ML23151A492

PR-050 - 56FR41493 - Decommissioning Funding for Prematurely Shutdown Power Reactors

ML23151A492
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Issue date:	08/21/1991
From:	Taylor J NRC/EDO
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PR-050, 56FR41493
Download: ML23151A492 (1)

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ADAMS Template: SECY-067 08/21/1991 PR-050 - 56FR41493 - DECOMMISSIONING FUNDING FOR PREMATURELY SHUTDOWN POWER REACTORS PR-050 56FR41493 RULEMAKING COMMENTS Document Sensitivity: Non-sensitive - SUNSI Review Complete

STATUS OF RULEMAKING PROPOSED RULE:

PR-050 OPEN ITEM (Y/N) N RULE NAME:

DECOMMISSIONING FUNDING FOR PREMATURELY SHUTDOWN POWER REACTORS PROPOSED RULE FED REG CITE:

56FR41493 PROPOSED RULE PUBLICATION DATE:

08/21/91 ORIGINAL DATE FOR COMMENTS: 11/04/91 NUMBER OF COMMENTS:

EXTENSION DATE:

I I

17 FINAL RULE FED. REG. CITE: 57FR30383 FINAL RULE PUBLICATION DATE: 07/09/92 NOTES ON FINAL RULE SIGNED BY EDO.

FILE LOCATED ON Pl.

STATUS OF **RULE TO FIND THE STAFF CONTACT OR VIEW THE RULEMAKING HISTORY PRESS PAGE DOWN KEY HISTORY OF THE RULE PART AFFECTED: PR-050 RULE TITLE:

DECOMMISSIONING FUNDING FOR PREMATURELY SHUTDOWN POWER REACTORS PROPOSED RULE SECY PAPER: 91-167 FINAL RULE SECY PAPER: 92-186 CONTACTl: ROBERT WOOD CONTACT2:

PROPOSED RULE SRM DATE:

FINAL RULE SRM DATE:

DATE PROPOSED RULE I

I SIGNED BY SECRETARY:

08/09/91 DATE FINAL RULE 06/11/92 SIGNED BY SECRETARY:

06/26/92 STAFF CONTACTS ON THE RULE MAIL STOP: 12-E4 MAIL STOP:

PHONE: 492-1255 PHONE:

, DOCKET NO. PR-050 (56FR41493)

In the Matter of DECOMMISSIONING FUNDING FOR PREMATURELY SHUTDOWN POWER REACTORS DATE DATE OF TITLE OR DOCKETED DOCUMENT DESCRIPTION OF DOCUMENT 08/19/91 10/18/91 10/31/91 11/04/91 11/04/91 11/04/91 11/04/91 11/04/91 11/05/91 I 11/05/91 11/05/91 11/06/91 11/07 /91 11/07 /91 08/09/91 10/15/91 10/28/91 11/01/91 11/01/91 10/30/91 11/04/91 11/04/91 11/04/91 11/01/91 11/04/91 11/01/91 10/31/91 11/01/91 FEDERAL REGISTER NOTICE - PROPOSED RULE COMMENT OF INDIANA MICHIGAN POWER COMPANY (G. P. MALONEY) (

1)

COMMENT OF SACRAMENTO MUNICIPAL UTILITY DISTRICT (JAMES R. SHETLER) (

2)

COMMENT OF FITCH INVESTOR SERVICE, INCORPORATION (ANNE F. FABER) (

3)

COMMENT OF PUBLIC SERVICE COMPANY OF COLORADO (A. CLEGG CRAWFORD) (

4)

COMMENT OF CT YANKEE ATOMIC POWER & NORTHEAST NUC (E. J. MROCZKA) (

5)

COMMENT OF NUCLEAR MANAGEMENT AND RESOURCES COUNCIL (JOE F. COLVIN) (

6)

COMMENT OF UTILITY DECOMMISSIONING GROUP (JOSEPH B. KNOTTS, JR.) (

7)

COMMENT OF GPU NUCLEAR CORPORTION (JAMES KNUBEL) (

8)

COMMENT OF DETROIT EDISON (WILLIAMS. ORSER) (

9)

COMMENT OF EDISON ELECTRIC INSTITUTE (DAVID K. OWENS) (

10)

COMMENT OF ROCHESTER GAS & ELECTRIC CORPORATION (DAVID C. HEILIGMAN) (

11)

COMMENT OF MAINE YANKEE ATOMIC POWER COMPANY (G. D. WHITTIER) (

12)

COMMENT OF PHILADELPHIA ELECTRIC COMPANY (G. J. BECK) (

13)

DOCKET NO. PR-050 (56FR41493)

DATE DOCKETED 11/08/91 11/13/91 11/18/91 11/18/91 11/19/91 06/29/92 11/23/92 DATE OF TITLE OR DOCUMENT DESCRIPTION OF DOCUMENT 11/04/91 11/01/91 11/14/91 11/14/91 11/12/91 06/26/92 11/17 /92 COMMENT OF TU ELECTRIC (WILLIAM J. CAHILL, JR.) (

14)

COMMENT OF ILLINOIS POWER (J. S. PERRY, VICE PRESIDENT) (

15)

COMMENT OF NEVEEN-DUFF & PHELPS INVESTMENT ADVISORS (DAVID A. KRAUSE) (

16)

LTR SHETLER TO CHILK W/ERRATA TO COMMENTS ON THE PROPOSED RULE REGARDING DECOMMISSION FUNDING FOR PREMATURELY SHUTDOWN POWER REACTORS COMMENT OF JOHN GREENBERG (

17)

FEDERAL REGISTER NOTICE - FINAL RULE LTR FROM ANDREW KADAK TO COMMISSIONER CURTISS ENCLOSING A POSITION PAPER ON "REMOVAL OF CERTAIN COMPONENTS PRIOR TO FORMAL APPROVAL OF DECON PLAN"

YANKEE ATOMIC ELECTRIC COMPANY

( -*~*\\

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. YAN~Et 580 Main Street. Bolton, Massachusetts 01740-1398 ANDREW C. KADAK. Ph. 0.

PF.1:!10ENT allCI CMIEi' EXECUTIVE OFFlCEII Commissioner James R. Curtiss November 17, 1992 U.S. Nuclear Regulatory Commission Washington, DC 20555

Dear Commissioner curtiss:

• 92 NOV 23 P 5 :C6

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Attached is a position paper on "Removal of Certain Components Prior to Formal Approval of a Decommissioning Plan".

I have reviewed decommissioning material on LILCO and Ft. St. Vrain;* and although both cases are unique and different from Yankee, I do believe that this paper is consistent with the philosophy the Commission has tried to follow on each plant on a case-by-case basis.

The issues addressed are narrowly focused on whether a utility can remove certain components prior to approval of the decommissioning plan and whether the decommissioning trust fund can be used to finance obvious decommissioning costs prior to plan approval.

Logic dictates that both

• . should be permitted particularly given the circumstances of assurance of disposal access and predictable cost.

The "process" should not be an obstacle to fulfilling the public health and safety objective of restoring the site to unrestricted use as required by Commission regulations.

• 9 I

hope this is helpful as you prepare for your upcoming presentation at Lehmann Brothers.

I am working on a more generic piece on a recommended decommissioning process that focuses on the task and the role of the regulator in assuring public health and safety.

Sincerely YC?urs, Attachment

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Position Paper On Removal of Certain Components Prior To Formal Approval of a Decommissioning Plan Yankee Ato111.i.c Electric Company (Yankee) proposes to remove and dispose o't reactor core-internals, steam generators and the pressurizer from the Yankee Nuclear Power Station prior to formal NRC approval of a

• decommissioning plan.

Yankee makes this proposition in advance of submitting a formal decommissioning plan because of a unique opportunity provided by the continued operation of the Barnwell low level waste disposal site until June of 1994.

Yankee believes that the public interest is best served by taking advantage of this opportunity since by taking this action Yankee can safely dispose of over 90% of the curie content of the plant (excluding the spent fuel) at a known cost.

The actions Yankee would be taking would be necessary at some point in the future* if Yankee is to release the site for unrestricted use as required by Comnission regulations.

The issue at hand is not if Yankee must dispose of these components, it is when.

We* now have a window of opportunity that may not be available at any predictable time nor at any predictable cost in the future.

Thus, the decommissioning objective of the NRC is enhanced as is the consumer interest since the cost is now known and predictable whereas the future cost and ability to dispose is not.

Yankee proposes to remove and dispose of the subject components under regulations applicable to operating plants for which the safety significance of such removals and their subsequent replacement is much greater.

In the case of a shutdown plant, there is no possibility of future operation and'\\hence the public health and safety impact is substantially reduced from that of power operations.

Yankee believes the continued use of the 50.59 process is appropriate and justified.

In this process, the licensee does a complete safety evaluation o~ the proposed action and, based on the findings of that review, determines whether the proposed action can be safely conducted and does not pose an unreviewed safety question.

Under current regulations for operating plants, Yankee can then \\llldertake this activity without formal NRC approval, but with NRC oversight.

Yankee believes that there is a strong regulatory basis for allowing the removal of the specific components Yankee is proposing to remove.

Steam generators and internals have been removed and replaced in operating plants using the 50. 59 process.

The pressurizer is not uniquely different from a steam generator except it is a smaller and simpler component.

The fact that the Yankee plant is permanently shutdown should not preclude the use of the 50.59 process to take actions that are allowed for an operating plant.

NRC confirmed this fact when it issued in 1988 a major rule change to the regulations governing decommissioning. Specifically, in the Supplementary Information to the rule change on 10 CFR 50.82, ?raC stated the following:

The amendments contained in this rulemaking do not alter a licensee 1 s capability to conduct activities under l

50.59.

Furthermore, in a letter form J. Partlow, NRC, to T. Tipton, NUMARC, Mr. Partlow stated the following:

When the non-operating status of the plant is confirmed by the issuance of a "possession-only" license amendment, then major permanent changes to the facility can be carried out under 10 CFR 50. 59, provided they do not involve a change to the technical specifications or an unreviewed safety question. 2 Subsequent to the Partlow letter, in the "Decolt\\Illissioning Criteria for Fort st.

Shutdown Plant, 113 Commissioner CUrtiss following:

response to SECY 90-421, Vrain As a Prematurely specifically stated the As to the question about what sort of facility changes licensees of prematurely shutdown plants may undertake prior to NRC*s approval of a decommissioning plan, the staff notes that "some licensees {including the licensee for Fort St. Vrain) have interpreted CLI-90-08 as suggesting that no limitation other than explicit license or technical specification restrictions are applicable and that the licensee may dismantle so much of the plant as is not needed for safety in the shutdown condition and does not adversely affect decommissioning options." For the most part, ** I agree with the licensees ' reading of CLI-90-08.

commissioner Curtiss went on to say the following:

In short, the decommissioning rules prohibit. major structural changes to radioactive components or other major changes without prior NRC approval of the decommissioning plan, but the rules do not *prohibit all activity that might relate to decommissioning.

As the Commission emphasized in CLI-90-08, under NEPA, the Atomic Energy Act, and the Commission* s health and safety and envircnmental regulations, the licensee must simply ensure that it --

1 J.O CFR 50. 82 Rule change, Supplementary Information, Federal Register, Volume 53, Page 24025, June 27, 1988.

2 Letter, J. Partlow,

NRC, to T. Tipton,

NUMARC, dated September 10, 1990 3 Staff Requirements Memorandum, SECY-90-421, Chilk to Taylor, dated May 20, 1992

1.

complies with the requirements of its... license and the regulations applicable to whatever mode or condition the plant might be in at a given time *** ; and

2.

refrains from taking any actions that would materially and demonstrably affect the methods or options available for decommissioning, prior to the submission and approval of a

decommissioning plan in accordance with the requirements of the Commission's decommissioning rules.

The current options for decommissioning which the regulations allow are: 1) SAFSTOR, 2) OECON (dismantlement) and 3) ENTOMB.

The NRC requirement for final decommissioning is to restore the site to "unrestricted" use which is the DECON option.

The removal of -the listed components (internals, steam generators, and -_"the pressurizer) does not affect the SAFSTOR option; does not affect

.the ENTOMB option; nor does it affect the ability to dismantle the plant. Removal of certain components from ~e plant has no bearing on the option selected.

The fact that Yankee places the plant in SAFSTOR without internals, steam generators, or pressurizer is irrelevant to the ability to SAFSTOR, ENTOMB or dismantle the plant.

Thus, the requirements of the rule are satisfied.

Consumer and regulatory interest requires an economic evaluation of the proposed action to assure that the - activity does not substantially increase the costs of decommissioning as assumed in the decommissioning funding analysis.

Yankee is prepared to perform such an analysis prior to deciding whether the removal of these components is in the public interest.

.i...

'rhe question then becomes as to how the decommissioning funds will be accessed to pay for the subject activities.

Certainly no one disputes the fact that removal of the steam generators, internals, and pressurizer is part of the. decommissioning process for which decommissioning funds are set. aside.

Yankee is in the process of collecting all funds needed to complete decommissioning.

Furthermore, Yankee has in place the assurance necessary to guarantee that all costs of decommissioning are paid, whether or not funds are accessed prior to approval of the decommissioning plan. 4 It is the assurance that funds will be available to complete the job in a safe manner that is of practical importance here.

There is nothing in 10 CFR 50.75 which requires that funds set aside for decommissioning must remain sacrosanct until Commission approval of a decolDl?lissioning plan.

Furthermore, it is our 4 Yankee has in place FERC-approved power contracts which 1c1ssure collection of all funds needed prior to final dismantlement; a FERC-approved schedule for collection of those funds and a process for adjusting the collection of funds as necessary.

understanding from discussions with the Staff that the recent 1992 rule change to iO CFR 50.825 was not intended to preclude licensees from proceeding with certain decommissioning activities prior to approval of the Plan.

Thus, if tiie purpose of the deco1DJD.isnoning fund is to decommission the plant, the utility should be allowed access to the fund if the action is in the best interest of the consumer whose money went into the fund.

All efforts should be made to prevent the "process" from becoming an obstacle to rational and practical efforts to meet the public policy objective of decommissioning.

5 10 CFR 50.82 Rule Change, Federal Register, Volume 57, Page 30383, July 9, 1992

1

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[7590-01] L0Cr-L ;l D USNHC NUCLEAR REGULATORY COMMISSION 10 CFR Part 50 RIN 3150-AD89 Decommissioning Funding for Prematurely Shut Down Power Reactors AGENCY:

Nuclear Regulatory Commission.

ACTION:

Final rule.

• 92 JUN 29 A 9 :43

SUMMARY

The Nuclear Regulatory Commission (NRC) is amending its regulations on the timing of the collection of funds for decommissioning for those nuclear power reactors that have shut down before the expected ends of their operating lives.

These amendments require that the NRC evaluate decommissioning funding plans for power reactors that shut down prematurely on a case-by-case basis.

The NRC's evaluation would take into account the specific safety and financial situations at each nuclear power plant.

EFFECTIVE DATE:

[30 days after the date of publication in the Federal Register].

FOR FURTHER INFORMATION CONTACT:

Robert Wood, Office of Nuclear Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC 20555, telephone (301) 504-1255.

2 SUPPLEMENTARY INFORMATION:

Background

on June 27, 1988 (53 FR 24018), the NRC published a final rule that amended 10 CFR Parts 30, 40, 50, 51, 70, and 72.

This final rule established several acceptable methods by which power reactor licensees may provide assurance that they will have sufficient funds to decommission their plants by the time the plants are permanently shut down (53 FR 24043).

In considering tnis final rule, the Commission acknowledged that, in certain instances, reactors might be permanently shut down before completing the full term of their operating lives.

However, because the Commission determined that such instances would be infrequent, it did not explicitly include remedies for this situation in the final rule.

In establishing the June 27, 1988, final rule, the commission recognized that power reactor licensees generally have access to significant a.mounts of financial capital and are closely regulated.

Therefore, the Commission allowed these licensees the option of accumulating decommissioning funds over the projected operating life of the facility rather than requiring that these funds be available or guaranteed prior to operation, or at some time before the end of the projected operating life of the facility.

The Commission recognized the risk that, if some reactors did not operate for their entire

3 operating lives, those licensees might have insufficient decommissioning funds at the time of permanent shutdown.

After the NRC published the June 27, 1988, final rule, four power reactor facilities shut down prematurely:

The Fort St.

Vrain Nuclear Generating Station, the Yankee Rowe Nuclear Power Station, the Rancho Seco Nuclear Generating Station, and the Shoreham Nuclear Power Station.

The NRC staff sought the Commission's guidance on the appropriate period for collecting funds to compensate for any shortfall of decommissioning funds for plants such as these that shut down prematurely.

The Commission elected to determine the appropriate collection period for any decommissioning funding shortfall for prematurely shut down power reactors on a case-by-case basis.

As part of its decision, the Commission directed the NRC staff to prepare a rulemaking that would codify this case-by-case approach.

A e

proposed rule implementing this approach was published in the Federal Register on August 21, 1991 (56 FR 41493).

Analysis of and Response to comments The NRC received 17 comments in response to the proposed rule.

Eleven comments were from NRC-licensed electric utilities; two from utility trade groups; one from a utility counsel; two from bond rating/investment advisory companies; and one from a public interest group.

4 Except for the comment from the public interest group, all comments supported that part of the proposed rule that would allow the period of funds accumulation for a prematurely shut down reactor to be determined on a case-by-case basis.

However, most utilities and their representatives opposed the guidance in the preamble to the proposed rule that would use a bond rating of "A" as a criterion for determining the future solvency of and thus the extent of the funding period for a licensee with a prematurely shut down power reactor.

1. comment:

The use of bond ratings.

• The commenters offered a variety of reasons why they considered bond ratings, particularly at the "A" level, to be inappropriate for judging a licensee's ability to pay for decommissioning for a prematurely shut down reactor.

These reasons included the following:

(1)

Bond ratings are too restrictive and do not allow for variations in licensees situations as contemplated by the case-by-case approach.

(2)

Bond ratings may not be an accurate indicator of a licensee's future ability to pay for decommissioning.

5 (3)

Not all licensees issue debt that is rated.

In the case of power plants with several owners, owners will likely have different ratings.

(4)

Bond ratings would likely decline by virtue of a premature reactor shutdown, thus precipitating further financial problems and further downratings.

(5)

Differences in ratings by different services* or for different classes of debt issues were not addressed.

(6)

Reliance on bond ratings may result in unsound business decisions to avoid accelerated fund accumulation or may discourage use of the SAFSTOR decommissioning option.

(7)

A "BBB" rating, or equivalent, is still considered investment grade and is used as a criterion in Regulatory Guide 1.1591 and Appendix A to 10 CFR Part

30.

1Regulatory Guide 1.159 is available for inspection and copying for a fee at the Commission's Public Document Room, 2120 L street, N.W., (Lower Level), Washington, D.C.

Copies of issued guides may be purchased from the Government Printing Office at the current GPO price.

Information on current GPO prices may be obtained by contacting the Superintendent of Documents, U.S.

Government Printing Office, P.O. Box 37082, Washington, D.C.

20013-2171.

Issued guides may also be purchased from the National Technical Information Service on a standing order basis.

Details on this service may be obtained by writing NTIS, 5825 Port Royal Road, Springfield, VA 22161.

6 (8)

A one-year trigger period is too short and may be disruptive.

{9)

Possible adverse tax consequences may accrue if accelerated payments are reqUired.

Response, The NRC continues to believe that bond ratings can serve as one of several criteria to estimate the ability of a licensee to pay future decommissioning costs.

The NRC did not intend that this rule set a mandatory requirement that a minimum "A" rating must be met before the NRC would approve funding into a shut down reactor's safe storage period.

Rather, one reason the "A" rating criterion was proposed was to serve as a screening test of whether additional financial data was required to determine whether the licensee should be allowed to fund decommissioning into a storage period. If a licensee met this criterion, the licensee would not have to prepare and submit additional documentation of its financial situation to be allowed to fund decommissioning into a storage period.

A benefit of the proposed

~creening test was a potential saving of licensee and NRC resources to develop and review the additional financial data.

With respect to the level of rating (i.e., "A" vs "BBB" or equivalent), the preamble to the proposed rule presented a rating

7 of "A" as a threshold below which a licensee would be required, if other criteria were not met, to accelerate payment of any decommissioning funding shortfall.

The staff chose an "A" rating because a downrating from "A" to "BBB" would allow a licensee to secure funds or meet other criteria while its rating was still investment grade.

To that extent, an "A" rating is not inconsistent with the use of "BBB" ratings in Regulatory Guide 1.159 and Appendix A to 10 CFR Part 30.

In Regulatory Guide 1.159, a "BBB" bond rating was used as a minimum suggested standard for a mixed portfolio of investments in a decommissioning trust.

Because of investment diversification, a "BBB" investment standard represents a relatively low level of financial risk.

Similarly, Appendix A of Part 30 used a "BBB" rating as a minimum for a parent company of a licensee to guarantee deco~issioning costs.

Because a parent company is a separate legal entity from its subsidiary, the NRC would potentially have access to two sources of funds (the licensee and its parent) thus reducing the risk of decommissioning funding shortfalls.

For this reason, the NRC disagrees that an "A" bond rating standard is too stringent as a screening test.

For these reasons, the NRC will continue to use the "A" bond rating as a screening test for determining the decommissioning funding period for prematurely shut down power reactors. If a power reactor licensee cannot pass the initial screening test, or if it has passed the screening test but subsequently loses its

8 "A" bond rating, this licensee could still be allowed to fund into the storage period by meeting other criteria as described below.

These criteria include:

(1)

A licensee's financial history including its past funding of reactor safety expenditures; (2)

The local rate regulatory environment and other relevant State laws including public utility commission (PUC) commitments; (3)

The number of other generating plants, both nuclear and non-nuclear, in its system.

This is another way of measuring the relative impact of. decommissioning costs on a particular licensee's finances; and (4)

Other factors that a licensee can demonstrate as being relevant.

The NRC wishes to clarify that it assumes that most licensees with "BBB" bond ratings would still be able to obtain NRC approval of decommissioning funding into the safe storage period for a prematurely shut down reactor.

This is because most licensees will be able to successfully meet the other criteria

9 described above even if they are unable to pass the "A" bond rating screening test.

Recent exemptions issued to two prematurely shut down plants (Rancho Seco and Shoreham) indicate that bond ratings are only one of several factors that the NRC will use to determine whether a licensee has demonstrated reasonable assurance of its ability to pay decommissioning costs.

Finally, this discussion on the use of bond ratings is intended as non-binding guidance only; this final rule includes no such detailed criteria *

. 2.

comment; It is not necessary to require that all funds should be available in external funds or guaranteed by the time final dismantlement activities commence.

A few commenters disagreed with the NRC's statement that all funds are required to be available or guaranteed in external funds by the time final dismantlement activities commence.

Some commenters hypothesized scenarios in which relatively small funding shortfalls may be covered in rates already*approved by a licensee's PUC or the Federal Energy Regulatory Commission (FERC) prior to actual collection.

In this situation, funds, although not strictly available at the time final dismantlement activities commence, would have a high degree of assurance of being obtained by the time the licensee needed to complete the dismantlement activities.

Another commenter suggested that the NRC's requirement of full funding prior to the start of final dismantlement operations is inconsistent with a case-by-case approach.

This commenter recommends that licensees be required

10 to provide assurance that funds are available to complete specific dismantlement activities, rather than the entire dismantlement process.

Response.

The NRC disagrees with recommendations that the NRC should abandon its general policy of requiring all funds needed for decommissioning be available prior to the start of final dismantlement.

As described in the proposed rule (56 FR 41493),

the June 27, 1988, final rule clearly requires funds at the time of permanent end of operations.

Section 50.75(e) (1) defines the three methods of financial assurance acceptable for power reactor licensees.

Two of the methods, prepayment and surety or insurance, provide all funds by the time of permanent shutdown.

The third acceptable method, an external sinking fund, is defined as "a fund established and maintained by setting funds aside periodically in an account segregated from licensee assets and outside the licensee's administrative control in which the total amount of funds would be sufficient to pay decommissioning costs at the time termination of operation is expected."

This requirement was imposed to avoid a situation where lack of funds could delay and degrade the decommissioning process to the detriment of public health and safety.

Although the dismantlement process can be completed in discrete stages, the

11 potential unavailability of funds at a later stage may conceivably affect the dismantlement process at an earlier stage by creating incentives to "cut corners."

Thus, this requirement was not altered in the proposed rule on funding for plants that shut down prematurely and will remain in the final rule.

3. comment; Accelerated funding when there is a risk of premature shutdown.

One commenter asked the NRC to allow accelerated funding in cases where there is a risk of premature shutdown.

This commenter specifically referred to its request before FERC to accelerate funding over a shorter period than the full remaining operating life so that adequate funds would be available at the time of permanent shutdown.

The commenter also indicated that its request was denied by FERC.

9 Response.

The NRC strongly supports any effort by its licensees to accelerate funding, especially when a serious possibility of premature shutdown is anticipated.

The NRC further believes that existing regulations (i.e., 10 CFR 50.75(e)) would allow accelerated funding and that, in appropriate circumstances, accelerated funding could be ordered if necessary or desirable for safety.

In any case, the NRC would defer to FERC or the

12 appropriate PUC for the appropriate rate treatment of accelerated funding.

4.

comment; Amending 10 CFR 50,82 to clarify issuance of possession-only licenses and other procedural aspects of decommissioning, One commenter recommended that S50.82 be amended to indicate the timing and procedures for decommissioning.

The commenter requests that the NRC specify when it will issue a possession-only license or other license amendments to permit scaling back site operations.

Response, The NRC is evaluating its regulations concerning decommissioning and is considering issuing proposed amendments to clarify its procedures in the areas suggested by the commenter.

To expedite this rule, however, the NRC will consider the timing of possession-only licenses and other license amendment procedures as part of a separate rulemaking action.

s.

comment; The case-by-case approach "fails to provide sufficient protection to the public's health and safety."

A commenter argues that many plants will shut down prematurely in the future and safe storage is neither risk free nor cheap.

Thus, adequate funds for safe storage must be

13 assured, in addition to funds for actual decommissioning.

Therefore, plants must have adequate funding available at the time of shutdown and not be allowed to fund into the safe storage period.

Further, this commenter asserts that "A" bond ratings are inadequate because "in many instances, utility (and other) bonds have gone from investment grade status to junk or default status in one step." In the event of a precipitating incident such as an accident, "there is no likelihood at all that the derating process will be gradual *** "

This commenter concludes.by stating that the NRC "should determine how to insure, in each and every case, that adequate funds are available."

Response.

This commenter makes several assertions to support the commenter's opposition to funding during a safe storage period.

These assertions, however, are not supported by facts. It is not true that most bond ratings, especially for electric utilities, move quickly through several categories of ratings.

The process is almost always gradual and, therefore, would almost always give the NRC time to take steps to assure the adequacy of funding during a storage period.

In addition, this commenter also ignores NRC's requirement that its power reactor licensees carry accident recovery insurance of at least $1.06 billion {10 CFR 50.54(w)) to provide a source of funds for accident cleanup and decontamination.

This requirement reduces the likelihood that

14 premature decommissioning resulting from an accident would be particularly financially stressful.

More importantly, the NRC would, as stated, evaluate each instance of premature decommissioning on a case-by-case basis.

The criteria discussed above provides the NRC with a variety of measures to assure the adequacy of funding.

The case-by-case approach that is being adopted in this rule allows the NRC to consider the particular financial situation for each licensee that shuts down its power reactor before the expected end of operating life.

In spite of the commenter's assertions, the Commission does not expect this to be a frequent occurrence.

When it does occur, in most situations the majority of decommissioning funds will have been collected during the operating life of the shut down reactor.

Most licensees currently have substantial amounts collected and would, at the least, be able to fund activities necessary to place a shut down reactor into safe storage.

Whatever funding shortfall remains can be collected or guaranteed in a time frame and through funding mechanisms commensurate with a licensee's financial situation.

As that financial situation changes, the licensee, under NRC monitoring, W.?uld alter funding methods accordingly.

For the reasons presented in the discussion of issues raised, the NRC is issuing this final rule as proposed.

15 Finding of Bo significant Bnvironaental :tmpactt Availability This final rule clarifies decommissioning funding arrangements for those licensees whose power reactors are shut down prematurely.

This action is required so that the Commission may evaluate on a case-by-case basis the unique financial situation that could confront those licensees.

The Commission would continue its requirements for assurance of decommissioning costs but could alter the timing of funds collection according to a licensee's individual financial situation.

The Commission believes that if utility licensees were required to have all funds for decommissioning by the time of permanent shutdown as required by the existing rule, some utilities could be unnecessarily financially stressed without significantly increasing the protection of the public health and safety and of the environment.

Neither this action nor the alternative of maintaining the existing rule would significantly affect the environment.

Although changes in the t~ing of collection of funds for decommissioning prematurely shut down power reactors may affect the financial arrangements of licensees and may have economic and social consequences, they would not alter the effect on the environment of the licensed activities considered in the final rule published on June 27, 1988 (53 FR 24018) as analyzed in the Final Generic Environmental Impact Statement on Decommissioning

16 of Nuclear Facilities (NUREG-0586, August 1988) 2

• The alternative to this action would not significantly affect the environment.

Therefore, the Commission has determined, under the National Environmental Policy Act of 1969, as amended, and the Commission's regulations in Subpart A of 10 CFR Part 51, that this final rule will not be a major Federal action significantly affecting the quality of the human environment, and therefore an environmental impact statement is not required.

No other agencies or persons were contacted for this action, and no other documents related to the environmental impact of this action exist.

The foregoing constitutes the environmental assessment and finding of no significant impact for this final rule.

Paperwork Reduction Act Statement This final rule does not contain a new or amended e

information collection requirement subject to the Paperwork Reduction Act of 1980 (44 u.s.c. 3501 et seq.)

Existing requirements were approved by the Office of Management and Budget, approval number 3150-0011.

2Copies of NUREG-0586 may be purchased from the Superintendent of Documents, U.S. Government Printing Office, P.O. Box 37082, Washington, D.C. 20013-7082.

Copies are also available from the National Technical Information Service, 5285 Port Royal Road, Springfield, VA 22161.

A copy is also available for inspection and copying for a fee in the NRC Public Document Room, 2120 L Street, N.W., (Lower Level), Washington, D.C.

17 Requlatory Analyaia on June 27, 1988 (53 FR 24018), the NRC published in the Federal Register a final rule amending 10 CFR parts 30, 40, 50, 51, 70 and 72 regarding general requirements for decommissioning nuclear facilities.

In that rule, the Commission provided the option that power reactor licensees may collect funds for decommissioning over the projected operating life of the facility but required that ~11 funds needed for decommissioning be accumulated by the time of permanent shutdown.

Under the existing rule, power reactor licensees that shut down prematurely would not have the remaining term of the operating license to accumulate decommissioning funds and could be unduly.burdened financially* if required to raise all remaining decommissioning funds shortly after shutdown.

Consequently, the NRC will evaluate the ~chedule for coll~c~ing decommissioning funds for prematurely shut down facilities on a case-by-case basis.

A case-by-case approach allows the NRC to evaluate the particular financial circumstances of each affected licensee while continuing to ensure that the public health and safety and the environment are. adequately protected.

This final rule would generally reduce financial costs for those licensees allowed to extend the collection period of decommissioning funds.

This final rule would not create substantial costs for other licensees.

The rule also will not significantly affect state and

18 local governments and geographical regions, or the environment, or create substantial costs to the NRC or other Federal agencies.

The foregoing discussion constitutes the regulatory analysis for this final rule.

Regulatory Plexibility Certification As required by the Regulatory Flexibility Act of 1980, 5 u.s.c. 605(b), the Commission certifies that this final rule will not have a significant impact upon a substantial number of small entities.

The rule will potentially affect licensees of approximately 118 nuclear power reactors.

Nuclear power plant licensees do not fall within the definition of small businesses as defined in Section 3 of the Small Business Act, 15 u.s.c. 632, the Small Business size Standards of the Small Business Administrator (13 CFR part 121), or the Commission's size standards (50 FR 50241; December 9, 1985).

Backfit Analysis The NRC has determined that this final rule does not impose a backfit as defined in 10 CFR 50.109(a) (1).

Therefore, a backfit analysis is not required for this rule.

19 Li t of Subject in 10 en Part so Antitrust, Classified information, Criminal penalty, Fire protection, Incorporation by reference, Intergovernmental relations, Nuclear power plants and reactors, Radiation protection, Reactor siting criteria, Reporting and recordkeeping requirements

• For the reasons set out in the preamble and under the authority of the Atomic Energy Act of 1954, as amended, the Energy Reorganization Act of 1974, as amended, and 5 u.s.c. 552 and 553, the NRC is adopting the following amendment to 10 CFR Part 50.

PART 50-DOHBSTIC LICEBSD1G OP PRODUCTION AND UTILIZATION PACILITIBS

1.

The authority citation for Part 50 continues to read as follows:

Authority:

Secs. 102, 103, 104, 105, 161, 182, 183, 186, 189, 68 Stat. 936, 937, 938, 948, 953, 954, 955, 956, as amended, sec. 234, 83 Stat. 1244, as amended (42 U.s.c. 2132, 2133, 2134, 2135, 2201, 2232, 2233, 2236, 2239, 2282); secs. 201 as amended, 202, 206, 88 Stat. 1242 as amended 1244, 1246 (42 u.s.c. 5841, 5842, 5846).

20 Section 50.7 also issued under Pub. L.95-601, sec. 10, 92 Stat. 2951 (42 u.s.c. 5851).

Section 50.10 also issued under secs. 101, 185, 68 Stat. 936, 955, as amended (42 U.S.C. 2131, 2235); sec. 102, Pub. L.91-190, 83 Stat. 853 (42 u.s.c. 4332).

Sections 50.13, 50.54(dd), and 50.103 also issued under sec. 108, 68 Stat. 939, as amended (42 u.s.c. 2138).

Sections 50.23, 50.35, 50.55, and 50.56 also issued under sec. 185, 68 Stat. 955 (42 u.s.c. 2235).

Sections 50.33a, 50.55a and Appendix Q also issued under sec. 102, Pub. L.91-190, 83 stat. 853 (42 u.s.c.

4332).

Sections 50.34 and 50.54 also issued under sec. 204, 88 Stat. 1245 (42 u.s.c. 5844).

Sections 50.58, 50.91, and 50.92 also issued under Pub. L.97-415, 96 Stat. 2073 (42 u.s.c. 2239).

Section 50.78 also issued under sec. 122, 68 Stat. 939 (42 u.s.c.

2152).

Sections 50.80-50.81 also issued under sec. 184, 68 Stat.

954, as amended (42 u.s.c. 2234).

Appendix Falso issued under sec. 187, 68 Stat. 995 (42 u.s.c. 2237)

• For the purposes of sec. 223, 66 Stat. 958, as amended (42 u.s.c. 2273); SS 50.5, 50.46(a).and (b), and 50.54(c) are issued under sec. 161b, 68 Stat. 948, as amended (42 u.s.c. 2201(b)); SS 50.5, 50.7(a), 50.l0(a)-(c), 50.34(a) and (e), 50.44(a)-(c),

50.46(a) and (b), 50.47(b), 50.48(a),(c),(d), and (e), 50.49(a),

5 o

• 5 4 ( a), ( i ), ( i ) ( 1 ), ( 1 ) - ( n), ( p), ( q), ( t ), ( v), and ( y ), 5 o

• 5 5 ( f ),

50.55a(a),(c)-(e),(g), and (h), 50.59(c), 50.60(a), 50.62(b),

50.64(b), 50.65, and 50.80(a) and (b) are issued under sec. 161i, 68 Stat. 949, as amended (42 u.s.c. 2201(i)); and SS

21 50.49(d), (h), and (j), 50.54(w), (z), (bb), (cc), and (dd),

50.55(e), 50.59(b), 50.61(b), 50.62(b), 50.70(a), 50.71(a)-(c) and (e), 50.72(a), 50.73(a) and (b), 50.74, 50.78, and 50.90 are issued under sec. 1610, 68 Stat. 950, as amended (42 u.s.c.

2201 (o)) *

2.

Section 50.82 is amended by revising paragraph (a) to read as follows:

§ 50.82 Application for termination of license.

(a) Any licensee may apply to the Commission for authority to surrender a license voluntarily and to decommission its facility.

For a facility that permanently ceases operation after July 27, 1988, this application must be made within two years following permanent cessation of operations, and in no case later than one year prior to expiration of the operating license.

Each e

application for termination of license must be accompanied, or preceded, by a proposed decommissioning plan.

For a facility which has permanently ceased operation prior to July 27, 1988, requirements for contents of the decommissioning plan as specified in paragraphs (b) through (d) of this section may be modified with approval of the Commission to reflect the fact that the decommissioning process has been initiated previously.

For a facility which has permanently ceased operation before the expiration of its operating license, the collection period for any shortfall of funds will be determined, upon application by

22 the licensee, on a case-by-case basis taking into account the specific financial situation of each licensee.

Dated at Rockville, Maryland this ;.t --:iay or,

1992.

For the Nuclear Regulatory Commission

• sM.~

cutive Director for Operations

PRoPoseoRute Pl o

New England

~ ~ FR. y l 4!3)

Coalition on Nuclear 1Jollut1on, Inc.

Box 545, Brattleboro, Vermont 05302 Robert Wood Office of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission Washington, DC 20555

Dear Robert Wood:

• 91 U:l KL 11:..0 USNHC NOV 19 P2 :52 Phone (802) 25 7-0336 November 12, 1991 I am writing with regards to the proposed rule on decommissioning funding for prematurely shutdown nuclear power reactors, published in volume 56, #162, pp. 41493-41495 of the Federal Register, dated August 21, 1991.

These comments are being written after the comment deadline, because notice of this rule was received in our office only two weeks ago.

We hope that these com-ments will be considered in the record.

We believe the proposed rule fails to provide sufficient protection to the public's health and safety. The Commission only grudgingly acknowledges a situation which ls occurring more and more frequently: namely, that reactors are shutting down before completing the full term of their operating licenses.

Yet, as plants continue to show increased stresses due to aging, and as nuclear power grows less and less popular, the Commission should be anticipating that more and more reactors will shutdown prematurely.

The Commission does not appear to acknowledge at all that some reactors will be shutdown after a sud-den, precipitating incident or accident.

The basic issue with which the Commission (as opposed to the financial regulatory agencies) must be concerned is simple: plants must have adequate financial resources to complete safe and thorough decommissioning without endangering the public health and safety.

This applies t o those plants planning to utilize the safe storage method of decommissioning as well as to those plants planning on immediat e dismantlement.

Safe storage is neither risk free nor cheap.

Therefore, adequate funds should be available to assure that safe stor -

age itself is completed with minimal risk. The need for these funds should be considered in addition to the Commission's stated desire to assure adequate funding for actual decommissioning activities.

In effect, this means that plants must have adequate funding available at the time of shutdown, since all plants will either be undergoing prompt decom-missioning activities (which require adequate funds) or safe storage, which also requires adequate funds.

We therefore cannot accept the proposal to allow utili-ties to continue their funding preparations into the safe storage period, as the Commission appears to be proposing.

In addition, the rationale adduced for this -- namely, the financial strength of the utilities -- is specious. It ignores the recent history of t he utility indust ry.

The Commission writes:

1 D£C 2 4i 1991 Acknollledged DJ Gll'Pr::wrmr:::::r:::r:n:ar Educating the Public in Clean Alternatives to Nuc l ear Power

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Traditionally, bond ratings adequately predict the intermediate-term financial health of larger businesses such as electric utilities.

If a utility were to be derat-ed from "A" to "BBB," or equivalent, it should still be able to raise or guarantee the funds necessary to decommission without unduly stressing its capital struc-ture. (p. 41494)

Unfortunately, utility bonds have often been derated not from "A" to "BBB," but from "A" (or even better) to "C." There is nothing to suggest l!.

priori that deratings will occur one step at a time.

In fact, historical experi-ence suggests otherwise.

In many instances, utility (and other) bonds have gone from investment grade status to junk or default status in one step.

In these instances, funding is no longer available at reasonable rates.

In some cases, it is no longer available at all.

Indeed, the very instance under consideration is the case most likely to cause just such a major, sudden derating.

The Commission should examine the circumstances most likely to cause nuclear reactors to shutdown prematurely.

In some instances, no doubt, this will be a matter of careful long-range planning, to which the financial markets will have the opportunity to adjust gradually.

This is what the Commission's step-by-step hypothesized derating assumes.

In many other instances, however, there will be a precipitating incident -- acci-dents are the most likely such incidents -- which cause a sudden, precipitous decision to shut reactors down.

In these instances, there is no likelihood at all that the derating process will be gradual, allowing for smooth reaction from the financial markets.

In these instances, funding from market sources is likely to be either exorbitantly priced or totally precluded.

(At one point, it was ru-mored that the Public Service Company of New Hampshire was unable to sell bonds priced to yield just under 40% interest.)

In sum, the Commission's reasoning in support of this proposal is poorly conceived. The Commission should withdraw this proposal, and should more methodically examine the question, attempting to review more t horoughly all of the likely range of events that would cause premature reactor shutdown.

In doing so, the Commission should - -

in this post-TMI, post-Chernobyl world - - stop assuming that major reactor accidents are vanishingly improbable.

While we all hope that reactors will not be shutdown because of catastrophic accidents, the possibility that this will be the case should be acknowledged and planned for.

The Commission should then determine how to insure. in each and every case, that adequate funds are available. To do less is to violate the Commission's fundamental mandate to protect the public health and safety.

2

lJO{;KI:; I NUMtn:n p 5 0 PROPOSED RULE

( 5 b (R '-I J'fq 0 SMUD D0(;K[i[D SACRAMENTO MUNICIPAL UTILITY DISTRICT O P. 0. B ox 15830, Sacramento CA 95852 -1830, U9,-.~ 452-3211 AN ELECTR IC SYSTEM SERV ING T H E H EART OF CALIFO RNIA DAGM/NUC 91-175 November 14, 1991 Mr. Samuel J. Chilk Secretary U.S. Nuclear Regulatory Commission Washington, DC 20555 Attn:

Docketing and Service Branch

• 91 NOV 18 P 4 :16 ERRATA TO COMMENTS ON THE PROPOSED RULE REGARDING DECOMMISSIONING FUNDING FOR PREMATURELY SHUTDOWN POWER REACTORS -

56 FR 41493

Dear Mr. Chilk:

Due to a word processing error, the Sacramento Municipal Utility District (District) is submitting this errata to its original comments on the subject proposed rule.

Please replace the District's original comments on the proposed rule with this letter.

The District generally agrees with the NRC's approach to determine the appropriate decommissioning funding period for e a ch lice nsee on a case-by-case basis.

As stated in the proposed rule, a case-by-case approach would be less arbitrary than establishing a general collection period that might not be justified f or a particular licensee.

It is useful that the NRC set out, in the Supplementary Information in the proposed rule, some of the factors that will guide the s taff in implementing the case-by-case approach specified i n the rule itself.

It is important, however, that the fle xibility embodied in the rule not be thwarted by the development of overly prescriptive guidance.

In that regard, while the District recognizes that bond ratings may appropriately be one factor that the NRC e xamines when establishing decommissioning funding requirements for a prematurely closed reactor, the NRC should not develop a self-implementing bond rating test as appears now in the Supplementary Information accompanying the proposed rule.

In particular, the District is concerned about the NRC placing strict reliance on a 1 icensee meeting a national agency bond rating of at least "A" or equiva lent as an exclusive test of a licensee's solvency.

There are other factors that should be considered when evaluating the solvency of an organization.

DISTRICT HEADQUARTERS 6201 S Street, Sacramento CA 9 5817-189 9

U.S. NUCLEAR REGULATORY COMMISSION DOCKETING &. SERVICE SECTION OFFICE OF THE SECRETARY OF THE COMMISSION Document Statistics Postmark Date JI I I rl 1 I I

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S. DAGM/NUC 91-175 Too heavy a reliance on bond ratings may not provide a true indication of the future financial capability of an organization.

Moreover, as discussed in a recent meeting between the NRC and the District, the wording of the rule is somewhat vague and ambiguous with regards to the application of the bond rating criteria.

Additional criteria the NRC should consider when determining the solvency of an organization include:

0 The amount of decommissioning funds already collected at the time of shutdown and a licensee's past history for the collection of those funds.

The past history for collection of funds can provide evidence that funds can be collected as planned.

o The licensee's charter, such as in the case of a municipal utility district, may provide guarantees regarding the ability to fund decommissioning.

Public utilities have the rights and powers to fix rates and charges for commodities and services, and to incur indebtedness by issuing bonds and other obligations.

Also, public utility rates and revenue levels are typically not subject to review or regulation by any other governmental agencies, either federal or state.

0 Federal and state laws or other agreements, codes, etc.,

may already be in place to guarantee a licensee's ability/commitment to fund decommissioning. For example, the California Nuclear Facilities Decommissioning Act provides for the establishment and management of a separate external fund for the purpose of decommissioning a nuclear facility.

The act also provides that the utility's Board of Directors must ensure that all payments into the fund are recoverable through the utility's electric rates.

o The NRC should assess when the licensee intends to use the funds.

Forcing a licensee to collect funds too early could substantially burden and actually decrease a

licensee's ability to collect all funds.

Also, making a

licensee fund sooner will encourage early decommissioning rather than waiting for radioactive decay or advancements in technology.

Regarding the reliance on bond ratings, the troubled operation and closure of a large nuclear generating plant would cause the rating agencies to be cautious in their appraisal of that organization's bonds.

Although lowered bond ratings could be expected in such troubled times, one must recognize that downgrades in credit ratings occur much faster than upgrades.

Therefore, it is

S. DAGM/NUC 91-175 inappropriate for the NRC to select the period immediately following the closure of a plant as the best time to test a utility's credibility in the next decade.

In addition, the reliance on bond ratings creates a "catch-22" situation in that a utility's bond rating is based, in part, on the ultimate financial impact of decommissioning, and the financial impact of decommissioning is ultimately determined by the bond ratings. It is this kind of uncertainty that impacts bond ratings, and may cloud the objectivity of the rating agencies.

The NRC must be sensitive to the subjective nature of the bond rating process.

As discussed earlier, the wording of the rule regarding the licensee's need to maintain an "A" bond rating is somewhat vague and ambiguous.

The rule states that:

The rating should be maintained for at least 4 of any 5-year sequence.

If a licensee's rating falls below HA" more than once in a 5-year period, that licensee would be expected to obtain the balance of the funds needed for decommissioning, and deposit them in an external account within 1 year after being downrated.

Alternately, a licensee could use other assurance mechanisms allowed by 10 CFR 50.75(e).

During our recent meeting, the NRC implied that they intended the bond rating criteria as a mechanism to trigger the NRC to take a closer look at all of the factors impacting a utility's financial situation.

It is our understanding that the intent was not to cause an automatic requirement for the utility to fund the balance of the decommissioning costs immediately.

This should be stated explicitly in the rule to avoid any confusion on the intent of the bond rating criteria.

With regards to the interpretation of the wording of the rule, it is not clear when the 5-year clock starts.

Also, if a licensee is downgraded to a "BBB" rating after 5 years of an "A" rating and the "BBB" rating continues for greater than 1 year, the licensee would fail the "4 of 5-year" criterion, but not fail the "downgraded more than once in a 5-year period" criterion.

Under this scenario, would a licensee be required to fund the balance of decommissioning costs within 1 year?

Further, there are no provisions to remedy a downrating.

For example, if a licensee was required to provide a guarantee in the form of a letter of credit, what would be the requirement if the "A" rating were eventually regained?

Would the letter of credit still be necessary?

Without additional language to provide for some form of remedy, a licensee could have a "AAA" rating and still be required to provide guarantees.

These guarantees could be

S. DAGM/NUC 91-175 expensive and not in the best interest of the public or the ratepayers.

Finally, when referring to bond ratings, it is unclear what type of bonds the NRC is referring to.

Utilities issue various types of bonds including General Obligation, Revenue, and Subordinate Bonds.

Some of these bonds may be rated as "A" or above while, at the same time, a different class of bonds may be below an "A" rating.

In summary, the District agrees with the NRC's approach to determine a licensee's decommissioning funding period on a case-by-case basis.

However, the District believes that a strict reliance on bond ratings may not provide a true indication of the future financial capabilities of an organization.

The District respectfully suggests that when the final rule is published, the Supplementary Information with it clarify that bond ratings are but one of several relevant factors that the NRC will consider in developing decommissioning funding requirements for prematurely closed reactors.

Members of your staff with questions information or clarification may contact (916)452-3211, extension 4914.

Sincerely, James R. Shetler Deputy Assistant General Manager Nuclear cc:

D. Martin, NMSS, Washington J. B. Martin, NRC, Walnut Creek C. Myers, NRC, Rancho Seco Document Control Desk, NRC, Washington requiring additional Jerry Delezenski at

DOCKET NUMBEA PROPOSED RULE Pl. 5 D Nuveen

• Duff & Phelps Investment Advisors

[5 (:, FR. '{ f ~ 'f ~

Nuclear Decommissioning Fund Manageme i\\~1~TlD 333 West Wacker Drive Chicago, Illinois 60606 Telephone 312.917.7997 Secretary U.S. Nuclear Regulatory Commission Washington, D.C. 20555 Attn: Docketing and Service Branch Re:

10 CFR Part 50 RIN 3150-AD89 Decommissioning Funding for Prematurely Shutdown Power Reactors Gentlemen:

• 91 NOV 18 P 4 : 1 5 November 14, 19()1

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On August 9, 1991, the U.S. Nuclear Regulatory Commission (NRC) issued proposed regulations to amend its regulations on the timing of the collection of funds for the decommissioning of nuclear power reactors. We commend the NRC for taking initial steps to clarify its policy for units that shut down before the expected end of their operating lives.

Specifically, the NRC is proposing that the collection period for any shortfall of funds be determined, upon application by the licensee, on a case-by-case basis taking into account the specific financial situation of each licensee. The purpose of our comments is to support the "case by case" approach in the proposed regulations and to urge caution and flexibility in applying the "single A" credit rating criterion.

Nuveen-Duff & Phelps Investment Advisors, an S.E.C. registered investment advisor, is owned 50% by John Nuveen & Co. Incorporated and 50% by Duff & Phelps Inc. through their investment advisory affiliates. This partnership was formed specifically to provide nuclear decommissioning trust asset management and related services.

We believe the case by case method is appropriate not only for the reasons cited by the NRC but also for the following additional reasons:

(1) assumptions used for calculating annual funding contributions differ among utilities and regulators; (2) operating performance varies among utilities resulting in differing financial circumstances; DEC 2 4: 199 Acknowleaged by "8fd 11

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• Duff & Phelps Investment Advisors Nuclear Decomrrussioning Fund Management Re: 10 CFR Part 50 (3) political and regulatory circumstances affect financial solvency and funding potential; Regarding differing assumptions used in calculating annual funding contributions, the variables involved are (1) time period for contributions (typically until the operating license expires); (2) dollars in the fund currently (depends largely on when the external funding process was started);

(3) the current cost estimate for decommissioning (as indicated below the range is significant);

( 4) assumed future inflation rate (varies from about 4 % to about 7 % ) ; (5) assumed rate of return on fund assets (depends on state and federal tax rates--0% for municipal utilities, allocation between qualified and non-qualified assets for investor-owned utilities, and investment restrictions); and (6) a contingency factor (this can help accomodate the risk of premature decommissioning and misjudgments on assumed rates for inflation and return on assets).

Because of the wide variations in assumptions used, the annual contributions utilities are currently making to their external funds range from less than $2,000 to more than $30,000 per MW of nuclear capacity.

Of the six variables cited above, the only one that the NRC has stated must have a minimum threshold is the assumed current cost of decommissioning. We understand that about 50% of affected utilities are using this minimum and about 50 % are using a site specific estimate. A recent study by TLG Engineering Inc. (the leading provider of site specific cost estimates) cited the following cost comparisons for midwestern nuclear units (1990 dollars):

PWR Reactor (1100 MW e)

BWR Reactor (1100 MWe)

NRC Threshold

$140 million

$173 million TLG Site Specific

$281 million

$429 million Though the NRC threshold is used by about 50% of the industry for calculating current contributions, the funding adequacy application to be filed at the time of either a premature or scheduled decommissioning should be based on a site specific cost estimate.

Regarding differing operating performance, this can be a significant factor in a managerial decision to prematurely decommission a nuclear unit. Nuclear units are designed as base load generating facilities, and unless their operating rates exceed a minimum level, the economics may favor their complete shut down. This factor contributed significantly to the shutdown of Fort St. Vrain.

2

U.S. NRC Nuveen

• Duff & Phelps Investment Advisors Nuclear Decommissioning Fund Management Re: 10 CFR Part 50 Regarding differing political and regulatory climates, this can be an overwhelming influence.

The premature shutdowns of Shoreham and Rancho Seco were due to political events. For the same or totally different circumstances, this result could be repeated in the future. The most significant regulatory risk facing nuclear utilities in the case of a premature decommissioning is the risk of recovering through rates all costs associated with a nuclear facility, including decommissioning costs. We believe that it is highly likely rate setting authorities will no longer consider the asset "used and useful" when a facility permanently ceases to operate. As a result, depending on the circumstances of this cessation and the overall financial condition of the utility, the rate setting authorities may decide at that time to exclude from rates any further cost recovery. This situation places the burden of incremental cost recovery on investors in the affected utility and, thereby, strengthens the argument for case by case evaluation by the NRC.

Because of the strong probability that no two utilities are likely to have the exact same set of circumstances that give rise to premature decommissioning, we support the NRC's proposed case by case evaluation methodology.

Regarding the "single A" credit rating criterion for financial solvency in the implementation of the case by case methodology, we have the following observations about the use of this standard:

(1)

Premature decommissioning, in and of itself, may result in a downgrading to below "single A", especially for utilities with facilities that are early in the operating cycle (plant life less than twenty years) and that have a fairly large asset concentration in a single unit.

(2)

More than half of investor owned nuclear utilities are currently "triple B" or marginal "single A" credits (see enclosure) and, therefore, are currently already likely to be subject to this financial solvency test.

(3)

Credit ratings of electric utilities, and especially those weakened by the recent completion of nuclear facilities, are unlikely to improve sufficiently in the near future to avoid failing the proposed solvency test.

Considering the above factors, we believe that the "single A" criterion is impractical. We recommend, as an alternative, that the NRC review financial solvency only in the context of other nuclear utilities taking into consideration relative debt ratings, availability of financial guarantees, the financial burden of decommissioning funds, the regulatory and political environment, and utility-specific economic conditions.

3

Nuveen

• Duff & Phelps Investment Advisors Nuclear Decommissioning Fund Management U.S. NRC Re: 10 CFR Part 50 We appreciate this opportunity to comment.

4 Sincerely,

~a.~

David A. Krause Managing Director

Nuveen

• Duff & Phelps Investment Advisors Nuclear Decommissmning Fund Management Investor-owned Nuclear Electric Utilities Senior Debt Credit Ratings*

November 1991 Duff &

Double A:

Phelps Moody's Baltimore G&E AA-Al Consolidated Edison AA-Aal Duke Power AA-Aa2 Florida Power AA-Aa3 Iowa-Illinois G&E AA-Aa2 New England Power AA-Al Northern States Power AA-Aa2 San Diego G&E A+

Aa3 Southern California Edison AA Aa2 Wisconsin Electric Power AA+

Aa2 Wisconsin P &L AA Aa2 Wisconsin PS AA+

Aa2 Single A:

Alabama Power A

Al Atlantic City Electric A+

A2 Carolina P&L A+

A2 Central Hudson G&E A-A3 Central Maine Power A-Baal Central P&L A

A2 Central Vermont PS A-NR Commonwealth Edison A-A3 Connecticut L&P A-Baal Delmarva P&L A+

A2 Detroit Edison BBB+

A3 Eastern Edison A-Baal Florida P&L A

A2 Houston L&P A+

A3 Iowa Electric L&P A

Al Jersey Central P&L A

A2 Kansas City P&L A

A2 Metropolitan Edison A

A2 5

Page 1 of 3 Standard &

Poor's A+

AA AA-AA-AA A+

AA-A+

AA AA+

AA AA+

A A

A A-BBB+

A-BBB+

A-BBB+

A+

BBB+

BBB+

A A

A A-A A-

Nuveen

• Duff & Phelps Investment Advisors Nuclear Decommissmning Fund Management Investor-owned Nuclear Electric Utilities Senior Debt Credit Ratings*

November 1991 Duff &

Single A {Cont'd.):

Phelps Moody's Pacificorp A

A3 Pacific G&E A

Al Pennsylvania Electric A+

Al Pennsylvania P&L A-A2 Portland General Electric A

A3 Public Service E&G A+

A2 South Carolina E&G A+

Al Union Electric A+

Al Virginia E&P A+

Al Triple B:

Arizona PS BBB-Baa3 Arkansas P&L BBB Baa2 Boston Edison BBB+

Baal Cleveland Electric BBB-Baa2 Connecticut Yankee BB+

Baa2 Consumers Power BBB+

Baa2 Duquesne Light BBB+

Baal Georgia Power BBB Baal Gulf States Utilities BBB-Baa3 Illinois Power BBB Baa2 Indiana Michigan Power BBB Baal Kansas G&E BBB+

Baal Long Island Lighting BBB-Baa3 Louisiana P &L BBB+

Baa2 New York State E&G BBB+

Baal Niagara Mohawk Power BBB Baa2 Ohio Edison BBB+

Baa2 Pennsylvania Power BBB+

Baa2 Philadelphia Electric BBB Baa2 PS Colorado BBB+

Baal PS New Hampshire BBB Baa3 PS New Mexico BBB-Bal 6

Page 2 of 3 Standard&

Poor's A

A A

A A

A A

A+

A+

BBB-BBB BBB+

BBB-BBB-BBB BBB+

BBB+

BBB-BBB BBB+

BBB+

BBB-BBB BBB+

BBB BBB BBB BBB BBB+

BBB-BBB-

Nuveen

• Duff & Phelps Investment Advisors Nuclear Decommissrnning Fund Management Investor-owned Nuclear Electric Utilities Senior Debt Credit Ratings' November 1991 Triple B (Cont'd.):

Rochester G&E System Energy Resources Texas Utilities Electric Toledo Edison United Illunimating Western Mass. Electric Below Triple B:

El Paso Electric Duff &

Phelps BBB+

BBB BBB BB+

BBB-BBB+

BB

'Categorized according to the highest rating indicated.

7 Moody's Baal Bal Baa2 Baa3 Baa3 Baal Bl Page 3 of 3 Standard&

Poors' BBB+

BBB-BBB BBB-BBB-BBB+

BB-

ILLIN915 PGWER Secretary NOV 13 A11 *.49

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i*;* N'dvember 1, 199 1 U. s. Nuclear Regulatory Commission Wa~hingtoni D. c.

2C555 Attention:

Docketing and Service Branch Illinois Power Company Clinton Power Station P.O. Box 678 Clinton, IL 61727 Tel 217 935-6226 J. Stephen Perry Vice President U-601901 L3 0-9101-01 )LP lA.120

Subject:

Decommissioning Funding for Prematurely Shutdown Power Reactors - Proposed Rule (Federal Register, Vol. 56, No. 162, Wednesday, August 21, 1991)

Dear Sir:

The proposed rule provides in Paragraph (2) of the financial solvency requires that, in the event of a premature shutdown, the licensee must maintain a bond rating of at least "A" or equivalent by Moody's Investment Services, Standard and Poors, or another national rating agency for at least four of any five-year sequence or the licensee must deposit the funds-needed for decommissioning within one year of failing the test.

The narrative goes on to say "... If a utility were to be derated from "A" to "BBB" or equivalent, it should still be able to raise or guarantee the funds necessary to decommission without unduly stressing its capital structure."

We do not believe the above proposal has properly evaluated the financial implications on each licensee who could be affected.

Indeed, we believe it is impossible to do so except on a case-by-case basis.

In the case of Illinois Power, our First Mortgage Bonds are presently rated BBB.

Consequently, a premature shutdown at the present time would require us to deposit the total funds required for decommissioning within one year.

Obtaining the funds through the issuance of bonds, notes, or preferred or common stocks would -

we believe - place unnecessarily severe stress on our financial condition and very seriously impact our capital structure.

DEC 2 t 1991.

Acknowledged by '81'd-.~~~si

U.S. NUCLEAR REGULATORY COMMISSION DOCKETING & SERVICE SECTION OFFICE OF THE SECRETARY OF THE COMMISSION Document Statistics Postmark Date

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U-601901 Page 2 of 2 The proposal assumes -- correctly, we believe -- that the licensee's securities would be downgraded.

The proposal also appears to assume that the downgrading would only be one notch -- for example, from "A" to "BBB."

This may not be the case, particularly if the nuclear plant is a very significant portion of the licensee's generating capacity.

We believe the one-year time period in Paragraph (2) will be inadequate, at least in some situations.

The licensee and the public service commission will need to work together to protect the customers and deal fairly with the bondholders, stockholders, and others who are affected.

Administrative and statutory limitations are likely to preclude developing an equitable plan in a one-year time frame.

Furthermore, we believe *the proposal doe;:; not yive adequate consideration to insurance coverage which is and may be available.

Although there are other reasons for shutdown and premature decommissioning, the most likely cause would be a severe casualty impacting major portions of the nuclear plant.

For this situation, there exists premature decommissioning insurance which would offset a significant portion, if not all, of the shortfall between the amount required to decommission and the amount accumulated in the decommissioning trust funds.

The proposed rule does not seem to recognize this insurance availability, or consider the possibility of additional insurance availability in the future.

In conclusion, we believe Paragraph (2) should be deleted.

We further believe that each premature decommissioning situation should be analyzed on a case-by-case basis to adequately determine the potential impact on the financial stability of the licensee with input to the Nuclear Regulatory Commission from both the licensee and the state public service commission.

Sincerely yours,

~~

Vice President WSI/alh cc:

NRC Clinton Licensing Project Manager NRC Resident Office Regional Administrator, Region III, USNRC Illinois Department of Nuclear Safety

DOCKET NUMBEAp PROPOSED RULE

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' I' f November 4, 1991 ;_JLCK~1:t',,

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William J. Cahill, Jr.

Group Vice President Mr. Samuel J. Chilk, Secretary U. S. Nuclear Regulatory Commission Washington, D. C. 20555 ATTN:

Docketing and Servi ce Branch

SUBJECT:

COMMENTS ON NOTICE OF PROPOSED RULEMAKING DECOMMISSIONING FUNDING FOR PREMATURELY SHUTDOWN REACTORS 56 FED. REG. 41,493 Gentlemen:

As requested in the federal register noti ce 56 FR 41493 TU Electric submits comments to the proposed "Decommissioning Funding for Prematurely Shutdown Reactors" rulema king.

When the decommissioning funding rule was published, the NRC allowed licensees the option of collecting decommissioning funds throughout the life of the fa cility.

The risk that a fa cility would pre-maturely decommi ssi on prior to the expiration of the operating license while the decommissioning funds would not be fully accumulated was understood and thought to be small.

In 56 FR 41495 the NRC proposes to amend 10CFR50.82 to address decommissioning funding of plants that are prematurely shutdown and decommissioned.

The proposed amendment states that the collection period for shortage of funds will be determined on a case-by-case basis taking into account the specific finan cial situation of each li censee.

The Statement of Consideration accompanying the proposed amendment states that in order to determine the long term financial health of the licensee the Commission will consider factors other than the availability of decommissioning funds.

TU Electric suggests that the commission consider the licensee and the cause of premature decommissioning.

Since the date of the decommissioning rule three plants have chosen premature decommissioning.

At the Fort St Vrain station the licensee chose premature decommissioning because of techni cal matters.

At the Shoreham and Rancho Seco plant s the cause of premat ure decommi ssion i ng were voter ref erendums.

The Shoreham li censee. Long Island Lighting and Power Company ( LILCo). petit i oned to transfer the li cense to Long Island Power Authority (LIPA).

LI PA' s sol e purpose i s to decommi ss ion the pl ant.

LIPA, a governmenta l entity may have revenue ra i sing abi l it i es not ava i l able to other l icensee's.

The commission should then consider not on l y the finan cial stability and ava i labili t y of funds for decommissioning but also the licensee and the reas on for the premature decommissioning, and if warranted facilitate the transfer of ownership and decommissioning process.

400 N. Olive Street L.B. 81 Dallas, Texas 75201 Acknowiqea by card<<=te:~2-=~=:199

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U.S. NUCLEAR REGULATORY COMMISSiON OOC1<ETfNG & SERVICE SECTION OFFICE Of THE SECRETARY OF THE COMMISSION Document Statisties Postmark Da

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TXX-91414 PAGE 2 OF 2 As currently proposed the amendment to 10CFR50.82(a) addresses the determination of the collection period for any shortfall in decommissioning funds on a premature decommissioning.

The section 10CFR50.82 also addresses the application to terminate a license, the submittal of a decommissioning plan, and termination of the license. - TU Electric recommends that section 10CFR50.82 also be amended to include interim steps such as license amendments to a possession only status, as well as other amendments to scale back on unnecessary operations so as to conserve resources.

If you have any questions please contact Jose' D. Rodriguez at (214) 812 8674.

JDR:

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Mr. R. D. Martin, Region IV Resident Inspectors, CPSES (2)

Mr. Robert Wood, NRR Sincerely, w~J-*~<k

)<J Ji William J. Cahill, Jr.

By, R:@1.tal'?.*r 'ft,',J1/4.

Manager, Nuclear Licensing

DOCKET NUMBER PROPOSED RULE PR 5 D PHILADELPmA ELECTRIC coMPANY ( 5"Z ?k.1. ~ t./ r V NUCLEAR GROUP HEADQUARTERS

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WAYNE, PA 19087-5691

• 91

, V _7 (215) 640-6000 i.'~

• NUCLEAR ENGINEERING & SERVICES DEPARTMENT Mr. Samuel J. Chilk Secretary of the Commission U.S. Nuclear Regulatory Commission Attn:

Docketing and Service Branch Washington, DC 20555 (j!J(,'

November 1, 199 1

Subject:

Comments Concerning the Nuclear Regulatory Commission's 10 CFR 50 Proposed Rule, "Decommissioning Funding for Prematurely Shutdown Power Reactors" (56 FR 41493)

Dear Mr. Chilk:

This letter is being submitted in response to the Nuclear Regulatory Commission's (NRC's) request for comments regarding the 10 CFR 50 Proposed Rule, "Decommissioning Funding for Prematurely Shutdown Power Reactors," published in the Federal Register (56 FR 41493, dated August 21, 1991).

The Philadelphia Electric Company (PECo) appreciates the opportunity to comment on this proposed rule.

PECo is not opposed to the proposed collection period for a prematurely decommissioned reactor selected on a case-by-case basis, nor to requiring that all funds be available before decommissioning and dismantlement begins.

However, we do not support the concept that funding may continue into the storage period only if the licensee maintain a bond rating of "A" or equivalent for four (4) years in any five-year period.

If a licensee's bond rating falls below "A" more than once in a five - year period, that licensee would be expected to obtain the balance of the funds needed for decommissioning and deposit them in an external account within one (1) year after the bond rating is downrated.

This proposed requirement would place a financial burden on licensees with bond ratings lower than "A" since it could require that the necessary funds be obtained and deposited into an external account within one year of a premature shutdown.

If a licensee is undertaking a major construction project, just completing one, or prematurely shutting down a plant, i t i s likely t hat the bond rat i ng wou l d be below "A."

Furthermore, there appears to be some inconsistency with the fact that a company with a bond rating lower than "A" is permitted to recover costs over the operating license period if a reactor is not shutdown.

DEC 2, t 199\\

Acknowledged by card"'"'*"' sssuncoccrnw::rr

...:.S. r~UCLEAR REGULATORY COMMISSION DOCKETING l SERVICE SECTION OFFICE OF THE SECRET ARV OF THE COMMISSION Document Statistics Postmark Date

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Mr. Samuel J. Chilk Docketing and Service Branch November 1, 1991 Page 2 Accordingly, we suggest that an investment grade bond rating (i.e.,

BBB or higher) be required in lieu of an "A" bond rating requirement.

If you have any questions, please do not hesitate to contact us.

Very truly yours, G. J.

Manager Licensing Section

DOCKET NUMBER Pl

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• I EDISON DRIVE

• AUGUSTA, MAINE 04330, (207) 622-4868

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October 31, 1991 MN-91-154

'91 NOV - 7 me :37

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!;i*,.,i*., 1 UNITED STATES NUCLEAR REGULATORY COMMISSION Attention: Document Control Desk Washington, DC 20555

Reference:

(a) License No. DPR-36 (Docket No. 50-309)

Dear Sir /Madam:

In response to the Commission's invitation for comments regarding 10 C.F.R. Pt. 50.82, the management of Maine Yankee Atomic Power Company presents the following comments.

Maine Yankee is in agreement with the Nuclear Regulatory Commission's (NRC's) position that decommissioning funding plans for reactors which are prematurely shutdown, be handled on a case by case basis.

Also, as described on Page 41494 Column 2, Paragraph 2, we agree that the Commission should consider factors other than availability of decommissioning funds. We suggest clarification that such consideration "may include but not be limited to" the number of power plants in the licensee's system.

Maine Yankee would not agree with the use of a licensee's credit rating as the sole criterion for financial solvency and we wish to stress the importance of allowing alternative mechanisms, as well, to demonstrate financial solvency. It is important to us that the assurance mechanisms allowed by 10 C.F.R. Pt. 50.75(e), be available as an avenue to demonstrate financial solvency. For Maine Yankee, we do not believe that license credit ratings are appropriate, since Maine Yankee has another method of assuring the payments necessary to meet decommissioning obligations through our 10 owner utilities' *contractual commitment to meet these obligations in the event that Maine Yankee requires therµ to do so.

Maine Yankee also urges the NRC to consider an additional pecommissioning funding alternative to those identified in the Federal Register Notice. The NRC has identified the options of funding prior to commercial operation, funding over the licensed life.and funding for a period after operation. Another alternative would be to allow the plant owner to fund over a portion of the licensed life, in recognition of the risk of premature shutdown.

Acknowledaed bv carcL DEC 2 ~ 1991

United States Nuclear Regulatory Commission Attention: Document Control Desk MN-91-154 Page Two Maine Yankee urged this approach to the Federal Energy Regulatory Commission (FERC) in the late 1980's, following a third state referendum to force a shutdown of the plant.

Specifically, noting the continued risk of shutdown referenda, Maine Yankee proposed accelerating its collection for decommissioning to a ten year schedule rather than over the twenty year then remaining life of the plant. Notwithstanding the support of state officials for this approach, the FERC rejected it. While its owners presumably could still collect decommissioning money in their retail rates, Maine Yankee itself is a single asset company, and could be forced to bill for decommissioning without having any more sales of electricity on which the costs could be spread.

Maine Yankee remains convinced that the FERC's rejection of its approach was unfortunate. The NRC could play an important role in addressing this issue by recognizing that accelerated recovery of decommissioning expense during the operation of a plant is a reasonable alternative that should be allowed where there is plausible risk of early shutdown and where the impact on rates will not be excessive.

Finally, we wish to comment in general support of the proposed rule with consideration of the comments provided above. We believe that an orderly funding plan or assurances of funding over a reasonable period of time for a financially healthy licensee provides a responsible funding plan that serves the best interests of our electric customers.

Please do not hesitate to contact me for any follow-up or questions that you may have.

MET/plb c:

EEi Very truly yours,

(

. JI:; L(] flidl-!t-~

G. D. Whittier, Vice President Licensing & Engineering Maine Yankee Sponsor Utilities (Chief Financial Officers)

Mr. Thomas T. Martin Mr. E. H. Trottier Mr. Patrick J. Dostie Mr. Charles S. Marschall Docketing and Service Branch

ROCHESTER GAS AND ELECTRIC CORPORATION* 89 EAST AVENL§t R~fr.PEJg°Efp ~- :'6(1 4649-0001 DAVID C. HEILIGMAN TELEPHONE Vice President, Secretary and Treasurer November 1, 1991

,_.~; '. ~-:: Jr-AREAIC()DE 716 546-2700 i1LLK: * !tl'*

/4) 01/

Secretary Nuclear Regulatory Commission Washington, DC. 20555 Attention: Docketing and Service Branch

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SENT VIA FEDERAL EXPRESS I

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Gentlemen:

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0 Rochester Gas and Electric Corporation offers the following comments in response to the proposed rule entitled "Decommissioning Funding for Prematurely Shutdown Power Reactors" as published in the Federal Register on August 21, 1991.

The Commission proposes to amend its regulations on the timing of the collection of funds for prematurely decommissioned units. The proposed rule would

"... require that the NRC evaluate decommissioning funding plans for power reactors that shut down prematurely on a case-by-case basis. The NRC's evaluation would take into account the specific safety and financial situations at each plant."

The proposed rule further describes the criteria for evaluating the various funding options. Among the criteria is a requirement that the licensee "maintain[s] a bond rating of at least "A" or equivalent..." It further requires that "if a licensee's rating falls below "A" more than once in a 5-year period, that licensee would be expected to obtain the balance of the funds needed for decommissioning, and deposit them in an external account within 1 year after being downrated.

11 The Company's comments center about this definition of financial solvency:

The "A" rating threshold will affect a significant number of otherwise healthy, "investment quality" companies. Approximat~ly forty percent (40%)

of current licensees are rated "BBB+" or less today. An additional ten to twelve percent are currently rated "A-11

, or just one level above "BBB+". It should be noted that "BBB" utilities are a significantly different credit risk than similarly-rated industrial companies by virtue of their protected franchise.

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Obtaining the necessary decommissioning funds in addition to ongoing capital requirements may place undue stress a 11BBB 11-rated licensee's ability to achieve such financing. Also, placing a one-year time limit will reduce the licensee's financing flexibility and may increase financial market risk and therefore the cost of capital by disregarding financial market conditions within that twelve month window for funding.

Under current regulations, only a small portion of the funds set aside for premature decommissioning would be deductible currently for taxation purposes. In addition, the fund's earnings are subject to tax. The proposed rule will add incremental cost for 11BBB 11 rated companies due to the negative all-in rate of return (net-of-tax earnings on decommissioning fund assets less the Company's carrying cost of capital to fund such a trust) on invested capital. The combination of lost tax deductions for contributions and the negative rate of return on invested capital are disproportionate to the perceived additional financial assurance provided by an 11A" rated versus 11BBB 11 rated company.

Many of the affected companies are licensees in several units.

Consideration should be given to not adversely impacting the financial condition of these multiple license companies thereby impacting several units unnecessarily.

Some significant questions are not specifically addressed by the proposed rule such as (1) How will decommissioning insurance be evaluated?; (2)

Will co-owners of a prematurely decommissioned unit be treated differently?; (3) What happens when there are conflicting ratings among agencies?

The Company would urge the Commission to consider revising the definition of financial solvency to include 11888 11 rated licensees and evaluate each on a case-by-case basis.

Very truly yours, David C. Heiligman

Bil 701 Pennsylvania Avenue, NW Washington D.C. 20004-2696 Telephone 202-508-5527 EDISON ELECTRIC INSTITUTE November 4, 1991 The Honorable Samuel J. Chilk Secretary U.S. Nuclear Regulatory Commission Washington, D.C.

20555 Attn:

Docketing and Service Branch

Dear Mr. Secretary:

DAVID K. OWENS Senior Vice President Finance, Regulation, and Power Supply Policy The Edison Electric Institute (EEI) is pleased to submit these comments in response to the NRC's proposed rule 10 CFR Part 50, RIN3150-AD89 entitled "Decommissioning Funding for Prematurely Shutdown Power Reactors."

EEI is the association of electric companies. Its members serve ninety-eight percent of all customers served by the investor-owned segment of the industry.

They generate approximately seventy-eight percent of all the electricity in the country and service seventy-five percent of all ultimate customers in the nation. In addition, EEI's member companies own either fully or partially 85% of the nuclear power rectors in the U.S.

EEI agrees with the NRC that the collection period for decommissioning of prematurely shutdown power reactors should be determined on a case-by-case basis.

This will allow for proper planning, public utility commission consideration and, in all probability, adequate time to fund decommissioning.

This should give assurance that adequate funds will be available.

However, EEI disagrees with that portion of the criteria for evaluating funding options contained in the Supplementary Information that would use a bond rating test of financial solvency wherein, if a licensee's rating falls below "A" more than once in a five year period, the licensee would be expected to deposit the remainder of the funds needed for decommissioning in an external account within one year after being downrated.

A major reason that we believe this to be inappropriate is that such a criterion may operate to lessen the assurance that adequate funds will be available for decommissioning.

Acknowledged bf Clld ~EC ~ t 1991 ;)

U.S. NUCLEAR REGULATORY COMMl$$1C,'J DOCKETiNG & SERVICE SECTION OFFICE OF THE SECRETARY OF THE COMMISSiON Oocument Sta sties Postmark Datt _______ _

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The Honorable Samuel J. Chilk November 4, 1991 Page Two Utilizing this particular portion of the evaluation criteria could lead to bond downgradings greater than might occur as a result of decommissioning (we address this latter issue in a subsequent paragraph).

These downgradings could, in turn, lead to higher costs of capital and, depending on the financial health of the company and the relative size of the unfunded decommissioning obligation, a severe restriction on financial flexibility.

The restriction on financial flexibility would potentially have the unintended effect of reducing the ability to assure that decommissioning funding will be available.

We believe that a sudden requirement to fully fund decommissioning is something that should be decided on a case-by-case basis depending on the situation of each reactor and its owner(s),

not by a mechanical approach.

This individual case analysis should take into account, among other things, the rate regulatory response, the safety situation, the optimum method of attaining financial assurance, the financial health of the

company, the size of the decommissioning obligation in relation to the company's financial flexibility, the number of reactors at the site, other decommissioning funds and the decommissioning schedule.

We believe, and a small amount of experience has shown, that news of a premature decommissioning will lead to a rating downgrade.

To support this position, we offer a quote from the Corporate Credit Monitor published by J.P.

Morgan Securities Inc.

"Rating changes associated with decommissioning are most likely to occur when plants are taken out of service, especially for premature closings..... For unexpected plant closures, it is likely that decommissioning fund levels would be inadequate, and that replacement power would be immediately needed.

Companies could be forced to finance the decommissioning and a

construction program."

The downgrading expected as a

result of premature decommissioning means that a large majority of licensees could be subject to a requirement to deposit the full amount of the decommissioning cost within one year in the event of premature decommissioning.

Currently, about 21 percent of investor-owned utilities that have ownership of a nuclear reactor are rated in the AA or Aa range, 37% in the A range and 42% in the BBB or Baa range.

If premature decommissioning leads to a downgrade to the next lower range, then only about 21% of utilities would be able to have their collection period set on a case-by-case basis in the event of premature decommissioning.

The Honorable Samuel J. Chilk November 4, 1991 Page Three The remainder could be subject to the imposition of a one year period to make the full deposit into the fund.

Yet, there probably will be a wide variety of situations among the companies with ratings below A. It should also be pointed out that BBB ratings are considered investment grade. Many of the companies on which the criteria would impose an arbitrary one year period to fully fund the decommissioning trust would retain the ability to raise large sums of money.

Therefore, EEI recommends that the guidance be changed so that the NRC can recognize individual company situations by allowing for a case-by-case analysis and determination.

There are additional concerns that EEI has about the below an A

rating portion of the criteria contained in the Supplementary Information.

These are:

o The one-year period is a particularly short period of time to raise what could be a large sum of money.

This could be exacerbated if the one year period were one of high interest rates.

o The criteria appears to be dependent on annual ratings.

The guidance states:

"The rating should be maintained for at least 4 of any 5-year sequence.

If a licensee's rating falls below 'A' more than once in a 5-year period, that licensee would be expected to obtain the balance of the funds needed for decommissioning and deposit them in an external account within 1 year after being downrated".

This criteria may be difficult to administer because rating agencies

rate, or at least monitor companies continuously.

Further, it is not clear if two downratings or a rating below A for more than a year would trigger the guidance.

Also, it has been observed that rating agencies are quick to downgrade and slow to upgrade. If this observation is accurate, then this also would cause difficulty because there could be a lag in the reporting of a company's improved financial health.

o The criterion quoted in the subparagraph above is difficult to understand.

It could be interpreted to say that the money is required to be deposited in the fund one year after the company is downrated, that is the initial downrating rather than one year after the year that the lower rating occurs.

o Consideration should be given to the income tax consequences of any plan to fund the decommissioning

The Honorable Samuel J. Chilk November 4, 1991 Page Four trust in the event of premature decommissioning.

The tax consequences can impact a company's costs, cash flow, and possibly its bond rating. As an example, an immediate deposit of the full funding requirement may not be fully tax deductible on a current basis. There is no precedent for this kind of IRS ruling.

o The use of the creditworthiness rating leads to some questions which should be addressed in the rule if the NRC retains the portion of the guidance on bond ratings.

What if there is a split rating with one agency rating a company in the A range and another agency rating a company BBB or Baa? Also, what would happen if there was a difference in the ratings of the project's partners?

Further, how is the five year period measured, i.e., start date?

Further, if the guidance is retained, the NRC may want to use ratings outlooks, ratio trends, and grades within a range to evaluate whether or not to impose the one year period.

CONCLUSION EEI agrees with the case-by-case approach in the rule and recommends that the case-by-case approach in evaluating financial solvency be extended to companies with bond ratings less than A for more than a year in a five year period.

This extension of the case-by-case basis would allow the NRC to consider all the factors that lead to assurance of adequate funds.

It would also avoid the requirement to raise what could be a significant amount of cash over a short period which would be costly to a company and its customers and might lessen the assurance that funding would be available.

We believe that the public would be better served by focusing on a cost recovery plan than on a bond rating criterion.

Sincerely, David K. Owens DKO: 1km

WIiiiam S. Orser Senior Vice President Fermi 2 D0CKET NUMBER PR 5 0 PROPOSED RULE ( f;' FI<..;, i/ 'f V {f)

Detroit Edison 6400 North Dixie Highway Newport, Michigan 48166 (313) 586-5201

• 91

~,

NOV -5 Nuclear Operations

, I Secretary U. S. Nuclear Regulatory Commission Washington. D. C.

20555 Attn:

Docketing and Service Branch

References:

1)

Fermi 2 NRC Docket No. 50-341 NRC License No. NPF-43

2)

Federal Register. Vol. 56. No. 162.

dated August 21. 1991 November 1. 1991 NRC-91-0146

Subject:

Comments on Proposed Rule on Decommissioning Funding Detroit Edison is pleased to submit these comments in response to the NRC' s proposed rule entitled "Decommissioning Funding for Prematurely Shutdown Power Reactors" (RIN 3150-AD89).

Detroit Edison is the licensee for the Fermi 1 and Fermi 2 plants.

Fermi 1 has been shut down since 1972 and is being maintained in a SAFSTOR status.

Fermi 2 is licensed for 3293 megawatts thermal.

Detroit Edison is an investor-owned public utility engaged in the generation. purchase.

transmission. distribution and sale of electrical energy and steam.

Detroit Edison serves a 7.600 square mile area in southeastern Michigan populated by approximately five million people.

Detroit Edison agrees with the NRC proposed rule that the collection period for funds for decommissioning of future prematurely shutdown power reactors should be determined on a case-by-case basis. Detroit Edison believes that a longer funding period will allow for proper planning by the licensee. time for public utility commission consideration. and allow the maximum use of the current tax deduction under IRS section 468A.

Detroit Edison has reservations about certain statements in the Supplementary Information that seem to be contrary to the intent of the rule.

The rule states that "For a facility which has permanently ceased operation before the expiration of its operating license. the collection period for any shortfall of funds will be determined. upon application by the licensee. on a case-by-case basis (emphasis added) taking into account the specific financial situation of each licensee." However. the Supplementary Information describes a bond rating test that. as worded. would be applied as *a ~igid test.

DEC 2 4: \\991 Acknowledged by Clftl.. **

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U.S. NUCLEAR REGULATORY COMMlSS~

DOCKETING & SERVICE SECTION OFFICE OF THE SECRETARY OF THE COMMISSION Oocumen Slatis.

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Secretary November 1. 1991 NRC-91-0146 Page 2 A premature shutdown could be expected to have a negative impact on a licensee's bond rating.

Detroit Edison believes that a requirement to raise the funds within a one year period could also have a negative impact on a licensee's bond rating, especially in times of high interest rates or in a market where credit is tight.

Requiring a licensee with a lower bond rating to immediately fund or guarantee decommissioning expenses would be an additional financial burden which could delay recovery and exacerbate problems associated with a premature shutdown.

Thus, a lack of flexibility could actually reduce the level of assurance that decommissioning could be completed safely and efficiently.

Detroit Edison believes that the bond rating criteria must be tempered with judgement and cannot be used as a hard and fast criteria. Also, the requirement of an "A" rating appears to be overly restrictive as BBB rated bonds are recognized as investment grade.

For example, Detroit Edison was one of the top performing investor owned electric utilities in the nation during 1990, and while its bond ratings have improved in recent years, it has only recently reached an "A-" rating.

The assurance that funds will be available is the primary concern.

This assurance could be provided in a number of ways.

Detroit Edison believes that, if the utility's public service commission continues to authorize funding and those funds continue to be set aside and allowed to accumulate, then the bond rating is much less important.

For example, Detroit Edison is operating under an order from the Michigan Public Service Commission that allows Fermi 2 decommissioning expense to be funded by a surcharge on ratepayers and these funds are deposited monthly into specific external trust accounts earmarked for decommissioning.

Alternatively, where the funding requirements are small in relation to the utility's size. the licensee could agree to make the necessary contributions to an external fund from other sources.

As long as an agreement to fund is not breached, there should be no need to require a lump sum payment or other guarantee.

Detroit Edison believes the overriding criteria should be that the licensee can provide the assurance that funds will be available by the time they are needed.

Detroit Edison believes that since state public service commissions are responsible for setting the financial parameters for decommissioning cost recovery. they should also set the financial conditions for recovering the cost of decommissioning in a premature shutdown situation as long as assurance is provided to the NRC.

Detroit Edison agrees with the discussion that states that before licensees who choose the DEGON method commence decommissioning, they should have all the necessary funds available to complete the job.

Other than the references to the bond rating test, Detroit Edison feels that the remaining discussion by the NRC Staff is reasonable and

Secretary November 1. 1991 NRC-91-0146 Page 3 in the public interest. If the bond rating test is not eliminated entirely. Detroit Edison asks the NRC to clarify that the bond rating test is not an absolute criteria. but merely one benchmark.

This should be clearly stated in the Supplemental Information provided with the final rule.

This would be in line with the NRC's approach of reviewing premature shutdowns on a case-by-case basis.

If there are any questions on these comments, please contact Lynne S. Goodman at (313) 586-4211.

cc:

A.

R.

J.

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B. Davis W. Defayette F. Stang Stasek Sincerely.

~

Nuclear Mr. Samuel J. Chilk Secretary U.S. Nuclear Regulatory Washington, DC 20555 Commission Attention:

Docketing and Service Branch GPU Nuclear Corporation One Upper Pond Road Parsippany, New Jersey 07054 201-316-7000 TELEX 136-482 Writer's Direct Dial Number.

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Re:

Revision to 10 CFR 50 Decommissioning Funding for Prematurely Shutdown Power Reactors GPU Nuclear Corporation ("GPUN") endorses and supports the comments submitted on the referenced proposed rule by the Nuclear Management and Resources Council

("NUMARC") via their November 4, 1991 letter to the NRC, with the single exception related to lowering the NRC's proposed bond rating standard.

As stated below, GPUN opposes a prescriptive bond rating standard.

If the NRC adopts such a standard, it should be changed to "BBB-" which is still considered investment grade by the national rating agencies.

GPUN herein also offers the following additional comment in supplementation.

It is useful that the NRC set out, in the Supplementary Information accompanying the proposed rule, some of the factors which will guide the Staff in implementing the case-by-case approach specified in the rule itself. It is important, however, that the flexibility embodied in the rule not be thwarted by the development of overly prescriptive guidance.

In that regard, GPUN recognizes that bond ratings may appropriately be one factor which the NRC examines when establishing decommissioning funding requirements for a prematurely closed reactor; however, bond ratings should not be the trigger mechanism for immediate funding.

GPUN feels the more appropriate measurement to be ' considered would be the utility's funding plan and level of collections reflected in the utility's rate structure.

Any provision requiring immediate funding would impose financial harm to the utility which would be counterproductive to the goal of insuring adequate funding.

GPUN respectfully suggests that when the final rule is published, the Supplementary Information with it clarify that bond ratings are but one of several relevant factors and certainly not the most important which the NRC will consider in developing decommissioning funding requirements for prematurely closed reactors.

JK/EP/cb cc:

Robert Wood (NRC)

James Knubel Director, Licensing & Regulatory Affairs IMf'IM hit__, DEC 2 ' 1891,

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U.S. NUCLEAR REGULATORY COMMISSION DOCKETING & SERVICE SECTION OFFICE OF THE SECRETARY OF THE COMMISSION Oowment Statistics

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SILAS H. STRAWN (1891-1946)

WASH INGTON, D.C. 20005-3502 (202) 371-5700 WAITER. $ DI ACCT DIAL NUMBER FACSIMILE (202) 371-5950 November 4, 1991 Mr. Samuel J. Chilk Secretary of the Commission U.S. Nuclear Regulatory Commission Washington, D.C.

20555 Attention:

Docketing and Service Branch Subj:

Notice of Proposed Rulemaking

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?R "\\EST WACKER DRIVE j ! C~IC/\\GO. ILLINOIS 60601 (312) 558-5600 NEW YORK OFFICE 175 WATER STREET NEW YORK, NY 10038-4981 (212) 269-2500 Decommissioning Funding for Prematurely Shutdown Reactors (RIN-3150-AD89) 56 Fed. Reg. 41 1 493 (Aug. 21, 1991)

Dear Mr. Chilk:

In accordance with the above-referenced Notice of Proposed Rulemaking (the Notice), we hereby submit the following cv,unents on behalf of the Utility Decommissioning Group ("Group").

The Group generally supports the proposed revision to 10 C.F.R.

§ 50.82(a), and urges the NRC to promulgate the revision as proposed, with the clarifications to the Supplementary Information accompanying the rule discussed herein.

Utility Decommissioning Group comments The proposed rule would amend 10 C.F.R. § 50.82(a) to specify that the NRC will evaluate decommissioning funding plans for prematurely shutdown reactors on a case-by-case basis.

We hope that the premature shutdowns that have occurred to date are isolated cases and are not repeated, and that the proposed rule would never have to be applied.

However, addressing the remote possibility that there are further premature shutdown plants, as a preliminary matter, we agree with the general concept that the Staff would evaluate decommissioning funding plans for prematurely shutdown reactors on a case-by-case basis.

!/

The members of the Utility Decommissioning Group are:

Duke Power Company, Entergy Operations, Inc., Florida Power &

Light Co., Northeast Utilities, Pacific Gas & Electric, TU Electric, and Virginia Power.

U.S. NUCLEAR REGULATORY COMMISSIOtJ DOCKETING & SERVICE SECTION OFFICE OF THE SECRETARY Po ant D Copies Ad<fl OF THE COMMISSION DocwnlntStalaticl

Mr. Samuel J. Chilk November 4, 1991 Page 2 We also agree with the Commission's rationale for adopting a case-by-case method for reviewing decommissioning funding accumulation plans for prematurely shutdown reactors.

The first reason for adopting a case-by-case approach is that a case-by-case method is less arbitrary than setting out a specified collection period that might not be justified for a particular licensee.

Indeed, a licensee's financial strength, which may be considered when evaluating appropriate collection periods for prematurely shutdown plants, is best evaluated on a case-by-case basis.

Further, the collection period itself may affect a licensee's financial strength.

Second, the case-by-case approach is consistent with the current Section 50.82{a) which governs licensees that had permanently shut down their facilities before July 27, 1988, the effective date of the decommissioning rule.

This provision is flexible, permitting modification of contents of a licensee's proposed decommissioning plan to reflect the fact that the decommissioning process has previously been initiated in the absence of a specific rule.

Further, we believe that a case-by-case approach will also give the NRC the flexibility to take into account the reasons for prematurely shutting down a nuclear power plant, and the implications of a premature shutdown.

Based on previous cases involving prematurely shutdown reactors, it would be difficult to formulate a'rule wj}h generic application that could.address all factual scenarios.

Beyond the above, however, the Group urges the Commission to clarify both {1) certain of the Staff's proposed guidance criteria described in the Statement of Considerations accompanying the proposed rule, and {2) the regulatory status of those criteria {56 Fed. Reg. at 41,494).

These criteria address, among other things, the determinations as to the financial health of a power reactor licensee.

We understand the NRC staff to be proposing the following guidelines:

y

1.

If a licensee selects the DECON decommissioning alternative {immediate dismantlement) to commence prior to the expiration of the original license term, all funds needed for decommissioning should be available or guaranteed in external accounts before the start of DECON operations.

The varying factual scenarios leading to premature shutdown of nuclear power plants have included a voter referendum

{Rancho Seco), technical reasons mandating shutdown {Fort st. Vrain), and governmental actions {Shoreham).

Mr. Samuel J. Chilk November 4, 1991 Page 3

2.

The staff will consider "factors" other than the availability of decommissioning funds such as the number of power plants in a licensee's system that continue to generate revenues.

(The "number of power plants" factor is the only factor specified in the notice; we are not aware of any other factors that will be considered by the staff.)

3.

The NRC will permit licensees who choose to accumulate funds over the life of the facility and during a period of safe storage before decommissioning to collect funds in external accounts into the safe storage period, provided that those licensees "demonstrate financial solvency during the collection period."

The explanatory material in the notice of proposed rulemaking lists the following criteria that may be used in determining the extent of a licensee's financial solvency:

o All funds needed for decommissioning must be collected before expiration of the original operating license term during which the plant would have operated if the licensee had not prematurely terminated operations; and 0

Licensees may fund into the storage period, but only until the license expiration date, and only if the licensee maintains an "A" bond rating or equivalent by a national rating agency for at least 4 of any 5-year sequence.

If the licensee's rating falls below "A" more than once in a 5-year period, that licensee would be expected to obtain the balance of the funds needed for decommissioning and deposit them in an external account within one year after being downrated, or use the prepayment, surety, insurance, or financial guarantee methods permitted by the decommissioning rule.

As proposed, these guidance criteria would not be part of amended Section 50.82(a).

Accordingly, the Group would expect such criteria to be applied as any other Commission guidance, i.e.,

indicative of one way, but not the exclusive way in which licensees may demonstrite the satisfaction of the underlying regulatory provisions.ll We urge, therefore, that as a first step (see discussion below) the Commission make clear in the

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Gulf states Utilities co, (River Bend Station, Units 1 and 2), ALAB-444, 6 NRC 760, 772-73 (1977).

Mr. Samuel J. Chilk November 4, 1991 Page 4 Statement of Considerations accompanying the final rule that this is the Commission's intent.

In addition, the Group has several specific requests with regard to these guidance criteria which we urge the Commission to consider.

We elaborate below.

1.

The Guidance Accompanying the Final Rule Should Set out Additional Factors for Determining the Financial Health of a Licensee In the Statement of Considerations the Commission sets out only a single factor to determine the financial health of a licensee, i.e., "the number of power plants in a licensee's system that continue to generate revenues."

56 Fed. Reg. at 41,494.

The Group urges that factors relevant to this determination be explicitly recognized, e.g., pending rate cases before the FERC or state public utility commissions, other existing or proposed sources of revenue for that utility (such as new power plants not yet in the rate base}, or the licensee's history of collecting funds for decommissioning.

Such factors should be included in Commission guidance on this subject.

2.

All Funds for DECON Should Not Be Required Prior to commencement of PECON Further, the Group submits that the Staff's position that all funds needed for DECON decommissioning (immediate dismantlement} must be in place prior to commencement of decommissioning is inconsistent with the case-by-case approach proposed as a revision to 10 C.F.R. S 50.82(a).

The apparent concern underlying the NRC position on this question, i.e., a licensee might delay DECON operations due to lack of available funding, simply fails to recognize that other considerations may come into play that would support alternative positions as providing adequate protection to the public health and safety.

The NRC should recognize that if a licensee can provide reasonable assurance (e.g., already authorized collections by the state public utility commission} that it will have the funds in place prior to particular DECON activities, rather than the commencement of DECON, this will be sufficient to satisfy the Commission's obligation to maintain reasonable assurance of protecting the public health and safety.

Accordingly, any guidance addressing this issue should provide that funds for DECON should be required prior to the commencement of any DECON activities only if the licensee cannot provide reasonable.

assurance that it will have the funds prior to the commencement of the particular DECON activities for which they are needed.

Mr. Samuel J. Chilk November 4, 1991 Page 5

3.

Use of Bond Ratings to Determine Whether a Licensee Should Be Permitted to Fund into the Storage Period is Inappropriate The Group also disagrees with the proposed use of bond ratings to determine whether licensees may fund for decommissioning into the storage period.

First, the use of bond ratings to determine whether licensees may fund for decommissioning into the storage period contemplates an unconventional use of such ratings.

Bond ratings are typically used by banks, insurance companies, brokers, trust companies, trust funds, investment companies, and endowed institutions as an investment management tool.

The factors typically evaluated in determining bond ratings are earning power, asset value, security of income, and stability of income.

Given the normal use of bond ratings, the use of bond ratings as a basis for determining periods of decommissioning funding accumulation is questionable. It is unclear that bond ratings will give any indication of a utility's ability to fund for decommissioning.

The use of bond ratings as a strict criterion for determining funding accumulation is, therefore, inappropriate.

Second, the use of the "A" bond rating to determine whether licensees may fund for decommissioning into the storage period is inconsistent with the financial community's treatment of "BBB" bond ratings as "investment grade." If bond ratings are to be used by the NRC as proposed, investment grade bond ratings should provide adequate financial assurance of decommissioning funding.

Third, use of the "A" bond rating is inconsistent with NRC Regulatory Guide 1.159, "Assuring the Availability of Funds for Decommissioning Nuclear Reactors," Appendix B.6.5, in which a bond rating of "BBB" is used as an adequate criteria for parent company guarantees for decommissioning.

Fourth, some power reactor licensees may not utilize long-term bonds for financing.

Rather, other long-term financial arrangements may have been made.

Thus, for these licensees, it will be impossible to use bond ratings to determine whether the licensee may fund into the storage period.

Fifth, we understand that some utility bond issues, by their terms, are immediately redeemable in certain circumstances, potentially including the circumstances in which the issuing utility decides to prematurely shut down and decommission the nuclear power plant.

In such a situation, the licensee's debt structure would be altered, potentially impairing (at least temporarily) its bond rating., As such, the bond rating would not provide an objective indicator of financial health.

Mr. Samuel J. Chilk November 4, 1991 Page 6 Finally, the proposed guidance does not clearly address differences in bond ratings between rating services.

The proposed guidance accompanying the proposed rule provides that funding may continue into the storage period "only if a licensee maintains a bond rating of at least "A" or equivalent by Moody's Investment Services, Standard and Poore, or another national rating agency."

56 Fed. Reg. at 41,494.

We believe that the Commission's intent is to permit funding into the storage period if one of the national rating services rates the utility's bond at "A" level.

Nonetheless, there are at least five national investment rating services that have been recognized by the

_Securities and Exchange Commission (Standard & Poor's, Moody's, Duff & Phelps, Fitch Investor Services, and McCarthy, Crisanti &

Maffei, Inc.), and it is entirely possible that the different rating swices could provide inconsistent ratings for the same utility.

The proposed guidance does not specifically address this issue.

Therefore, any guidance accompanying the final rule, assuming that the Commission adopts the proposed use of bond ratings, should provide that investment grade ratings of any one of the five major investment rating services will provide an adequate basis for permitting a utility to fund for decommissioning into the storage period.

This will clearly spell out the NRC's intent in implementing this aspect of the proposed case-by-case approach to decommissioning funding for prematurely shutdown plants.

4.

Requiring a Licensee to Collect Funds Earlier Than contemplated Could Have Unintended Negative Effects Situations where the NRC would require a licensee to collect funds earlier and more rapidly than planned could have unintended negative effects. First, forcing licensees to collect funds too early could burden and ultimately decrease the licensee's ability to collect all of the funds at reasonable cost.

In addition, requiring financial instruments to guarantee decommissioning in the short term will require substantial licensee resources (i.e.

from the sale of new securities or other financing) that may not be readily available.

If high return securities need to be offered to raise capital, this will further add to See, e.g., Letter from A. Clegg Crawford, Public Service of Colorado, to Seymour Weiss, NRC, dated April 5, 1991, at Table 1 (different ratings from different rating services for *same utility); Letter from Dan R. Keuter, Sacramento Municipal Utility District, to Dennis M. Crutchfield, NRC, dated August 22, 1991 (same).

Mr. Samuel J. Chilk November 4, 1991 Page 7 decommissioning costs and impose additional burdens on ratepayers.

Second, requiring a licensee to collect funds earlier and more rapidly than planned could have adverse tax consequences.

Section 468A of the Internal Revenue Code allows a deduction for the tax year in which the taxpayer makes a contribution to a qualified nuclear decommissioning fund (NDF), notwithstanding the fact that nuclear decommissioning expenses will be incurred in a later year.

In a situation where a licensee prematurely shuts down a nuclear plant, the licensee may be required by the NRC, under the proposed guidance, to accumulate funds for decommissioning at a faster rate than provided for in its IRS "ruling amount" under Section 468A.

Section 468A(b) provides that payments into a NDF cannot exceed the lesser of (1) the nuclear decommissioning costs included in the taxpayer's cost of service for rate-making purposes, or (2) the "ruling amount," for the taxable year.

In the event of premature decommissioning, accelerated deposits of these funds almost certainly would exceed such limitations.

Thus, payment into a qualified Section 468A NDF would result in the entire NDF being disqualified, thus triggering the inclusion of the entire NDF's balance into the utility's taxable income.

Further, utilizing a non-qualified fund for these accelerated payments would surrender the tax benefits received from use of a qualified fund.

In short, the financial implications of such a development for a utility could be significant.

To address this potential problem, the Group urges the NRC, in guidance accompanying the proposed rule, to permit utilities a period of time (at least one year) to take appropriate steps in order to continue to take advantage of the tax status of the NDF in connection with any required accelerations in funding for decommissioning.

Third, requiring licensees to have funding in place sooner could encourage selection of DECON over SAFSTOR decommissioning alternatives. It is conceivable that a licensee in financial difficulty, forced by the NRC to collect funds sooner than expected, could be required by a PUC to use the funds to implement DECON (i.e., to use the funds as soon as they are available), as opposed to holding the funds for the extended SAFSTOR period.

Some of the unintended effects of encouraging early decommissioning (DECON) could be that licensees, carriers of spent fuel, and licensees of any repository of spent nuclear fuel would not be able to reap any significant health and safety benefits of reduced activity following a period of safe storage.

One of the benefits of SAFSTOR is that it permits decay of substantial initial levels of residual radioactivity to levels

Mr. Samuel J. Chilk November 4, 1991 Page 8 that could reduce.occupational radiation exposure during decontamination.V The guidance accompanying the proposed rule could have the effect of encouraging DECON, over SAFSTOR, which would reduce the likelihood of a licensee's use of SAFSTOR, thereby eliminating one of the benefits, i.e., minimizing radiological impact.

Further, it is conceivable that, during a 60-year storage period, advancements in technology could further reduce radiation exposure and make transportation and disposal of radioactive materials even safer, thereby enhancing the protection of the public health and safety.

Thus, encouraging DECON over SAFSTOR will not enable the nuclear industry to take advantage of developments in technology, with no benefit to the public health and safety.

Accordingly, the Group recommends that, in the Statement of Considerations accompanying the final rule, the Commission should provide that it is NRC policy not to unduly financially burden NRC licensees.

Further, such guidance should note that it is not NRC policy to prefer DECON over SAFSTOR.

At bottom, it should be noted that case-by-case consideration of the facts may indicate that licensees should have additional time to accumulate funds, and, in any event, requiring accelerated accumulation of funds is not intended to encourage one method of decommissioning over another.

conclusion The Group submits that the suggestions discussed above would produce a better regulatory scheme to address issues concerning decommissioning funding for prematurely shutdown reactors.

We appreciate the opportunity to comment on this proposed rulemaking.

Sincerely,

. Kno Jr.

A. Ho 11 s. Ross Counsel to the Utility Decommissioning Group Final Generic Environmental Impact statement on Decommissioning Nuclear Facilities, NUREG-0586, S 5.3.2.

Joe F. Colvin Executive Vice President &

Chief Operating Officer Mr. Samuel J. Chilk Secretary U. S. Nuclear Regulatory Commission Washington, DC 20555 Attention:

Docketing and Service Branch November 4, 1991 Re:

Revision to 10 C.F.R. Part 50 - Decommissioning Funding for Prematurely Shutdown Power Reactors - 58 FR 41493 (August 21, 1991) - Proposed Rule

Dear Mr. Chilk:

These comments are submitted on behalf of the nuclear ~ewer industry by the Nuclear Management and Resources Council, Inc. ("NUMARC") in response to the request for comments by the U. S. Nuclear Regulatory Commission (NRC) on the proposed rule defining decommissioning funding requirements for prematurely shutdown power reactors.

We support the NRC's proposed rule to evaluate funding requirements for prematurely shutdown commercial nuclear power reactors on a case-by-case basis, taking into account the specific safety and financial situations at each plant.

As discussed in the proposed rule, the NRC should apply a flexible approach when determining funding requirements so that undue hardship is avoided.

We concur with the NRC's conclusion that the proposed rule has generic application and thus is appropriately promulgated through a rulemaking procedure.

The regulation is properly written absent requirements regarding how the staff will make a determination of the decommissioning funding plan proposed for prematurely shutdown nuclear power reactors. The Commission provides guidance to be utilized for evaluating funding proposals in the Supplementary Information accompanying the rule.

1 NUMARC is the organization of the nuclear power industry that is responsible for coordinating the combined efforts of all utilities licensed by the NRC to construct or operate nuclear power plants, and of other nuclear industry organizations, in all matters involving generic regulatory policy issues and on the regulatory aspects of generic operational and technical issues affecting the nuclear power industry. Every utility responsible for constructing or operating a commercial nuclear power plant in the United States is a member of NUMARC.

In addition, NUMARC's members include major architect/engineering firms and all of the major nuclear steam supply system vendors.

DEC 2 4 199\\

Acknowledged by card.,,..,

U.S. NUCLEAR REGULATORY COMMISSION DOCKETING & SERVICE SECTION OFFICE OF THE SECRETARY OF THE COMMISSION Document Statistics Postmark Date ---=-H~ b:;.._ ____ _

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Mr. Samuel J. Chilk November 4, 1991 Page 2 The Supplementary Information indicates that, "Funding may continue into the storage period, but only until the license expiration date, and only if a licensee maintains a bond rating of at least "A" or equivalent by Moody's Investment Services, Standards and Poors, or another national rating agency."

We believe heavy reliance by NRC on bond ratings as an indicator of future financial health of an electric utility is inappropriate.

The premature closure of a large nuclear generating unit is likely to cause rating organizations to be especially cautious in their appraisals.

Thus the bond rating during the period immediately following closure of a nuclear plant may not be proper for use as the predictor of a utility's financial health in the intermediate to long term future.

It is not appropriate for NRC to rely solely on bond rating as the evaluation criterion for decisions on extended decommissioning funding proposals.

The Supplementary Information notes that if a licensee's bond rating falls below a given level (A is proposed), the licensee would need to obtain the balance of funds required for decommissioning and deposit them in an external account within one year after being downrated, or use other assurance mechanisms in accordance with 10 CFR 50.75(e).

Such a requirement may place an undue hardship on the licensee and its customers.

We understand that the bond rating factor is not intended to be a self implementing requirement, but rather one of several factors which the NRC staff could utilize to make the case-by-case determination in the rule.

We suggest this be clarified in the supplementary information in the final rule.

First, we believe that as a minimum the "A" should be changed to at least "BBB" bond rating.

The NRC recognizes a bond rating of "BBB" as "Investment Grade" in the Supplementary Information discussion.

In Regulatory Guide 1.159 "Assuring the Availability of Funds for Decommissioning Nuclear Reactors," Appendix B.6.5, "Sample Parent Company Guarantee," a bond rating of BBB is recognized as an adequate criterion for non-utilities. Utilities are generally considered to be more financially secure than non-utility licensees, therefore, a "BBB" bond rating should be an adequate test for utility decommissioning funding assurance decisions.

Second, we recommend that the following additional appropriate factors for assessing financial assurance be included in the guidance provided in the Supplementary Information:

o The amount of decommissioning funds already collected at the time of shutdown, and the evidence the licensee's past history regarding the collection of these funds should be evaluated with respect to the funds that can be anticipated to be collected as planned in the future; o

The licensee's charter, such as in the case of a public utility or the statutory authority of governmental agency, may provide assurances of the licensees's ability to raise necessary funds such as those necessary for decommissioning;

Mr. Samuel J. Chilk November 4, 1991 Page 3 o

Federal and State laws or other agreements, codes, etc., that may be in place to guarantee the licensee's ability to fund decommissioning; and o

When the licensee intends to use the funds for various decommissioning activities. Requiring a licensee to collect funds too early could substantially burden and actually decrease a licensee's ability to collect the appropriate amount of funds by the time they are actually needed.

In summary, we support the case-by-case approach to determining acceptability of proposed decommissioning funding plans for prematurely shutdown nuclear power reactors.

Information for each situation should also be reviewed against each of the additional evaluation factors we have described above, and additional factors considered as appropriate in an integrated manner in order for the NRC, to decide in a balanced approach that is justified and fair to the licensee and it's customers.

NUMARC appreciates the opportunity to comment on the proposed rule.

Consistent with our responsibility to represent the nuclear industry, we would welcome the opportunity to meet with you to address this important matter.

Please feel free to call Alan Nelson or me.

Sincerely, JFC/APN:mls dv< 1.tuL

~F. Colvin

NORTHEAST UTILITIES

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,,<*~:.... 1 Docket Nos. 50-213 Mr. Samuel J. Chilk Secretary of the Commission U.S. Nuclear Regulatory Commission Washington, DC 20555 Attn: Docketing & Service Branch

Dear Mr. Chilk:

Re:

10CFR50 50-245 50-336 50-423 813953 Haddam Neck Plant Millstone Unit Nos. 1, 2, and 3 Comments on Proposed Rule, Decommissioning Funding for Prematurely Shutdown Power Reactors This letter is being submitted by Connecticut Yankee Atomic Power Company and Northeast Nuclear Energy Company in response to the NRC request for comments on the proposed fP)Je, "Decommissioning Funding for Prematurely Shutdown [sic]

Power Reactors."

Overall, we support the general concept that the NRC will evaluate decommissioning funding plans for prematurely shut down reactors on a

plant-by-plant basis.

Given that each situation (and each licensee) will have its own set of unique circumstances, we believe that it is prudent for the NRC to have the flexibility to evaluate each case on its own merits.

We also find it acceptable that under the proposed guidelines, the NRC would allow a licensee to continue funding decommissioning over the remaining life of the operating license, if the licensee chooses to delay decommissioning until the time at which the operating license would have expired under normal operating conditions.

However, we find it inappropriate that based on a mechanistic use of a company's bond rating, the NRC might require a licensee to fully fund its decommissioning cost within a one year time period.

Again, we believe the specifics of each case should be the determining factor.

The NRC's guidance that was published with the proposed rule would restrict the option to fund decommissioning over the remaining period of the operating license to licensees that "[maintain] a bond rating of at least 'A' or equivalent by Moody's Investment Services, Standard and Poors, or another (1)

Federal Register Notice, 56FR41493, "Decommissioning Funding Prematurely Shutdown [sic] Power Reactors," dated August 21, 1991.

... 2' 1991 Acknowledged by card...

PE_c *-* ---

U.S. NUCLEAR REGULATORY COMMISSION DOCKETING & SERVICE SECTION OFFICE OF THE SECRETARY OF THE COMMISSION Document Statistics Postmark Date

/ 0 { 3 I / 'f I Copies Ae~ived

/ r Add't Co?es Reproduced _3 ___ _

Special Distribution R

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Mr. Samuel J. Chilk B13953/Page 2 October 30, 1991 national rating agency... for at least 4 of any 5-year sequence.

If a licensee's rating falls below 'A' more than once in a 5-year period, that 1 i censee would be expected to obtain the ba 1 ance of the funds needed for decommissioning, and deposit them in an external account within 1 year after being downrated."

We find this bond-rating criterion to be inflexible as it may needlessly force a utility to immediately fund a decommissioning trust notwithstanding that utility's ability to provide a high degree of assurance that funds will be available for decommissioning.

The sole use of a bond rating to determine a utility's ability to discharge its decommissioning obligations is unneces-sarily restrictive since it ignores a number of key situation-specific factors.

For example, a utility company which is still investment grade, but in the "BBB" category, has a favorable and improving financial outlook and has secured favorable rate treatment to fund its decommissioning obligations, will 1 i kely be able to provide a high degree of assurance that funds wi 11 be available for decommissioning.

However, the proposed guidance would simply look to the bond-rating criterion and require full funding of a

decommissioning trust within one year.

A less mechanistic approach that includes a comprehensive review of the current and future financial condition of a company would provide a more reasoned and flexible approach to determine funding requirements.

Such a review should include the time left until decommissioning, the remaining decommissioning *1 iabil ity to be

funded, expected timing and amounts of expenditures for decommi ss i oni ng, the rate treatment afforded the company, and an assessment of the ut i 1 ity' s future financial condition.

In addition, the proposed rule and accompanying guidance do not address joint ownership in a nuclear power plant.

In these cases, some of the owners may be "A" rated or better, and some may be "BBB+" or lower rated.

If such a unit incurred a premature shutdown, would all joint owners be required to fully fund decommissioning in an external trust within one year, or only those owners with a bond rating below "A"?

We feel that in determining the funding criteria for premature decommissioning, the NRC should consider for each joint owner individually the circumstances surrounding the shutdown, the time and amount of required funds, and the joint owner's financial condition.

Also, the guidance accompanying the proposed rule does not address the difference between multi-unit sites and single-unit sites and between multi-asset companies and single-asset companies.

For

example, the decommissioning of a multi-unit site might be accomplished under a site decommissioning option, rather than on an individual plant basis.

Thus, compared to a single-unit site, the time until decommissioning could be much longer, depending on the specifics of the site.

And multi-asset companies would likely have more resources available to draw upon to fund decommissioning than a single-asset company.

Each of these situations has its own unique set of technical and financial characteristics which cannot be captured by the use of a prescriptive formula (e.g., bond ratings) for

Mr. Samuel J. Chilk 813953/Page 3 October 30, 1991 evaluating financial assurance.

Again, flexible rather than prescriptive rules would work best in these situations.

A last issue is that the proposed guidelines are unclear as to whether an "A" bond rating must be maintained from more than one rating agency.

We interpret the proposed guidelines regarding maintaining an "A" bond rating as meaning that if a licensee maintains a bond rating of at least "A" or equivalent from any one of the following:

a)

Moody's or b)

Standard and Poors or c) another national rating agency, then the licensee would be allowed to continue funding activities through the period up to decommissioning.

However, the guidance accompanying the proposed rule is not clear and our interpretation could be different from the NRC's actual intentions.

Therefore, if the NRC maintains a specific bond-rating criterion in the final rule, it should clarify this issue to avoid confusion in interpreting this aspect of the rule.

In summary, a prescriptive and mechanistic use of bond ratings to determine a company's financial viability and ability to fund decommissioning is inappropriate.

Since the amount of funding required, the timing until decommissioning activities begin, and the rate treatment afforded to a utility are situation-specific, the NRC should make it clear in the statement of considerations that it retains the flexibility to consider other relevant factors in determining whether a utility is financially stable and able to meet its future decommissioning obligations.

We trust that these comments will be useful to you, and we would be pleased to respond to any questions you may have.

cc:

see page 4 Very truly yours, CONNECTICUT YANKEE ATOMIC POWER COMPANY NORTHEAST NUCLEAR ENERGY COMPANY E.J.~

Senior~

Mr. Samuel J. Chilk B13953/Page 4 October 30, 1991 cc:

T. T. Martin, Region I Administrator A. B. Wang, NRC Project Manager, Haddam Neck Plant A. A. Asars, Senior Resident Inspector, Haddam Neck Plant D. H. Jaffe, NRC Project Manager, Millstone Unit Nos. 1 and 3 G. S. Vissing, NRC Project Manager, Millstone Unit No. 2 W. J. Raymond, Senior Resident Inspector, Millstone Unit Nos. 1, 2, and 3 U.S. Nuclear Regulatory Commission Attn:

Document Control Desk Washington, DC 20555

DOCKET NUMBER PROPOSED RULE N 5 d 0 Public Service-(5'GPR I f.y Public Service Company of Colorado P.O. Box840

'91 NOV - 4 P 3 :31 Denver CO 80201 - 0840 November 1, 1991 Fort St. Vrain Unit No. 1 P-91388

• -* ~- r

I I,'.

A. Clegg Crawford Vice President

~,. i) l, ; *:.

• Nuclear Operations Mr. Samuel J. Chilk, Secretary U.S. Nuclear Regulatory Commission Washington, D.C. 20555 AITN:

Docketing and Service Branch Docket No. 50-267 l

I *

~ ~ :

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SUBJECT:

PSC COMMENTS ON NRC PROPOSED RULE:

"DECOMMISSIONING FUNDING FOR PREMATURELY SHUTDOWN POWER REACTORS" Ref:

(1)

NRC letter, Crutchfield to Crawford, dated February 26, 1991 (G-91038)

(2)

PSC letter, Crawford to Weiss, dated April 5, 1991 (P-91096)

Dear Sir:

The NRC published its proposed rule for "Decommissioning Funding for Prematurely Shutdown Power Reactors" in 56 FR 41493, dated August 21, 1991.

In its proposed rule, the NRC requested that comments be provided to the NRC by November 4, 1991.

NRC concerns related to funding for prematurely shutdown power reactors had been previously transmitted to Public Service Company of Colorado (PSC) for comment in Reference 1.

PSC's response to the NRC concerns were forwarded to the NRC in Reference 2.

PSC has reviewed the proposed rule, and apart from minor changes, the NRC position has remained essentially the same as that originally proposed in Reference 1. Therefore, the concerns identified by PSC in Reference 2 remain relevant and should be considered by the NRC prior to promulgation in a final rule.

Reference 2, updated to reflect PSC's position on the proposed rule, is included as an attachment to this letter.

{J)

DE 2 4: 1991 Acknowledged byClld-=::;;:==.;:~=r::J

U.S. NUCLEAR REGULATORY COMMISSION DOCKETING & SERVICE SECTION OFFICE OF THE SECRETARY OF THE COMMISSK>N Copies Recei Add'I Copes Rei:

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P-91388 November 1, 1991 Page2 In particular, the premature shutdown of a nuclear power reactor, by its very nature, almost guarantees that the contributing circumstances surrounding each licensee's decision will be very individualistic and unique to the situation, and will require case-by-case review for each utility.

This has been clearly demonstrated by the diverse circumstances accompanying each of the three utilities that own the nuclear power reactors currently involved in premature decommissioning: Fort St. Vrain, Rancho Seco and Shoreham. To attempt to apply "generic* evaluation criteria (such as minimum bond ratings), without more in-depth evaluation of other factors, is not consistent with the guidance of the Commission to evaluate these licensees on a case-by-case basis.

In the proposed rule, the Commission proposed the use of three criteria for evaluating funding options for the licensees of prematurely shutdown nuclear power reactors:

• (1) All funds needed for decommissioning should be available or guaranteed in external accounts before the start of DECON operations.

(2) 1he Commission will consider factors other than availability of decommissioning fimds, such as the number of power plants in a licensee's system that continue to generate revenues.

(3) 1he Commission will allow those licensees who chose to accumulate fimds over the life of the facility and subsequently select a period of safe storage... to collect funds in external accounts into the safe storage period.

• It is PSC's position that the NRC should focus its case-by-case review on these three criteria. In particular, each licensee's case should be primarily based on "other factors" which may be present, rather than on generic criteria based on use of bond ratings as proof of financial solvency.

PSC, as well as any other utility that may elect to pursue premature shutdown, desires to maintain its option to pursue the SAFSTOR decommissioning alternative, if current circumstances change significantly and preclude the ability to pursue DECON. Therefore, the NRC's proposed position regarding use of bond ratings as a basis for determining an acceptable period to accumulate decommissioning funds for plants that select the SAFSTOR decommissioning alternative is of considerable concern to PSC.

It is PSC's further position that substantial NRC regulations and guidance

P-91388 November 1, 1991 Page 3 regarding funding plan contents are currently available. These NRC controls are embodied in 10 CFR 50.75(e), 10 CFR 50.82 and NRC Regulatory Guide 1.159 "Assuring the Availability of Funds for Decommissioning Nuclear Reactors".

These NRC regulations and guidance, coupled with requirements for NRC approval prior to initiating any decommissioning activities, eliminate the need for additional restrictions regarding the period of fund accumulation. The attachment to this letter provides further detail on PSC' s concerns related to the proposed additional restrictions.

If you have any questions concerning this submittal, please contact Mr. M. H.

Holmes at (303) 480-6960.

Very truly yours, ar~~

A. Clegg Crawford Vice President, Nuclear Operations ACC/CRB:cb Attachment cc:

Regional Administrator, Region IV Mr. J.B. Baird Senior Resident Inspector Fort St. Vrain Mr. Robert M. Quillin, Director Radiation Control Division Colorado Department of Health 4210 East 11th Avenue Denver, CO 80220

P-91388 November 1, 1991 Page 3 regarding funding plan contents are currently available. These NRC controls are embodied in 10 CFR 50.75(e), 10 CFR 50.82 and NRC Regulatory Guide 1.159 "Assuring the Availability of Funds for Decommissioning Nuclear Reactors".

These NRC regulations and guidance, coupled with requirements for NRC approval prior to initiating any decommissioning activities, eliminate the need for additional restrictions regarding the period of fund accumulation. The attachment to this letter provides further detail on PSC's concerns related to the proposed additional restrictions.

If you have any questions concerning this submittal, please contact Mr. M. H.

Holmes at (303) 480-69{i().

Very truly yours, d*do/f-~

A. Clegg Crawford Vice President, Nuclear Operations ACC/CRB:cb Attachment cc:

Regional Administrator, Region IV Mr. J.B. Baird Senior Resident Inspector Fort St. Vrain Mr. Robert M. Quillin, Director Radiation Control Division Colorado Department of Health 4210 East 11th Avenue Denver, CO 80220

ATTACHMENT TO P-91388 USE OF BOND RATINGS AS A BASIS TO DETERMINE PERIOD OF FUNDS ACCUMULATION I.

INTRODUCTION Public Service Company of Colorado (PSC) believes that there are numerous issues that should be considered prior to establishing an additional restriction on the period for accumulation of funds for decommissioning based upon corporate bond ratings.

This attachment briefly discusses the NRC proposed rule and provides relevant background information related to PSC's situation.

Following these discussions, PSC has identified several major concerns that should be considered before the NRC implements the proposed rule related to restricting decommissioning fund accumulation periods on the basis of corporate bond ratings.

These concerns can be summarized as follows and are discussed in further detail in the following paragraphs:

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

Existing regulations provide adequate guidance and controls without the need to implement additional restrictions.

Use of bond ratings as a discriminator was not considered in the original rulemaking.

Application of this restriction to utilities is not consistent with treatment of other guarantors that issue :financial instruments.

Restricting the period for accumulation of funds for SAFSTOR may effectively limit decommissioning alternatives.

Reliance on bond ratings may result in unsound business decisions to avoid accelerated fund accumulation.

The proposed restriction implements a generic approach to review of licensee funding plans, rather than a case-by-case review as directed by the NRC in its decommissioning rule and comments thereto.

The proposed restriction does not provide allowances for favorable changes in bond ratings.

Effects of the differences in ratings between external investment rating services are not addressed.

Use of bond ratings as a basis for determining a fund accumulation period may represent an inappropriate use of these ratings.

The NRC position may be inconsistent with operating nuclear plants and may unfairly penalize prematurely shutdown plants.

Use of bond ratings may be inappropriate, since the rating may be based to a great extent on subjective rather than quantitative evaluations.

Establishing the threshold as 'single A' may be inconsistent with previous NRC criteria for investment grade debt instruments.

Attachment to P-91388 November 1, 1991

, Page 2 PSC believes 'that it would be inappropriate for the NRC to establish these additional restrictions regarding use of bond ratings.

Establishment of this restriction will place utilities in a situation where competing obligations create an inherent conflict - such as making imprudent business decisions solely to maintain bond ratings in lieu of implementing sound business decisions based on the best long-term interests of the utility, its ratepayers and its shareholders.

IL NRC PROPOSED RULE In 56 FR 41493, the NRC staff has provided a proposed rule related to acceptable financial assurances and possible effects on the allowable periods for accumulation of funds for decommissioning beyond that previously provided-in 10 CFR 50.75(e), 10 CFR 50.82, and NRC Regulatory Guide 1.159 "Assuring the Availability of Funds for Decommissioning Nuclear Reactors". In 56 FR 41493, the NRC staff has indicated, for plants selecting the SAFSTOR decommissioning alternative, that the decommissioning funding plan must provide reasonable assurance that funds will be available to decommission the licensee's facility.

within a reasonable period of time based on the licensee's financial an:d rate-regulatory environment.

In the proposed rule, the NRC staff indicated that for licensee's that select the SAFSTOR alternative, the licensee MUST provide reasonable assurance that funds will be available within a reasonable period of time, and that the licensee would demonstrate such assurance by accumulating external funds for decommissioning for a period. not extending beyond the full remaining term of the licensee's operating license. However, to use this approach, the proposed rule requires that the licensee must maintain a bond rating of at least "single A" or equivalent as

• determined by. the Moody's Investment Service, Standard and Poors, or another national bond rating agency. If the licensee's bond rating drops below "single A" more than once in any 5-year period, the licensee would be required to externally fund the entire remaining balance within one year after being downrated.

ID. PSC CURRENT AND HISTORICAL BOND RATINGS PSC's First Mortgage Bonds, the senior corporate debt, are now rated as 'BBB+'

by the Standard and Poor's investment rating service. PSC's bond ratings since 1980 are provided in Table 1 of this attachment.

Attachment to P-91388 November 1, 1991 Page 3 IV. DISCUSSION The following paragraphs identify the more significant concerns identified by PSC related to use of bond ratings as a basis for determining the period of funds accumulation.

1.

Existing Regulations Provide Adeijllate Guidance and Controls:

Guidance related to decommissioning funding plans is provided in 10 CFR 50.75(e) and 10 CFR 50.82, which identifies the intent as well as the required contents of these funding plans.

Additional guidance and staff interpretation is provided in NRC Regulatory Guide 1.159, 11 Assuring the Availability of funds for Decommissioning Nuclear Reactors.

11 Guidance contained in these documents impresses upon the licensee their responsibilities with respect to providing adequate financial assurance for decommissioning, as well as reiterating the intent of the decommissioning rule: to ensure that sufficient funds are available to decommission the reactor in a manner that protects public health and safety.

The

• regulations also clearly define the period of collection of decommissioning funds.

However, since premature shutdown was not considered in the original rule, the NRC has provided additional guidance (NRC letter dated October 4, 1989 (G-89338)) to allow licensees of prematurely shutdown plants to collect decommissioning funds until the expiration of the origfoal operating license, so as to limit the financial hardship on the licensee and current ratepayers, yet provide the NRC and the public reasonable assurance that all necessary funds will be accumulated within a limited (but reasonable) period of time and thus provide the financial assurances originally intended by the NRC.

Additionally, current regulations provide suitable and sufficient controls and accountability beyond specifying the required content of decommissioning funding plans. Since the NRC must approve the Proposed Decommissioning Plan (which includes the Funding Plan) prior to allowing any licensee to place the plant in a SAFSTOR configuration, the NRC is assured that the financial assurance will be provided before the plan is implemented.

Subsequent to this approval for plants selecting SAFSTOR, 10 CFR 50.82(c)(2) requires the licensee to adjust the cost estimate and associated funding levels over the storage and surveillance period.

Therefore, the NRC retains the authority to periodically evaluate these plans and confirm

Attachment to P-91388 November 1, 1991 Page4 the continued adequacy of the original financial assurances.

The combination of regulatory guidance for financial assurance, NRC approval of funding prior to implementing Sf'\\FSTOR, and continued periodic monitoring of funding plans by both the licensee and the NRC will provide the necessary reasonable assurance originally intended by the rule, without the necessity for additional restrictions in the form of corporate bond ratings.

2.

Bond Ratings Were Not Considered in Original Rulemaking Evaluation of licensees on the basis of their bond rating goes beyond the underlying original intent of the rule, which is to ensure that sufficient funds are available to decommission the reactor in a manner that protects the public health and safety.

Acceptable mechanisms were established in the decommissioning rule that would provide funding prior to the permanent

. cessation of power operations.

Reviewing the rule and supplemental information, there is no requirement or perceived need to evaluate the credit worthiness of the licensee before determining the period for accumulation of funds.

Decommissioning funding plans based on the SAFSTOR alternative that provide full funding of decommissioning by the expiration of the original operating license period will provide reasonable assurance of the timely availability of funds for decommissioning. Such a plan meets the underlying intent of the decommissioning rule.

3.

Application of This Restriction to Utilities Is Not Consistent With Treatment of Other Guarantor Institutions A decision on the part of the NRC to impose special funding restrictions _on utilities based on bond ratings is also not consistent with treatment for guarantors issuing other acceptable means of financial assurance, specifically surety bonds, insurance, letters of credit, or lines of credit.

Reg. Guide 1.159 imposes the following limited requirements for guarantor methods:

(1) surety bond companies must be listed by the US Department of the Treasury in Circular 570 and have a coverage limit sufficient to cover the cost estimate.

(2) issuing institutions for letters of credit are regulated and examined

Attachment to P-91388 November 1, 1991 Page 5 by a Federal or State agency.

(3) insurance companies must be licensed by State regulatory authorities to transact business as an insurer in one or more states.

Since no similar provisions have been identified to verify the credit worthiness of any financial, lending or insurance institution that might issue these financial guarantees, it appears arbitrary to impose such restrictions only on utilities, especially in view of the ample evidence of instability in both the financial and insurance industries.

Attempts on the part of the NRC to impose such restrictions on lending or insurance institutions could result in either higher costs associated with these guarantees (as well as increases iri the cost of decommissioning), or result in loss of this potential source, since guarantors may elect not to provide assurances due to the uncertain and fluctuating regulatory environment.

4.

Reduced SAFSTOR Accumulation Period May Effectively Limit Decommissioning Alternatives Requiring utilities to fund within one year as a result of low bond ratings will effectively eliminate SAFSTOR as a

financially attractive decommissioning alternative.

If SAFSTOR is eliminated as a financially attractive alternative, the NET EFFECT of the NRC position will be that the DECON alternative will be the only financially attractive decommissioning alternative for prematurely shutdown plants.

This does not provide the "alternatives" origioa11y intended, nor is it consistent with the intent of the decommissioning rule.

5.

Unsound Business Decisions to Avoid Accelerated Fund Accumulation Potentially adverse effects of this restriction may occur with utilities that are operating economically inefficient nuclear facilities, due to the high cost of power resulting from such factors as age of the plant, high maintenance costs, costs of improvements, or high annual operating costs.

A situation may occur where a utility has not completely recovered decommissioning costs, but would be faced with accumulating decommissioning funds within five years or less if the plant is prematurely shutdown.

Faced with this possibility, the utility may be influenced to make an unsound business decision to continue to operate the plant. Such a decision is irresponsible to both the PUC and the utilities' ratepayers, and would not have been made in

Attachment to P-91388 November 1, 1991 Page 6 the absence of a limited period of funds accumulation for SAFSTOR.

In this instance, a utility may make an imprudent business decision to avoid the short-term effects of the NRC's proposed restriction, while avoiding long-term (and potentially beneficial) investment opportunities.

The NRC potentially could insert itself as a major factor affecting business decisions within electric utilities which may result in unsound business decisions that are not in the best interests of the utility, its-ratepayers, and its shareholders.

6.

Generic vs. Case--by--Case Evaluation 1

In response to SECY-90-386, "NRC Policy on the Accumulation Period for Decommissioning Funds for Prematurely Shut Down Reactors", the NRC Commissioners directed the NRC staff to evaluate each plant on case-by-case basis.

However, in establishing the NRC staff restriction related to complete funding in one year if a licensee does not have an 'A' bond rating, the staff has established an arbitrary and artificial threshold that may not be consistent with the intent of the Commissioner's directive.

The NRC proposed restriction will allow the staff to evaluate all plants with an 'A' rating or higher on a case-by-case basis, whereas all other plants below this rating will be required to accumulate funds over a fixed, non-negotiable period.

7.

Allowances for Chan~es in Bond Ratings Not Clearly Defined Based on the limited information available, it appears that the NRC's proposed approach is very inflexible to improvements in bond ratings. The licensee must continue to maintain good credit worthiness, since the occurrence of any adverse event may jeopardize the bond rating and will require the licensee to rapidly provide (within one year) financial assurances for decommissioning funding, which in turn may cause further deterioration in bond ratings and a corresponding increase in the cost of capital. On the other hand, for a licensee required to fund decommissioning within one year (due to bond ratings below 'single A') who may improve its bond rating to

'A' or higher, there is no' method identified in the proposed NRC staff restriction that would allow relief from the funding commitment.

Additionally, the financial "damage" would have already been done when the NRC imposed the funding requirement.

Attachment to P-91388 November 1, 1991 Page 7

8.

Differences in External Ratin~ Services Not Addressed It is also important to note that there are at least five different major investment rating services (including Standard & Poor's, Moody's, Duff &

Phelps, and Fitch Investor Services) which may determine different ratings for the same utility.

Table 1 identifies one such instance where this has occurred to PSC in late 1986, following the Fort St. Vrain Settlement Agreement.

9.

ero>>osed Use of the Bond Ratings May Be Inappropriate Investment rating agencies provide the bond rating service at the request of the utility as an indicator for major investment institutions.

Potential borrowers (in this case utilities) request that their prospective debt issues be rated by the investment rating service. One component of the evaluation is the ability of the bond issuer to make bond principal and interest payments over the life of the bond, typically 30 years.

Use of this rating service as a basis for determining periods of accumulation of decommissioning funds was clearly not considered by investment rating services. The proposed use of bond ratings to determine fund accumulation pericxls is analogous to State PUCs using NRC SALP ratings to reward or penalize nuclear power utilities.

The NRC's objection to this practice is well documented.

10.

Treatment May Be Inconsistent With That of Operating Nuclear

~

In preliminary discussions with the NRC, the staff has indicated that they do not feel that this treatment is necessary for operating plants, since operating plants will continue to enjoy a steady revenue stream from ratepayers.

However, this may be a rather generic treatment of operating plants, since there may be utilities/plants in financial distress that could go into default and bankruptcy as easily as any utility with a prematurely shutdown nuclear plant.

Attachment to P-91388 November 1, 1991 Page 8

11.

Detennination of Bond Ratings Includes Subjective Evaluation with Limited Legal Standin~

Bond ratings are prepared by outside -investment rating services at the request of the utility.

In preparing their rating, the rating service relies primarily upon information prepared and submitted by the utility, and upon the findings of the independent auditor's report.

Unlike the annual audit, the rating agency usually does not have open and unencumbered access to all of the corporation's, records.

Additionally, this service is unlike other outside evaluations (e.g., annual auditor's report or NRC regulatory criteria) in that it does not represent a legally binding or enforceable agreement between.the utility and the rating service.

In preparing its rating, frequently there are areas of the rating criteria that may not be quantifiable. Evaluations performed. by the investment service in these areas are largely subjective, based on their BEST ESTIMATE of the present situation, PROPOSED plans of the utility, and market conditions. In this. instance, the utility may be penalized with a. lower bond rating, although the utility may have excellent :financial history and may be in excellent financial health.

Additionally, during the preparation of financial information and records for submittal to the investment rating service, insufficient information may be made available (or inadvertently omitted), since the utility is unaware* of specific areas of concern on the part of the rating service.

This lack of information may result in a lower bond rating until the utility is able to ptovide the investment rating service more detailed information in the area(s) of concern. The bond rating could be restored to its previous level (or higher) in a short period of time after the utility resolved the rating service uncertainties. However, as a result of the NRC proposed restriction, the utility would be required to provide accelerated funds accumulation or financial assurances within one year.

Furthermore, since rating agencies do not have the resources necessary for the continuous analysis. of rated issues, their periodic reviews, bond ratings, and revisions must almost necemcily lag behind the utility's acp.ial financial situation.

Attachment to P-91388 November 1, 1991 Page9

12.

Definition of Investment Grade The NRC selection of single 'A' as the lowest investment grade is inconsistent with major investment rating services.

Standard and Poor identifies 'BBB' as the lowest investment bond rating, while Moody's recognizes 'Baa' as its lowest investment grade.

Selection of 'A' as the lowest investment grade is also inconsistent with criteria for parent companies, identified in Appendix B.6.5 of Reg. Guide 1.159, which identifies a minimum rating of 'BBB' by Standard and Poor's, or 'Baa' by Moody's.

Attachment to P-91388 November 1, 1991 Page 10 TABLE 1 PSC CURRENT AND HISTORICAL BOND RATINGS FOR PSC FIRST MORTGAGE BONDS BOND RATING AGENCY; MOODY'S STANDARD & POOR'S DUFF & PHELPS fum I2 Date Changed E!Qm To Date Changed From To Date Changed AA A

2/01/80 AA-A 2/06/80 A+

AA-A A2 4/26/82 A

A+

4/28/83 AA-A+

A2 Al 4/CY7/83 A+

BBB+

11/20/86 A+

A-Al AA3 3/04/85 A-BBB+

AA3 Al 7/30/86 Al A2 11/18/86 A2 A3 6/21/90 A3 BAAl 2/06/91 2/85 5/86 12/86 7/90

Fitch Investors Service, Inc.

One State Street Plaza New York, NY I 0004 (212) 908-0500 Secretary

• 91 NOV -4 P 3 :29 I} '

L 'Cr-t

• 1 U.S. Nuclear Regulatory Commission Washington, D.C.

20555 ESTABLISHED 1913 (J)

November 1, 1991 Attention:

Docketing and Service Branch Re:

Fitch Investors Service, Inc. Comments on Proposed Rule on Decommissioning Funding for Prematurely Shutdown Power Reactors. (10 CFR Part 50, RIN 3150-AD89)

Dear Sirs:

The following are Fitch Investors Service, Inc. 's ("Fitch")

comments to the Nuclear Regulatory Commission's

("Commission")

request for comment on advanced notice of proposed rulemaking with respect to decommissioning funding for prematurely shutdown power reactors.

We note that Fitch was not specifically referred to in the proposed rule's section regarding ratings and rating agencies, and in this connection we specifically call your attention to our comments on page 2.

You will note that our comments focus on the use of licensee bond ratings as one of the Commission's criteria in determining the licensee's financial solvency.

1 DEC 2 4 199 Acknowledged by e&r(fu, *-::srr::rrr: er.,

lt.S NUCLO\\K REGULATORY COMMISSION DOCK:.=TING & SERVICE SECTION OFFICE OF THE SECRETARY OF THE COMMISSION Ooc1Jmen1 Stati&tics Postmark Date f £ Copies Reooivcd _

Add'I Copigs Rt'produced :c-Q ___ _,,,__

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FITCl*I ESTABLISHED 1913 Do the bond ratings adequately reflect the intermediate-term financial health of electric utilities to the extent necessary to determine the likelihood of such utilities fully funding decommissioning obligations?

Fitch believes that ratings by national rating organizations (such as those recognized by the SEC and other regulators, an "NRSRO")

such as Fitch, are important, but not sufficient alone to fully assess the ability of an electric utility to ultimately meet decommissioning funding obligations.

Fitch ratings reflect a utility's ability to pay debt service in a full and timely manner for both the "intermediate-term" as well as the ultimate maturity of the debt.

We believe, however, that, e.g., an 'AA' rated electric utility is less likely to default on its decommissioning funding obligations than an electric utility whose rating is in a lower category.

A utility's ability to fund decommissioning obligations is considered in Fitch's analysis of the utility's ability to pay its bondholders.

Therefore, we agree with the Commission's use of ratings as one of several important criteria in its case by case analysis.

What particular levels or combinations of levels of ratings from the rating services should the commission require? For example, should the required rating level be 1A 1 ?

Fitch believes that over a thirty year period there is little difference in the likelihood, for example, of the insolvency of an

'A' rated electric utility than that of a 'BBB' rated electric 2

FITCl-1 ESTABLISHED 1913 utility.

However, funding cost, the amount of time and the terms that would likely be imposed by the capital markets for access to capital for funding decommissioning obligations of an 'A' rated utility could be different than those imposed on a

'BBB' rated utility.

We note that the majority of electric utilities that would be governed by the proposed rule are currently rated in the

'A-'

category by Fitch.

Accordingly, accelerating the decommissioning funding obligations to those utilities rated 'A' or below would require acceleration of funding for the majority of utilities. We would therefore suggest that the Commission consider using a rating lower than the 'A' rating as currently proposed in the rule.

If acceleration of the decommissioning funding obligations is based in part on ratings, should an electric utility be required to have maintained the specified rating, or a higher rating, for a specific number of years, if so, how many?

We agree with the Commission's rating maintenance requirements.

How many ratings should be required and should this requirement depend on the size of the utility?

We would suggest that the Commission require at least two NRSRO ratings, and that at least two of all published NRSRO ratings be the minimum rating chosen by the Commission.

This would clarify 3

FITCl-1 ESTABLISHED 1913 how the Commission would treat a utility with "split ratings" under the proposed rule.

The utility should be allowed to decide which ratings it will require, as long as the ratings are issued by a NRSRO or another national rating service recognized by the Commission.

The requirement for the number of ratings and the rating levels should be the same not withstanding the size of the utility.

How should 11FitchAlert11 ratings be treated?

If an electric utility whose rating is on FitchAlert or a similar NRSRO "watch list" with negative implications, the decommissioning funding obligations should be accelerated only if the rating is ultimately lowered below the lowest permitted category.

Please feel free to call me at (800)75-FITCH if you have any questions with respect to Fitch's comments.

cc: Robert Wood Very truly FITCH INVESTORS

~

Anne F. Faber INC.

Senior Vice President and Manager, Public Utilities Group Office of Nuclear Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, D.C.

20555 4

STATUTORY AND REGULATORY USES OF RATINGS IN THE UNITED STATES AND OTHER JURISDICTIONS by Ne.il D. Baron Vice Chairman and General Counsel and Leah W. Murch Assistant'General Counsel I

I I

I FITCH INVESTORS SERVICE, INC.

April 16, 1991

Table of Contents Page (A) Uses of Ratings In the United States..................... 2 (I) Securities Laws & Securities & Exchange Cornmission.. 2 (II)

(A) Securities Act of 1933......................... 2 (1) Exemption from Section 7 Consent Rqmt.... 2 (2) Use of Form S-3........................... 3 (3) Use of Forms F-2 and F-3.................. 3 (4) Rating as a Basis for an Exemption........ 4 (B) The Securities Exchange Act of 1934............ 4 (1) Secondary Mortgage Market Enhancement Act.4

( 2) Haircut Rule.............................. 5 (3) Exemption from l0b-6...................... 6 (4) Futures Contracts Based on Rated Debt..... 6 i

(C) Investment Company! Act of 1940................. 7 (1) Purchases of Securities During Underwrite.?

(2) Eligibility for Investment Taxable Money.. 7 (3) Investment Company Acquisitions........... 8 Savings Associations.. *............................. 9 (A) Investment Eligibility......................... 9 (B) Liquidity...................................... 9 (C) Loans to One Borrower Rule.................... 10 (D) Capital - Risk Weighting...................... 10 (III) Federal Deposit Insurance Corporation............ 10 (A) Investment Eligibi,lity........................ 10 (B)

Valuation and Creait Information............. 11 I

I, l

(B)

Tal:>le of contents Page I

(C) Assets Pledged By Foreign Banks............... 11

( 1) Investment Eligibility................... 11 (2) Valuation.*.............................. 11 (IV) Office Comptroller Currency & Federal Reserve..... 12 (A) Investment Eligibi'lity ***.*...*...*........... 12 I

(B) Valuation *..*..***

1 **************************** 12

( C) Other * * * * * * * * *.. * * *.... *....... *........... *.. 12 (V) National Association of Insurance Conunissioners.... 13 (VI) Department of Labor.*.......*..................... 13 (VII) States............... *............................ 13 I

(VIII) Self-Regulatory Orgahizations................... 14 Uses of Ratings In Jurisdict~ons outside the U.S....... 14 I

(I) United Kingdom ****.***. * ***...*******......*........ 14 (II) Australia.......................................... 15 (III) Japan ************************************.******* 15 (IV) Switzerland..........* :-..*....****.....*.......... 16 (V) France *****************. * *************************** 16 ii

(A)

Uses of Ratings In the United States (the "U.S.")

In the U.S., the Securities and Exchange Commission (the "SEC"),

the National Association of Insurance Commissioners (the "NAIC") and Federal and state regulators of banks, thrift institutions, insurance companies and public retirement plans provide for the use of ratings in their respective regulatory schemes.

Under Federal securities law and regulation, higher ratings are the basis for benefits that would not be available for securities that are unrated or rated in the lower rating categories.

Federal and state banking and thrift regulations utilize ratings in determining the eligibility of securities for investment, valuation of securities for purposes of determining compliance with capital adequacy and net worth requirements, and the eligibility of commercial paper for underwriting by banks. The NAIC suggests using ratings for purposes of securities valuation and determination of reserve requirements. Most Federal and state regulators or legislatures have not defined the term rating agency or nationally recognized statistical rating organization

( "NRSRO")

for purposes of such law and regulation.

The SEC

has, however, described certain characteristics of NRSROs in its October 11, 1990 No-Action Letter to David L. Lloyd, Jr. regarding IBCA Banking Analysis Ltd. (1990 SEC No-Act. LEXIS 1177)

("October Letter"), and certain states list or approve specific agencies as being "acceptable".

In addition, the SEC expects to publish a more comprehensive release delineating NRSRO characteristics within the next year or so.

The following summarizes and highlights certain statutory and regulatory uses of ratings in the U.S. and other jurisdictions.

(I)

Securities Laws and Securities and Exchange Commission ("SEC") Rules and Regulations.

(A)

Securities Act of 1933 ("Securities Act")

(1)

Exemption From Section 7 Consent Requirement.

Rule 436(g) provides that where a NRSRO, as referred to in Rule 15c3-l(c) (2) (vi) (F) of the Securities Exchange Act of 1934 (which, in fact, does not define NRSRO, except to the extent it is cross-referenced in the October Letter),

has assigned a

rating to debt, convertible debt or preferred stock, the rating may be included in the registration statement and other materials filed with the SEC for such security without obtaining the NRSRO's written consent, which otherwise would be required 2

under Section 7 of the Securities Act.

As a result, liability under Section 11 of the Securities Act (which imposes a higher standard of care and, therefore, a broader base for liability on issuers, underwriters and other professionals responsible for investigating, developing and presenting the facts surrounding the offering of securities) would not apply to NRSROs. 1 (2)

Use of Form S-3.

Form S-3 allows issuers to meet disclosure burdens by extensive use of incorporation by reference and is the easiest and shortest of the forms used for securities registration.

Issuers eligible to use Form S-3 are exempt from the float and volume requirements relating to the market for the issuer's securities if the security to be registered on Form S-3 is an "investment grade debt security."

An "investment grade debt security" is defined as a security rated by any NRSRO in one of its four highest rating categories.

The SEC' s stated reasons for adopting this exemption is that investment grade debt is traded based on yield and rating, and that an issuer of such securities is the subject of "widespread following in the marketplace." Securities Act of 1933 Release No. 6383, available March 3, 1982 (it should be noted, however, that much investment grade debt is not closely followed).

(3)

Use of Forms F-2 and F-3.

(a)

Foreign private issuers may register securities in the U.S. on Form F-2 (an abbreviated registration form) if the issuer meets certain tests, including having been subject to the reporting 1The SEC sets out its understanding of the importance of security ratings to investors and the marketplace, and describes the SEC's views on disclosing ratings by NRSROs and other rating services in Regulation S-K, Item l0(c).

Such matters as disclosure of all ratings assigned to an issue, changes in ratings and materially different ratings are briefly discussed there.

In short, the SEC suggests disclosing all ratings and changes in ratings in appropriate filings and by stickering the prospectus.

Rule 134(a) (14) permits publications of tombstones for debt, convertible debt and preferred stock to include ratings assigned by NRSROs.

3

(4) requirements of, and filed reports in a timely manner

under, the Securities Exchange Act of 1934 (the "Exchange Act")

for at least 36 months. If, however, the issuer. is registering debt that is an 11 investment grade debt security," and has filed at least one annual report on Form 20-F, the issuer is exempt from the Exchange Act reporting test.

(b)

Foreign[ private issuers who satisfy several' registrant and transaction requirements may use Form F-3 (which is more abbreviated than Form F-2) to register certain types of securities.

One registrant requirement is that the registrant have

$300 million (market value) of its voting stock outstanding and held by non-affiliates.

However, an issuer, is exempt from this requirement where the securities to be registered are debt securities rated in one of the four highest' rating categories by at least one NRSRO.

Rating as a

Basis for an Exemption from Registration of Insured Debt and Debt Secured by Bank Letter of Credit.

The SEC proposed, but subsequently rejected, an exemption for securities guaranteed under insurance policies from certain requirements of the Securities Act, including registration of such secutities.

17 CFR Part 230 (February 12, 1987). 'However, similar proposals have been introduced in, but not enacted by, Congress in the last few years, and others are expected to be introduced.

(B)

The Securities Exchange Act of 1934 (1)

Secondary Mortgage Market Enhancement Act

( "SMMEA").

Congress ad6pted SMMEA in 1984 in order to clarify and facilitate the secondary market for residential mortgage-backed securities in the U.S.

SMMEA 'included modifications to many statutes, including the Federal securities laws.

Section 3(a) (41) of the Exchange Act, added by SMMEA, defines a "mortgage related security" as any security that is, among other 4

things, (i) rated in one of the two highest rating categories by at least one NRSRO and (ii) represents ownership of or is secured by notes relating to real property.

Under SMMEA, such securities (a) are treated as U.S.

government securities for purposes of state blue-sky laws and investment eligibility laws (effectively pre-empting the application of such laws to mortgage-related securities),

unless a state subsequently acts to override this, and (b)' enjoy favorable margin rules that allow 180 days for delivery of collateral.

Thus, an issue can be sold and collateral acquired after the sale, which enables interest rates to be fixed on the sale date except in those states that have reasserted jurisdiction under 106 (c), and which have blue-sky laws which require to the contrary.

As of the date of this memorandum, to our knowledge, Arizona, Louisiana, Minnesota, New Mexico and South Dakota have* enacted legislation reasserting jurisdiction' under Section 106 (c) of SMMEA.

As the deadline for state action is only a few months away, there is a strong likelihood that other states will similarly reassert jurisdiction.

(2)

Haircut Rule.

Rule 15c3-1 requires certain reductions in the value of securities for purposes of calculating compliance with broker-dealers' net capital requirements ("haircuts").

The haircuts vary with type and quality of the security.

The following seburities are among those that are subject to the least reductions:

(a) commercial paper rated in one of the three highest short-term rating categories by at least two NRSROs; (b) non-convertible debt securities that are rated in one of the four highest rating categories by at least two NRSROs; (c) other non-convertible debt securities, the positions in which are hedged with U.S.

government securities or non-convertible debt securities rated in one of the four highest rating categories by at least two NRSROs; and (d) senior non-cumulative, non-convertible preferred stock rated in one of the four highest rating categories by at least two NRSROs.

5

(3)

Exemption from 1ob-6.

Rule 10b-6(a) (xiii) allows underwriters,

issuers, broker-dealers and certain other persons interested in an underwriting, as well as persons affiliated with such a broker-dealer or the

issuer, to engage in specified transactions:. One permitted instance involves the underwriting of non-convertible debt or non-convertible preferred stock when both the securities ih distribution and to be purchased have received an investment grade rating from at least one *NRSRO.

This exemption was adopted on the belief that the risk of manipulation is lower because such securities are traded based on yield and rating (and not on the basis of the identity'of the issuer), and are therefore quite fungible.

Moreover, the Commission declined to include an express requirement that the issuer bf such securities be a company required to file reports under the Exchange Act (a "reporting company") based on the belief that issuers of investment grade debt are generally reporting companies (which is not necessarily true). Securities Exchange Act of 1934 Release No.

19565, available March 3, 1983.

(4)

Futures Contracts Based on Rated Debt of Non-U.S. Sovereign Governments.

The SEC continues to consider amendments to Rule 3a12-8 to permit trading in the U.S. of futures contracts that are based on securities issued by any sovereign government whose long-term debt is rated in one of the two highest rating categories by at least two NRSROs.

Currently, Rule 3a12-8 permits trading of such futures contracts only if they are based on securities issued by one of the twelve sovereign governments listed in the text of the rule.

Exchange Act Release No.

24428, available May 5, 1987.

See also, Release No.

34-26217, available October 31, 1988, n.11 and

n. 2 o.

The

• SEC has noted that comments to amendments that would grant exemptions based upon a rating standard are mixed, but that it desires further comments.

The comments tend to question whether ratings are valid indications of the existence or depth of the market for a security.

See, for example, Exchange Act Release No.

25072, available 6

October 29, ~987.

1 (C)

Investment Company Act of 1940 C" '40 Act"}

(1)

Purchases of securities During an Underwriting.

Section l0(f) prohibits investment companies registered under the 1 40 Act (a "Company") from purchasing any security during an underwriting if the principal underwriter is an affiliate or an affiliate of an affiliate of the Company.

However, Ru'le l0f-3 ( c) exempts from this prohibition 1 any purchase of municipal bonds that are rated "investment grade" (in one of the four highest rating categories) by an NRSRO, and, if the issuer of such bonds has not been in continuous operation for at least three years, rated in one of the three highest rating categories by an NRSRO.

The SEC has stated that those exemptions would not hinder the intent of the restriction in Section 10 ( f),

which the SEC characterized as preventing a Company from purchasing unmarketable and/ or less seasoned securities.

Investment Company Act Release No. 10592, available Feb. 13, 1979.

I I

(2)

Eligibility for Investment by Taxable Money Market Funds.

If, among other things, the portfolio of a taxable money market fund ("Fund") consists of securities rated in the two highest rating categories bf two NRSROs (subject to the diversity and quality requirements indicated below), that Fund may calculate the current price per share using the methods permitted by Rule 2a-7, which, by adjusting yield, will always result in the price of a share being equal to one' dollar.

Otherwise, a Fund, as a company, would have to calculate a net asset value per share, which would fluctuate, and not be equal to one dollar, thereby adversely affecting the marketability of the Fund's shares.

The recent amendment of Rule 2a-7 creates, among other, things, several criteria with respect to "the quality of investments which Funds can own as well as certain new investment diversificat'ion requirements.

The most important changes are:

7

1.

ELIGIBLE SECURITIES:

Funds must 1 imi t investments to securities that have been rated in one of the two highest rating categories by at least two NRSROs (or, if unrated, determined by Fund management to be of comparable quality).

Securities rated in the highest rating category by at least two NRSROs are called "First Tier Securities" and securities rated in the second highest rating category by at least two NRSROs are called "Second Tier Securities"; provided, however, that such ratings may be provided by one NRSRO if it is the only NRSRO to have assigned a rating to such security; provided further, however, that purchase of securities rated by only one NRSRO must be specially ratified by the Fund's board of directors;

2.

AGGREGATE RISK LIMITS:

Funds must limit aggregate investments in Tier Two Securities to 5% of their assets;

3.

SINGLE RISK LIMITS:

Funds must limit investments in the securities of any one issuer (except government securities) to no more than 5% of their assets; however, Funds must limit their investment in the securities of any one issuer of Second Tier Securities to the greater of

$1,000,000 and 1% of their assets; and

4.

DOWNGRADES:

Any investment that is subsequently downgraded must be disposed of as soon as practicable absent a

specific finding by the Fund's board of directors that such action would not be in the best interest of the Fund.

(3)

Investment Company Acquisitions of Securities of Broker-Dealers, Investment Advisers, etc.

Rule 12d3-1 permits a

Company and/or its control affiliates to acquire the securities of persons who derive more than 15% of their gross revenues from securities-related activities if, among other

thirigs, such securities are of "investment grade" as determined by the board of directors of the company.

17 C.F.R. Section 270.12d3-l(b) (5).

The term "investment grade" means, in the 8

common usage of the marketplace and investors, securities rated in one of the four highest rating categories by a rating service. The SEC has stated that Rule 12d3-l is based on the belief that highly rated securities are more liquid than. other securities.

Investment Company Act Release No. 13725, available Jan.

17, 1984.

(II)

Savings Associations.

(A)

Investment Eligihility.

A savings association ("Institution") chartered by the Office of Thrift Supervision (a

"Federal Institution") is permitted to hold, sell and invest in (i) corporate debt securities only if (among other things) the' debt is rated in one of the four highest rating categories of at least one NRSRO

("investment grade")

at the time the debt is purchased by the Institution, and (ii) commercial paper only if (among other things) it is rated in one of the two highest short-term rating categories by at least two NRSROs (or if unrated, guaranteed by a company having commercial paper that is so rated).

A Federal Institution may invest up to 1%

of its assets in non-rated debt and commercial paper if such investment is not prohibited by 12 u.s.c.

§ 183le (see below) only if the Federal Institution determines, in the exercise of its prudent business judg.ment, that the obliger is able to meet all its undertakings in connection with such securities.

12 C.F.R. Part 545. 75.

Federal Institutions may also invest in obligations (not related to gold) issued by any state, territory, or possession of the U.S.or political subdivision thereof, provided that such obligation holds one of the four highest rating categories. 12 C.F.R. Part 545.72. State-Chartered Ins ti tut ions are subject to the same investment limitations as are Federal Institutions together with any more stringent limitations imposed by state authorities.

All Institutions, both state and Federal, are prohibited from investing in corporate debt securities rated below investment grade.

12 U.S.C. § 183le.

(B)

Liquidity.

Corporate debt obligations that are (among other things) rated in one of the four highest rating categories by at least one NRSRO, commercial paper that is (among other things) rated in one of the two highest short-term rating categories by at least two 9

NRSROs, and highly rated obligations of states and other political subdivision all qualify as "liquid assets" for purposes of the requirement that all Institutions maintain a specified percentage of withdrawable accounts and short-term borrowings in such assets.

12 u.s.c.

§ 1465 and 12 C.F.R. Part 566.

Pursuant to 12 U.S.C.

§ 1465, the OTS may include other mortgage-related securities as described in SMMEA (see I (B) (1) above) as "liquid assets",

although as of this date it has not yet implemented that authority.

(C)

Loans to One Borrower Rule Pursuant to 12 C.F.R. Part 563.93, Institutions may generally make loans to one borrower in amounts not greater than: a) 15% of unimpaired capital plus surplus, plus b) an additional 10% if the loans are fully collateralized by certain specified collateral. Notwithstanding this general limit, an Institution may invest up to 10% of unimpaired capital and surplus in the obligation of one issuer evidenced by commercial paper rated in the highest category by at least two NRSROs and marketable corporate debt securities rated in one of the two highest categories by at least one NRSRO.

12 C.F.R.

Part 563.93(c) and (d).

(D)

Capital - Risk Weighting 12 C.F.R. Part 567 separates Institution assets into different "weighted" categories for determining capital requirements. "Mortgage-related securities" governed by SMMEA and mortgage-backed bonds with equivalent ratings are treated favorably with a risk weighting of 20% (other than residuals or "strip" securities).

(See discussion of SMMEA, I (B)

(1),

above.)

(III)

Federal Deposit Insurance Corporation ("FDIC")

(A)

Investment Eligibility.

12 C.F.R. Section 337.4 prevents FDIC-insured banks that are not members of the Federal Reserve System from estaplishing or acquiring subsidiaries that, among other things, sell, distribute or underwrite securities, unless the subsidiary's underwriting activities that would not be authorized under Section 16 of the Glass-Steagall Act are limited to underwritings of 1) investment quality securities,

2) of investment companies that invest at least 75%

10

of their funds in investment quality securities or

3) investment companies that invest at least 75% of their funds in "investments normally associated with a money market fund". Investment quality securities are defined in 12:c.F.R. Part 337.4(a) (7)and (8) to be debt or equity 1 securities that are rated in one of the four highest rating categories by an NRSRO or which have investment characteristics equivalent to such rated securities.

(B)

Valuation and Credit Information.

For state-chartered banks that are not members of the Federal Reserve

System, for FDIC bank examination purposes, securities (including those of mutual funds) that are rated in one of the four highest rating categories by a rating service will be valued at par rather than market for the purpose of computing cap:1..tal of -a bank.

Sub-investment grade securities I will be valued at market and capital will be reduced by an amount equal to 50%

of the depreciation from the original book value.

The new book

.value will be classified as substandard. Division of Bank Supervision, Federal Deposit Insurance Corporation, Manual of Examination Policies (September 1988)

(the "FDIC Manual"),

Section B, Item (VIII).

Moreover, credit file documentation requirements are materially diminished when the investment is of investment quality.

FDIC Manual, section~' Item (III).

(C)

Assets Pledged By 1 Foreign Banks.

(1)

Investment Eligibility.

(2) 12 c.F.R. Part 346.19 (Subpart C) requires foreign banks to pledge a certain amount of their assets to the FDIC when their deposits are FDIC-insured.

such assets must be high quality securities, which include, among other things, comm'ercial paper, general obligations of states, cbunties, municipalities, agencies or other political subdivisions and notes of bank holding companies (if they are payable in the U.S. and'the issuer is not an affiliate of the foreign bank) that is rated in one of the two highest rating categories by an NRSRO; provided, however, that any conflict in ratings shall be resolved in favor of the lowest rating.

Valuation.

The assets p 1ledged are valued at the lower of principal amount (par value) or market value.

11

(IV)

Office of the Comptroller of the Currency ( "OCC")

and the Federal Reserve Board.

(A)

Investment Eligib'ility.

National banks and state banks that are members of the Federal Reserve System are permitted to invest in debt securities that are commonly regarded as investment grade securities. 12 U.S. C. Sections 2 4, para. 7 and 335, 12 C.F.R Parts 1.1 and 1.3(b). The term "investment securities" does not include securities that are predominately speculative in nature.

12 C.F.R. Part 1.3(b).

The occ and the Board of Governors of the Federal Reserve System are two parties to: the Uniform Agreement on the Classification of 'Assets and Appraisal of Securities Held by Banks which partly defines investment securities to inciude securities rated in the four highest rating categories by a rating service.

Joint Statement of the Office of the Comptroller of the

currency, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System and the conference of State Bank Supervisors, Uniform Agreement On The Classification of Assets And Appraisal Of Securities Held By Banks (issued in 1938 and revised in 1949 and 1979) (the "Agreement").

(B)

Valuation.

(C)

Valuation of securities for the purpose of determinihg capital of a bank under the Agreement is identical to the method described in paragraph (III) B above.

Other.

The Federal Reserve Board, in Regulation T, sets -~

margin requirements for "OTC Margin Bonds" at the greater of 1) the margin required by the creditor in good faith and 2) the percentage set by the appropriate regulatory authority.

"OTC Margin Bonds" include, among other things, 1) a "mortgage-related security" as defined in SMMEA (see discussion, above), 2) a debt security or general obligation guaranteed by a foreign government if, among other things, the issue, issuer, guarantor or their respective unsecured long-term debt or guarantees are rated in one of the two highest rating categories by an NRSRO, and 3) a foreign security,that is a nonconvertible debt security that, among other things, is rated in one of the two highest rating categories by an NRSRO.

12 C.F.R.

Parts 2 2 o

• 2, 2 2 o.. 18.

12

(V)

National Association of Insurance Commissioners

( "NAIC")

• The Securities Valuation Office of the NAIC publishes a manual describing procedures for the valuation of securities held for investment by insurance companies (the "NAIC Manual").

The NAIC Manual is used by state insurance departments to establish rJserve requirements for insurance companies.

Debt securities (other than those issued by oil and gas producers) rated in one of the four highest rating categories by an NRSRO and commercial paper notes rated in the highest short-term rating category by an NRSRO are accorded the lowest reserve requirement. Securities Valuation Office, National Association of Insurance Commissioners, Procedures for Valuations of Securities.

The rating services specifically recognized by the NAIC include Fitch, Duff &

Phelps, Moody's and Standard & Poors.

(VI)

Department of Labor The Department of Labor ("DOL") has amended its Prohibited Transaction Exemptions (PTEs) 89-88, 89-89 and 89-90, which permit pension funds to invest in certain asset-backed pass-through certif.icates in asset pool investment trusts, so that one of the conditions is that any certificate purchased in reliance on the exemption must be rated, at the time of purchase, in one of the three highest rating categories by either Fitch, Duff & Phelps, Moody's or standard

& Poors.

The DOL is curren~ly considering what role ratings could play in the purchase of annuities by plan administrators upon plan termination, as well as how rating requirements, in general, could streamline the exemption process.

(VII)

States.

In most states ratings are used as criteria for investment eligibility and valuation of securities held by fiduciaries and state regulated entities such as insurance companies, public retirement funds and state-chartered banks and thrift institutions.

Many states have permitted banks to invest only in bonds rated in the three or*four highest rating categories of a

major rating service.

Other states have left the determination of legal investments for banks in the discretion of the state regulators.

A majority of those regulators considered securities rated in the three or four highest rating categories by a major rating service to be appropriate or legal investments for banks.

A significant rninori ty followed either the FDIC's or the Office of the Comptroller 13

of the currency's standards when examining bank investments in securities.

Moreover, many state insurance regulators refer to the NAIC Manual for determining how certain securities would be valued.

12 u.s.c. Section 1831e, however, prohibits state savings institutions from engaging as principal in any type of activity, or in any activity in an amount that is not permissible for a

Federal institution unless (i) the ins ti tut ion complies fully wl th FIRREA' s capital requirements, and (ii) the FDIC has determined that such activity does not involve significant risk to the affected deposit fund.

State savings associations are also prohibited from purchasing or holding an equity investment of a type or in an amount not permitted to Federal institutions under FIRREA (see Section above).

(There is,

however, an exception for service corporation equity.)

(VIII)

Self-Regulatory Organizations.

In order to engage in the securities business, a person must be authorized to do so by the SEC or be a member of a self-regulatory orga:nization, such as the National Association of Securities Dealers (the "NASO") and the several stock exchanges (e.g. New York, Philadelphia and Pacific).

The self-regulatory agencies use ratings in differing manners.

The New York and Philadelphia Stock Exchanges (the "NYSE" and "Phlx," respectively), for example, set margin requirements based on the type of security pledged to secure the loan.

The most favorable treatment is accorded to U.S. government obligations and to mortgage-backed debt securities rated in one of the two highest rating categories by at least one NRSRO.

NYSE Rule 431 and Phlx Rule 722.

The NASO, in regulating the conduct of business by its members, requires members and their affiliates that participate in an offering to adhere to certain practices regarding due diligence, fair pricing of underwriting services and standards relating to the suitability of the security for a particular customer.

If, however, the affiliate is the issuer of a mortgage or asset-backed security rated in one of the four highest rating categories by at least one NRSRO, the affiliate is exempt from complying with these procedures.

This rule permits underwriters to use affiliates to issue such securities without the affiliates incurring the expense of complying with those practices.

(B)

Uses of Ratings In Jurisdictions outside the u.s.

(I)

United Kingdom ("UK")

The Financial Services Act of 1986 conferred 14

regulatory authority over the securities business to the Securities and Investment Board (the "SIB").

In order to engage in the securities business, a firm must be authorized to do so by the SIB or be a member of one of the five Self Regulating Organizations (an "SRO").

The SIB and SROs regulate the financial resources of firms engaging in the securities business.

One method of calculating a firm's financial resources refers to the relative risk of the investment.

For

example, debt instruments with investment grade ratings from a recognized rating agency (BBB - or above by S&P and Baa 3 by Moody's) are treated favorably, while non-investment grade debt is treated unfavorably in calculating a firm's financial resources.

currently S&P and Moody's are recognized rating agencies.

These SIB rules have been adopted by several SROs.

(II) level in Australia.

To our knowledge, 1ratings are not used on a national either statutory or regulatory areas in Australia.

I Two provinces, N~w South Wales and Victoria, make use of ratings in determining what investments fiduciaries may make.

New South 'Wales and Victoria, by statute, limit fiduciary investments to specified investments with so-called "trustee's status. "

Trustee's status in New South Wales includes all debt securities rated AA or better by a

recognized rating agency.

To our knowledge, at the present time the Australian Rating Agency, S&P and Moody's are the only recognized rating agencies.

Victoria includes in its definition of trustee's status securities any residential mortgage-backed security with an "approved credit rating."

Approvals of credit rating's are made with respect to each rating agency because the designations of each agency differ.

(III)

Japan.

The Ministry of Finance of Japan (the "MOF") has recently introduced use of 'ratings to determine a company's eligibility to issue commercial paper and to determine the size of the required back-up line o~ credit.

Under the new MOF '.rules, issuers of commercial paper

("CP") are no longer limited to companies listed in Japanese stock exchanges.

Any Japanese or non-Japanese company with a rating from two authorized rating agencies of A-1, F-1, P-l or better, may issue CP; provided, however, that if they are not listed on a Japanese exchange, they must have publicly disclosed their financial position for three consecutive 15

years.

In addition to the 0 domestic rating agencies, Fitch, Moody's and S&P are authorized rating agencies.

Generally, issuers of CP are required to provide a back-up line of credit in an amount equal to 100% of the CP issue.

However, issuers rated A-1, F-1, P-1 or better will not be required to provide a back-up line.

The MOF also regulates eligibility of domestic companies to issue Euroyen debt.

Japanese companies are automatically eligible to issue non-convertible Euroyen debt if they are rated AA or above, or A and have net assets of 55 billion yen.

In order to issue convertible Euroyen debt, a company must be rated A or better, or BBB and have net assets of 55 billion yen *

(IV)

Switzerland.

The Zurich stock'exchange requires that, in order to be listed for trading, debt securities be either investment grade or designated by the 1underwriter as the equivalent of investment grade.

(V)

France.

France has recently enacted Code provisions enabling the creation of securities backed by sales of assets.

In order to sell any such asset-backed security, the security must have a rating from a recognized rating agency.

standard

& Poors and Moody's are two U.S. rating agencies that are currently recognized by France.

Ratings are also used in two other regulatory areas.

All commercial paper-type notes with maturities exceeding two years must be rated, and all bank certificates of deposit must be rated, each as required'by the relevant regulatory body.

Neither requires the rating to be from any specified or recognized rating agency.

French regulators are currently considering imposing a rating requirement on all mutual funds, which represent by far the largest concentration of investment of private savings in France due to their :special tax treatment.

These regulators have also recently adopted regulations that require ratings on all new domestic' debt issues.

16

DOCKET NUMBER PROPOSED RULE PR ~

0 SMUD

(!;~~:;~l'l'fiJ SACRAMENTO MUNICIPAL UTILITY DISTRICT O 6201 S Street, P.O. Box 15830, Sacramento CAUfits:5<2-1830, (916) 452-3211 AN ELECTRIC SYSTEM SERVING THE HEART OF CALIFORNIA DAGM/NUC 91-160 October 28, 1991 Mr. Samuel J. Chilk Secretary U.S. Nuclear Regulatory Commission Washington, DC 20555 Attn:

Docketing and Service Branch

• 91 CT 31

, r-IL.

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COMMENTS ON THE PROPOSED RULE REGARDING DECOMMISSIONING FUNDING FOR PREMATURELY SHUTDOWN POWER REACTORS

Dear Mr. Chilk:

The Sacramento Municipal Utility District (District) generally agrees with the NRC's approach to determine the appropriate decommissioning funding period for each licensee on a case-by-case basis.

As stated in the proposed rule, a case-by-case approach would be less arbitrary than establishing a general collection period that might not be justified for a particular licensee.

It is useful that the NRC set out, in the Supplementary Information in the proposed rule, some of the factors that will guide the staff in implementing the case-by-case approach specified in the rule itself.

It is important, however, that the flexibility embodied in the rule not be thwarted by the development of overly prescriptive guidance.

In that regard, while the District recognizes that bond ratings may appropriately be one factor that the NRC examines when establishing decommissioning funding requirements for a prematurely closed reactor, the NRC should not develope a self-implementing bond rating test as appears now in the Supplementary Information accompanying the proposed rule.

In particular, the District is concerned about the NRC placing strict reliance on a licensee meeting a national agency bond rating of at least "A" or equivalent as an exclusive test of a licensee's solvency.

There are other factors that should be considered when evaluating the solvency of an organization.

Too heavy a reliance on bond ratings may not provide a true indication of the future financial capability of an organization.

Moreover, as discussed in a recent meeting between the NRC and the District, the wording of the rule is somewhat vague and ambiguous with regards to the application of the bond rating criteria.

Acknowtedged by card DEC 2 4 l99J,

RANCHO SECO NUCLEAR GENERATING STATION 14440 Twin Cities Road, Herald, CA 95638-9799; (209) 333-2935

u.s. NUCLEAA P~Gl ~Tnov ~o~~M s~10N Pos Cc,*

DOC*

o*;*.

S. DAGM/NUC 91-160 District, the wording of the rule is somewhat vague and ambiguous with regards to the application of the bond rating criteria.

Additional criteria the NRC should consider when determining the solvency of an organization include:

o The amount of decommissioning funds already collected at the time of shutdown and the a licensee's past history for the collection of those funds.

The past history for collection of funds can provide evidence that funds can be collected as planned.

o The licensee's charter, such as in the case of a

municipal utility district, may provide guarantees regarding the ability to fund decommissioning.

Public utilities have the rights and powers to fix rates and charges for commodities and services, and to incur indebtedness by issuing bonds and other obligations.

Also, public utility rates and revenue levels are typically not subject to review or regulation by any other governmental agencies, either federal or state.

o Federal and state laws or other agreements, codes, etc.,

may already be in place to guarantee a

licensee's ability/commitment to fund decommissioning. For example, the California Nuclear Facilities Decommissioning Act provides for the establishment and management of a separate external fund for the purpose of decommissioning a nuclear facility.

The act also provides that the utility's Board of Directors must ensure that all payments into the fund are recoverable through the utility's electric rates.

o The NRC should assess when the licensee intends to use the funds.

Forcing a licensee to collect funds too early could substantially burden and actually decrease a

licensee's ability to collect all funds.

Also, making a

licensee fund sooner will encourage early decommissioning rather than waiting for radioactive decay or advancements in technology.

Regarding the reliance on bond ratings, the troubled operation and closure of a large nuclear generating plant would cause the rating agencies to be cautious in their appraisal of that organization's bonds.

Although lowered bond ratings could be expected in such troubled times, one must recognize that downgrades in credit ratings occur much faster than upgrades.

Therefore, it is inappropriate for the NRC to select the period immediately following the closure of a plant as the best time to test a utility's credibility in the next decade.

S. DAGM/NUC 91-160 In addition, the reliance on bond ratings creates a "catch-22" situation in that a utility's bond rating is based, in part, on the ultimate financial impact of decommissioning, and the financial impact of decommissioning is ultimately determined by the bond ratings. It is this kind of uncertainty that impacts bond ratings, and may cloud the objectivity of the rating agencies.

The NRC must be sensitive to the subjective nature of the bond rating process.

As discussed earlier, the wording of the rule regarding the licensee's need to maintain an "A" bond rating is somewhat vague and ambiguous.

The rule states that:

The rating should be maintained for at least 4 of any 5-year sequence.

If a licensee's rating falls below "A" more than once in a 5-year period, that licensee would be expected to obtain the balance of the funds needed for decommissioning, and deposit them in an external account within 1 year after being downrated.

Alternately, a licensee could use other assurance mechanisms allowed by 10 CFR 50.75(e).

During our recent meeting, the NRC implied that they intended the bond rating criteria as a mechanism to trigger the NRC to take a closer look at all of the factors impacting a utility's financial situation.

It is our understanding that the intent was not to cause an automatic requirement for the utility to fund the balance of the decommissioning costs immediately.

This should be stated explicitly in the rule to avoid any confusion on the intent of the bond rating criteria.

With regards to the interpretation of the wording of the rule, it is not clear when the 5-year clock starts.

Also, if a licensee is downgraded to a "BBB" rating after 5 years of an "A" rating and the "BBB" rating continues for greater than 1 year, the licensee would fail the "4 of 5-year" criterion, but not fail the "downgraded more than once in a 5-year period" criterion.

Under this scenario, would a licensee be required to fund the balance of decommissioning costs within 1 year?

Further, there are no provisions to remedy a downrating.

For example, if a licensee was required to provide a guarantee in the form of a letter of credit, what would be the requirement if the "A" rating were eventually regained?

Would the letter of credit still be necessary?

Without additional language to provide for some form of remedy, a licensee could have a "AAA" rating and still be required to provide guarantees.

These guarantees could be expensive and not in the best interest of the public or the ratepayers.

Finally, when referring to bond ratings, it is unclear what type of bonds the NRC is referring to.

Utilities issue various types

S. DAGM/NUC 91-160 of bonds including General Obligation, Revenue, and Subordinate Bonds.

Some of these bonds may be rated as "A" or above while, at the same time, a different class of bonds may be below an "A" rating.

In summary, the District agrees with the NRC's approach to determine a licensee's decommissioning funding period on a case-by-case basis.

However, the District believes that a strict reliance on bond ratings may not provide a true indication of the future financial capabilities of an organization.

The District respectfully suggests that when the final rule is published, the Supplementary Information with it clarify that bond ratings are but one of several relevant factors that the NRC will consider in developing decommissioning funding requirements for prematurely closed reactors.

Members of your staff with questions information or clarification may contact (916)452-3211, extension 4914.

Sincerely, ames R. Shetler Deputy Assistant General Manager Nuclear cc:

J. B. Martin, NRC, Walnut creek C. Myers, NRC, Rancho Seco S. Weiss, NRC, Washington requiring additional Jerry Delezenski at

Indiana Michigan Power Company P.O. Box 16631 Columbus, OH 43216 DOCKET NUMBER PR PROPOSED RULE SO l,OChL; [r, u:=;NfiC (5~ F/2. '1 l'/93 (!)

• 91 OCT 1 8 P 4 :o 4 INDIANA MICHIGAN POWER Secretary, U.S. Nuclear Regulatory Commission Washington, D.C.

20555 Attention:

Docketing and Service Branch October 15, 1991

Dear Sir:

Re:

Decommissioning Funding for Prematurely Shutdown Power Reactors These comments are submitted by Indiana Michigan Power Company in response to the proposed rule to amend 10CFR Part 50 as published at 41493 in the Federal Register on August 21, 1991, regarding Decommissioning Funding for Prematurely Shutdown Power Reactors.

We strongly agree with the Commission's objective that 11 at the time of permanent end of operations, sufficient funds should be available to decommission the facility in a manner which protects public health and safety.

11 Furthermore, since the combination of circumstances surrounding a future premature shutd-0wn and the financial condition of a particular licensee may be significantly different in each specific instance, we agree that method (4) of 11determining the appropriate collection period for each licensee on a case-by-case basis 11 is the most appropriate action.

It would be desirable, however, that there be a presumption where the licensee selects either method (2) or (3) that these methods are reasonable courses of action unless the Commission affirmatively concludes otherwise.

We do, however, have concerns with certain language and concepts contained in the notice.

l. All funds needed for decommissioning should be available or guaranteed in external accounts before the start of DECOM operations.

Consider a case in which a company at the time of premature reactor shutdown has $100 million accumulated in external trust funds and DECOM is estimated to cost $125 million with expenditures distributed equally over five years DEC 2 ! 1991...,_

Acknowledged by card.. -... r

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Secretary, U.S. Nuclear Regulatory Commission October 15, 1991 Page 2 during which additional collections of $5 million annually are expected.

For simplicity, we assume interest earned on accumulated balances precisely offsets any continuing cost escalation during this period.

The following tabulation shows the flow of funds will permit completion of DECOM as scheduled:

Premature Reactor Shutdown Balance at Date Zero Additional Collection Year l Decommission Expenses Year l Balance End of Year l Additional Collection Year 2 Decommission Expenses Year 2 Balance End of Year 2 Additional Collection Year 3 Decommission Expenses Year 3 Balance End of Year 3 Additional Collection Year 4 Decorrunission Expenses Year 4 Balance End of Year 4 Additional Collection Year 5 Decommission Expenses Year 5 Balance End of Year 5 Deco1TJTiissioning Completed Flow of Funds (millions)

$100 5

(25) 80 5

(25) 60 5

(25) 40 5

(25) 20 5

(25) 0 We submit that in such circumstances DECOM should be permitted to conunence.

Failure to start DECOM until

$125 million is available in an external fund may mean that the many members of the original plant staff needed for decommissioning will have departed and the ultimate objective of safe decorrmissioning will be both delayed and more expensive.

We do not believe a licensee in the normal course of businessshould be permitted to plan to collect decommissioning funds after the end of operations.

However, DECOM should be permitted to commence if it is expected funds will be available for its safe completion.

It is possible that the languQge already permits this.

However, a literal reading of the language suggests the word 11available 11 is modified by 11 in external trust funds.

11

Secretary, U.S. Nuclear Regulatory Commission October 15, 1991 Page 3

2.

The words original operating license term should be modified or clarified by omitting the word 11original 11 or adding the words 11 including any approved license extension 11 in specifying the period to be considered for collection of funds in evaluating financial solvency.

3.

We are especially concerned with the specification of a minimum bond rating of 11A 11 as the point below which periodic funding may not be an acceptable program during the storage period following premature shutdown and/or special accelerated funding actions are required.

We agree a minimum bond rating of 11A 11 is desirable for an electric, utility and indeed believe that an objective of having an even higher bond rating would be in the best interest of a utility and its customers.

Nevertheless, the fact is that many electric utilities do have 11 BBB 11 bond ratings.

A number of licensees of nuclear plants have below 11A 11 bond ratings.

We can think of at least ten companies in this category. All of these companies presently own nuclear facilities operating under their licenses. It does not appear reasonable to adopt more st~ingent criteria for post-shutdown funding than it does for funding during the period of operations.

The criteria should be whether funds are expected to be available, not the bond rating of a company.

Bond ratings are a measure of the ability to pay or probability of payment of principal and interest on debt securities sometimes for a period of thirty years in the future.

This is not the same thing as the ability to safely decommission a nuclear unit.

This difference in purpose is merely one of many factors which makes debt rating an unsuitable proxy for unilaterally determining decorrmissioning capability.

Bond ratings alone are not a good measure of the ability of a licensee to safely operate or decommission a nuclear facility. A below 11A 11 bond rating certainly is not a good basis on which to trigger automatic changes in funding requirements.

A bond rating below 11A 11 is not the point at which new securities can not be sold although it does affect the interest cost associated with the issuance.

In each

r Secretary, U.S. Nuclear Regulatory CoIT111ission October 15, 1991 Page 4 of the past ten years substantial quantities of new debt securities have been sold by utilities with less than an 11A 11 bond rating.

In the aggregate, approximately 25% of the new utility debt, including gas and telephone companies, or an average more than one billion dollars per year, has been issued by utility companies having less than an 11A 11 rating as shown on the attached exhibit.

Indeed the rulemaking already recognizes that a 11 BBB 1

rating still is considered 11 investment grade.

11 The point of whether the licensee faces somewhat higher capital costs for raising funds at this 11 BBB 11 level is not the real issue.

The real issue is whether this level of debt rating should trigger a requirement to raise funds.

The fact that a company has less than an 11A 11 rating or has been downgraded below the 11A 11 level is not proof that a further rating decline is probable.

Indeed most companies at this level do not fall further.

The prospect of having to raise substantial additional decorranissioning funds on an accelerated schedule at the 11 BBB 11 rating level may itself force the rating down further.

We have reservations whether bond ratings should be utilized at all for the purpose of establishing decommissioning funding capabilities or criteria. However, to the extent that they are, we strongly recorranend the following substantive and technical modifications to the rule:

l. The action point should be changed from below the 11A 11 level to below the 11 BBB 11 or equivalent level.

2.

Below should mean a full grade.or more (i.e.,

11 BB 11 or 11B 11 ) below the specified level and not a partial move within a grade as signified by a minus sign or numerical designation.

3.

Debt rating should mean the rating applied to first mortgage bonds or other senior debt security and not a rating applied to a debenture or any other form of junior debt.

4.

Since utility companies are normally rated by at least two major rating services, the designated unsatisfactory level rating should be established by at least two such services.

Secretary, U.S. Nuclear Regulatory Co1T1T1ission October 15, 1991 Page 5

5. A company should be able to overcome any presumptive indicated course of action regarding funding suggested by an 11 unsatisfactory 11 bond rating by presenting appropriate evidence that it can complete a course of action which will permit funding for decommissioning to be accomplished by periodic collections over a reasonable period.

We recorrmend that the proposed rules be modified as herein suggested.

We believe that in several respects as herein identified, the proposed rules are not only unnecessarily stringent but may actually interfere with the ultimate objective of safe and economical decommissioning of facilities by precipitating avoidable financial problems for a utility and its regulatory rate coITITiission.

/fc attachment

l

.I Dollar Volume Year (Billions}

1979

$ 9.4 1980 13.9 1981 12.9 1982

9. l 1983 8.9 1984

7. l 1985

11. 0 1986

33. l 1987

15. 7 1988 8.7 Average 1979-88 1989

11. 7 1990 9.6 1991*

12. l

• To September 30, 1991 DISTRIBUTION OF NEW ISSUES BY RATING UTILITY ISSUERS (Percent Distribution)

Mood1 1s Rating Aaa Aa A

28.7%

21.3%

34.0%

28. l 27.3

31. 7 30.2 17.8

27. l 3.3 18.7 47.3

1. l

11. 2 55.l 2.8

14. l 40.8 3.6 23.6 50.9 2.4 32.3 36.9 3.2 17.8 33.8 9.2 21.8 32.2

10. 5 23.0 37.8

11. l 19.7 18.8 32.3 32.3

22. l 43.5 Nori Investment Baa Grade 13.8%

2. l %

12.2 0.7 24.8 29.7

1. l 30.3 2.2 29.6 12.7

19. l 2.7

22. l 6.3 43.9 1.3 36.8 25.6 3.2 28.2 22.2 35.4 32.8 1.6 Years 1979 to 1988 per Merrill Lynch; years 1989 to 1991 calculated from Moody 1 s data.

In 1989-91, Baa rated bonds represented 40.8% of the aggregate total excluding telephone issues.

AGENCY:

ACTION:

DOCKET NUMBER PR r O PROPOSED RULE.

) _

oou.-.crrn

(! b F/2 Lf I 'f 'f 5 USNi)C

• 91 nur 19 :;~o ::o NUCLEAR REGULATORY COMMISSION 10 CFR PART 50 RIN 3150-AD89 Decommissioning Funding for Prematurely Shutdown Power Reactors Nuclear Regulatory Commission.

Proposed rule.

[7590-01]

SUMMARY

The Nuclear Regulatory Commission (NRC) proposes to amend its regulations on the timing of the collection of funds for decommissioning for those nuclear power reactors that have shut down before the expected end of their operating lives. The proposed rule, if adopted, would require that the NRC evaluate decommissioning funding plans for power reactors that shut* down prematurely on a case-by-case basis.

The NRC's evaluation would take into account the specific safety and financial situations at each plant.

DATE:

Comment period expires [75 days after date of publication in the Federal Register].

Comments received after this date will be considered if it is practical to do so, but the Commission is able to assure consideration only for comments received on or before this date.

I I

\\

2 ADDRESSES:

Mail written connnents to: Secretary, U.S. Nuclear Regulatory Commission, Washington, DC 20555, Attention: Docketing and Service Branch.

Deliver COTT111ents to: 11555 Rockville Pike, Rockville, Maryland, between 7:45 am and 4:15 pm on Federal workdays.

Copies of comments received may be examined at: the NRC Public Document Room at 2120 L Street, NW (Lower Level), Washington, DC.

FOR FURTHER INFORMATION CONTACT: -Robert Wood, Offi~e of-Nuclear Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC 20555, telephone (301) 492-1255.

SUPPLEMENTARY INFORMATION:

Background

On June 27, 1988, the NRC published in the Federal Register the decom-missioning regulation amending 10 CFR Parts 30, 40, 50, 51, 70, and 72.: This regulation established several acceptable methods by which power reactor licensees may provide assurance that they will have sufficient funds to decommission their plants by the time the plants are permanently shut down.

(53 FR 24018, at p. 24043.)

In considering the final decOlllTiissioning rule, the Commission acknowledged that,

3 in certain instances, reactors might be permanently shut down before completing the full term of their operating lives.

However, because the Con1nission determined that such instances would be infrequent, it did not explicitly include in the rule remedies for this situation.

As provided in 10 CFR 50.82{a), for a plant that had permanently shut down before the effective date of the rule (July 27, 1988), requirements for contents of the dec0fl111issioning plan, including provisions for assuring adequate funding, may be modified with approval of the COlllllission to reflect the fact that the decommissioning process had been initiated previously. For plants that permanently shut down after July 27, 1988, an application to terminate the operating license (accompanied or preceded by a proposed deco1TV11issioning plan) must be made within 2 years following permanent cessation of operations and in no case later than one year prior to expiration of the operating license. Moreover, the provisions of §§50.82{a) and 50.75{e) reflect the Commission's objective that uat the time of permanent end of operations sufficient funds are available to decormiission the facility 1n a manner which protects public health and safetyu (53 FR 24018, at pps.

24030-31, emphasis added).

In establishing the decommissioning rule, the Co1Ti11ission also recognized that power reactor licensees generally have access to significant amounts of financial capital and are closely regulated. Therefore, the C00111ission allowed them the option of accumulating deco1T1Tiissioning funds over the projected operating life of the facility rather than requiring that these funds be available or guaranteed prior to operation or at some time before the end of the projected operating life of the facility. The Commission recognized the

4 risk that, if some power reactors did not operate for their entire operating lives, those licensees might have insufficient decorrmissioning funds at the time of permanent shutdown.

After the NRC published the final decommissioning rule, three power reactor facilities shut down prematurely: the Fort St. Vrain Nuclear Generating Station, the Rancho Seco Nuclear Generating Station, and the Shoreham Nuclear Power Station. The NRC staff sought the Co11111ission's guidance on the appropriate period for collecting funds to compensate for any shortfall of decomnissioning funds for these plants. The staff presented four options to the C001T1ission intended to be applied to future prematurely shutdown plants:

(1) require licensees to have funds for decomnissioning at the time of permanent shutdown as implicitly mandated by the existing decommissioning rule; (2) allow licensees who propose to put their plants in safe storage to collect decorrmissioning funds over the original term of the operating license or the storage period, whichever is less; (3) allow licensees to collect decorrmissioning funds over a 5-year period after permanently ceasing operations, provided they will have sufficient funds for conducting any deconmissioning activities over this 5-year period; and (4) determine the appropriate collection period for each licensee on a case-by-case basis.

The C011111ission selected the fourth option: determine the appropriate collection period on a case-by-case basis. For Fort St. Vrain, Rancho Seco, and Shoreham, this approach would be applied by issuing exemptions. Several arguments support this option. First, a case-by-case approach would be less arbitrary than establishing a general collection period that might not be

5 justified for a particular licensee. For example, a longer collection period might be justified for an operating, stable utility in reasonable financial health while not justified for financially unstable entities. Smaller licensees who would suffer undue hardships from a short collection period could have the length of their collection periods extended. Second, a case-by-case approach would be consistent with the Commission's intent in 10 CFR 50.82, which provides more flexibility for licensees that permanently shut down their facilities before July 27~ 1988, the effective date of the decoomissioning rule.

The case-by-case approach would call for the staff to determine the longer-term financial stability of licensees that decorrmission prematurely.

To minimize the potential for the staff to treat different licensees inconsistently, the Corrrnission proposes to use the following criteria for evaluating funding options for licensees that shut down their facilities prematurely.

(1) All funds needed for decomnissioning should be available or guaranteed in external accounts before the start of 0EC0N operations. This is the same requirement that the NRC imposed on licensees that operate their facilities for their entire license term and then choose the DEC0N option of dec0111Tiissioning.

This requirement will help avoid a shortfall of funds that could adversely affect the decomnissioning process once that process has begun.

(2) The Commission will consider factors other than availability of decomnissioning funds, such as the number of power plants in a licensee's system that continue to generate revenues.

(3) The Commission will allow those licensees who chose to accumulate funds over the life of the facility and subsequently select a period of safe storage before permanently dismantling their prematurely

6 shutdown reactors, to collect funds in external accounts into the safe storage period.

However, the Co1T111ission 1s objective will continue to be that licensees will have all nece5sary decorrmissioning funds collected or guaranteed prior to final dismantlement operations.

To minimize the risk that such licensees will be unable to complete funding in a reasonable period, licensees that choose this funding option should demonstrate financial solvency during the collection period.

The NRC would consider the ability to meet the following criteria to determine the extent of a licensee's financial solvency:

(1) All funds needed for decorrmissioning must be collected before the expiration of the original operating license term, during which the reactor facility would have operated if the licensee had not prematurely shut it down; and (2) Funding may continue into the storage period, but only until the license expiration date, and only if a licensee maintains a bond rating of at least 11A 11 or equivalent by Moody's Investment Services, Standards and Poors, or another national rating agency.

The rating should be maintained for at least 4 of any 5-year sequence.

If a licensee's rating falls below "A 11 more than once in a 5-year period, that licensee would be expected to obtain the balance of the funds needed for dec001TJissioning, and deposit them in an external account within 1 year after being downrated. Alternatively, a licensee could use other assurance mechanisms allowed by 10 CFR 50.75(e).

7 Traditionally, bond ratings adequately predict the intermediate-term financial health of larger businesses such as electric utilities. If a utility were to be derated from 11A 11 to

11BBB, 11 or equivalent, it should still be able to raise or guarantee the funds necessary 'o decommission without unduly stressing its capital structure. A "BBB 11 rating is still considered 11 investment grade 11,

which suggests that the licensee would not face inordinate capital costs for e raising such funds.

The Commission believes that use of this standard would ensure that licensees would be treated consistently, reasonable assurance of the availability of decoll1Tlissioning funds would be maintained, and flexibility of funding would be provided to financially healthy licensees.

Finding of No Significant Environmental Impact: Availability These proposed amendments would clarify decommissioning funding arrangements for those licensees whose power reactors are shut down prematurely. This action is required so that the Corrmission may evaluate on a case-by-case basis the unique financial situation that could confront such licensees. The Commission would continue its requirements for assurance of dec0fl1Tlissioning costs but could alter the timing of funds collection according to a licensee's individual financial situation. The Conmission believes that if utility licensees were required to have all funds for deconmission1ng by the time of permanent shutdown as required by the existing rule, some utilities could be unnecessarily financially stressed without significantly increasing the protection of the public health and safety and of the environment.

8 Neither this action nor the alternative of maintaining the existing rule would significantly affect the environment. Although changes in the timing of collection of funds for decommissioning prematurely shutdown power reactors may affect the financial arrangements of licensees and may have economic and social consequences, they would not alter the effect on the environment of the licensed activities considered in the final decorrmissioning rule (53 FR 24018, June 27, 1988) as analyzed in the Final Generic Environmental Impact Stateme~t on Decormiissioning of Nuclear Facilities (NUREG-0586, August 1988). The alternative to this proposed action would not significantly affect the environment. Therefore, the Corrmission has determined, under the National Environmental Policy Act of 1969, as amended, and the Corrmission's regulations in Subpart A of 10 CFR Part 51, that this rule, if adopted~, would not be a major Federal action significantly affecting the quality of the human environment, and therefore an environmental impact statement is not required.

No other agencies or persons were contacted for this proposed action, and no other documents related to the environmental impact of this proposed action exist. The foregoing constitutes the environmental assessment and finding of no significant impact for this proposed rule.

Paperwork Reduction Act Statement This proposed rule does not contain a new or amended information collection requirement subject to the Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq-.). Existing requirements were approved by the Office of Management and Budget approval number 3150-0011.

9 Regulatory Analysis On June 27, 1988, the NRC published in the Federal Register (53 FR 24018) a final rule amending 10 CFR Parts 30, 40, 50, 51, 70 and 72 regarding general requirements for deco1TV11issioning nuclear facilities.

In that rule, the CoIT1Tiission provided the option that power reactor licensees may collect funds for decorrmissioning over the projected operating life of the facility but required that all funds needed for decommissioning be accumulated by the time of permanent shutdown.

Power reactors that shut down prematurely would not have the remaining term of the operating license to accumulate decommissioning funds and could be unduly burdened financially if required to raise all remaining decommissioning funds shortly after shutdown.

Consequently, the NRC proposes to evaluate the schedule for decorranissioning funding for prematurely shutdown facilities on a case-by-case basis. A case-by-case approach will allow the NRC to evaluate the particular financial circumstances of each affected licensee while continuing to ensure that the public health and safety and the environment are adequately protected. The proposed rule would reduce financial costs for those licensees allowed,*to extend the collection period of decommissioning funds.

The proposed rule would not create substantial costs for other licensees. The proposed rule also will not significantly affect state and local governments and geographical regions, or the environment, or create substantial costs to the NRC or other Federal agencies.

The foregoing discussion constitutes the regulatory analysis for this proposed rule.

10 Regulatory Flexibility Certification As required by the Regulatory Flexibility Act of 1980, 5 U.S.C. 605(b),

the ColllTlission certifies that this rule, if adopted, will not have a significant impact upon a substantial number of small entities. The proposed rule would potentially affect approximately 118 nuclear power reactor operating licenses. Nuclear power plant licensees do not fall within the definition of small businesses as defined in section 3 of the Small Business Act, 15 U.S.C.

632, the Smail Business Size Standards of the Small Business Administrator (13 CFR Part 121), or the Corrmission's Size Standards (50 FR 50241; December 9, 1985).

Backfit Analysis The NRC has determined that this proposed rule does not impose a backfit as defined in 10 CFR 50.109 (a)(l). Therefore, a backfit analysis is not required for this proposed rule.

List of Subjects in 10 CFR Part 50 Antitrust, Classified information, Criminal penalty, Fire protection, Incorporation by reference, Intergovernmental relations, Nuclear power plants and reactors, Radiation protection, Reactor siting criteria, Reporting and recordkeeping requirements.

11 For the reasons set out in the preamble and under the authority of the Atomic Energy Act of 1954, as amended, the Energy Reorganization Act of 1974, as amended, and 5 U.S.C. 553, the NRC is proposing to adopt the following amendment to 10 CFR Part 50.

PART SO-DOMESTIC LICENSING OF PRODUCTION AND UTILIZATION FACILITIES

1. The authority citation for Part 50 continues to read as follows:

Authority: Secs. 102, 103, 104, 105, 161, 182, 183, 186, 189, 68 Stat.

936, 937, 938, 948, 953, 954, 955, 956, as amended, sec. 234, 83 Stat. 1244, as amended (42 U.S.C. 2132, 2133, 2134, 2135, 2201, 2232, 2233, 2236, 2239, 2282); secs. 201 as amended, 202, 206, 88 Stat. 1242 as amended 1244, 1246 (42 u.s.c. 5841, 5842, 5846).

Section 50.7 also issued under Pub. L.95-601, sec. 10, 92 Stat. 2951 (42 U.S.C. 5851). Section 50.10 also issued under secs. 101, 185, 68 Stat.

936, 955, as amended (42 U.S.C. 2131, 2235); sec. 102, Pub. L.91-190, 83 Stat.

853 (42 U.S.C. 4332).

Sections 50.13, 50.54 (dd), and 50.103 also issued under sec. 108, 68 Stat. 939 as amended (42 U.S.C. 2138).

Sections 50.23, 50.35, 50.55, and 50.56 also issued under sec( 185, 68 Stat. 955 (42 U.S.C. 2235).

Sections 50.33a, 50.55a and Appendix Q also issued under sec. 102, Pub. L.91-190, 83 Stat. 853 (42 U.S.C. 4332).

Sections 50.34 and 50.54 also issued under sec. 204, 88 Stat. 1245 (42 U.S.C. 5844).

Sections 50.58, 50.91, and 50.92 also issued under

12 Pub. L.97-415, 96 Stat. 2073 (42 U.S.C. 2239). Section 50.78 also issued under sec. 122, 68 Stat. 939 (42 U.S.C. 2152). Sections 50.80-50.81 also issued under sec. 184, 68 Stat. 954, as amended (42 U.S.C. 2234). Appendix Falso issued under sec. 187, 68 Stat. 955 (42 U.S.C. 2237).

For the purposes of sec. 223, 66 Stat. 958, as amended (42 U.S.C. 2273);

§§ 50.46(a) and (b), and 50.54(c) are issued under sec. 161b, 16li and 1610 68 Stat. 948, as amended (42 u.s.c. 220l(b)); §§50.7(a), 50.l0(a)-(c), 50.34(a) and (e), 50.44(a)-(c), 50.46(a) and (b), 50.47(b), 50.48(a), (c), (d), and (e),

50.49(a), 50.54(a), (i), (i)(l), (1)-(n), (p), (q), (t), (v), and (y),

50.55(f), 50.55a (a), (c)-(e), (g), and (h), 50.59(c), 50.60(a), 50.62(c),

50.64(b), and 50.80(a) and (b) are issued under sec. 1611, 68 Stat. 949, as amended (42 U.S.C. 2201(1)); and§§ 50.49(d), (h), and (j), 50.54(w), (z),

(bb), (cc), and (dd), 50.55(e), 50.59(b), 50.6l{b), 50.62(b), 50.70(a),

50.71(a)-(c) and (e), 50.72(a), 50.73(a) and (b), 50.74, 50.78, and 50.90 are issued under sec. 1610, 68 Stat. 950, as amended (42 U.S.C. 2201(0)).

2. Section 50.82 is amended by revising paragraph(a) to read as follows:

§50.82 Application for termination of license.

13 (a) Any licensee may apply to the Corrrnission for authority to surrender a license voluntarily and to decomnission the facility. For a facility that permanently ceases operation after July 27, 1988, this application must be made within two years following permanent cessation of operations, and in no case later than one year prior to expiration of the operating license. Each application for termination of license must be accompanied, or preceded, by a proposed deconvnissioning plan. For a facility which has permanently ceased operation prior t-o July 27, 1988, requirements for c'ontents of the decorrrnissioning plan as specified in paragraphs (b) through (d) of this section may be modified with approval of the Commission to reflect the fact that the decomnissioning process has been initiated previously. For a facility which has permanently ceased operation before the expiration of its operating license, the collection period for any shortfall of funds will be determined, upon application by the licensee, on a case-by-case basis taking into account the specific financial situation of each licensee.

/2~

t:2.J Dated at Rockville, Maryland this __

7 ___ day of ~

, 1991.

For the Nuclear Regulatory Corrmission.

for Operations