ML20196H737
| ML20196H737 | |
| Person / Time | |
|---|---|
| Issue date: | 05/12/1998 |
| From: | Meyer D NRC OFFICE OF ADMINISTRATION (ADM) |
| To: | Richter B NRC (Affiliation Not Assigned) |
| Shared Package | |
| ML20196H655 | List: |
| References | |
| FRN-63FR50465, RULE-PR-30, RULE-PR-50 AF41-2-040, AF41-2-40, NUDOCS 9812090170 | |
| Download: ML20196H737 (94) | |
Text
{{#Wiki_filter:. .- ._. - . . . .-,. _ _ - . pn nero y* *, UNITED STATES
" E NUCLEAR REGULATORY COMMISSION !
WASHINGTON, D.C. 20666 4 001 h 1
) May 12, 1998 MEMORANDUM TO: Brian J. Richter Division of Reactor Program Management Office of Nuclear Reactor Regulation l
FROM: David L. Meyer, Chief d -4%+ Rules Review and Directives Branch ! Division of Administrative Services ' Office of Administration l
SUBJECT:
REVIEW OF FINAL RULE ENTITLED " FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISSIONING NUCLEAR POWER RE/.CTORS" l The Rules Review and Directives Branch has reviewed the subject rule that will require power l reactor licensees to report periodically on the status of their decommissioning funds. We have attached a marked copy of the rule that presents our comments. These changes are necessary to meet the publication requirements of the Office of the Federal Register (OFR) and should be
- made before the final rule is submitted for publication in the Federal Register.
We have corrected the amendatory language and adjusted the presentation of the regulatory l j' text, the codification pattern within the regulatory text, and the cross references used within the ! regulatory text as necessary to conform to the OFR's acceptable style I L For the final rule to be acceptable for publication, you must have a signature page that contains l 2 ome document text in addition to the date and signature page. If you have any questions, please contact Alzonia Shepard,415-6864, or David Meyer, 415-7162.
Attachment:
As stated l l i l 1 9812090170 981200 PDR PR 30 63FR50465 PDR 98l2090110 44pp, 04/0 ,
. . . . . . . - . - - - . - _ . - - . - . - . _ . _ . . - . . - . - . - . . ~ - .
[. i !- l EQE: The Commissioners % L I1.: ** 's 10 # 40 ! 1: 35 ' l FROM L. Joseph Callan 't E Executive Director for Operations l
SUBJECT:
FINAL RULE ON FINANCIAL ASSURANCE REQUIREMENTS FOR TH6 0F DECOMMISSIONING NUCLEAR POWER REACTORS b N&
'hy PURPOSE- I
- 1IOY lG) phisl7 j[;:M+,y/ a To request C mmission pproval to publish in thefederal Reg sh final rule on financial b he.
( f k'l/ } ? E assurance requirements forpdecommissioning nuclear power reactors. l A l
SUMMARY
i l j l This final rule was developed to amend the NRC's regulations relating to financial assurance , t # caf l requirements for the decommissioning of nuclear power plants}hwes in response to the anticipated rate deregulation of the power generating industry. The staff believes the final rule
. A provides fo/r adequate protection in the face of a changing environment not envisioned when the
- present rule was ~
written in the mid-198k This final rule lets stand the definition of i 10CFR V ( *electnc utility" contained in K50.2 as it applies to financial qualifications for operating plants as
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9 , f provided in 10CPR 50.33(f). However, this definition is no longer applicable to y p l CONTACT: j Brien J. Richter, NRR 3
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(30:)415-1978 i 1 l 5 l 1
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decommissioning funding assurance. Rather,10 CFR,50.75(e), itself, describes which licensees may make use of the external sinking fur}d' method of financia! assurance for v2 % 4 Q 4m) decommissioning. In response to comments, theg0liidentifies ad 'tional financial assurance mechanisms niay be used for decommissioning, and the staff believes, provide l l levels of assurance equivalent to those mechanisms currently allowed by the NRC. Further, the l l rule adds a definition of
- Federal licensee" to address the issue of which licensees may use !
l ! statements of intent, and requires power reactor licensees to periodically report on the status of i their decommissioning funds and changes in their external trust agreements. Also, the rule , I amends regulations so as to expressly allow licensees to take credit for the earnings on j ! decommissioning trust funds both during operating and decommissioning periods. !
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BACKGROUND: The staff submitted a proposed rule on financial assurance requirements for decommissioning nuclear power reactors (SECY-97-102) to the Commission on May 16,1997. The Commission
,e issued a staff requirements memorandum (SRM) on June 30,1997, Nb 'ed publication of the proposed rule subject to some modifications. Subsequently, on August 15,1997, the Commission issued COMSAJ-97-009, the staff to % [o o I On !!s l u i < 'x - /
was resubmitted the proposed rule. Ahe pro se rule based orQhe C_ommission's comme to the Commisr. ion and published in thefFederal Reaist2 on September 10,1997 (62 FR i v'
/'g,,) 47588). The attached final rule responds to the comments received on the proposed rule and j
contains the final amendments to be published in thdederal Reaiste? 4 V - CONTACT: Brian J. Richter, NRR (301)415-1978 h
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1 . t , y,r \ DISCUSSION: 7 m; c # g,,/
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-A The proposed rule washu ished in the Reaistelon September 10, was written L - - -.'. , L :-- - "
to accomplish sevetal objectives and m odifications in three broad areas. First the
- 4A proposed rule would have modifiedhcommissionhfinancial assurance mechanism to address concerns resulting from the potential deregulation of the power generating industry.
Second, the prcposed action would have required power reactor licensees to report periodically l on the status of their decommissioning funds and on the changes in their external trust l agreements. Third, the proposed amendment would have allowed licensees to take a specified l credit for the earnings on {ecommission nd [' p33 3T yib .cw commenters submitted more than 200 comments on the proposed rule. Some ci i - l the comments were redundant in that they endorsed the Nuclear EnergyJnstitute (NEI) wd 7 positions. The commenters s,p.rJed 25 utilities and utility groups, fue State agencies or Public aid2.Y mz{
&delnot state asu)
Utility Commissio., group , two public interest groups)*and V an individual wdh:ac V affiliation given in general, the commenters were supportive of the Commission taking action at this time on St financial assurance requirements fonuclear decommissioning,$ power reactors. However, t i industry expressed concern that the proposed rule needed clarification and that the proposed } assurance mechanisms needed to be less stringent. Specifically, the proposed rule continued 4 the distinction between " electric utility" licensees and others in terms of providing i I decommissioning funding assurance and assurance oLfinancial qualifications for operations.
! Therefore, the linkage between(hallu operations and maintenancegand ;fn w2 MADin the decommissioning
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J { 4 i (O CFf, current rule was proposed to be preserved. Second, the d,efinition of " electric utility" inf 60.2 W do / addressed @rt-oypasssBlejwires chasgos that some ates have imposed to recover
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! decommissioning costs. Ohr definitions in $ 50.2 clarified what the NRC meant / pby "co x , service" regulation, " Federal licensea," and other related terms. ~ l 1 These rulemaking clarifications and flexibility of assurance mechanisms were of greatest concern to the commenters. Specifically, commenters expressed significant concern regarding w ?. ?. the Commission's proposed rpefinition of " electric utility." NEl, with many of gegnsee commenters endorsing the NEl position, proposed an alternakconcept qualified nuclear
" 1 entityf^because believgthat " electric utility" is no longer a valid concept. Further, these J edi n commenters also objected to the linkage of decommissioning and operationspeci maintenance costs in the definition of " electric utility" or any surrogate definition. These commenters also h
asked for additional financial assurance mechanisms and a liberalizmg of the existing mechanisms, including the financial test criteria for parent company and self guarantees in 10 CFR Part 30, Appendices A and C. After evaluating the mmments, the staff decided not to revise the definition of " electric utility" in the final rule or to define a new entity for the purposes of financial assurance for j decommissioning. In view of the lack of action by some States on restructuring and deregulation, the staff believes that the concept of " electric utility" will remain valid for quite ,! de d@rh some time. However, the staff recommends ir.cluding the types of licensees would be
- s
- A l able to make use of an "extemal sinking fund" as a method of financial assurance for decommissioning directly in 6 50.75(e)(1)(ii). Definitions in 6 50.2 have been revised to clarify what the NRC means by "costfihrvice" regulation, " Federal licensee," ncentive regulation,"
y
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5 k fon-bypassable charges," and[" rice-cap regulation." Further, in view of the guidance the CommissiongavemuCcwu;spids
~ staff in its January 15,1998, SRM f (" Staff Re 6ECY-97-253 --
p \/ Policy Options for Nuclear Power Reactor Financial Qualifications in Response to Restructuring i of the Electric Utility Industry"), the staff believes that the existing definition of "elcctric utility" 1 1 should continue to apply to financial qualifications of operations. With respect to the comments l l requesting additional flexibility, the staff has added provisions in the rule for certain long-term contracts and case-specific proposals that licensees may use under specified circumstances. l i With respect to the proposed reporting requirement, commenters generally did not oppose l reporting to the NRC on the status of decommissioning funding assurance. However, several 6t of did oppose the proposed frequency and the NRC)(endor'sk a Financial Accounting Standards e(D&- M O) Board (FASB) exposure draft (through draft Regulatory Guide 1060) or any other FASB-based . Nh/2 I position that is not final. The staff believes that plicit in the miethelanguagg e identifying l financial assurance data required for decommissioning. Therefore, the staff has suspended
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j work on the fegulatory fuide and will not resume work on it for endorse the FASB standa until that standard is made final. Lastly, the commenters generally favored the NRC's proposal to allow credit for earnings on licensees' prepaid decommissioning trust funds or external l
% sinking funds. However, the proposed 2 percent real rateNreturn was considered too low by v5 /
2- some commenters and too high by others. The staff continues to believe that the 2 percent l / f value is app *opriate, but has modified the final rule M that it allows licensees to use values V
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f up to a '2 percent annual real rate of return, at their discretion. I RESOURCES: [
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j 6 l Resources needed for review of the reports required by this rule are expected to be minimal (2p staff-weeks) and will be subsumed within existing resources. COORDINATION: The Office of the General Counsel has no legal objection to this paper. The Office of the Chief 4 l Financial Officer has no objection to the resource estimates contained in this paper. The Chief Information Officer . . . <-
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, S.'
RECOMMENDATION:/ G'b That the Commission:
- 1. Acorove for publication, in thekdefal R the final amendments to 10 CFR Q#achment G
. g. b Part 50 (En9eere 1). 3 ho
- 2. Certify that this rule, if promulgated, will ac4have e agative economic impact on a substantial number of small entities in order to satisfy requirements of the Regulatory Flexibility Act ,5 U.S.C. 605(b).
4
- 3. Noich Nd
- a. The Chief Counsel for Advocacy of the Small Business Administration will be informed of the certification regarding economic impact on small entities and the b
4
reasons for it as required by the Regulatory Flexibility Act (Eudvsum 2); JtY \_ / The appropriate Congressional committees will be informed (M 3); AW b.. u c. A public announcement will be issued (Enctesure 4);
- d. This rule amends information collection requirements that are subject to the Paperwork Reduution Act of 1995 (44 U.S.C. 3501 et seq.). This rule has been submitted to the Office of Management and Budget for review and approval of j the paperwork requirements.
t i e. It is estimated that this action would result in an additional annual NRC burden of b approxima y t,wo staff-weeks; i ! l-4 i e. The staff intends to prepare the final Standard Review Plan on%. mauur ! ammua i kcensee financial qualifications and decomm[issioning funding he ase
^ A reflect the Commission's decision on this final rule; and
_ T f. D& 7 The staff willissue egulatory Guidel1060, after the FASB standard is made ; L final. V , i L Agac4menfi: I l Encloswes: ) 5-1 L 3. - e 9 ? : 1 '
- i d
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i t [7590-01-P] NUCLEAR REGULATORY COMMISSION 10 CFR Pads 2 and 50 ! RIN 3150-AF41 i t 4W $ Financial Assurance Requirements for Decommissioning Nuclear Power Reactors
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4 l AGENCY: Nuclear Regulatory Commission. , i ACTION: Final rule. l
SUMMARY
- The Nuclear Regulatory Commission (NRC)is amending its regulations on '
financial assurance requirements for the decommissioning of nuclear power plants. The amendmentsknie to the potential deregulation of the power' generating (z V ^ ^ industry and resp)ondWquestions on whether current NRC regulations concerni , decommissioning funds and their financial mechanisms will aeed to be modified. The i i action requires power reactor licensees to report periodically on the status of their
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i t l decommissioning funds and on the changes in their external trust agreements and ; i ! other financial assurance mechanisms. Also, the amendment allows licensees to take I credit for certain earnings'on @ecommissionIn d{ ,
, i EFFECTIVE DATE: (60 days from the date of publication in thefederal Registed.) f f i
_ . _ . _ ~ _ . _ _ _ _ _ ...___ _ _ _ _ -. _ _ _ _ .. _ _ . ___ . _ _ . l - l l \ I l FOR FURTHER INFORMATION CONTACT: Brian J. Richter, Office of Nuclear L 00015 ; Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC 20555Q A + telephone 301-415-197dh-mai bjr@nrc. gov. ! ( V' /y l l r
. SUPPLEMENTARY INFORMATION:
l L t
1. Background
l I
' The NRC published an advance notice of proposed rulemaking (ANPR) for j L " Financial Assurance Requirements for Decommissioning Nuclear Power Reactors" on i L
. April 8,1996 (61 FR 15427). This action was developed to amend the NRC's !
regulations. relating to financial assurance requirements for the decommissioning of l nuclear power plants in anticipation of rate deregulation of the power generating l A industry. In respo'nse to the comments received on the ANPR, the NRC published a I proposed rule on September 10,1997 (62 FR 47588). The proposed action would i
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~ have revised the definition of " electric utility" and related definitions contained in 10 CFR 50.2, would have added a definition of " Federal licensee" to address the issue of which
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. licensees may use statements of intent, and would have required power reactor j i
l licensees to periodically report on the status of their decommissioning funds and p l. i . -
- - changes in their extemal trust agreements. Also, the staff proposed to amend the j i
regulations so as to expressly allow licensees to take credit for the earnings on ; i decommissioning trust funds be#Iduring the operating and decommissioning periods. i 2 i s
l lI. Comments on the Proposed Rule a3 The Commission received more than 200 comments in thidy three letters
,.an u&
c y JGG etlt, %eu
? j commenting on the proposed rule! There hch letters from 25 licensees or licens'e s !
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organizations, five Statggencies or Public Utility Commissions, twc from public ! q g cwn <do $ interest groups,and one from an individual affiliation j vyitMe$not shtspq provMed. Copies of the t N letters are available for public inspection and copy g for a fee at the Commission's I Public Document Room, located at 2120 L Street, NW. (Lower Level), Washington, D.C. i I The comments have been organized by topic and an analysis of them follows.
- 1. Definition of Electric Utility , g s pga.4Ad'h' p,anwatuam,.aRapowirnNhl r ~ $"'*"""""Y :
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f, jg 1 A. Linkage Betweenh~ecommissioning) Financial Assurancet ; Requirements and Financial Qualificatio R (i.e., e ] r Linkage Between Costs of Operation / Maintenance j and ! Decommissioning) l l Several commenters, including the Nuclear Energy Institute (NEI), stated that NRC should not use the term " electric utility" in its decommissioMncial assuM i i 3 1 ID
i rules because the term is useJ for different purposes in the context of NRC's ancial qualification requirements in 10 CFR 50.33(f). These commenters streg, at only decommissioning costs are of concern with respect to the financial assurance requirements, whereas only operation and maintenance costs are of concern with i 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. i Commenters cited several specific problems. First, the definition does not adequately express NRC's intent that an entity can demonstrate adequate assurance if it can " conclusively demonstrate a government-mandated, guaranteed revenue stream uw2M d for all unfunded decommissioning obligations" by viitue cf a non-bypassable charge tbt" p covers only decommissioning costs. (For example, one commenter stated that, in California, licensees are assured of recovering decommissioning costs in distribution ? , j 1 rates through non-bypassable means, even though recovery of the costs of operation and maintenance may not be assured.) Second, the definition could unnecessarily 1 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 . 1 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 imply some responsibility for decommissioning 4 ff
l i funding on the part of nonowner operators which, they argued, might inhibit the formation of joint operating companies. These comments either 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 of its 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 have all licensees consider only the combined costs of operation, maintenance, and decommissioning. Nevertheless, even some commenters understood NRC'r, intent suggested modifying this third sentence as-weH. One suggestion was to replace it with "An entity whose rates are V 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 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
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l would also obviate any need to include the 10 percent de minimis threshold for non- , /- j recovered costs that was suggested by one commenter (i.e., because the relevant ( jN-ddh- p category of costs.--for decommissioning-would be recovered, even if they were less a than 10 percent of all costs), and would allay the concerns of several commenters that
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an entity recovering only decommissioning costs through non-bypassable charges 5 l2-
l might be considered less than a 100 percent electric utility for purposes of the i decommissioning requirements. It is open to interpretation whether or not the definition needs to be revised to
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sever the link between the hcommissioningKnangibt assurancdrequirements and the
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gx:q j financial qualification requirements,'as discussed above. Given NRC's intent and past A /
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implementation of the requirements, the coriamenters' specific concerns seem unlikely l
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to materialize. Clearly, however, NRC c6uld reduce the concerns and l /- misunderstandings df commenterd by $evering the link and using separate definitions 4 pe l;w for each set of requirements. Such diarification would likely ressii ui a better understanding of the requirements MN N [uy llcenseeo aird, he,Mbetter co '
// ,
/ 1 the requirements.
One possible remedy, as suggested by NEl, would be for NRC to construct and i define a new term such as " qualified nuclear entity" that would apply only to the (ecommissionin[nancial assuranc8 requirements. NEl would define a qualified nuclear entity as one that obtains decommissioning funds thrc ;gh (1) a rate-setting
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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 NEl's definition is not generally consistent with NRC's proposed definition. UEl's comment does not fully or adequately explain the meaning or implications of the binding 6 l 13 i
I contractual agreement included as the third option in its definition. Other commenters specifically referenced NEl's comments, however, and objected to the binding contractual agreement portion of NEl'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, NEl noted that the term " electric utility" may take on a different i meaning as a result of industry restructuring, but would not alter the existing definition of electric utility which would, under NEl's proposal, remain applicable to NRC's 4/ financial qualification requirements. The logic [to this position is that the current rule is ! intended to address the decommi[ssioning'jfinancial assurancetequirements rather than i the financial qualification requirements. Nevertheless, the loss of regulatory oversight as a potential consequer.ce of industry restructuring is as relevant to NRC's financial qualification requirements as it is to NRC'shommiss nancial assurancel requirements. Therefore, the NRC has adopted another approach that is intended to address commenters' concerns, but that does not have some of the shortcomings of
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NEl's approach. The Commission has decided to let the definition of " electric utility"
- stand, but to clarify the applicability of external sinking funds and other mechanisms under deregulation.
4 F i 7 F.
B. 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 directiv or indirectly. 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. V' V Specifically, the change might prevent licensees with PUC- or FERC-approved long-term power sales agreements from qualifying as electric utilities. It is not clear whethefikJC- or FEpower approved long-term C3sales 7 agreements would qual fy as' cost of service"regula ion or as non-bypassable charges \ (and hence as cost reco'very through regulated rates) under eitherthe current definition J 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 have to be implemented through existing or new guidance documents, regardless of whether or l l not the phrase is added to the definition. If such agreements are not consistent with the 8 6 1.
i entity's recovery of all reasonable and prudent costs, then the phrase "either directly or indirectly" has been deleted appropriately. l l l 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 nonowner / operators who cover their o /id costs under contracts with owners. The commenter claimp that NRC has traditionally
\J' i l- held that such nonowner operators are " electric utilities" exempt from the regulated L
l rates of the owners who are contractually committed to pay the operators' expenses. The logic of the commenter's argument seems to be that nonowner operators recover the costs of their electricity from owners, whose rates are directly regulated, thereby ,
. making the operator's cost recovery indirectly regulated. For the reasons }
O;;w \ bedthe final rule should render this concern moot. 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 l I pay for decommissioning. This comment appears to argue that premature shutdowns i )- may result if, as a result of an entity's loss of status as an electric utility, it must (but is t unable to) provide up-front financial assurance for decommissioning. This issue is analyzed in Section 7.B., Prepayment /Up-front Assurance.
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D. Implications for State Ratemaking Authority 1 I Some commenters suggested that NRC clarify that it does not intend to infringe upon State ratemaking authority. To this end, one PUC stated that the NRC should l 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, l or distributes electricity." In response, the NRC -+-+- '+ ~'[has neither the intention nor the authority to infringe y/ on State ratemaking authority. The NRC believes that the final rule described below will ; obviate these commenters' concerns. i E. Regulatory Efficiency
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, Some commenters suggested that the proposed 5475(e)(3) be revised to avoid repeating the definition of electric utility. This comment has been adopted, de facto, by l l the NRC's final rule. i i l F. Application of Definition to Public Power Agencies Some commenters noted that the proposed definition does not appear to require 10
public power agencies to recover all of their costs in their rates, only that they set their
- l. . 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 I
decommissioning funding. l These comments appear to address the last sentence in the proposed definition of electric utility: Public utility districts, municipalities, rural electric cooperatives, and State and Federal agencies, including associations of any of the I foregoing, that establish their own rates are included within the meaning of" electric utility." l This sentence automatically classifies any licensee that falls in one of the above- ) t [ referenced groups (collectively referred to by the commenter as "public power 1 agencies") as an electric utility. Thus, public power agencies automatically qualify as I electric utilities without consideration to any of the ' definition's other conditions on rate
. recovery. The commenters' assessment appears sound in that, in a competitive market,- such entities might not recover all their costs even if they can set their own rates. The ability to set rates adequate to achieve full cost recovery would be undermined by the loss of an exclusive service territory. The NRC has adopted this comment in its revised rule language.
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- 2. Definition of Non-Bypassable Charge A. Stricter Definition Needed 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 available to the licensee (e.g., if the revenue stream resulting from the charge
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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 funding. The final rule has been modified to reflect that non-bypassable charges should be available to the licensee or should be deposited into the external sinking fund for decommissioning. One commenter stated that because decommissioning funding must be secured and insulated from market risk, the preferred 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, the NRC believes that it would be encroaching upon the responsibilities of other 12 I0
regulators if it were to establish a single method for cost recovery. 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 L 'l g,A 1-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 definition. 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. One feasible solution was suggested by several commenters, who stated that m the definition should be revised to read}"% costs associated with operation, maintenance, ordecommissioning . . . " They not hat this is more consistent with the intent of the rule and would not exclude licensees that recover only decommissioning costs through a non-bypassable charge, but that recover all other costs through competition. The final rule reflects this modification. 13 1.0
I C. Types of Non-Bypassable Charges l i 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 secu/ritized proceeds of a revenue stream, or price cap regulation. If NRC decides to defer to State regulatory officials, the comment continued, the final rule should be clear in stating the types of charges covered by the definition. Along a i similar line, other commenters suggested expanding the definition to include other l funding mechanisms imposed or established by a governmental authority. One i commenter suggested the definition might include a decommissioning liability covered by State securitizaIon legislation. Another suggested it might inclu'de binding contracts secured by legislation andr a regulatory commission ordg l l The proposed definition, as stated, includes i
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/ /c'harges imposed by a governmental authority which affected entities are required to pay [over an established time period) to l
l cover costs associated with operation, maintenance, and 1 decommissioning of a nuclear power plan @' This definition seems to provide an effective performance standard for any type of charge that might be developed by State regulatory officials. Consequently, there i 14 ZI l
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 in ways that did not meet the currently proposed definition. Nevertheless, the NRC has cited examples of non-bypassable charges in its definition, without limiting such charges only to the cited examples. Finally, one commenter stated that NRC's commentary that securitiz#ation 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 FnTatly[ e 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 re ulation." The NRC is aware of the difference and g bcll cyes the definition as presente bes epresents the Commission's position. 15 12
3. Definition of Costjoffervice Regulation Comments addressing the definition of "cospfpervice 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 d-service" definition. This commenter arguep 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" costmf-service regulation. These AA comments either misinterpret or fail to account for how the definition of costmf-service AA 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 of its 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 reaso'nable and prud costs are recovered pe/r the definition, but rather that the licensee would be deemed to be regulated under costtfpervice regulation for whatever portion of kreason prudent costs are covered pe/r the definition. This comment has been rendered moot by the NRC's revised final rule. 16 23
. . - _ - _ - = _ _ . - - - - . .. . - - - ~ _ _ - - -
i > Another commenter stated that the proposed definition of "costtf service AA regulation" should not exclude " performance based" and " incentive" ratemaking adopted by some State ratemaking authorities. This commente,r proposed adding the following to the definition: " Cost of service regulation includes, but is not limited to, alternative forms of ratemaking which provide for a portion of costs to be recovered
- based on reasonable benchmarks and incentives for good performance."
This comment does not seem to recognize that the term " cost of service . regulation" is actually referenced as "#aditional cost'of' service regulation" by the 4A !. proposed definition of elecuic utility, which distinguishes cost'of' service regulation from i AA , ) indirect cost recovery through non-bypassable charge mechanisms. In this broader context, the NRC's intention to keep the present focus of " cost of service regulation" seems clear and, moreover, the licensee's suggested additions seem inappropriate i (because they are not precisely consistent with traditional direct recovery of reasonable N-
- /
and prudent costs). However, given that the NRC believes that incentive or pricel based ratemaking provides reasonable assurance of decommissioning funding, the J NRC revised the definition of cost of service regulation to reflect this concern. i
- 4. Need for General Flexibility , l
/
The flexibility issue has two dimensions. First, several commenters want the 4 l \/ t 4 17
. 2k
maximum number of financial assurance options available to reactor licensees. Second, these cornmenters urg I C not to include specific or detailed criteria in its rules, which should be kept genera!, but 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 decommissioning. 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 of licensees. This is recognized by the commenters themselves, the NRC who more or le framework, which distinguishes a category of licensees that should not be afforded the option of using an external sinking funding, by itself, as a mechanism of assurance. g j The commenters # not contend-that all licensees should be allowed to use all 9/0 mechanisms; but they went.the external sinking fund option to be made available to 4 more reactor licensees than might qualify under the NRC proposal. If this mechanism were equal to the others in terms of risk, the NRC could make it more available in the interests of flexibility. Because this option has more risk than other available assurance options, the Commission believes it is prudent to restrict its use to licensees with v' stronger financial characteristics. 18 1 25 1
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 1 the NRC but not et other regulatory agencies (such as the U.S. Environmental Protection Agency (EPA)), where enforceability of requirements may be more of an issue. Although financial assurance has a nex/us with the NRC's safety and public health responsibilities, it may not be necessary or desirable to include all the financial assurance details in the regulations. Alternatively, the enforceability of financial assurance mechanisms can be severely or completely compromised by seemingly minor variations in wording, which is why NRC could consider placing at least the wording of its assurance mechanisms into its regulations. The second consideration is the otential need to change the requiremente. It is much easier to change 1 2 Wahm $ j requirement regulatory guides than in regulations. Inasmuch as the regulated stadtd community has begun on a path of economic restructuring, and will be in a period of j transition for a number of years, the flexibility afforded by using a regulatory guide as a ' vehicle forhommissioningfinancial assurance *requiren nts is an advantage. Thus, some elements of the financial assurance rule will benefit by being codified in ' dwt 4<%r i regulation, while other elements may best be handled through regulatory guidance, at least during the transition period for the industry. The Commission, in acknowledging the use of combinations of assurance methods, does not wish to list all possibilities, but includes as an example, the recent New Hampshire legislation which provides for the Joint and Several Liability of the Seabrook Nuclear Power Station for the benefit of a 19 26 : T
minority owner, Great Bay Power.
- 5. Applicability of Requirements to Plant Owners and Operators Two commenters urged the NRC to clarify that the requirements for M bO P Weeemmtsstemng financial assurance apply only to owners or entities that have A
assumed decommissioning liability under contracts and not to entities that are solely operators. The commenters argued that such a clarification is important to the formation or use of specialized operating service companies with no ownership interests in the facilities they operate. Many Federal financial assurance requirements apply to both owners and i I 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 (DOT)); financial assurance requirements for underground injection, l l underground storage tanks, and hazardous waste treatment, storage, and disposal l facilities apply to owners and operators (these programs are administered by the EPA); and financial assurance requirements for surface coal mining apply to owners and operators (this program is administered by the Department of the Interior). The DOT's 20 N l
4 financial assurance program for motor carriers applies to " carriers" without making a distinction between owners and operators. Similarly, the 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 is & recognizes scenarios whedthe operator has greater financial resources r V
~
n Ma creditworthiness than the owner; such a scenario is conceivable following the economic f restructuring of the electric power industry. To provide greater flexibility and assurance, the NRC will not specifically exempt operator licensees from the financial assurance requirement. This is unlikely to affect the formation or use of operating service companies, because they can negotiate with reactor owners regarding which party or parties will be responsible for demonstrating financial assurance.
- 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 @ 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 21 N
1 benefits of allowing licensees to use site-specific cost estimates below the NRC j minimums include greater consistency with PUC approaches, tax treatment, and possible Financial Accounting Standards Board (FASB) requirements. Moreover, acceptance of site-specific estimates might enhance the integrity of the rule, given widespread perception of problems with the current minimum amounts and the l acceptance by PUCs of site-specific cost estimates as the 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 3 the adequacy of cost estimates and the potential under-funding indicated by current f "" ' decommissioning trust fu 2 nm), such an allowance could aggravate the risk of potential under-funding associated with the external sinking fund mechanism. :
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Subm.%trA issum of site-specific estimates to the NRC would enable it to better evaluate the L/ funds needed for decommissioning. However, the Commission has decided to defer allowing site-specific estimates that are lower than the amounts specified in 10 CFR p ann 50.75(c) until additional decommissioning datafobtained. L Q,- Another commenter recommend (that NRC delay the reporting requirements until a Pacific Northwest Nuclear Laboratory (PNNL) study is final. However, the Commission's position is that such a delay would deny the NRC and the public the benefits of the information required to be reported while conferring negligible benefits on licensees. 22 Y
)
i m
- 7. Alternatji(e Methods of Assurance
%/ \
A. Alternative Framework Proposed by NEl ; l l l NEl's proposed framework for financial assurance for decommissioning resembles in broad outline NRC's framework, which allows a broader range of assurance mechanisms for reactor licensees that lose the ability to recover decommissioning costs through regulated rates and fees or other mandatory charges i established by a regulatory body than is allowed for licensees that do not. The external , I sinking fund is not allowed for the latter category of licensees. The NRC framework l also offers opportunitiec for case-by-case consideration of non-standard financial assurance arrangements. Examples include @ 50.75(e)(1), which allows unspecified, other guarantee methods, and a licensee's option of submitting an exemption request, which the NRC can approve if the criteria in S 50.12 are met. l l The NEl's framework involves three, rather than two, categories of power reactor licensees. Under the NEl 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. NEl does not specify in its comments what these financial criteria 23 30
would be. Licensees that satisfy neither the criteria for qualified nuclear entities nor the
- alternate financial criteria would not be allowed to use the external sinking fund option, i
! but would be able to use the other mechanisms. NEl also includes an option for non-standard demonstrations of assurance. L The effect of the NEl proposal is to make the current external sinking fund financial assurance option available to a larger number of licensees than under the NRC proposal. This effect is the result c;(1) defining " qualified nuclear entities" in terms l l l of criteria that may be less stringent than the proposed cnteria for " electric utility," and ! (2) allowing licensees that satisfy certain financial criteria also to take advantage of the external sinking fund option, which they would not be allowed to do under the NRC ; proposal. The NEl proposal means an increase in the risk that adequate funds will not ! i be available when needed due to an inadequate funding rate, inadequate earnings on l ! invested funds, or premature shutdown; it would decrease the, cost to licensees. NRC's ; ^ !' proposal entails less risk but greater cost. 4 l i
- On balance, to make the external sinking fund option more available to reactor licensees, the NEl framework would result in greater risk that sufficient j l decommissioning funds will not be available when needed. The NE! proposal also }
would require the development of appropriate financial iteria, which would be ! challenging to develop due to the unpredictable volution of the industry. An entity that [ meets the financial criteria, unlike those ( licensees / ! i who retain the ability to recover ,
- 24 l
3I i : i r
decommissioning costs through regulated rates and fees or other mandatory charges established by a regulatory body, would have no guarantee of collecting sufficient funds for decommissioning and could encounter deteriorating financial conditions that could cause a reduction or cessation of payments into the external sinking fund. .i . The NEl 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 : tw t,ie ramework parallel in structure to the NRC proposal, though different in content. 1 B. Prepayment /Up-front Assurance t i 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 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 &cc=micciMfinancial assurance requirements fo a A , 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 25 32 l
process overseen by the applicable regulating body. This regulatory oversight provides reasonable assucance that such licensees will recover reactor decommissioning costs , and continue paying into external sinking funds for decommissioning.
/
M05 / lt is true that. licensees the arFno longer able to recover decommissioning costs - through regulated es and fees other mandatory charges established by a regulatory body may incur a greater burden by having to provide up-front assurance. j This up-front assurance could take the form of prepayment or it could take the form of i 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.
/ i However, the likelihood of this occurring is highly uncertain. Many PUCs have already )
i indicated their intention to allow for the regulated recovery of decommissioning costs, ; i either through rates or through some type of non-bypassable charge, even for ; l otherwise deregulated entities. For licensees that will not be able to collect funds i l through such a process after industry restructuring, up-front assurance is necessary to i ensure that reasonable financial assurance is provided for all decommissioning 3 obligations. In the more competitive environment that is likely to prevail after restructuring, some of these licensees may not remain financially viable for reasons not 3 related to hornmis al assuranc f suggesting the need for up-i front assurance. i C. Accelerated Funding 26 33 l 1
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 lengthof4h8 accelerated funding period would not be4 Ihey generally stressed t at, if the funding period were too short,
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non-elecin/c 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
. Ace-Uuuk all of the remainder of the license period, ela of the remaining license term or 10 yearse -
. /
(whichever i greate), 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 licensees' business planning or lead to c he e). For licensees associated with reactors that have remaining operating lives of less 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 27 34
they would no longer recover decommissioning costs through regulated rates and fees or other mandatory charges established by a regulatory body. For
/ i /,
icensees(ta.6 etese associated with reactors that have remaining operating lives longer than the accelerated funding period wever, the accelerated funding option would be a significantly less burdensome means of demonstrating financial assurance than would 2
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full funding at the time the licensee no longer would be able. 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. l The length of an accelerated funding period woul dec_individuallicensees 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. I i The greater the amount of money that must be funded on an accelerated schedule, the l l more significant the impact will be on a given licensee. ' For example, assuming ) 1 ';censees are otherwise identical and have been adequately funding an external sinking i fund all along, the impact of a 10-year accelerated funding schedule would be greater i for a licensee with 25 years of operating life remaining than for a licensee with 15 years of operating life remaining. (This con sts with the comment asserting that impacts would be most severe for licensees with little time remaining before shutdown; in fact, l
}
the opposite is true, except for licensees that have so far been making inadequate contributions to their decommissioning sinking funds.) i i 28 l 1
The Commission believes that the alternative of requiring accelerated funding for all plants over a defined period, to cover the possibility of premature shutdown at some plants, would be too arbitrary and would lead to wide variations in impacts on licensees. The alternative of requiring accelerated funding for all plants over a defined period, to cover the possibility of premature shutdown at some plants, would be too arbitrary and I would lead to wide variations in impacts on licensees. Accelerated funding results in the inequitable inter-generational problem of the present generation paying for the decommissioning costs, while the future generation may receive the benefits of future electricity generation without incurring the costs of decommissioning. Although the Commission is not proposing to expressly require accelerated funding to address premature shutdowns, to the extent that licensees are no longer able to recover decommissioning costs through regulated rates and fees or other mandatory charges established by a regulatory body, they will, in effect, have to " accelerate" funding by getting "up-front" forms of financial assurance. 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., j ,,? C ombinations of Methods." v. Another way to reduce the burden of accelerated funding on licensees would be 29 l 36 l i l i
. . - - - _. .~ ._ . . _ - _ - . - - . - -
l 4
/
to ensure that the accelerated contributions are tax deductible. Under current IRS rules, accelerated payments into decommissioning funds may not be deductible. However, these tax changes are beyond the NRC's mandate and Congressional action 4 4 would probably be required to accomplish them. Consequently, unless these rules
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arc. were hanged, 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 reas onable method of assurance for licenseen no longer meeting the j definition of " electric utility." However, a number of commenters stated that the financial i 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: ! i i
~
One commenter suggested that NRC a!!ow non-electric utilities to use (1) a
- parent company guarantee from a parent meeting the criteria for self-guarantees, 1
and (2) a self-guarantee for licensees meeting at least two of the following criteria: i Licensee has an investment grade bond rating; Licensee's pre-tax income (before interest expense) divided by
, 30 3? r I
- - _ . - - - - - - _-..- .- .. ..~ .-- ..-.-
1 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. 4 1-l One commenter stated that the self-guarantee test's "10 times requirement" for assets should be lower, but did not suggest an alternative threshold. 4 3 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 i
- decommissioning costs, rather than what is currently specified in the tests.
j i - One commenter suggested that the Commission consider ownership of other j revenue-generating assets (besides the nuclear power plant). ;
- i
- 1
} . One commenter suggested that the NRC should develop a process similar to d by bon ing agencies to assess the ability of firms to continue j repaying princ or to continue paying interest or dividends.
. Finally, one commenter suggested that the NRC allow non-electric utilities to use
! parent company guarantees in conjunction with other allowable financial ) assurance methods, such as external sinking funds. (The issue of using parent 4
. company guarantees in combination with other mechanisms is discussed in l 31 i 3S
Section 7.J/C oinations of Methodk i f
}/$ ,
l , NRC's parent company guarantee is b'ased largely on a financial test developed - g dm ! by the EPA ever 15 years ago. EPA's test was intended to assess the financial ; fw* *W^9 Mm ! condition of3 haza'rdous waste mene;;;g,e,t Sm: seeking to assure closure and post- l
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closure care obligations that are substantially smaller than typicalperfer re20 tora i g w.ociat4 . 4_/ l decommissioning cost . Because EPA's objectives are effectively incorporated into the '
~/
NRC's test, the suitability of the test for NRC licensees may depend on whether the l 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 i minimize the overallsocietalcosts 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) plus the i costs to firms that cannot pass the financial test (of paying the higher costs associated n n with alternag financial assurance mechanisms, such as surety bonds). A tradeyoff 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 firms to pay for other financial assurance mechanisms. EPA was willing to accept some public costs (i.e., have the 32 34
t
)
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 l of non-bankruptfirms would be able to pass the financialtest, and that 44 percent of ; firms that eventually go bankrupt would be able to pass the financial test one to two years ankruptcy. ; Second, EPA wanted to ensure that even in the event of a firm's rapid financial I deterioration, the firm would still have a cushion of resources adequate to meet its environmental obligations before going bankrupt. A " multiples" .equirement was j included in the financial test in order to implement this objective. To the extent that NRC's goals and objectives differ from the EPA's, the test may ! i
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not be appropriate for use by NRC licensees. For example, if the NRC wants to eliminate a![ 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 t (i.e., the $10 million tangible net worth requirement) that have never been updated to reflect current price levels. Finally, the Commission may wish to consider whether ! EPA's proposed 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 bpplicability 33 LJ0
i l
! 1 to those licensees that are no longerka le to recover decommissioning costs through
( regulated rates and fees or otherfman / datory charges established by a regulatory body l may be difficult, and any criteria that might be developed could become outdated or i misleading relatively quickly. Finally, developing and im lementing alternative tests r (such as those suggested by commenters) could
' a substantial burdda e NRC. i i
t i E. Surety Methods l Three commenters on the proposed rulemaking addressed the issue of surety methods of financial assurance (i.e., surety bonds, letters of credit, lines of credit). The l predominant issue raised by these commenters pertained to the limited availability of i these mechanisms to licensees no longer meeting the definition of" electric utility." One i 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 i required to obtain these mechanisms will be faced with significant costs. Another / /
! t M
argued that NRC should ascertain the availability of such instruments before hog a 1 i rule based on the assumption of their availability. This commenter proposed the i l creation of a[v'ernment o managed decommissioning insurance plan to provid) ; mechanisms (discussed in Section 7.G., bovernment-Managed insurance,Pla4). i i 34 i Y
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 particular, 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 risk to potential providers of ti)e mechanisms. Second, mechanism providers may also view some licensees i se the ability to recover decommissioning costs through regula'ted rates and fees or other mandatory charges
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established by a regulatory bod its financially risky ventures given their restructured operations and newlyfderegulated financial characteristics (e.g., licensees may no longer have guaranteed service areas). Some licensees may be able to obtain such mechanisms only after offering significant levels of collateral to the provider as security. Generating sub's iaries without access to substantial assets other than the nuclear plant may find it difficult to provide the necessary collateral and may be unable to obtain a surety mechanism. Even if surety mechanisms are not available to some licensees, licensees may be able to use prepayment mechanisms (e.g., full up-front 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 acwss to guarantees, which are stillless costly. 35 O
,. - _- -- . . - _ _ - - . . - - . _ . - . . ._ _~ . . - .-. - - . _ i i 5 , F. Power Sales Contracts ; 4 i i i Commenters suggested two possible roles for power sales contracts in the ! J 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, j i j WY One commenter recommended that poweTsales contracts bs accepted as a means by which licensees not meeting NRC's proposed definition of electric utility c A f l nevertheless qualify to use the broader range of assurance mechanisms uch as the .
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external sinking fund. Another commenter concurred, stating that such contracts would h t be secured by legislation ad/ a regulatory commission orde mmenters also
- recommended that, for licensees not qualified to use the external sinking fund, an '
assurance mechanism that would allow a licensee to show that power sales contracts h/een are in place, could provide some or all decommissioning funding. There is an important difference between using@ ales contracts as a j t threshold criterion, for reactor licensees that lose the ability to recover decommissioning I costs through regulated rates and fees or other mandatory charges established by a i regulatory bodyknd as a financial assurance mechanism. As a threshold criterion, hsales contracts would represent evidence of the financial status and prospects (e.g., sales backlog) of a company. Such contracts would be considered when private ! r financial organizations assess the credit-worthiness of companies. Howeverh i sales contracts have some disadvantages that mi!itate against their use as a threshold l I 36 i N3 t
i criterion. First,@ sales contracts may have contingencies that make it difficult to ; project revenues or earnings. Such contracts are not equivalent to a [overnme mandated revenue stream that would fully fund decommissioning costs. It also would i be very difficult for NRC to spell out exactly how it would analyze and evaluate such contracts, potentially creating issues of fairness, consistency, and ac' countability. For example, the NRC would need to assess whether a given contract covers all licensee . costs (including decommissioning), how binding it is, and its effective term. Unlike financial statement data, which can be statistically associated with subsequent financial j performance, there is no objective basis or validated test for linking sales contracts to future financial performance. By making it easier for licensees that lose the ability to : recover decommissioning costs through regulated rates and fees or other mandatory j charges established by a regulatory body, or that do not have access i vernment-mandated revenue stream to use the external sinking fund, acceptance ofh 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 the Commission ; approves, that can serve the threshold function of determining which licensees shoujd ! be allowed to use the external sinking fund.
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@risales contracts are also unlikely to make good financial assiIrance '
do ut $vd$ ' mechanisms. They are not designed for that purpose and leekthe provisions needed to ensure ef'ective and continuing coverage (e.g., automatic renewal, notice of Mah w at. v cancellation). For example, infown of Bovlston v'. FERCl(21 F.3D 1130,305 (37' W 1
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.
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Moreover, FERC has authority to impose alternative provisions in the public interest if it finds contracts to be unjust and unreasonable. hjsales 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. f
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Such contracts typically do not themselves effect the setting aside or guarantee of i monies, although contracts could be written to serve as guarantees or to require that proceeds be deposited in external sinking funds. The NRC does not currently have a ! financial assurance program that accepts sales contracts as a demonstration of { financial assurance. G. Government-Managed Insurance Plan l Two commenters addressed the NRC's decision to eliminate from future I I consideration the concept of a captive insurance pool to pay unfunded l l decommissioning costs. One noted only that it agreed with the decision not to pursue l
! " Force majeure" refers to items largely beyond the control of the contracting l parties (e.g., recession, inflation, severe market changes) that make it equitable to :
terminate or renegotiate contract terms. I 38
this option. The other commenter, however, disagreed with the decision and urged the
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NRC instead to investigate the creation of overnment-managed decommissioning insurance plan. Under such a plan, the licensee would be able to purchase an insurance policy from thdgovernment. The cost of the policy could ,be determined by each plant's performance history or SA'LP rating, with poo
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p un plants paying a higher premium and well-run plants paying a lower premium. The commenter noted that rnment participation in private insurance markets is not unprecedented, citing the example of Federal flood insurance. The commenter weakened the force of - example, however, by also pointing out that V nment participaiion in private v insurance markets takes place "especially where the risk is not readily subject to management or the level of potential exposure is large." Clearly, basing premiums on plant performance history implies that the commenter would expect poorlyfun plants to pw m aud< 2 close more frequently than well-run plants, suggesting that the risk is su ct to/ / ' k /cs> & did , management. The commenter advo(ating further examination of an insurance plan did not
\ h/
make clear whether the-commenter favored a captive insurance pool entirely funded by the industry Norsurance an in/Isystem that was funded, completely or partially, by the vernment. The arguments against a captive insurance pool are strong. The participants would be able to cause losses simply by not taking action to set aside adequate funds 39 4b
for decommissiot ing. Such delay in setting aside funds could be beneficial due to the 4 use value of the funds that a licensee could reallocate to some other purpose. In l addition, the members of the insurance pool would be in competition with each other, j and could shift costs to competitors by means of the' insurance pool. Thus, an
/
insurance pool for decommissioning would e 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 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 t overnment agency responsible for the insurance would be able to set premiums accurately. Eventually the proportion of high-risk insureds could increase to the point that providing the insurance becomes unprofitable 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. 40 a 1 1
insurance that is partially or wholly subsidized by the Federa (e nment, such as flood insurance, would require Congressional action, and is outside the scope of an NRC rulemaking. i i / PuO Y Finally, the commenter does not provHe any arguments supporting \ government i V \/ 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' nment agency to manage it. H. Regulatory Certification Only one commenter suggested that NRC should reconsider its dismissal of the possibility of PUC or FERC certification that licensees within theirjurisdiction would be allowed to collect suf'icient 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 41 M
underlying regulatory standard is only one of"' reasonable assurance'." ~ The commenter, however, did not address a number of important considerations. dt . First,jtignored the well-informed status of the opponents of certification. The fj comments upon which NRC relied in disrnissing certification as an option came frorn NARUC and several State PUCsg e particularly good sources of information concerning the limits of their own authorities and their ability to bind their successors. Second, the commenter did not address tt irgument, presented by NEl and endorsed by several PUCs, that new Federal legislation would be 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 availability" standard rather than the underlying regulatory standard. Given the weight of arguments in opposition to certification, however, NRC could hiae concluded that certification would not provide " reasonable assurance."
- 1. "Any Other Method" A number of commenters stated that NRC should permit more flexibility in the allowable methods for demonstrating reasonable assurance of decommissioning funding, particularly for licensees no longer meeting the definition of " electric utility."
Several commenters suggested that NRC review and evaluate licensee-specific funding 42
l
, proposals on a case-by-case basis. Another commenter recommended that NRC allow 4
non-electric utilities to use mechanisms developed by governmental authorities and !
/ \
I approved by NRC. Finally, one commenter suggested that NRC ,.;cvide individual < l licensees or States the flexibility to develop initiatives / mechanisms for providing ; i' 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.
l In addition, the applicability of the NRC's parent company guarantees and 1 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 reactor licensees that lose the ability to recover l decommissioning costs through regulated rates and fees or other mandatory charges established by a regulatory body 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 n also Would be consistent with NRC's comr/ of allowing alternatpe non approach i compliance techniques provided that they meet certain criteria specified in regulations l^ 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 i acceptability criteria and to roview individual "non-standard" mechanisms. l 43 l
i J. Combinationa of Methods ; i Several commenters stated that NRC should allow utility licensees and, in ' i particular, non-utility licensees to use combinations of mechanisms to demonstrate 1 3 financial assurance for decommissioning. Two commenters suggested specifically that NRC allow non-electric utility licensees the use of parent company guarantees Mr
, lp L/
self-guarantees in conjunction with other allowable methods. bV 1 4 4 ! (C's current and proposed requirements alreadyIllow combinations of CH-dA\/ mechanisms, except that'two mechanismsMbe self-guarantee and the parent company g.Q' . guarantee i(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
)
l mechanisms that guarantee payment (e.g., trust fund, payment surety bonds, letters of ! credit), a combination of mechanisms that adds to the total decommissioning cost estimate is unlikely to lead to any difficulty. ; l Some mechanisrns, however, guarantee performance rather than payment. aAe ! These mechanisms idolude self-guarantees, parent company guarantees, performance surety bonds, and some insurance. The terms of these mechanisms promise that the 44 . h
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 performar.ce. 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 of less 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 mechanisrih -- say a letter of credit, at required the licensee to offer collateral to the issuer, then it is possible that if NRC were to draw on the letter of credit, the bank might seize the 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 provide a guarantee in any amount. In this case, combining the guarantee with another mechanism would not be an option. However, the NRC can amend the language in the financial test sections to eliminate the problem. 45 N
licensee's collateral which, in turn, might prevent the licensee from performing under the self-guarantee. The combination of a guarantee and an external sinking fund might also provide a relatively 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 contributions to its sinking fund, a guarantor had to come up with large amounts of money at the time of decommissioning. l l Finally, as a general rutghe NRC believes that it should not allow licensees to
/
use parent company guarantees and self-guarantees in combination to assure decommissioning obligations. Because parent companies typically consolidate the financial statements of all their subsidiaries into their own financial statements, combining parent company guarantees and self-guarantees could result in double counting of the same limited financial streng.h to pass separate financial tests (e.g., one 46 5b
for costs covered by a parent company guarantee, and one for costs covered by a self- i A l guarantee). n , K. Required Timing of Alternat%e Methods V sto$cI Several commenter feft' at the NRC should allow affected licensees an n ; extended period of time to secure attemat)&e 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 1 1 longer satisfies a given criterion (e.g., the definition of" electric utility"). This commenter ! recommended that NRC allow 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 alternatke funding submittal. Another commenter stressed that NRC should allow " adequate transition time for legislative and
>w regulatory changes to accommodate the new definition of ' electric utilityk I
The comments seem to argue that licensees will need more time to obtain i l alternath 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 i ignores the fact that deregulation will not occur instantly and unexpected:y. Licensees I are hkely to have months or even years to evaluate whether they might no longer be able to recover decommissioning costs through regulated rates and fees or other 47 h
l mandatory charges established by a regulatory body 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 mechanismo at least 90 days in advance of the date on which the licensee will
- no longer be able to recover decommissioning costs through regulated rates and fees or other mandatory charges established by a regulatory body. Such a requirement would proactively help ensure that restructuring does not occur without the resolution of issues affecting the licensee's financial assurance for decommissioning.
I i
- 8. Federal Licensees i
i A. Applicability to Federal Licensees A numb 2r of commenters argued that financial assurance requirements for l electric utilities schould apply equally to Federal licensees, that no special treatment should be afforded Federallicensees, and that alllicensees should satisfy the same requirements. One stated explicitly that " Federal" licensees should be required to , v4/1, provide the same level of financial assurance as other electric utilities, but qualified jier comment by stating that "the proposed rule should ensure that at such time as these Federal entities become private enterprises, they are subject to the definition of ' electric 1 48
utility.' In doing so, they must provide the same measures of financial assurance currently 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 initialissuance of their operating license." This commenter apparently did not oppose l the use of statements of intent by Federal licensees, until the point at which they become private. The Tennessee Valley Authority (TVA), the only Federal licensee, was the sole commenter 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 l decommissioning costs. TVA's arguments are evaluated below. B. Definition of Federal Licensee f I Several commentersvke ed identical, or almost identical, recommendations concerning the definition of Federa idensee. Each supported the intent of the j 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 l
/
yicensee as "any NRC licensee, the obligations of which are guaranteed by and 49 N
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 l l Presumably, the commenters who found the phrase " full faith and credit backing" Mlt &W ambiguous ed-se because it does not specify that all obligations of the entity are backed by the credit of the Federal ernmentp r does it say explicitly that the v j obligations are " guaranteed," as does the proposed replacement definition. The l proposed replacement definition thus is slightly more precise. In addition, much of the suggested definition that has been used previously and commonly in legislation pertaining to Federal agencies would, therefore, have the advantage of removing any ambiguity. A prelimina earch of the United States Code, Annotated, uncovered l l 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 guarantee certain agricultural credit real estate loans and emergency loans. Section ; 1928 specifies that contracts of insurance or guarantee executed by the Secretary j under Chapter 50 "shall be an obligation supported by the full faith and credit of the United States." Similarly, the Secretary of the Interior is empowered under Title 16 of the U.S. Code to insure certain loans of private lenders. Section 470d of Title 16 provides that "Any contract of insurance executed by the Secretary under this sectic . shall be an obligation 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 50 Il
the Treasury 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 commenters appear to have identified the phrase generally used to describe such an obligation, and therefore replacement of the current definition of"Federa
/nsee" with the definition suggested by the commenters appears warranted.
TVA argued against the proposed definition of Federal [icensee because the proposed definition would preclude TVA's use of the statement of intent. In its view, there are " ample reasons" to support the continued use of the statement of intent 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 1
i conduct of WA's power activities, and this includes operating, rnaintaining, and g' j decommissioning its nuclear facilities." TVA gm = te p'ojnj out that evengigtc
- j. 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 4
- effect,' that a financial assurance requirement other than the statement of intent 1
~
- ' amounts to " imposing separate regulatory requirements to oversee the manner in which
- - WA is meeting its statutory requirements. . . ."
i i, l These arguments amount, in sum, to an assertion that because TVA is subject to an existing statutory requirement to fund decommissioning, the Commission should not 51 bi
impose any different, or additional, requirements. The enclosure entitled "WA's Use of Statements of Intent" stet gtMost 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 also be correctly said, however, that Federal law requires other reactor licensees to provide reasonable a,ssurance of decommissioning funding. The purpose of financial assurance is topr 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. WA apparently concedes that its obligations are not supported by the full faith and credit of the United States ghvernment; therefore, if TVA cannot fund decommissioning the Federal ((ernment 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 po, because its markets may not support such rates. WA itself not.epthat its current business plan recommends an offer to its distributor g customers to c,hange their power contracts after five years from a rolling ten-year term "I to a rolling ftve-year term. WA appears to misunderstand the purpose of the statement of intent, which is to obtain a commitment by another, and superior, governmental entity that the 52 b1
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 of intent" upon which TVA can " continue to be able to rely."
- 9. Reporting on the Status of Decommissioning Funds 4
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 standara is still under development, could make it inappropriate for meeting NRC's endorsement. Unless the FASB standard is adopted soon, these commenters argued, other reporting options should be adopted. Some commenters suggested that regula' tory language pG -lo G O ' need not be changed, but that the contents of he draft Regulptory', Gu V 53
. 60
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 if it became final in its current form they would not firtd 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.
&N Neither the timing nor the ultimate contents of p'FASB standard can be predicted 1,m at this time, and thereforA the conclusion is warranted that alternat)9e requirements
@Y . /
should be found. According top 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[xposure[ raft or a final [tatement. However, at its November 26,1997, meeting, the Board eliminated certain key provisions in the exposure draft relating to the scope of the ftatement. According to FASB's urrent fevelopments an n flans for 1998: FASB will be developing a refined definition of closure / removal costs that would 54 i l l
be applicable to a more general class of long-lived assets than those covered by the Exposure Draft. The Board will also be addressing the question of whether the costs of closure / removal obligations should be capitalized and will develop criteria to identify constructive obligations. At this time, there is no time frame 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 State bnt, or even a revised Exposure Draft, will be delayed for a considerable time . Notwithstanding any final FASB action, the NRC can proceed with its own requirement for reporting on the status of decommissioning funds. B. Frequency of Reports Most commenters endorsed " periodic" reports to monitor the status of decommissioning assurance. M equiring a rep MM soon (nine months) after the rule'
! i becomes effective, and at least every]wo, ears theIeafter, a'ac vic36 severs l comment tW ' D O'
, particularly fror,n 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 fiveyear adjustment to site-specific cost 55 bA
estimates specified in Regul$ tory Guide 1.159.) A majority of the commenters also AAJ endorsed submissiottef+eportspnnua4y4er utilities nearing decommissioning or in the process of decommissioning
& +owever, %.commenters noted ambiguity in the requirement that reports should be submitted annually by licensdes of plants that are within five years of their projected end of operations. reeing 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 Q 50.75(f) of the proposed rule to require 1 reporting by licensees for a plant within five years of the project end of operations, "or l where conditions have changed 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)... " 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. 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 reporting within five years of decommissioning. A complete report could be 56
required every five years, in the opinion of this commenter, with updates annually or biennially.
~ /
Given NRC's information needs, and the multi-mil n dollar size of the contributions that utilities make annually to their decommissioning funds, the potential pay-off per hour of staff labor that NRC invests in monitoring of fund is likely to be NAC l significant and is thus adopting a biennial reporting requirement. NRC also is adopting t/ commenter suggestions that reporting frequency be increased for plants approaching : the end of commercial operation or experiencing operating problems, or for plants l l involved in mergers / acquisitions. ! l i i C. Contents of Reports l Most of the commenters who addressed reporting did not question the need for j reports on the status of decommissioning funds, but they did not address in detail the ; i contents of such reports. Similarly, most of the commenters who raised questions I about reliance on the FASB draft for6ecommissioning statu id not n recommend alternaj{te reporting standards. Several commenters implicitly suggested v that the contents of reports submitted to State PUCs would be sufficiently similar to i NRC's requirements, by recommending that copies of State reports should be acceptable to NRC. ' 57 i
. = _ . - - . . . - . . - - . . , . - . . . ... .-. - . . .- - - . . - -.
y One commenter argued that NRC's proposed "pefunit" reporting was unclear about whether individual licensees of a jointly owned plant would each be required to submit their own status reports, or whether the plant operator could subg half of l all co-licensees. The commenter suggested that having the operator y the data i 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, I but would also place on it the burden of combining and assessing the data. The NRC ; believes that plant owners and operators should decide who will submit the required ! i information. However, even if all information is submitted by the operator, the information will need to be broken down by owner in order to evaluate each owner's j contributions to decommissioning. 1 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 thefeport to the single item of hwb 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 l
l that case, more detailed information could be required. g The comments sWnot address several issues revealed by commenters on the l/ d 58 i i i l
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 p n,ot address the 50-plus reporting items suggested by commenters in response to the ANPR. How the industry will understand the core concept of the reporting requirement, the " status of the decommissioning fund,"is not clarifjed by the comments on the
.rE proposed rule. At least one commenter suggp 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. The NP.C has attempted to clarify these l concerns in the final rule. ; I NRC should carefully consider its information needs and monitoring goals. If NRC views itself as the appropriate monitor of decommissioning trusts in a deregulated environment, NRC may wish to require the licensee to submit statements from the l trustee (or perhaps, require the licensee to amend its trust agreements to stipulate 59 h
i t i directly reporting to the NRC from the trustee) containing specified information on fund , balances, contributions, earnings, and other items (e.g., calculations, assumptions). A discussion from the licensee regarding the adequacy of funds relative to funding l requirements and projected costs may also be useful. I
- 10. Rate of Return '
NRC's proposed language in 10 CFR 50.75(e)(1)(i) and (ii) allows licensees to take credit for earnings on their prepaid decommissioning trust funds or external sinking i. l 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," NRC is allowing licensees to assume earnings credits for both the safe storage period and the period when funds flow out of the S/ ' decommissioning financial assurance mechanisms. f 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 owbg licensees to use assumed rates of return that are 4 approvedgdtate regulatory bodies. A few commenters supported the changes but 4 stated that licensees also should be given the flexibility to use a rate that is less than l 60
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 if it does not account for the effect of income taxes. More typically, commenters argued
*w! l that the rate is too low and should be increased. Suggested rates kluded 3 percent i V '
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). l Other commenters stated that NRC should allow licensees to use any " realistic" rate of l return or any rate they can justify, possibly in conjunction with periodic reevaluation of l 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 and outflow periods) and that different rates should be allowed if specifically approved by a rate-setting authority. According to the preamble to the proposed rule, the 2 percent real rate of return l l suggested by NRC (which is an after-tax rate of return) is based on historical data on returns from U.S. Treasury issues, and represents "as close to a ' risk-free' return as l l possible." Although this rate may seem relatively low given that higher interest rates l are frequently paid on common stocks and corporate bonds, the lower rates paid on overnment securities pose considerably less risk and are likely to be achieved on a more consistent basis. ; 61 1 (p
I l Given the need for " reasonable" assurance of decommissioning funding, there is little justification for selecting a rate de 07 2 percent. As shown in the table below, the historical average real return on long-term U.S. vernment bonds has been i very close to 2 percent, and the historical average real return on " risk-free" U.S. Grvd M d Treasury Bills has been less than 1 percent. Oaeed on this information, NRC would have difficulty justifying a higher rate. l Real Rates of Return for Sample Time Periods
/ U.S. Treasury Long-Term !
,' Bills Government Bonds Current R,atf(1997) d 3.49% 13.91 %
Contemporary \] Average (1975[V ,A 1.96 % 7.65% 1994) g J i Long-Term Average (1926- 997) 0.6% / 2.1 %
;eth > m th _
Source: lbbotson Associates Chicago.(stocks. Bonds. BiHs and!nflation: 1998 Yearbochable 4-1 and Table Averages are calculated as geometric means. l l The commenter's concern that 2 percent is less than the 7 percent and 3 percent ; l 62
r discount rates called for in NRC's regulatory analysis guidance is not relevant.8 '
~
Discount rates are used for capital investment analysis and other decision-making j purposes but, if used to calculate contributions to decommissioning funds, could result in financial assurance levels that are not adequate to pay for all assured obligations. l
- 11. Other '
A. Cost Recovery through Rates l Several commenters opposed the inclusion of any mechanism provides for I a stranded cost bailout of the nuclear industry by ratepayers, arguing, among other things, that such a bailout would be unfair, destroy real competition, inhibit employment ; gains, slow the economic growth of more viable, cost effective, and less polluting power generating technologies, and harm the environment by allowing the continued operation of nuclear power stations that might otherwise shut down. These comments may reflect , l a misunderstanding of the roles played by NRC relative to State PUCs and FERC. ,
) /
[ ! 3 NUREG/BR-0058 generally calls for the use of a 7 percent discount rate, which i is the rate recommended by OMB, in the estimation of values and impacts of a ! lD l regulatory action. NUREG/BR-0058 also suggests use of ar) agtive discount rate of 3 percent for sensitivity analysis purposes and for casesbre costs occur over a period of more than 100 years. \/ 63 to l
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
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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. PN!!L's B. Rate Recovery of Stranded Costs Using PNL's ormula 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 ! WNL'S using NL' 1993 generic decommissioning cost formula. Estimated costs in excess of the generi 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 ! fNNU ! that are not yet funded, including any unfunded portion of the generi PN stimate. ) l The comment described above addresses how decommissioning costs, including 64 L T\
T stranded decommissioning costs, might equitably be divided between ratepayers and ; shareholders. The comment is not directly relevant to decommissioning financial assurance, 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 f only that the licensee has provided adequate financial assurance for decommissioning. The question of how much of the decommissioning cost should be bome by ratepayers - as opposed to shareholders is one that has traditionally been answered by State PUCs. NRC, unlike the PUCs, does not have the authority to direct licensees recover costs )' Ob$w PNplLH from ratepayers. e NRC did sponsor the development o NU 993 generic decommissioning c'ost 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 minimum level of decommissioning assurance for a given reactor. Within this more limited context (and outside the scope of this rulemaking), NRC is currently evaluating the 1993 formula relative to 10 CFR 50.75(c). S.gt
& lf ct Finding of No Significant EnvironmentalImpact: Availability The NRC is amending its regulatiora on financial assurance requirements for the decommissioning of nuclear power plants. The amendn5ents are in response to the likelihood of deregulation of the power generating industry an'd resulting questions on whether current NRC regulations concerning decommissioning funds and their financial 65 T
i i , mechanisms will need to be modified. The action allows a broader range of assurance : i r mechanisms for reactor licensees that lose the ability to recover decommissioning costs ; I . l through regulated rates and fees or other mandatory charges established by a regulatory body than is allowed for licensees that do not, adds definitions of " Federal licensee" to address the issue of which licensees may use statements of intent and l other relevant terms, and requires power reactor licensees to report periodically on the ! t l status of their decommissioning funds and on the changes in their external trust i S i ! agreements. Also, the, amendments allow licensees to take credit for the earning on l i trust funds. ' @missionjn)V ^ j These changes could have the following effects on nuclear power reactor l licensees: (1) potentially requiring licensees who have been " deregulated" to secure (decommissioning (inancial assurance) instruments that provide full current assurance for projected decommissioning costs, (2) limiting the types of licensees that can qualify for , I I the use of Statements of Intent to satisfy decommissioning financial assurance requirements, (3) requiring periodic reporting on the status of their accurnulation of ) i decommissioning funds, thus leading to the potential for the NRC to require some ! I remedial action if the licensee's actions are inadequate, and (4) permitting licensees to I L l assume a real rate of return of two percent per annum, or such other rate as is '
/ / ,A permitted by a Public Utility Commission or the Federal knergy Re ulatory j Commission, on their accumulated funds. These actions are of the type focused upon
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{ financial assurances and mechanisms sto sure funding for decommissioning and are not actions that would have any effect upon the human environment. Neither this 66
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action nor the alternatives considered in the Regulatory Analysis supporting this final rule would lead to any increase in the effect on the environment of the decommissioning activities consider /ed in the final rule published on June 27,1988 (53
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FR 24018), as analyzed in tilehinal Generic Environmental impact Statement on Decommissioning of Nuclear Facilities";N EG-0586, August 1988).d
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Promulgation of these rule changes will not introduce any impacts on the environment not previously considered by the NRC. Therefore, the Commission has determined, under the National Environmental Policy Act of 1969, as amended, and the Commission's regulations in ubpart A of 10 CFR Part 51, that this rule is not a major Federal action significantly affecting the quality of the human environment and, therefore, an environmental impact statement is not required. No other agencies or persons were contacted in reaching this determination, and the NRC staff is not aware of any other documents related to consideration of whether there would be any environmentalimpacts action. The foregoing constitutes the environmental l assessment and finding of no significant impact for this final rule. I 1 o l l 1 l
' Copies of NUREG-0586 are available for inspection or copying for a fee from the ]
NRC Public Document Room at 2120 L Street NW. (Lower Level) Washington, DC j 20555 0001; telephone (202) 634-3273; fax (202) 634-3343. Copies may be l purchased at current rates from the U.S. Government Printing Office, P.O. Box 370892, Washington, DC 20402-9328; telephone (202) 512-2249; or from the National Technical Information Service by writing NTIS at 5285 Port Royal Road, Springfield, VA 22161. 67 7 l l
Paperwork Reduction Act Statement This final rule amends information collection requirements that are subject to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). These requirements were approved by the Office of Management and Budget approval number 3150-Public reporting burden for this collection of information is estimated to average hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate l or any other aspect of this collection of information, including suggestions for reducing g this burden, to the information and Records Management Branch (T-6 F33), U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, or by internet electronic
, M . mail at BSJ1@NRC. GOV; and to the Desk Officer, Office of Information and Regulatory ,
Affairs NEOB-10202, (3150- ), Office of Management and Budget, Washington, DC ; 20503.
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i Public Protection Notification ! l The NRC may not conduct or sponsor, and a person is not required to respond I to, an information collection unless it displays a currently valid OMB control number. : 1 Regulatory Analysis 68
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The Commission has prepared a r/egulatory analysis of this regulation. The analysis examines the costs and benefits of the alternatives considered by the
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Commission. Interested persons may examine a copy of the r/egulatory analysis at the NRC Public Document Room,2120 L Street NW (Lower Level), Washington, DC. ' p5 Single copies of the analysis may be obtained from Brian J. Richter, Office of Nuclear h\W Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, telephone (301) 415-1978, e-mail bjr@nrc. gov. M Regulatory Flexibility Certification As required by the Regulatory Flexibility Act of 1980,5 U.S.C. 605(b), the Commission certifies that this rule does not have a significant economic impact on a substantial number of small entities. This rule affects only the licensing and operation of nuclear power plants. The companies that own these plants do not fall within the scope of the definition of "small entities" set forth in the Regulatory Flexibility Act or the Small Business Size Standards set out in regulations issued by the Small Business Administration at 13 CFR Part 121. Backfit Analysis The regulat'$y analysis for the final rule also constitutes the documentation for the evaluation of backfit requirements, and no separate backfit analysis has been 69 N
prepared. As defined in 10 CFR 50.109, the backfit rule applies to
. . . modification of or addition to systems, structures, components, or design of a facility; or the design appr val of manufacturing license for a facility; or the procedures or organizatio required to design, construct, or operate a facility; 5 any of which may result from a new or amended provision in the Commission (
rules or the imposition of a regulatory staff position interpreting the Commission s rules that is either new or different from a previously applicable staff position . . . The amendments to NRC's requirements for the financial assurance of decommissioning of nuclear power plants allow a broader range of assurance mechanisms for reactor licensees that lose the ability to recover decommissioning costs through regulated rates and fees or other mandatory charges established by a regulatory body than is allowed for licensees that do not fine " Federal licensee," and {- add several associated definitions; add new reporting requirements pertaining to the use of prepayment and external sinking funds; impose new reporting requirements for power reactor licensees on the status of decommissioning funding that specify the timing and contents of such reports; and permit power reactor licensees to take credit for a 2 percent annual real rate of return on funds set aside for decommissioning from the time the funds are set aside through the end of the decommissioning period. These e actions are necessary to ensure that nuclear power reectors provide for adequate protection of the health and safety of the public in the face of a changing environment not envisioned when the reactor decommissioning funding regulations were promulgated. i Although some of the changes to the regulations are reporting requirements, l 70 l 1
l i l which are not covered by the backfit rule, other elements in the changes could be l considered backfits because they would modify or clarify procedures with respect to (1) \ acceptable decommissioning funding options under various scenarios, (2) v licensees may use statements of intent, and (3) permitted credit for real rates of return on funds set aside for decommissioning. The NRC has determined to treat this action I as an adequate protection backfit, because the action is necessary for the NRC to , maintain assurance of adequate funding for power plant decommissioning, particularly 1 l l in the face of the uncertainties associated with electric utility restructuring and l deregulation. Accordingly, these proposed changes to the regulations are required to satisfy 10 CFR 50.109(a)(5) and a full backfit pursuant to 10 CFR 50.109(a)(4)(ii). l List of Subjects l Part 50-- titrust, Classified information, Criminal penalties, Fire protection, intergovernmental relations, Nuclear power plants and reactors, Radiation protection, i Reactor siting criteria, Reporting and recordkeeping requirements. l For the reasons set out in the preamble and under the authority of the Atomic Energy Act of 1954, as amended, the Energy Reorganization Act of 1974, as amended l and 5 U.S.C. 552 and 553, the NRC is adopting the following amendments to 10 CFR i Part 50. 4 71 l b !
l l I r i PART 50 - DOMESTIC LICENSING OF PRODUCTION AND UTILIZATION i FACILITIES !
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- 1. The authority citation fort 50// continues to read as follows:
l , AUTHORITY: Secs. 102,103,104,105,161,182,183,186,189,68 Stat. 936, 937,938,948,953,954,955,956, as amended, sec. 234,83 Stat.1244, as amended ; j (42 U.S.C. 2132,2133,2134,2135,2201,2232,2233,2236,2239,2282); secs. 201, 1 as amended,202,206,88 Stat.1242, as amended, 1244,1246 (42 U.S.C. 5841, 5842, l 5846). l' i Section 50.7 also issued under Pub. L. 95 601, sec.10,92 Stat. 2951 (42 U.S.C. i 5851). Section 50.10 also issued under secs. 101,185,68 Stat. 955 as amended (42. i U.S.C. 2131,2235), sec.102, Pub. L. 91-190,83 Stat. 853 (42 U.S.C. 4332). Sections l 50.13,50.54(dd), and 50.103 also issued under sec.108,68 Stat. 939, as amended l l (42 U.S.C. 2138). Sections 50.23,50.35,50.55, and 50.56 also issued under sec. j 185,68 Stat. 955 (42 U.S.C. 2235). Sections 50.33a,50.55a and Appendix Q also issued under sec.102, Pub. L. 91-190, 83 Stat. 853 (42 U.S.C. 4332). Sections 50.34 l and 50.54 also issued under sec. 204,88 Stat.1245 (42 U.S.C. 5844). Section 50.37 l also issued under E.O. 12829,3 CFR 1993 Comp., p. 570; E.O.12958, as amended,3 l CFR,1995 Comp., p. 333; E.O.12968,3 CFR 1995 Comp., p. 391. Sections 50.58, 50.91, and 50.92 also issued under Pub. L. 97-415,96 Stat. 2073 (42 U.S.C. 2239). 72 l
l 9 Section 50.78 also issued under sec.122,68 Stat. 939 (42 U.S.C. 2152). Sections . 50.80- 50.81 also issued under sec.184,68 Stat. 954, as amended (42 U.S.C. 2234). ' Appendix F also issued under sec.187,68 Stat. 955 (42 U.S.C. 2237).
- 2. In @ 50.2 the definitions of Cost of service, Federallicensee, Incentive regulation, Non-bypassable charges, and Pn*ce-cap regulation are added in alphabetical order to read as follows: . !
@ 50.2 Definitions.
" Cost of service" regulation means the traditional system of rate regulation, or similar regulation, including " price cap" or " incentive" regulation, in which a rate regulatory authority generally abws an electric utility to charge its customers the reasonable and prudent costs of providing electricity services, including capital, operations, maintenance, fuel, decommissioning, and other costs required to provide such services.
l
. . . . . j i
1 i Federallicensee means any NRC licensee, the obligations of which are 1 4 73
$0
I guaranteed by and supported by the full faith and credit of the United States j Government. l Incentive regulation means the system of rate regulation in which a rate regulatory authority establishes rates that an electric generator may charge its customers that are based on specified performance factors, in addition to cost-of-service factors. l
. . . . . i l Non-bypassable charges mean those charges imposed over an established time period by/a rnment Vd affected persons or entities are required to pay
$pve/authority wb)ch to cover costs associated with construction, operation, maintenance, or decommissioning of a nuclear power plant. Such charges include, but are not limited to, wire charges, stranded cost charges, transition charges, exit fees, other similar charges, or the securitized proceeds of a revenue straam.
I i l 74 91 l
l l l l l Price-cap regulation means the system of rate regulation in which a rate regulatory authority establishes rates that an electric generator may charge its l customers that are based on a specified maximum price of electricity. l i j l
- 3. In Section 50.43, paragraph (a) is revised to read as follows:
9 50.43 Additional standards and orovisions affectina class 103 licenses for commercial oower. i l 1 I (a) The Commission will give notice in writing of each application to such regulatory agency or State as may have jurisdiction over the rates and services incident to the proposed activity; will publish notice of the application in such trade or news publications as it deems appropriate to give reasonable notice to municipalities, private ; i 101 i utilities, public bodies, and cooperatives which might have a potential interest in such utilization or production facility; and will publish noticp of the application once each
, LT /y (/ .
week for 4 consecutive weeks in the brai Re"gIsM. No license will be issued by the Commission prior to the giving of such notices and until 4 weeks after the last 75
i l publication in the(eMr. -
- 4. In Section 50.54, the introductory text of paragraph (w) is revised to read as follows:
l l
@ 50.54 Conditions oflicenses.
(w) Each power reactor licensee under this part for a production or utilization l l facility of the type described in Sections 50.21(b) or 50.22 shall take reasonable steps to obtain insurance available at reasonable costs and on reasonable terms from private sources or to demonstrate to the satisfaction of the Commission that it possesses an equivalent amount of protection covering the licensee's obligation, in the event of an accident at the licensee's reactor, to stabilize and decontaminate the reactor and the reactor station site at which the reactor experiencing the accident is located, provided that: i l l l l l i 76 l
1
- 5. In Section 50.63, paragraph (a)(2) is revised to read as follows
. @ 50.63 Loss of alternatina current oqwgr (a)
- (2) The reactor core and associated coolant, control, and protection systems, including station batteries and any other necessary support systems, must provide sufficient capacity and capability to ensure that the core is cooled and appropriate j containment integrity is maintained in the event of a station blackout for the specified 1
1
- duration. The capability for coping with a station blackout of specified duration shall be i
] determined by an appropriate coping analysis. Licensees are expected to have the i baseline assumptions, analyses, and related information used in their coping evaluations available for NRC review. 1 i
)
- 6. In Section 50.73, paragraph (b)(2)(ii)(J)(2)(iv)is revised to read as follows:
@ 50.73 Licensee event reoort system.
(b) 77 IS
i (2) 4 l (ii) 1 (J) (2) (iv) The type of personnel involved (i.e., cont actor personnel, licensed operator, nonlicensed operator, other licensee person
- 7. In Section 50.75, paragraphs (a), (b), (d), and (e) are revised, paragraph (e)(3) is removed, and paragraphs (f)(1), (2), and (3) are redesignated as paragraph (f)(2), (3), and (4) and a new paragraph (f)(1) is added to read as follows:
6 50.75 Reoorting and recordkeeoing for decommissioning olanning. l (a) This section establishes requirements for indicating to NRC how
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l reasonable assurance will be provided that funds will be available for decommissioning. l For power reactor licensees it consists of a step-wise procedure as provided in paragraphs (b), (c), (e), and (f) of this section. Funding for decommissioning of most i power reactors is also subject to the regulation of agencies (e.g., Federal Energy
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] l Regulatory Commission (FERC) and State Public Utility Commissions) having ,
l 1 jurisdiction over rate regulation. The requirements of this section, in particular l 78
$f
I O
-{h paragraph (c), are in addition to, and notgubstitution for, other requirements, and are not intended to be used y themselves other agencies to establish rates.
(b) Each power reactor applicant for or holder of an operating license for a production or utilization facility of the type and power level specified in paragraph (c) of this section shall submit a decommissioning report, as required by 10 CFR 50.33(k) of this part containing a certification that financial assurance for decommissioning will be T)wl provided in an amount which may be more but not less than the amount stated in the table in paragraph (c)(1) of this section, adjusted annually using a rate at least equal to that stated in paragraph (c)(2) of this section, by one or more of the methods described in paragraph (e) of this section as acceptable to the Commission. Tho amount stated in the applicant's or licensee's certification may be based on a cost estimate for decommissioning the facility. As part of the certification, a copy of the financial instrument obtained to satisfy the requirements of paragraph (e) of this section is to be submitted to NRC. (d) Each non-power reactor applicant for or holder of an operating license for a production or utilization facility shall submit a decommissioning report as required by 10 CFR 50.33(k) of this part containing a cost estimate for decommissioning the facility, an indication of which method or methods described in paragraph (e) of this section as 79 N i
acceptable to the Commission will be used to provide funds for decommissioning, and a description of the means of adjusting the cost estimate and associated funding level r periodically over the life of the facility. (e)(1) Financial assurance is to be provided by the methods set forth in this paragraph g.) _ (1)d Prepayment. Prepayment is the deposil ri he start of operation into an account segregated from licensee assets and outsi the licensee's administrative control of cash or liquid assets such that the amount of funds would be sufficient to pay
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decommissioning costs. Prepayment may be in he fob of a trust, escrow account,
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Iovernment fund, certificate of deposit, deposit o g vernment securities or other payment acceptable to the Commission. A licensee may take credit on earnings on the prepaid decommissioning trust funds using up to a 2 percent annual real rate of return from the time of future funds' collection through the projected decommissioning period, including the periods of safe storage, final dismantlement, and license termination, if the licensee's rate-setting authority does not authorize the use of another rate. All actual earnings on existing funds may be used to calculate future fund needs. l I' (ii) External sinking fund. An external sinking fund is a fund . established and maintained by setting funds aside periodically in an account segregated from licensee assets and outside the licensee's administrative control in which the total amount of funds would be sufficient to pay decommissioning costs at the time termination of operation is expected. An external sinking fund may be in the fc m of a trust, escrow 80 N
account, rnment fund, certificate of deposit, deposit oY ernment securities, or other payment acceptable to the Commission. A licensee may take credit for earnings on the external sinking funds using up tu a 2 percent annual real rate of return from the time of future funds' collection through the decommissioning period, including the periods of safe storage, final dismantlement, and license termination, if the licensee's rate-setting authority does not authorize the use of another rate. All actual earnings on existing funds may be used to calculate future fund needs. This method may be used as the exclusive mechanism relied upon for providing financial assurance for decommissioning in the following circumstances: (A) By a licensee that recovers, either directly or indirectly, the cost of f generating, transmitting, or distributing electricity through rates established by "costf6f service" or similar ratemaking regulation. Public utility districts, municipalities, rural electric cooperatives, and State and Federal agencies, including associations of any of the foregoing, that establish their own rates and are able to recover their cost of , service, are assumed to meet this condition. (B) By a licensee whose source of revenues for its extemal sinking fund is a "non-bypassable charge," the total amount of which will provide funds estimated to be , needed for decommissioning pursuant to @@ 50.75(c),50.75(f), or 50.82. : 1 I (C) By a licensee whose source of revenues for its external sinking fund is a contractual obligation (s) on the part of a licensee's customer (s), the total amount of I l which over the duration of the contract (s) will provide the licensee's total share of
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l 81 l l l 1
i vs k !P'8D uncollected funds estimated to be needed for decommissioning pursuant to @$0.75(c), @ 50.75(f), or @ 50.82. To be acceptable to the Commission as a method of decommissioning funding assurance, the terms of the contract (s) shall include provisions that the electricity buyer (s) will pay for the decommissioning obligations specified in the contract (s), notwithstanding the operational status either of the licensed power reactor to which the contract (s) pertains or force majeure provisions. All proceeds from the contract (s) for decommissioning funding will be deposited to the ! external sinking fund. The Commission reserves the right to evaluate the terms of any contract (s) offered as assurance for decommissioning funding. A licensee, whose rates for decommissioning costs cover only a portion of such costs, may make use of these methods only for that portion of such costs that are collected in one of the manners described in this paragraph, (e)(3)(ii). (iii) A surety method, insurance, or other guarantee method: (A) These methods guarantee that decommissioning costs will be paid. A surety method may be in the form of a surety bond, letter of credit, or line of credit. Any surety method or insurance used to provide financial assurance for decommissioning must contain the following conditions: (1) The surety method or insurance must be open-ended, or, if written for a v' specified term, such as five years, must be renewed automaticallyy unless 90 days or
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more prior to the renewal day [the issuer notifies the Commission, the beneficiary, and '
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the licensee of its intention not to renew. The surety or insurance must also provide ; 82
that the full face amount be paid to the beneficiary automatically prior to the expiration j without proof of forfeiture if the licensee fails to provide a replacement acceptable to the Commission within 30 days after receipt of notification of cancellation. l (2) The surety or insurance must be payable to a trust established for l , decommissioning costs. The trustee and trust must be acceptable to the Commission. An acceptable trustee includes an appropriate State or Federal government agency or 1 an entity which has the authority to act as a trustee and whose trust operations are ! regulated and examined by a Federal or State agency. (B) A parent company guarantee of funds for decommissioning costs based l on a financial test may be used if the guarantee and test are as contained in Appendix g ,.' 1 M o 10 CFR Part 30. (C) For commercial companies that issue bonds, a guarantee of funds by the applicant or licensee for decommissioning costs based on financial test may be used l
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if the guarantee and test are as contained in Appendix 10 CFR Part 30. For j commercial companies that do not issue bonds, a guarantee of funds by the applicant i or licensee for decommissioning costs may be used if the guarantee and test are as p , contained in Appendir 10 CFR Part 30. For non-profit entities, such as colleget., universities, and non-profit hospitals, a guarantee of funds by the applicant or licensee f may be used if the guarantee and test are as contained in Appendix.Eh10 CFR aks
- 30. A guarantee by the applicant or licensee may not be used in any situation M,er j
/ i the applicant or licensee has a parent company holding majority control of voting stock 1 83 J
l 90
of the company. (lv) For a power reactor licensee that is a Federal licensee, or for a non-power reactor licensee that is a Federal, State, or local government licensee, a statement of intent containing a cost estimate for decommissioning, and indicating that funds for decommissioning will be obtained when necessary. (v) Any other mechanism, or combination of mechanisms, which provides, as determined by the Commission upon its evaluation of the specific circumstances of each licensee submittal, assurance of decommissioning funding equivalent to that N-d d provided by the mechanisms specified in paragraphs (e)(1)(l)k(iv) of this section.
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ihot I Licensees h do not have sources of funding described in paragraph (e)(1)(ii) of this I section may use an external sinking fund in combination with a guarantee mechanism, I as specified in paragraph (e)(1)(iii) of this section, provided that the total amount of funds estimated to be necessary for decommissioning is assured. (e)(2) The Commission reserves the right to take the following steps in order to ensure 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 the FERC and the licensee's State PUC, take additional actions as apprppriate on a case-by-case basis, including modification of a licensee's schedule ifM forpecumulation of decommissioning funds. A. 84 N
(f)(1) Each power reactor licensee shall report, on a calendap/ ear basis, to the A NRC by March 31g[the year after the year of the effective date of the final rule), and at l least once every 2 years thereafter on the status of its decommissioning funding for each reactor or part of a reactor that it owns. The information in this report must include, at a minimum: the amount of decommissioning funds estimated to be required [
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pursuant to 10 CFR 50.75(b) and (c); the amount accumulated to the end of the calendar year e date of the report; a schedule of the annual amounts ; remaining to be collected; the assumptions used regarding rates of escalation in I decommissioning costs, rates of earnings in decommissioning funds, and rates of other j factors (e.g., discount rates) used in funding projections; any contracts upon which the licensee is relying pursuant to paragraph (e)(1)(ii)(C) of this section; and any ) i modifications occurring to a licensee's current method of providing financial assurance since the last submitted report. Any licensee for a plant that is within 5 years of the l projected end of its operation, or where conditions have changed such that it will close i within 5 years before the end of its licensed life, or has already closed, shall submit such a report annually. Dated at Rockville, Maryland this day of . 199_. For the Nuclear Regulatory Commission. 85 b 1
John C. Hoyle, Secretary of the Commission. i 1 l l l l 1 86 l l b}}