ML20211M641

Rulemaking Plan for Amending Nuclear Power Reactor Decommissioning Financial Assurance Implementation Requirements

ML20211M641
Person / Time
Issue date:	07/25/1995
From:	Cyr K, Morrison D, Russell W NRC (Affiliation Not Assigned), NRC OFFICE OF NUCLEAR REGULATORY RESEARCH (RES), NRC OFFICE OF THE GENERAL COUNSEL (OGC)
To:
Shared Package
ML20008B465	List: ML20198J334 ML20198J340 ML20198J347 ML20198J355 ML20198J360 ML20198J366 ML20198J374 ML20198J385 ML20198J394 ML20211M567 ML20211M575 ML20211M579 ML20211M592 ML20211M623 ML20211M634 ML20211M641 ML20211M681 ML20211M710 ML20211M735 ML20211M752 ML20211M766 ML20211M822 ML20211M864 ML20211M888 ML20211M927 ML20211M936 ML20211M980 ML20211N064 ML20211N070 ML20211N076 ML20211N087 ML20211N101 ML20211N135 ML20211N145 ML20211N152 ML20211N207 ML20211N264 ML20211N280 ML20211N326
References
FRN-62FR47588, RULE-PR-50 AF41-1-007, AF41-1-7, PROC-950725-01, PROC-950725-1, NUDOCS 9710150081
Download: ML20211M641 (12)

Text

_ _ _ _ _ _ _ _ _ _ _ _ - _ - _ _ --

' ' 8 4

l l

RULEMAKING PLAN FOR AMENDING NUCLEAR POWER REACTOR i DECOMMISSIONING FINAf4CIAL ASSURAfiCE I IMPLEMENTATION REQUIREMENTS i

l i

Lead Office: Office of Nuclear Regulatory Research Staff

Contact:

Brian Richter, RDB

.s Concurrences: i<  : v ", .

s c D. Mor~rison, RES Date druk bdad

k. Russ(J1, M R g'd rbw Date

\

j q s TTk

, yr, OGC 9lu

' Date fh' Approval:

J. Taylor DaT' 7 01 7 1 971003 30 MIFR475SE PDR

~ ,

RULEMAKING PLAN FOR AMENDING NULLEAR POWER REAC10R DECOMMISS10NING FINANCIAL ASSURANCE i

IMPLEMENTA110N REQUIREMENTS REGULATORY PROBLEM AND ISSUES TO BE RESOLVED l Ine staff has determined that there is a need tu update NRC's financial l

assurance requirements for the decommissioning of nuclear power plants.

Recent studies have shown that the present decommissioning cost requirements are outdated and not based on the most recent technology. Also, the impact of deregulation of the power generating industry has created additional uncertainty with respect to the availability of decommissioning funds. As a result, the staff is planning to make twc amendments to 10 CfR 50.r5 to address these concerns. The first proposed amendment, to modify the value of the funds required to accomplish the decommissioning is addressed in another rulemaking plan. 1he second, to modify the financial mechanism required to provide the decommissioning funds when needed, along with the monitoring of such a mechanism, is addressed in this rulemaking plan.

Current rule _reautrements. '

Regarding the financial assurance impiementation requirement, the intent of the current decommissioning rule is that the assurance mechanism ensures that funds for decommissioning can be obtained when necessary with reasonable assurance. The inability of the licensee to provide such assurance can be considered in some circumstances, if eventual cleanup is protracted over long periods, to result in a health and safety issue and certainly is a financial risk to taxpayers. Such a finding provided the basis for the current decommissioning rule requirements. At the time the decommissioning rule was finalized, the Commission beli3ved that for a regulated pcwer reactor utility, an external reserve account collected over estimated remaining reactor life would provide the necessary required reasonable assurance.

Requirements pertaining to financial assurance for the decommissioning of nuclear power reactors are contained in i 50.75. Under i 50.75(e), the NRC allows power reactor licensees to set aside funds annually over the estimated life of the reactor. These funds are to be placed in external decommissioning trust or escrow accounts so as to be reserved only for decommissioning activities. Under the definition of external sinking fund, power reactor licensees must accumulate all the funds estimated to be needed for decommissioning by the time their facilities are perma..antly shut down.

Although '. 50.75(e) also allows power reactor licensees to use surety bonds, letters of credit, and prepayment to provide funding assurance, virtually all power reactor licensees use the external sinking fund method of assurance.

Under the definition of external sinking fund in i 50.75, each licensee is required to have funds needed for decommissioning to be available at the time the reactor permanently ceases operation. As a conservatism built into the role, the NRC decided not to allow licensees to take creJit for earnings on their trust funds while their reactors were in extended safe storage. Rather, the NRC implicitly assumed that, during safe storage the rate of return on external decommissioning trust funds would equal the decommissioning cost

I ,,

e ..

escalation rate. Thus, the af ter-tax, af ter inflation earnings rate would effectively be zero.

The NRC decided not to require licensees to report periodically on the status of their decommissioning funds when it promulgated the 1988 decommissioning rule. Rather, NRC has viewed licensee compliance with the funding assurance requirements as a matter to be determined througn the inspection process.

Also, the NRC defers to the State Public Utility Commissions (PUCs) and the Federal Energy Regulatory Commission (FERC) to set annual contribution rates to decommissioning funds and to establish investment and other management criteria for the funds. The PUCs and FERC have also actively monitored decommissioning funds of licensees under their jurisdiction as part of their rate regulatory responsibility. More recently, the Financial Accounting l Standards Board (FASB) a national organization that sets. accounting standards.

l has initiated a review of reporting of decommissioning obligatians on electric utility financial statements. Although FASB has not established a final b standard, it appears that it will increase the level of detail on their financial statements, if adopted, this standard would likely give the NRC and i

others a ready source of information on the status of decommissioning funds.

For these reasons, the staff has not devoted significant resources to date on determining decommissioning fund status.

Regulator _y problem to be resolved.

For the following reasons, the staff is considering amending the rule.

FERC and several State PUCs (e.g., California and Michigan) have recently initiated policy changes that would, over the next several years, deregulate utilities providing electric services. Although exact prediction of the structure of the future electric utility industry is difficult, there may be cases where separate companies providing electricity generation, including generation from nuclear power reactors, will be separated from companies providing both bulk transmission services for wholesale and distribution to the end-use customer.

Concurrently, for the above and other reasons, several owners of NRC-licensed power reactors have established holding companies that control NRC licensees.

As indicated in SECY-94-280 (November 18, 1994), the staff's position is that there appears to be no immediate safety concern mith these reorganizations, p4 'ticularly since the staff has sought and received commitnents that licensees will notify the NRC when significant assets are transferred from a licensee to its non-licensed parent company. However in the longer-term, trends in deregulation and reorganization may cause power reactor licensees to

)

have smaller asset bases and reduced recourse to decommissioning cost recovery through rates approved by PUCs or FERC. This would be contrary to the assumptions underlyino the Commission's decision to allow regulated electric utilities somewhat moi,. liberal methods of providing decommissioning funding assurance than other NRC licensees.

There has been an incident recently in which the Cajun Electric Power Cooperative, a licensee of the River Bend nuclear power plant, filed for Chapter 11 Bankruptcy. Cajun is past due in the payment of some of its  !

2 4 i

liabilities and presently the liRC has no knowledge of the level of Cajun's decommissioning funding; but it is in the process of requesting that information.

Another issue relates to some licensees having argued that they are able to earn a positive rate of return on their decommissioning funds during safe storage. These licensees argue that by requiring all decommissioning funds to have been collected by shutdown, the NRC may require some licensees to collect

. more funds fron ratepayers than is absolutely necessary given the potential for accrual of interest. If, as a result, substantially more funds than needed are collected from ratepayers while the plant was operating, inequities between generations of ratepayers will result.

Lastly, for the past several years Congress and various media organizations i

have requested the NRC to provide information on the status of decommissioning f ur.d s . The NRC has thus f ar been unable to comply with these requests, Because of close PVC and FERC monitoring, the staff is of the opinion that-the great majority of licensees prepare and submit annual reports on decommissioning fund status to their rate regulators. Asking licensees to submit a copy of this repor to the NRC would require only minimal effort by each licensee. On the other hand, obtaining this information through the inspection process would likely be more burdensome for the NRC and for those licensees chosen to be inspected each year, particularly if the NRC used on-

, site inspections. The staff concluded t,)at the benefit of obtaining this information through a reporting requirement, in terms of both determining licensee compliance with NRC deccmmissioning funding regulations and

^

responding to Congressional and other requests, outweigh the minimal impact of the requirement. Thus, the staff is proposing alternatives for the Commission's consideration.

PRELIMINARY REGULATORY ANALYSIS Alternatives.

Based on the information presented above, the alternatives for rule amendment considerations concerning implementation of financial assurance mechanisms and

- monitoring of the financial assurance plan can be enumerated in the following alternatives. The first four alternatives relate to the assurance mechanism while the_latter two address the monitoring or reporting to confirm compliance

.with financial assurance requirements.

(1) Retain the cuirent financial assurance implementation mechaniun; (2) Revise the regulations to require that power reactor licensees provide assurance of the full estimated cost of decommissioning through a formal guarantee mechanism if they no longer are able to t set rates or are not sut, ject to rate regulation by the PUCs or FERC; (3) Continue to require all funds needed for Jecommissioning to be available at time of shutdown; 3

,J .

{ {

(4) Allow licensees to collect decommissioning funds during the safe storage period and/or allow licensees to assume a positive real rate of return on decommissioning funds during safe storage; s (,

(5) Ccitinue to require no periodic reporting of decommissioning ~

funding requirements; and (6) Implement a periodic reporting requirement.

Lictnsees must be able to obtain funds for decommissioning when necessary, with reasonable assurance. Theinabilijyofalicenseetoprovidesuch y assurance may result in a potential heath und safety issue and clearly a financial risk to taxpayers. For a regulated power reactor utility an external reserve account would provide the necessary required reasonable l assurance. This reasonable assurance may cease to exist if electric utilities l are deregulated. Therefore the staff regards Option (2) as the recommended option because it provides a tiered system of choices to licensees in l selecting financial assurance mechanisms that are appropriate to their circumstances.

With respect to when decommissioning funds should be available, reasonable assurance i., best provided by having funds collected during plant operation (Aliarnative (3)). However, the assumption of a zero real rate of return is too conservative. Given that, historically, real (i.e. inflation-adjusted, after-tax) rates of return using U.S. Treasury issues have been around 24, the staff proposes to allow licensees to use this rate in their calculations (Alternative (4)). If rates turn out to be lower than this, 5 50.82 already provides that licensees are to adjust decommissioning funds during safe storage to reflect changes in cost estimates. Thus, there is little risk that there will be major shortfalls in decommissioning funds.

With respect to reporting requirements, the staff recommends Alternative (6),

to implement a periodic reporting requirement. The staff needs appropriate assurance that licensees are collecting their required decommissioning funds.

This can be done by licensees submitting a simple statement to the NRC of information they have available regarding funds in their external account.

This choice is considerably less costly to the licensee than relying on inspections and involves little effort. It is intended that in the proposed rule comments be solicited from the public on which method of providing such information to the NRC would be preferred.

The pros and cons of Alternatives (1)-(6) are discussed below.

Alternative (1): Continue allowing power reactor licensees to fund decommissioning over the estimated remaining life of the facility without requiring a formal guarantee mechanism for the balance of decommissioning costs that remains unfunded. This option, the no action alternative, would maintain the distinction between power reactor facilities and other NRC-licensed facilities and would continue to recognize the unique status of regulated electric utilities in terms of their ability to provide long-term assurance of decommissioning funding through the rate-making process.

4

2 e,

, c Pro -

• At this point, electric utilities remain subject to rigorous rate regulation. PUCs and fERC recognize the importance of full funding of decommissioning and allow utilities to recover decommissioning costs in rates. Thus, the Commission's assumptions underlying the 1988 decommissioning rule remain valid.

Further, even if full deregulation occurs, it will be phased in over time. This may allow the NRC adequate time to change its decommissioning regulations 'f it subsequently becomes necessary to do so.

• By not requiring a formal guarantee of the full amount of a licensee's projected decommissioning obligation, the NRC would not be increasing costs to power reactor licensees. A surety bond, for example, would likely cost IX to 2X of the guaranteed amount each year. (However, licensees that could qualify for using a parent company guarantee or self guarantee would not incur significant costs.)

Con -

• If electric utilities are deregulated, the assurance that uncollected decommissioning costs would be recovered through rates set by Federal and State rate regulators would be diminished.

This could lead to shortf alls in available decommissioning funds.

• Other licensees might perceive that NRC regulations unf airly distinguished between power reactor licensees and other facility licensees, if electricity generators are no longer subject to rate regulation, they would be similar financially and economically to larger fuel cycle licensees, which must provide full decommissioning funding assurance upon licensing or license renewal.

Alternative (2): Revise the commission's decommissioning regulations to require that, under certain circumstances, power reactor licensees provide assurance of the full estimated cost of decommissioning through a formal guarantee mechanism. An example of such a circumstance would be a licensee whose financial structure no longer fits the model assumed in developing the decommissioning rule, particularly oversight by a Public Utilities Commission which allows decommissioning funds to be collected from ratepayers. This could take the form of either: (a) a guarantee of any unfunded decommissioning liability with a surety bond, letter of credit, or other method allowed in 5 50.75(e)(1)(iii): (b) a parent company or self guarantee through passing a financial test similar in scope to the one contained in 10 CFR Part 30, Appendices A and C, tu assure that a licensee has an adequatc resource base to fund decommissioning; or (c) a certification to the NRC from the rate-making authority will allow all unfunded decommissioning obligations under NRC regulations to be collected in rates, 5

i Pro -

• The NRC will have a revised assurance scheme in place before deregulation takes full effect which will provide assurance commensurate with the financial risks associated with unregulated businesses. If a financial test for qualifying for a self or parent company guarantee is properly and reasonably structured.

j most power reactor licensees should be able to pass it.

Con -

e Some licensees will be unable to pass a financial test so use the l self or parent company guarantee method. If they were required to l obtain a surety bond or other similar instrument, they would l likely incur substantial additional costs.

• There would be a small burden on both licensees and the NRC to l

provide necessary assurance of compliance.

Alternative (3): Continue to require all funds needed for decommissioning to f be available at time of shutdown.

Pro -

e Wnuld provide the greatest assurance that decommissioning funds would be available when needed. l Con - i e Would cost licensees and earlier ratepayers more money, while l potentially providing later ratepayers with " unearned" rate {

relief.

Alternative (4): Allow licensees to collect decommissioning funds during the safe storage oeriod and/or allow licensees to assume a positive real rate of return on decommissioning funds during safe storage.

(

Pro -

• Would cause annual decommissioning collections to be less, thus  ;

reducing the impact on earlier ratepayers.

)

Con - l

• Could cause a shortfall of decommissioning funds by the time ]

needed if cost or earnings were underestimated.

Alternative (5): Continue to require no periodic reporting, but rely on the inspection process to determine power reactor licensee compliance with NRC decommissioning funding requirements.

Pro -

• Would be the least burdensome on licensees not chosen for inspection.

e if the Financial Accounting Standards Board (FASB) develops a new standard for reporting decommissioning funding status on licensee 6

c

, as e financial statements, the NRC would have an available source of i

this information.

Con-l

• If FASB does not develop a standard that would provide the l necessary information, the NRC will have to rely on a more burdensome inspection process to determine licensee compliance.

The NRC cannot respond to Congressional and other requests for <

this information.

]

• The licensees would have to pay for the cost of the inspection which could be more than the cost of a periodic financial report to the NRC.

Alternative (6): Implement a periodic reporting requirement.

! Pro -

• Would provide the NRC with information needed both to confirm lictnsee compliance with decommissioning funding requirements and ,

to respond to Congressional and other requests for information.  !

The burden on both licensees and the NRC is estimated to be minimal.

Con -

Would impose some burden on licensees to copy reports prepared for '

their rate regulators. The burden on NRC for collating this information would also increase, albeit not significantly.

Decision criteria.

Alternatives (1) and (2): The regulatory analysis for Alternative (1) was considered in the 1988 decommissioning rule. Because this option proposes to continue the current methods of funding assurance, no additional costs or benefits should occur. Alternative (2) would impact licensees in two possible ways. For those that could pass a financial test to qualify for a parent company or self guarantee, the only cost would be that of preparing the test documents to be submitted to the NRC. The staff estimates that each qualifying licensee would need to-spend approximately 8 to 40 hours4.62963e-4 days <br />0.0111 hours <br />6.613757e-5 weeks <br />1.522e-5 months <br /> per year to complete and submit the financial test documents, If a financial test were used similar to those contained in 10 CFR Part 30, Appendices A & C and if the guarantee amount was only the reraining unfunded decommissioning cost, the staf f estimates that one-half to two-thirds of licensees would use the financial test. The total annual burden on all licensr_es would probably range from 400 to 2500 hours0.0289 days <br />0.694 hours <br />0.00413 weeks <br />9.5125e-4 months <br />. The burden on the NRC to review these accuments would be approximately 2 hours2.314815e-5 days <br />5.555556e-4 hours <br />3.306878e-6 weeks <br />7.61e-7 months <br /> per licensee, although some outliers might require up to 2 weeks of NRC time. Thus, the total annual burden on the NRC is estimated to be 100 to 500 hours0.00579 days <br />0.139 hours <br />8.267196e-4 weeks <br />1.9025e-4 months <br />.

7

, a* o lhose licensees unable to qualify for the financial test would be required under Alternative (2) to obtain a surety bond, letter of credit, or other acceptable guarantee mechanism for the projected unfunded decommissioning expense balance. If this balance is assumed to be $100 million for the typical licensee, at a cost of 1/ to 2F of the amount guaranteed, the cost per affected licensee would be $1 million to 52 million per year, lhis cost would decline as licensees' decommissioning trust funds increased over time. Total

cost to all licensees would thus be 540 million to $120 million per year to start, but would subsequently decline as decommissioning trust funds increased.

However, these costs would only be incurred in cases where licensees can no longer collect decommissioning costs through rate payments.

Alternatives (3) and (4): Since Alternative (3) is the present situation, and the staff is proposing relief from current requirements, Alternative (4),

there is no adverse impact on licensees or the NRC.

Alternatives (5) and (6): If the NRC imposed a periodic reporting requirement (e.g., every 3 years) on the status of decommissioning funding assurance, the staff estimates that licensees would submit approximately 100 reports every 3 years, or an average of 33 reports each year. In some cases, a report will cover more than one power reactor owned by the same licensee. In other cases, co-owners will submit separate eports for their proportionate shares of the same reactor. The impact on licensee rescurces should be minimal. As indicated in Section 2, most power reactor licensees already prepare annual reports for their PUCs or FERC iontaining the information that would be required in a periodic report. 31so, virtually all licensees receive periodic reports from their decommissionina trustees giving the status of decommissioning funds. Thus, no Iicensee should need to expend any additional preparation time in complying wi% on NRC reporting requirement. The impact on licensees would be copying and transmittal time of information they already have, which staff estimates to be approximately 2 staf f-hours per licensee or 66 staff-hours annually, if the NRC were to use FASB information, if it becomes available, no additional impact on licensees would occur since the staff could obtain this information from publicly available sources.

Licensees that the NRC chose to inspect in any year would spend at least 5 staff-hours and, possibly, considerably more time preparing for the inspection, assisting the NRC during the inspection, and responding to the inspection results.

It should take approximately 1 NRC-staff hour on average to review and analyze each report. An annual summary report based on the submissions current up to that year should require approximately 8 NRC-staff hours to prepare and disseminate. No contractor effort should be needed. Thus, total NRC staff effort should be about 41 staff-hours annually (i.e., 33 reports x 1 NRC-staff hour + 8 NRC-staff hours) for a decommissioning funding status report. Using FASB information would entail similar staff effort.

The primary alternative to annuhl reports would be for the NRC to monitor compliance through selective annual inspections of licensees. A reasonable annual inspection rate would be about 20X, or approximately 22 units, each 8

, **o year. Although the time to review each report would be the same (i.e., 0.5 staff-hours for each report), the staff would require additional coordination and communication time with the licensee for each inspection, if inspections >

were conducted from NRC headquarters by written correspondence or telephone, staff estimates an additional 1.5 staff-hours per inspection would be required for this coordination and communication time, if inspections were conducted at licensees' facilities, required coordination and communication tima would likely increase on average to at least 8 staff-hours per inspection. An annual-summary report based on the annual inspections conducted would also require about 8 staff-hours to prepare and disseminate. Thus, annual NRC staff requirements for an inspection approach would be from 52 staff-hours for headquarters-based inspections to 184 staff-hours for field-based inspections.

Therefore, the staff believes that a periodic report would likely have a smaller impact on NRC staff resources than selective inspections.

With respect to the backfit rule, the conditions under which nuclear power reactors have been regulated have changed greatly since the rule was written.

Because of the NRC responding to these changing circumstances, this action is a case of adequate protection, not requiring a backfit analysis. Specifically with respect to Alternative (2), the lack of adequate financial assurance is a potential health and safety concern and clearly a financial risk to taxpayers.

The choice of a tiered alternative approach for the licensee, however, would help mitigate impacts that the use of an Alternative (2) requirement would impose. With respect to the backfit rule regarding Alternative (6), the reporting requirement is a reasonable and cost-effective mechanism to confirm compliance. Use of Alternative (6) would be a much more efficient expenditure of effort on the part of thc licensee and the NRC than selective inspections.

However, to mitigate any impacts this action would impose, it is intended that comments be solicited from the public on the alternative to choose for the reporting requirement.

0GC'S LEGAL SUFFICIENCY ANALYSIS DEMONSTRATING THAT N0 KNOWN BASIS EXISTS FOR LEGAL OBJECTION As discussed below, several issues must be kept in mind as the alte natives suggested in this rulemaking plan are pursued. Subject to addressing the issues discussed below as the rule is developed, the alternatives for the rulemakings delineated in this plan are within the authority of the Commission, granted to the agency to protect the public health and safety through licensing of commercial production and utilization facilities under the Atomic Energy Act of 1954, as amended.

Of primary concern in developing the proposed. rule is the question of the '

backfit justification for the proposed rule. Since the primary impetus for the rulemaking appears to be the newly developed corporate organizations and newly devg4 ped cost estimates associated with decommissioning reactor facilities, the proposal seems to be a prime candidate for justification as changes necessary to maintain " adequate safety". For the alternatives addressing new corporate organizations and new cost estimates, the staff should plan to explicitly address the question of " adequate protection of public health and safety" in. discussing the applicability of backfit rule.

9

, **v The staff should also be aware that, should the alternative to include

• green fields" restoration (not currently recommended) develop into an option to be pursued, a backfit analysis will have to justify that rulemaking option. it is not obvious at this time what significant improvement in public health and safety will justify the costs associated with " green fields" goals. so such a justification may not be a routine backfit question.

The staff will need to consider and get appropriate OMB approvals related to paperwork reduction activities as the financial reporting alternatives are l

pursued.

As the staff pursues the options related to various corporate organizations, l

it will be necessary to develop strong justifications for why various reactor owners and operators are being treated differently. These justifications will provide input for the backfit discussions to the extent the justifications are used to explain the basis for concluding that " adequate public health and safety" considerations satisfy backfit questions associated with this rulemaking.

While the above issues must be addressed as the alternatives in this plan are pursued, there is nothing evident at this time to indicate that these legal issues will prevent successful pursuit of the course of action recommended in this rulemaking plan.

AGREEMENT STATE CONSIDERATIONS None. Agreement States do not license power reactors.

SUPPORTING DOCUMENTS None RESOURCES REQUIRED Resources are included in the current Five Year Plan to complete and implement the rulemaking. The offices involved are RES, NRR, and OGC.

IS IT RECOMMENDED THAT THE EDO ISSUE THE RULE IN ACCORDANCE WITH MANAGEMENT i DIRECTIVE 9.17 No. This is regarded as more than a minor amendment, especially with respect to backfit rule considerations, and should iequire a notation vote on the part j of the Commission. j l

LEAD OFFICE STAFF AND STAFF WITHIN EACH OFFICE WHO WILL BE INVOLVED RES/DRA Thomas Martin Brian Richter /Raj Auluck NRR Seymou- Weiss Anthony Markley/Rebert Wood i

10

e ** e f OGC Stewart Treby Bradley Jones USE OF STEERING GROUP No. These rule amendments are not considered to be either complex or l controversia!.

l ENHANCED PUBLIC PARTICIPATION l

l No. The impacts of up-front decommissioning funding have already been l accounted for in earlier decommissioning rulemaking. These pronosed I amendments are considered to be of a minor nature in providinn the licensees

! with greater flexibility of implementation.

SCHEDULE i I

Assumes approval of Rulemaking Plan in July 1995.  !

Proposed rule to EDO, includes Regulatory Guide June 1996 Public comment period ends December 1996 l

Final rule to EDO June 1997 1

11

.,