ML20211K285

Standard Review Plan on Power Reactor Licensee Financial Qualifications and Decommissioning Funding Assurance

ML20211K285
Person / Time
Issue date:	03/31/1999
From:	Wood R Office of Nuclear Reactor Regulation
To:
References
NUREG-1577, NUREG-1577-R01, NUDOCS 9909070172
Download: ML20211K285 (21)

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NUREG-1577, Rev. I l

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Standard Review Plan on

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U.S. Nuclear Regulatory Commission f' *%g Office of Nuclear Reactor Regulation Washington, DC 20555-0001 [

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NUREG-1577, Rev.1 l

1 Standard Review Plan on

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" U.S. Nuclear Regulatory Commission f

Office of Nuclear Reactor Regulation

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in"Tal 1577 R PDR

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~

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NUREG-1577, Rev.1 Standard Review Plan on Power Reactor Licensee Financial Qualifications and Decommissioning Funding Assurance Manuscript Completed: January 1999 Date Published: March 1999 Prepared by R. S. Wood Division of Peactor Program Management Office of Nt. r Reactor Regulation U.S. Nuclear Rep . tory Commission Washington, DC 20555-0001 jv" "'*%

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1 ABSTRACT

)

The NRC is issuing this final Standard Review changes to the regulations resulting from Plan to describe the process it uses to review responses to the Advance Notice of Proposed the financial qualifications and methods of Rulemaking and the Draft Statement,it will ,

providing decom.missioning funding assurance be updated for any future initiatives. The NRC required of power reactor licenses. A separate is concerned that rate deregulation and ]

j SRP was issued for the NRC's antitrust review disaggregation resulting from various

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responsibilities in 1997. This Standard Review restructuring actions involving power reactor j Plan is being used as the basis for reviews as licensees could have adverse effects on the i the electric utility industry moves from an Protection of public health and safety.

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environment of rate regulation toward greater The NRCis publishing Revision 1 to  !

competition. Although this final Standard NUREG-1577 to include footnote I Review Plan reflects current regulations and information omitted in the original version policy, and has been updated to reflect published February 1999.

)

iii NUREG-1577, Rev.1

l CONTENTS Page Ab s t ra ct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......................... ...... iii I.

Are a s of Re vi ew . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.

II . Acceptance Crite ria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.

Financial Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2. Decommissioning Funding Assurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

3. Fo re ign Own e rs hip . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 III. Re view Proce d ure s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 . . . .

1.

Financial Q ualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 a.

Const r uction Pe rmits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

b. Operating License Reviews . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

c. Combined License Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 d.

Post-OL Non-Transfer Reviews . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 e.

Reviews of Transfers of Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

2. Decommissioning Funding Assurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

a. Verifying the Initial Certificate Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

b. Evaluating the Biennial Decommissioning Funds Status Reports . . . . . . . . . 9

c. Verifying Annual Amortization Amounts for External Sinking Funds . . . . . . 9

d. Evaluating Investments in External Sinking Funds . . . . . . . . . . . . . . . . . . . . . 11

e. Evaluating External Sinking Fund Trust Documents . . . . . . . . . . . . . . . . . . . . 12

f. Evaluating Other Financial Assurance Mechanisms . . . . . . . . . . . . . . . . . . . . 13 IV. Evaluation Findings . . . . . . . . . . . . . . . . ............... .................... 14 V. I mpl e m e n t a tion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 VI . Re fe re n ce s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 .......

l 1

1 v NUREG-1577, Rev.1

STANDARD REVIEW PLAN ON POWER REACTOR LICENSEE FINANCIAL QUALIFICATIONS AND DECOMMISSIONING FUNDING ASSURANCE Review Responsibilities funding assurance requirements that the final rule implemented. Additionally, on Primary-Generic Issues and Environmental October 24,1997, the NRC staffissued Projects Branch (PGEB) SECY-97-253, " Policy Options for Nuclear Secondary-None Power Reactor Financial Qualifications in Response to Restructuring of the Electric l Utility Industry." On January 15,1998, the I. AREAS OF REVIEW Commission responded to the staff's proposals in a staff requirements memorandum and The NRC is issuing this Standard Review Plan indicated that the NRC should continue its (SRP) to describe the process it uses to review current approach to evaluating the financial l

the financial qualifications and methods of t qualifications oflicense applicants and  !

providing decommissioning funding assurance licensees of operating nuclear power plants.  !

required of power reactor license applicants '

and licensees. A separate Standard Review The Commission reconfirmed this view in a staff requirements memorandum dated j Plan on Antitrust Reviews was issued in December 9,1998 on SECY-98-153-December,1997 (NUREG-1574). Also, a l

" Update of Issues Related to Nuclear Power j l' draft SRP Regarding Foreit,n Ownership, Reactor Financial Qualifications in Response  !

Control, or Domination of Applicants for to Restructuring of the Electric Utility Reactor Iicense will be issued shortly. The Industry."If the NRC decides to change its issue of foreign ownership, control, or financial qualifications review criteria in the domination is a policy matter that is under future, or if other changes to relevant NRC active consideration by the Commission. Each policies and requirements are adopted, the of these SRPs will be used as a basis for NRC will revise this SRP to reflect such reviews as the electric utility industry moves changes.

from an environment of rate regulation toward greater competition and the attendant II. ACCEPTANCE CRITERIA l corporate restructuring that competitive forces l will likely engender. The NRC issued a draft 1. Financial Qualifications l

of this SRP in January,1997 (NUREG-1577), Section 182.a. of the Atomic Energy Act of l and received 6 public comment letters as a 1954, as amended, (AEA) provides that "Each l result. This SRP, like the draft, reflects current application for a license... shall specifically NRC regulations and policy. Tims, some of the state such information as the Commission, by l public comments received that suggested rule or regulation, may determine to be changes to current requirements for financial necessary to decide such of the technical and qualifications could not be considered. financial qualifications of the applicant ... as However, the NRC has adopted comments on the Commission may deem appropriate for the existing processes and procedures in this SRP, license." The NRC's regulations governing where appropriate. Since the NRC issued the financial qualifications reviews of applications draft SRP, a final rule on decommissioning for licenses to construct or operate nuclear funding assurance was issued on Septem- power plants are in section 50.33(f) of Title 10 ber 22,1998 (63 FR 50465). This SRP reflects of the Code of Federal Regulations. Guidance the changes to the NRC's decommissioning for Construction Permit (CP) financial  ;

4 1 NUREG-1577, Rev.1

qualifications reviews is provided in Appendix time of submission of the post-shutdown C to 10 CFR Part 50. Transfers of licenses are decommissioning activities report (PSDAR) governed by 10 CFR 50.80. If a license required in section 50.82, licensees should amendment is required by, for example, the have either (1) funds plus an estimate of addition of a new or renamed entity to the expected earnings on the fund, or (2) a license, the provisions of 10 CFR 50.90,50.91, guarantee, insurance, or other funding and 50.92 would be applicable. The reviewer assurance method for the total estimated will accept applications for licensing actions decommissioning cost, as provided in 10 CFR that provide required information pursuant to 50.75(e). Final funding plans, and adjustments the relevant sections cited above. to them during any safe storage period, are also required, as necessary. For those licensees that shut down their po.ver plants prematurely

2. Decommissioning Funding Assurance (that is, before the scheduled end of their operating license term), section 50.82 provides Decommissioning funding assurance for that the schedule for collecting any balance of nuclear power plants is governed by 10 CFR funds estimated to be needed for decom-50.33(k),50.75, and 50.82 in a three-stage missioning will be determined on a case-by-process. First, as required in section 50.33(k), case basis. Section 50.75(e) describes on or before Jul; 26,1990, licensees were allowable funding assurance mechanisms and required to submit a report, including a the circumstances under which licensees may certification, specifying how financial use them.Section III.2. of this SRP provides assurance for decommissioning would be additional discussion of decommissioning l provided. An applicant for an operating funding assurance. The reviewer will accept the reports,information, and applications for license (OL) under 10 CFR Part 50 or a combined license under 10 CFR Part 52 is licensing actions that conform to the required, pursuant to 10 CFR 50.33(k)(1), to requirements of these sections of the NRC's submit information in the form of a report regulations.

indicating how reasonable assurance will be provided that funds will be available to 3. Foreign Ownership decommission the facility. Second, licensees License applications for new facilities or for are required to adjust annually the amount of transfers of ownership of existing facilities may decommissioning funding assurance, using an include requests by foreign entities to own all amount equal to or greater than that required or part of a reactor facility. Section 103d of the under the formula in section 50.75(c)(2), and AEA prohibits the NRC from issuing a license report on the status of their decommissioning to an applicant if the NRC knows or has funds as provided by 10 CFR 50.75(f). Periodic reason to believe that the applicant is owned, adjustments to the funding amount should be controlled, or dominated by an alien, foreign made in coordination with a licensee's rate corporation, or foreign government.1 The regulator, if applicable, or by itself. Third, in reviewer will accept applications having accordance with section 50.75 (f),5 years foreign ownership considerations that address before permanent cessation of operations, a issues and provide information as described in licensee must submit a preliminary , the draft SRP Regarding Foreign Ownership, decommissioning cost estimate that mcludes plans for adjusting levels of funds assured for i The NRC regulation that implements this prohibitic,in the Atomic Energy Act is 10 CFR 5038,which states:

decommissioning to demonstrate that a

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reasonable level of assurance will be provided o Tyc'oQ,h o e;na

,ntiy i jh e ni o h that funds will be available when needed to ha$ reason to beheve is owned.contratied or dominated by an aben,

' on cover the cost of decommissioning. By the a$[y*'rsmgi, n  ; pl a tweign n smernment. shahe inchgMe to NUREG-1577, Rev.1 2

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1 Control, or Domination of Applicants for institutions) upon which they are relying for Reactor Licenses.

financial assistance; (2)information to support the financial capability of stockholders, III. REVIEW PROCEDURES corporate affiliates, and others to meet their current or intended commitments to the The reviewer uses the review procedures applicant (s); (3) any other information described in this section of the SRP as may be considered necessary by the Commission to appropriate for a particular case.

enable it to determine applicants' financial qualifications; and (4) applicants' statements

1. Financial Qualifications of assets, liabilities, and capital structure as of

a. Construction Permit Reviews The NRC does not currently have any CP As provided in 10 CFR 50.33(f)(3), additional applications for review. All reviews for any information is required of newly-formed new CP applications will be performed under entities2when they are organized for the the following procedures. Section 50.33(f)(1) primary purpose of constructing or opersting a nuclear power plant. Thus, for example, the requires CP applicants to submit information that " demonstrates that the applicant reviewer should treat such an operating possesses or has reasonable assurance of company as a newly-formed entity and should obtammg the funds necessary to cover review information that is typically contained estimated construction costs and related fuel in operating or participation agreements. The cycle costs." Appendix C to 10 CFR Part 50 reviewer should also evaluate the ability of the provides more specific directions for plant owners to meet their obligations to the evaluating the financial qualifications of CP operating company. If, for example, the aoplicants. Reviewers should confirm that owners of an operating company meet the applicants have provided at least 3 types of definition of an " electric utiFty" as provided in 10 CFR 50.2,less detailed information will be mformation: (1) an estimate of construction costs, including plant costs ascribable to the required. (As described in the section on OL nuclear plant itself; general and overhead reviews, a newly-formed entity that is an plant costs, including any transmission and " electric utility" will not be subject to further distribution costs ascribable to the plant; and review.)

nuclear fuel cost for the first core load; (2) the source (s) of construction funds, including a 2

financial plan describm, g mternal and external The Nac views the term," newly formed entity,"in the context of CP, ot. or posi-ot reviews. as being largely self 4xplanatory. but is sources of funds; and (3) the latest published pr viding the following worlaag definitions to assist the reviewer in annual financial reports, together with any determining w hether an applicant is a " newly-formed enti'y" or an "estabbshed entity:"

current interim financial statements that are A new@-formed enny is a company that has been formed or organized pertinent, including income, balance sheet, e ' '"g. o* o

'fllh*n P"**'?ng"a is n car l'r"pQn7d es n and cash flow statements. established fi'* ycar financiai record,or demonstrated a fmancial capabihty for raismg and managing capital similar to the level required to fund a nuclear power plant's construction, capital additions, and In addition, the reviewer should determine operating and decommissioning expenses. as arpropriate, or the whether apph. cants are subj.ect to section hcusee's stipulated share of those operatmg expenses. A nuclear operating company formed from an existing power reactor hcensee or i

50.33(f)(3) and Appendix C to 10 CFR Part licensees is a newly-formed entity-50, which require new! -formed entities to ^"'**"d'"a'Os a c mpany tha: has an estabhalied and proven Imancial, construction, operational, or decommissioning record of five provide information showing: (1) the legal and -

years or more for managms or owning a nucicar power plant, or has an financial relationships they have or propose to

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similar to the level have with their stockholders, corporate additions, and operating and decommissioning expenses, as affiliates, and others (such as financial $f,';' "he beensec's nipulated share of those operadng 3 NUREG-1577, Rev.1

The reviewer should evaluate new companies characteristics of various combinations of formed as the result of mergers to determine these organizations. If emities using unan-their status as " electric utilities" or, if they do ticipated ownership arrangements apply for not meet this definition, evaluate their new cps, the reviewer may use the authority projected combined financial statements and under section 50.33(f) either to require other relevant information as described in this adequate information to assure himself or SRP to determine their financial qualifica- herself that the applicant has demonstrated tions. Similarly, the NRC will evaluate reasonable assurance of obtaining adequate formations of new holding companies over funds for the safe construction of the facility or existing licensees to determine the potential to deny issuance of a CP.

financialimpact of the new company on the existing licensee, but will perform only a b. Operating License Reviews limited review if the licensee is an " electric " Electric utilities" as defined in 10 CFR 50.2 j utility". A newly-formed entity that has been are exempt under 10 CFR 50.33(f) from formed to buy and operate a nuclear plant as financial qualification reviews for OL I its only significant asset (e.g., a " merchant applications. If the reviewer determines that plant", a "GENCO," or an exempt wholesale OL applicants are " electric utilities" and that generator (EWG)) would normally be all of their corporate owners (i.e., parent expected to submit more detailed information companies) have been identified, such to support its financial qualifications, unless it applicants will not be subject to further NRC meets the definition of" electric utility," than financial qualifications review. OL applicants other applicants. Corporate reorganizations that are not " electric utilities" are required (e.g., functional unbundling of nuclear plant under section 50.33(f)(2) to submit infor-operations from other corporate activities) or mation that demonstrates that they possess or  !

initiation of contracts with other parties to have reasonable assurance of obtaining the provide nuclear plant operational support funds necessary to cover estimated operating would not normally be considered to fall costs for the period of the license. The within the definition of " newly-formed reviewer will confirm that non-electric utility entities," although such changes may be OL applicants have submitted estimates for subject to review pursuant to 10 CFR 50.80, as total annual operating costs for each of the described below. The reviewer will determine first 5 years of operation of their facilities, and the financial qualifications of a license have also indicated the source (s) of funds to applicant for a CP based on the adequacy of cover operating costs. Information on the the relevant information provided and the sources of funds should include projections of applicant's ability to meet the standards the market price of power in the area in which stipulated in the NRC's regulations. the plant will be located, any long-term contracts that the applicant has for the plant, l The NRC believes that this framework is contracts or other arrangements with relevant sufficient to provide reasonable assurance of transmission or grid reliability authorities that the financial qualifications of both elect!k designate the plant as a "must-run" facility, utility and non-electric-uti:ity applicants under government-required charges designated for the various ownership arrangements currently nuclear plant operations (e.g., non-bypassable contemplated. These ownership arrangements wires charges), corporate revenues from other i include: (1) holding companies; (2) operating, sources that may be used at the nuclear plant, generating, or service company subsidiaries; and any other information relevant to the (3) merged companies; (4) independent power source of revenues. The reviewer will evaluate producers (IPPs); (5) exempt wholesale this information for reasonableness and will generators; and (6) " hybrid" companies with compare it to plants of similar size, design, and NUREG-1577, Rev.1 4

-_A

location. If applicable, the reviewer will also d. Post-OL Non-transfer Reviews use information from Moody's, Standard and Poors, and Value Line or other widely accepted The NRC does not systematically review its rating organizations to assist in his or her p wer reactor licensees once it has issued an review. If a license applicant has an '

ther than for transfers discussed m

" investment-grade" rating or equivalent from ectmn III.1.e. However, section 50.33(f)(4) at least two of these sources, or has states: The Commission may request an demonstrated that it has met the electricity established entity or newly-formed entity to supply and demand test described above, the submit addhional or more detailed informa-reviewer will find such applicants financially tion respecting its financial arrangements and qualified. If an applicant cannot meet these status of funds if the Commission considers criteria, the reviewer will also consider other gis information to be appropriate. This may relevant financial information (i.e., informa- include mformation regarding a licensee s tion on cash or cash equivalents that would be bility to continue the conduct of the activities ,,,

sufficient to pay fixed operating costs during uthorized by the license and to decommission an outage of at least 6 months, the amount of the facility. The NRC has used this provision n in Hmited situations and normally will not decommissioning funds collected or guaran-teed for the plant in relation to the current estimated decommissioning cost, and any

1. [ electric utilities ,, to report on their firiancial other relevant factors). An OL applicant that qu lific tions at specified intervals. However, is a newly-formed entity organized for the reviewers have and will continue to conduct primary purpose of operating the facility is general follow-up reviews of all licensees by required to submit the information described screening trade and financial press reports, in 10 CFR 50.33(f)(3). On the basis of the and other sources of information. Reviewers information submitted, the reviewer will issue wiH use mis mformation to detemine whether findings with respect to the financial J recommend any additional NRC action, including requests for additional information qualifications of such OL applicants. If the ,

reviewer determines that a license applicant and the assignment of additional m, spection does not meet these financial qualification resources to monitor the adequacy of plant standards, he or she will either deny issuance safety performance.

or transfer of the OL, condition the OL, or

e. Reviews of Transfers of Licenses recommend initiation of other regulatory action to mitigate financial qualifications NRC regulations in 10 CFR 50.80 require concerns. Commission review of and written consent to direct as well as indirect transfers of operating licenses, including licenses for nuclear power

c. Combined Lkense Applications plants owned or operated by " electric utilities."4 When the transfer involves a As authorized in 10 CFR Part 52, applicants change in the licensee listed on the NRC may apply for a combined CP and OL license. license, the applicant must also apply for a In accordance with section 52.77, all such license amendment under section 50.90. The applications must contain all of the reviewer will determine whether, in the case of information required under section 50.33, a direct transfer, a proposed transferee is including information regarding financial 2 All power reactor heensees are required, pursuant to 10 CFR 50.71(b),

qualifications. The review procedures as ' '"b *" """"'""'"*id P""'

• d described in Sections III.1.a. and b. will be Dy" f,8)"!,'3,'is';,7,"nj,',*,"l'I','

n, sr f,"d",7,7"[,"i,,, ['o i

used to review any combined applications that any manner disposed of. either voluntanly or involuntaniy, directly or the NRC receives. mdirectly, through transfer of control of the hcense to any person, unie ,ts,commision ,saiig,,,it,consentin .niin,-

5 NUREG-1577, Rev.1

qualified to hold the license, or whether, in the Approval of a transfer under section 50.80 will case of an indirect transfer, the holder of the be accomplished by order. When appropriate, license is qualified to hold the license. Section a conforming license amendment will be 50.80(b) requires license transfer applicants to issued. (A name change of a licensee that does include as much of the information with not involve license transfer considerations

, respect to, among other things, the financial under section 50.80 will be effected by a l qualifications of the proposed holder of the license amendment issued administratively license as required in section 50.33(f). Thus, under section 50.90.) In addition, reviewers the reviewer will use the criteria described in should review transfers for their potential other sections of III.1. of this SRP, as impact on the licensee not only to determine appropriate, to conduct his or her license the adequacy of funds for safe operation and transfer reviews. decommissioning, but to ensure that the I licensee maintains adequate technical {

i To date, the NRC has evaluated transfers qualifications and organizational control and l

authority over the facility.5 All orders mvolving mergers, acquisitions, formations of holding companies, and sales of portions of approving section 50.80 transfers are signed by  !

the Director, Office of Nuclear Reactor I facilities to other parties. The reviewer should evaluate the financal qualifications associated Regulation (NRR). Additionally, the Director, NRR, will consult with the Commission on all with these transfers by: (1) determining applications for transfers of licenses that whether the proposed holder of the license ,

represent new or unusual approaches or will remain an " electric utility" following the organizations.

direct or indirect transfer; (2) for non-

" electric-utility" applicants, reviewing the For mergers and restructuring actions recent financial performance of the proposed involving the formation of holding companies, transferee, or,if the proposed transferee is a the reviewer determines whether the surviving new entity such as an operating, generating, or licensed owner or operator will remain an service company subsidiary, evaluating the " electric utility" as defined in section 50.2.

ownership or participation agreement with its Because of the concern that the establishment owners or other responsible party, and (3) of a holding (narent) company over a licensee identifying all parent companies that are not could eventually result in the parent depleting licensed by the NRC or did not undergo an assets from the licensee to such an extent that NRC section 50.80 review. the ability to fund safe operations and decommissioning could be affected, the The reviewer should treat applications reviewer should recommend that transfer involving changes of ownership, mergers, approvals be conditioned to require the formation of holding companies, and other licensee to m, form the NRC before sigmficant restructuring proposals that go beyond assets are transferred from the licensee to its corporate name changes or internal p rent or related company. When co-owners reorganizations as potential transfers of have requested NRC consent to transfer their licenses, directly or indirectly, through transfer interests in power reactors, the reviewer of control of the license, as subject to section should determine the financial qualifications 50.80 review, and not merely subject to a f each buyer to own or operate its proposed section 50.90 license amendment review. In percentage share of the facility by following ,

some cases, a reviewer will need to conduct a the same procedure as described in other

" threshold" review to determine whether the sections of 111.1. of this SRP. Generally, the proposed action does,in fact, constitute a 5 A separate sRP on technical quahfications of hcense transfer apph.

transfer subject to section 50.80. cants is bems developed.

NUREG-1577, Rev.1 6

reviewer should not deem as license transfers relationships other than sale-leaseback 7 i under section 50.80 those internal corporate transactions. See/lrizona Public Service Co.

reorganizations (i.e., that do not entail (Palo Verde Nuclear Generating Station, Unit mergers, holding company formations, 1), CLI-85-17,22 NRC 875 (1985).

acquisitions, or divestitures) that do not alter the licensee's status as an " electric utility," do 2. Decommissioning Funding Assurance not substantially affect corporate ownership or a. Verifying the Initial Certification Amount identity of the licensee, or do not othenvise materially affect the licensee's financial As part of the reporting requirements in qualifications. However, the reviewer should section 503), a licensee s calculations of determine whether such reorganizations are both the basic certification formula amount subject to NRC review and determine whether and the annual escalation amount are subject the licensee,s techm, cal qualifications are to NRC verification. As described in section affected by the reorganization. III.2.b. of this SRP, NRC regulations require licensees to report information on The reviewer should also evaluate financial decommissioning funds at least once every two qualifications of non " electric-utility" years following the initial report filed by applicants on the basis of financial cata based March 31,1999.

on current information from the financial ratings services such as Moody's and Value (1) Power reactor licensees were required to certify by July 27,1990, that they would Line. To date, the NRC has not found any have adequate funds to decommission proposed restructuring actions in which the survivmg licensee would not remain an each unit by the time they plan to shut the

" electric utility" or that would render the unit down. Pursuant to section 50.33(k), a new applicant for an OL is required to proposed transferee not financially qualified.6 g The reviewer will publish the results of such an indicating how reasonable assurance of evaluation in a Safety Evaluation Report (SER), which is used by the Associate Director decommissioning will be provided. The of Projects staff to issue an order,with a reviewer should confirm that this certification is based on the applicable license amendment when appropriate. These actions are noticed in the FederalRegister. formulas contained in sectionc 50.75(c)(1) and (2), or upon a site-specific estimate, NRC regulations in 10 CFR 50.81 govern the pr vided that the estimate is not less than relationships that licensees may have with the value derived from section 50.75(c),

their creditors, including trustees under any using the following criteria:

mortgage, pledge, or lien and court-appointed (a) Section 50.75(c)(1) contains two trustees under bankruptcy proceedings. This formulas to determine the certi-section permits the creation of such creditor fication amounts in 1986 dollars for relationships, provided that creditors do not pressurized water reactors (PWRs) take possession of the facility and are subject and boiling water reactors (BWRs).

to the same restrictions under NRC The formulas include scaling factors regulations and the AEA as the licensee. The to account for size differences in NRC does not typically review creditor reactors. The decommissioning cost ranges in 1986 dollars are from $85.6

' In one case, the NRC received information as part of a request for 7 sale leaseback transactions typically involve the licensed owner of a approval of the formation of a holding company over a licensee that nuclear power plant se.hng all or a portion of its share of the plant to indicated that the licensee did not meet the NRC's definition of an an investor, who then leases back that portion of the facihty to the

" electric utihty." However the formation of the holding company in hcensee. The beensee continues to " possess" and/or operate the plant this case did not cause the hcensee's status as an " electric utibty" to and is responsible for safe operation and decommissioning under the change.

terms vf the NRClicense.

7 NUREG-1577, Rev.1

million to $105 million for PWRs and (2) A licensee's calculations of both the basic from $114.8 million to $135 million certification formula amount and the for BWRs. escalation amount from 1986 to the current year are subject to NRC (b) Section 50.75(c)(2) contains a formula verification. Such verification niii bc to determine the annual change determined primarily by the reviewer's (inflation or escalation, although gvaluation of the biennial reports required deflation is also possible) in the three in 10 CFR 50.75(f), as described in III.2.b.

primary decommissioning cost f this SRP, but may also be accomplished components-labor, energy, and through the NRC inspection process.

low-level waste (LLW) burial charges. Although data may be over a par out-of-date, the licensee is required to have performed an escalation calculation i The 1990 certifications should within the previous 12 months.

have included escalation

• l calculations from 1986 dollars to Because escalation in the three 1989 or 1990 dollars. decommissioning cost factors, labor, energy, and LLW disposal, are given regionally in the reference documents, Licensees are required to the reviewer should check a licensee's recalculate the formula amounts

. methodology and sources in making annually to account for changes in the calculations.  :

the three decommissioning cost factors during the previous year.

• Licensees may use information from Calculations are to be based on several tables of regional data in the data from the U.S. Bureau of U.S. Department of Labor, Bureau of Labor Statistics and current Labor Statistics cited in section versions of NUREG-1307 as 50.75(c). Such information is subject specified in section 50.75(c)(2). to reviewer or inspector confirmation (Power reactor licensees are that the choice of data is reasonable, required to change their collec- That is, site-specific data should not tion amounts periodically. For vary substantially from generic cost licensees that remain under rate data without demonstrable reason.

P d n1

[g[" t 1 ens usual rate (3) The NRC formulas in section 50.75(c) cycles. Licensees that are not rate include only those decomimssioning costs regulated or do not have access to incurred by licensees to remove a facility non-bypassable charges for r site safely from service and reduce decommission ing should adjust residual radioactivity to a level that their funding levels over Permits: (1) release of the property for reasonable periods. In all cases, unrestricted use and termination of the however, pursuant to section license; or (2) release of the property 50.75(e)(2), the NRC reserves the under restricted conditions and right, either in cooperation with a termination of the license. Thus, for licensee's rate regulators or example, the costs of dismantling or independerJly, to take action on a demolishing non-radiological systems and case-by-case Jasis to modify a structures are not included in the NRC 3

licensee's schedule for the cost formulas. In addition, the costs of j accumulation of decommission managing and storing spent fuel on site {

ing funds.) until transfer to the Department of Energy  !

NUREG-1577, Rev.1 8 l 1

I

for permanent disposal are not included in close within 5 years, or has already closed, NRC cost formulas. Therefore, the is required to submit the report annually.

reviewer will ensure that either-(2) As long as the information described Such costs are not included in licensee bove is included in the report, no specific formula calculations; or reporting format is required. However, each licensee should indicate the If such costs are included, they are assurance mechanism being used as a separately identified and are not used source of revenues for the external sinla,ng for NRC-required decommissioning fund (e.g., traditional " cost-of-service funding assurance. ratemaking, a non-bypassable charge, long-term contracts that the NRC has

b. Evaluating the Biennial Decommissioning found to be acceptable pursuant to 10 Fund Status Reports CFR 50.75(e)(1)(v)).8 If the assumed real earnings rate on an external sinking fund The reviewer should confirm that the exceeds 2 percent, each licensee should followm, g information is contained in the indicate the specific rate ruling or decision bienmal decommissioning fund status reports: by its rate regulator that documents the earnings rate being used, as provided in 10 (1) As provided in 10 CFR 50.75(f)(1), each CFR 50.75le) 1 I or ii). If a licensee is power reactor licensee is required t using an assur(an)c(e)mec(hanism other tha report to the NRC on a calendar year an external sinking fund, it should include basis, beginning on March 31,1999, and as part of the report adjustments to the every 2 years thereafter, on the status of assurance mechanisms (e.g., a surety bond its decommissioning funding for each or letter of credit) to account for any reactor or share of a reactor that it owns. escalation since the previous report.

The information in this report must c.

include, at a minimum: the amount of Verifying Annual Amortization Amounts decommissioning funds estimated to be for External Sinking Funds required, pursuant to 10 CFR 50.75(b) The reviewer should verify the accuracy of the and (c), or a site-specific estimate, as annual amortization amounts for external appropriate; the amount accumulated to smking funds using the following procedures:

the end of the calendar year preceding the date of the report; a schedule of the (1) Once a licensee has established the decommissioning cost for each ofits annual amounts remaining to be collected; the assumptions used regarding rates of reactors in current-year dollars, the escalation in decommissioning costs, rates reviewer should confirm that the licensee of earnings on decommissioning funds, will have this amount (less future estimated earnings as provided in 10 CFR and rates of other factors used in funding projections; any contracts upon which the 50.75(e)(1)(1) or (ii)) by the time it plans licensee is relying pursuant to 10 CFR to shut down by using one of the financial 50.75(e)(1)(ii)(C); and any modifications assurance mechanisms allowed in section 50.75(e). Virtually all power reactor to a licensee's current method of providing financial assurance occurring licensees so far have chosen to use an externai sinking fund. This assurance since the last submitted report. Any licensee for a plant that is within 5 years of ',roihe p, cyt e

at%ere wee r *'ai$iica$rt[od o'r*d"e'ir l the projected end of operation, or where nuclear-related revenucs (i e , sreater than 20 percent), the NRC will conditions have changed such that it will not consider them to be subject to traditional cost of-service rate regulation for that portion of their rates.

9 NUREG- 1577, Rev.1

method requires a licensee, or a desig- amount estimated to be necessary to nated representative of a licensee, to complete decommissioning. If the source make payments, at least annually, into an of decommissioning trust funds is a external trust fund held by a third party, State-mandated non-bypassable charge, usually a bank licensed by a State, acting the reviewer should, as appropriate, as trustee. The trustee willinvest a evaluate the assumptions used in licensee's deposits in order to earn calculating and collecting the charge to interest and dividends to increase the determine that it, plus estimated future value of the fund. If a licensee earnings. will be adequate over the permanently shuts down its reactor at the stipulated collection period, to provide the expected end of the reactor's operating funds estimated to be neede.d for life,it should have sufficient funds (less decommissioning. Provisions should be future estimated earnings) to complete made in the non-bypassable charge to decommissioning, either by immediate cover increases in decommissioning cost dismantlement or by storage over some estimates. If the non-bypassable charge period followed by deferred dismantle- does not have such provisions, the licensee ment. If, on the other hand, a licensee will be required to use one of the other permanently shuts down its reactor decommissioning funding assurance prematurely, it will need to accumulate mechanisms allowed in 10 CFR 50.75(e) any shortfall in decommissioning funds for the unfunded difference. The reviewer (less future estimated earnings). As should exercise greater oversight of those provided in section 50.82(c), the collection licensees that no longer have such rate period for making up any shortfall will be regulatory oversight. In either case, the determined on a case-by-case basis. NRC reserves the right to review, as needed, the rate of accumulation of (2) In the 1988 decommissioning rule, the decommissioning funds, and, either NRC deferred to the ratemaking authority independently or in coordination with a j of the PUCs and FERC to set annual rates licensee's rate regulators, take additional for decommissioning. As rate deregulation actions as appropriate on a case-by-case proceeds, some licensees may no longer basis, including modification of a have rate regulatory oversight with respect licensee's schedule for the accumulation to decommissioning. (To the extent such of decommissioning funds. When the  !

oversight continues to be provided, it may reviewer evaluates licensees' amortization include direct oversight as provided in schedules, he or she should use the traditional cost-of-service or similar following benchmarks:

ratemaking, or indirect oversight through  ;

government-mandated non-bypassable (a) Some licensees will base their  !

charges or other mechanisms.) The NRC amortization schedules on the expects that, for licensees that continue to certification amount adjusted to have direct or indirect rate regulatory current-year dollars. At its simplest, {

oversight, it will continue to be able to licensees should have an annual {

defer to rate regulators to determine the amortization amount that equals the l

appropriate amortization schedule for adjusted certification amount divided  ;

decommissioning funds, provided that by the remaining years of projected l there is reasonable assurance that, at the plant operation. This amount will time of permanent cessation of change as the certification amount is operations, decommissioning funds plus continually readjusted to account for estimated earnings will be available in the inflation and trust fund earnings and NUREG-1577, Rev.1 10

i as the remaining operating life PUCs,if applicable. Rate cases are decreases. typically on a three-year cycle, but the licensee should document ]

(b) Other licensees will project decom- decommissioning rate filings and their missioning costs out to the planned underlying assumptions. l time of permanent shutdown by l inflating costs at some predetermined Licensees that no longer have rate inflation rate. They will most likely regulatory oversight or access to non-also discount the fund by the expected bypassable charges for decommissioning earnings rate on the fund. On the should adjust their assurance mechanisms basis of these calculations, licensees """" N to Y.reflect

, any changes in decommissiomng cost estimates derived will be able to calculate an annual fr m the formulas or site-specific amortization amount that, coupled with projected earnings, will equal the estimates in 10 CFR 50.75(c).

inflated certification amount. (d) Some licensees are part owners of power reactors. In such cases, the 1 Although projected inflation rates reviewer should evaluate separately  !

may be expected to vary, they each licensee's amortization schedule should be in the 2 percent to 5 for its share of the facility, unless the percent range based on recent lead licensee has agreed to coordinate economic experience. Some funding documentation and reporting .

licensees may use higher rates for for all co-owners.

LLW disposal costs.  !

d. Evaluating Investments in External  !

• Proj.ected earnings rates on funds Sinking Funds may also vary. A licensee, of course, may take credit for any The reviewer should use the following criteria earnings already accumulated, to evaluate investments in external sinking However, projected future earn- funds: )

ings are limited to a real rate (i.e., .

i the nominal earnings rate less (1) For power reactor licensees that are either subject to cost-of-service rate regulation ]

inflation) of up to two percent, unless a licensee's rate regulator or have access to a non-bypassable authorizes the use of a higher charge (s) to recover the estimated costs of i rate. decommissioning, the NRC will typically defer to State PUCs and FERC to set i (c) The decommissioning rule is struc- standards for the types ofinvestments I tured to allow for changes in amorti- allowed for external sinking funds. For zation rates over time. Thus, it is not other power reactor licensees, the NRC l essential that a licensee achieve has specified in Regulatory Guide 1.159 prorated annual amortizations as long that external decommissioning trust fund as the licensee periodically adjusts the investments should be " investment-amortization rate to compensate for grade."9 changes in the certification amow.

and the fund earnings rate. ( ) For example, this means that corporate or municipal bonds or o Licensees' adjustments to the preferred stocks should be rated at amortization rate do not need to be made least "BBB" by Moody's or an annually, but should be coordinated with ,

g,,,,,,,,, c,ia, 3.139, Assuring the Avaii.diniy or runas for licensees' rate case schedules with their accomminioning Nuclear neactore August 199a 11 NUREG-1577, Rev.1

equivalent rating by another bond ments and have them available for NRC rating agency. (Standard and Poors, inspection.

Duff and Phelps, and Fitch are examples of other major rating e. Evaluating External Sinking Fund Trust agencies.) Documents The reviewer should use the following criteria (b) Common stocks are not rated. to evaluate external sinking fund trust Although the NRC does not explicitly documents

prohibit external trusts from being l

invested in common stocks, NRC (1) Power reactor licensees were required to guidance indicates that speculative submit executed or conformed copies of issues (e.g., stocks of companies with their external sinking fund trusts (or other I limited operating history, or that have assurance mechanisms, if used) by July 27, l

low " safety" rankings from rating 1990. Essentially, all power reactor agencies) should be avoided. There is licensees are currently using external no simple way to determine whether a sinking fund trusts. These trusts were stock issue is speculative. A licensee's reviewed by the NRC shortly after own stock, as well as those of other submission in 1990. The NRC notified power reactor licensees are those few licensees whose trust provisions inappropriate. were found to be deficient. In accordance with 10 CFR 50.75(f),M icensees l are (c) As long as an external trust is invested required to submit any material revisions in a diversified portfolio of bonds, to trust agreements to ensure that NRC stocks, and other investments, losses records are current. Material revisions to on any one issue should not signifi. trust agreements include: (1) changes in I cantly affect the overall value of the trustees; (2) provisions for payment into trust fund. Further, because external and out of the trust; (3) changes in trust trust funds are required to be adjusted investment management; and (4) any periodically, losses in one year may be other changes that would have a direct recouped by increased amortizations bearing on the amount, availability, and )

in following years. When the reviewer assurance of funds for decommissioning. I evaluates the amortization amounts, The reviewer should follow review he or she should ensure that licensees procedures for these changes similar to 3 are revising their amortization rates those it used for the 1990 submissions. i based on the current net market value of their trust investment portfolios. (2) The NRC does not require licensees to use specific trust wording. However, (2) The reviewer should confirm that power Sample wording is provided in Appendix reactor licensees that are either subject to f egulatory Guide 1.159. Trusts cost-of-service rate regulation or have are acceptable in this respect if they contam the following provisions:

access to a non-bypassable charge (s) to recover the estimated costs of (a) The trust should be segregated from decommissioning have documented any the licensee's assets and outside the rate regulators' decisions with respect to licensee's administrative control. The investments in external sinking funds and licensee should avoid day-to-day have them available at a licensee location investment decisions.

for possible NRCinspection. Other licensees should document their hivest- m see !.o section 2.1.6. or nesui.iory cuide 1.159.

NUREG-1577, Rev. I 12

__ _-- --__-_------]

1 l

(b) The trustee should be licensed to act combined amount should at least equal as trustee by State or Federal current estimated decommissioning costs. I authority.

(3) Licensees or license applicants who use (c) Disbursements from the trust should long-term contracts as a method of be restricted to decommissioning demonstrating decommissioning funding expenses or for transfer to another assurance must demonstrate that the assurance mechanism acceptable provisions of the contracts meet the under section 50.75(e). Licensees may criteria specified in 10 CFR make withdrawals from decom. 50.75(e)(1)(v),

missioning trust funds as long as the purpose of such withdrawals meets (4) As indicated in 10 CFR 50.75(e)(1)(vi),

the criteria specified in section the reviewer should evaluate other 50.82(a)(8)(I). In addition, licensees decommissioning funding assurance are restricted at various stages of the mechanisms or combinations of mechanisms proposed by licensees or decommissioning process by section license applicants on a case-by-case basis 50.82(a)(8)(ii) to (iv) in the amounts of funds they may withdraw for to determine that the mechanism or decommissioning expenses until the combination of mechanisms provide NRC has terminated the license. assurance of decommissioning funding Finally, licensees may not use decom- equivalent to that provided by the missioning trust funds for " opera- mechanisms specified in 10 CFR 50.75(e)

(1)[I)._(iv),

tional" expenses (e.g., waste disposal costs while a plant remains in C. Foreign Ownership operating status).

As indicated in Section II.3. of this SRP,

f. Evaluating Other Financial Assurance foreign ownership, control, or domination of a Mechanisms power reactor licensee is prohibited by the Atomic Energy Act and the NRC's regulations.

The reviewer should evaluate other acceptable Because the Commission has determined that financial assurance mechanisms using the all co-owners of reactor facilities are following criteria: co-licensees, each licensee of a power reactor must be evaluated to determine that it is not (1) If a power reactor licensee decides to owned, controlled, or dominated by an alien, switch from an external trust to some foreign corporation, or foreign government. In other assurance mechanism, the licensee each case, the staff will evaluate the totality of should submit information on this new the facts and circumstances against Com-niechanism to the NRC in accordance with mission precedent (e.g., General Electric Co.

section 50.9 and Regulatory Guide 1.159, and Southwest Atomic Energy Assoc., 3 AEC 99 Section 2.6.1. Sample wording of other (1966))in order to determine whether foreign mechanisms is provided in Regulatory ownership, control or domination exists. The Guide 1.159. NRC has not determined whether any percentage ownership would be sufficiently (2) Third-party guarantee mechanisms, such as surety bonds or letters of credit, should small as to be considered de minimis. (The staff notes that, normally, it does not evaluate guarantee the total amount of currently power reactor licensees to determine the estimated decommissioning costs. If these degree to which foreign entities or individuals mechanisms are used in combination with own their voting stock.) A comprehensive other assurance mechanisms, the discussion of NRC review criteria for l

13 NUREG-1577, Rev.1

evaluating these issues is contained in a draft Except in those cases in which the applicant SRP Regarding Foreign Ownership, Control, proposes an acceptable alternative method for or Domination of Applicants for Reactor complying with specified portions of the License that will be issued soon. NRC's regulations, the method described herein will be used by the staffin its IV. EVALUATION FINDINGS evaluation of conformance with Commission The reviewer verifies that sufficient information has been provided to satisfy the requirements of this Standard Review Plan VI. REFERENCES section and the underlying regulations, and

1. Part 50 " Domestic Licensing of concludes that his or her evaluation is sufficiently complete and adequate to support Production and Utilization Facilities" of Title 10 of the Code ofFederalRegulations the conclusion to be meluded in the staff's safety evaluation report that the applicant (1) (10 CFR Part 50) is financially qualified to conduct the activities

-10 CFR 50.33(f) under the license, (2) has satisfied the NRC's

-10 CFR 50.33(k) decommissioning funding assurance -10 CFR 50.75 requirements, and (3)is not owned, -10 CFR 50.82 controlled, or dominated by a foreign -10 CFR Part 50, Appendix C individual or entity.

2. Part 30 " Rules of General Applicability to V. IMPLEMENTATION Domestic Licensing of Byproduct Material" of Title 10 of the Code of The following is intended to provide guidance FederalRegulations (10 CFR Part 30) to applicants and licensees regarding the NRC staff's plans for using this SRP. -10 CFR Part 30, Appendices A and C ,

l I

l NUREG-1577, Rev.1 14

NRC FORM 335 N U.S. NUCLEAR REGULATORY CoMMtssM 1. REPORT NUMBER NRCM 11o2. (AsWned tv NRC, Add t'oi., supp., Qw 32o1,32o2 BIBLIOGRAPHlc DATA SHEET *ad ^dd*"d"" ""*'*"' ""r -)

(see morwsons an um mase)

2. TrrLE AND SUBTITLE NUREG-1577, Rev.1 Standard Review Plan on Power Reactor Ucensee Financial Qualifications and Decommissioning Funding Assurance 3. DATE REPORT PUBLISHED uoNis yEAa l

March 1999

4. FIN OR GRANT NUMBER

6. AUTHOR (S)

6. TYPE OF REPORT Robert S. Wood

7. FERCO COVERED (inclus e Osass) 6.pam PERFORtMNG ORGANt2ATCN name end medme enesa) NAME AND ADORESS (WNRC pnw& Dmsm OWee a Regm U S. Nuc6ser Reghkuy Canmussm and meshng eMess Division of Reactor Program Management Office of Nuclear Reactor Regulation U.S. Nuclear Regulatory Comission Washington, DC 20555-0001 9.and SPONSORING maskne noses) ORGAN \ZATCN . NSME AND ADDRE55 (rhac. type 'seme es above:1ccmtectv. omnie h RC oms 4 OWwe a Regm U s. Nucke Same As Above

10. SUPPLEMENTARY NOTES

11. ABSTRACT (200 mods abas)

The NRC is issuing this Standard Review Plan to describe the process it uses to review the financial qualifications and the methods of providing decommissioning funding assurance required of power reactor license applicants and existing licensees.

The NRC is publishing Revision 1 to NUREG-1577 to include footnote information omitted in the original version published February 1999.

13. KEY WORDS/DESCRIPTORS (Ust wads a phrases met wa ssset rosearchen m aoceeng re repat) 13 AVALAstrry STATEMENT Standard Review Plan unlimited Financial Qualifications H SECURrTYCLASSIFICArON Decommissiong Funding Assurance (N Fooe>

unclassified (rhns RepaQ unclassified

15. NUMBER OF PAGES

16. PRCE NRc FO*M 335 (2-89)

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