ML20196H904
| ML20196H904 | |
| Person / Time | |
|---|---|
| Issue date: | 05/28/1998 |
| From: | Halman E NRC OFFICE OF ADMINISTRATION (ADM) |
| To: | Roe J NRC (Affiliation Not Assigned) |
| Shared Package | |
| ML20196H655 | List: |
| References | |
| FRN-63FR50465, RULE-PR-30, RULE-PR-50 AF41-2-048, AF41-2-48, NUDOCS 9812090223 | |
| Download: ML20196H904 (80) | |
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j UNITED STATES NUCLEAR REGULATORY COMMISSION
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- WASHINGTON, D.C. 2066Hooi
- May 28, 1998 d
MEMORANDUM TO: Jack W. Roe, Acting Director Division of Reactor Program Management Office of Nuclear Reactor Regulation FROM: Edward L. Halman, Dire .
Office of Administratio
SUBJECT:
OFFICE CONCURRENCE ON FINAL RULE ENTITLED
" FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISSIONING NUCLEAR POWER REACTORS" The Office of Administration has reviewed and concurs on the subject rule that will require power reactor licensees to report periodically on the status of their decommissioning funds.
We note and appreciate the incorporation of our comments from our May 12,1998, review of this rule. We have attached a marked copy of the rule that presents minor changes necessary to conform the addition of 10 CFR Part 30 to this rule. 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 added new amendatory language and modified the regulatory text and the cross references used within the regulatory text so that the newly-added text contained in 10 CFR Part 30 conforms to the rest of the rule. In the preamble portion of the rule, we have edited the text of footnote 2 to indicate that Appendices A and C of 10 CFR Part 30 are being amended as part of this final rule.
if you have any questions or comments regarding this review, please have a member of your staff contact David L. Meyer, chief, Rules and Directives Branch at,415-7162 (DLM1), or Alzonia Shepard at 415-6864 (AWS1).
Attachment:
As stated 9812090223 981208 PDR PR 30 63FR50465 PDR cpIzG90L23 Popp, 0 0
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e EQB: The Commissioners FROM L. Joseph Callan Executive Director for Operations i
SUBJECT:
FINAL RULE ON FINANCIAL ASSURANCE REQUIREMENTS FOR '
DECOMMISSIONING NUCLEAR POWER REACTORS I
PURPOSE-To request Commission approval to publish in the Federal Reaister a final rule on financial assurance requirements for decommissioning nuclear power reactors.
SUMMARY
This final rule was developed to amend the NRC's regulations relating to financial assurance requirements for the decommissioning of nuclear power plants. The rule was in response to the anticipated rate deregulation of the power generating industry. The staff believes the final rule provides for adequate protection in the face of a changing environment not envisioned when the present rule was written in the mid-198&%* This final rule lets stand the definition of " electric X/
utility" contained in 10 CFR 50.2 as it applies to financial qualifications for operating plants as provided in S 50.33(f). However, this definition is no longer bein sed directly with respect to decommissioning funding assuropep. Rather,10 CFR 50.75(e , describes the circumstances X /
under which licensees may use gthe extemal sinking fund met od of financial assurance for x/
decommissioning exclusively. This is one of the financial assurance mechanisms allowed by NRC, and is currently used by virtually all power reactor licensees. In response to comments on the proposed rule, the final rule identifies additional financial assurance mechanisms that may be used for decommissioning, which, the staff believes, provide levels of assurance equivalent to those mechanisms currently allowed by the NRC. The following modifications as
> 29;2d in the final rule are consistent with modifications contained in the proposed rule. The
'm Med yd fp+(y CONTACT:
Brian J. Richter, NRR 47 (301) 415-1978
l l
The Commissioner 2 final rule adds a definition of " Federal licensee" to further clarify the issue of which licensees may use statements of intent, and requires power reactor licensees to report periodically on the status of their decommissioning funds and changes in their extemal trust agreements. The rule also amends the regulations to expressly allow licensees to take credit for the earnings on decommissioning trust funds during operating and decommissioning periods.
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 issued a staff requirements memorandum (SRM) on June 30,1997, approving publication of the proposed rule subject to some modifications. Subsequently, on August 15,1997, the ,
Commission issued COMSAJ 97-009, directing the staff to further modify the proposed rule. '
On the basis of the Commission's comments, the proposed rule was resubmitted to the Commission and published in the Federal Reaister on September 10,1997 (62 FR 47588). l The attached final rule responds to the comments received on the proposed rule and contains the final amendments to be published in the Federal Reaister.
DISCUSSION:
The proposed rule, published in the Federal Reaister on September 10,1997, was written to l accomplish three objectives. First, the NRC proposed modifications to decommissioning financial assurance mechanisms to address concerns resulting from the potential deregulation of the power generating industry. Second, the NRC proposed that power reactor licensees I report periodically on the status of their decommissioning funds and on the changes in their external trust agreements. Third, the NRC proposed that licensees be allowed to take a specified credit for the eamings on decommissioning trust funds.
A total of 33 commenters submitted more than 200 comments on the proposed rule. Some of the comments simply endorsed the Nuclear Energy Institute (NEl) positions. The commenters represented 25 utilities and utility groups,5 State agencies or Public Utility Commission groups, and 2 public interest groups; one individual did not state any affiliation. l l
In general, the commenters were supportive of the Commission taking action at this time on J financial assurance requirements for decommissioning nuclear power reactors. However, the industry expressed concem that the proposed rule needed clarification and that the proposed assurance mechanisms were too stringent. In particular, commenters expressed significant concem regarding the Commission's proposed definition of " electric utility" because they objected to the linking of decommissioning costs with the costs of operations and maintenance in the definition of ' electric utility" or any surrogate definition. The commenters were concemed that as a health and safety issue, decommissioning funding assurance is a separate issue from financial qualifications for operations. Specifically, the proposed rule continued the distinction currently codified in the Commission's financial assurance regulations between " electric utility" i licensees and others in terms of providing decommissioning funding assurance and assurance l of financial qualifications for operations. Second, in the proposed rule, the definition of " electric utility" in 10 CFR 50.2 was expanded to address non-bypassable wires charges that some States have imposed to recover decommissioning costs. The proposed rule contained other l
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The Commissioner 3 definitions in 9 50.2 to clarify what the NRC means by " cost-of-service regulation,"" Federal licensee," and other related terms. Finally, NEl, with many of the licensee commenters endorsing the NEl position, proposed an alternative concept of " qualified nuclear entity,"
because NEl believes that " electric utility" is no longer a valid concept. These commenters also requested additional financial assurance mechanisms and a liberalizing of the existing mechanisms, including the financial test criteria for a parent company and self guarantees in 10 CFR Part 30, Appendices A and C.
After evaluating the comments, the staff decided not to revise the definition of " electric utility" in the final rule, nor to define a new entity for the purposes of financial assurance for 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 H
some time.gMjwever, licensees w ould maketheusestaff of anrecommends
" external sinkingincluding fund" as adirectly method ofinfinancial G 50.75(e)(1)(ii), the type
- / X assurance for decommissioning. In 9 50.2, several definitions have been revised to clarify what the NRC means by " cost-of-service regulation,"" Federal licensee," " Incentive regulation," *Non-bypassable charges," and " Price-cap regulation." Further, in view of the guidance to the staff in the Commission's January 15,1998, SRM (" Staff Requirements -SECY-97-253- Policy Options for Nuclear Power Reactor Financial Qualifications in Response to Restructuring of the Electric Utility Industry"), the staff believes that the existing definition of " electric utility" should continue to apply to firencial qualifications of operations. Regarding the~ comments 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 and also includes under which circumstances licensees would be able to make use of an "extemal sinking fund" as a method of financial assurance for decommissioning directly in S 50.75(e)(1)(ii). Also, the staff modified appendices A and C to 10 CFR Part 30 to address the issue of combining assurance mechanisms (i.e., external sinking funds combined with parent or self-guarantees.)
Regarding the proposed reporting requirement, commenters generally did not oppose reporting to the NRC on the status of decommissioning funding assurance. However, several did oppose the proposed frequency and the NRC endorsement of a Financial Accounting Standards Board (FASB) exposure draft (through draft Regulatory Guide 1060 (DG-1060)) or any other FASB-based position that is not final. The staff believes that the language in the rule'is explicit in I identifying the financial assurance data required for decommissioning. Therefore, the staff has I suspended work on the regulatory guide and will not resume work on it, nor endorse the FASB standard, until that standard is made final. Last, the commenters generally favored the NRC's proposal to allow credit for earnings on licensees' prepaid decommissioning trust funds or extemal sinking funds. However, the proposed 2 percent real rate-of-return was considered too low by some commenters and too high by others. The staff continues to believe that the 2 percent value is appropriate, but has modified the final rule to allow licensees, at their discretion, to use values up to a 2 percent annual real rate of retum, if the licensee's rate regulator has not authorized some other rate.
i The Commissioner 4 RESOURCES:
Resources needed for review of the reports required by this rule are expected to be minimal (2- i 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 ;
Financial Officer has no objection to the resource estimates contained in this paper. The Chief information Officer concurs that there will be no information technology impacts.
RECOMMENDATIONS:
That the Commission:
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- 1. Acorove for publicatio , in the Federal Reoister the final amendments to 10 CFR y*
Part 50 (Attachment 1).
p a sv4wt
- 2. Certify that this rule, if promulgated, will nofgeconomic impact on a '
substantial number of small entities Flexibility Act ,5 U.S.C. 605(b). /
in-order to ::Sfirecivirem red -
the Regulatory
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- 3. nom that ,4,
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- a. The Chief Counsel for Advocacy of the dmall Business Administration will be v#
informed of the certification regarding%conomic impact on small entities and the reasons for it as required by the Regulatory Flexibility Act 'AttachT.:n 2); -
- b. The appropriate Congressional committees will be informed (Attachmenth /
press re lea se, 3
- c. A pubnc announcemej will be issued (Attachment /); /
- d. A regulatory analysis (Attachment will be available in the Public Document Room;
- e. This rule amends information collection requirements that are subject to the Papenvork Reduction 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 the paperwork requirements.
- f. It is estimated that this action esult in an additional annual NRC burden of approximately 2 staff-weeks,
- g. The staff intends to prepare the final" Standard Review Plan on Power Reactor Licensee Financial Qualifications and Decommissioning Funding Assurance" (NUREG-1577) to reflect the Commission's decision on decommissioning funding in this final rule; and l
The Commissioner 5 te m a /
- h. The staff will issue Regulatory Guide 1060, after the FASB standard W /8 '
final.
L. Joseph Callan :
Executive Director for Operations Attachments:
- 1. Federal Register Notice of Final Rulemaking I
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2.g CongressionalLetters g PdS Aaaeencement *- fe e.s c A< lea s<
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[7590-01-P] I i
NUCLEAR REGULATORY COMJMISON A -l/
l 10 CFR Parts 30 and 50 8__
RIN 3150-AF41" ~ff^ y !
Financial Assurance Requirements for Decommissioning Nuclear Power Reactors l
-t AGENCY: Nuclear Regulatory Commission.
l l ACTION: Final rule. l i- i i
SUMMARY
- The Nuclear Regulatory Commission (NRC),is amending its regulations on l l
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- financial assurance requirements for the decommissioning of nuclear power plants. The er e. k west *ns* h h e elnyahdj y ,.a t a fetea.ib amendments re;-c-nd 'E (1) ?; gratic' tr!" deregulation'in t%g;;r generating industry'and 1 l
9 netd 4o alsare. ad*4+4 $ for i *f PRC* U" '"d Cs'cil, Vies.
. * (2) tp NRC c;n::= . _,_... , ...... fJJ., _.....t.ingdecommissioning '~ '
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\ 1 l f S: ;i:x:nt: /2 .::d te h - :";d. The amendment requires power reactor licensees to !
report periodically on the status of their decommissioning funds and on the changes in their external trust agreements and other financial assurance mechanisms. The amendment also l
l allows licensees to take credit for certain eamings on decommissioning trust funds.
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EFFECTIVE DATE: (60 days from the date of publication in the Federal Register.)
- FOR FURTHER INFORMATION CONTACT: Brian J. Richter, Office of Nuclear Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001; telephone:
301-415-1978; e-mail; bjr@nrc. gov.
M i
1 SUPPLEMENTARY INFORMATION:
1. Background
l The NRC published an adv6nce notice of proposed rulemaking (ANPR) for
- Financial Assurance Requirements for Decommissioning Nuclear Power Reactors" on 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 nuclear power plants in anticipation of rate deregulation of the power generating industry. In response to the comments received on the ANPR, the NRC published a proposed rule on September 10,1997 (62 FR 47588). The NRC proposed to: (1) revise the definition of
- electric utility" and related definitions contained in 10 CFR 50.2; (2) add a definition of the term
- Federal licensee" to address the issue of which licensees may use statements of intent; and (3) require power reactor licensees to report periodically on the status of their decommissioning funds and changes in their extemal trust agreements. The rule also would have amended 10 CFR 50.75 to expressly allow licensees to take credit for the earnings on decommissioning trust funds during the operating and decommissioning periods.
II. Comments on the Proposed Rule 1 l
The Commission received 33 letters containing more than 200 comments on the proposed rule representing 25 licensees or licensee organizations,5 State agencies or Public l
Utility Commissions,2 public interest groups, and an individual with no affiliation provided. I Copies of the letters are available for public inspection and copying for a fee at the 2
Commission's Public Document Room, located at 2120 L Street, NW. (Lower Level),
Washington, DC 2055-0001.
The comments have been organized by topic and an analysis of them follows.
- 1. Definition of Electric Utility A. Linkage Between Decommissioning Financial Assurance Requirements and Financial Qualification Requirements (i.e., Linkage Between Costs of Operation, Maintenance, and Decommissioning)
Several commenters, including the Nuclear Energy Institute (NEl), stated that NRC should not use the term " electric utility" in its decommissioning financial assurance rules because the term is used for different purposes in the context of NRC's financial qualification requirements in 10 CFR 50.33(f). These commenters stressed that only decommissioning costs are of concem with respect to the financial assurance requirements, whereas only operation and maintenance costs are of concem with respect to the financial qualification requirements. By referencing all these costs as well as the cost of " electricity," the proposed I definition of electric utility is both unclear and problematic.
The 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 l l
" conclusively demonstrate a govemment-mandated, guaranteed revenue stream for all unfunded decommissioning obligations" by virtue of a non-bypassable charge that covers only 3
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decommissioning costs. (For example, one commenter stated that, in California, licensees are ,
i assured of recovering decommissioning costs in distribution rates through non-bypassable !
means, although recovery of the costs of operation and maintenance may not be assured.)
Second, the definition could unnecessarily invite challenges to the rates established by regulators. Specifically, by requiring that an electric utility's rates be " sufficient for the licensee to operate, maintain,.and decommission its nuclear plant safely," the proposed definition could l l
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 funding on the part of nonowner operators that, they argued, may inhibit the formation of joint operating i companies. ,
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The NRC believes that commenters' concerns in this area were addressed by the third sentence of the proposed definition, that 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." NRC did not intend to have all licensees consider only the combined costs of operation, maintenance, and decommissioning. Nevertheless, even some commenters who understood NRC's intent suggested modifying this third sentence. One suggestion was to replace it with "An entity whose rates are established by a regulatory authority by mechanisms that cover only decommissioning costs will be considered to be an ' electric utility' with respect to its decommissioning funding responsibilities." (Presumably an additional parallel sentence would 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 4
a certain portion or discrete cateoorv of costs. Either of these suggestions would also obviate any need to include the 10 percent de minimis threshold for non-recovered costs that was suggested by one commenter (i.e., because the relevant category of costs - for l decommissioning - would be recovered, even if they were less than 10 percent of all costs),
and would allay the concerns of several commenters that an entity recovering only decommissioning costs through non-bypassable charges might be considered less than a 100 percent electric utility for purposes of the decommissioning requirements.
One possible remedy, as suggested by NEl, would be for NRC to construct and define a new term such as " qualified nuclear entity" that would apply only to the decommissioning financial assurance requirements. NEl would define a qualified nuclear entity as one that obtains decommissioning funds threugh (1) a rate-setting mechanism'(2) a non-bypassable X '
j charge established by legislative or regulatory mandatej 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. NEl's comment does not fully or adequately explain the meaning or implications of the binding contractual agreement included as the third option in its definition. However, other commenters specifically referenced NEl's comments, 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 meaning as a result of industry restructuring, but would not alter the existing definition of electric utility 5
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l which would, under NEl's proposal, remain applicable to NRC's financial qualification requirements. The logic of this position is that the current rule is intended to address the ;
decommissioning financial assurance requirements rather than the financial qualification l requirements. Nevertheless, the loss of regulatory oversight as a potential consequence of industry restructuring is as relevant to NRC's financial qualification requirements as it is to l NRC's decommissioning financial assurance requirements. Therefore, the NRC has adopted )
another approach that is intended to address commenters' concems, but that does not have i
some of the shortcomings of NEl's approach. The Commission has decided not to change the l current definition of " electric utility" as it applies to financial qualifications requirements in 10 CFR 50.33(f). Rather, the NRC is clarifying the applicability of extemal sinking funds and other ,
mechanisms directly in 10 CFR 50.75.
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 indirectiv. through rates established by the entity itself or by a separate regulatory authority." These commenters stated that allowing cost recovery based only on regulated rates and non-bypassable charges might restrict licensees from competing in the open market. Specifically, the change might prevent licensees with Public
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Utility Commission (PUC)- or Federal Energy Regulatory Commission (FERC)-approved long- x j
term power sales agreements from qualifying as electric utilities.
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- l. It is not clear whether PUC- or FERC-approved,long-term power sales agreements L/ j i- ,
I would qualify as cost of service regulation or as non-bypassable charges (and hence as cost l
,i recovery through regulated rates) under eitherthe current definition or the proposed definition. '
Assuming that PUCs or FERC analyze eements to ensure that they are consistent with /'
j the entity's recovery of all reasonable and prudent costs, it would be reasonable for NRC to !
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j interpret eve >tIgreements as acceptable under either definition. Because this interpretation x j i
j would not be obvious under either definition, however', such an interpretation by NRC would l
have to be implemented through existing or new guidance documents, c;; M':r her or /x nrz !
) not the phrase is added to the definition. If eMagreements are not consistent with the entity's Y. {
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- recovery of all reasonable and prudent costs, then the phrase "either directly or indirectly" has
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j been deleted appropriately. l i l j i l
- Another commenter stated that NRC should not delete the phrase *directly or indirectly" 2
1 because the deletion could be interpreted as eliminating the exemption from financial i
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! qualification requirements applicable to nonowner operators who cover their costs under )
i l l contracts with owners. The commenter claimed ~ hat NRC has traditionally held that se
. nonowner operators are tiec*.'ic utilities" exempt frem the regulated rates of the owners who j are contractually commined ic .-y the operators' expenses. The logic of the commenter's t
argument seems to be that nonowner operators recover the costs of their electricity from l
owners, whose rates are directly regulated, thereby making the operator's cost recovery indirectly regulated. For the reasons that follow, the final rule should render this concern moot.
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C. Consequences of Not Meeting the Definition One commenter suggested that the proposed definition could result in the premature shutdown of nuclear power plants that have insufficient funds set aside to pay for decommissioning. This comment appears to argue that premature shutdowns may result if, as a result of an ertity's loss of status as an electric utility, it must (but is unable to) provide up-front financial assurance for decommissioning. This issue is analyzed in Section 7.B.
Prepayment /Up-front Assurance.
D. Implications for State Ratemaking Authority Some commenters suggested that NRC clarify that it does not intend to infringe upon State ratemaking authority. To this end, one PUC stated that the NRC should remove from the definition the requirement that utilities recover "the cost of electricity," which is only an intermediate consideration in the development of rates. This commenter suggested that the definition should be changed to "any entity that generates, transmits, or distributes electricity."
In response, the NRC has neither the intentioni nor the authority to infringe on State ratemaking authority. The NRC believes that the final rule described below will obviate these commenters' ,
concerns.
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l E. Regulatory Efficiency Ab
- Some commenters suggested that the proposed regulation 9 50.75(e)(3) be revised to l
/ /x \
avoid repeating the definition of electric utility. This comment has been adopted, de facto, by ,
the final rule.
F. Application of Definition to Public Power Agencies Some commenters noted that the proposed definition does not appear to require public
,. power agencies to recover all of their costs in their rates, only that they set their own rates. In a competitive market, it does not follow that the authority of such agencies to set the:r own rates l I
will, in and of itself, provide assurance of 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 foregoing, that l establish their own rates are included within the meaning of " electric utility."
i This sentence automatically classifies any licensee that falls in one of the above- !
referenced groups (collectively referred to by the commenter as "public power agencies") as an !
electric utility. Thus, public power agencies automatically qualify as electric utilities without consideration to any of the definition's other conditions on rate recovery. The commenters' assessment appears sound in that, in a competitive market, such entities might not recover all 9
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their costs even if they can set their uwn rates. The ability to set rates adequate to achieve full cost recovery would be undermined by the loss of an exclusive service territory. Although the NRC is retaining, unmodified', the definition of " electric utility" for purposes of financial qualifications, the NRC has adopted this comment in its revised section 50.75(e).
- 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 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 as part of funds for decommissioning deposited in an extemal sinking fund.
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, and also would 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 10
encroaching upon the responsibilities of other 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 that were noted in the " electric utility" definition. [See discussion and analysis in Section 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 the definition should be revised to read " costs associated with operation, maintenance, or decommissioning . . . ." They noted that this is more con *istent 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.
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t C. Types of Non-Bypassable Charges One commenter stated that it is not clear whether the proposed definition encompasses wire charges, stranded cost charges, transition charges, exit fees, other similar charges, the ,
securitized proceeds of a revenue stream, or price cap regulation. If NRC decides to defer to i State regulatory officials, the final rule should be clear in stating the types of charges covered !
by the definition. Similarly, other commenters suggested expanding the definition to include other funding mechanisms imposed or established by a govemmental authority. One commenter suggested the definition might include a decommissioning liability covered by State securitization legislation. Another suggested it might include binding contracts secured by l legislation or a regulatory commission order or both.
- The proposed definition, as stated, includes
... charges imposed by a govemmental authority which affected entities are required to pay [over an established time period) to cover costs associated with operation, maintenance, and decommissioning of a nuclear power plant.
As noted in the previous section, the NRC has modified the definitions of "non-bypassable charges" in the final rule to refer to " costs associated with construction, operation, maintenance, or decommissioning" (emphasis added). With that modification, this definition seems to provide an effective performance standard for any type of charge that might be developed by State regulatory officials. Consequently, there seems to be little benefit to the commenter's suggestion, and some possible danger if any specific charges that might be listed in a revised definition were ultimately implemented by State regulatory officials in ways that did 12
I 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.
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l Finally, one commenter stated that NRC's commentary that securitization of a licensee's interest in non-bypassable charges "may" be an acceptable method of providing decommissioning funding assurance seems to suggest that the existence of a licensee's l entitlement to non-securitized irrevocable, non-bypassable charges may not be sufficient to I
meet the definition and avoid up-front funding. This comment, however, seems at odds with the !
plain meaning of the definition of non-bypassable charges. ,
D. Other ,
Finally, one commenter suggested revising the definition to replace the phrase l i
"govemmental authority" with the phrase " regulatory authority." As pointed out by the l
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commenter, this would make the definition more consistent with the definitions of " electric utility" i l
l- and " cost of service regulation." The NRC is aware of the difference and believes the definition
- NflC f as presented better represents thepii.i.eekiii's position because the term "govemmental /
l authority" is more inclusive and allows for actions by non " regulatory authorities," such as State l
t legislatures.
! 3. Definition of Cost of Service Regulation i
i The comments addressing the definition of " cost of service regulation" seemed, in
! general, more directly applicable to other parts of NRC's proposal, as discussed below. :
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- . One commenter stated that the modifier "all" should be deleted from the " cost of service" !
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definition. This commenter argued that a definition requiring that "all" reasonable and prudent !
t costs be recovered invites a challenge to the sufficiency of a licensee's rate regulation. f a
1 Similarly, another commenter stated that the definition should account for the possibility of l
{ " partial" cost of service regulation. The NRC believes that commenters' concems in this area !
were addressed by the third sentence of the proposed definition of electric utility states / .
l A "An entity whose rates are established by a regulatory authority by mechanisms that cover j only a portioit of its costs will be considered to be an blectric utility
- only for that portion of the :
i f
costs that are collected in this manner " NRC did not intend to imply that a licensee was subject j 9
l to cost of service regulation only in the event that all its reasonable and prudent costs are f
$ recovered per the definition, but rather that the licensee would be deemed to be regulated r
i !
i under cost of service regulation for whatever portion of its reasonable and prudent costs are !
i i
i covered per the definition. This comneent has been rendered moot by the NRC's revised final j i !
! rule. ;
- I
?
t 1 '
Another commenter stated that the proposed definition of " cost of service regulation" should not exclude " performance based" and " incentive" ratemaking adopted by some State 4
j ratemaking authorities. This commenter proposed adding the following to the definition: " Cost i-1
- j. of service regulation includ se,, but is not limited to, attemative forms of ratemaking which j provide for a portion of costo to be recovered based on reasonable benchmarks and incentives i
j for good performance.'
i This comment does not seem to recognize that the term " cost of service regulation"is actually referenced as " traditional cost of service regulation" by the proposed definition of i
14 )
electric utility, which distinguishes cost of service regulation from indirect cost recovery through non-bypassable charge mechanisms. In this broader context, the NRC's intention to keep the 4
present focus of " cost of service regulation" seems clear and, moreover, the licensee's suggested additions seem inappropriate (because they are not precisely consistent with traditional direct recovery of reasonable and prudent costs). However, given that the NRC believes that incentive or price-cap-based ratemaking provides reasonable assurance of decommissioning funding, the NRC revised the definition of
- cost of service regulation" to reflect this concern.
l
- 4. Need for General Flexibility
) The flexibility issue has two dimensions. First, several commenters wanted the maximum number of financial assurance options available to reactor licensees. Second, these commenters urged NRC not to include specific or detailed criteria in its rules, which should be kept general, but to address implementation details in a regulatory guide or similar non-binding form.
- 1 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 4
financial situations and prospects, they pose different degrees of risk in terms of their abilities to provide funding for reador decommissioning. Making riskier financial assurance mechanisms available to riskier licensees compounds risk to the public that adequate funds will not be i
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 4
15 4
1 1
themselves, who more or less endorsed the NRC framework, which distinguishes a category of ,
licensees that should not be afforded the option of using an extemal sinking funding, by itself, i as a mechanism of assurance. The commenters did not contend that alllicensees should be I
- allowed to use all mechan anted the extemal sinking fund option to be made .
i available to 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 NRC be!! eves it is prudent to restrict its use to licensees with stronger financial or f rate regulatory characteristics.
With respect to keeping the rule general and reserving details for a regulatory guide, 4
there are two key considerations. First is a matter of regulatory philosophy and enforcement posture. Reserving details for regulatory guides is an approach that the NRC has used.
Attematively, the enforceability of financial assurance mechanisms can be severely or completely compromised by seemingly minor variations in wording. i 1
1 The second consideration is the potential need to change the requirements. It is much easier to change, add, or delete methods as acceptable for meeting requirements in regulatory guides than in regulations. Inasmuch as the NRC's power reactor licensees have begun on a path of economic restructuring, and will be in a period of transition for a number of years, the flexibility afforded by using a regulatory guide as a vehicle for decommissioning financial assurance requirements may be an advantage. On balance, the NRC is maintaining a level of detail equivalent to previous rulemaking in this area, and reserves the right to issue more detailed guidance where necessary. The NRC, in acknowledging the use of combinations of 16
- M
.. _. ._ _ . _ _ ._ _ _ _. _._._-._..-m _ _ . - . _ . -._
i
- assurance methods, cannot list all possibilities, but includes as an example, the recent New Nt Hampshire legislation provides for the proportionate liability of the co-owners of the <
} Seabrook Nuclear Power Station in the event that another minority owner, Great Bay Power 6
fe l Company, defaults on its obligation.
4
'5. Applicability of Requirements to Plant Owners and Operators Two commenters urged the NRC to clarify that the requirements for decommissioning i o i j . financial assurance apply only to owners or entities that have assumed decommissioning !
liability under contracts and not to entities that are solely operators. The commenters argued dic '
i j that qclarification is important to the formation or use of specialized operating service ]!
companies with no ownership interests in the facilities they operate. !
5 Applying financial assurance requirements to both owners and operators provides I flexibility, since either can demonstrate compliance. This approach also recognizes scenarios :
}
in which the operator has greater financial resources or creditworthiness or both than the '
owner Such a scenario is conceivable following the economic 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 operatN service companies, because they can negotiate with reactor l owners regarding which party or parties will be responsible for demonstrating financial ;
i assurance. {o / bC t OWM M dig fO'fM6 <
l t
i 17
. --- . . . - . - - . - - . _ = - - _ - - - - - .--
t 4 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, e estimates are less than the current minimum amounts prescribed in 9 50.75. The primary advantage asserted would be to avoid unnecessary assurance expenses when a site-specific i
estimate is less than the current NRC minimum. Other asserted benefits of allowing licensees i !
- to use site-specific cost estimates below the NRC minimums include greater consistency with l 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 the perception stated by severallicensees of problems with the current minimum amounts and the 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. However, given other potential weaknesses in current implementation (primarily relating to the adequacy of cost estimates and the potential under-funding indicated by current balances in decommissioning trust funds), such an allowance could aggravate the risk of potential under-funding associated with the extemal sinking fund mechanism. Submittal of site-specific estimates to the NRC would enable it to better evaluate the funds needed for decommissioning.
Co e~ew som However, the hes decided to defer allowing site-specific estimates that are lower than the Y-amounts specified in 10 CFR 50.75(c) until additional decommissioning data are obtained.
(SRM, SECY 97-251, February 5,1997.)
$ MC (it,t ; $ Om iG %gt1 ,t e g ju d l;g ty p yp e'f,[gg 7__g A , ,,,g 4, nm L m tn pain q n, n, u, y,w a uw r ,m , gi .4. % . n ib w;\f o*h Lc yvkfie % pvoilskts at %*b f * *k
- g %n 4h< it I < ' t ' '
' La Mu Stt% su.at? (, cleir4cd.]
18
. - - - - , - _ - - . . ~ - _ _ . - . - . - _ .
l l
l 1
l f 7. Alternative Methods of Assurance i
l l A. Altemative Framework Proposed by NEl i
l NEl's proposed framework for financial assurance for decommissioning resembles in broad outline NRC's framework, which has broadened the range of allowable assurance j mechanisms for reactor licensees that lose the ability to recover decommissioning costs j through regulated rate fees or other mandatory charges established by a regulatory body. l l
l Although, the external sinking fund, standing alone, is not allowed for the licensees losing such l l 1 regulatory oversight, the NRC framework also offers opportunities for case-by-case l l
consideration of non-standard financial assurance arrangements. Examples include 9 50.75(e)(1)(v), which allows unspecified, other guarantee methods, certain contractual
,a,
, arrangements in 9 50.75(e)(1)(ii)(C), and a licensee's option of submitting an exemption J
- request, which the NRC can approve if the criteria in 9 50.12 are met. !
1 l i The NEl's framework involves three, rather than two, categories of power reactor
{ licensees. Under the NEl framework, the brcader set of assurance mechanisms (including the current extemal sinking fund approach) would be available to: first, licensees meeting the I
! criteria for " qualified nuclear entities
- and second, 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 would be. Third, licensees that satisfy neither the criteria for qualified nuclear entities nor the attemate financial criteria would not be allowed to use the extemal sinking fund option, but would be able to use the other mechanisms. NEl also
~ includes an option for non-standard demonstrations of assurance.
19
. - . - . - - . - - - . ~ - . - - - . - _ - - - - . . . - . - . - ._. . - -
l The effect of the NEl proposalis to make the current extemal sinking fund financial i
assurance option available to a larger number of licensees than would be allowed under the
,. NRC proposal. This effect is the result of (1) defining " qualified nuclear entities" in terms of #
A l criteria that may be less stringent than the proposed criteria for " electric utilitf"/and (2) licensees thot satisfy certain financial criteria also to take advantage of the extemal sinking fund i
L option, voich they would not be allowed to do under the NRC proposal. The NEl proposal l
! i mear,s an increase in the risk that adequate funds will not be available when needed because I
. l
{ of an inadequate funding rate, inadequate eamings on invested funds, or premature shutdown. l
, it would decrease the cost to licensees. NRC's proposal entails less risk but greater cost.
i 1 i On balance, to make the extemal sinking fund option more available to reactor I
licensees, the NEl framework would result in greater risk that sufficient decommissioning funds l
will not be available when needed. The NEl proposal also would require the development of -
1 appropriate financial criteria, which would be challenging to develop because of the ;
- I unpredictable nature of the industry. An entity that meets the financial criteria, unlike those licensees who retain the ability to recover decommissioning costs through regulated rates and i 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 j conditions that could cause a reduction or cessation of payments into the extemal sinking fund.
l The NEl framework would produce the same result if the financial criteria were made an alternate basis for being a " qualified nuclear entity." This would produce a two-tier framework parallel in structure to the NRC proposal, though different in content.
20
. - .~_. - - -. _ _ .. - - - - - - - . -.-..- - - - . - - - - -
i i- [
4 B. Prepayment /Up-front Assurance f
i i 1
- One commenter addressed the issue of up-front assurance. The commenter stressed !
i
- that it is unfair for NRC to require up-front funding for licensees that no longer meet the i !
j- definition of " electric utility." In particular, the commenter argued that licensees have presumed i
all along that they would be able to gradually fund decommissioning throughout their plants' l operating lives and that, as a result, licensees who are no longer considered electric utilities l may be unable to remain in business.
! i t
4 >
l NRC's current financial assurance requirements for decommissioning nuclear power i i
f l reactors are based on the premise that the reactors are owned by regulated or self-regulating ;
entities that recover their decommissioning costs through a rate-setting process overseen by
] )
. the applicable regulating body. This regulatory oversight provides reasonable assurance that !
j such licensees will recover reactor decommissioning costs and continue paying into external f i sinking funds for decommissioning. ;
It is true that those licensees no longer able to recover decommissioning costs through regulated rates and fees or other mandatory charges established by a regulatory body may ,
- incur a greater burden by having to provide up-front assurance. This up-front assurance could 3 take the form of prepayment or it could take the form of some type of surety mechanism (e.g., a letter of credit). It is possible, under some restructuring scenarios, that this could lead to ,
- premature shutdown of some reactors. However, the likelihood of this occurring is highly
!. uncertain. Many PUCs have already indicated their intention to allow for the regulated recovery 1 y ~ - -
I j of decommissioning costs, either through rates or through some type of non-bypassable I h ,,
g5 l t/ncertain. n g- or [dt si <]
j vnlikely ,
charge, even for otherwise deregulated entities. For licensees that will not be able to collect funds through such a process after industry restructuring, up-front assurance is necessary to ensure that reasonable financial assurance is provided for all decommissioning obligations. In the more competitive environment that is likely to prevail after restructuring, some of these licensees may not remain financially viable for reasons not related to decommissioning financial assurance, further suggesting the need for up-front assurance.
C. Accelerated Funding t
in the preamble to its proposed rule, NRC requested 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 accelerated funding period would be long enough. They generally stressed that, if the funding period were too short, non-electric utilities would be placed at a competitive disadvantage, potentially leading to insolvency and premature shutdown of plants. One commenter asserted that the burden of accelerated funding would be most severe for licensees with little time remaining before shutdown. Several commenters offered specific suggestions regarding the length of an accelerated funding period, stating that it should last most or all of the remainder of the license period, two-thirds of the remaining license term or 10 years (whichever is greater), or five-eighths 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 negative tax consequences.
22
. . . _ _ ~= . . _ _ _ _ .
1 For licensees with reactors that have remaining operating lives of less than the j 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, given that they would no longer recover decommissioning costs through regulated rates and fees or other mandatory charges established by a regulatory body For licensees associated with reactors that have remaining operating lives longer than 7
,s.
the accelerated funding period, the accelerated funding option would be a significantly less -
burdensome means of demonstrating financial assurance than 11 funding.'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.
The length of an accelerated funding period would affect individuct licensees differently, depending on the amount of unfunded decommissioning obligation and on the time period that the licensees would otherwise have had to complete the funding. The greater the amount of money that must be funded on an accelerated schedule, the more significant the impact will be on a licensee. For example, assuming licensees are otherwise identical and have been adequately funding an extemal sinking fund all along, the impact of a 10-year accelerated funding schedule would be greater for a licensee with 25 years of operating life remaining than for a licensee with 15 years of operating life remaining. (This contrasts with the comment asserting that impacts would be most severe for licensees with little time remaining before shutdown. In fact, the opposite is true, except for licensees that have been making inadequate contributions to their decommissioning sinking funds.)
23
The NRC believes that the attemative of requiring accelerated funding for all plants over a defined period, to cover the possibility of premature shutdown at some plants, would be too i l
arbitrary and 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 1 1
generation without incurring the costs of decommissioning. The suggestion that NRC should l
allow licensees to use accelerated funding only if they or their parent companies have sufficient j
, assets is analogous to combining a self-guarantee or parent company guarantee with the extemal sinking fund mechanism. This idea has significant advantages to licensees, and is I
i discussed in Section 7.J, " Combinations of Methods."
l I
i Another way to reduce the burden of accelerated funding on licensees would be to ensure that the accelerated contributions are tax deductible. Under current intemal Revenue l
45:E- 7 -
Service rules, accelerated payments into decommissioning funds may, not be deductible.
Y oe 1tt S i However, these tax changes are beyond the NRC's mandate and Congressiona(action would i
j p-ed!' be required
- to accomplish them. Consequently, unless these rules are changed, licensees may be ineligible to receive tax breaks on deposited funds.
i D. Parent Guarantees /Self-Guarantees The commenters generally endorsed parent company guarantees and self-guarantees as a reasonable method of assurance for licensees no longer meeting the definition of " electric utility." However, a number of commenters stated that the financial tests specified in Appendices A and C to 10 CFR Part 30 are inappropriate for these licensees and would be 24
l 1
overly burdensome. Several commenters suggested specific revisions to NRC's existing l
, financial tests:
- i i
- i One commenter suggested that NRC allow non-electric utilities to use'(1) a parent X / l 3 s -
company guarantee from a parent meeting the criteria for self-guarantees'and (2) a j
x#
. self-guarantee for licensees meeting at least two of the following criteria:
1
- I Licensee has an investment grade bond rating
i 1
Licensee's pre-tax income (before interest expense) divided by interest i i
- 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. !
- )
' i
- I j .
One commenter stated that the self-guarantee test's "10 times requirement" for assets !
j l should be lower, but did not suggest an attemative threshold.
I i
One commenter suggested that the financial tests should require total assets in the U.S.
and tangible net worth to be one to two times the estimated decommissioning costs, rather than what is currently specified in the tests.
. One commenter suggested that the Commission consider ownership of other revenue-generating assets (besides the nuclear power plant).
l i
25 l
One commenter suggested that the NRC should develop a process similar to the one used by bond-rating agencies to assess the ability of firms to continue repaying principal or to continue paying interest or dividends.
i 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 extemal sinking funds. (The issue of using parent company guarantees in combination with other mechanisms is discussed in Section 7.J, " Combinations of Methods").
l NRC's parent company guarantee is based largely on a financial test developed by the EPA more than 15 years ago. EPA's test was intended to assess the financial condition of ,
firms managing hazardous waste that were seeking to assure closure and post-closure care obligations that are substantially smaller than typical decommissioning costs for power reactors.
- In adopting these tests, the NRC believed that its objectives for financial assurance would [e #
reasonably met, but recognized that the tests were most appropriate for materials licensees.
i Although, at that time, the financial tests were made applicable to nuclear power plant licensees as well, the NRC realized that most power plant licensees, or " electric utilties" would likely use f j external sinking funds rather than parent or se guarantees to provide decommissioning funding assurance.
Because deregulation is still in its earliest phases, it is not yet possible to identify or define the financial characteristics of entities that may ultimately be responsible for reactor decommissioning. Consequently, evaluating or improving the test's applicability to those ,
26
i i
licensees who are no longer able to recover decommissioning costs through regulated rates l and fees or other mandatory charges established by a regulatory body may be difficult, and any i criteria that might be developed could become outdated or misleading relatively quickly. Finally, j developing and implementing attemative tests (such as those suggested by commenters) could f
place a substantial burden on the NRC. For these reasons, the NRC is considering any changes to financial tests separate from this rulemaking. .
l E. Surety Methods i
Three commenters addressed the issue of surety methods of financial assurance (i.e., .
surety bonds, letters of credit, lines of credit). The predominant issue raised by these l:
commenters pertained to the limited availability of these mechanisms to licensees no longer ]
(
meeting the definition of " electric utility." One commenter claimed that because the majority of l l
generating companies will have an assured recovery mechanism through non-bypassable l
charges, there will be no new market created for surety mechanisms after industry l restructuring, and that licensees required to obtain these mechanisms will be faced with
-f A e s c._ - ,
significant costs. Another argued that NRC should ascertain the availability of nstruments /K !
before issuing a final rule based on the assumption of their availabildy. This commenter 1
proposed the creation of a Govemment-managed decommissioning insurance plan to provide such mechanisms (discussed in Section 7.G, *Govemment-Managed insurance Plan").
1 l
l 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, 27 l
l
_. . . . _ ~ , - . ._ _ .- - - - . --
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 the mechanisms. Second, mechanism providers also may view some licensees (those that lose the ability to recover decommissioning costs through regulated rates and fees or other mandatory charges established by a regulatory body) as financidly risky ventures given their restructured operations and newly deregulated financial characteristics (e.g.,
licensees may no longer have guaranteed service areas). Some licensees may be able to -
+h obtain gmechanisms only after offering significant levels of collateral to the provider as
[#
security. Generating subsidiaries without access to substantia l 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 extemal sinking fund), possibly arranging for the necessary funding prior to restructuring (e.g., before a nuclear ,
plant is placed in a generating subsidiary with few other assets). Licensees may also have access to parent and self guarantees, which are still less costly.
F. Power Sales Contracts Commenters suggested two possible roles for power sales contracts in the financial assurance program: (1) as a threshold condition for being able to use the extemal sinking fund ,
V Q(2) and as a mechanism for demonstrating financial assurance. One commenter recomm X
that power sales contracts be accepted as a means by which licensees not meeting NRC's proposed definition of electric utility can qualify to use the broader rarse of assurance l 28 l
mechanisms - such as th t external sinking fund. Another commenter concurred, stating that such contracts would be secured by legislation or a regulatory commission order or both.
Commenters also recommended that, for licensees not qualified to use the extemal sinking fund, an assurance mechanism that would allow a licensee to show that power sales contracts are in place, could provide some or all decommissioning funding.
There is an important difference between using power sales contracts as a threshold criterion, 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, and as a financial assurance mechanism. As a threshold criterion, power sales contracts would represent evidence of the financial status and prospects (e.g., sales backlog) of a company.
h Neontracts would be considered when private financial organizations assess the credit- / X worthiness of companies. However, power sales contracts have some disadvantages that work against their use as a threshold criterion. First, power sales contracts may have contingencies
{'
that make it difficult to project revenues or eamings. Such contracts are not equivalent to a Govemment-mandated revenue stream that would fully fund decommissioning costs. It also would be very difficult for NRC to define clearly how it would analyze and evaluate such ;
contracts, potentially creating issues of faimess, consistency, and accountability. 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, l which can be statistically associated with subsequent financial performance, there is no l
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 charges established by a regulatory body, or that 29
__ -._ _ __m._ _ . . . . . _ _ _ _ _ _ _ _ . _ _.___ _ _.____..__ _
4 l
} do not have' access to a Govemment-mandated revenue stream to use the external sinking j fund, acceptance of power sales contracts as a threshold criterion may increase the risk that l
funds will not be available when needed. However, under certain circumstances that the NRC i has specified in this final rule, the NRC believes that long-term contracts can provide levels of j j decommissioning funding assurance that are equivalent to other acceptable methods.
i- !
- Power sales contracts also are unlikely to make good financial assurance mechanisms,
%r '
unless they have terms whio# provide for payment of decommissioning costs under most likely X
! occurences. They often lack the provisions needed to ensure effective and continuing j t
coverage (e.g., automatic renewal, notice of cancellation). For example, in Town of Boylston v.
! ^
j FERC (21 F.3D 1130, 305 U.S. APP.D.C. 382), municipal purchasers successfully challenged 1
an order to pay reactor decommissioning costs as a charge under their power purchase ;
contracts. Moreover, FERC has authority to impose attemative provisions in the public interest !i 1
j if it finds contracts to be unjust and unreasonable. Power sales contracts often contain !
contingencies that may make it difficult to determine corresponding levels of revenues. Long- !
l term contracts for the supply of uranium, natural gas, and coal have all been subject to litigation l
! i j at one point or another because of market or regulatory changes, which may be specifically
~
rpa addressed in centracts or covered under " force majeure" clauses.Suelt contracts typically do X l not themselves effect the setting aside or guarantee of monies, although contracts cou!d be
- - written to serve as guarantees or to require that proceeds be deposited in extemal sinking
i !
funds. The NRC believes that power sales contracts that contain provisions to mitigate these le :
I " Force majeure" refers to items largely beyond the control of the contracting parties
! (e g., recession, inflation, severe market changes) that make it equitable to terminate or
- renegotiate contract terms. l 4 30 ;
i I
shortcomings can provide reasonable assurance of decommissioning and have been allowed, under specified conditions, in the final rule.
G. Govemment-Managed Insurance Plan Two commenters addressed the NRC's decision to eliminate from future consideration the concept of a captive insurance pool to pay unfunded decommissioning costs. One noted only that it agreed with the decision not to pursue this option. The other commenter, however, disagreed with the decision and urged the NRC instead to investigate the creation of a Government-managed decommissioning insurance plan. Under lan, the licensee [x F<Acr+l would be able to purchase an insurance policy from thegovernment. The cost of the policy A
f/ F could be determined by each plant's performance history or Systematic Assessment of Plant Performance (sal.P) rating, with poorly run plants paying a higher premium and well-run plants F< La r*J-paying a lower premium. The commenter noted tha overnment participation in private / #
insurance markets is not unprecedented, citing the example of Federal flood insurance. The Fe dueA commenter weakened the force of his example, however, by also pointing out thatgovernment //
participation in private 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 poorly-run plants to close more frequently than well-run plants, suggesting that the risk can be managed.
The commenter advocating further examination of an insurance plan did not make clear whether the commenter favorod a captive insurance pool entirely funded by the industry or an f< u M insurance system that was funded, completely or partially, by thegovernment. p l
31 ;
1 l
I l
.- -. - . . - ~ - - - - -- . . _ . - . - - - - . - _ _. .
b f
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 for decommissioningrb lay in setting aside funds could be beneficial because of the use value of the funds that a licensee could reallocate to some other purpose. In addition, the members of the insurance pool would be in competition with each other, and could shift costs to l i
competitors by means of the insurance pool. Thus, an insurance pool for decommissioning ,
j would offer no incentive to licensees to reduce the magnitude of their potential claims on the !
l 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).
1 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 I were being charged less. The nexus between plant performance, however measured, and likelihood of premature closure is not so clear that the Govemment 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. Attematively, mandatory participation by low-risk insureds could lead to situations in which they were subsidizing the high-risk entities, even with a rate differential.
i 32 i
l l
Insurance that is partially or wholly subsidized by the Federal Government, such as flood insurance, would require Congressional action, and is outside the scope of an NRC rulemaking.
l l
I Finally, the commenter did not present any arguments supporting Govemment l
management of a decommissioning insurance plan. If such a plan were set up without the i
inclusion of Federal funds, there seems to be little reason to assign a Govemment agency to l manage it.
l H. Regulatory Certification Only one commenter suggested that NRC should reconsider its dismissal of the possibility of PUC or FERC certification that licensees within their jurisdiction would be allowed i I
to collect sufficient revenues through rates to complete decommissioning funding. That commenter noted that NRC had relied upon the views expressed to the NRC that "no current commission can bind a future commission" and that a PUC "could not give a blanket guarantee that all licensees would be allowed to collect revenues to complete decommissioning funding."
This commenter argued that these uncertainties are "no greater than those associated with cost of service regulation, which certainly does not constitute a ' guarantee' of availability of !
sufficient decommissioning funds," noting also that the underlying regulatory standard is only one of "' reasonable assurance'." !
33 i
The commenter, however, did not address a number of important considerations. First, he ignored the well-informed status of the opponents of certification. The comments upon which NRC relied in dismissing certification as an option came from the National Association of Regulatory Utility Commissioners (NARUC) and several State PUCs, that are 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 the argument, 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 has concluded that certification is not a viable financial assurance mechanism.
- l. "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 proposals on a case-by-case basis.
Another commenter recommended that NRC allow non-electric utilities to use mechanisms
. developed by governmental authorities and approved by NRC. Finally, one commenter suggested that NRC grant individual licensees or States the flexibility to develop initiatives / mechanisms for providing reasonable assurance of funding.
34
Licensees, as discussed in Sections 7 B and 7.E of this rulemaking, 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 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 !
decommissioning obligations. Consequently, allowing a case-by-case approach through which reactor licensees that lose the ability to recover decommissioning costs through regulated rates I r
I and fees or other mandatory charges established by a regulatory body could submit to NRC ;
other types of mecha.tr as may be helpful to licensees and to NRC (i.e., if doing so improves j compliance rates). This also would be consistent with NRC's common approach of allowing alternative compliance techniques provided that they meet certain criteria specified in the j l
regulations or regulatory guides. NRC, however, would need to ensure that the mechanisms l 1
used provided adequate financial assurance, thereby placing a burden on NRC to review l individual "non-standard" mechanisms. ,
J. Combinations of Methods ;
I Several commenters stated that NRC should allow utility licensees and, in particular, non-utility licensees to use combinations of mechanisms to demonstrate financial assurance for decommissioning. Two commenters suggested specifically that NRC allow non electric utility licensees to use parent company guarantees or self-guarantees or both in conjunction with other allowable methods.
i 35
NRC's current requirements already allow combinations cf mechanisms, except that two i l
mechanisms - the self-guarantee and the parent company guarantee - may not be used in combination with other mechanisms. Allowing combinations of funding methods increases the regulatory flexibility to licensees trying to meet the requirements. (Note, however, that a licensee using a combination of mechanisms faces a greater administrative burden to obtain its mechanisms and, similarly, NRC faces an increased burden in reviewing multiple mechanisms.)
For mechanisms that guarantee payment (e.g., trust fund, payment surety bonds, letters of credit), a combination of mechanisms that equals the total decommissioning cost estimate is unlikely to lead to any difficulty in assuring that decommissioning funds will be used for their intended purpose.
Some mechanisms, however, guarantee performance rather than payment. These mechanisms are self-guarantees, parent company guarantees, performance surety bonds, and some insurance. The terms of these mechanisms promise that the issuer will complete required decommissioning activities if necessary. It can be problematic to combine a performance mechanism with another mechanism (payment or performance) because of the '
inherent subjectivity in valuing performance. For example, if 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 cost less. l l
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.
l 2
In addition, firms providing guarantees must pass an underlying financial test which is l not " divisible" under the regulations. For example, parent company guarantors must meet a 1
36
l
, However, the NRC believes that this problem is of less concern in the specific case of a self-guarantee being used in combination with an extemal sinking fund because, in this case, l
the guarantor has no incentive or ability to shift costs or to avoid greater responsibility. >
)
However, if the self-guarantee were to be combined with a mechanism such as a letter of credit, that required the licensee to offer collateral to the issuer, then it is possible that if NRC i were to draw on the letter of credit, the bank might seize the licensee's collateral which, in turn, ;
might prevent the licensee from performing under the self-guarantee.
., i The combination of a parent or self guarantee and an extemal sinking fund also appears to provide a relatively low-cost means for licensees to demonstrate financial assurance while i
i continuing to gradually fund decommissioning costs over time (either on the current schedule or i !
on an accelerated schedule). Because of the low costs of guarantees, however, allowing this ,
combination of mechanisms could create an incentive for licensees to delay or cease payments i into the sinking fund and, instead, to rely on the guarantee for as much of the cost as possible.
l !
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 i.
j delayed if, because of a licensee's inadequate contributions to its sinking fund, a guarantor had i
i to come up with large amounts of money at the time of decommissioning.
a f],s bw/ IM
- i. criterion that they have tangible net wort at least equal to six times he current decommissioning cost estimates (or pre cribed amount if a certifi tion is used)." Either a i potential guarantor passes this~criterio (and other similar and r sted criteria) in its entirety yf 1 the guarantor fails the test. If the guar ntor cannot pass the eria, then it is ineligibi provide a guarantee in any amount, ri this case, combining guarantee with a er
- mechanism would not be an option ha,' the N",0 -
- ::._ 2:::: 5 amendIhe financial i I
j test sections in =g M t': Appe ice to 10 CFR part 30 to address the issue. {/
f wg n i
1 p
The NRC generally believes that it should not allow licensees to use parent company guarantees and self-guarantees in combination with certain other mechanisms 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 strength to pass separate financial tests (e.g., one for costs covered by a parent company guarantee, and one for costs covered by a self guarantee). Nevertheless, the NRC has provided in these regulations that combinations of mechanisms will be considered on a V,
case-by-case basis when the aforementioned concer are addressed.
K. Required Timing of Alternative Methods Several commenters wrote that the NRC should allow affected licensees an extended period of time to secure alternative financial assurance mechanisms. One commenter stated that NRC's current regulations allow a licensee 30 days to develop a submittal describing how decommissioning funding will be assured if the licensee no longer satisfies a given criterion (e.g., the definition of " electric utility"). This commenter recommended that NRC allow 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 attemative funding submittal. Another commenter stressed that NRC should allow " adequate transition time for legislative and regulatory changes to accommodate the new definition of
' electric utility'."
38
1 i
(
The comments presented the argument that licensees will need more time to obtain i 4
alternative financial assurance mechanisms (e.g.,180 days) than they would in the event of the l
, cancellation of an existing mechanism (only 30 days). This argument ignores the fact that deregulation will not occur instantly and unexpectedly. Licensees are likely to have months or r
even years to evaluate whether they may be able to recover decommissioning costs through j regulated rates and fees or other 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.
- 8. Federal Licensees ,
A. Applicability to Federal Licensees .
i 4
A number of commenters argued that financial assurance requirements for elect.ic ,
i utilities should apply equally to Federal licensees, that no special treatment should be afforded l Federal licensees, and that all licensees should satisfy the same requirements. One stated ;
explicitly that " Federal" licensees should be required to provide the same level of financial !
assurance as other power reactor licensees, but qualified his 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 utility.' in doing so, they must provide i i
the same measures of financial assurance currently required to electric utilities, i.e., they must provide the same level c,f extemal funding or other assurance that would otherwise have been l required of them from the initial issuance of their operating license." This commenter l
39 4
4 J
apparently did not oppose 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 that 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 1 2
that such operating expenses are considered to include decommissioning costs. TVA's arguments are evaluated below.
l
! B. Definition of " Federal Licensee" l
l Several commenters made identical, or almost identical, recommendations conceming the definition of Federal licensee. Each supportc0 the intent of the definition, which they considered to be to exclude from the definition any Federal agency whose obligations do not constitute the obligations of the United States. However, each recommended that the definition be modified to define a Federal!!censee as "any NRC licenses, the obligations of which are guaranteed by and supported by the full faith and credit of the United States Govemment." Each argued, without explaining fully, that the term " full faith and credit backing" is neither defined nor commonly used in other legislation relating to Federal agencies.
l Presumably, the commenters who found the phrase " full faith and credit backing" I ambiguous did so because it does not specify that all obligations of the entity are backed by the credit of the Federal Government, nor does it say explicitly that the obligations are 40
a
" guaranteed," as does the proposed replacement definition. The proposed replacement definition thus is slightly more precise. In addition, much of the suggested definition that has i
j been used previously and commonly iri legislation pertaining to Feoeral agencies would, 4
l therefore, have the advantage of removing any ambiguity. A preliminary search of the United States Code, Annotated, uncovered a number of situations in which the proposed phrase is s
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 agneultural credit real estate locas and emergency
- J loans. Section 1928 specifies that contracts of insurance or guarantee executed by the i
Secretary 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.
t 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 section . . . 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 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 ;
l replacement of the current definition of " Federal licensee" with the definition suggested by the commenters appears warranted.
WA argued against the proposed definition of Federal licensee 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 41
l law requires TVA to adequately fund the conduct of TVA's power activities, and this includes operating, maintaining, and decommissioning its nuclear facilities." TVA pointed out that even l before decommissioning funding assurance requiremerits from NRC, TVA was taking action to
- ensure that funds would be available to decommission its nuclear units. TVA argues, in effect, that a financial assurance requirement other than the statement of intent amounts to
- imposing separate regulatory requirements to oversee the manner in which TVA is meeting its statutory requirements, . . ."
l 1
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 impose ;
l
- any different, or additional, requirements. TVA maintains that the NRC should have reasonable i 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) l
, 4 l
k it also could be correctly said, however, that Fed:.ral law requires other reactor
, licensees to provide reason 3ble assurance of decommissioning funding. The purpose of financial assurance is to present a second line of defense, if the financial operstions of the
{ .
l licensee are insufficient, by themselves, to ensure that sufficient funds are available to carry out l
t decommissioning. TVA apparently concedes that its obligations are not supported by the full i faith and credit of the United States Govemment; therefore, if TVA cannot fund the decommissioning, the Federal Government is not obligated to do so. Although the TVA board has the authority to set electric power rates to meet power system obligations, including 4
4 decommissioning, it may not, contrary to its assertions, have the " unfettered ability" to do this, because its markets may not support such rates. TVA noted that its current business plan 42 a
i
t i
recommends an offer to its distributor customers to change their power contracts after five
- years from a rolling 10-year term to a rolling 5-year term. !
l 4
TVA appears to misunderstand the purpose of the statement of intent, which is to obtain a commitment by another, and superior, govemmental entity that the obligations of the
.i 1
1 subordinate governmental entity will be paid by the superior entity if the subordinate entity
- t 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."
l 1
- 9. Reporting on the Status of Decommissioning Funds i
A. Use of Financial Accounting Standards Board (FASB) Standard ;
I l
The 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 should be used that does not add unnecessary burden. However, several commenters 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 4 standard, which cannot be predicted because the standard is still under development, could make it inappr6v Mte for meeting NRC's endorsement. Unless the FASB standard is adopted soon, 'Mse corre Anters argued, other reporting options should be adopted. Some 43
4 commenters suggested that regulatory language need not be changed, but that the contents of DG-1060 would need to be amended to reduce the reliance on the FASB draft.
Some commenters went further, and expressed criticisms of the FASB exposure draft, indicating that even if it became final in its current form they would not find it appropriate for use. In the view of these commenters, merely recognizing the liability and periodic expense for decommissioning, which is the focus of the FASB draft, is not sufficient to ensure adequate funding. In their view, the FASB standards establish accounting procedures but are not the appropriate computations for determining necessary cash flows for funding extemel 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. )
i l
l Neither the timing nor the ultimate contents of a FASB standard can be predicted at this time, and therefore the conclusion is warranted that alternative requirements should be found.
According to a FASB report of January 14,1998, the Board reviewed the status of the project in its October 2,1997, meeting and decided it should proceed toward either a second Exposure Draft or a final Statement. However, at its November 26,1997, meeting, the Board eliminated j l
certain key provisions in the exposure draft relating to the scope of the Statement. According to l
FASB's " Current Developments and Plans for 1998"-
FASB will be developing a refined definition of closure / removal costs that would 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.
44
Although the timing of future action on the draft is uncertain, reanalysis of the scope i
issue by the FASB staff during the first quarter of 1998, as well as FASB's statement that it is t
postponing other issues raised on the Exposure Draft until further progress is made on another ,
i Exposure Draft, suggests that action by FASB to issue a final Statement, or even a revised !
Exposure Draft, will be delayed for a considerable time. Notwithstanding any final FASB action,
- the NRC can proceed with its own requirement for reporting on the status of decommissioning j funds. l l
B. Frequency of Reports i
Most commenters endorsed " periodic" reports to monitor the status of decommissioning assurance. Several commenters, particularly those from State PUCs, supported requiring a j report soon (nine months) after the rule becomes effective, and at least every two years j thereafter. (Other commenters from utilities suggested every three years or every five years thereafter. The five-year period was suggested to correspond to the recommended five-year ;
adjustment to site-specific cost estimates specified in Regulatory Guide 1.159.) A majority of ;
the commenters also endorsed that utilities nearing decommissioning or in the process of !
t decommissioning submd reports annually. However, commenters noted ambiguity in the l requirement that reports should be submitted annually by licensees of plants that are within five years of their projected end of operations. Although agreeing with the concept of such annual l reporting, they nded that "the projected end of operations" should be clarified so that it clearly l
covered premature shutdowns and notjust plants within five years of the end of their operating j licenses. Several State commissions submitted almost identical proposed language amending !
$ 50.75(f) of the proposed rule to require reporting by licensees for a plant within five years of ;
45 l l
I
i the project end of operations, "or 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 ,
I 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 i fund balances on an annual basis suggested that reports should be required by March 31 for j the previous calendar year.
4
- Other commenters noted that when State regulatory bodies require annual reporting on j 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 l i
years of decommissioning. A complete report could be required every five years, in the opinion of this commenter, with updates annually or biennially.
i i
i Another commenter recommended that NRC delay the reporting requirements until a l Pacific Northwest National 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.
Given NRC's information needs, and the multi-million-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 significant. Thus, the NRC is adopting a biennial reporting requirement. NRC also is adopting commenter suggestions that 46 i
reporting frequency be increased for plants approaching the end of commercial operation or experiencing operating problems, or for plants involved in mergers / acquisitions.
C, Contents of Reports Most of the commenters who addressed reporting did not question the need for reports on the status of decommissioning funds, but they did not address in detail the contents of such reports. Similarly, most of the commenters who raised questions about reliance on the FASB draft for decommissioning status reporting did not recommend alternative reporting standards.
Several commenters implicitly suggested that the contents of reports submitted to State PUCs would be sufficiently similar to NRC's requirements, by recommending that copies of State reports should be acceptable to NRC.
One commenter argued that NRC's proposed "per unit" reporting was unclear about whether individual licensees of a jointly owned plant would each be required to submit their own status reports, or whether the plant operator could submit reports on behalf of all co-licensees.
The commenter suggested that having the operator submit the data for all owners could be the most efficient approach, assuming the aggregate of available funds is the most important question. In contrast, another commenter believed that it would be " prudent" for NRC to require annual filings from all co-owners. Requiring filings by all co-owners would provide NRC with more detailed information, but would also place on it the burden of combining and assessing the data. The NRC believes that plant owners and operators should decide who will submit the required information. However, even if all information is submitted by the operator, the l l
47
. .._ . _ ___._ _. _ _m ._ _ _ . _ .-._.._ ._. _ .. _
_ _ _ _ _l '
3 information will need to be broken down by owner in order to evaluate each owner's i
- contributions to decommissioning. l
-l l.
i One commenter recommended a clarification to ensure that the amount accumulated to
- the date of the report means the "as of" date, and not the date of the report. The same commenter wanted to limit the report to the single item of accumulated trust fund balances, unless NRC had concerns, based on its knowledge of the plant, about whether the amount f accumulated for decommissioning is sufficient. In that case, more detailed information could be !
required.
The comments did not address several issues revealed by commenters on the NRC's L Advance Notice of Proposed Rulemaking (ANPR) of April 8,1996 (61 FR 15427) conceming the information needed by NRC to monitor the status of decommissioning funds, in particular, the comments on the proposed rule did not address the 50-plus reporting items suggested by {
commenters in response to the ANPR.
l I
How the industry will understand the core concept of the reporting requirement, the
" status of the decommissioning fund,"is not clarified by the comments on the proposed rule. At least one commenter suggested 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 48 ,
1 1
___._.._m_ _ _ _ . _ _ _ _ - _ _ . - _ _ _ _ . _ . - _ _ _ . _ _ . . . _ . . _ . _ . _. _
q j
i l comments received, which do not address whether " status" implies a general discussion i provided by the licensee or a specific report prepared by the trustee. The NRC has attempted
[
to clarify these concems in the final rule.
t i
1 10. Rate of Retum '
1 !
i !
l NRC's proposed language in 10 CFR 50.75(e)(1)(i) and (ii) allows licensees to take ;
i credit for eamings on their prepaid decommissioning trust funds or extemal sinking funds using l t
! a 2 percent annual real rate of retum from the time of the funds' collection through the ;
i --
l- decommissioning period. The credit is allowed if the licensee's rate-setting authority does not
- _ authorize the use of another rate. By specifying that eamings can be credited "through the 3 .
j- decommissioning period," NRC is allowing licensees to assume eamings credits for both the l c ;
4
- safe storage period and the period when funds flow out of the decommissioning financial ;
1 !
assurance mechanisms. !
L i
- 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 I i
of recognizing earnings and inflation. One commenter specifically endorsed the provision that j allows licensees to use assumed rates of retum that are approved by State regulatory bodies.
A few commenters supported the changes but stated that licensees also should be given the
- flexibility to use a rate that is less than the proposed rate.
~ Other commenters did not support NRC's selection of the 2 percent rate. One j commenter claimed that the proposed 2 percent rate might result in underfunding if it does not i
49 i
w ,s
- -- . .- _ ~- . - . _ - . -
, i account for the effect of income taxes. More typically, commenters argued that the rate is too low and should be increased. Suggested rates were 3 percent and 7 percent. Two commenters noted that 3 percent and 7 percent discount rates are used in NRC's regulatory l analysis guidance (in NUREG/BR-0058 and SECY 93-167). Other commenters stated that l
NRC should allow licensees to use any " realistic" rate of return or any rate they can justify, possibly in conjunction with periodic reevaluation of the funds collected. A few commenters 1
argued that NRC should not specify a 2 percent rate of retum 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
, suggested by NRC is based on historical data on retums fror.i U.S. Treasury issues, and represents "as close to a ' risk-free' return as possible." Although this rate may seem relatively low given that higher interest rates are frequently paid on common stocks and corporate bonds, the lower rates paid on Govemment securities pose considerably less risk and are likely to be achieved on a more consistent basis.
i
' j i
Given the need for " reasonable" assurance of decommissioning funding, there is little !
justification for selecting a rate greater than 2 percent. As shown in the table below, the historical average real return on long-term U.S. Govemment bonds has been very close to 2 percent, and the historical average real retum on "sisk-free" U.S. Treasury Bills has been less ,
I than 1 percent. Based on this information, NRC would have difficulty justifying a higher rate. 1 i
50
_ . . . . - - . - ~ - . - - - . . - - = . . - . - - - - . - . - . - - - . . = . - . - - . . -
l t
Real Rates of Return for Sample Time Periods
{
Rate U.S. Treasury Bills Long-Term Government Bonds l Current (1997) 3.49% - 13.91 % !
Contemporary Average (1975-1994) 1.96 % 7.65 % ;
Long-Term Average (1926-1997) 0.6% 2.1% ;
i Source: Ibbotson Associates, Chicago. Stocks, Bonds, Bills and in#ation: 1998 Yearbook, Table 4-1 and Table 6-8. !
Averages are calculated as geometric means.-
l The commenter's concem that 2 percent is less than the 7 percent and 3 percent discount rates called for in NRC's regulatory analysis guidance is not relevant.' Discount rates !
are used for capital investment analysis and other decision-making purposes but, if used to f calculate contributions to decommissioning funds, could result in financial assurance levels that l l
are not adequate to pay for all assured obligations.
l 3
NUREG/BR-0058 generally calls for the use of a 7 percent discount rate, which is the rate recommended by the Office of Management and Budget (OMB), in the estimation of values and impacts of a regulatory action. NUREG/BR-0058 also suggests use of an attemative discount rate of 3 percent for sensitivity analysis purposes and for cases in which costs occur over a period of more than 100 years.
51 1
- 11. Other A. Cost Recovery through Rates Several commenters opposed the inclusion of any mechanism that provides for 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 a misunderstanding of the roles played by NRC relative to State PUCs and FERC. Specifically, PUCs and FERC can determine whether decommissioning costs are stranded or whether they must be paid by ratapayers. NRC, unlike the PUCs, does not have the authority to prevent or to allow licensees to pass decommissioning costs on to customers. Thus, the issue of a " bailout" is not relevant to NRC. 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 l
unsupported and likely overstated. i l
B. Rate Recovery of Stranded Costs Using PNNL's Formula I
i One commenter suggested that utilities be allowed to recover in their rates only a i portion of their decommissioning costs. Specifically, the commenter suggested allowing 1
52 l
l l
l i
l l
i decommissioning costs to be recovered up to a maximum amount determined using PNNL's 1993 generic decommissioning cost formula. Estimated costs in excess of the generic PNNL estimate could not be recovered in rates and would have to be funded by shareholders. Also, l in the event of premature shutdown, the commenter would make shareholders (rather than ratepayers) responsible for all decommissioning costs that are not yet funded, including any unfunded portion of the generic PNNL estimate.
The comment described above addresses how decommissioning costs, including I stranded decommissioning costs, might equitably be divided between ratepayers and shareholders. However, the comment is not directly relevant to decommissioning financial assurance. From NRC's standpoint, it does not matter whether the source for a licensee's financial assurance is the licensee's ratepayers or its shareholders, but only that the licensee has provided adequate financial assurance for decommissioning. 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 to recover costs from ratepayers. Although the NRC did sponsor the development of PNNL's 1993 generic decommissioning cost formula, this formula, like its l predecessor in 10 CFR 50.75(c), 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 ,
l currently evaluating the 1993 formula relative to 10 CFR 50.75(c).
53
Finding of No Significant EnvironmentalImpact: Availability The NRC is amending its regulations on financial assurance requirements for the decommissioning of nuclear power plants. The amendmen;r are in response to the likelihood of deregulation of the power generating industry and resulting questions on whether current NRC regulations concerning decommissioning funds and their financial mechanisms will need to be modified. The amendments allow a broader range of assurance mechanisms than under existing regulations for reactor licensees that lose the ability to recover decommissioning costs through regulated rates, adds definitions of " Federal licensee" to address the issue of which licensees may use statements of intent and other relevant terms, and requires power reactor licensees to report periodically on the status of their decommissioning funds and on the changes in their external trust agreements. Also, the amendments allow licensees to take credit for the actual and projected earnings on decommissioning trust funds.
These changes could have the following effects on nuclear power reactor licensees: (1) potentially requiring licensees who have been " deregulated" to secure decommissioning financial assurance instruments that provide full current assurance for projected decommissioning costs, (2) limiting the types of licensees that can qualify for the use of Statements of Intent to satisfy decommissioning financial assurance requirements, (3) requiring periodic reporting on the status of their accumulation of decommissioning funds, thus leading to the potential for the NRC to require some remedial action if the licensee's actions are inadequate, and (4) permitting licensees to assume a real rate of retum up to two percent per annum, or such other rate as is permitted by a PUC or the FERC, on their accumulated funds.
These actions are of the type focused upon financial assurances and mechanisms to ensure funding for decommissioning and are not actions that would have any effect upon the human 54
environment. Neither this 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 considered in the final rule published on June 27,1988 (53 FR l 24018), as analyzed in the " Final Generic Environmental impact Statement on Decommissioning of Nuclear Facilities" (NUREG-0586, August 1988).'
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 Subpart 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 environmental impacts from the action. The foregoing constitutes the environmental i assessment and finding of nc: significant impact for this final rule.
i
' 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 20555-0001; telephone (202) 634-3273; fax (202) 634-3343. Copies may be 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 l at 5285 Port Royal Road, Springfield, VA 22161. l 55
Paperwork Reduction Act Statement This final rule amends information collection requirements that are subject to the Paperwork Reduction Act o'f 1995 (44 U.S.C. 3501 et seq.). These requirements were approved by the Office o! Management and Budget, approval number 3150-0011.
The public reporting burden for this information collection is estimated to average 8 hours9.259259e-5 days <br />0.00222 hours <br />1.322751e-5 weeks <br />3.044e-6 months <br /> per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the information collection. Send comments on any aspect of this information collection, including suggestions for reducing the burden, to the information and Records Management Branch (T-6 F33), U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, or by Internet electronic mail at bjs1@nrc. gov; and to the Desk Officer, Office of Information and Regulatory Affairs, NEOB-(3150-0011), Office of Management and Budget, Wash'ington, DC 20503.
Public Protection Notification If an information collection does not display a currently valid OMB control number, the NRC may not conduct or sponsor, and a person is not required to respond to, the information collection.
56
1 I
Regulatory Analysis The Commission has prepared a Regulatory Analysis of this regulation. The analysis examines the costs and benefits of the alternatives considered by the Commission. Interested persons may examine a copy of the Regulatory Analysis at the NRC Public Document Room, !
2120 L Street NW(Lower Level), Washington, DC. Single copies of the analysis may be obtained from Brian J. Richter, Office of Nuclear Reactor Regulation (0-10 H5), U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, telephone (301) 415-1978, e-mail bjr@nrc. gov. !
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 Regulatory Analysis for the final rule also constitutes the documentation for the evaluation of backfit requirements, and no separate backfit analysis has been prepared. As defined in 10 CFR 50.109, the backfit rule applies to 57
. modification of or addition to systems, structures, components, or design of a facility; or the design approval or manufacturing license for a facility; or the procedures or organization required to design, construct or operate a facility; 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 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 who lose their ability to recover decommissioning costs through regulated i
rates and fees or other mandatory charges established by a regulatory body than previously, '
define *Federallicensee." The amendments also add several associated definitions; add new reporting requirements pertaining to the use of prepayment and external sinking funds; impose l
new reporting requirements for power reactor licensees on the status of decommissioning I 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 retum on funds set aside for decommissioning 1
from the time the funds are set aside through the end of the decommissioning period. These actions are necessary to ensure that nuclear power reactors 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.
Although some of the changes to the regulations are reporting requirements, which are not cevered by the backfit rule, other elements in the changes could be considered backfits because they would modify or clarify procedures with respect to (1) acceptable decommissioning funding options under various scenariosj(2) which licensees may use f'k statements of intent;and (3) permitted credit for real rates of retum on funds set aside for jy decommissioning. The NRC has determined to treat this action as an adequate protection 58
backfit, because the action is necessary for the NRC to maintain assurance of adequate funding for power plant decommissioning, particularly in the face of the uncertainties associated ,
i with electric utility restructuring and deregulation. Accordingly, these proposed changes to the i t
regulations are required to satisfy 10 CFR 50.109(a)(5) and a backfit analysis pursuant to 10 l
CFR 50.109(c)is not required.
f e
Small Business Regulatory Enforcement Faimess Act l
In accordance with the Small Business Regulatory Enforcement Fairness Act of 1996, l'
the NRC has determined that this action is a major rule and has verified this determination with the Office of Information and Regulatory Affairs of the Office of Management and Budget.
i l
List of Subjects Part 30 - Byproduct material, Criminal penalties, Govemment contracts,
- Intergovemmental relations, Isotopes, Nuclear Materials, Radiation protection, Reporting and recordkeeping requirements.
Part 50 - Antitrust, Classified information, Criminal penalties, Fire protection, intergovemmental relations, Nuclear power plants and reactors, Radiation protection, Reactor siting criteria, Reporting and recordkeeping requirements.
l 1
i l
59 l
l
n 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 and 5 U.S.C.
552 and 553, the NRC is adopting the following amendments to 10 CFR Parts 30 and 50.
h1. The authority citation for Part 30 continues to read as follows:
PART 30 - RULES OF GENERAL APPLICABILITY TO DOMESTIC LICENSING OF BYPRODUCT MATERIAL to N I /
! AUTHORITY: Secs. 81, 82,161,182,183 186, 68 Stat. 935, 948, 953, 954, 955, as amended, sec. 234,83 Stat. 444, as amended (4 .S.C. 2111, 2112, 2.201, 2232, 2233, 2236, !
2282); secs. 201, as amended,202,206,88 Stat.1242, as amended, 1244,1246 (42 U.S.C.
5841,5842,5846).
Section 30.7 also issued under Pub. L.95-601, sec.10,92 Stat. 2951 as amended by y
Pub. L.102-486, sec. 2902,106 Stat. 3123, (42 U.S.C. 5851).7Section 30.34(b) also issued under sec.184,68 Stat. 954, ss amended (42 U.S.C. 2234). ection 30.61 also issued under
/
sec.187,68 Stat. 955 (42 U.S.C. 2237).
& tocrf JYI M*l$Y J m).2(a ta dhdd" "&
- 2. -Part 30 is amended a' y i=visir$ Append A to read as follows:
j j APPENDIX A $rN#<~L Sdakny fir /ftl ek Shn n ess / NJh5 Gruel /0+
0mfan Gamn;fr<J k k#vcdhg h4Jsita //r AbTam,<.c Cf /r, /Gr )*c omov m on . r, n H. Nrt4ivaul NJ&
h $ f
/. ,e
.,(
b / / W
i ll,A.1 (ii) Net working capital and tangible net worth each at least six times the current decommissioning cost estimates (or prescribed amount if a certification is used), or, for a power r reactor licensee, at least six times the amount of decommissioning funds being assured by a parent company guarantee; and t
ll. A. iv) Assets located in the United States amounting to at least 90 percent of the total
, assets or at least six times the current decommissioning cost estimates (or prescribed amount if a certification is used), or, for a power reactor licensee, at least six times the amount of decommissioning funds being assured by a parent company guarantee.
d
- 1. $ V,
>f .
(i) 4 4 /
II.A'2 (ii) Tangible net worth each at least six times the current decommissioning cost j estimates (or prescribed amount if a certification is used), or, for a power reactor licensee, at least six times the amount of decommissioning funds being assured by a parent company guarantee; and
/
II.A.2 (iv) Assets located in the United States amounting to at least 90 percent of the total assets or at least six times the current decommissioning cost estimates (or prescribed amount if 61
P
, a certification is used), or, for a power reactor licensee, at least six times the amount of j
- decommissioning funds being assured by a parent company guarantee. ,
I
- 7 Zn to etW. /k& O /Ifff y' firtggap j f yy.g,(t)p)h)dil Y fiWJ!c/ b h%/ dJ h/4Wr; Anoendix C - [6Y<ct /d /f 'n 0 # #
l .
S/$ &&ranhes y $ didy N'I##
l
$$ ./$1d5 JG r hc s/nm'SS s' ann}
. . . . V H, fina n ut I WM l p + + 4 V j b1) Tangible net worth at least 10 times the total current decommissioning cost estimate V (or i the current amount required if certification is used), or, for a power reactor licensee, at least 10 times the amount of decommissioning funds being assured by a parent company guarantee, for all decommissioning activities for which the company is responsible as self-guaranteeing licensee and as parent-guarantor.
~
5 II.A. 2) Assets located in the United States mounting to at least 90 percent of total assets or at least 10 times the total current decommissioning cost estimate (or the current amount required if certification is used), or, for a power reactor licensee, at least 10 times the amount of l decommissioning funds being assured by a parent company guarantee, for all l decommissioning activities for which the company is responsible as self-guaranteeing licensee and as parent-guarantor.
1 i
62 l
l
_ - - . - _ . ___ . _ _ _ . _ = _ __. _ _ . . _ _ _ _ _ . _.-. _._ _ _ _ _ _ . .
. . . . . i i
I l
f PART 50 - DOMESTIC LICENSING OF PRODUCTION ANO UTILIZATION ';ICILITIES j The authority citation for Part 50 continues to read as follows:
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 (42 U.S.C. !
2132,2133,2134,2135,2201,2232,2233,2236,2239,2282); secs. 201, as amended,202, 206,88 Stat.1242, as amended, 1244,1246 (42 U.S.C. 5841,5842,5846).
Section 50.7 also issued under Pub. L.95-601, sec.10,92 Stat. 2951 (42 U.S.C. 5851).
Section 50. ;0 also issued under secs. 101,185,68 Stat. 955 as amended (42 U.S.C. 2131, .
t 2235), sec.102, Pub. L.91-190, 83 Stat. 853 (42 U.S.C. 4332). Sections 50.13, 50.54(dd), and 50.103 also issued unoer sec.108,68 Stat. 939, as amended (42 U.S.C. 2138). Sections 50.23,50.35,50.55, and 50.56 also issued under sec.185,68 Stat. 955 (42 U.S.C. 2235). t i
Sections 50.33a,50.55a and Appendix Q also issued under sec.102, Pub. L.91-190,83 Stat. i i
853 (42 U.S.C. 4332). Sections 50.34 and 50.54 also issued under sec. 204, 88 Stat.1245 (42 U.S.C. 5844). Section 50.37 also-issued under E.O. 12829,3 CFR 1993 Comp., p. 570; E.O.
12958, as amended, 3 CFR,1995 Comp., p. 333; E.O.12'968,3 CFR 1995 Comp., p. 391. ;
- r. !'
Sections 50.58,50.91, and 50.92 also issued under Pub. L.97-415,96 Stat. 2073 (42 U.S.C.
2239). Section 50.78 also issued under sec. 122,68 3(at. 939 (42 U.S.C. 2152). Sectiom 50.80
- 50.81 also issued under sec.184,68 Stat. 954, as amended (42 U.S.C. 2234). Appendix F f also issued under sec.187,68 Stat. 955 (42 U.S.C. 2237). '
63
C /
y ' ni 9 50. the definitions of Cost of service regulation, Federallicensee, incentive f
regulation, Non-bypassable charges, and Price-cap regulation are added in alphabetical order to read as follows:
6 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 allows 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.
Federallicensee means any NRC licensee, the obligations of which are guaranteed by and supported by the full faith and credit of the United States Govemment.
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.
Non-bypassable charges mean those charges imposed over an established time period by a Govemment authority that affected persons or entities are required to pay to cover costs associated with the 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 stream.
Frice-cap 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 a specified maximum price of electricity.
i J
. In 9 50.43, paragraph (a) is revised to read as follows:
i 4
65 :
)
1 i
h f 6 50.43 Additional standards and orovisions affectino class 103 licenses for commercial oower. ,
(a) The NRC wilt ,
(1) Give notice in writing of each application to the regulatory agency or State as may have jui;sdiction over the rates and services incident to the proposed activity; ,
i (2) Publish notice of the application in de or news publications as it deems dppropriate to give reasonable notice to municipalities, prt/ ate utilities, public bodies, and
+ he.
cooperatives which mignt have a potential interest in euegutilization or production facility; and j
I-(3) Publish notice of the application once each week for 4 consecutive weeks in the i
Federa/ Register. No license will be issued by the NRC prior to the giving of these notices and until 4 weeks after the last notice is published in the Federal Register.
. In S 50.54, the introductory text of paragraph (w) is revised to read as follows:
l 6 50.54 Conditions of licenses.
66 !
a 1 ;
i (w) Each power reactor licensee under this part for a production or utilization facility ;
1
~ of the type described in $$ 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 NRC that it possesses an equivalent amount of protection covering the ;
e
' licensee's obligation, in the event of an accident at the licensee's reactor, to stabilize and i ,
i decontaminate the reactor and the reactor station site at which the reactor experiencing the l accident is located, provided that:
a s
. In 5 50.63, paragraph (a)(2) is revised to read as follows: V !
$ 50.63 Loss of alternatina current oower. l (a) i (2) The reactor core and associateci 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 containment integrity is maintained i in the event of a station blackout for the specified duration. The capability for coping with a station blackout of specified duration will be determined by an appropriate coping analysis.
Licensees are expected to have the baseline assumptions, analyses, and related information
{
used in their coping evaluations available for NRC review.
l t
f 67 .
7 -. ~...p. . -
. Ir. } 50.73, paragraph (b)(2)(ii)(J)(2)(ir)is revised to read as follows: j i 6 50.73 Licensee event reoort system.
(b)
(2)
(ii)
(J)
(2) i (ig) The type of personnel involved (i.e., contractor personnel, licensed operator, nonlicensed operator, other licensee personnel).
l s
/
in 9 50 75, paragraphs (a), (b), (d), and (e) are revised, and paragraphs (f)(1), (2), J g and (3) are redesignated as paragraph (f)(2), (3), and (4) and a new paragraph (f)(1) is added l
to read as follows:
6 50.75 Reoortina and recordkeenina for decommissionina olannina.
(a) This section establishes requirements for indicating to NRC how a licensee will provide reasonable assurance that funds will be available for the decommissioning process.
For power reactor licensees, reasonable assurance consists of a series of steps as provided in l
68 i
- - = .- . . - - . . - . - . . - . - . . . -_- -.- - -. -.- -.- - -..---
I
- paragraphs (b), (c), (e), and (f) of this section. Funding for the decommissioning of power ,
dt& A.cskty j/
reactors may also be subject to the regulation ofgovemment agencies (e.g., Federal Energy Regulatory Commission (FERC) and tate [ublic[lity ommissions) that have jurisdiction j over rate regulation. The requirements of this section, in particular paragraph (c) of this i
- section, are in addition to, and not substitution for, other requirements, and are not intended to
- be used, by themselves, by other agencies to establish rates.
f
! (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. l i >
(1) The report must contain a certification that financial assurance for :
1
.i decommissioning will be (for a license applicant) or has been (for a license holder) provided in 4 .
! an amount which may be more but not less than the amount stated in the table in paragraph !
(c)(1) of this section. i (2) The amount to be provided must be adjusted annually using a rate at least equal to that stated in paragraph (c)(2) of this section.
(3) The amount must use one or more of the methods described in paragraph (e) of this section as acceptable to the NRC.
(4) The 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 must be submitted to NRC.
e e e 9 e i
69
l i
i i l (d)(1) Each non-power reactor applicant for or holder of an operating license for a '
i production or utilization facility shall submit a decommissioning report as required by 10 CFR '
50.33(k) of this part.
(2) The report must / !
A l (i) Contain a cost estimate for decommissioning the facilityj t/ K j 1
j (ii) Indicate which method or methods described in paragraph (e) of this section as
/
acceptable to the NRC will be used to provide funds for decommissioningjand 8(
l (iii) Provide a description of the means of adjusting the cost estimate and associated f
i
- funding level periodically over the life of the facility. l l U J >
, (e)(1) Financial assurance is to be provided by the following methods, !
! /
] (i) Prepayment. Prepayment is the deposit made preceding the start of operation j i
i into an account segregated from licensee assets and outside the licensee's administrative '
} !
control of cash or liquid assets such that the amount of funds would be sufficient to pay (
decommissioning costs. Prepayment may be in the form of a trust, escrow account, j
Govemment fund, certificate of deposit, deposit of Government securities or other payment
- acceptable to the NRC. A licensee may take credit for projected earnings on the prepaid l 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. This includes the l periods of safe storage, final dismantlement, and license termination, if the licensee's rate-l setting authority does not authorize the use of another rate. All actual eamings on existing
! funds may be used to calculate future fund needs.
(ii) Extemal sinking fund. An external sinking fund is a fund established and maintained by setting funds aside periodically in an account segregated from licensee assets i
- 70 4
._ _ _ _ . _ _ _ _ _ _ _ . _ _ _ _ _ . . _ . . ~ _ - _ _ . _ _ _ _ _ _ _ _ . .
i
- I l
and outside the licensee's administrative control in which the total amount of funds would be j sufficient to pay decommissioning costs at the time termination of operation is expected. An 1 ;
a -
- extemal sinking fund may be in the form of a trust, escrow account, Government fund, ,
certificate of deposit, deposit of Govemment securities, or other payment acceptable to the !
I j NRC. A licensee may take credit for projected eamings on the external sinking funds using up '
i ;
to a 2 percent annual real rate of return from the time of fu+ure funds' collection through the .
l decommissioning period. This includes the periods of safe storage, final dismantlement, and i.
- license termination, if the licensee's rate-setting authority does not authorize the use of another l
rate. All actual earnings on existing funds may be used to calculate future fund needs. A a licensee, whose rates for decommissioning costs cover only a portion of such costs, may make l
, use of these methods only for that portion of such costs that are collected in one of the l
\
manners described in this paragraph, (e)(1)(ii). This method may be used as the exclusive I mechanism relied upon for providing financial assurance for decommissioning in the following i circumstances: ,
i.
l 4
(A) By a licensee that recovers, either directly or indirectly, the estimated total cost i i I i of decommissioning through rates established by " cost of service" or similar ratemaking l regulation. Public utility districts, municipalities, rural electric cooperatives, and tate and Federal agencies, including associations of any of the foregoing, that establish their own rates
)- and are able to recover their cost of service allocable to decommissioning, are assumed to meet this condition.
i (B) By a licensee whose source of revenues for its external sinking fund is a "non-bypassab',e charge." the total amount of which will provide funds estimated to be needed for decommissioning pursuant to 99 50.75(c),50.75(f), or 50.82.
71 i
l
1 (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 specified term, such as five years, must be renewed automatically, unless 90 days or more prior to the renewal day the issuer notifies the NRC, the beneficiary, and the licensee of its intention not to renew. The surety or insurance must also provide that the full face amount be paid to the beneficiary automatically prior to the expiration without proof of forfeiture if the licensee fails to provide a replacement acceptable to the NRC within 30 days after receipt of notification of cancellation.
(2) The surety or insurance must be payable to a trust established for i decommissioning costs. The trustee and trust must be acceptable to the NRC. An acceptable trustee includes an appropriate State or Federal government agency or an entity that 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 on a financial test may be used if the guarantee and test are as contained in Appendix A to 10 CFR l Part 30.
(C) For commercial companies that issue bonds, a guarantee of funds by the applicant or licensee for decommissioning costs based on a financial test may be used if the l i
guarantee and test are as contained in Appendix C to 10 CFR Part 30. For commercial 72 j
J l
companies that do not issue bonds, a guarantee of funds by the applicant or licensee for l
i decommissioning costs may be used if the guarantee and test are as contained in Appendix D
)
. to 10 CFR Part 30. For non-profit entities, such as colleges, universities, and non-profit i hospitals, a guarantee of funds by the applicant or licensee may be used if the guarantee and test are as contained in Appendix E to 10 CFR Part 30. A guarantee by the applicant or licensee may not be used in any situation in which the applicant or licensee has a parent l company holding majority control of voting stock of the company. !
(iv) For a power reactor licensee that is a Federal licensee, or for a non-power reactor licensee that is a Federal,[ tate, or local government licensee, a statement of intent j containing a cost estimate for decommissioning, and indicating that funds for decommissioning j l
will be obtained when necessary.
(v) Contractual obligation (s) on the part of a licensee's customer (s), the total amount l of which over the duration of the contract (s) will provide the licensee's total share of uncollected !
. funds estimated to be needed for decommissioning pursuant to 99 50.75(c), 50.75(f), or 50.82. ,
l To be acceptable to the NRC as a method of decommissioning funding assurance, the terms of !
1 the contract (s) shah include provisicns that the electricity buyer (s) will pay for the i
decommissioning obligations specified in the contract (s), notwithstanding the operational status l
either of the licensed power reactor to which the contract (s) pertains or force majeure )
l provisions. All proceeds from the contract (s) for decommissioning funding will be deposited to
- the extemal sinking fund. The NRC reserves the right to evaluate the terms of any contract (s) and the financial qualifications of the contra.: ting entity (ies) offered as assurance for decommissioning funding.
73 a - -, _ _ _ _ ~ ._ -- -.
d
%k l (vi) Any other mechanism, or combination of mechanisms, wh rovides, as 02 C determined by the mm.e;,:= upon its evaluation of the specific circumstances of each /
licensee submittal, assurance of decommissioning funding equivalent to that provided by the l mechanisms specified in paragraphs (e)(1)(l)-(iv) of this section. Licensees who do not have sources of funding described in paragraph (e)(1)(ii) of this section may use an extemal sinking fund in combination with a guarantee mechanism, 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.
/kC (e 2) The ym ein 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 appropriate on a case-by-caw basis, including modification of a licensee's schedule for the accumulation of decommissioning ;
funds.
4 i
e (f)(1) Each power reactor licensee shall report, on a calendar-year basis, to the NRC by ;
- i March 31 (the year after the year of the effective date of the final rule), and at least once every 2 years thereafter on the status of its decommissioning funding for each reactor or part of a reactor that it owns. The information in this report must include, at a minimum
- the amount of j decommissioning funds estimated to be required pursuant to 10 CFR 50.75(b) and (c); the 1
amount accumulated to the end of the calendar year preceding the date of the report; a j i
74 )
l i
. l
\. 1
L pA'
(/ln('
L"'h~
schedule of the annual amounts remainin to be collected; the assumptions used regarding q rates of escalation in decommissionin osts, rates of earnings in decommissioning funds, and rates of other factors used in fundin projections; any contracts upon which the licensee is i y relying pursuant to paragraph (e)(1) (C) of this section; and any 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 projected end of its operation, or where l 1
conditions have changed such that it will close within 5 years before the end of its licensed life, !
or has already closed, shall submit this report annually.
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l Dated at Rockville, Maryland this day of 1998. l l
For the Nuclear Regulatory Commission.
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i John C. Hoyle, l J
Secretary of the Commission.
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1 1
75 l
l