ML20217G690
| ML20217G690 | |
| Person / Time | |
|---|---|
| Issue date: | 10/24/1996 |
| From: | Wood R NRC |
| To: | |
| References | |
| NUDOCS 9804290188 | |
| Download: ML20217G690 (15) | |
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V-Nuclear Non Op; rating Owners' Group Ternpe, Arizona, October 24,1996 Changes in NRC Approach to Regulating Nuclear Power Facilities Due to Onset of Competition and Deregulation in the U.S. Electric Power Industry Robert S. Wood, USNRC Thank you for inviting me to speak today in Arizona before the Nuclear Nonoperating Owners' Group. As you can see from the conference syllabus, I am speaking on the NRC's regulatory approach to ensuring nuclear plant safety in light of the changes that will likely take place in the electric power industry over the next few years. These changes are occurring because of Federal and State initiatives to economically deregulate the industry and promote wholesale and retail competition. These changes raise questions regarding the long-term ability of NRC's power reactor licensees to obtain adequate funds to operate and decommission their nuclear plants safely.
(Slide 1) Thus, what I would like to do today is (1) describe the historical NRC licensing basis for electric utility power plant owners and operators with regard to financial qualifications; (2) address the general nature of changes in the electric power industry by way of background; (3) summarize the issues that the NRC faces as these changes begin to occur; (4) discuss the ,
initiatives we have taken and intend to take; and (5) offer a few general conclusions about our current perceptions.
{ Slide 2) Historically, the NRC conducted financial qualifications reviews of .
1 its power rractor licensees at both the construction permit (CP) and operating license (0L) stages of its licensing process. However, since 1984, the NRC has distinguished between electric utility and other licensees of the nuclear facilities that the NRC regulates. At that time, the NRC eliminated the OL
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financial qualifications review for electric utility licensees because it
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concluded that "the rate process assures that funds needed for safe operation will be made available to regulated electric utilities" (49 FR 35747; September 12, 1984, at p. 35750). The NRC continued this distinction in the 1988 decommissioning rule, in which it allowed electric utility licensees to accumulate decommissioning funds in an external trust account over the remaining estimated operating lives of their_ facilities (53 FR 24018; June 27, 1988). Non-electric utility licensees are required to provide full, up front assurance of decommissioning funds by one of the funding assurance mechanisms specified in the NRC's regulations.
{ Slide 3) The Public Utility Regulatory Policies Act of 1978 (PURPA) provided a major impetus to competition among electricity generators. As a response to the energy disruptions of the 1970's, PURPA, among other things, allowed Independent Power Producers and Co-generators to become sources of electric power, at least at the wholesale level, in addition to the traditional electric utility. The Energy Policy Act of 1992 further encouraged competition by requiring the Federal Energy Regulatory Commission (FERC) to develop rates to provide non-discriminatory open access transmission at wholesale.
Because most electric power rates have been regulated by the States through their Public Utility Commissions (PUCs), it has been the States that have l- initiated plans to deregulate these rates. Primarily, States have responded to consumer and other pressures for lower electricity rates by developing programs that, ultimately, will provide customers with a choice of their electricity and electricity services suppliers. Although California was the 2
first State with a comprehensive retail wheeling program, most other States now have such programs under study, if not active development. We expect to see retail wheeling in as little as 2 years in some States, and in 5 to 10 years in most States. It is possible that generation facilities, including many nuclear plants, may no longer be economically regulated, although some nuclear plants may be assigned to transmission or distribution systems to ensure grid stability and reliability and thus may continue to be subject to some form of economic regulation.
(Slide 4} Generating, transmission, and distribution assets may also be spun off in subsib - or fully separate companies (e.g., into "GENCOs,"
"TRANSCOs," e ' DISCOS"). States and the FERC are developing a variety of approaches to addressing the problem of above market or " stranded" costs, including some nuclear plant capital and decommissioning costs. Remedies being considered include exit fees for customers leaving a company's system, transmission access fees for new bulk electricity sellers, and other transmission and wire charges. In some States, nuclear plant owners have been allowed to accelerate the depreciation of their plants, so that, by the time full retail competition arrives, the capital costs of some nuclear plants will have been fully written off. The NRC does not take a position on how nuclear
" stranded" assets are allowed to be recovered. We also expect to see a variety of hybrid ownership arrangements that go beyond the current, typically geographically-defined, vertically integrated structures.
{ Slide 5) All of the issues facing the NRC are interrelated. Consequently, I will try to address them comprehensively. As you know, Congress established 3
the NRC as a health and safety regulator and agi as an economic or rate regulator. Nevertheless, the Atomic Energy Act also gives the NRC responsibility and authority to oversee our licensees' financial qualifications when these financial qualifications bear a relationship to i safety of operations and decommissioning. While the NRC has seen much i evidence that safe, reliable, and efficiently operated nuclear power facilities are also economical, we are concerned that, at the margin, economic pressures may sometimes lead to degradation in operational safety. The consequences of inappropriate responses to competitive pressures may be manifest by increased corrective action, maintenance, operator work around, temporary modification and procedure revision backlogs, decreased operator licensing and requalification program accomplishments, increased frequency of significant operational and occupational safety events, decreased plant and system reliability, increased volume and acrimony of allegations, and increased frequency of regulatory violations and resulting penalties, to name a few. Unfortunately for you and the regulator, these are lagging indicators that are initially difficult to detect. Although the NRC is confident tilat changes in our licensing, inspection, and performance assessment programs will improve the timeliness of identification and reaction to a degradation in operational safety, we intend to be especially sensitive to the performance of licensees experiencing significant economic pressures. Further, because we are concerned with the potential impact on a licensee's ability to obtain and maintain adequate funding for effective nuclear facility decommissioning, a need that continues after permanent plant shutdown, we are reevaluating our financial qualifications policies to determine whether additional requirements are necessary to address economic deregulation and the continued validity of 4.
NRC's historical assumption that power reactor licensees are assured adequate funds for continued safe plant operations and decommissioning.
Further, we need to be sure we have fully identified who exercises control I
over our licensees and whether there have been significant changes in the organizational or financial licensing bases for each plant. The NRC does not want "shell" licensees devoid of sufficient assets to cover needed expenses for safe operation and decommissioning.
In addition, the NRC is required under the Atomic Energy Act to perform ,
antitrust reviews; and deregulation of electric' utilities will have significant impacts on how the NRC conducts these reviews. NRC power reactor licensees have been early participants in the competitive electric power arena. Through the NRC antitrust review process, many smaller power systems have gained access to generation and transmission facilities via license conditions. This access has resulted in reduced costs to customers and lower industry-wide costs over the years. These benefits have also been realized by
- many nonoperating owners -- for example, the Florida Municipal Power Agency with St. Lucie; the Southern California Public Power Authority with San Onofre and Palo Verde; Oglethorpe Power Corporation with Vogtle; and South Mississippi Electric Power Association with Grand Gulf. With the advent of even greater access to alternative power suppliers made possible by the Energy 1 Policy Act of 1992, the NRC must review competitive changes taking place nationally and regionally in order to maintain the integrity of its existing license conditions and to keep abreast of the functional and corporate changes in the identities of its licensees.
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With the advent of deregulation, the NRC's assumptions regarding assurance of access to funds must be reevaluated. In the Fall of 1995, the Commission initiated a re-evaluation of its policies. We have held several meetings, both at the Commission and'the staff level, with industry representatives, State and Federal rate regulators, the financial community, and other stakeholders in the electric utility industry. -In January, 1996, the Commission directed the staff to develop a comprehensive action plan to provide a framework for this re-evaluation. Later in my presentation, I will discuss the actions that we are working on as part of this action plan.
(Slide 6) But first, I would like to describe how we are doing our financial reviews now, in advance of any changes to our regulatory framework that we may adopt. Under 10 CFR 50.80, the NRC must approve any direct or indirect transfers of licenses. Transfers generally include such licensee actions as mergers, formations of holding companies, buyouts, and other activities. Our primary concern is to determine whether the new entity that will arise out of licensee actions will remain an electric utility; that is,_will it retain an assured source of funds from ratepayers for operating and decommissioning costs. We also review recent financial performance. In cases where licensees propose to form holding companies, we ask that licensees either add the holding company to the NRC license or we obtain a commitment from the licensee that it will inform us before significant assets are transferred from the !
licensee to the parent or other affiliated company. We do this so that we
- receive advance information of when licensee assets may be reduced to the point that safe operation and decommissioning funding could be affected. We 6
also consider the antitrust implications of license transfers in our 5 50.80 reviews.
{ Slide 7) In the near ters, until we complete our evaluation of the need for any change, we will continue to perform section 50.80 reviews of all power reactor license transfer requests for financial qualifications and antitrust considerations. As part of this review process, we have elevated the level of signature authority for approving section 50.80 transfers and ownership changes to the level of the Director of the Office of Nuclear Reactor Regulation. This will help to ensure consistency of approach and review by senior NRC management. We are also committed to informing the Commission of any proposed changes that would result in new or unique organizational arrangements or that would result in a power reactor licensee ceasing to be an
" electric utility." As I mentioned earlier, in January we developed an action plan consisting of seven tasks that we are performing to address issues associated with rate deregulation of the electric utility industry.
{ Slide 8) The first task in this action plan consists of two products -- a draft policy statement and Standard Review Plans for financial qualifications and decommissioning funding assurance reviews and antitrust reviews. The draft policy statement was issued for public comment on September 23, 1996 and addresses specific areas of NRC concern with the potential impact of rate deregulation and restructuring on safe power reactor operation and decommissioning funding. Specifically, the policy statement indicates that the NRC will: (1) confirm that licensees remain " electric utilities" and continue to conduct its financial qualifications, decommissioning funding, and 7
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antitrust reviews; (2) identify all direct and indirect owners, particularly parent companies of licensees; (3) establish and maintain working relationships with rate regulators; and (4) reevaluate the adequacy of its regulations. The draft policy statement also discusses (1) NRC responsibilities vis-a-vis economic regulators; (2) co-owner division of responsibility, coupled with an NRC evaluation of the courses of action to ensure that operating and decommissioning costs are paid by co-owners; and (3) financial qualifications, decommissioning funding assurance, and antitrust review processes. With respect to the issue of co-owner division of responsibility, which I am sure is of particular interest to you, our Office of the General Counsel is evaluating the legal issues associated with various approaches to co-owner division of responsibility with respect to complying with NRC regulations. The standard review plans provide detailed discussion of current review processes and have also been issued for public comment.
{ Slide 9} In the second task of our action plan, we issued an administrative letter on June 21, 1996, to all of our power reactor licensees and their Chief Executive Officers (CE0s). We intended that, by specifically targeting licensee CEOs, our concerns would receive attention from the highest levels of licensee management. The administrative letter focused on each power reactor licensee's continuing obligation to inform the NRC of ownership changes and other transfers of control of the license. A secondary purpose of the administrative letter was to address potential resource and scheduling impacts on the NRC, which would ultimately affect how quickly the NRC would be able to review and act upon a licensen's request. As another part of Task 2, we also reviewed the processes we use internally to ensure that the confidentiality of 8
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i sensitive licensee financial information is maintained. We concluded that existing procedures under our regulations are adequate.
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{ Slide 10} Under existing NRC regulations, the NRC has no requirement for i l electric utility licensees to report on t'ie status of their decommissioning funds. Rather, we have had to rely on licensee financial reports or third-
- party surveys that, while often helpful, did not always provide information at ;
the level of detail that we need. In Task 3,' we evaluated various options short of rulemaking to develop means of obtaining consistent and comprehensive information on the status of power reactor licensees' decommissioning funds.
Coincidentally, the Financial Accounting Standards Board (FASB) recently proposed a standard to require comprehensive reporting of decommissioning funding liabilities in annual financial statements. This information would include (1) the projected amounts needed; (2) the assumptions used in making
! the projections, such as inflation, interest, and discount rates; and (3) the amount of funds accumulated so far, plus the annual amortization amount.
Although this standard would apply to investor-owned licensees, we understand that publicly-owned utilities may also be subject to a similar standard. The NRC staff currently plans to develop a regulatory guide endorsing the FASB l standard. We understand that FASB may defer the effective date of their j l
standard for up to one year. If further delays appear likely to occur, the NRC may explore other non-rulemaking options for reporting the status of decommissioning funds.
l In Task 4, we are obtaining assistance from the Oak Ridge National Laboratory to update our data bases on (1) the owners of nuclear power plants, i 9
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l particularly new parent companies of licensees that may have escaped our notice; and (2) antitrust license conditions imposed over the years on our power reactor licensees.
l { Slide 11} As I mentioned earlier, the NRC is a health and safety regulator, l- not a rate regulator. Nevertheless, we and.our sister State and Federal economic regulatory agencies have several potential areas of overlapping concern. For this reason, Task 5 concerns initiatives that we have taken to establish on-going staff-level liaison with three organizations -- the l National Association of Regulatory Utility Commissioners (NARUC), which is the umbrella organization for the State PUCs; FERC; and the Securities and l
Exchange Commission (SEC), which receives information on and regulates many electric utility mergers and other restructuring initiatives. Our objectives in this action are:
(1) To provide forums to communicate NRC safety concerns as they relate to electric utility deregulation and restructuring; (2) To provide the NRC staff with a structured means of keeping up-to-date on the latest developments in electric utility deregulation and restructuring j issues coming before FERC and the PUCs; and (3) To clarify ambiguities and resolve potential conflicts between FERC and SEC economic regulatory responsibilities and NRC health and safety responsibilities. )
We have participated in periodic conference calls with appropriate NARUC staff subcommittees and have made presentations before NARUC and PUC working groups on the action plan.
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i l { Slide 12) Task 6 consists of 2 parts. The first part is an evaluation of NRC authority and responsibility under Section 184 of the Atomic Energy Act of 1954, as amended, and its implementing regulations in 5 50.80 to determine the extent to which the NRC is able to evaluate transfers of control of licenses that it issues. This evaluation also addresses the legal issues associated with co-owner responsibilities for NRC regulations. Any Commission actions resulting from this evaluation will be incorporated in NRC policies, as appropriate. As an outgrowth of this evaluation, the NRC may develop rulemaking to strengthen its financial qualifications requirements for licensees of operating power plants.
The second part of Task 6 consists of a comprehensive review of NRC regulations to determine whether there are any inconsistencies in light of recent restructuring activities. For example, many of our requirements pertain to " electric utilities," which may no longer be appropriate. We intend to issue corrective rulemaking to correct these inconsistencies as part of the proposed rule that is being developed as a follow-up to the advance i notice of proposed rulemaking (ANPR) issued under Task 7.
This ANPR, which was published in the Federal Reaister on April 8, 1996 (61 FR i 15427) sought comment on whether economic deregulation and restructuring in the electric utility industry requires changes to the NRC's regulations on the means of providing reasonable assurance of decommissioning funding. The ANPR sought answers to several questions on the nature and timing of economic deregulation as well as on methods of enhancing decommissioning funding 11
assurance. In the next two slides, I will summarize the comments that we received on the ANPR.
{ Slide 13) The NRC received 42 comments on the ANPR from licensees and their legal counsel, State PUCs, environmental groups, and others. In general, comments were consistent with the views expressed in earlier NRC briefings and with the NRC's understanding of the process and scope of economic deregulation. However, with respect to timing, the process appears to be l
accelerating, with some States now apparently planning for full retail wheeling within two years. Other States apparently will phase in deregulation more gradually over the next 5 to 10 years, and some States do not view deregulation to be in the best interests of their citizens. (Legislation introduced by Rep. Schaefer in the U.S. House of Representatives would, if enacted, provide for retail wheeling in all States by December 15,2000.)
However, other commenters suggested that deregulation will likely be more gradual, and made analogies to the telecommunications and natural gas industries, in which deregulation has come more' slowly than many predicted.
Notwithstanding the pace of deregulation, most commenters stated their belief that the NRC has adequate mechanisms to ensure safe operations and decommissioning. Regarding decommissioning funding assurance, commenters noted that the " trigger" built into the NRC's definition of " electric utility" I
is adequate, in that those licensees that are deregulated and lose rate regulatory oversight will no longer be " electric utilities" and will thus be required by current NRC regulations to provide additional assurance for decommissioning. For operating plants, the NRC will retain the authority to 12
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shut a plant down, if the NRC determines that the plant can no longer operate safely because of lack of operating funds (or for other reasons).
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{ Slide 14) The summary of comments on this slide are related to specific questions that the NRC asked in the ANPR. Thus, I will need to provide you with a little background. Currently, the NRC allows Federal power plant licensees (i.e., TVA) to provide assurance of decommissioning funds by making i a statement of intent that they will obtain decommissioning funds when needed.
! However, based on concerns raised by the NRC Inspector General, the NRC is l reevaluating the efficacy of this mechanism. Almost all commenters except TVA favored elimination of this mechanism, not so much for reasons of safety, but because, in an increasingly competitive environment, the NRC should not favor one class of licensee over another. In other words, NRC policies should be l designed to ensure a " level playing field."
The NRC also asked about the feasibility of requiring decommissioning l
insurance for non-accident-initiated premature shutdown. The NRC evaluated l this issue in the mid-1980s when it was considering the original <
l decommissioning rule. At that time, we determined that such insurance would likely be unavailable because of concerns about " moral hazard," or the ability j of the insured to control the events precipitating payout on an insurance policy. Most commenters stated that these concerns remain and, therefore, such insurance is likely to remain infeasible.
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i Earlier, I mentioned that the NRC is developing means short of rulemaking to obtain solid information on the status of power reactor licensees' 13 l
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decommissioning funds, by endorsing the standard being developed by FASB. In the ANPR, we also solicited comment on rulemaking to require reporting on decommissioning funding status.. Most commenters indicated that, because of the FASB standard, such a requirement would be. essentially redundant and thus unnecessary.
Finally, in the ANPR we broached the concept of allowing a 2 percent credit for earnings on decommissioning trust funds during an extended safe storage period after permanent shutdown. The current decommissioning rule implicitly assumes no credit for such earnings (that is, as a conservatism built into the current rule, the rate of inflation during safe storage would be equal to the trust fund interest rate). Most commenters favored credit for trust fund earnings during safe storage, but believed that 2 percent would be too conservative. Rather, commenters suggested that the earnings rate be determined en an ad hoc basis and adjusted as needed, depending on the actual performance of each licensee's trust fund.
{ Slide 15) In summary, State and Federal initiatives to consider the economic deregulation of the electric utility industry appear to be increasing, with a concomitant acceleration of actual deregulation in some States. The actions that we are taking as outlined in our action plan should adequately address our safety conceras that have arisen as a result of deregulation activity.
Further, in our work with the State PUCs and FERC, we have concluded that these organizations appear to share most of the NRC's safety concerns and are developing mechanisms to provide adequate decommissioning funds. Operating plants will either compete successfully or will be shut down as uneconomical 14
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and decommissioned. The policy statement and rulimaking effort begun in the ANPR will enhance decommissioning funding assurance and wili clarify any l
ambiguities and remedy any weaknesses in the existing decommissioning rule. j l
l This concludes my remarks. I would be pleased to answer any questions you may i
have. I
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