent de minimus threshold for non-recovered costs that was suggested by one commenter (i.e., because the relevant category of costs - for decommissioning - would be recovered, even if they were less than ten percent of all costs), and would allay the concerns of several commenters that an entity recovering only decommissioning costs through non-bypassable charges might be considered less than a 100 percent electric utility for purposes of the decommissioning requirements.
It is open to interpretation whether or not the definition needs to be revised to sever the link between the decommissioning financial assurance requirements and the financial l qualification requirements, as discussed above. Given NRC's intent and past implementation of I the requirements, the commenters' specific concerns seem unlikely to materialize. Clearly, however, NRC could reduce the concerns and misunderstandings of commenters by severing the !
link and using separate definitions for each set of requirements. Such clarification would likely result in a better understanding of the requirements by licensees and, hence, in better compliance with the requirements.
One possible remedy, as suggested by NEI, would be for NRC to construct and derme a ,
new term such as " qualified nuclear entity" that would apply only to the decommissioning i financial assurance requirements. NEI would define a qualified nuclear entity as one that obtains decommissioning funds through (1) a rate-setting mechanism, (2) a non-bypassable charge established by legislative or regulatory mandate, or (3) a binding contractual agreement with another party that is equal in amount to the entity's decommissioning funding obligation. Only the third option in NEI's definition is not generally consistent with NRC's proposed definition.
NEI's comment does not fully or adequately explain the meaning or implications of the binding contractual agreement included as the third option in its definition. Other commenters specifically referenced NEI's comments, however, and objected to the binding contractual agreement portion of NEI's suggested definition. Some of these commenters stated that a binding contractual agreement would provide inadequate assurance unless the party offering the contract were appropriately qualified.
As a final point, NEI noted that the term " electric utility" may take on a different meaning as a result ofindustry restructuring, but would not alter the existing definition of electric utility which would, under NEI's proposal, remain applicable to NRC's financial qualification requirements. The logic to this position is apparent in that the current rule is intended to address the decommissioning financial assurance requirements rather than the l financial qualification requirements. Nevertheless, the loss of regulatory oversight as a potential consequence ofindustry restructuring is as relevant to NRC's financial qualification requirements as it is to NRC's decommissioning financial assurance requirements. Therefore, NRC should reject NEI's suggestion not to modify the current definition, even if NRC elects to create a new definition applicable only to the decommissioning financial assurance requirements.
3 H. Direct vs, Indirect Cost Recovery Some commenters argued against the proposed deletion of the phrase "either directly or indirectly" in the first sentence of NRC's existing definition of electric utility, which states that
" Electric utility means any entity that generates or distributes electricity and which recovers the cost of this electricity, either directly or indirectiv. through rates established by the entity itself or by a separate regulatory authority." These commenters stated that allowing cost recovery based only on regulated rates and non-bypassable charges might restrict licensees from competing in the open market. Specifically, the change might prevent licensees with PUC- or FERC-approved ;
long-term power sales agreements from qualifying as electric utilities. i lt is not clear whether PUC- or FERC-approved long-term power sales agreements would qualify as cost of service regulation or as non-bypassable charges (and hence as cost recovery through regulated rates) under either the current definition or the proposed definition. Assuming that PUCs or FERC analyze such agreements to ensure that they are consistent with the entity's recovery of all reasonable and prudent costs, then it would be reasonable for NRC to interpret such agreements as acceptable under either definition. Because this interpretation would not be transparent under either definition, however, such an interpretation by NRC would probably have to be implemented through revisions to existing guidance documents, regardless of whether or ;
not the phrase is added back to the definition. If such agreements are not consistent with the I entity's recovery of all reasonable and prudent costs, then the phrase "either directly or l indirectly" has been deleted appropriately.
Another commenter stated that NRC should not delete the phrase "directly or indirectly" 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 owners. The commenter claims that NRC has traditionally held that such non-owner operators are " electric utilities" exempt from the regulated rates of the owners who are contractually committed to pay the operators' expenses. The logic of the commenter's argument seems to be that non-owner operators recover the costs of their electricity from owners, whose rates are directly regulated, thereby making the operator's cost recovery indirectly regulated.
This logic, as applied to the financial qualification, seems plausible. Ifit is true that non-owner operators are exempt from financial qualification requirements only as a result of the current definition of electric utility, then NRC should, ifit wishes to maintain the exemption, ensure that non-owner operators are exempted by another means, such as an explicit exemption for non-l owner operators or an interpretation in appropriate guidance documents for the financial qualification requirements.
l C. Consequences of Not Meeting the Definition One commenter suggested that the proposed definition could result in the premature shutdown of nuclear power plants that have insufficient funds set aside to pay for i
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4 decommissioning. This comment appears to argue that premature shutdowns may result if, as a result of an entity's loss of status as an electric utility, it must (but is unable to) provide upfront financial assurance for decommissioning. This issue is analyzed in Section 7-B.
D. Implications for State Ratemaking Authority Some commenters suggested that NRC clarify that it does not intend to infringe upon State ratemaking authority. To this end, stated one PUC, NRC should remove from the definition the requirement that utilities recover "the cost of electricity," which is only an intermediate consideration in the development of rates; this commenter suggested that the definition should be changed to "any entity that generates, transmits, or distributes electricity."
Given the context of NRC's overall regulatory program, it seems unlikely that NRC's intention to avoid infringing upon State ratemaking authority would be confused. Nevertheless, it appears that NRC could reasonably eliminate in its rules references to "the cost of electricity,"
as suggested, given that NRC's concerns relate to specific types of costs, such as the costs of operations, maintenance, and decommissioning. The commenter's second proposed modification (regarding its suggested definition of electric utility), however, does not appear feasible because it does not reflect the role that PUC and FERC regulatory oversight plays in NRC's regulatory i scheme.
E. Regulatory Efficiency Some commenters suggested that the proposed 50.75(e)(3) be revised to avoid repeating
[ the definition of electric utility. It appears that this change would shorten the rule without any other practical effect.
F. Application of Definition to Public Power Agencies Some commenters noted that the proposed definition does not appear to require public power agencies to recover all of their costs in their rates, only that they set their own rates. In a competitive market, it does not fdw that the authority of such agencies to set their own rates will, in and ofitself, provide assurance of decommissioning funding.
These comments appear to address the last sentence in the proposed definition of electric l
utility:
l Public utility districts, municipalities, rural electric cooperatives, and State l and Federal agencies, including associations of any of the foregoing, that establish their own rates are included within the meaning of" electric utility."
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! This sentence automatically classifies as an electric utility any licensee that falls in one of I the above-referenced groups (collectively referred to by the commenter as "public power agencies"). Thus, public power agencies automatically qualify as electric utilities without consideration to any of the definition's other conditions on rate recovery. The commenters' assessment appears sound that, in a competitive market, such entities might not recover all their i costs even if they can set their own rates. The ability to set rates adequate to achieve full cost l recovery would be undermined by the loss of an exclusive service territory. It follows that the proposed definition does not, in fact, provide any assurance of decommissioning funding for public power authorities. l l
- NRC could address this situation by deleting the final sentence from its proposed j l definition. This would still result in a special status for public power authorities, even though j they would not be identified explicitly in the definition. Specifically, without the last sentence m .
the proposed definition, public power agencies would be required to evaluate their own rates to l determine whether they qualify, in whole or in part, as an electric utility. NRC could perhaps l justify this self-policement on the part of public power authorities on the grounds that they are all !
public entities working to improve public welfare. Nevertheless, due to the substantial financial !
incentives to cheat under certain competitive outcomes, NRC may wish to be implement this l provision with caution and perhaps some enhanced degree of NRC oversight. ,
i l 2. Definition of Non-Bypassable Charge ;
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A. Stricter Definition Needed l One commenter suggested revising the definition to require that monies collected via the ,
non-bypassable charge be available to the licensee, either through assignment or some other mechanism. This comment seems reasonable. If charges are not e.vailable to the licensee (e.g., if the revenue stream re;ulting from the charge has been assigned to an unrelated party as a result of a securitization), then the non-bypassable charges would not provide reasonable assurance of decommissioning fuuding. NRC should consider revising its proposed definition in response to this comment. Non-bypa: sable charges should be available to the licensee or should be j deposited into the external sinking fund for decommissioning.
1 i One commenter stated that because decommissioning funding must be secured and msulated from market risk, thepreferred funding method should be a non-bypassable charge established by a regulatory mandate. According to the commenter, this approach better assures
! adequate funding while removing decommissioning as an issue in future competition; this would also help utilities in making optimal business decisions in the competitive environment.
Regardless of the validity of the comment, however, NRC would probably be encroaching upon the responsibilities of other regulators ifit were to establish a single method for cost recovery.
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l B. Link Between Operation, Maintenance, and Decommissioning
- One commenter stated that the definition's reference to " costs associated with operation, maintenance, and decommissioning" is problematic for the same reasons noted in regard to the
" electric utility" definition. [See discussion and analysis in Section I-A.] Another commenter stated that NRC's proposed definition of non-bypassable charge could be interpreted to mean !
that operation, maintenance, and decommissioning costs must all be covered by a charge in order to meet the definitiou. This may be inconsistent with actual charges established by PUCs. For example, a PUC could decide to establish a charge for decommissioning costs, but not for operation and maintenance costs. Furthermore, the implications of prudently incurred costs should be considered.
One feasible solution was suggested by several commenters, who stated that the definition should be revised to read ". . costs associated with operation, maintenance, or ,
decommissioning . . . ." They note that this is use consistent with the intent of the rule and l would not exclude licensees that recover only decommissioning costs through a non-bypassable l charge, but that recover all other costs through competition. With respect to prudently incurred costs, it is probably the case that costs that were not prudently incurred are oflittle significance l to assuring decommissioning funding.
C. Types of Non-Bypassable Charges One commenter stated that it is not clear whether the proposed definition encompasses wire charges, stranded cost charges, transition charges, exit fees, other similar charges, the securitized proceeds of a revenue stream, or price cap regulation. If NRC decides to defer to State regulatory oflicials, the comment continued, the final rule should be clear in stating the types of charges covered by the definition. Along a similar line, other commenters suggested expanding the definition to include other funding mechanisms imposed or established by a governmental authority. Another suggested the definition might include a decommissioning liability covered by State securitization legislation. Another suggested it might include binding contracts secured by legislation and/or a regulatory commission order.
The proposed definition, as stated, includes
" charges imposed by a governmental authority which affected entities are required to pay [over an established time period] to cover costs associated with operation, maintenance, and decommissioning of a nuclear power plant."
This definition seems to provide an effective performance standard for any type of charge that might be developed by State regulatory officials. Consequently, there seems to be little
- benefit to the commenter's suggestion, and some possible danger if any specific charges that might be listed in a revised definition were ultimately implemented by State regulatory officials l
7 in ways that did not meet the currently proposed definition. Furthermore, listing of specific types of charges seems at odds with NRC's more common regulatory philosophy, which would place in a regulatory guide examples of acceptable implementation practices.
Finally, one commenter stated that NRC's commentary that securitization of a licensee's interest in non-bypassable charges "may" be an acceptable method of providing decommissioning funding assurance seems to suggest that the existence of a licensee's entitlement to non-securitized irrevocable, non-bypassable charges may not be sufficient to meet the definition and avoid up-front funding. This comment, however, seems at odds with the plain meaning of the definition of non-bypassable charges.
D. Other Finally, one commenter suggested revising the definition to replace the phrase
" governmental authority" with the phrase " regulatory authority." As pointed out by the commenter, this would make the definition more consistent with the definitions of" electric utility" and " cost of service regulation."
- 3. Definition of Cost of Service Regulation Comments addressing the definition of" cost of service regulation" seemed, in general, more directly applicable to other parts of NRC's proposal, as discussed below.
One commenter stated that the modifier "all" should be deleted from the " cost of service" definition. This commenter argues that a definition requiring that "all" reasonable and prudent costs be recovered invites a challenge to the sufficiency of a licensee's rate regulation. Similarly, another commenter stated that the definition should account for the possibility of" partial" cost of service regulation. These comments either misinterpret or fail to account for how the definition of cost of service regulation interacts with the definition of electric utility. Specifically, the third sentence of the proposed definition of electric utility states that "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." Clearly, NRC did not intend to imply that a licensee was subject to cost of service regulation only in the event that all its reasonable and prudent costs are recovered per the definition, but rather that the licensee would be deemed to be regulated under cost of service regulation for whateverportion ofits reasonable and prudent costs are covered per the definition.
Nevertheless, NRC may wish to revise the definition to clarify this point of confusion among some of the commenters.
Another commenter stated that the proposed definition of" cost of service regulation"
! should not exclude " performance based" and " incentive" ratemaking adopted by some State ratemaking authorities. This commenter proposed adding the following to the definition: " Cost 1
8 of service regulation includes, but is not limited to, attemative forms of ratemaking which provide for a portion of costs to be recovered based on reasonable benchmarks and incentives for good performance." !
I This comment does not seem to recognize that the term " cost of service regulation" is actually referenced as " traditional cost of service regulation" by die proposed definition of :
electric utility, which distinguishes cost of service regulation from indirect cost recovery through
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non-bypassable charge mechanisms. In this broader context, NRC's intention to keep the present '
focus of" cost of service regulation" seems clear and, moreover, the licensee's suggested additions seem inappropriate (because they are not precisely consistent with traditional direct recovery of reasonable and prudent costs). To the extent that NRC believes that incentive-based or performance based ratemaking provides reasonable assurance of decommissioningfunding, NRC may wish to consider revising the proposed definition of electric utility (rather than the ;
proposed definition of cost of service regulation).
- 4. Need for General Flexibility The flexibility issue has two dimensions. First, several commenters want the maximum number of financial assurance options available to reactor licensees. Second, these commenters urge NRC not to include specific or detailed criteria in its rules, which should be kept general, but urge NRC to address implementation details in a regulatory guide or similar non-binding form.
Among the various financial assurance mechanisms, there are differences in cost, availability, and risk (i.e. degree of assurance). Similarly, because licensees vary in their financial situations and prospects, they pose different degrees of risk in terms of their abilities to provide funding for reactor decomn'issioning. Making riskier financial assurance mechanisms available to riskier licensees compounds risk to the public that adequate funds will not be available when needed. Thus, prudent public policy may limit the range of mechanisms that should be offered to certain categories oflicensees. This is recognized by the commenters themselves, who more or less endorse the NRC framework, which distinguishes a category of licensees that should not be afforded the option of using an external sinking funding as a mechanism of assurance. The commenters do not contend that all licensees should be allowed to use all mechanisms; but they want the external sinking fund option to be made available to more reactor licensees than might qualify under the NRC proposal. If this mechanism were equal to the others in terms of risk, NRC could make it more available in the interests of flexibility.
Because this option has more risk than other available assurance options, NRC is prudent to restrict its use to licensees with stronger financial characteristics.
l With respect to keeping the rule general and reserving details for a regulatory guide, there are two key considerations. First is a matter of regulatory philosophy and enforcement posture.
Reserving details for regulatory guides is a common practice at NRC but not at other regulatory
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Although financial assurance has a nexus with the NRC's safety and public health l responsibilities, it may not be necessary or desirable to include all of the financial assurance details in the regulations; on the other hand, the enforceability of financial assurance mechanisms can be severely or completely compromised by seemingly minor variations in wording, which is why NRC should consider placing at least the wording ofits assurance mechanisms into its !
regulations. The second consideration is the potential need to change the requirements. It is I much easier to change requirements in regulatory guides than in regulations. Inasmuch as the regulated community has begun on a path of economic restructuring, and will be in a period of transition for a number of years, the flexibility afforded by using a regulatory guide as a vehicle for decommissioning financial assurance requirements is an advantage. Thus, some elements of the financial assurance rule will benefit by being codified in regulation, while other elements l may best be handled through regulatory guidance, at least during the transition period for the l industry.
- 5. Applicability of Requirements to Plant Owners and Operators Two commenters urge the NRC to clarify that the requirements for decommissioning financial assurance apply only to owners or entities that have assumed decommissioning liability under contracts and not to entities that are solely operators. The commenters argue that such a j clarification is important to the formation or use of specialized operating service companies with no ownership interests in the facilities they operate.
Many fedaal financial assurance requirements apply to both owners and operators. For example, financial assurance for spills of hazardous substances or oil from vessels, off-shore facilities, and on-shore facilities apply to owners and operators (these programs are administered by the Coast Guard and the Department of Transportation); fimancial assurance requirements for underground injection, underground storage tanks, and hazardous waste treatment, storage, and disposal facilities apply to owners and operators (these programs are administered by EPA); and financial assurance requirements for surface coal mining applies to owners and operators (this program is administered by Department of the Interior). The DOT's financial assurance program for motor carriers applies to " carriers" without making a distinction between owners and operators. Similarly, NRC's programs apply to licensees.
Applying financial assurance requirements to both owners and operators provides flexibility since either can demonstrate compliance. This approach also recognizes scenarios where the operator has greater financial resources and/or creditworthiness than the owner; such a scenario is conceivable following the economic restructuring of the electric power industry. To provide greater flexibility and assurance, NRC should not specifically exempt operator licensees from the financial assurance requirement. This is unlikely to affect the formation or use of l operating service companies, because they can negotiate with reactor owners regarding which party or parties will be responsible for demonstrating financial assurance.
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- 6. Site-Specific Cost Estimates ;
Four commenters addressed the desirability of allowing licensees to use site-specific decommissioning cost estimates as the basis for financial assurance and reporting, even if such estimates are less than the current minimum amounts prescribed in G 50.75. The primary advantage would be to avoid unnecessary assurance expenses when a site-specific estimate is less than the current NRC minimum. Other benefits of allowing licensees to use site-specific cost estimates below the NRC minimums include greater consistency with PUC approaches, tax .
treatment, and possible FASB requirements. Moreover, acceptance of site-specific estimates might enhance the integrity of the rule, given widespread acknowledgment of the problems with i the current minimum amounts and the acceptance by PUCs of site-specific cost estimates as the l basis for financial assurance even where the site-specific estimates are less than the NRC minimums. On the other hand, given other potential weaknesses in current implementation (primarily relating to the adequacy of cost estimates and the potential underfunding indicated by current decommissioning trust fund balances), such an allowance could aggravate the risk of potential underfunding associated with the external sinking fund mechanism. Submission of site-specific estimates to NRC would enable NRC to better evaluate the funds needed for decommissioning.
All of these outcomes will be delayed if NRC waits until current studies of decommissioning costs are completed. One commenter specifically urges NRC not to wait to allow licensees to base financial assurance on site-specific cost estimates. Another commenter recommends that NRC delay the reporting requirements until the PNL study is final. Such a delay, however, would deny NRC and the public the benefits of the information required to be reported while conferring negligible benefits on licensees.
- 7. Alternative Methods of Assurance !
A. Alternative Framework Proposed by NEI NEI's proposed framework for decommissioning financial assurance resembles in broad outline NRC's framework, which allows a broader range of assurance mechanisms for licensees i that qualify as electric utilities than is allowed for licensees that do not qualify as electric utilities. The external sinking fund is not allowed for the latter category oflicensees. The NRC framework also offers opportunities for case-by-case consideration of non-standard financial assurance arrangements. The NEI's framework involves three, rather than two, categories of power reactor licensees. Under the NEI framework, the broader set of assurance mechanisms (including the current external sinking fund approach) would be available to (1) licensees meeting the criteria for " qualified nuclear entities" and (2) licensees that do not meet the requirements for " qualified nuclear entities" but that satisfy a set of financial criteria. NEI does not specify in its comments what these financial criteria would be. Licensees that satisfy neither l
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( the criteria for qualified nuclear entities nor the alternate financial criteria would not be allowed l to use the external sinking fund option, but would be able to use the other mechanisms. NEI also
- includes an option for non-standard demonstrations of assurance.
l The effect of the NEI proposal is to make the current external sinking fund financial assurance option available to a larger number oflicensees than under the NRC proposa!. This effect is the result of(l) defining " qualified nuclear entities" in terms of criteria that may be less )
l stringent than the proposed criteria for " electric utility," and (2) allowing licensees that satisfy l certain financial criteria also to take advantage of the external sinking fund option, which they l would not be allowed to do under the NRC proposal. The NEI proposal means an increase in the risk that adequate funds will not be available when needed due to an inadequate funding rate, !
l inadequate earnings on invested funds, or premature shutdown; it would decrease the cost to
! licensees. NRC's proposal entails less risk but greater cost.
l On balance, to make the external sinking fund option more available to reactor licensees, I
the NEI framework would result in greater risk that sufficient decommissioning funds will not be available when needed. The NEI proposal also would require the development of appropriate financial criteria, which would be challenging to develop due to the unpredictable evolution of the industry. An entity that meets the financial criteria, unlike an electric utility, would have no guarantee of collecting sufficient funds for decommissioning and could encounter deteriorating j financial conditions that could cause a reduction or cessation of payments into the external sinking fund.
l The NEI framework would produce the same result if the financial criteria were made an alternate basis for being a " qualified nuclear entity." That would produce a two tier framework parallel in structure to the NRC proposal, though different in content. ;
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B. PrepaymentiUp-front Assurance l
One commenter on the proposed rulemaking addressed the issue of up-front assurance.
The commenter stressed that it is unfair for NRC to require up-front funding for licensees that no longer meet the definition of" electric utility." In particular, the commenter argued that licensees ;
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! have presumed all along that they would be able to gradually fund decommissioning throughout their plants' operating lives and that, as a result, licensees who are no longer considered electric utilities may be unable to remain in business.
NRC's current decommissioning financial assurance requirements for nuclear power reactors are based on the premise that the reactors are owned by regulated or self-regulating entities that recover their decommissioning costs through a rate-setting process overseen by the applicable regulating body. This regulatory oversight provides reasonable assurance that electric utilities will recover r: actor decommissioning costs and continue paying into external sinking funds for decommissiomng. ;
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12 It is true that licensees that no longer meet the definition of" electric utility" may incur a greater burden by having to provide up-front assurance. This upfront assurance could take the form of prepayment or it could take the form of some type of surety mechanism (e.g., a letter of credit). It is possible, under some restructuring scenarios, that this could lead to premature shutdown of some reactors. However, the likelihood of this occurring is highly uncertain. Many PUCs have already indicated their intention to allow for the regulated recovery of decommissioning costs, either through rates or through some type of non-bypassable charge, even for otherwise deregulated entities. For non-utility licensees that will not be able to collect funds through such a process afler industry restmeturing, up-front assurance is necessary to ensure that reasonable financial assurance is provided for all decommissioning obligations. In the more competitive environment that is likely to prevail after restructuring, some non-utility licensees may not remain financially viable for reasons not related to decommissioning financial assurance, further suggesting the need for up-front assurance.
C. Accelerated Funding In the preamble to its proposed rule, NRC asked for comment on whether accelerated funding should be considered as a financial assurance option for licensees no longer meeting the definition of" electric utility." Several commenters supported accelerated funding, provided that the length of the accelerated funding period would not be too short. They generally stressed that, if the funding period were too short, non-electric utilities would be placed at a competitive disadvantage, potentially leading to insolvency and premature shutdown of plants. One commenter asserted that the burden of accelerated funding would be most severe for licensees with little time remaining before shutdown. Several commenters offered specific suggestions regarding the length of an accelerated funding period, saying that it should last most or all of the remainder of the license period,2/3 of the remaining license term or 10 years, whichever is greater, or 5/8 of the remaining license period. One suggested that the licensee or the licensee's parent company should have to pass a financial test for any unfunded amount in order to use accelerated funding. Others cautioned that accelerated funding could interfere with licensecs' business planning or lead to negative tax consequences.
For licensees associated with reactors that have remaining operating lives ofless than the accelerated funding period, the accelerated funding option would have no impact because licensees' funding schedules would be no different than they are currently. NRC would have less assurance from these licensees, however, given that they would no longer qualify as electric utilities. For other licensees (i.e., those associated with reactors that have remaining operating lives longer than the accelerated funding period), however, the accelerated funding option would be a significantly less burdensome means of demonstrating financial assurance than would full funding at the time the licensee no longer meets the definition of electric utility. In all cases, however, the relative decrease in burden to the licensee must be weighed against the reduced level of financial assurance provided to NRC during any accelerated funding period.
13 The length of an accelerated funding period would impact individual licensees differently depending on the amount of unfunded decommissioning obligation and on the time period that the licensees would otherwise have had to complete the funding. The greater the amount of money that must be funded on an accelerated schedule, the more significant the impact will be on a given licensee. For example, assuming licensees are otherwise identical and have been adequately funding an external sinking fund all along, the impact of a 10-year accelerated funding schedule would be greater for a licensee with 25 years of operating life remaining than for a licensees with 15 years of operating life remaining. (This contrasts with the comment asserting that impacts would be most severe for licensees with little time remaining before shutdown; in fact, the opposite is true, except for licensees that have so far been making inadequate contributions to their decommissioning sinking funds.)
The suggestion that NRC should allow licensees to use accelerated funding only if they or their parent companies have sufficient assets is analogous to combining a self-guarantee or parent company guarantee with the external sinking fund mechanism. This idea has significant advantages to licensees, and is discussed in Section 7-J.
Another way to reduce the burden of accelerated funding on licensees would be to ensure that the accelerated contributions are tax deductible. Under current IRS rules, accelerated payments into decommissioning funds may not be deductible. Consequently, unless these rules were changed, licensees may be ineligible to receive tax breaks on deposited funds.
D. Parent Guarantees /Self-Guarantees 1 Commenters generally endorsed parent company guarantees and self-guarantees as a reasonable method of assurance for licensees no longer meeting the definition of" electric ,
l utility." However, a number of commenters stated that the financial tests specified in Appendices A and C to 10 CFR Part 30 are inappropriate for these licensees and would be overly burdensome. Several commenters suggested specific revisions to NRC's existing financial tests:
. One commenter suggested that NRC allow non-electric utilities to use (1) a parent company guarantee from a parent meeting the criteria for self-guarantees, and (2) a self- i guarantee for licensees meeting at least two of the following criteria:
Licensee has an investment grade bond rating; Licensee's pre-tax income (before interest expense) divided by interest applicable to debt is greater than or equal to 2; and
- Licensee's net worth is at least twice the current remaining unfunded cost of decommissioning in current year dollars.
. One commenter stated that the self-guarantee test's "10 times requirement" for assets should be lower, but did not suggest an alternate threshold.
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14 One commenter suggested that the financial tests should require total assets in the U.S. ,
and tangible net worth to be one to two times the estimated decommissioning costs, rather I than what is currently specified in the tests.
One commenter suggested that NRC consider ownership of other revenue-generating assets (besides the nuclear power plant).
One commenter suggested that NRC should develop a process similar to that used by bond rating agencies to assess the ability of firms to continue repaying principle or to continue paying interest or dividends.
Finally, one commenter suggested that NRC allow non-electric utilities to use parent l company guarantees in conjunction with other allowable financial assurance methods, such as external sinking funds. (The issue of using parent company guarantees in combination with other mechanisms is discussed in Section 7-J).
NRC's parent company guarantee is based largely on a financial test developed by the j U.S. Environmental Protection Agency (EPA) over 15 years ago. EPA's test was intended to l assess the financial condition of hazardous waste management firms seeking to assure closure and post-closure care obligations that are substantially smaller than typical power reactor decommissioning costs. Because EPA's objectives are effectively incorporated into NRC's test, the suitability of the test for NRC licensees may depend on whether the test's objectives are compatible with NRC's. (It is also worth noting that EPA has proposed but not yet promulgated revisions to its financial test.)
In selecting the financial test, EPA had two primary objectives. First, it wanted to minimize the overallsocietal costs of the test. The overall costs of the test are equal to the sum of costs to the public (which must pay for the environmental obligations of firms that use the test but later go bankrupt without providing alternate assurance) p_lus the costs to firms that cannot pass the financial test (of paying the higher costs associated with alternative financial assurance mechanisms, such as surety bonds). A trade-off exists between the public and private costs of the test. For example, a very stringent financial test might reduce public costs by allowing only the very strongest of firms (which almost never go bankrupt) to use the test; however, such a financial test may greatly increase private costs by forcing the majority of finns to pay for other fint.ncial assurance mechanisms. EPA was willing to accept some public costs (i.e.., have the test pass some firms that would not be able to pay their obligations)if costs to society were minimized overall. To put this in context, EPA originally estimated that 96 percent of non-bankrupt firms would be able to pass the financial test, and that 44 percent of firms that eventually go bankrupt would be able to pass the financial test one to two years prior to bankruptcy.
Second, EPA wanted to ensure that even in the event of a firm's rapid financial deterioration, the firm would still have a cushion of resources adequate to meet its environmental
15 obligations before going bankrupt. A " multiples" requirement was included in the financial test in order to implement this objective.
To the extent that NRC's goals and objectives differ, the test may not be appropriate for use by NRC licensees. For example, if NRC wants to eliminate all public costs of the test, then a more stringent financial test may be preferable. NRC may also wish to consider updating certain requirements in the test (i.e., the $10 million tangible net worth requirement) that have never been i pdated to reflect current price levels. Finally, NRC may wish to consider whether EPA's propos:d financial test revisions would be appropriate for NRC's test.
Because deregulation is still in its earliest phases, it is not yet possible to identify or define the financial characteristics of entities that may ultimately be responsible for reactor decommissioning. Consequently, evaluating or improving the test's applicability to non-utility licensees may be difficult, and any criteria that might be developed could become outdated or misleading relatively quickly. Finally, developing and implementing alternative tests (such as those suggested by commenters) could pose a substantial burden for NRC.
E. Surety Methods Three commenters on the proposed rulemaking addressed the issue of surety methods of financial assurance (i.e., surety bonds, letters of credit, line of credit). The predominant issue raised by these commenters pertained to the limited availability of these mechanisms to licensees no longer meeting the definition of" electric utility." One commenter claimed that because the majority of generating companies will have an assured recovery mechanism through non- ;
bypassable charges, there will be no new market created for surety mechanisms after industry restructuring, and that licensees required to obtain these mechanisms will be faced with significant costs. Another argued that NRC should ascertain the availability of such instruments before finalizing a rule based on Cne assumption of their availability. This commenter proposed the creation of a government managed decommissioning insurance plan to provide such mechanisms (discussed in Section 7-G).
NRC recognizes that there are likely to be limits on the availability of surety mechanisms ;
such as letters of credit, lines of credit, and, in panicular, surety bonds, to licensees trying to demonstrate financial assurance. This limited availability would arise from two factors. First, the amount that would need to be assured under such a mechanism (i.e., the difference between the licensee's decommissioning cost estimate and the current balance in its external sinking fund) could in some cases be quite large and could pose a significant iisk to potential providers of the mechanisms. Second, mechanism providers may also view some non-utility licensees as financially risky ventures given their restructured operations and newly-deregulated financial characteristics (e.g., licensees may no longer have guaranteed service arees). Some licensees may be able to obtain such mechanisms only after offering significant leven of collateral to the provider as security. Generating subsidiaries without access to substantial aasets other than the nuclear plant may find it difficult to provide the necessary collateral and may be unable to obtain
16 a surety mechanism. Even if surety mechanisms are not available to some licensees, licensees may be able to use prepayment mechanisms (e.g., full upfront funding of the external sinking fund), possibly arranging for the necessary funding prior to restructuring (e.g., before a nuclear plant is placed in a generating subsidiary with few other assets). Licensees may also have access to guarantees, which are still less costly.
F. Power Sales Contracts Commenters suggested two possible roles for power sales contracts in the financial assurance program: (1) as a threshold condition for being able to use the external sinking fund, and (2) as a mechanism for demonstrating financial assurance. One commenter recommended that power sales contracts be accepted as a means by which licensees not meeting NRC's proposed definition of electric utility can nevertheless qualify to use the broader range of assurance mechanisms -- such as the external sinking fund. Another commenter concurred, stating that such contracts would be secured by legislation and/or a regulatory commission order.
Commenters also recommended that, for licensees not qualified to use the external sinking fund, a mechanism for demonstrating assurance should be to allow the licensee to show that power l sales contracts are in place that could provide some or all decommissioning funding. !
There is an important difference between using power sales contracts as a threshold criterion in the definition of electric utility and as a financial assurance mechanism. As a threshold criterion, power sales contracts would represent evidence of the financial status and i prospects (e.g., sales backlog) of a company. Such contracts would be considered when private )
financial organizations assess the credit-worthiness of companies. However, power sales contracts have some disadvantages that militate against their use as a threshold criterion. First, power sales contracts may have contingencies that make it difficult to project revenues or earnings. Such contracts are not equivalent to a government-mandated revenue stream that would fully fund decommissioning costs. It also would be very difficult for NRC to spell out exactly how it would analyze and evaluate such contracts, potentially creating issues of fairness, consistency, and accountability. For example, NRC would need to assess whether a given contract covers all licensee costs (including decommissioning), how binding it is, and its etTective term. Unlike financial statement data, which can be statistically associated with subsequent financial performance, there is no objective basis or validated test for linking sales contracts to future financial performance. By rnaking it easier for licensees that are not electric utilities or that do not have access to a government-mandated revenue stream to use the extemal sinking fund, acceptance of power sales contracts as a threshold criterion may increase the risk that funds will not be available when needed. Finally, there are alternative criteria, such as those in the NRC proposal, than can serve the threshold function of determining which licensees should be allowed to use the external sinking fund.
Power sales contracts are also unlikely to make good financial assurance mechanisms.
They are not designed for that purpose and lack the provisions needed to ensure effective and continuing coverage (e.g., automatic renewal, notice of cancellation). For example, in Town of
l 17 Bovlston v. FERC (21 F.3D 1130,305 U.S. APP.D.C. 382) municipal purchasers successfully challenged an order to pay reactor decommissioning costs as a charge under their power purchase contracts. Moreover, FERC has authority to impose alternative provisions in the public interest ifit finds contracts to be unjust and unreasonable. Power sales contracts often contain contingencies that may make it difficult to determine corresponding levels of revenues. Long-term contracts for the supply of uranium, natural gas, and coal have all been subject to litigation at one point or another due to market or regulatory changes, which may be specifically addressed in contracts or covered under " force majeure"' clauses. Such contracts typically do not ,
themselves effect the setting aside or guarantee of monies, although contracts could be written to j serve as guarantees or to require that proceeds be deposited in external sinking funds. NRC has i not identified to date a financial assurance program that accepts sales contracts as a ;
demonstration of financial assurance. !
G. Government-Managed Insurance Plan Two commenters addressed NRC's decision to eliminate from future consideration the concept of a captive insurance pool to pay unfunded decommissioning costs. One noted only that it agreed with the decision not to pursue this option. The other commenter, however, disagreed with the decision and urged NRC instead to investigate the creation of a government-managed decommissioning insurance plan. Under such a plan, the licensee would be able to purchase an insurance policy from the government. The cost of the policy could be determined by each plant's perfomiance history or SALP rating, with poorly-run plants paying a higher I premium and well-run plants paying a lower premium. The commenter noted that govemment participation in private insurance markets is not unprecedented, citing the example of Federal flood insurance. The commenter weakened the force ofits example, however, by also pointing out that government participation in private insurance markets takes place "especially where the i risk is not readily subject to management or the level of potential exposure is large." Clearly, I basing premiums on plant performance history implies that the commenter would expect poorly-run plants to close more frequently than well-run plants, suggesting that the risk is subject to management.
The commenter advocating further examination of an insurance plan did not make clear whether if favored a captive insurance pool entirely funded by the industry or an insurance system that was funded, completely or partially, by the government.
i The arguments against a captive insurance pool are strong. The participants would be
! able to cause losses simply by not takirg action to set aside adequate funds for decommissioning.
l Such delay in setting aside funds could be beneficial due to the use value of the funds that a
' " Force majeure" refers to items largely beyond the control of the contracting parties (e.g., recession, inflation, severe market changes) that make it equitable to terminate or renegotiate contract terms.
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licensee could reallocate to some other purpose. In addition, the members of the insurance pool I
would be in competition with each other, and could shift costs to competitors by means of the insurance pool. Thus, an insurance pool for decommissioning would provide no incentive to licensees to reduce the magnitude of their potential claims on the pool, either from an insurance standpoint (because their decommissioning costs are insured) or from an economic standpoint (because of the advantages to them of delaying payment and of shifting costs to their i competitors).
The commenter's suggestion that rates should be based on plant performance is unlikely to satisfactorily address the problem of adverse selection. Those posing higher risks might continue to be more likely to enter an insurance pool, despite being assessed higher rates, thus raising the proportion of high-risk insureds. This could increase the price of the insurance and cause other relatively low-risk entities to avoid entering the pool, even if they were being charged less. The nexus between plant performance, however measured, and likelihood of premature closure is not so clear that the government agency responsible for the insurnee would be able to set premiums accurately. Eventually the proportion of high-risk insureds could increase to the point that providing the insurance becomes improfitable or impossible.
Alternatively, mandatory participation by low-risk insureds could lead to situations in which they were subsidizing the high-risk entities, even with a rate differential.
Insurance that is partially or wholly subsidized by the Federal government, such as flood insurance, would require Congressional action, and therefore is outside the scope of an NRC rulemaking.
1 Finally, the commenter does not provide any arguments supportmg government management of a decommissioning insurance plan. If such a plan were set up without the inclusion of Federal funds, there seems to be little reason to assign a government agency to manage it.
H. Regulatory Certification l l
Only one commenter suggested that NRC should reconsider its dismissal of the l possibility of PUC or FERC certification that licensees within theirjurisdiction would be allowed to collect sufficient revenues through rates to complete decommissioning funding. That commenter noted that NRC had relied upon the views expressed to the NRC that "no current commission 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."
This commenter argued that these uncertainties are "no greater than those associated with cost of service regulation, which certainly does not constitute a ' guarantee' of availability of
! sufficient decommissioning funds," noting also that the underlying regulatory standard is only l one of'" reasonable assurance'."
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1 The commenter, however, did not address a number ofimportant considerations. First, it i ignored the well-informed status of the opponents of certification. The comments upon which ,
NRC relied in dismissing certification as an option came from NARUC and several State PUCs, I who are particularly good sources ofinformation concerning the limits of their own authorities and their ability to bind their successors. Second, the commenter did not address the argument, ;
presented by NEI and endorsed by several PUCs, that new Federal legislation would be j necessary to make such certifications binding. Third, the commenter did not address limitations on FERC's jurisdiction, and consequent limitations on FERC's ability to make binding certifications. Finally, the commenter suggested that NRC had adopted a " guarantee of l availability" standard rather than the underlying regulatory standard. Given the weight of l arguments in opposition to certification, however, NRC could have concluded that certification j would not provide " reasonable assurance." l l
L "Any Other Method" l
A number of commenters stated that NRC should allow more flexibility in the allowable methods for demonstrating reasonable assurance of decommissioning funding, particularly for j licensees no longer meeting the definition of" electric utility." Several commenters suggested '
that NRC review and evaluate licensee-specific funding proposals on a case-by-case basis.
Another commenter recommended that NRC allow non-electric utilities to use mechanisms developed by govemmental authorities and approved by NRC. Finally, one commenter suggested that NRC provide individual licensees or States the flexibility to develop initiatives / mechanisms for providing reasonable assurance of funding.
Licensees, as discussed in Sections 7-B and 7-E, may well encounter cost and availability issues in trying to use some of the financial mechanisms allowed by NRC. In addition, the applicability of the NRC's parent company guarantees and self-guarantees to power reactor licensees is questionable (as discussed in Section 7-D) because the underlying financial tests were developed primarily for other types of entities assuring smaller financial obligations.
Consequently, allowing a case-by-case approach through which non-electric utilities could submit to NRC other types of mechanisms may be helpful to licensees and to NRC (i.e., if doing so improves compliance rates). This also would be consistent with NRC's common approach of allowing attemative compliance techniques provided that they meet certain criteria specified in regulations or regulatory guides. NRC, however, would need to ensure that the mechanisms used provided adequate financial assurance, thereby placing a burden on NRC to develop acceptability criteria and to review individual "non-standard" mechanisms.
J. Combinations of Methods Several commenters stated that NRC should allow utility licensees and, in particular, non-utility licensees to use combinations of mechanisms to demonstrate financial assurance for i decommissioning. Two commenters suggested specifically that NRC allow non-electric utility
t 20 l licensees to use parent company guarantees and/or self-guarantees in conjunction with other :
allowable methods. !
NRC's current and proposed requirements already allow combinations o' fmechanisms, except that two mechanisms - the self-guarantee and the parent company guarantee - may not be ,
used in combination with other mechanisms. Allowing combinations of funding methods increases the regulatory flexibility to licensees trying to meet the requirements. (Note, however, that a licensee using a combination of mechanisms would face a greater administrative burden to obtain its mechanisms and, similarly, NRC would face an increased burden in reviewing multiple
- mechanisms.) For mechanisms that guarantee payment (e.g., trust fund, payment surety bonds, J letters of credit), a combination of mechanisms that adds to the total decommissioning cost ;
estimate is unlikely to lead to any difficulty.
Some mechanisms, however, guarantee performance rather than payment. These mechanisms include self-guarantees, parent company guarantees, performance surety bonds, and l some insurance. The terms of these mechanisms promise that the issuer will complete required decommissioning activities if necessary. It can be problematic to combine a performance mechanism with another mechanism (payment or performance) because of the inherent subjectivity in valuing performance. For example, say a licensee were to combine a $100,000 parent company guarantee with a $100,000 letter of credit to assure a decommissioning cost estimate totaling $200,000. If the guarantor proves to be inefficient in conducting decommissioning, it may spend $100,000 on activities that should have should have cost less. In this case, the letter of credit would be inadequate to fund the remaining activities, even though the guarantor could claim to have fulfilled its performance guarantee.2 This potential problem may be ofless concern in the specific case of a self-guarantee being used in combination with an external sinking fund because, in this case, the guarantor has
. no incentive or ability to shift costs or to avoid greater responsibility. However, if the self-guarantee were to be combined with a mechanism - say a letter of credit - that required the ;
l licensee to offer collateraMo the issuer, then it is possible that if NRC were to draw on the letter i of credit, the bank might seize the licensee's collateral which, in turn, might prevent the licensee from performing under the self-guarantee. j i
2 In addition, firms providing guarantees must pass an underlying financial test which is not " divisible" under the regulations. For example, parent company guarantors must meet a criterion that they have tangible net worth at least equal to six times "the current decommissioning cost estimates (or prescribed amount if a certification is used)." Either a
- potential guarantor passes this criterion (and other similar and related criteria) in its entirety or ;
the guarantor fails the test. If the guarantor cannot pass the criteria, then it is ineligible to i
! provide a guarantee in any amount. In this case, combining the guarantee with another l mechanism would not be an option.
{
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i 21 The combination of a guarantee and an external sinking fund might also provide a low-cost means for licensees to demonstrate financial assurance while continuing to gradually fund decommissioning costs over time (either on the current schedule or on an accelerated schedule).
Because of the low costs of guarantees, however, NRC should recognize that allowing this combination of mechanisms would create an incentive for licensees to delay or cease payments !
into the sinking fund and, instead, to rely on the guarantee for as much of the cost as possible.
Given the magnitude of typical decommissioning costs for reactors, this possibility could hinder the timely conduct of decommissioning. In other words, decommissioning could be significantly ,
delayed if, due to a licensee's inadequate centributions to its sinking fund, a guarantor had to !
come up with large amounts of money at the time of decommissioning.
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Finally, as a general rule NRC should not allow licensees to use parent company l guarantees and self-guarantees in combination to assure decommissioning obligations. Because I parent companies typically consolidate the financial statements of all their subsidiaries into their i own financial statements, combining paient company guarantees and self-guarantees could result i in double counting of the same limited financial strength to pass separate financial tests (e.g., one for costs covered by a parent company guarantee, and one for costs covered by a self guarantee).
K. Required Timing of Alternative Methods Several commenters felt that NRC should allow affected licensees an extended period of time to secure alternative financial assurance mechanisms. One commenter stated that NRC's current regulations allow a licensee 30 days to develop a submittal describing how )
decommissioning funding will be assured if the licensee no longer satisfies a given criterion )
(e.g., the definition of" electric utility"). This commenter recommended that NRC allow l licensees 180 days in these instances, and also suggested that NRC allow licensees to continue )
making payments to their existing decommissioning funds until NRC approves the alternative l funding submittal. Another commenter stressed that NRC should allow " adequate transition time for legislative and regulatory changes to accommodate the new definition of' electric utility.'"
The comments seem to argue that licensees will need more time to obtain alternative i financial assurance mechanisms (e.g.,180 days) than they would in the event of the cancellation of an existing mechanism (only 30 days). This argument ignores the fact that deregulation will not occur instantly and unexpectedly. Licensees are likely to have months or even years to I evaluate whether they might no longer qualify as " electric utilities" and what mechanisms they might use to demonstrate financial assurance if and when that occurs. Consequently, no additional time should be provided to licensees in response to this comment. In fact, it is probably both reasonable and appropriate to require licensees to obtain alternative financial ;
mechanisms at least 90 days in advance ofthe date on which the licensee will no longer qualify as an electric utility. Such a requirement would proactively help ensure that restructuring does not occurs without the resolution ofissues affecting the licensee's financial assurance for decommissioning. Such a requirement might significantly advance NRC's objectives in undertaking the rulemaking.
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- 8. Federal Licensees A. Applicability to Federal Licensees A number of commenters argued that financial assurance requirements for electric utilities should apply equally to Federal licensees, that no special treatment should be afrorded Federal licensees, and that all licensees should satisfy the same requirements. One stated explicitly that " Federal" licensees should be required to provide the same level of financial assurance as other electric utilities, but qualified its comment by stating that "the proposed rule should ensure that at such time as these Federal entities become private enterprises, they are i subject to the definition o." electric utility.' In doing so, they must provide the same measures of financial assurance currwdy required to 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." This commenter apparently did not oppose the use of l
statements ofintent by Federal licensees, until the point at which they become private. i Only TVA, which currently is the only Federal licensee, argued in favor of special provisions that would apply only to Federal licensees. It noted,in particular, that under federal law it is required to charge rates for power that will produce gross revenues sufficient to cover all operating expenditures of the power system, and that such operating expenses are considered to include decommissioning costs. TVA's arguments are evaluated below.
B. Definition of Federal Licensee Several commenters provided identical, or almost identical, recommendations concerning the definition of Federal Licensee. Each supported the intent of the definition, which they considered to be to exclude from the definition any Federal agency whose obligations do not constitute the obligations of the United States. However, each recommended that the definition be modified to define a Federal Licensee as "any NRC licensee, the obligations of which are guaranteed by and supported by the full faith and credit of the United States Government." Each argued, without explaining fully, that the term " full faith and credit backing" is neither defined nor commonly used in other legislation relating to Federal agencies.
l Presumably, the commenters who found the phrase " full faith and credit backing" l ambiguous did so because it does not specify that all obligations of the entity are backed by the l
credit of the Federal government nor does it ray explicitly that the obligations are " guaranteed,"
l as does the proposed replacement definition. The proposed replacement definition thus is j
slightly more precise. In addition, much of the suggested definition that has been used previously and conmonly in legislation pertaining to Federal agencies and would, therefore, have the advantage af removing any ambiguity. A preliminary search of the United States Code, Annotated, uncovered a number of situations in which the proposed phrase is used. For example, under Chapter 50 of Title 7, the Secretary of Agriculture is empowered under 7 U.S.C.A.1928 to l
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1 23 l guarantee certain agricultural credit real estate loans and emergency loans. Section 1928 specifies that contracts ofinsurance or guarantee executed by the Secretary under Chapter 50 "shall be an obligation supponed by the full faith and credit of the United States." Similarly, the Secretary of the Interior is empawered under Title 16 of the U.S. Code to insure certain loans of private lenders. Section 470d of Title 16 provides that "Any contract ofinsurance executed by the Secretary under this section . . . shall be an obliga: ion supported by the full faith and credit of the United States. . . ." Finally, under Title 42, Chapter 7 (Social Security) of the U.S. Code, the Secretary of the 'Ireasury can issue obligations for purchase by the social security trust fund.
Section 401 of Title 42 provides that "the obligation is supported by the full faith and credit of the United States. . ." The conanenters appear to have idertified the phrase generally used to describe such an obligation, and therefore replacement of the current definition of" Federal Licensee" with the definition suggested by the commenters appears warranted.
TVA argued against the proposed definition of Federal Licensee because the proposed definition would preclude TVA's use of the statement ofintent. In its view, there are " ample reasons" to support the continued use of the statement ofintent by TVA. In particular, TVA argued that with respect to decommissioning funding assurance, "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." TVA goes on to point out that even prior to decommissioning funding assurance requirements from NRC, TVA was taking )
action to ensure that funds would be available to decommission its nuclear units. TVA argues,in j effect, that a financial assurance requirement other than the statement ofintent amounts to
" imposing separate regulatory requirements to oversee the manner in which TVA is meeting its statutory requirements. . . ."
These arguments amount, in sum, to an assertion that because TVA is subject to an existing statutory requirement to fund decommissioning, NRC should not impose any different, or additional, requirements. The enclosure entitled "TVA's Use of Statements ofIntent" states the argument most succinctly: NRC should have reasonable assurance that TVA will have adequate funding to ensure the conduct of decommissioning activities "because Federal law requires TVA to provide such funds."(emphasis in original)
It could as correctly be said, however, that Federal law requires other reactor licensees to provide reasonable assurance of decommissioning funding. The purpose of financial assurance is to provide a second line of defense, if the financial operations of the licensee are insufficient, by themselves, to ensure that sufficient funds are available to carry out decommissioning. TVA apparently concedes that its obligations are not supported by the full faith and credit of the United States government; therefore, if TVA cannot fund decommissioning the Federal government is not obligated to do so. Although the TVA board has the authority to set electric power rates to meet power system obligations, including decommissioning, it may not, contrary to its assertions, have the " unfettered ability" to do so, because its markets may not suppon such rates. TVA itself notes that its current business plan recommends an offer to its distributor
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l 24 customers to change their power contracts after five years from a rolling ten-year temi to a rolling five-year term.
TVA appears to misunderstand the purpose of the statement ofintent, which is to obtain a commitment by another, and superior, governmental entity that the obligations of the subordinate governmental entity will be paid by the superior entity if the subordinate entity cannot pay them.
Absent such a commitment, which would be represented by support for the obligations by the full faith and credit of the United States, there is no " statement ofintent" upon which TVA can
" continue to be able to rely."
- 9. Reporting on the Status of Decommissioning Funds A. Use of FASB Standard Commenters generally did not oppose reporting to NRC on the status of decommissioning funding assurance in accordance with the requirements of a final FASB promulgation, on the grounds (as expressed by NEI) that a standard reporting mechanism that does not add unnecessary burden should be used. However, several did oppose a requirement that they use the preliminary FASB exposure draft, or any other FASB-based position that is not final. They argued that changes from the proposed to the final FASB standard, which cannot be predicted because the standard is still under development, could make it inappropriate for meeting NRC's requirements. Unless the FASB standard is adopted soon, these commenters argued, other reporting requirements should be adopted. Some commenters suggested that regulatory language need not be changed, but that the contents of the draft Regulatory Guide 1060 would need to be amended to reduce the reliance on the FASB draft.
Some commenters went further, and expressed criticisms of the FASB exposure draft, indicating that even ifit became final in its current form they would not find it appropriate for use. In the view of these commenters, merely recognizing the liability and periodic expense for decommissioning, which is the focus of the FASB draft, is not sufficient to ensure adequate funding. In their view, the FASB standards establish accounting procedures but are not the appropriate computations for determining necessary cash flows for funding external trusts. One commenter stressed that the focus of the FASB draft, as well as issues concerning the appropriate discount rate, also made the FASB standard questionable for NRC's purposes.
Neither the timing nor the ultimate contents of a FASB standard can be predicted at this time, and therefore the conclusion is warranted that alternative requirements should be found.
According to a FASB report of January 14,1998, the Board reviewed the status of the project in its October 2,1997, meeting and decided it should proceed toward either a second Exposure Draft or a final Statement. However, at its November 26,1998, meeting, the Board eliminated certain key provisions in the exposure draft relating to the scope of the Statement. According to FASB's Current Developments and Plans for 1998:
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l FASB will be developing a refined definition of closure / removal costs that would be l applicable to a more general class oflong-lived assets than those covered by the Exposure l Draft. The Board will also be addressing the question of whether the costs of closure /
removal obligations should be capitalized and will deyelop criteria to identify constructive obligations. At this time, there is no timeframe regarding the issuance of a document or final statement.
Although the timing of future action on the draft is uncertain, reanalysis of the scope issue by the FASB staff during the first quarter of 1998, as well as FASB's statement that it is postponing other issues raised on the Exposure Draft until further progress is made on another Exposure Draft, suggests that action by FASB to issue a final Statement, or even a revised Exposure Draft, will be delayed for a considerable time period.
B. Frequency of Reports Most commenters endorsed " periodic" reports to monitor the status of decommissioning assurance. Requiring a report soon (nine months) after the rule becomes effective, and at least every two years thereafter, also was supported by several commenters, particularly from State PUCs. (Other commenters from utilities suggested every three years or every five years thereafter. The five-year period was suggested to correspond to the recommended five year adjustment to site-specific cost estimates required by Regulatory Guide 1.159.) A majority of the commenters also endorsed submission of reports annually for utilities nearing decommissioning or in the process of decommissioning. However, commenters noted ambiguity in the requirement that reports should be submitted annually by licensees of plants that are within !
five years of their projected end of operations.' While agreeing with the concept of such annual reporting, they noted that "the projected end of operations" should be clarified so that it clearly covered premature shutdowns and not just plants within five years of the end of their operating licenses. Several State commissions submitted almost identical proposed language amending Q50.75(f) of the proposed rule to require reporting by licensees for a plant within five years of the project end of operations, "or where conditions have changed such that it will close within 5 years (before the end ofits licensed life) or has already closed (before the end ofits licensed life).. ." Requiring annual reporting on a calendar year basis would, in the opinion of one commenter, reduce the administrative burden of annual reporting because that is how licensees generally gather and accumulate the required information. Another argued that reporting trust fund balances on an annual basis suggested that reports should be required by March 31 for the previous calendar year.
i Other commenters noted that when State regulatory bodies require annual reporting on the status of decommissioning funds, as many do, NRC's interests are already protected. One commenter could find no added safety justification for requiring annual reponing within five years of decommissioning. A complete report could be required every five years, in the opinion of this commenter, with updates annually or biennially.
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26 Reporting frequency should be driven by NRC's information needs, which may not require routine annual reporting. On the other hand, given the multi-million dollar size of the contributions that utilities make annually to tneir decommissioning funds, the potential pay-off l per hour of stafflabor that NRC invests in monitoring of annual fund reports may be quite high.
NRC should also consider commenter suggestions that reporting frequency be increased for l plants approaching the end of commercial operation or experiencing operating problems, or for l plants involved in mergers / acquisitions. l C. Contents of Reports l Most of the commenters who addressed reporting did not question the need for reports on the status of decommissioning funds, but they did not address in detail the contents of such j reports. Similarly, most of the commenters who raised questions about reliance on the FASB l draft for decommissioning status reporting did not recommend alternative reporting standards.
Several commenters implicitly suggested that the contents of reports submitted to State PUCs would be sufficiently similar to NRC's requirements, by recommending that copies of State i reports should be acceptable to NRC.
One commenter argued that NRC's proposed "per-unit" reporting was unclear about whether individual licensees of a jointly owned plant would each be required to submit their own l status reports, or whether the plant operator could submit on behalf of all co-licensees. The commenter suggested tiat having the operator provide the data for all owners could be the most efficient approach, assuming the aggregate of available funds is the most important question. In contrast, another commenter believed that it would be " prudent" for NRC to require annual filings from all co-owners. Requiring filings by all co-owners would provide NRC with more detailed information, but would also place on it the burden of combining and assessing the data.
Placing the responsibility on the operator, with access for NRC to the underlying information pertaining to each co-owner, is probably the most effective means of addressing this issue for NRC. However, even if all information is submitted by the operator, NRC would likely want the information broken down by owner in order to evaluate each owner's contributions to decommissioning.
One commenter recommended a clarification to ensure that the amount accumulated to the date of the report means the "as of" date, and not the date of the report. The same commenter wanted to limit the report to the single item of accumulated trust fund balances, unless NRC has concerns, based on its knowledge of the plant, about whether the amount accumulated for decommissioning is sufficient. In that case, more detailed information could be required.
The comments do not address several issues revealed by commenters on the NRC's Advance Notice of Proposed Rulemaking (ANPR) of April 8,1996, concerning the information needed by NRC to monitor the status of decommissioning funds. In particular, the comments on the proposed rule do not address the 50-plus reporting items suggested by commenters in response to the ANPR.
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27 How the industry will understand the core concept of the reporting requirement, the
" status of the decommissioning fund,"is not clarified by the comments on the proposed rule. At least one commenter suggests that " status" means simply the " amount" of the decommissioning trusts. Other commenters may be suggesting, by their emphasis on the responsibility of an operator to coordinate information from several co-owners, and on the possibility that NRC might need to obtain follow-up information, that " status" can include a quantitative or qualitative assessment of the " adequacy" of the fund relative to required or estimated decommissioning costs. The extent of that assessment is not clarified by the comments received, which do not !
address whether " status" implies a general discussion provided by the licensee or a specific ;
report prepared by the trustee.
i NRC should carefully consider its information needs and monitoring goals. If NRC l views itself as the appropriate monitor of decommissioning trusts in a deregulated environment, I NRC may wish to require statements from the trustee containing specified information on fund l balances, contributions, earnings, and other items (e.g., calculations, assumptions). A discussion I from the licensee regarding the adequacy of funds relative to funding requirements and projected l costs may also be useful.
- 10. Rate of Return NRC's proposed language in 10 CFR 50.bg@(i) and (ii) allows licensees to take credit for earnings on their prepaid decommissioning trust funds or 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 licensee's rate-setting authority does not authorize the use of another rate. By specifying that earnings can be credited "through the decommissioning period " i NRC is allowing licensees to assume earnings credits for both the safe storage period and the l period when funds flow out of the decommissioning financial assurance mechanisms.
Many commenters generally supported NRC's proposed changes in 10 CFR 50.75. Some described the rate as being reasonable, conservative, and consistent with FERC's policy of recognizing earnings and inflation. One commenter specifically endorsed the provision allowing licensees to use assumed rates of return that are approved by state regulatory bodies. A few conunenters supported the changes but stated that licensees also should be given the flexibility to use a rate that is less than the proposed rate.
Other commenters did not support NRC's selection of the 2 percent rate. One commenter claimed that the proposed 2 percent rate might result in underfunding ifit does not account for the effect ofincome taxes. More typically, commenters argued that the rate is too low and j should be increased. Suggested rates included 3 percent and 7 percent. Two commenters noted that 3 percent and 7 percent discount rates are used in NRC's regulatory analysis guidance (in NUREG/BR-0058 and SECY 93-167). Other commenters stated that NRC should allow licensees to use any " realistic" rate of retum or any rate they can justify, possibly in conjunction 1
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28 with periodic reevaluation of the funds collected. A few commenters argued that NRC should
- not specify a 2 percent rate of return during the period following operations (i.e., the safe storage l and outflow periods) and that different rates should be allowed if specifically approved by a rate-l setting authority.
l According to the preamble to the proposed rule, the 2 percent real rate of return suggested by NRC (which is an after-tax rate of return) is based on historical data on returns from U.S.
l Treasury issues, and represents "as close to a ' risk-free' return as possible." Allhough this rate I
may seem relatively low given that higher interest rates are frequently paid on common stocks and corporate bonds, the lower rates paid on government securities pose considerably less risk and are likely to be achieved on a more consistent basis.
Given the need for " reasonable" assurance of decommissioning funding, there is little justification for selecting a rate greater than 2 percent. As shown in the table below, the historical average real return on long-term U.S. govemment bonds has been very close to 2 percent, and the historical average real return on " risk-free" U.S. Traasury Bills has been less i than 1 percent., Based on this information, NRC would have difficultyjustifying a higher rate.
Real Rates of Return for Sample Time Periods U.S. Treasury Bills Long-Term Government Bonds Current Rate (1997) 3.49 % 13.91 %
l l Contemporary Average (1975-1994) 1.96 % 7.65 % j Long-Term Average (1926-1997) 0.6% 2.1%
i Source: Ibbotson Assoc ates, Chicago. Stocks. Bonds. Bills and Inflation: 1998 Yearbook. Table 4-1 and Table 6-8.
Averages are calculated as geometric means.
l The commenter's concern that 2 percent is less than the 7 percent and 3 percent discormt rates called for in NRC's regulatory analysis guidance is not relevant.2 Discount rates are used for capital investment analysis and other decision-making purposes but, if used to calculate 3 NUREG/BR-0058 generally calls for the use of a 7 percent discount rate, which is the rate recommended by OMB, in the estimation of values and impacts of a regulatory action.
NUREG/BR-0058 also suggests use of an alternative discount rate of 3 percent for sensitivity analysis purposes and for cases where costs occur over a period of more than 100 years.
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29 contributions to decommissioning funds, could result in financial assurance levels that are not adequate to pay for all assured obiigations.
- 11. Other A. Cost Recovery through Rates Several commenters opposed the inclusion of any mechanism which provides for a stranded cost bailout of the nuclear industry by ratepayers, arguing, among other things, that such a bailout would be unfair, would destroy real competition, inhibit employment gains, slow the economic growth of more viable, cost effective, and less polluting power generating technologies, and would harm the environment by allowing the continued operation of nuclear power stations that might otherwise shut down. These comments may reflect a misunderstanding of the roles played by NRC relative to State PUCs and FERC. Specifically, PUCs and FERC can determine whether decommissioning costs are stranded or whether they must be paid by ratepayers. NRC, unlike the PUCs, does not have the authority to prevent or to allow licensees to pass decommissioning costs on to customers. Thus, the issue of a " bailout"is not relevant to NRC. Even in the event that NRC allows financial assurance mechanisms whereby licensees recover decommissioning costs from ratepayers (e.g., external sinking funds funded by wire charges), the mechanism for rate recovery (e.g., the wire charges) must be authorized by a PUC or by FERC. Furthermore, the asserted consequences of a " stranded cost bailout" are unsupported and likely overstated.
B. Rate Recovery of Stranded Costs Using PNL's Formula One commenter suggested that utilities be allowed to recover in their rates only a portion of their decommissioning costs. Specifically, the commenter suggested allowing decommissioning costs to be recovered up to a maximum amount determined using PNL's 1993 generic decommissioning cost formula. Estimated costs in excess of the generic PNL estimate could not be recovered in rates and would have to be funded by shareholders. Also, in the event of premature shutdown, the commenter would make shareholders (rather than ratepayers) responsible for all decommissioning costs that are not yet funded, including any unfunded portion of the generic PNL estimate.
The comment described above addresses how decommissioning costs, including stranded decommissioning costs, might equitably be divided between ratepayers and shareholders. The comment is not directly relevant to decommissioning financial assu ance, however. From NRC's standpoint, it does not matter whether the source for a licensee's financial assurance is the licensee's ratepayers or its shareholders, but only that the licensee has provided adequate financial assurance for decommissioning. Th question ofhow much of the decommissioning cost should be borne by ratepayers as opposed to sharenolders is one that has traditionally been answered by State PUCs. NRC, unlike the PUCs, does not have the authority to direct licensees l
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i L 30 I 1- l l- in how they should address this issue. While NRC did sponsor the development of PNL's 1993 l l" generic decommissioning cost formula, this formula (like its predecessor in 10 CFR 50.75(c)) l l
was designed to help answer a different question, namely, what constitutes a reasonable i
- minimum level of decommissioning assurance for a given reactor. Within this more limited .
g context (and outside the scope of this rulemaking), NRC is currently evaluating the 1993 formula ;
j ' relative to 10 CFR 50.75(c). !
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- 1. State of Illinois, Department of Nuclear Safety /
' 1 "NRC should coordinate its efforts with public utility commissions (PUCs) to the extent PUCs PbA ;
continue to have rate setting responsibilities which include provisions of funds for nuclear power !
plant decommissioning." !
Specific Comments !
Restructuring of Deregulation Scenario )
i Cost of decommissioning should be responsibility of licensees not Federal or state treasuries. ,
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When Does an Operator Cease to Be a Utility Commenter suggests allowing flexibility for assurance options.
Impacts l As NRC obtains additional experience with decommissioning, it should validate financial i standards in Part 30 Apps. A and C. j NRC should allow use of parent company guarantee in combination with other allowable !
assuranco methods.
Continue to require NRC's written approval for transfers of licenses. )
1 Financial Test Qualifications -l NRC should allow parent company guarantees in combination with other allowable methods, such as an extemal sinking fund.
Reportina on the Status of Decommissionina Funds Supports the periodic reporting.
- 2. State of Florida, Public Service Commission
{
- Basically support proposed rule amendments but, several areas of the rule could be clarified.
Definition of
- Electric Utility" Clarify definition such that NRC indicates that it does not intend to infringe upon State l ' ratomaking authority.
i L Further suggest revising the proposed $ 50.75(e)(3) as follows:
For an electric utility, it; r%n mu;t b; ;u%;;ent to res;;;r th; eed of th; ;;;dr;;;ty it
,;r.;r2;;, tren;m;;;, or J:. , t;;. Then id;; mu;t b; ;ddEf.ed by ; rege':teri
- s'her;ti ;u;h th;t they ;;; ;u5;;ent 'cr th; :;;en;;; to epci%,,, in; .t;:n, and l
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2 decommi33;cn its piar,t safc!y. Tihe Commission reserves the right to. .
Definition of "Non bvoassable Charoej" Charges imposed by a governmental authority which (are) associated with operation, maintenance, and decommissioning of a nuclear power plant.
Proposed definition could be interpreted that a non-bypassable charge is required to provide recovery for "all" categories of costs (operation, maintenance, and decommissioning). Also,
" costs" relate to those prudently incurred. Further, the non-bypassable charge is not required to recover "all" categories of costs, e.g., a PUC could decide that O&M costs should be market driven.
Periodic Reoortino Recuirements Annual reporting requirement could be construed to relate only to plants within five years of the j end of their operating licenses, not that the projected end of a plant's operation includes premature shutdowns before the end of operating license.
1 Require licensees to submit reports to their respective State regulatory authorities. )
- 3. Lynne Goodman Definition of" Electric Utilitv"
- 1) If a licensee covers decommissioning costs through rates or regulatory fees, but covers operation and maintenance costs through market sales, is it considered an electric utility for decommissioning purposes c, only part of an electric utility? If only part, willit need to use something 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 licensee should be considered a utility for decommissioning funding purposes.
- 2) If collection of decommissioning funds is fixed, but cost estimates or earnings rate fluctuate, will a proportional part of decommissioning funding need to be covered by other than a s, inking fund if the analysis in any year shows the collection will not be adequate? This appears to be contrary to philosophy of the proposed rule in which detailed analysis is done as permanent shutdown approaches.
- 3) If reasonable assurance exists that all or most decommissioning costs will continue to be collected, a licensee should be able to use a sinking fund. If other methods are used, costs will increase and plants will close prematurely.
l Credit for Eaminos on Decommissionino Funds l
l Licensees should be able to take credit for actual earnings for current and past years since
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j- collection and up to 2% for future years.
l NEl Comments .;
I .i l Agrees in general with NEl comments'. ;
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j 4. Southern California Edison )
l 1 i While they support NEl's comments, these comments supplement NEl's. I NRC should provide guidance during the restructuring so regulatory uncertainty doesn't impede
- l. market transition or the viability of nuclear generation. l l
- l. Recommends new approach to decommissioning funding assurance l A. NRC shouldn't use " Electric Utility" to identify decommission funding assurance as there will be fewer traditional vertically-integrated electric utilities owning nuclear generating facilities.
Reliance on term " electric utility" unclear. NRC should separate its requirements for decommissioning funding assurance from its definition of
- electric utility" and from its financial qualifications requirement.-
"The decommissioning funding obligation is a ratepayer responsibility separate from recovery of operating costs."
Cost of electricity through rates should not be the focus of NRC definition. The appropriate test should be one of reasonable assurance of recovery of decommissioning funds only. Proposed rule should adopt a test of reasonable assurance of decommissioning cost coverage.
Use NEl's definition of " qualified nuclear entity" in place of " utility." QNE has 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 . Board of Directors /Govemors if public power entities;
- Decommissioning is funded through a binding contractual agreement with another party to 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.
Unlike NEl's definition, Edison proposes that the party which provides the unfunded balance meet one of the first two criteria of shall meet reasonable financial criteria such as a self-guarantee.
B. New mechanisms should be made available to non " electric utilities" requiring additional l
decommissioning funding assurance:
- Parental guarantee from a parent meeting criteria for self-guarantee
4 Self-guarantee for licensees meeting at least two of the following:
Licensee has an investment grade bond rating, Licensee's pre-tax income before interest expense divided by interest applicable to debt must be greater than or equal to 2.
Licensee's net worth must be at least twice the current remaining unfunded cost of decommissioning in 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 cornpany , or parent company, assets equal to twice the unfunded decommissioning obligation.
Case-by-case licensee-specific proposals to assure decommissioning funding that have been reviewed and approved by NRC indicating reasonable assurance of decommissioning funds.
Unlike NEl, Edison proposes specific financial tests. Such criteria could be developed in a Reg Guide rather than in the rule.
C. If rule retains " electric utility," rule should include utilities that can recover only decommissioning costs through a no-bypassable charge. i Proposed rule allowing a " partly" electric utility requires clarification. Proposes following to definition of " electric utility."
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.
II. Assumed 2% real rate of return may allow utilities to become under funded, as it does not take into account the effect of income taxes.
Ill. Support the reporting requirement, but not FASB No.158-B, because it is not yet final. l l
- 5. Florida Power Corporation l Disagree with some of NRC's proposed changes.
Definition of " Electric Utility" .
1 Current and proposed definitions are outdated and should be abandoned. Use NEl's " qualified nuclear entity." NRC should develop financial criteria such that those non-qualified nuclear entities could cover decommissioning costs through an external sinking gnd.
Since restructuring is still evolving, keep rule broad, and place detailed criteria in a reg guide. l Flexibility is key.
Explains benefits of NEl approach of " qualified nuclear entity" versus NRC's definition revision.
NRC should review the standards being developed by credit rating agencies and the financial
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5 investment community to assess the financial strength of a merchant power plant. '
NRC should issue a revised financial qualification test for licensees prior to issuing a final rule. ,
if NRC keeps proposed definition of" electric utility," NRC should revise it First, long-term l power sales agreements should be considered a utility for purposes of decommissioning l
funding. By deleting " indirectly" from the definition, NRC would unduly restrict licensees from
- competing in the open market without any material public health or safety benefit. Second, the proposed revision raises issue of the sufficiency of rate regulation, i.e., " operate, maintain, and decommission the plant safely," not previously required. Also, decommissioning funding should be separate from operation and maintenance funding. Therefore, they suggest deleting
" operate, maintain" from the proposed definition of " electric utility."
1 Reoortina Reauirements and Rate of Return Credits Commenter supports both proposed revisions. i Recouoment of Decommissionino Costs in a Restructured Environment !
1 l Strongly supports NRC position to consult with various State and Federal Agencies. Further, I l
NRC should recommend to PUCs to continue to allow recovery of decommissioning costs through some non-bypassable mechanism. If PUC should not allow recoupment, NRC should allow accelerated funding prior to deregulation.
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- 6. Illinois Power Company l
Definitions l
" Cost of Service Regulation" should account for possibility of " partial" cost of service regulation. j
" Electric utility" definition O.K., but not meeting the definition should not place licensees to fall under the same requirement (10 CFR 30, Appendix C, assets of 10 tirnes current i decommissioning estimates) as non-power reacters. The 10 times value should be lower.
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" Federal licensee" Commenter believes that all licensees should operate under the same requirements.
l "Non-bypassable charges" definition is OK except for the words " governmental authority."
Perhaps " regulatory authority" is better as used in definitions of " cost of service regulation" and
" electric utility."
Other Prooosed Chances l Proposed modification to Sec. 50.43(a) is practical.
- Proposed modification to Sec. 50.54(w) is needed for consistency in terminology due to
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i l proposed change in " electric utility."
l Proposed modification to Sec. 50.63(a)(2) is needed for consistency in terminology. ;
l Proposed modification to Sec. 50.73(b)(2)(ii)(J)(2)(iv) is needed for consistency in terminology. l i
( Proposed modifications to Sec. 50.75(a), (b), (d), (e), and (f) are positive to both customers and l licensees according to the commenter. However, the specified real rate of. return may be too l rigid. They suggest wording "...using a rate not to exceed 2 percent annual real rate of retum."
With respect to the proposed reporting requirement, the commenter states that the NRC has sufficient protective measures in 10 CFR 50.75, " Reporting and recordkeeping for l decommissioning planning," C.3d of 10 CFR 140.15, " Proof of Financial Protection," and 10 1
CFR 140.16," Commission Review of Proof of Financial Protection." But if a licensee no longer meets the definition of " electric utility," additional reporting requirements could be justified.
Further, there is no technicaljustification of adding safety for reporting requirements within 5 years of decommissioning. Commenter proposes a report containing less information every 5 years. Suggest adding words " Major changes (with definition) must be reported within 2 years." They also point out the problem of some PUC's also requiring reports which could result in 2 different reports needing to be prepared for basically the same information. Suggest getting around this problem by adding the words in 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."
i 7. Entergy Operations Inc.
Supports comments from NEl and the Utility Decommissioning Tax Group.
l Definition of " Electric Utility" If a licensee fails to meet the proposed definition of " electric utility," the licensee will have to meet the requirements of 10 CFR 30 Appendices A and C, which were developed for materials licensees. This would result in a significant financial burden for the reactor licensees.
FASB Standard Because the standard is not final, the final version may not be suitable for meeting the NRC's requirements.
l FASB standard exposure draft focuses on recognizing the liability and periodic expense for l decommissioning. Commenter does not believe the standard is appropriate with regard to
! adequacy of funding unless the finalis different from the exposure draft.
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- 8. Public Service Commission of the State of New York
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, NRC should not attempt to locx States into a particular ratemaking method or dictate levels of cost recovery. NRC incursiorit nto State regulations would be not only needless, but unlawful.
Definition of " Electric Utility" Proposed definition infringes on State ratemaking by limiting the definition to companies that recover "the cost of this electricity," including operations and maintenance costs, through cost-based rates or non-bypassable charge. Commenter proposes definition should be "any entity that generates, transmits, to distributes electricity."
Commenter does not oppose proposed funding mechanisms to cover non " electric utility" licensees' decommissioning costs.
Definition of "Non-bvoassable Charae" Proposed definition is not necessary and problematic in its reference to " operation" and
" maintenance" costs. Proposed 50.75(e)(3) makes reference to recovery of operation and maintenance expenses.
PSCNY claims that their on-going activities in the decommissioning cost area as they relate to deregulation should not result in the NRC attempting to preempt the State of New York's authority.
Point i NRC should not attempt to preempt State efforts as they relate to decommissioning. NRC does not have the statutory authority to preempt the States' rate treatment of nuclear decommissioning costs. The treatment of particular costs are intermediate steps to the development of actual retail rates, the domain of State commissions.
Point 11 NRC should work with the States on decommissioning funding during and after deregulation.
NRC's concern that States will not have the authority to assure decommissioning funding during and after deregulation is unfounded. 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. NRC and States should work collaboratively to assure that adequate funding for nuclear decommissioning is available.
Point lli NRC should consider additional steps that would assure funding for nuclear decommissioning costs through changes in bankruptcy code provisions. Current bankruptcy code does not explicitly create a priority for nuclear decommissioning costs. NRC and States should consider proposing legislation that would amend the bankruptcy law to expressly require payment of nuclear decommissioning liabilities over other creditors.
NRC should not upset the Federal balance of nuclear regulation, but seek collaboration with States.
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Appendix A i Comments on the Issues Raised in the NOPR A. Timing and extent of Electric Utility Industry Deregulation
- Agrees that NRC must act now. NRC should expect its licensees to develop innovative j l methods for making the nuclear option profitable in a competitive environment, without reducing i
! safety margins. NRC regulation should enable the nuclear option to compete without sacrificing ;
l- safety, and allow uncompetitive plants to retire on a least-cost basis. .;
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NRC not empowered to resolve issues related to stranded, sunk, running, or decommissioning costs where the solution involves electric rates. ,
,. C.1 Funding Assurance if Plants Shut Down Prematurely l PSCNY believes that rate regulators are in the best position to evaluate the reasonableness -
and best method of collecting such funds.
l C.2 When Does an Operator Cease to be a Utility Commenter agrees that responsibility for ensuring that decommissioning funding of non-
" electric utilities" rests with NRC. However, State regulatory commissions are the best evaluators of the reasonableness of operation and maintenance costs for " electric utilities."
NRC proposes that licensees may be considered an " electric utility" for fractional parts of their
, decommissioning costs. Result is licensees may no longer have an opportunity to recover decommissioning costs through cost-of-service regulation or a non-bypassable charge.
l C.3 Assurance Options
- l. Commenter assumes that NRC means that ratepayers would be responsible for no more than l prudently incurred decommissioning costs, as opposed to "all ... decommissioning obligations."
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C.4 Financial Test Qualifications -
Commenter reiterates what NRC proposed l
C.6 Impact on Accelerated Funding Commenter is considering recovery of nuclear decommissioning costs through non-bypassable
- charges, a process that would presumably satisfy the NRC's decommissioning funding concems, and to attempt to optimize the market value of nuclear plants in an auction.
' NRC's standard for decommissioning funding assurance should not be applied to other non-4
" electric utility" licensees for adequate funds for safe operation. " Electric utility," as proposed, o
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i 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 I charge. If adequate revenues are not available from the competitive market to cover nuclear '
power plant " running costs," the licensee has the option of closing the plant.
C.7 Potential Shortfalls from Underestimates of Costs l t
i j~ 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 f i options for financial assurance of decommissioning that the NRC should consider? l
$ . Commenter does not oppose the four proposed mechanisms.
E.1 Real Rate of Retum See comments under C.7. j E.2 Appropriate Time Period i
See comment under C.7. !
F. Reporting on the Status of Decommissioning Funds '
- NRC should avoid duplication of State requirements. Commenter also lists its present reporting requirements. i F.1 Contents t if FASB standard is not adopted in a timely manner, other reporting requirements may need to be imposed in the interim.
F.2 Frequency Agrees with the proposed annual requirement.
- 9. - Utility Decommissioning Tax Group Comprised of 38 nuclear electric utility companies and 29 trust companies of investment ;
management / consulting firms involved in the administration and management of extemal i nuclear decommissioning trust funds.
Views the proposed definition of " electric utility" as a " positive change."
\
NRC should note the possible situations in which licenses which meet the present definition l, may no longer meet the proposed definition and should allow adequate transition time for
I
'10 legislative or regulatory changes to accomodate the new definition of " electric utility."
NRC should evaluate licensees on a case-by-case basis and offer a variety of mechanisms by l- which financial assurance requirements may be satisfied.
Commenter supports the proposed two percent real rate of retum on funds.
Definition of "Non-bvoassable Charce" <
Commenter proposes word change in definition from "... operation, maintenance, and decommissioning ..." to "... operation, maintenance, or decommissioning . "
l Bate of Retum
. In general, commenter supports the proposed rate of return. However, they urge NRC to permit greater flexibility and conformity with ratemaking determinations by allowing a different rate of retum throughout the safe storage period if specifically approved by a rate setting authority.
Reoortina and Recordkeenino for Decommissionina Plannina _
Commenters suggest that allinformation 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 the NRC.
- 10. Public Systems Group Potential rule 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.
- l. Decommissioning Assurance Requirements for Non-regulated Entities A. The Proposed Requirements for Non-regulated Entities May Impede Transactions that are Essential for an Effective Restructuring of the Electricity Industry Commenter is concerned that the proposed rule's interest in the possibility of regulated utilities spinning off their nuclear generation assets to unregulated enterprises (that are thinly capitalized and that might go out of existence without having provided for decommissioning costs) would inhibit transfers to more substantial, well-capitalized entities.
The transfer of poorly performing plants to more capable and efficient operators should be encouraged by the NRC. Proposed rule would be a hindrance to such transfers.
NRC should deal with the transactions on a timely, case-by-case basis, not erect barriers to them.
l 11
- 8. The Commission Should Investigate a Government-Sponsored Insurance Plan for Decommissioning Costs i
Commenter is skeptical about the availability of alternative funding methods (e.g., surety bonds) l that the NRC claims could be used by unregulated entities to meet the up-front funding l
obligation. There is uncertainty as to whether an insurance product or a surety bond could be '
l procured to secure a non-electric utility's share of decommissioning costs. NRC should ascertain the availability of such instruments before finalizing a rule based on the assumption of their availability.
Commenter proposes the creation of a government-managed decommissioning insurance plan, in which a licensee could purchase from the govemment a surety bond or insurance policy of the sort that the NRC seems to assume may be purchased on the open market. Cost of the instrument could be tied to a plant's performance history or SALP rating.
C. The Commission Should Take Steps to Avoid Possible Double-Charging l Minority owners of nuclear power plants may also be transmission-dependent utilities. The result would be that minority owners rely on transmission over the system of the majority owner, or other utilities. If the minority owners are directly funding their own share of decommissioning costs while a;so paying a portion of another owner's costs through a " wires charge," the minority owner is being double-charged for decommissioning. Licensees should be required to let the NRC know that there are no such double charges occurring.
D. The Commission Should Clarify its Position on Joint and Several Liability Commenter agrees with NRC's decision to refrain from seeking to impose joint and several liability for decommissioning costs. However, it is not clear how NRC's comments on " joint and several" in the statement of considerations (SOC) in the proposed rule are reconciled with the NRC's statements in its Final Policy Statement on electric industry restructuring. The latter states that the Commission " reserves the right, in highly unusual 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." Commenter believes that the reservation could be in conflict with the NRC's broader rejection of joint and several liability contained in the SOC, Commenter seeks a clarification of NRC views on this issue.
II. Trust Fund Earnings Credit for Extended Safe Storage Period Commenter believes proposed crediting of fund eamings is reasonable and consistent with FERC policy of recognizing both earnings and inflation. A 2% real rate of retum seems reasonable and perhaps even conservative. NRC should clarify that a lower rate may be used if desired by a licensee.
l l
l 111. Reporting Requirements for Decommissioning Fund Status i
f I ;
12 I
! Commenter supports the proposed reporting requirement. Especially appropriate since FERC and the PUCs have not been active in monitoring fund status on an ongoing basis. However, the periodic reports should be made available to all interested parties. Therefore, NRC should
- require that a licensee's reports be made available to the public, or, at a minimum, to other co- ;
l licensees of the same plant. '
Not clear if proposed rule requires individual licensees of a jointly owned plant to submit their own status reports or whether the plant operator can submit a report on behalf of all co-licensees. May be more efficient for the operator to provide data for all owners of a multi-owner plant.
IV. Conclusion Commenter supports NRC efforts, but parts of the proposed rule need to be modified it l appears that the NRC's proposed rule has the impact of limiting nuclear plant ownership to electric utilities having cost-of-service rate recovery. Commenter calls that notion antiquated and not realistic. Good public policy is transferring " problem plants."
- 11. Illinois Commerce Commission i
Revision / clarification of 6 50.75(f)(1)
Suggest reviting proposed reporting requirement so that last sentence of noted section would I l read: "Any licensee for a plant that is within 5 years of the projected end of its operation or !
j where conditions have chanced such that it will close within 5 years (before the end of its licensed life) or has already closed (before the end of its licensed life) shall submit such a report annually." (Underlined portion would be added.)
This is to require the annual reporting to begin if a plant is prematurely decommissioned.
? ,
L Revision / clarification of $50.75(e)(3) l Commenter's position is that proposed language in first two sentences of 650.75(e)(3) conflicts l
with proposed definition in 650.2. They state that "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. Therefore, they suggest the following to
, $50.75(e)(3):
l For an electric utility, it; r;ts mat b; ;u";;st to rec =r the set of th; ;lstr;;ty it i g;;;;;;;;, ti;n;mlt;, 0- dl;...R.t;. R.;n i;.t; mst b; s%blbh;d by ; r;;;l:Ori
- uther;;y ;uch th;; they are ;;";;st for th; ; ban; t; eper;;;, m;b%b, and l
} desar;'nb . it; pbat uf;ly. T;he Commission reserves the right..." ;
L 12. National Association of Regulatory Utility Commissioners (NARUC)
.____m. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ . - . _ _ . . _ _ . . _ _ _ . _
l3 Commenter supports the NRC's decision to reconsider its regulatory policies in response to deregulation.
Commenter submitted comments in response to the ANPR and was pleased to note that the proposed rule is generally consistent with their recommendations.
Revision / clarification of $50.75(f)(1)
Annual reporting requirements should also begin if a nuclear generating plant is prematurely decommissioned. (Did they mean shut down?) Modification to proposed $50.75(f)(1):
"Each power reactor licensee shall report ... Any licensee for a plant that is within 5 years of the projected end of its operation or where conditions have chances such that is will close within 5 years (before the end of its licensed life) or has already closed (before the end of its licensed life) shall submit such a report annually."
i
- Revision / clarification of $50.75(e)(3)
Commenter's position is that proposed language in first two sentences of $50.75(e)(3) conflicts with proposed definition in $50.2. They state that "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. The language proposed by the NRC implies that rates must by established by a regulatory authority such that a licensee can operate, maintain, and decommission its plant safely. Therefore, they suggest the following to
$50.75(e)(3):
For an electric utility, it; its rnu;t b; ;;";;;ent i; recev;r th; ;;M Of th; ;l;Mr;;;ty it generds, ti;n;mb, or d:Mr;but;;. Then ids mu;t ba ;M;bShed by ; regul:ter/
- uther;ti ;uch thd they ;;; ;;";;;;nt f;r th; %;nx; t; sperd;, m;
- nt; n, ;nd deesmm:n en it; pl;nt nf;'y. Tihe Commission reserves the right..."
- 13. Utility Decommissioning Group and Niagara Mohawk Power Corporation I. Definition of " Electric Utility" Commenter believes proposed definition is too narrow. SOC states that "...a licensee other than an electric utility, would need to comply with the decommissioning funding assurance requirements of $50.75(e)(2) unless that licensee can otherwise demonstrate a govemment-mandated, guaranteed revenue stream for all unfunded decommissioning obligations,"
Commenter notes that NRC regulations have never required a " guarantee" of availability of decommissioning funds, but rather " reasonable assurance" of such availability.
Commission should reconsider its dismissal of the possibility of some sort of PUC or FERC certification as a basis for retaining or achieving " electric utility" status. The underlying l
l
t i
14 regulatory standard is " reasonable assurance," and the various tests built into the rule (e.g., in ;
the definition of " electric utility") should be no more stringent than the underlying standard. 1 i
l Commenter states: "The proposed rule commentary suggests that securitization of a licensee's i
interest in ' irrevocable, non-bypassable' charges may be an acceptable methcd of providing i decommissioning funding assurance... This seems to suggest the mere existence of a i licensee's entitlement to such irrevocable, non-bypassable charges may nQt be sufficient 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 proceeds l to decommissioning funding. This result seems inconsistent with the basic tests proposed in j the definition of ' electric utility,' as set forth above, which, if met, would to (sic) allow a licensee i to avoid up-front funding."
l l NRC should allow for case-by-case approval of decommissioning funding arrangements.
! Specifically, a licensee should be able to demonstrate that ample safety margins exist following I
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 shutdown.
l Commenter states that regulatory circumstances may support continued " pay-as-you-go" funding could include mandated or allowed stranded cost recovery for decommissioning costs, 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 l
assurances that nuclear decommissioning costs will continue to be funded. Examples include self-guarantees, parent or affiliate guarantees, or other tests of the financial strength and prospects of the licensed entities, such as ownership of other revenue-generating assets.
Essentially, NRC should consider other regulatory arrangements or economic showings that l
can provide an alternative basis for assuring funds for decommissioning.
Commenter believes that NRC should add language to the rule to indicate 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 nQt subject to decommissioning i obligations.
Group endorses NEl comments encouraging more flexibility for demonstrating reasonable
- assurance of availability of decommissioning funds. Further, commenter endorses NEl proposal to use a term other than " electric utility" for decommissioning funding purposes.
II. Commission Discretion to Require Alternative Funding Accumulation Rates Proposed $50.75(e)(3) is troublesome in that it could result in inequitable regulatory treatment among licensees. This is because NRC could impose requirements on a case-by-case basis.
j Commission should delete proposed language or develop more specific requirements or guidance to ensure that this provision cannot be applied inadvertently in a manner that results ;
- in inequitable regulatory compliance. Further, this proposed amendment should be in $50.75(c) !
- which deals with the amount of required decommissioning funding, not $50.75(e)(3) which l
1
,- , , - - , - _ , , ._ . , ~ ,, . - . .
I a
l 15 !
l deals with methods for providing decommissioning funding assurance. j lli. Alternatives for Non-Electric-Utilities to Providing "Up Front " Assurance l
The new 'non-utilities' would be forced to comply with Part 30 requirements which would result i in problems for these licensees. NRC should consider all reasonable attematives for ;
l demonstrating financial assurance for decommissioning. ,
IV. - Premature Shutdown .
i l Commenter agrees with NRC approach of not mandating accelerated decommissioning funding j L ' in cases of premature shutdowns and relying on a case-by-case approach. ,
l I
V. Joint Liability for Co-owners /Co-licensees .
~ Commenter agrees with the NRC's proposed position of no change relating to joint liability.
VI. Insurance Pool ]
Commenter agrees with the NRC position of eliminating the proposal of a captive insurance pool to pay unfunded decommissioning costs.
Vil. - Reporting Requirements l Commenter supports the proposed requirement, but cautions NRC that any reporting _
L requirement should draw upon and not extend beyond licensee's current reporting obligations to other entities. NRC should not impose new or duplicative reporting requirements.
Vill. Credit for Eamings l~
Text of the proposed rule should be revised to indicate that a real rate of return higher than 2 l percent may be used if such a rate is approved by a rs,te-setting authority. Rule should be clarified that this 2 percent rate can be adjusted higher during the entire period from the time of the funds collection through the decommissioning period.
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- 14. Nuclear information and Resources Service (NIRS)
- 1. Lack of enforcement of current NRC regulations with regard to a nuclear power station owner who defaults on decommissioning finance obligations sets a bad precedent for j the future.
- The NRC has granted a series of exemptions to Great Bay Power, a non-utility owner of Seabrook. Commenter believes this sets a bad precedent. Further, the proposed rule change does not adequately address the need for shared responsibility by joint owners to cover a co-owners default of it decommissioning iinancial obligations. A specific requirement forjoint I
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- a
. ~_ -. . .- -- -_ .. _ - _.. -
16 coverage is needed for the additional assurance that the public health and safety will be prioritized by the availability of adequate funds for decommissioning. Since construction, operation, and maintenance of a nuclear power plant are all joint shared responsibilities, so too should decommissioning. NRC's reluctance to address the issue of Great Bay's default is a
" regulatory obfuscation" on the part of the NRC.
II. Changing the definition of " electric utility" Commenter does not support the inclusion of any mechanism which provide for a stranded cost bailout of the nuclear industry. Such a bailout would destroy real competition, inhibit employment gains, and the economic growth of allegedly more viable cost effective 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 shut down to continue.
Ill. Reporting requirements Commenter believes annual reporting would be preferable because of the projected number of nuclear power facilities that would experience premature shutdowns.
IV. Timing of the rulemaking Proposed rulemaking is necessary and timely.
- 15. Southern Company Commenter agrees with NEl comments.
Public power agency licensees should have the same decommissioning funding security requirements as those of investor-owned licensees. Public power agencies should be deemed to 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 of investor-owned licensees.
Commenter proposes that the definition of " Federal Licensee" should be modified to:
" 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."
Commenter states that phrase used in proposed definition is neither defined nor commonly used in other legislation relating to Federal agencies.
- 16. Great Bay Power Corporation Commenter states that the proposed definition of " electric utility" could result in the premature shutdown of nuclear power plants with insufficient funds set aside to pay for their
i P
! l7 i decommissioning. Also, for the NRC to require existing licensees to provide financial l assurance through mechanisms it knows are unavailable, thereby causing premature plant !
shutdowns, would be arbitrary and capricious agency action under the Administrative '
Procedure Act. Further, as a matter of fairness and to avoid triggering the very result that the >
NRC seeks to avoid, as well as avoiding agency action that would be declared arbitrary and capricious, such entities should be allowed a reasonable extended period of time to prcvide adequate assurance of decommissioning funding.: Lastly, any rule promulgated by the WtC :
should retain sufficient flexibility to allow such State initiatives or similar initiatives net expressly ,
contemplated by NRC rules that ensure adequate decommissioning funding for nuclea power j
, . plants i l
, i I. The Commission Should Not Adopt the Proposed Rule as Drafted i l i l
A. Regulatory and Factual Background l Commenter presents a case that the NRC has " considered and treated" it as an electric utility l from 1986 to January 1997, even though NRC knew tha commenter sold power at wholesaie at market based rates established under the jurisdiction of FERC. But, under the proposed rule, 1 i the commenter would no longer be an electric utility and would be faced with the l
[ decommissioning financial assurance requirements of $50.75(e)(2). This would require the -
commenter to obtain surety bonds or similar third party guarantees which were not reasonably l available. Commenter has not been successful in its efforts to obtain a surety or similar third-party guarantee, but is continuing such efforts.
B. The Proposed Rule as Currently Drafted is Unsound Both as a Matter of Policy and as a
- Matter of Law l
L First, realizes that surety bonds and third-party guarantees are not reasonably available for l decommissioning funding assurance.
l Second, NRC never required surety or similar third-party guarantees of existing licensees, l which NRC considered to be electric utilities.
Third, none of the financial assurance mechanisms in 950.75(e)(2) may be reasonably 1 available. l j
' It is unfair for the NRC to now require what amounts to up-front funding for a licensee who l
. presumed that they would be able to set aside funds during the plants operating life. If j promulgated, could result in licensees being unable to remain in business.
! Implementation of the rule would result in an arbitrary and capricious action on the NRC's part.
The rule would leave existing licensees, who no longer would be deemed electric utilities, in an untenable position that would be unsound as a matter of policy as well as a matter of law.
II. Proposed Changes to Draft Rule for Entities Which No Longer Would be Considered Electric Utilities !
- )
i p :
I
i i
18- !
c Amend $50.75(e)(2) so that it is more flexible to take into account that individual licensees or States may develop satisfactory decommission funding assurance mechanisms that do not fall '
'within the categories of mechanisms provided for by the regulation. I A. Altemative Financial Assurance Mechanisms l Commenter advocates accelerated payment' schedule, as long as thbre is enough time allowed ;
- for the payments of the decommissioning funds into an extemal sinking account. If the time l period is too short, the large accelerated payments will put the non-electric utility at a competitive disadvantage. This could lead to the insolvency of the non-electric utility licensee, j a possible early closure of the plant and actually create the situation the proposed rule was 1
. attempting to avoid. 1 I
The ten year accelerated period referred to in the SOC is too short. It should be extended over j a period of time a'pproaching the end of the licensed period. l B. The Commission Should Amend 10 CFR 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 i l
NRC should be flexible enough to allow 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. Commenter proposes a new subsection in 10 CFR 50.75(e)(2):
(2) For a licensee other than an electric utility, acceptable methods of providing financial assurance for decommissioning are -
(v) Any other method or methods that provides reasonable assurance that adequate funds will be available to decommission the nuclear facility.
- 17. Three Mile Island Alert,Inc. (TMIA)
Commenter presents much history of the corporate relationships of nuclear power plant owners in Pennsylvania. (As an aside, commenter incorrectly states that NRC stipulates that all nuclear power plants are to be retumed to greenfield status.)
d Commenter states that history shows plants do not reach their predicted lives and therefore, licensees should plan for decommissioning based on the assumption that their nuclear units will be prematurely shut down. Further, commenter claims the licensees exacerbate this problem by refusing to put aside adequate funds for decommissioning.
Commenter reviews several generic challenges which they believe may lead to premature shutdowns. Commenter next states that there is no location to permanently store spent fuel
i I
19 generated by nuclear power plants. The result is a significant cost for decommissioning. !
Lastly, the commenter states that there exist inconsistencies with regard to low level radioactive l waste disposal that need to be addressed.
The commenter presents a legal argument as to why decommissioning costs are essentially imprudent. A conclusion presented is: "Given the uncertainty surrounding decommissioning, radioactive waste costs, unavailability of radioactive waste disposal facilities, and increased safety concerns surrounding nuclear plant operation, the prudency of the utility's decision to dedicate large amounts of capital to the nuclear venture are called into question."
The commenter's position is best noted in the following couple of passages: " Clearly, the rate paye should not be made to bear the brunt of expenses incurred by premeditated imprudent and speculative management decisions." While the commenter also believes that the electric industry is entitled to recover a portion of decommissioning funding through the rate making process, "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 profit from their investment decisions but are accorded rate relief when their imprudent and speculative decisions become uneconomical."
Further, the commenter states that " complete rate recovery on speculative investments such as
' stranded costs,' penalizes electric utilities . . which pursued a non-nuclear electric portfolio."
The commenter encourages NRC's adaption of PNNL's formula in regard to " stranded cost" rate recovery for the decommissioning cost of nuclear generating stations. The formula includes values for labor and materials, energy and transport, waste burial, and taxes and l insurance, with the costs to be indexed to any generic increases projected by the Commission.
- 18. TVA Watch Coalition Commenter supports comments submitted by NEl and eel.
The same decommissioning funding security required of investor-owned licensees should be required of public power agencies.
The proposed definition of " electric utility," does not appear to require public power 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 of itself, provide assurance of decommissioning funding.
The intent of the proposed definition of " Federal licensee" is appropriate, but ambiguous. The proposed language containing " full faith and credit backing" of the government is the problem.
Commenter proposes:
- 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."
- 19. Tennessee Valley Authority l
l
l 20 in general, commenter agrees with the NEl comments, and tt.3 proposed term ) alified nuclear ;
I entity.' Commenter believes methods acceptable under the QNE definition wo 6 include !
I tatters of intent for Federal Government licensees.
However, the commenter is against the revised definition of " Federal licensee" which would not l allow the use of a statement of intent. Further, Federal law requires TVA to adequately fund I
the conduct of TVA's power activities, which includes operating, maintaining, and decommissioning its nuclear facilities.
Commenter agrees to inform NRC about the status of its decommissioning funds in the same frequency as in the proposed rule.
In an attachment, commenter reiterates that WA is required by Federal law (Section 15d of the Tennessee Valley Authority Act of 1933,16 U.S.C. $@ 831-831dd (1994)) to provide decommissioning funds, hence, the question of whether the Federal government would pay the financial obligations of TVA is misplaced. Commenter also states that the TVA board is obligated by Federal law to set TVA's electric power rates in a manner that will produce sufficient revenues to meet all operating expenses, inciuding decommissioning.
Commenter also believes its new business plan will significantly further its ability to meet the
. challenges of the coming restructured marketplace.
- 20. Fourteen Utilities Commenter appreciates NRC's concern through this proposed rule, but NRC should not overreact by imposing requirements that are so restrictive that they impose unreasonable economic buroens on entities no longer able to qualify as electric utilities. NRC should allow deregulated licensees the ability to chose reasonable funding options (options that provide reasonable, not absolute assurance of funding).
- 1. The Commission Should Consider Additional Approaches Commenter believes that the public health and safety is better served by NRC assuring coritinued ratepayer funding than by establishing financial requirements that cannot be met.
Therefore, NRC should take actionc to require continued ratepayer funding, even in a deregulated market. Further, the NRC should consider this and other reasonable attemsus in the regulatory analysis to ensure that any new decommissioning requirements are reasonable, appropriate, and cost effective.
ll. The NRC Should Clarify the Scope of the Proposed Rule l
- The proposed changes are not limited to decommissioning funding requirements, but also affact I
the financial qualifications requirements for operations. The proposed definition of " electric utility" will affect the scope of financial qualifications review under $50.33(f) and thus establish a l
21 new test applicable to initial licensing, to transfers of control under $50.80, and to operating reactors. Therefore commenter believes the NRC's description of the rule is misleading and may result in interested parties not commenting on the proposed rule. NRC may wish to renotice the proposed rule, with a more accurate description and analysis of the changes, before preceding further.
Ill. The Proposed Definition of Electric Utility Should Be Revised NRC should not delete the phrase "directly or indirectly" from its proposed 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 owners. Commenter claims that NRC has traditionally held that such non-owner operators are
" electric utilities" exempt from the regulated rates of the owners who are contractually committed to pay the operators' expenses.
Further, NRC should revise its regulations to make it clear that the financial qualifications and decommissioning funding requirements are the obligations of licensed owners (sic). Where an operator has no ownership interest, that entity should not be liable for decommissioning funding and should not be subject to these regulations. Therefore, commenter recommends adding a new, third sentence to proposed @50.75(a):
"The funding of decommissioning is an obligation of the owner or owners of facilities subject to this Part, and applicants for or holders of an operating license for a production or utilization facility that provide operating services for such facility and have no ownership interest therein are not subject to any decommissioning funding responsibilities under these regulations."
Also, the commenter suggests the deletion of the phrase "such that the rates are sufficient to operate, maintain, and decommission its nuclear plant safely." from the first sentence of the proposed definition because it could invite challenges to the underlying sufficiency of the rates established by a regulatory authority. The result could be the NRC acting as an arbiter of a State ratemaking process.
Similarly, problems could result from proposed second sentence of the " electric utility" definition and the proposed definition for " cost of service." 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 a licensee's rate regulation. Commenter therefore maintains that the modifier "all" be deleted from the " cost of service" definition.
Lastly, commenter questions why the NRC is proposing to delete investor-owned utilities, including generation and distribution subsidiaries from the list of entities that may be qualified as electric utilities.
Commenter also suggests that the third sentence of the proposed definition so that it avoids I referring to " portions" of r is and instead states, "An entity whose rates are established by a regulatory authority by mechanisms that cover only decommissioning costs will be considered l to be an ' electric utility' with respect to its decommissioning funding responsibilities."
l
l 22 Commenter also believes that the definition of non-bypassable charges should be expanded to cover those instances in which State PUC's or other agencies establish mechanisms for recovery of such costs in lieu of assessing them as " charges," e.g., a decommissioning lisbility might be covered by State "securitization" legislation.
As a result of the above comments, the commenter proposes the following revised definitions.
" 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 or indirectly 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 decommissioning costs will be considered to be an " electric utility" with respect to its decommissioning funding responsibilities. Invester-owned utilities, including generation or distribution subsidiaries, public utility districts, municipalities, rural electric cooperatives, and State and Federal agencies, including associations of any of the foregoing, that estabiish their own rates, are included within the meaning of " electric utility.
" 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 those reasonable and prudent costs of providing electricity services, including a return on the
.nvestment required to provide such services.
"Non-bypassable charges mean those charges imposed by a govemmental authority i 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 funding mechanisms imposed or established by a governmental authority to provide for payment of such costs.
IV. The Proposed Changes to Section 50.75(e)(3) are Redundant and Confusing The first two sentences of the proposed 650.75(e)(3) should be deleted because: they are redundant and add nothing to the section, the term " electric utility" has already been defined, and they are confusing in this context by saying that for a licensee to qualify as an electric utility for decommissioning purposes, its rates must be sufficient for the licensee to " operate, maintain, and decommission its plant safely." Operations and maintenance should not be used as criteria for decommissioning funding. Further, this suggests that qualifying as an electric utility requi es a factual" sufficiency" review of a State's ratemaking decision.
V. The Financial Assurance Requiremsnts for Non-Electric Utilities Are Not Sufficiently Flexible to Accommodate Deregulation
@50.75(e)(2) should be amended to allow non-electric utilities more flexibility in establishing attemative financial mechanisms for decommissioning funding. The amendment should provide
. - _ _ . . - . - . -. - . -. = -.
l l 23 this flexibility in the parent company guarantee or self guarantee provisions of Appendices A l and C of 10 CFR Part 30. Commenter believes that amounts one to two times the estimated i decommissioning costs would be more than adequate as opposed to the present excessive amounts. l The same section should be amended to allow a licensee to use parent or self guarantees in l conjunction with other acceptable mechanisms. l Commenter also believes that accelerated funding is a reasonable possibility given the time period wculd not be too short. The time period should not be based on an arbitrary number of years but should consider the remaining operating license life of the plant, e.g., accelerated l funding might require accumulation of necessary funds weather within ten years or within 2/3 of l the remaining license term, whichever is greater.
Lastly, the commenter believes that the regulations should be amended to allow other mechanisms to be developed by a govemment authority to the licensees themselves and j approved by the Commission once reasonable assurance of decommissioning funding has i been established. !
VI. Rate of Return on External Sinking Funds Commenter claims the proposed 2 percent annual real rate of retum is inadequate and j inconsistent with NUREG/BR-0058, Rev. 2, which calls for a 7 percent real discount rate. Also in SECY93-167, the Commission stated that the 7 percent should be used unless there are unique circumstances where the regulatory analysis considers consequences in excess of 100 years, that 3 percent should be the discount rate used.
l
- 21. Nuclear Energy Institute (NEI) I in general, the commenter commends the NRC and agrees with portions of the proposed rule.
However, it is presently impossible to predict what types of ownership structures and arrangements will result because of restructuring. Therefore, NRC should develop a reg guide, l to go along with the development of the rule, to indicate the specific details of acceptable financial criteria.
With respect to the proposed definitional changes, the commenter introduces the term " qualified nuclear entity" and suggests no change to the existing definition of " electric utility" in 950.2.
Commenter states that " qualified" licensees should be able to use the external trust fund that i presently is only available to those entities meeting the definition of " electric utility." Also, the l commenter believes that licensees should be able to use combinations of acceptable methods of decommii sioning funding.
Rather than making non-utilities meet the criteria in 10 CFR 30, commenter proposes a three-tier framework.1. Funding options for" qualified nuclear entities." 2. Funding cptions for
~~
24 licensees that satisfy a new set of financial criteria. 3. A case-by-case review and approval by the NRC of other innovative funding options that would provide reasonable assurance that decommissioning will be funded.
The following is from the commenter's enclosure.
- l. General Principles Agree with NRC that: change is needed in MRC regulations because of the restructuring and deregulations of the electric power industry, decommissioning is a public health and safety issue, and t,here must be reasonable assurance that decommissioning funds will be available when needed,
- 11. The Qualified Nuclear Entity: A New Concept and Framework for a New industry Environment
- Industry Concems over the Proposed Definition of " Electric Utility" Commenter does not believe that the proposed term represents an accurate, appropriate, or acceptable classification at a time when industry structure is changing. Time is approaching when " electric utility" may signify only a regulated local distribution company with no direct ownership interest in generation.
NRC's proposed definition (which links or:eration, maintenance, and decommissioning activities) could resit in questioning the sufficiency of rates established by a regu!atory or rate-setting authority.
- Industry Proposals on " Electric Utility" Definition Commenter states that only in $50.75, " electric utility" be replaced with " Qualified nuclear entity." Present definition in $50.2 could remain unchanged and changed later if need be.
- Scope and Qualifying Criteria for a "Qualifiexi Nuclear Entity" '
A "QNE" must satisfy one of the following:
- 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; or
- Decommissioning is funded 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; or
- entity must have a binding contractual :Igreement with arother party to provide l reasonable assurance of the collection of its share of the unfunded decommissioning obligations.' If a nuclear power plant were sold, for example, commenter expects buyer ;
would assume responsibility for the decommissioning trust fund and any money already collected, receive a contractual commitment from the seller that payments into the decommissioning trust fund would continue over the remaining license term (or some T
- - < m v
25 agreed upon shorter term), and assume responsibility for decommissioning the plant at the end of its useful life.
- New General Framework for Financial Assurance for Decommissioning Proposed rule is too rigid and in some cases impractical. Part 30 financial tests were developed for materials licensees, not power reactor licensees. Commenter proposes the following three-tiered criteria: funding options for licensees that satisfy the criteria for a
" qualified nuclear entity," funding options for licensees that satisfy a set of new, standard financial criteria, and a case-by-case review and approval by the NRC staff of other innovative funding options. The details and criteria for the last two items would be contained in a reg guide. Industry is attempting to develop possible financial criteria. l
- Funding Options for a Qualified Nuclear Entity l
A licensee that meets the criteria of being a "QNE" could use an external sinking fund of any of the following: prepayment of the unfunded decommissioning liability, accelerated payments, a surety method as presently in @50.75, and other methods consistent with the provisions of the Atomic Energy Act.
- Assurance Mechanisms for Entities That are Not " Qualified Nuclear Entities" A licensee that satisfies a set of financial criteria (to be described in a reg guide) on a pro rata basis would be able to use an external sinking fund or any other method available to a "QNE."
If a licensee cannot meet the set of financial criteria, it would have the following options:
prepayment of the unfunded liability, accelerated payments for the unfunded liability, a surety method (including a corporate guarantee), or a case-by-case proposal to be reviewed and approved by the NRC.
In general, any financial tests considered today, may not be applicable in the future given the unforseen entities which may result under restructuring. Commenter suggests industry work with the NRC to develop appropriate and acceptable tests and criteria to be published in a reg guide. Result could be used to assist licensees in preparing and NRC in assessing the case-by-case submittals.
Ill. Combination of Funding Methods Commenter supports the proposal that a licensee should only be responsible for its pro rata share of decommissioning funding based on the licensee's percentage ownership in the power plant (s). Further, commenter "strongly" recommends that licensees be allowed to use a combination of methods for assuring the availability of decommissioning funds.
In the new environment, co-owners may be using diffenng mechanisms, so why shouldn't a single owner? The objective is to provide reasonable assurance that funds will be available for decommissioning.
i i
26.
p :
IV. Period for Reassessment and Evaluation !
Under current regulations, a licensee has 30 days to develop an NRC submittal that describes how funding for decommissioning will be assured if the licensee no longer satisfies a given !
criteria, e.g., QNE or electric utility; Commenter recommends the time period be changed to 180 days. Also, licensee should be permitted ti continue making payments into the !
- decommissioning fund until NRC rules on the altemative funding proposa!. ..
V. Separation of Financial Qualifications issues from Decommissioning
- Commenter believes that there should be no connection between assuring decommissioning funding assurance and financial qualifications for safe operations. Hence, this rulemaking
,e should focus only on decommissioning funding assurance,' and nat address safe plant l . operation, which is addressed elsewhere.
- VI. Reporting Requirements ,
l _ Commenter generally accepts the scope and frequency of the reporting requirement with some l caveats. Therefore, NRC should not endorse the FASB standard as it is still in draft form and
! - the final standard may not address what the NRC calls for. Commenter believes that the draft i
rule language does not need to be changed, but the draft reg guide should be changed to reflect options that will not add to a licensee's reporting burden by allowing the use of an ,
established form or process.
Vll. - Site-Specific Decommissioning Estimate i- Commenter believes that NRC should include a provision in the rulemaking that allows
[ licensees the option to develop and submit altemative site-specific decommissioning funding estimates that better reflect current industry practices and estimates for decommissioning. That
. is to allow lower as well as higher estimates than those presently in the regs.
. Vill. Separation of Raquirements for Financial Assurance for Decommissioning of Power j Reactors and Non-Power Reactors i
. Commenter recommends that 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. Commenter hastened to add that it was not proposing to change the criteria for non-power reactor licensees.
.IX. Tax-Related issues "Commenter encourages NRC to stress with Federal State and local economic regulators the L importance of collection of decommissioning costs in what are defined by the IRS as cost-of-service proceedir.gs.
. . X. ' Allowable Rate of Retum L
L
=
(. ,- : - . - - , .
b l f
27 -
l I
Commenter proposes NRC allow a higher rate of return than the proposed 2 percent value, if a licensee can justify such a rate to the NRC.
XI. Conclusion The industry restructuring is evo!ving ead whatever NRC proposes should have reasonable ,
l flexibility as well as predictability. )
l l 22. Carolina Power & Light Company (CP&L) l l
l Make the rulemaking as flexible as possible. Impacts on issues such as stranded costs, tax i
liabilities, and other significant financial issues must be understood and addressed. !ndustry is in the process of developing a draft guidance document for a decommissioning funding i framework that could be the basis for an NRC regulatory guide.
Proposed option still leaves licensees only the option of funding at the minimum.
Present decommissioning estimates in $50.75 are higher than the more recent PNNL studies.
Result is an unnecessary financial burden on the licensees. !
l Licensees should be allowed to submit lower than NRC-required estimates, not just greater than or equal to. l l
Commenter states tnat NRC should not wait for data from current decommissioning projects to l be analyzed. This could take years. Since ratemaking authorities allow electric utilities to fund at levels commensurate with their site-specific studies, the rule should allow utilities to fund accordingly rather than be caught between conflicting regulatory jurisdictions.
Definition of " Federal Licensee." Commenter believes that Federal licensees should be required to provide the same level of financial assurance as other electric utilities.
l t
Commenter against providing a specific funding schedule because it interferes with a licensee's business planning.
Commenter against the proposed reat rate of return. Urges NRC to allow licensees to determine and apply a " realistic rate of return."
Commenter notes that 650.75(f)(1) requires an annual report within 5 years of projected end of operation and that draft Reg Guide DG-1060 also requires annual reporting requirements under 950.75(b). Cornmenter asks if both requirements are necessary.
i
- 23. Pacific Gas and Electric Company (PG&E)-
Commenter states that the proposed definition of " electric utility" is unduly punitive and
- - -. -.- - -- -.--.- -.--.. __ - ~ . . - - - . -
i I
28 :
t i
restrictive in requiring rates to sufficient for licensees to operate, maintain, and decommission l l their nuclear power p! ants. For example, in California, licensees are assured of l l decommissioning costs in distribution rates on a non-bypassable basis and the costs of !
operation and maintenance will be recovered in the market prices after 2001. :
Since Califomia will allow decommissioning costs to be recovered fully through distribution fees, !
i the definition of " electric utility" should be changed to delete reference to the recovery of operating and maintenance costs as a definitional requirement. ,
Commenter notes that the proposed definition of " cost of service regulation" is too narrow and ,
may exclude type of " performance based" and " incentive" ratemaking adopted by some State j r ratemaking authorities. Propose adding the following to the definition: " Cost of service l regulation includes, but is not limited to, attemative forms of ratemaking which provide for a portion of costs to be recovered based on reasonable benchmarks and incentives for good l
performance."
- 1. Commenter states that the regulation that would allow an entity to be considered an electric utility for those portions of its costs covered by a rate-setting authority, should be modified so that a de minimis level is defined where the portion not covered is small (e.g.,
10%), then the entity would be considered an electric utility for the entire plant.
- 2. With respect to the proposed reporting requirement timetable, commenter states that it is desirable to report trust fund balances on a calendar year basis rather than some " odd" fiscal year. Therefore, rule should be changed to have the rule 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 made effective in the first three months of another year, the report should not be due that March 31 (first year), but should be due On March 31 in the second year.
- 3. Site-specific decommissioning cost estimates should be allowed. If not, the initial reports should not occur until the updates to the studies or revised adjustments to the factors have been completed. ,
- 4. Reporting requirement should be every 3 years, not every 2 as proposed (as long as not within 5 years of planned closing of operation.
- 5. Proposed rule should be clarified that the amount accumulated to the date of the report means the "as of" date, not the date of the report.
- 6. Report should only contain the amount of the' accumulated trust fund balances, given i NRC already knows plant size, age, type, etc. If NRC has concerns based the overview, then it L should require the more complete information as proposed.
l l_ 7. Reference to a funding schedule, assumptions of rates of escalation of L decommissioning costs, etc., may not fully recognize the complexities of decommissioning l
l 29 studies. Some utilities are multi-jurisdictional and prepare decommissioning studies at different dates for different utility commissions. Therefore, rule should require copies of reports filed with regulatory commissions, rather than a new report for the NRC.
- 8. Proposed NRC right to take action to modify the fund accumulation schedule should be subject to appropriate notice, hearing, due process, and appeal provisions.
- 9. Proposed reporting requirement to include any modification to licensee's trust fund agreement since the last submitted report appears to be excessive and unnecessary. Many revisions are very minor. If NRC decides to keep this provision, it should be changed to modifications that materially adversely impact funds for nuclear decommissioning. And the ;
existing trust agreements couid be available for inspection. j
- 10. Eight hour estimated burden for reporting requirement is an underestimate. Commenter believes that more than 100 hours0.00116 days <br />0.0278 hours <br />1.653439e-4 weeks <br />3.805e-5 months <br /> may be a more realistic estimate.
I
- 25. Commonwealth Edison Company (Comed)
- 1. Comed Generally supports the proposed rule. I A revision of existing financial assurance rules is necessary and timely.
Commenter supports the Commission's steps to introduce flexibility for licensees in meeting their decommissioning financial assurance obligations through the proposed definition of
" electric utility."
Commenter also supports the allowance of the assumed real rates of return approved by State
! regulatory bodies in setting decommissioning collections.
Commenter agrees that proposed new reporting requirements should be " minimally burdensome" for them because they will have to comply with the FASB standard when it is made final and they are already required to provide such information to the lilinois Commerce Commission.
Commenter concurs with the NRC position of rejecting comments calling for accelerated funding, up-front assurance, imposing joint and several liability, and the establishment of an
" insurance pool." These actions would have lead to the financial weakening of licensees and the possible premature shutdown and decommissioning of some plants.
- 11. Comed's Suggested Clarifications and Modifications to the Proposed Rule l
A. Changes to the Definition of " Electric Utility" and "Non-Bypassable Charge" Commenter endorses the NEl comments on the proposed QNE term, as it meets the commenter's objectives. However, the commenter proposes two modifications. First the NRC should make clear which sorts of "non-bypassable charges" are sufficient to maintain electric
1 1
30 utility status. Specifically, the proposed rule is not clear whether " wire charges, stranded cost or i transition charges, exit fees, and securitization are 'non-bypassable charges' within the meaning of decommissioning and financial qualification requirements. If the NRC decides to defer to State regulatory officials, the final rule should be clear in stating that a utility that collects costs through state-imposed mechanisms such as wire charges, stranded cost charges, securitization, exit fees, or piice cap regulation continues to qualify as an " electric utility" as to those costs.
The second proposed change would modify the possible case in which a licensee fully recovers all of its decommissioning costs through non-bypassable charges, but all of its other costs are recovered solely through competition. The proposed rule would require the licensee to comply with $50.75(e)(2) and 50.33(f) in this situation for funding requirements and financial '
qualifications review respectively. The commenter believes this was not the intent of the proposed rule, and as a result, the NRC should eliminate the possible misinterpretation.
Commenter proposes the following modifications to the proposed definitions: l Electric utility means any entity that generates, trancmits, or distributes electricity and .
cost-of-service ratemaking or similar ratemaking. including orice-cao or incentive regulation. or indirectly through another non-bypassable mechanism (includina but not limited to. wire charaes. stranded cost charaes. transition charaes. exit fees. other I similar charges. or the securitized oroceeds of a revenue stream). Any entity whose j rates are established by a regulatory authority by mechanisms that cover only a portion I or discrete categorv of its costs will be considered to be an " electric utility" only for that i portion or cateaorv of its costs..
Non-bypassable charges means those charges..., and or decommissioning of a nuclear power plant. Such charges include. but are not limited to. wire charges. stranded cost charges. transition charaes. exit fees. other similar charges. or the securitized oroceeds of a revenue stream. Affceted individual; and entitics would be required to pay those charge; over an established time period.
B. Real Rate of Return NRC should clarify its proposal of allowing the use of State approved rates from the time of funds' collection through the decommissioning period, but not during the safe storage period.
Commenter believes that there is no basis to distinguish between the pre-decommissioning period and the safa storage period.
- 26. New York Power Authority l
Commenter supports the NEl comments including the substitution of QNE for " electric utility,"
the criteria for inclusion of public power er:tities in such category, and the assurance mechanisms necessary to demonstrate financial ability to decommission a licensee's facility.
l
l L l
- 31. i If the concept of " electric utility"is retained, the definition should be modified to the following:
i i Electric utility means... Public utility districts, municipalities, rural electric cooperatives, and other Local. State and Federal governmental entities. including associations of any of the foregoing, that establish their own rates are included within the meaning of
" electric utility." f With respect to the rate of return, commenter believes that the NRC should allow licensees to !
take credit for any rate they can justify. Any quoted figure should be a default rather than a ceiling and 3 percent is more reasonable than the 2 percent contained in the proposed rule.
Commenter suggests modification to the proposed $50.75(e)(ii):
1 ;
(ii) Extemal sinking fund... An extemal sinking fund is a fund established and maintained l l by ... A~ licensee may take credit for earnings on the extemal sinking funds using a 2 ,
percent annual real rate of retum from the time of the funds' collection through the l decommissioning period, unless the licensee can demonstrate that the use of another rate of retum in coniunction with oeriodic reevaluation of the funds collected will orovide l similar assurances or the licensee's rate-setting authority does not authorize the use o i another rate.
l 27. Florida Power and Light Company (FPL)
Commenter endorses NEi comments.
f With respect to the proposed allowed real rate of retum of 2 percent on decommissioning - t funds, the commenter cites the 7 percent rate by NRC in NUREG/BR-0058, and states that a ,
higher rate should be used in the final rule. !
. 28. Duke Power l
Commenter generally agrees with the comments of NEl and the Utility Decommissioning Group. !
i Comment 1 _
Commenter states that the proposed " government-mandated, guaranteed revenue stream" is l onerous and licensees should be allowed the provision of showing a private contract or !
contracts as adequate decommissioning funding so that $50.75(e)(2) should not apply. l r
Comment 2 !
ll Definition of " electric utility" appears to require operating and maintenance costs to be I recovered through " traditional cost of service regulation or indirectly through another non- :
l bypassable charge mechanism." As long as decommissioning costs are assured, there is no l l need to provide additional advance funding for O&M ' costs that may be obtained through market j j clearing prices.
1
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32 L Comment 3 ;
Proposed reporting requirement of once every 2 years is too often, once every 5 years is often enough. Also, the 5 year period coincides with the recommended 5 year adjustment to site -
specific cost estimates in NRC Reg Guide 1.159.
- 29. Virginia Power.
Generally endorse the NEl comments. .
"The Proposed Rule, with certain caveats, is an admirable attempt to add flexibility to the regulations by broadening the definition of ' electric utility.'" ;
Secrecation of Costs ;
Commenter states that the proposed definition of " electric utility" implies that a company's ;
decommissioning cost obligation must be segregated in at least two different dimensions. One l involves revenue source for decommissioning cost recovery, the other deals with the sufficiency of the revenues to cover costs to operate, maintain, and decommission the plant.
With respect to the former, commenter believes that the proposed definition of " electric utility" be expanded to include contract customers as a basis for licensees' use of a sinking fund. As
, an example, the commenter points to its sales to non-jurisdictional customers, including State and local facilities, e.g., universities, and the Federai govemment, including military installations. Rates for these sales are negotiated and not set by regulatory authorities, but commenter believes that it should not be treated as a non-electric utility for these types of sales. If the recovery of decommissioning costs through a non-bypassable charge mechanism or other regulatory and/or contractual provision does not .,ome to pass, then (as opposed to ,
now) the ' utility'should need to rely on the more " onerous" options currently prescribed by the I NRC. l l
9.ith respect to the latter dimension, the commenter believes that the inclusion of costs related j to operation and maintenance, as well as decommissioning, requires clarification and guidance to assist licensees in the determination of acceptable methods of rate sufficiency. Commenter points out that Reg Guide 1.159 includes a " reasonable time period" not to exceed five years, during which any changes in customer collections can be implemented to address shortfalls in the' decommissioning financial assurance. Commenter states that a similar time period should be amended to this proposed rule. j I
Reliance on FASB Exoosure Draft Commenter agrees with the list of discinsure items contained in paragraph no. 25 of the draft standard. But, the methodologies in the FASB draft are not the appropriate computations to use in determining cash flows (i.e., appropriate funding levels to extemal trusts). Further, FASB draft standard presumes a site-specific study, which is endorsed by the commentar, as opposed to NRC's defined minimum for decommissioning financial assurance. Also, FASB
. proposes use of a constant, risk free discount rate, while computations relevant for the NRC
33 would make use of a disco'unt rate based on the expected eamings of the extemal trusts.
Lastly, the FASB draft standard is still being debated.
Summary Commenter believes NRC should refine the proposed definition of " electric utility," as noted above, and substantially expand the coverage of the draft Reg Guide.
- 30. North Atlantic Energy Service Corporation l Commenter believes that the proposed revisions do not fully address how future nuclear plant owners will be structured and how they will recover their decommissioning costs. Specifically, financial assurance and decommissioning funding tests must be separated.
Commenter supports the NEl comments and endorse the concept of a " qualified nuclear entity."
- l. Definition of Electric Utility l
The Pronosed Rule Needs to be Revised to Reflect Industry Restructurina i The proposed rule unnecessarily limits a licensee's ability to demonstrate financial assurance and unnecessarily complicates the NRC's review of a licensee's assurance of decommissioning funding.
The Definition of an Electric Utility was Intended as a Financial Qualification Test Not a Decommissionina Fundina Assurance Test Commenter states that NRC considered a licensee's status as an electric utility as the seminal criteria for whether a potential licensee was financially qualified, and it therefore followed that the NRC would use this as a test of the certainty of a licensee's recovery of decommissioning costs on an ongoing basis. NRC recognized that FERC and the State utility commissions had responsibility for setting rates to allow the recovery of decommissioning costs. "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 state utility commissions' allowance of the recovery of decommissioning costs."
The Prooosed Rule Should Decouole the Financia Qualification and Decommissionina Fundina i Assurance Test ]
Commenter states that NRC's proposed rule does not recognize that cost recovery under restructuring will not be as well defined as the NRC anticipates and gives examples of restructuring in Massachusetts and New Hampshire in which " partial electric utilities" actually would have full guarantee of decommissioning cost recovery.
i The Solution is to Seoarate the Financial Qualification and Decommissionina Fundina l
i l
. 34 Assurance Tests j Commenter believes that the definition of " electric utility" as proposed by the NRC should be ;
used as the test applied solely for financial qualification. Further, $50.75 should be modified to !
apply financial tests specific to decommissioning funding in determining whether "prefunding" should be required.
Commenter endorses NEl's " qualified nuclear entity" concept and their proposed three-tiered approach which grants flexibility in the evaluation of a licensee's ability to reasonably assure i decommissioning funds.
l :
II. Unavailability of the Financial Assurance Mechanism Envisioned Under 10 CFR ,
50.75(e)(2) l Commenter believes that the vast majority of generating companies that will exist after 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 j those few utilities that must seek them saddled with an extremely large operating expense that I their competitors will not have.
Ill. Altemative Methods of Financial Assurance Commenter proposes the following:
Assianment of Richts to Decommissionina Funds Collected NRC needs to recognize that situations may develop in which interests in nuclear power plants are sold and the distribution company is collecting the decommissioning cost. Commenter proposes language below to address their concern.
Accelerated Fundina Problems would likely result with accelerated funding over the varying times plants have until planned shutdown. The shorter period remaining, the greater burden on the licensee and the less competitive they become.
Tax considerations of accelerated funding need to be considered and NRC should approach the IRS for a ruling on the matter.
Commenter's Proposed Revisions to NRC's Proposed Financial Assurance Rulemaking 650.2 Non-bvoassable charaes
- 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 mechanism. Other state-mandated provisions that impose guarantees of
' decommissioning funding (e.g. Imposition of joint and several liability) on the owner (s) of l l
35 a nuclear power plant are to be considered to provide guarantees equivalent to non-bypassable charges.
950.75(e)(2) i
- 1. Renumber section as (e)(3)
- 2. Delete "For a licensee other than an electric utility, acceptable methods of providing l financial assurance for decommissioning are "
- 3. insert "For a licensee that does not recover any of its decommissioning costs through rates established by a regulatory authority either directly through traditional cost of service regulation or indirectly through another non-bypassable charge mechanism as defined in @50.2, acceptable means of providing financial assurance for decommissioning are described in (i) through (iv) of this s'ection.
@50.75(e)(3)
I
- 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 part of the costs to decommission its nuclear power plant through rates established by a regulatory authority, either directly through traditional cost of service regulation or indirectly through another non-bypassable charge mechanism as defined 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 a portion of its decommissioning costs may use the methods described in (i) through (iv) of the section for only that portion of the decommissioning costs selected through such rates. 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 of 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."
- 31. Public Service Electric and Gas Company (PSE&G)
In general, commenter agrees with the NEl comments.
Decommissioning funding must be secured and insulated from market risk. Commenter l believes preferred funding method is through a non-bypassable charge established by a
1 i
1 36 regulatory mandate. This approach assures the NRC, licensee, and State regulatory body of !
continued and adequate funding at all times. The regulatory body can adjust the charge up or {
down depending on the new decommissioning cost estimate. The charge will remove the decommissioning issue out of the electric competition equation, and facilitate utilities in making l optimal business decisions in the competitive environment.
l l
- 32. Edison Electric Institute (EEI) l eel is the association of U.S. investor-owned electric utilities and industry affiliates and associates. They recommend an evolving and flexible approach to assuring decommissioning funding in order to recognize the current evolution of electricity nearkets.
Comments are based on the following principles: I Decommissioning funding is a public health and safety issue. ]
Nuclear plants were built under a rate regime which is now rapidly changing. Therefore, ;
decommissioning cost recovery, if not part of cost of service rates, should be dealt with as part l of a rate order associated with the current transition to competitive electricity marke's. '
Consideration of decommissioning and O&M costs should be decoupled rather than linked in the determination of decommissioning funding assurance.
License transfer and decommissioning cost assurance proceedings should allow added i methods that prcvide reasonable assurance of decommissioning funding. Flexibility is i necessary.
Flexibiiity is required because much is unknown about the future shape of electricity markets.
Any decommissioning assurance rules issued shou!d treat all competitors equally.
Commenter agrees with and supports NRC's policy of conducting liaison with State and Federal l rate regulators and for NRC 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.
The Definition of an Electric Utility Commenter agrees with NEl on their proposed QNE, and given this term should only apply to nuclear decommissioning funding assurance, its definition should be in 50.75.
While commenter agrees with the NRC position of using non-bypassable wires charge as a method of recovering costs, commenter also believes that binding contracts should be included as a method as well as they would be secured by legislation ans/or a regulatory utility commission order.
l Commenter also believes that the definition should be concerned only with recovery of decommissioning costs, but not O&M costs, through rates established by a regulatory authority.
The level of assurance required of investor-owned licensees should be the same for public
! power agencies.
l
l t 37 i Assurance of the Adeauacy of Decommissioning Fundina - f The up-front assurances required under $50.75(e)(2) could be difficult if not impossible to '
provide. Commenter proposes a multi-part process, which should 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 external trust fund or some other permissible method. If the criteria is not met, a licensee should be permitted to demonstrate to NRC that it could provide reasonable assurance of adequate funds to decommission its plant. Possible i methods should include prepayment, accelerated payments (which could lead to negative tax consequences), a surety method, a case-by-case basis, and a demonstration that power sales !
contracts are in place that could provide some of the decommissioning funding. Also, a '
combination method should be considered.
i' For those li::ensees which would not meet the definition of " electric utility," process should
, follow that used by fixed income rating agencies to assess the ability of a securities issuer to l continue to pay interest or dividends and repay principle.
A draft reg guide using the industry's proposed decommissioning funding should be developed. l Commenter is working with industry groups to develop criteria that would be appropriate to !
provide the necessary assurance and flexibility and will share the outcome with the NRC, but no ;
date of estimated completion was given.
Joint Liability Commenter agrees with the NRC position that there should be no joirit liability among nuclear power plant owners. To do otherwise would be unfair for one owner to assume another's obligations.
Combination of Fundina Methods
, Contrary to the NRC proposal, commenter advocates a combination of funding methods. Also, a variety of methods represents diversification, which itself is a way of reducing risk.
Reoortina Reauirements Commenter opposes use of the FASB draft until it is made final. Then a draft reg guide should be issued. 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-
- A rate lower than the proposed 2 percent should be allowed as well.
Commenter also believes that there should be a procedure to allow an entity that no longer meets the definition of an electric utility, and thus would not have the assumed find rate of
- retum set by its regulators, to use another rate of return.
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! 38 Commenter suggests NRC meet with IRS to stress the importance of the collection of ,
decommissioning costs to continue to take advantage of the lower tax rates on tiust fund ,
eamings. The comments also suggests that the NRC discuss with the Treasury and the Joint ;
Committee on Taxation the public policy issues involved in securing for investor-owned utilities -
the ability to continue to contribute to qualified nuclear decommissioning trusts, funds derived
- from rate payers which are ordered as a result of reaulatorv oroceedinas which serve to collect ;
l nuclear decommissioning costs.
- Definition of Federal Licensee :
Commenter states that the proposed definition is ambiguous in that it contains the phrase " full l faith and credit backing" of the government, which is neither defined nor commonly used.
Therefore, they suggest the following:
" 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 Govemment." ,
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- 33. Baltimore Gas and Electric Company (BE) ,
I Commenter endorses the NEl comments. I l
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