ML23159A109

PR-050 62FR47588 - Financial Assurance Requirements for Decommissioning Nuclear Power Reactors

ML23159A109
Person / Time
Issue date:	09/10/1997
From:	Hoyle J NRC/SECY
To:
References
PR-050, 62FR47588
Download: ML23159A109 (1)

Text

ADAMS Template: SECY-067 DOCUMENT DATE: 09/10/1997 TITLE: PR-050 - 62FR47588 - FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISSIONING NUCLEAR POWER REACTORS CASE

REFERENCE:

PR-050 62FR47588 KEYWORD: RULEMAKING COMMENTS Document Sensitivity: Non-sensitive - SUNSI Review Complete

STATUS OF RULEMAKING PROPOSED RULE: PR-050 OPEN ITEM (Y/N) N RULE NAME: FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISSION-ING NUCLEAR POWER REACTORS PROPOSED RULE FED REG CITE: 62FR47588 PROPOSED RULE PUBLICATION DATE: 09/10/97 NUMBER OF COMMENTS: 33 ORIGINAL DATE FOR COMMENTS: 11/24/97 EXTENSION DATE: I I FINAL RULE FED. REG. CITE: 63FR50465 FINAL RULE PUBLICATION DATE: 09/22/98 NOTES ON: REQUIRES LICENSEES TO REPT. ON STATUS OF DECOMM. FUNDS & CHANGES STATUS IN EXT. TRUST AGREEMENTS & ALLOWS LICENSEES TO TAKE CREDIT FOR EA OF RULE: RNING ON DECOMM. TRUST FUNDS. FR CORRECTION (63FR57236-10/27/98)

HISTORY OF THE RULE PART AFFECTED: PR-050 RULE TITLE: FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISSION-ING NUCLEAR POWER REACTORS PROPOSED RULE PROPOSED RULE DATE PROPOSED RULE SECY PAPER: 97-102 SRM DATE: 06/30/97 SIGNED BY SECRETARY: 09/04/97 FINAL RULE FINAL RULE DATE FINAL RULE SECY PAPER: 98-164 SRM DATE: I I SIGNED BY SECRETARY: 09/16/98 STAFF CONTACTS ON THE RULE CONTACTl: BRIAN J. RICHTER MAIL STOP: 0-11 Fl PHONE: 415-1978 CONTACT2: CAROL GALLAGHER MAIL STOP: T-6 D59 PHONE: 415-5905

DOCKET NO. PR-050 (62FR47588)

In the Matter of FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISSIONI NG NUCLEAR POWER REACTORS DATE DATE OF TITLE OR DOCKETED DOCUMENT DESCRIPTION OF DOCUMENT 09/04/97 09/04/97 FEDERAL REGISTER NOTICE - PROPOSED RULE 11/06/97 10/09/97 LETTER FROM NEW HAMPSHIRE NUCLEAR DECOMMISSIONING FINANCE COMMITTEE (DOUGLAS L. PATCH, CHAIRMAN)

ADVISING THAT IT WILL SUBMIT COMMENTS.

11/18/97 11/13/97 COMMENT OF ILLINOIS DEPARTMENT OF NUCLEAR SAFETY (THOMAS W. ORTCIGER, DIRECTOR) ( 1) 11/21/97 11/20/97 COMMENT OF FLORIDA PUBLIC SERVICE COMMISSION (CYNTHIA B. MILLER, ESQ.) ( 2) 11/24/97 11/18/97 LTR FROM DAVID K. OWENS, SR. V.P., EDISON ELECTRIC INSTITUTE ADVISING THAT COMPANY WILL SUBMIT COMMENTS IN EARLY DECEMBER 1997 .

• 1/24/97 11/18/97 COMMENT OF LYNNE GOODMAN ( 3) 11/24/97 11/24/97 COMMENT OF SOUTHERN CALIFORNIA EDISON COMPANY

{HAROLD B. RAY, EXEC. VICE PRESIDENT) { 4) 11/24/97 11/21/97 COMMENT OF FLORIDA POWER CORPORATION (ROY A. ANDERSON, SR. VICE PRESIDENT) ( 5) 11/24/97 11/21/97 COMMENT OF ILLINOIS POWER COMPANY {JOSEPH V. SIPEK) ( 6) 11/24/97 11/20/97 COMMENT OF ENTERGY OPERATIONS, INC.

(JERROLD G. DEWEASE, VICE PRESIDENT) ( 7) 11/24/97 11/24/97 COMMENT OF PUBLIC SERVICE COMMISSION OF THE STATE OF NEW YORK (LAWRENCE G. MALONE, GENERAL COUNSEL) ( 8) 11/24/97 11/24/97 COMMENT OF UTILILTY DECOMMISSIONING TAX GROUP (PATRICIA M. HEALY) ( 9) 11/24/97 11/24/97 COMMENT OF PUBLIC SYSTEMS GROUP (GARY J. NEWELL, ESQ.) ( 10)

DOCKET NO. PR-050 (62FR47588)

DATE DATE OF TITLE OR DOCKETED DOCUMENT DESCRIPTION OF DOCUMENT 11/24/97 11/24/97 COMMENT OF ILLINOIS COMMERCE COMMISSION (JAMES E. WEGING, ESQ.) ( 11) 11/24/97 11/24/97 COMMENT OF NAT. ASSOC. OF REGULATORY UTILITY COMMISSIONERS (CHARLES D. GRAY) ( 12) 11/24/97 11/24/97 COMMENT OF UTILITY DECOMMISSIONING GROUP (JOSEPH B. KNOTTS & WILLIAM A. HORIN) ( 13) 11/25/97 11/24/97 COMMENT OF NUCLEAR INFORMATION AND RESOURCE SERVICE (PAUL GUNTER) ( 14)

.11/25/97 11/25/97 COMMENT OF SOUTHERN NUCLEAR OPERATING COMPANY, INC.

(C. K. MCCOY, VICE PRESIDENT) ( 15) 11/25/97 11/24/97 COMMENT OF GREAT BAY POWER CORPORATION (GERALD CHARNOFF, ESQ.) ( 16) 11/25/97 11/20/97 COMMENT OF THREE MILE ISLAND ALERT, INC.

(ERIC JOSEPH EPSTEIN, CHAIRMAN) ( 17) 11/25/97 11/24/97 COMMENT OF TVA WATCH COALITION (KARL R. MOOR) ( 18) 11/25/97 11/24/97 COMMENT OF TENNESSEE VALLEY AUTHORITY (MARK J. BURZYNSKI) ( 19) 11/25/97 11/24/97 COMMENT OF BOSTON EDISON COMPANY AND 12 OTHER UTILITIES (MILTON B. WHITFIELD, ESQ.) ( 20) 11/25/97 11/24/97 COMMENT OF NUCLEAR ENERGY INSTITUTE (MARVIN S. FERTEL) ( 21) 11/26/97 11/24/97 COMMENT OF CAROLINA POWER & LIGHT COMPANY (DONNA B. ALEXANDER) ( 22) 11/26/97 11/24/97 COMMENT OF PACIFIC GAS AND ELECTRIC COMPANY (CHRISTOPHER J. WARNER) ( 23) 11/26/97 11/24/97 LTR FROM GARY J. NEWELL, ESQ. TO SECY REQ. THAT CITY OF ANAHEIM, CA BE ADDED TO PUBLIC SYSTEMS GROUP LISTED IN ATTACHMENT A OF COMMENT NO. 10 11/28/97 11/14/97 COMMENT OF AEP INDIANA MICHIGAN POWER COMPANY (E. E. FITZPATRICK, VICE PRESIDENT) ( 24) 11/28/97 11/21/97 COMMENT OF COMMONWEALTH EDISON COMPANY (MICHAEL J. WALLACE, SR. V.P.) ( 25) 11/28/97 11/24/97 COMMENT OF NEW YORK POWER AUTHORITY (JAMES D. LYONS) ( 26)

DOCKET NO. PR-050 (62FR47588)

DATE DATE OF TITLE OR DOCKETED DOCUMENT DESCRIPTION OF DOCUMENT 11/28/97 11/24/97 COMMENT OF FLORIDA POWER & LIGHT COMPANY (HARRY N. PADUANO) ( 27) 11/28/97 11/21/97 COMMENT OF DUKE ENERGY CORPORATION (M. S. TUCKMAN, EXEC. VICE PRESIDENT) ( 28) 11/28/97 11/24/97 COMMENT OF VIRGINIA POWER (JAMES P. O'HANLON, SR. V.P.) ( 29) 12/01/97 11/13/97 LTR FROM DOUGLAS L. PATCH, NEW HAMPSHIRE PUC TO CHAIRMAN REQUESTING EXTENSION TO 12/19/97 FOR SUBMITTING COMMENTS

.12/01/97 11/24/97 COMMENT OF NORTH ATLANTIC ENERGY SERVICE CORPORATION (TED C. FEIGENBAUM, EXEC. V.P.) ( 30) 12/02/97 11/25/97 COMMENT OF PUBLIC SERVICE ELECTRIC AND GAS COMPANY (DAVID R. POWELL) ( 31) 12/03/97 12/01/97 LTR FROM MILTON B. WHITFIELD, ESQ. TO SECY REQ.

THAT VERMONT YANKEE NUCLEAR POWER CORPORATION BE ADDED TO GROUP OF UTILIITES LISTED IN COMMENT 20 12/10/97 12/05/97 LTR FROM SAMUEL J. COLLINS, DIRECTOR, NRR TO DOUGLAS L. PATCH, CHAIRMAN, NH PUC RE EXTENSION OF COMMENT PERIOD TO 12/19/97 .

• 2/11/97 12/11/97 COMMENT OF EDISON ELECTRIC INSTITUTE (DAVID K. OWENS, SR. VICE PRESIDENT) ( 32) 12/15/97 12/11/97 COMMENT OF BALTIMORE GAS AND ELECTRIC COMPANY (CHARLES H. CRUSE, VICE PRESIDENT) ( 33) 09/17/98 09/16/98 FEDERAL REGISTER NOTICE - FINAL RULE 10/22/98 10/21/98 FEDERAL REGISTER NOTICE - FINAL RULE: CORRECTION

50

( blFI< J./75Bff) OOC KE *Fn US ?15'90-01-P]

NUCLEAR REGULATORY COMMISSION "98 OCT 22 Pl2 :16 10 CFR Part 50 OF, i* .. v RIN 3150-AF41 F{L.;Lf ADJL;L ,, (

'I.. . FF Financial Assurance Requirements for Decommissioning Nuclear Power Reactors; Correction AGENCY: Nuclear Regulatory Commission.

1'CTlON: Final Rule: Correction .

SUMMARY

This document corrects a final rule appearing in the Federal Register on September 22, 1998 (63 FR 50465), that amended the Nuclear Regulatory Commission's regulations on financial assurance requirements for the decommissioning of nuclear power reactors. The action is necessary to correct an omission and typographical errors.

EFFECTIVE DATE: November 23, 1998.

FOR FURTHER INFORMATION CONTACT: Brian J. Richter, Office of Nuclear Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001; telephone:

301-415-1978; e-mail; bjr@nrc.gov.

SUPPLEMENTARY INFORMATION:

§ 50. 75 [Corrected]

1. In the first sentence of paragraph (e)(1 )(i), the words "decommissioning costs."

should be corrected to read "decommissioning costs at the time termination of operation is expected."

T>,,<<h, ~ 10/;;. 1 /1g a:t b3FR S7:J3b

2. In the sixth sentence of paragraph (e)(1 )(ii), the words these methods" should be corrected to read "this method."

3. In the first sentence of paragraph (e)(1 )(vi), the reference to "paragraphs (e)(1 )(1)-

(iv)" should be corrected to read "paragraphs (e)(1 )(i)-(v)."

4. In the second sentence of paragraph (f)(1 ), the reference to "paragraph (e)(1 )(ii)(C)"

should be corrected to read "paragraph (e )( 1)(v)."

'l Sf Dated at Rockville, Maryland, this o<. I - day of October, 1998.

• For the Nuclear Regulatory Commission.

Jojfi C. Hoyle, Secretary of the Commission.

OC~ETED 7 ~ tmf.Fl NUCLEAR REGULATORY COMMISSION .98 SEP 17 P3 :04 10 CFR Parts 30 and 50 ,...I . ,:::- r. --,~-

OFr __ . _ _, 11*.* - ,*q RU!.,_ . * ' r )

RIN 3150-AF41 ADJUC ( r , '

• r FF Financial Assurance Requirements for Decommissioning Nuclear Power Reactors AGENCY: Nuclear Regulatory Commission.

ACTION: Final rule.

SUMMARY

The Nuclear Regulatory Commission (NRG) is amending its regulations on financial assurance requirements for the decommissioning of nuclear power plants. The amendments respond to (1) the potential rate deregulation in the power generating industry and (2) NRG concerns regarding whether current NRG decommissioning funding assurance requirements will need to be modified. The amendment requires power reactor licensees to report periodically on the status of their decommissioning funds, and on changes in their external trust agreements and other financial assurance mechanisms. The amendment also allows licensees to take credit for certain earnings on decommissioning trust funds.

~ :i. 31 19 9 g EFFECTIVE DATE: ~60 days f10111 tl,e date of publicatio11 ill tl,e Federal Register.)

FOR FURTHER INFORMATION CONTACT: Brian J. Richter, Office of Nuclear Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001; telephone:

301-415-1978; e-mail; bjr@nrc.gov.

SUPPLEMENTARY INFORMATION:

I. Background The NRG published an advance notice of proposed rulemaking (ANPR) for "Financial Assurance Requirements for Decommissioning Nuclear Power Reactors" on April 8, 1996 (61 FR 15427). This action was developed to amend the NRC's regulations relating to financial assurance requirements for the decommissioning of nuclear power plants in anticipation of rate deregulation of the power generating industry. In response to the comments received on the ANPR, the NRG published a proposed rule on September 10, 1997 (62 FR 47588). The NRG proposed to: ( 1) revise the definition of "electric utility" and related definitions contained in 10 CFR 50.2; (2) add a definition of the term "Federal licensee" to address the issue of which licensees may use statements of intent; and (3) require power reactor licensees to report periodically on the status of their decommissioning funds and changes in their external trust agreements. The rule also would have amended 10 CFR 50. 75 to expressly allow licensees to take credit for the earnings on decommissioning trust funds during the operating and decommissioning periods.

II. Comments on the Proposed Rule The Commission received 33 letters containing more than 200 comments on the proposed rule representing 25 licensees or licensee organizations, 5 State agencies or Public Utility Commissions, 2 public interest groups; and an individual with no affiliation provided.

Copies of the letters are available for public inspection and copying for a fee at the 2

Commission's Publlc Document Room, located at 2120 L Street, NW. (Lower Level),

Washington, DC 2055-0001.

The comments have been organized by topic and an analysis of them follows.

1. Definition of Electric Utility A. . Linkage Between Decommissioning Financial Assurance Requirements and Financial Qualification Requirements (i.e., Linkage Between Costs of Operation, Maintenance, and Decommissioning)

Several commenters, including the Nuclear Energy Institute (NEI), stated that NRG should not use the term "electric utility in its decommissioning financial assurance rules because the term is used for different purposes in the context of NRC's financial qualification requirements in .1 O CFR 50.33(f). These commenters stressed that only decommissioning costs are of concern with respect to the financial assurance requirements, whereas only operation and maintenance costs. are of concern with respect to the financial qualification requirements. By referencing all these costs as well as the cost of "electricity," the proposed definition of electric utility is both unclear and problematic.

The commenters cited several specific problems. First, the definition does not adequately express NRC's intent that an entity can demonstrate adequate assurance if it can "conclusively demonstrate a government-mandated, guaranteed revenue stream for all unfunded decommissioning obligations" by virtue of a non-bypassable charge that covers only decommissioning co'sts. (For example, one commenter stated that, in California, licensees are 3

assured of recovering decommissioning costs in distribution rates through non-bypassable means, although recovery of the costs of operation and maintenance may not be assured.)

Second, the definition could unnecessarily invite challenges to the rates established by regulators. Specifically, by requiring that an electric utility's rates be "sufficient for the licensee to operate, maintain, and decommission its nuclear plant safely," the proposed definition could imply that NRC may in the future evaluate the sufficiency of rates established by other regulatory authorities to cover costs of operations and maintenance. Third, by referencing "operation," the definition could create or imply some responsibility for decommissioning funding on the part of nonowner operators that, they argued, may inhibit the formation of joint operating companies.

The NRC believes that commenters' concerns in this area were addressed by the third sentence of the proposed definition, that states that "An entity whose rates are established by a' regulatory authority by mechanisms that cover a portion of its costs will be considered to be an

'electric utility' only for that portion of the costs that are collected in this manner." NRC did not intend to have all licensees consider only the combined costs of operation, maintenance, and decommissioning. Nevertheless, even some commenters who understood NRC's intent suggested modifying this third sentence. One suggestion was to replace it wi_th "An entity whose rates are established by a regulatory authority by mechanisms that cover only

• decommissioning costs will be considered to be an 'electric utility' with respect to its decommissioning funding responsibilities." (Presumably an additional parallel sentence would address "(?OSts of operation and maintenance costs ... with respect to its financial q~alification requirements.") Another suggestion was to clarify the third sentence by referring to recovery of a certain portion or discrete category of costs. Either of these suggestions would also obviate any need to include the 1O percent de minim is threshold for non-recovered costs that was 4

suggested by one commenter (i.e., because the relevant category of costs -for decommissioning - would be recovered, even if they ~ere less than 1O percent of all costs),

and would allay the concerns of several commenters that an entity recovering only decommissioning costs through non-bypassable charges might be considered less than a 100 percent electric utility for purposes of the decommissioning requirements.

One possible remedy, as suggested by NEI, would be for NRC to construct and define a new term such as "qualified nuclear entity that would apply only to the decommissioning financial assurance requirements. NEI would define a qualified nuclear entity as one that obtains decommissioning funds through: (1) a rate-setting mechanism; (2) a non-bypassable charge established by legislative or regulatory mandate; or (3) a binding contractual agreement

. with another party that is equal in amount to the entity's decommissioning funding obligation.

Only the third option in NEl's definition is not generally consistent with NRC's proposed definition. NEl's comment does not fully or adequately explain the meaning or implfcations of the binding contractua_l agreement included as the third option in its definition. However, other commenters specifically referenced NEl's comments, and objected to the binding* contractual

• agreement portion of NEl's suggested definition. Some of these commenters sta,ted that a

• binding contractual agreement would provide inadequate assurance unless the party offering the contract were appropriately qualified.

As a final point, NEI noted that the term "electric utility may take on a different meaning as a result of industry restructuring, but would not alter the existing definition of electric utility which would, under NEl's proposal, remain applicable to NRC's financial qualification requirements. The logic of this position is that the current rule is intended to address the decommissioning financial assurance requirements rather than the financial qualification 5

requirements. Nevertheless, the loss of regulatory oversight as a potential consequence of industry restructuring is as relevant to NRC's financial qualification requirements as it is to NRC's decommissioning financial assurance requirements. Therefore, the NRG has adopted another approach that is intended to address commenters'* concerns, but that does not have some of the shortcomings of NEl's approach. The Commission has decided not to change the current definition of "electric utility as it applies to financial qualifications requirements in 1o CFR 50.33(f). Rather, the NRG is clarifying the applicability of external sinking funds and other mechanisms directly in 10 CFR 50. 75.

B. Direct vs. Indirect Cost Recovery Some commenters argued against the proposed deletion of the phrase "either directly or indirectly in the first sentence of NRC's existing definition of electric utility, which states that "Electric utility means any entity that generates or distributes electricity and which recovers the cost of this electricity, either directly or indirectly, through rates established by the entity itself or by a separate regulatory authority." These commenters stated that allowing cost recovery based only on regulated rates and non-bypassable charges might restrict licensees from competing in the open market. Specifically, the change might prevent licensees with Public Utility Commission (PUC)- or Federal Energy Regulatory Commission (FERC)-approved, long-term power sales agreements from qualifying as electric utilities.

It is not clear whether PUC- or FERG-approved, long-term power sales agreements would qualify as cost of service regulation or as non-bypassable charges (and hence as cost recovery through regulated rates) under either the current definition or the proposed definition.

Assuming that PUCs or FERG analyze these agreements to ensure that they are consistent 6

with the entity's recovery of all reasonable and prudent costs, it would be reasonable for NRC to interpret these agreements as acceptable under either definition. Because this interpretation would not be obvious under either definition, however, such an interpretation by NRC would have to be implemented through existing or new guidance documents, whether or not the phrase is added to the definition. If these agreements are not consistent with the entity's recovery of all reasonable and prudent costs, then the phrase "either directly or indirectly has been deleted appropriately.

Another commenter stated that NRC should not delete the phrase "directly or indirectly

because the deletion could be interpreted as eliminating the exemption from financial qualification requirements applicable to nonowner operators who cover their costs under contracts with owners. The commenter claimed that NRC has trad_itionaUy held that nonowner operators are "electric utilities" exempt from the regulated rates of the owners who are contractually committed to pay the operators' expenses. The logic of the commenter's argument seems to be that nonowner operators recover the costs of their electricity from owners, whose rates are directly regulated, thereby making the operator's cost recovery indirectly regulated. For the reasons that follow, the final rule should render this concern moot.

C. Consequences of Not Meeting the Definition One commenter sug~ested that the proposed definition could result in the premature shutdown of nuclear power plants that have insufficient funds set aside to pay for decommissioning. This comment appears to argue that premature shutdowns may result if, as 7

a result of an entity's loss of status as an electric.utility, it must (but is unable to) provide up-front financial assurance for decornmissioning. This issue is analyzed in Section 7.B, Prepayment/Up-front Assurance.

D. Implications for State Ratemaking Authority Some commenters suggested that NRC clarify that it does not intend to infringe upon State ratemaking authority. To this end, one PUC stated that the NRC should remove from the definition the requirement that utilities recover "the cost of electricity," which is only an

• intermediate consideration in the development of rates. This commenter suggested that the definition should be changed to "any entity that generates, transmits, or distributes electricity."

In response, the NRC has neither the intention nor the authority to infringe on State ratemaking authority. The NRC believes that the final rule described below will obviate these commenters' concerns.

E. Regulatory Efficiency Some commenters suggested that the proposed regulation at§ 50.75(e)(3) be revised to avoid repeating the definition of electric utility. This comme11t has been adopted, de facto, by the final rule.

F. Application of Definition to Public Power Agencies Some commenters noted that the proposed definition does not appear to require public power agencies to recover all of their costs in their rates, only that they set their own rates. In a 8

competitive market, it does not follow that the authority of such agencies to set their own rates will, in and of itself, provide assurance of decommissioning funding.

These comments appear to address the last sentence in the proposed definition of electric utility:

Public utility districts, municipalities, rural electric cooperatives, and State and Federal agencies, including associations of any of the foregoing, that establish their own rates are included within the* meaning of "electric utility."

This sentence automatically classifies any licensee that falls in one of the above-referenced groups (collectively referred to by the commenter as "public power agencies") as an electric utility. Thus, public power agencies automatically qualify as electric utilities without consideration of any of the definition's other conditions on rate recovery. The commenters' assessment appears sound in that, in a competitive market, such entities might not r~cover all their costs even if they can set their own rates. The ability to set rates adequate to achieve full

. cost recovery would be undermined by the loss of an exclusive service territory. Although the NRC is retaining, unmodified, the definition of "electric utility" for purposes of financial qualifications, the NRC has adopted this comment in its revised section 50.75(e).

2. Definition of Non-Bypassable Charge A. Stricter Definition Needed One commenter suggested revising the definition to require that monies collected via the non-bypassable charge be available to the licensee, either through assignment or some 9

other mechanism. This comment seems reasonable. If charges are not available to the licensee (e.g., if the revenue stream resulting from the charge has been assigned to an unrelated party as a result of a securitization), then the non-bypassable charges would not provide reasonable assurance of decommissioning funding. The final rule has been modified to reflect that _non-bypassable charges should be available to the licensee as part of funds for decommissioning deposited in an external sinking fund.

One commenter stated that because decommissioning funding must be secured and insulated from market risk, the preferred funding method should be a non-bypassable charge established by a regulatory mandate. According to the commenter, this approach better assures adequate funding while removing decommissioning as an issue in future competition, and also would help utilities in making optimal business decisions in the competitive environment. Regardless of the validity of the comment, the NRC believes that-it would be encroaching upon the responsibilities of other regulators if it were to establish a single method for cost recovery.

B. Link Between Operation, Maintenance, and Decommissioning One commenter stated that the definition's reference to "costs associated with operation, maintenance, and decommissioning" is problematic for the same reasons that were noted in the "electric utility" definition. [See discussion and analysis in Section 1-A.] Another commenter stated that NRC's proposed definition of non-bypassable charge could be interpreted to mean that operation, maintenance, and decommissioning costs must all be covered by a charge in order to meet the definition. This may be inconsistent with actual 10

charges established by PUCs. For example, a PUC could decide to establish a charge for decommissioning costs, but not for operation and maintenance costs.

One feasible solution was suggested by several commenters, who stated that the definition should be revised to read "costs associated with operation, maintenance, or decommissioning ... -~ They noted that this is more consistent with the intent of the rule and would not exclude licensees that recover only decommissioning costs through a non-bypassable charge, but that recover all other costs through competition. The final rule reflects this modification.

C. Types of Non-Bypassable Charges One commenter stated that it is not clear whether the proposed definition encompasses wire charges, stranded cost ~harges, transition charges, exit fees, other similar charges, the securitized proceeds of a revenue stream, or price cap regulation. If ~RC decides to defer to State regulatory officials, the final rule should be clear in stating the types of charges covered

• by the definition. Similarly, other commenters suggested expanding the definition to include other funding mechani.sms imposed or established by a governmental authority. One commenter suggested the definition might include a decommissioning liability covered by State securitization legislation. Another.suggested it might include binding contracts secured by legislation or a regulatory commission order or both.

The proposed definition, as stated, includes 11

a

... charges imposed by _governmental authority which affected entities are required to pay [over an established time period] to cover costs associated with operation, maintenance, and decommissioning of a nuclear power plant.

As noted in the previous section, the NRC has modified the definitions of "non-bypassable charges" in the final rule to focus solely on "costs associated with decommissioning of a nuclear power plant." With that modification, this definition seems to provide an effective performance standard for any type of charge that might be developed by State regulatory officials to cover decommissioning costs. Consequently, there seems to be little benefit to the commenter's sugges_tion, and some possible danger* if any specific charges that might be listed in a revised definition were ultimately_ implemented by State regulatory officials in ways that did not

. meet the currently proposed definition. Nevertheless, the NRC has cited. examples of non-

. bypassable charges in its definition, without limiting such charges only to the cited examples.

Finally, one commenter stated that NRC's commentary that securitizatiori of a licensee's interest in non-bypass~b.le charges "may b.e an acceptable method of providing decommissioning funding assurance seems to suggest that the existence of a licensee's entitlement to non-securitized irrevocable, non-bypassable charges may not be sufficient to

• meet the definition and avoid up-front funding. This comment, however, seems at odds with the*

plain meaning of the definition of non-bypassable charges.

D. Other Finally, one commenter suggested revising the definition to replace the phrase "governmental authority" with the phrase "regulatory authority." As pointed out by the commenter, this would make the definition more consistent with the definitions of "electric utility

12

and "cost of service regulation." The NRC is aware of the difference and believes the definition as presented better represents the NRC position because the term "governmental authority is more inclusive and allows for actions by non "regulatory authorities," such as State legislatures.

3. Definition of Cost of Service Regulation The comments addressing the definition of "cost of service regulation" seemed, in general, more directly applicable to other parts of NRC's proposal, as discussed below.

• One commenter stated that the modifier"all" should be deleted from the "cost of service" definition. This commenter argued that a definition requiring that "all" reasonable and prudent costs be recovered invites a challenge to the sufficiency of a licensee's rate regulation.

Similarly, another commenter stated that the definition should account for the possibility of "partial" cost of service regulation. The NRC believes that commenters' concerns in this area:

were addressed by the third sentence of the proposed definition of electric utility, that states "An entity whose rates are established by a regulatory authority by mechanisms that cover only a

• portion of its costs will be considered to be an 'electric utility' only for that portion of the costs that are collected in this manner." NRC did not intend to imply that a licensee was subject to cost of service regulatiqn only in the event that all its reasonable and prudent costs are recovered per the definition, but rather that the licensee would be deemed to be regulated under cost of service regulation for whatever portion of its reasonable and prudent costs are covered per the definition. This comment has been rendered moot by the NRC's revised final rule.

13

Another commenter stated that the proposed definition of "cost of service regulation" should not exclude "performance based" and "incentive" ratemaking* adopted by some State ratemaking authorities. This commenter proposed adding the following to the definition: "Cost of service regulation includes, but is not limited to, alternative forms of ratemaking which provide for a portion of costs to be recovered based on reasonable benchmarks and incentives for good performance."

This comment does not seem to recognize that the term "cost of service regulation" is actually referenced as "traditional cost of service regulation" by the proposed definition of electric utility, which distinguishes cost of service regulation from indirect cost recovery through non-bypassable charge mechanisms. In the final rule, this reference to traditional ratemaking is contained in the definition of "cost of service regulation." In this broader context, the NRC's intention to keep the present focus of "cost of service regulation" seems clear and, moreover, the licensee's suggested additions seem inappropriate (because they are not precisely consistent with traditional direct recovery of reasonable and prudent costs). However, given that the NRC believes that incentive or price-cap-based ratemaking provides reasonable assurance of decommissioning funding, the NRC revised the definition of "cost of service

• regulation" to reflect this concern.

4. Need for General Flexibility The flexibility issue has two dimensions. First, several commenters wanted the maximum number of financial assurance options available to reactor licensees. Second, these commenters urged NRC not to include specific or detailed criteria in its rules, which should be*

14

kept general; but to address implementation details in a regulatory guide or similar non-binding form.

Among the various financial assurance mechanisms, there are differences in cost, availability, and risk (i.e., degree of assurance). Similarly, because licensees vary in their financial situations and prospects, they pose different degrees of risk in terms of their abilities to provide funding for reactor decommissioning. Making riskier financial assurance mechanisms available to riskier licensees compounds risk to the public that adequate funds will not be available when needed. Thus, prudent public policy may limit the r9:nge of mechanisms that

• should be offered to certain categories of licensees. This is recognized by the commenters themselves, who more or less endorsed the NRC framework, which distinguishes a category of

_licensees that should not be afforded the option of using an external sinking funding, by itself, as a mechanism of assurance. The commenters did not contend that all licensees should be allowed to use all mechanisms; however, they wanted the external sinking fund option to be made available to mor~ reactor licensees than might qualify under the NRC proposal. If this mechanism were equal to the others in terms of risk, the NRC could make it more available in

• the interests of flexibility. Because this option has more risk than other available assurance options, the NRC believes it is prudent to restrict its use to licensees with stronger financial° or rate regulatory characteristics.

With respect to keeping the rule general and reserving details for a regulatory guide, there are two key considerations. First is a matter of regulatory philosophy and enforcement posture. Reserving details for regulatory guides is an approach that the NRC has used.

However, regulatory glJides are statements of one way in which licensees can meet regulations and do not establish requirements.

15

The second consideration is the potential need to change the requirements. It is much easier to change, add, *or delete methods as acceptable for meeting requirements in regulatory guides than in regulations. Inasmuch as the NRC's power reactor licensees have begun on a path of economic restructuring, and will be in a period of transition for a number of years, the flexibility afforded by using a regulatory guide as a vehicle for decommissioning financial assurance requirements may be an advantage. On balance, the NRC is maintaining a level of detail equivalent to previous rulemaking in this area, and reserves the right to issue more detailed guidance where necessary. The NRC, in acknowledging the use of combinations of assurance methods, cannot list all possibilities, but includes as an example, the recent New Hampshire legislation that provides for the proportionate liability of the co-owners of the Seabrook Nuclear Power Station in the event that another minority owner, Great Bay Power Company, defaults on its obligations.

5. Applicability of Requirements to Plant Owners and Operators Two commenters urged the NRC to clarify that the requirements for decommissioning financial assurance apply only .to owners or entities that have assumed decommissioning liability under contracts and not to entities that are solely operators. The commenters argued that this clarification is important to the formation or use of specialized operating service companies with no ownership interests in the facilities they operate.

• Applying financial assurance requirements to both owners and operators provides flexibility, since either can demonstrate compliance. This approach also__recognizes scenarios in which the operator has greater financial resources or creditworthiness or both than the owner. Such a scenario is conceivable following the economic restructuring of the electric 16

power industry. To provide greater flexibility and assurance, the NRC will not specifically exempt operator licensees from the financial assurance requirement. This is unlikely to affect the formation or use of operating service companies, because they can negotiate with reactor owners regarding which party or parties will be responsible for demonstrating financial assurance for decommissioning purposes.

6. Site-Specific Cost Estimates Four commenters addressed the desirability of allowing licensees to use site-specific

• c:1ecommissioning cost estimates as the basis for financial assurance and reporting, even if these estimates are less than the current minimum amounts prescribed in§ 50.75. The primary advantage asserted would be to avoid unnecessary assurance expenses when a site-specific estimate is less than the current NRC minimum. Other asserted benefits of allowing licensees to use site-specific cost estimates below the NRC minimums include greater consistency with

. PUC approaches, tax treatment, and possible Financial Accounting Standards Board (FASS)

• requirements. Moreover, acceptance of site-specific estimates might enhance the integrity of the rule, given the perception stated by several licensees of problems with the current minimum amounts and the acceptance by PUCs of site-specific cost estimates as the basis for financial assurance even where the site-specific estimates* are less than the NRC minimums. However, given other potential weaknesses in current implementation (primarily relating to the adequacy of cost estimates and the potential under-funding indicated by current balances in decommissioning trust funds), such an allowance could aggravate the risk of potential under-funding associated with the external sinking fund mechanism. Submittal of site-specific estimates to the NRC would enable it to better evaluate the funds needed for decommissioning.

17

However, the Commission has decided to defer allowing site-specific estimates that are lower than the amounts specified in 10 CFR 50.75(c) until additional decommissioning data are obtained. (Staff Requirements Memorandum, SECY 97-251 - Proposed Rule on Nuclear Power Reactor Decommissioning Costs, February 5, 1998.)

7. Alternative Methods of Assurance A. Alternative Framework Proposed by NEI NEl's proposed framework for financial assurance for decommissioning resembles in broad outline NRC's framework, which broadens the range of allowable assurance mechanisms for reactor licensees that lose the ability to recover decommissioning costs through regulated rate fees or other mandatory charges established by a regulatory body. Although the external sinking fund, standing alone, is not allowed for the licensees losing such regulatory oversight, the NRC framework also offers opportunities for case-by-case consideration of non-standard financial assurance arrangements. Examples include section 50.75(e)(1)(v), which allows unspecified, other guarantee methods; and certain contractual arrangements ln section 50.75(e)(1 )(ii)(C).

The NEl's framework involves three, rather than two, categories of power reactor licensees. Under the NEI framework, the broader set of assurance mechanisms (including the current external sinking fund approach) would be available to: first, licensees meeting the criteria for "qualified nuclear entities" and second, licensees that do not meet the requirements for "qualified nuclear entities" but that satisfy a set of financial criteria. NEI does not specify in its comments what these financial criteria would be. Third, licensees that satisfy neither the 18

criteria for qualified nuclear entities nor the alternate financial criteria would not be *allowed to use the external sinking fund option, but would be able to use the other mechanisms. NEI also includes an option for non-standard demonstrations of assurance.

The effect of the NEI proposal would be to make the current external sinking fund financial assurance option available to a larger number of licensees than would be allowed under the NRC proposal. This effect is the result of: (1) defining "qualified nuclear entities" in terms of criteria thatmay be less stringent than the proposed criteria for "electric utility; and (2) allowing licensees that satisfy certain financial criteria also to take advantage of the external sinking fund option, which they would not be allowed to do under the NRC proposal. The NEI proposal would mean an increase in the risk that adequate funds will not be available when needed because of an inadequate funding rate, inadequate earnings on invested funds, or premature shutdown. It would decrease the cost to licensees. NRC's proposal entails less risk of inadequate funding, but greater cost to licensees.

On balance, to make the external sinking fund option more available to reactor licensees, the NEI framework would result in greater risk that sufficient decommissioning funds will no, be available when needed. The NEI proposal also would require the development of appropriate financial criteria, which would be challenging to develop because of the unpredictable nature of the industry. An entity that meets the financial criteria, unlike those licensees who retain the ability to recover decommissioning costs through regulated rates and fees or other mandatory charges established by a regulatory body, would have no guarantee of collecting sufficient funds for decommissioning and could encounter deteriorating financial conditions that could cause a reduction or cessation of payments into the external sinking fund.

19

The NEI framework would produce the same result if the financial criteria were made an alternate basis for being a "qualified nuclear entity." This would produce a two-tier framework parallel in structure to the NRG proposal, though different in content.

Based on these considerations, the NRG is not adopting NEl's proposed approach.

Rather, the NRG is specifying in section 50.75, a variety of mechanisms for providing decommissioning financial assurance that licensees may use, depending upon their circumstances. The revised regulations would also permit the use of "other guarantee methods" that are not specifically identified in the regulations.

B. Prepayment/Up-front Assurance

• One commenter addressed the issue of up-front assurance. The commenter stressed that it is unfair for NRG to require up-front funding for licensees that no longer meet the definition of "electric utility." In particular, the commenter argued that licensees have presumed all along that they would be able *to gradually fund decommissioning throughout their plants' operating lives and that, as a result, licensees who are no longer considered electric utilities may be unable to remain in business.

NRG's current financial assurance requirements for decommissioning nuclear power reactors are based on the premise that the reactors are owned by regulated or self-regulating entities that recover their decommissioning costs through a rate-setting process overseen by the applicable regulating body. This regulatory oversight provides reasonable assurance that such licensees will recover reactor decommissioning costs and continue paying into external sinking funds for decommissioning.

20

It is true that those licensees no longer able to recover decommissioning costs through regulated rates and fees or other mandatory charges established by a regulatory body may incur a greater burden by having to provide up-front assurance. This up-front assurance could take the form of prepayment or it could take the form of some type of surety mechanism (e.g., a lette*r of credit, or a partrier or self guarantee). It is possible, under some restructuring scenarios, that this could lead to premature shutdown of some reactors. However, the likelihood of this occurring is highly doubtful. Many PUCs have already indicated their intention to allow for the regulated recovery of decommissioning costs, either through rates or through some type of non-bypassable charge, even for otherwise deregulated entities. For licensees .

that will not be able to collect funds through such a process after industry restructuring, up-front assurance is necessary to ensure that reasonable financial assurance is provided for all decommissioning obligations. In the more competitive environment that is likely to prevail after restructuring, some of these licen~ees may not remain financially viable for reasons not related to decommissioning financial assurance, further suggesting the need for up-front assurance.

C. Accelerated Funding In the preamble to its proposed rule, NRG requested comment on whether accelerated funding should be considered as a financial assurance option for licensees no longer meeting the definition of "(?lectric utility." Several commenters supported accelerated funding, provided that the accelerated funding period would be long enough. They generally stressed that, if the funding period were too short, non-electric utilities would be placed at a competitive disadvantage, potentially leading to insolvency and premature shutdown of plants. One commenter asserted that the burden of accelerated funding would be most severe for licensees with little time remaining before shutdown. Several commenters offered specific suggestions 21

regarding the length of an accelerated funding period, stating that it should last most or all of the remainder of the license period, two-thirds of the remaining license term or 10 years (whichever is greater), or five-eighths of the remaining license period. One suggested that the _

licensee or the licensee's parent company should have to pass a financial test for any unfunded amount in order to use accelerated funding. Others cautioned that accelerated funding could interfere with licensees' business planning or lead to negative tax consequences.

For licensees with reactors that have remaining operating lives of less than the accelerated funding period, the accelerated funding option would have no impact because licensees' funding schedules would be no different than they are currently. NRC would have less assurance from these licensees, given that theywould no longer recover decommissioning costs through regulated rates and fees or other mandatory charges established by a regulatory body. For licensees associated with reactors that have remaining operating lives longer than the accelerated funding period, the accelerated funding option would be a significantly less burdensome means of demonstrating financial assurance than full, up-front funding. In all cases, however, the relative decrease in burden to the licensee must be weighed against the reduced level of financial assurance provided to NRC during any accelerated funding period.

The length of an accelerated funding period would affect individual_ licensees differently, depending on the amount of unfunded decommissioning obligation and on the time period that the licensees would otherwise have had to complete the funding. The greater the amount of money that must be funded on an accelerated schedule, the more significant the impact will be

-on a licensee. For example, assuming licensees are otherwise identical and have been adequately funding an external sinking fund all along, the impact of a 10-year accelerated funding schedule would be greater for a licensee with 25 years of operating life remaining than 22

for a licensee with 15 years of operating life remaining. (This contrasts with the comment asserting that impacts would be most severe for licensees with little time remaining before shutdown. In fact, the opposite is true, except for licensees that have been making inadequate contributions to their decommissioning sinking funds.)

The NRG believes that the alternative of requiring accelerated funding for all plants over a defined period, to cover the possibility of premature shutdown at some plants, would be too arbitrary and would lead to wide variations in impacts on licensees. Accelerated funding results

• in the inequitable inter-generational problem of the_ present generation paying for the decommissioning costs, while the future generation may receive the benefits of future electricity generation without incurring the costs of decommissioning. The suggestion that NRG should allow licensees to use accelerated funding only if they or their parent companies have sufficient assets is analogous to combining a self-guarantee or parent company guarantee with the external sinking fund mechanism. This idea has significant advantages to licensees, and is*

discussed in Section 7.J, "Combinations of Methods."

Another way to reduce the burden of accelerated funding on licensees would be to ensure that the accelerated contributions are tax deductible. Under current Internal Revenue Service {IRS) rules, ac.celerated payments into decommissioning funds may not be deductible.

However, these tax changes are beyond the NRC's mandate and Congressional or IRS action would be required to accomplish them. Consequently, unless these rules are changed, licensees may be ineligible to receive tax breaks on deposited funds.

For the reasons stated above, the NRG does not consider accelerated funding to provide reasonable decommissioning financial assurance.

23

D. Parent Guarantees/Self-Guarantees .

The commenters generally endorsed parent company guarantees and self-guarantees as a reasonable method of assurance for licensees no longer meeting the definition of "electric utility." However, a number of commenters stated that the financial tests specified in Appendices A and C to 10 CFR Part 30 are inappropriate for these licensees and would be overly burdensome. Several commenters suggested specific revisions to NRC's existing financial tests:

• One commenter suggested that NRC allow non-electric utilities to use: (1) a parent company guarantee from a parent meeting the criteria for self-guarantees; and (2) a*

self-guarantee for licensees meeting at le~st two of the following criteria:

Licensee has an investment grade bond rating; Licensee's pre-tax income (before interest expense) divided by iriteres't applicable to debt is greater than or equal to 2; and Licensee's net worth is at least twice the current remaining unfunded cost of decommissioning in current year dollars.

• One commenter stated that the self-guarantee test's "10 times requirement' for assets should be lower, but did not suggest an alternative threshold.

• One commenter suggested that the financial tests should require total assets in the U.S.

and tangible net worth to be one to two times the estimated decommissioning costs, rather than what is currently specified in the tests.

24

• One commenter suggested that the Commission consider ownership of other revenue-generating assets (besides the nuclear power plant).

• One commenter suggested that the NRC should develop a process similar to the one used by bond-rating agencies to assess the ability of firms to continue repaying principal or to continue paying interest or dividends.

• Finally, one commente_r suggested that the NRC allow non-electric utilities to use parent company guarantees in conjunction with other allowable financial assurance methods, such as external sinking funds. (The issue of using parent company guarantees in combination with-other mechanisms is discussed in Section 7.J,_ "Combinations of Methods").

NRC's parent company guarantee is based largely on a financial test developed by the EPA more than 15 years ago. EPA's test was intended to assess the financial condition of

• firms managing hazardous waste that were seeking to assure closure and post-closure care obligations that are substantiaily smaller than typical decommissioning costs for power reactors.

In adopting these tests, the NRC believed that its objectives for financial assurance would be reasonably met, but recognized that the tests were most appropriate for materials licensees, although, at that time, the financial tests were also made applicable to nuclear power plant licensees who were not "electric utilities." The NRC realized that most power plant li_censees would likely use external sinking funds rather than parent or. self guarantees to provide decommissioning funding assurance, and thus did not perform a detailed analysis of their applicability to power plant licensees.

Because deregulation is still in its earliest phases, it is not yet possible to identify or define the financial characteristics of entities that may ultimately be responsible for reactor decommissioning. Consequently, evaluating or improving the test's applicability to those licensees who are no longer able to recover decommissioning costs through regulated rates and fees or other mandatory charges established by a regulatory body may be difficult, and any criteria that might be developed could become outdated or misleading relatively quickly. Finally, developing and implementing alternative tests (such as those suggested by commenters) could place a substantial burden on the NRC. For these reasons, the NRC is consider.ing any changes to financial tests separate from this rulemaking.

• Nevertheless,*the NRC is implementing some changes to parent and self guarantees that may make these assurance methods more viable for power reactor licensees. Section 7.J describes these changes in more detail.

E. Surety Methoqs Three commenters addressed the issue of surety methods of financial assurance (i.e.,

surety bonds, letters of credit, lines of credit). The predominant issue raised by these commenters pertained to the limited availability of these mechanisms to licensees no longer meeting the definition of "electric utility." One commenter claimed that because the majority of generating companies will have an assured recovery mechanism through non-bypassable charges, there will be no new market created for surety mechanisms after industry restructuring, and that licensees required to obtain these mechanisms will be faced with significant costs. Another argued that NRC should ascertain the availability of these instruments before issuing a final rule based on the assumption of their availability. This commenter proposed the creation of a Government-managed decommissioning insurance plan 26

to provide such mechanisms (discussed in Section 7.G, "Government-Managed Insurance Plan").

NRC recognizes that there are likely to be limits on the availability of surety mechanisms such as letters of credit, lines of credit, and, in particular, surety bonds, to licensees trying to demonstrate financial assurance. This limited availability would arise from two factors. First, the amount that would need to be assured under such a mechanism (i.e., the difference between the licensee's decommissioning cost estimate and the current balance in its external sinking fund) could in some cases be quite large and could pose a significant risk to potential providers of the mechanisms. Second, mechanism providers also may view some licensees

, (those that lose the ability to recover decommissioning costs through regulated rates and fees or other mandatory charges established by a regulatory body) as financially risky ventures given their restructured operations and newly deregulated financial characteristics (e.g., licensees may no longer have guaranteed service areas). Some licensees may be able to obtain these mechanisms only after offering significant levels of collateral to the provider as security.

Generating subsidiaries without access to substantial assets other than the nuclear plant may find it difficult to provide the necessary collateral and _may be unable to obtain a surety mechanism. Even if surety mechanisms are not available to some licensees, licensees may be able to use prepayment mechanisms (e.g., full up-front funding of the external sinking fund),

possibly arranging for the necessary funding prior to restructuring (e.g., before a nuclear plant*

is placed in a generating subsidiary with few other assets). Licensees may also have access to parent and self guarantees, which are still less costly.

27

F. Power Sales Contracts Commenters suggested two possible roles for power sales contracts in.the financial assurance program: (1) as a threshold condition for being able to use the external sinking fund; and (2)" as a mechanism for demonstrating financial assurance. One commenter recommended that power sales contracts be accepted as a means by which licensees not meeting NRC's proposed definition of electric utility can qualify to use the broader range of assurance mechanisms - such as the external sinking fund. Another commenter concurred, stating that such *contracts would be secured by legislation or a regulatory commission order or both.

Commenters also recommended that, for licensees not qualified to use the external sinking fund, an assurance mechanism that would allow a licensee to show that power sales contracts

• are in place, could provide some or all decommissioning funding.

There is an important difference between using power sales contracts as a threshold criterion, for reactor licensees that lose the ability to recover decommissioning costs through regulated rates and fees or other mandatory charges established by a regulatory body, and as a financial assurance mechanism. As a threshold criterion, power sales contracts would represent evidence of the financial status and prospects (e.g., sales backlog) of a company.

These contracts would be considered when private financial organizations assess the credit-worthiness of companies. However, power sales contracts have some disadvantages that work against their use as a threshold criterion. First, power sales contracts may have contingencies that make it difficult to project revenues or earnings. Such contracts are not equivalent to a Government-mandated revenue stream that would fully fund decommissioning costs. It also would be very difficult for NRC to define clearly how it would analyze and evaluate such contracts, potentially creating issues of fairness, *consistency, and accountability. For example, 28

the NRG would need to assess whether a given contract covers all licensee costs (including decommissioning), how binding it is, and its effective term. Unlike financial statement data, which can be statistically associated with subsequent financial performance, there is no objective basis or validated test for linking sales contracts to future financial performance. By making it easier for licensees that lose the ability to recover decommissioning costs .through regulated rates and fees or other mandatory charges established by a regulatory body, or that do not have access to a Government-mandated revenue stream to use the external sinking fund, acceptance of power sales contracts as a threshold criterion may increase the risk that funds will not be available when needed. However, under certain circumstances that the NRG has specified in this final rule, the NRG believes that long-term contracts can provide levels of decommissioning funding assurance that are equivalent to other acceptable methods.

Power sales contracts also are unlikely to make good financial assurance mechanisms, unless they have terms that provide for payment of decommissioning costs under most likely occurrences. They often lack the provisions needed to ensure effective and continuing coverage (e.g;, automatic renewa!, notice of cancellation). For example, in Town of Boylston v.

FERG (21 F.3D 1130, 305 U.S.APP.D.G. 382), municipal purchasers successfully challenged an order to pay reactor decommissioning costs as a charge under their power purchase contracts'. Moreover, FERG has authority to impose alternative provisions in the public interest if it finds contracts to be unjust and unreasonable. Power sales contracts often contain contingencies that may make it difficult to determine corresponding levels of revenues. Long-term contracts for the supply of uranium, natural gas, and coal have all been subject to litigation at one point or another because of market or regulatory changes, which may be specifically 29

addressed in contracts or covered under "force majeure' 1 clauses. These contracts typically do not themselves effect the setting aside or guarantee of monies, although contracts could be written to serve as guarantees or to require that proceeds be deposited in external sinking funds. The NRG believes that power sales contracts that contain provisions to mitigate these shortcomings can provide reasonable assurance of decommissioning and have been allowed, under specified conditions, in the final rule.

G. Government-Managed Insurance Plan Two commenters addressed the NRC's decision to eliminate from future consideration the concept of a captive insurance pool to pay unfunded decommissioning costs. One noted

. only that it agreed with the decision not to pursue this option. The other commenter, however, disagreed with the decision and urged the NRG instead to investigate the creation of a Government-managed decommissioning insurance plan. Under this plan, the licensee would be able to purchase an insurance policy from the Federal Government. The cost of the policy could be determined by each plant's performance history or Systematic Assessment of Plant Performance (SALP) rating, with poorly run plants paying a higher premium and well-run plants paying a lower. premium. The commenter noted that Federal Government participation in

• private insurance markets is not unprecedented, citing the example of Federal flood insurance.

The commenter weakened the force of his example, however, by also pointing out that Federal Government participation in private insurance markets takes place "especially where the risk is not readily subject to management or the level of potential exposure is large." Clearly, basing 1

"Force majeure' refers to items largely beyond the control of the contracting parties (e.g., recession, inflation, severe market changes) that make it equitable to terminate or renegotiate contract terms.

30

premiums on plant performance history implies that the commenter would expect poorly-run plants to close more frequently than well-run plants, suggesting that the risk can be managed.

The commenter advocating further examination of an insurance plan did not make clear whether the commenter favored a captive insurance pool entirely funded by the industry or an insurance system that was funded, completely or partially, by the Federal Government.

The arguments against a captive insurance pool are strong. The participants would be able to cause losses simply by not taking action to set aside adequate funds for decommissioning. Delay in setting aside funds could be beneficial because of the use value of the funds that a licensee could reallocate to some other purpose. In addition, the members of the insurance pool would be in competition with each other, and could shift costs to competi~ors by means of the insurance pool. . Thus, an insurance pool for decommissioning would offer no incentive to licensees to reduce the magnitude of their potential claims on the pool, either from an insurance st_andpoint (because their decommissioning costs are insured) or from an

• • economic standpoint (because of the advantages to them of delaying payment and of shifting costs to their competitors).

The commenter's suggestion that rates should be based on plant performance is

. unlikely to satisfactorily address the problem of adverse selection. Those posing higher risks might continue to be more likely to enter an insurance pool, despite being assessed higher rates, thus raising the proportion of high-risk insureds. This could increase the price of the insurance and cause other relatively low-risk entities to avoid entering the pool, even if they were being charged less. The nexus between plant performance, however measured, and likelihood of premature closure is not so clear that the Government agency responsible for the 31

insurance would be able to set premiums accurately. Eventually the proportion of high-risk

• insureds could increase to the point that providing the insurance becomes unprofitable or impossible. Alternatively, mandatory participation by low-risk insureds could lead to situations in which they were subsidizing the high-risk entities, even with a rate differential.

. The commenter did not present any arguments supporting Government management of a decommissioning insurance plan. If such a plan were set up without the inclusion of Federal funds, there seems to be little reason to assign a Government agency to manage it.

Finally, insurance that is partially or wholly subsidized by the Federal Government, such

• as flood insurance, would require Congressional action, and is outside the scope of an NRC rulemaking. Thus, the Commission is not pursuing this option further.

H. Regulatory Certification Only one commenter suggested that NRC should reconsider its dismissal of the possibility of PUC or FERG certification that licensees within their jurisdiction would be allowed to collect sufficient revenues through rates to complete decommissioning funding. That commenter noted that NRC had relied upon the views expressed to the NRC that "no current commission can bind a future commission" and that a PUC "could not give a blanket guarantee that all licensees would be allowed to collect revenues to complete decommissioning funding."

This commenter argued that these uncertainties are "no greater than those associated with cost of service regulation, which certainly does not constitute a 'guarantee' of availability of 32

sufficient decommissioning funds," noting also that the underlying regulatory standard is only one of "'reasonable assurance'."

The commenter, however, did not address a number of important considerations. First, the opponents of certification are particularly well informed. The comments upon which NRC relied.in dismissing certification as an option came from the National Association of Regulatory Utility Commissioners (NARUC) and several State PUCs, that are particularly good sources of information concerning the limits of their own authorities and their ability to bind their

• successors. Second, the commenter did not address the argument~ presented by NEI and endorsed by several PUCs, that new Federal legislation would be necessary to make such certifications binding. Third, the commenter did not address limitations on FERC's jurisdiction,

_and consequent limitations on FERC's ability to make binding certifications. Finally, the commenter suggested that NRC had adopted a "guarantee of availability" standard rather than the underlying regulatory standard. Given the weight of arguments in opposition to certification, however, NRC has cor:icluded that certification is not a viable financial assurance mechanism.

I. "Any*Other Method" A number of commenters stated that NRC should permit more flexibility in the allowable methods for demonstrating reasonable assurance of decommissioning funding, particularly for licensees no longer meeting the definition of "electric utility." Several commenters suggested that NRC review and evaluate licensee-specific funding proposals on a case-by-case basis.

Another commenter recommended that NRC allow non-electric utilities to use mechanisms developed by governmental authorities and approved by NRC. Finally, one commenter 33

suggested that NRC grant individual licensees or States the flexibility to develop initiatives/mechanisms for providing reasonable assurance of funding.

Licensees, as discussed in Sections 7.B and 7.E of this statement of considerations, may well encounter cost and availability issues in trying to use some of the financial mechanisms allowed by NRC. In addition, the applicability of the NRC's parent company guarantees and self-guarantees to power reactor licensees is questionable (as discussed in Section 7.D.) because the underlying financial tests were developed primarily for other types of entities assuring smaller decommissioning pbligations. Consequently, a case-by-case approach, through which reactor licensees that lose the ability to recover decommissioning costs through regulated rates and fees or other mandatory charges established by a regulatory body, could provide assurance equivalent to the other methods that the NRC is allowing.

However, the NRC will need to ensure that the mechanisms used will, in fact, provide adequate financial assurance. Although, the NRC expects that only a very-limited number of licensees will use a case-by-case approach, this will potentially place a resource burden on the NRC to review individ1,1al "non-standard" mechanisms.

J. Combinations of Methods Several commenters stated that NRC should allow utility licensees and, in particular, non-utility licensees to use combinations of mechanisms to demonstrate financial assurance for decommissioning. Two commenters suggested specifically that NRC allow non-electric utility licensees to use parent company guarantees or self-guarantees or both.in conjunction with other allowable methods.

34

NRC's current requirements already allow combinations of mechanisms, except that two mechanisms - the self-guarantee and the parent company guarantee - may not be used in combination with other mechanisms. Allowing combinations of funding methods increases the regulatory flexibility to licensees trying to meet the requirements. (Note, however, that a licensee using a combination of mechanisms faces a greater administrative burden to obtain its mechanisms and, similarly, NRC faces an increased burden in reviewing multiple mechanisms.)

For mechanisms that guarantee payment (e.g., trust fund, payment surety bonds, letters of credit), a combination of mechanisms that equals the total decommissioning cost estimate is unlikely to lead to any difficulty in assuring that decommissioning funds will be used for th~ir intended purpose.

Some mechanisms, however, guarantee performance rather than payment. These mechanisms are self-guarantees, parent company guarantees, performance surety bonds, and some insurance. The terms of these mechanisms promise that the issuer will complete required decommissioning activities if necessary. It can* be problematic to combine a performance mechanism with another mechanism (payment or performance) because of the

• inherent subjectivity in valuing performance. For example, a licensee may wish to combine a

$100,000 parent company guarantee with a $100,000 letter of credit to assure a decommissioning cost estimate totaling $200,000. If the guarantor proves to be inefficient in conducting decommissioning, it may spend $100,000 on activities that should have cost less.

In this case, the letter of credit would be inadequate to fund the remaining activities, even though the guarantor could claim to have fulfilled its per:formance guarantee.2 2

In addition, firms providing guarantees must pass an underlying financial test which is not "divisible" under the regulations. For example, parent company guarantors must meet a criterion that they have tangible net worth at least equal to six times the current decommissioning cost estimates (or prescribed amount if a certification is used)." Either .a 35

However, the NRC believes that this problem is of less concern in the specific case of a self-guarantee being used in combination with an external sinking fund because, in this case, the guarantor has no incentive or ability to shift costs or to avoid greater responsibility.

However, if the self-guarantee were to be combined with a mechanism such as a letter of credit, that required the licensee to offer collateral to the issuer, then it is possible that if NRC were to draw on the letter of credit, the bank might seize the licensee's collateral which, in turn, might prevent the licensee from performing under the self-guarantee .

. The combination of a parent or self guarantee and an external sinking fund also appears to provide a relatively low-cost means for licensees to demonstrate financial assurance while continuing to gradually fund decommissioning costs over time (either on the current schedule or on an accelerated schedule). Because of the low costs of guarantees, however, allowing this combination of mechanisms could create an incentive for licensees to delay or cease payments into the sinking fund and, instead, to rely on the guarantee for as much of the cost as possible.

Given the magnitude of typical decommissioning costs for reactors, this possibility could hinder the timely conduct of decommissioning. In other words, decommissio11ing could be significantly delayed if, because of a licensee'.s inadequate contributions to its sinking fund, a guaran*tor had to come up with large amounts of money at the time of decommissioning.

The NRC generally believes that it should not allow licensees to use parent *company guarantees and self-guarantees in combination with each other to assure decommissioning potential guarantor passes this criterion (and other similar and related criteria) in its entirety.or the guarantor fails the test. If the guarantor cannot pass the criteria, then it is ineligible to provide a guarantee in any amount. In this case, combining the guarantee with another mechanism would not be an option. This final rule amends the financial test sections in Appendices A and C to 10 CFR Part 30 to address, in part, this issue.

• 36

obligations. Because parent companies typically consolidate the financial statements of all their subsidiaries into their own financial statements, combining parent company guarantees and self-guarantees could result in double counting of the same limited financial strength to pass separate financial tests (e.g., one for costs covered by a parent company guarantee, and one for costs covered by a self guarantee).

In sum, the NRC has eliminated the prohibition on combining parent company or self guarantees with external sinking funds. The NRC will also consider other combinations of mechanisms on a case-by-case basis when the aforementioned concerns are addressed.

K. Required Timing of Alternative Methods Several commenters wrote that the NRC should allow affected licensees an extended period of time to secure alternative financial assurance mechanisms. One commenter stated that NRC's current regulations allow a licensee 30 days to develop a submittal describing how decommissioning funding will be assured if the licensee no longer satisfies a given criterion (e.g., the definition of "electric utility"). This commenter recommended that NRC allow licensees 180 days in these instances, and also suggested that NRC allow licensees to continue making payments to their existing decommissioning funds until NRC approves the alternative funding submittal. Another commenter stressed that NRC should allow "adequate transition time for legislative and regulatory changes to accommodate the new definition of

'electric utility'."

The comments presented the argument that licensees will need more time to obtain alternative financial assurance mechanisms (e.g., 180 days) than they would in the event of the 37

cancellation of an existing mechanism (only 30 days). This argument ignores the fact that deregulation will not occur instantly and unexpectedly. Licensees are likely to have months or even years to evaluate whether they may be able to recover decommissioning costs through regulated rates and fees or other mandatory charges established by a regulatory body and what mechanisms they might use to demonstrate financial assurance if and when that occurs.

Consequently, no additional time should be provided to licensees in response to this comment.

8. Federal Licensees A. Applicability to Federal Licensees A number of commenters argued that financial assurance requirements for electric utilities should apply equally to Federal licensees, that no special treatment should be afforded Federal licensees, and that all licensees should satisfy the same requirements. One stated explicitly that "Federal" licensees should be required to provide the same level of financial assurance as other power reactor *licensees, but qualified his comment by stating that the proposed rule should ensure that at such time as these Federal entities become private enterprises, they are subject to the definition of 'electric utility.' In doing so, they must provide the same measures of fi_nancial assurance currently required to electric utilities, i.e., they must provide the same level of external funding or other assurance that would otherwise have been required of them from the initial issuance of their operating license." This commenter apparently did not oppose the use of statements of intent by Federal licensees, until the point at which they become private.

38

The Tennessee Valley Authority (TVA), the only current Federal licensee for a nuclear power reactor, was the sole commenter that argued in favor of special provisions that would apply only to Federal licensees. It noted, in particular, that under Federal law it is required to charge rates for power that will produce gross revenues sufficient to cover all operating expenditures of the power system, and that such operating expenses are considered to include decommissioning costs. TVA's arguments are evaluated below.

B. Definition of "Federal Licensee" Several commenters made identical, or almost identical, recommendations concerning the definition of Federal licensee. Each supported the intent of the definition, which they considered to be to exclude from the definition any Federal agency whose obligations do not constitute the obligations of the United States.

• However, each recommended that the definition be modified to define a Federal licensee as "any NRC licensee, the obligations of which are guaranteed by and supported by the full faith and credit of the United States Government." Each argued, without explaining fully, that the term fuHfaith and credit backing" is neither defined nor commonly used in other legislation relating to Federal agencies.

Presumably, the commenters who found the phrase full faith and credit backing" ambiguous did so because it does. not specify that all obligations of the entity are backed by the credit of the Federal Government, nor doe*s it say explicitly that the obligations are "guaranteed," as does the proposed replacement definition. The proposed replacement definition thus is slightly more precise. Much of the suggested definition has been used previously and commonly in legislation pertaining to Federal agencies. Thus, it would have the advantage of removing any ambiguity that might arise from using a totally new definition. A 39

preliminary search of the United States Code, Annotated, uncovered a number of situations in which the proposed phrase is used. For example, under Chapter 50 of Title 7, the Secretary of Agriculture is empowered under 7 U.S.C.A. 1928, to guarantee certain agricultural credit real estate loans and emergency loans. Section 1928 specifies that contracts of insurance or guarantee executed by the Secretary under Chapter 50 "shall be an obligation supported by the full fai~h and credit of the United States." Similarly, the Secretary of the Interior is empowered .

under Title 16 of the U.S. Code to insure certain loans of private lenders. Section 470d of Title 16 provides that "Any contract of insurance executed by the Secretary under this section ...

shall be an obligation supported by the full faith and credit of the United States...." Finally, under Title 42, Chapter 7 (Social Security) of the U.S. Code, the Secretary of the Treasury can issue obligations for purchase by the social security trust fund. Section 401 of Title 42 provides

_that "the obligation is supported by the full faith and credit of the United States...." The commenters appear to have identified the phrase generally used to describe _such an obligation, and therefore replacement of the current definition of "Federal licensee" with the definition suggested by the commenters appears warranted.

TVA argued *against the proposed definition of Federal licensee because the proposed definition would.preclude TVA's use of the statement of intent. In its view, there are "ample reasons" to support the continued use of the statement of intent by TVA. In particular, TVA argued that with respect to decommissioning funding assurance, the key fact is that Federal law requires TVA to adequately fund the conduct of TVA's power activities, and this includes operating, maintaining, and decommissioning its nuclear facilities." TVA pointed out that even before decommissioning funding assurance requirements from NRC, TVA was taking action to ensure that funds would be available to decommission its nuclear units. TVA argues, in effect, that a financial assurance requirement ot_her than the statement of intent amounts to "imposing 40

separate regulatory requirements to oversee the manner in which TVA is meeting its statutory requirements ...."

These arguments amount, in sum, to an assertion that because TVAis subject to an existing statutory requirement to fund decommissioning, the Commission should not impose any different, or additional, requirements. TVA maintains that the NRG should have reasonable assurance that TVA will have adequ9:te funding to ensure the conduct of decommissioning activities "because Federal law requires TVA to provide such funds." (emphasis in original)

It also could be correctly said, however, that Federal law requires other reactor licensees to provide reasonable assurance of decommissioning funding. The purpose of financial assurance is to present a second line of defense, if the financial operations of the licensee are insufficient, by themselves, to ensure that sufficient funds are available to carry out decommissioning. TVA apparently concedes that its obligations are not supported by the full*

faith and credit of the United States. Government; therefore, if TVA cannot fund the decommissioning, the Federal Governm*ent is not obligated to do so. Although the TVA board has the authority to set electric power rates to meet power system obligations, including decommissioning, it may not, contrary to its assertions, have the "unfettered ability" to do this,.

because its markets m~y not support such rates. TVA noted that its current business plan

• recommends an offer to its distributor customers to change their power contracts after 5 years from a rolling 10-year term to a rolling 5-year term.

TVA appears to misunderstand the purpose of the statement of intent, which is to obtain a commitment by another, and superior, governmental entity that the obligations of the subordinate governmental entity will be paid by the superior entity if the subordinate entity 41

cannot pay them. Absent such a commitment, which would be represented by support for the obligations by the full faith and credit of the United States, there is no "statement of intent" upon which TVA can "continue to be able to rely."

Following publication of this rule, the NRC will review TVA's current decommissioning financial assurance arrangements and determine whether any actions are required in light of the added definition of "Federal licensee." The publication of this rule, by itself, does not constitute an action of the NRC with respect to TVA's current decommissioning financial assurance.

9. Reporting on the Status-of Decommissioning Funds A. Use of Financial Accounting Standards Board (FASB) Standard The commenters generally did not oppose reporting to NRC on the status of decommissioning funding assurance in accordance with the requirements of a final FASB promulgation, on the grounds (as expressed by NEI) that a standard reporting mechanism should be used that does not add unnecessary burden. However, several commenters did oppose a requirement that they use the preliminary FASS exposure draft, or any other FASB-based position that is not final. They argued that changes from the proposed to the final FASS standard, which cannot be predicted because the standard is still under development, could make it inappropriate tor meeting NRC's endorsement. Unle~s the FASB standard is adopted soon, these commenters argued, other reporting options should be adopted. Some commenters suggested that regulatory language need not be changed, b_ut that the contents of DG-1060 would need to be amended to reduce the reliance on the FASB draft.

42

Some commenters went further, and expressed criticisms of the FASB exposure draft, indicating that even if it became final in its current form they would not find it appropriate for use. In the view of these commenters, merely recognizing the liability and periodic expense for decommissioning, which is the focus of the FASB draft, is not sufficient to ensure adequate funding. In their view, the FASB standards establish accounting procedures but are not the appropriate computations for determining necessary cash flows for funding external trusts. One commenter stressed that the focus of the FASS draft, as well as issues concerning the appropriate discount rate, also made the FASB standard questionable for NRC's purposes.

Neither the timing nor the ultimate contents of a FASB standard can be predicted at this time, and therefore the conclusion is warranted that alternative requirements should be found .

. According to a FASB report of January 14, 1998, the Board reviewed the status of the project in its October 2, 1997, meeting and decided it should proceed toward either a second Exposure Draft or a final Statement. However, at its November 26, 1997, meeting, the Board eliminated certain key provisions jn the exposure draft relating to the ~cope of the Statement. According to FASB's "Current Developments and Plans for 1998":

. FASB will be developing a refined definition of closure/removal costs that would be applicable to a more general class of long-lived assets than those covered by the Exposure Draft. The Board will also be addressing the question of whether the costs of closure/ removal obligations should be capitalized and will develop criteria to identify constructive obligations. At this time, there is no time frame regarding the issuance of a document or final statement.

Although the timing of future action on the draft is uncertain, reanalysis of the scope issue by the FASS staff during the first quarter of 1998, as well as FASB's statement that it is postponing other issues raised on the Exposure Draft until further progress is made on another Exposure Draft, suggests that action by FASB to issue a final Statement, or even a revised 43

Exposure Draft, will be delayed for a considerable time. Notwithstanding any final FASS action, the NR_C can proceed with its own requirement for reporting on the status of decommissioning .

funds.

B. *

• Frequency of Reports Most commenters endorsed ,iperiodic" reports to monitor the status of decommissioning assurance. Several commenters, particularly those from State PUCs, supported requiring a report soon (nine months) after the rule becomes effective, and at least every two years thereafter. (Other commenters from utilities suggested every three years or every 5 years thereafter. The 5-year period was suggested to correspond to the recommended 5-year adjustment to site-sp_ecific cost estimates specified in Regulatory Guide 1.159.) A majority of the commenters also endorsed that utilities nearing decommissioning or in the process of .

decommissioning submit reports annually. However, commenters noted ambiguity in the requirement that reports should oe submitted annually by licensees of plants that are within 5 years of their projected end of operati9ns. Although agr~eing with the concept of such annual reporting, they noted that the projected end of operations" should be clarified so that it clearly covered premature shutdowns and not just plants within 5 years of the end of their operating licenses. Several State commissions submitted almost identic~I proposed language amending

§ 50.75(f) of the proposed rule to require reporting by licensees for a plant within 5 years of the projected end of operations, "or where conditions have changed such that it will close within 5 years (before the end of its licensed life) or has already closed (before the end of its licensed life) .... " Requiring annual reporting on a calendar-year basis would, in the opinion of one commenter, reduce the administrative burden of annual repor:ting because that is how licensees generally gather and accumulate the required information. Another argued that reporting trust 44

fund balances on an annual basis suggested that reports should be required by March 31 for the previous calendar year.

Other commenters noted that when State regulatory bodies require annual reporting on the status of decommissioning funds, as many do, NRC's interests are already protected. One commenter could find no added safety justification for requiring annual reporting within 5 years of decommissioning. A complete report could be required every 5 years, in the opinion of this commenter, with updates annually or biennially.

Another commenter recommended that NRC delay the reporting requirements until a Pacific N.orthwest National Laboratory (PNNL) study is final. However, the Commission's position is that such a delay would deny the NRC and. the public the benefits of the information required to be reported while conferring negligible benefits on licensees.

Given NRC's information needs, and the multi-million-dollar size of the contributions that utilities make annually to their decommissioning funds, the potential pay-off per hour of staff labor that NRC invests in monitoring of funds is likely to be significant. Thus, the NRC is adopting a biennial reporting requirement. NRC also is adopting commenter suggestions that the reporting frequency be increased for plants approaching the end of commercial operation and for plants where conditions have changed such that they will prematurely close within 5 years or have already prematurely closed before the end of their licensed life, or for plants involved in mergers/acquisitions.

45

C. Contents of Reports Most of the commenters who addressed reporting did not question the need for reports on the status of decommissioning funds and they did not address in detail the contents of such reports. Similarly, most of the commenters who raised questions about reliance on the FASS draft for decommissioning status reporting did not recommend alternative reporting standards.

Several commenters implicitly suggested that the contents of reports submitted to State PUCs would be sufficiently similar to NRC's requirements, 1:-y recommending that copies of State reports should be acceptable to NRC.

One commenter argued that NRC's proposed "per unit reporting was unclear about whether individual licensees of a jointly owned plant would each be required to submit their own status reports, or whether the plant operator could submit reports on behalf of all co-licensees.

The commenter suggested that having the operator submit the data for all owners could be the most efficient approach, assuming the aggregate of available funds is the most important question. In contrast, another commenter believed that it would be "prudent" for NRC to require annual filings from all co-owners. Requiring filings by all co-owners would provide NRC with more detailed information, but would also place on it the burden of combining and assessing the data. The NRC believes that plant owners and operators should decide who will submit the required information, However, even if all information is submitted by the operator, the information will need to be broken down by owner in order to evaluate each owner's contributions to decommissioning.

One commenter recommended a clarification to ensure that the amount accumulated to the date of the report means the "as of" date, and not the date of the report. The same 46

commenter wanted to limit the report to the single item of accumulated trust fund balances, unless NRC had concerns, based on its knowledge of the plant, about whether the amount accumulated for decommissioning is sufficient. In that case, more detailed information could be required.

The comments did not address several issues raised by commenters on the NRC's Advance Notice of Proposed Rulemaking (ANPR) of April 8, 1996 (61 FR 15427) concerning the information needed by NRC to monitor the status of decommissioning funds. In particular, the comments on the proposed rule did not address the 50-plus reporting items suggested by commenters in response to the ANPR.

How the industry will understand the core concept of the reporting requirement, the "status of the decommissioning fund," is not clarified by the comments on the_ proposed rule. At least one commenter suggested that "status" means simply the "amount of the decommissioning trusts. Other commenters may be suggesting, by their. emphasis on the responsibility_ of an operator to coordinate information from several co-owners, and on the possibility that NRC might need to obtain follow-up information, that "status" can include a quantitative or qualitative assessment of the "adequacy" of the fund relative to required or estimated decommissioning costs. The extent of that assessment is not clarified by the comments received, which do not address whether "status" implies a general discussion provided by the licensee or a specific report prepared by the trustee. The NRC has addressed some of the commenters' concerns discussed above by modifying the final rule. Because of their level of detail, other potential concerns are better addressed by a regulatory guide. The NRC will consider issuing such guidance after evaluating the first set of reports received.

47

10. Rate of Return*

• NRC's proposed language in 10 CFR 50.75(e)(1)(i) and (ii) allows licensees to take credit for earnings on their prepaid decommissioning trust funds or external sinking funds using a 2 percent annual real rate of return from the time of the funds' collection through the decommissioning period. If the licensee's rate-setting authority authorizes the use of another rate, that rate would be used in projected earnings. By specifying that earnings can be credited

through the decommissioning period," NRG is allowing licensees to assume earnings credits for both the safe storage period and the period when funds flow out of the decommissioning .

financial assurance mechanisms.

Many commenters generally supported NRC's proposed changes in 10 CFR 50.75.

Some described the rate as being reasonable, conservative, and consistent with FERC's policy of recognizing earnings and inflation. One commenter specifically endorsed the provision that allows licensees to use assumed rates of return that are approved by State regulatory bodies.

A few comm.enters supported the changes but stated that licensees also should be given the flexibility to use a rate that is less than the proposed rate.

Other commente_rs did not support NRC's selection of the 2 percent rate. One commenter claimed that the proposed 2 percent rate might result in underfunding if it does not account for the effect of income taxes. More typically, commenters argued that the rate is too low and should be increased. Suggested rates were 3 percent and 7 percent. Two.

commenters noted that 3 percent and 7 percent' discount rates are used in NRC's regulatory analysis guidance (in NUREG/BR-0058 and SECY 93-167). Other commenters stated that NRG should allow licensees to use any "realistic" rate of return or any rate they can justify, 48

possibly in conjunction with periodic reevaluation of the funds collected. A few commenters argued that NRC should not specify a 2 percent rate of return during the period following operations (i.e., the safe storage and outflow periods) and that different rates sh.ould be allowed if specifically approved by a rate-setting authority.

As stated in the preamble to the proposed rule, the 2 percent real rate of return suggested by NRC is based on historical data on returns from U.S-. Treasury issues, and -

represents "as close to a 'risk-free' return as possible." Although this rate may seem relatively low given that higher interest rates are frequently paid on common stocks and corporate bonds,

• the lower rates paid on Government securities pose considerably less risk and are likely to be achieved on a more consistent basis.

Given the n_eed for "reasonable" assurance of decommissioning funding, there is little justification for selecting a rate greater than 2 percent. As shown in the table below, the historical average real return on long-term U.S. Government bonds has been very close to 2 percent, and the historicalaverage real return on "risk-free" U.S. Treasury Bills has been less

• than 1 percent. Based on this information, NRC would have difficulty justifying a higher rate.

49

Real Rates of Return for Sample Time Periods Rate U.S. Treasury Bills Long-Term Government Bonds Current (1997) 3.49% 13.91%

Contemporary Average (1975-1994) 1.96% 7.65%

Long-Term Average (1926-1997) 0.6% 2.1%

Source: Ibbotson Associates, Chicago. Stocks, Bonds, Bills and Inflation: 1998 Yearbook, Table 4-1 and Table 6-8.

Averages are calculated as geometric means.

The commenter's concern that 2 percent is less than the 7 percent and 3 percent discount rates called for in NRC's regulatory analysis guidance is not relevant. 3 Discount rates are used for capital investment analysis and other decision-making purposes but, if used to calculate contributions to decommissioning funds, could result in financial assurance levels that are not adequate to pay for all assured obligations.

3 NUREG/BR-0058 generally calls for the use of a 7 percent discount rate, which is the rate recommended by the Office of Management and Budget (0MB), in the estimation of values and impacts of a regulatory action. NUREG/BR-0058 also suggests use of an alternative discount rate of 3 percent for sensitivity analysis purposes and for cases in which costs occur over a period of more than 100 years.

50

11. Other A. Cost Recovery through Rates Several commenters opposed the inclusion of any mechanism that provides for a stranded cost bailout of the nuclear industry by ratepayers, arguing, among other things, that such a bailout would be unfair, destroy real competition, inhibit employment gains, slow the economic growth_of more viable, cost effective, and less polluting power generating technologies, and harm the environment by allowing the continued operation of nuclear power stations that might otherwise shut down. These comments may reflect a misunderstanding of the roles played by NRG relative to State PUCs and FERG. Specifically, PUCs and FERG can determine whether decommissioning costs are stranded or whether they must be paid by ratepayers. NRG, unlike the PUCs, does not have the authority to prevent or to allow licen_sees to pass decommissioning costs on to customers. Thus, the issue of a "bailout" is not relevant to NRG. In the event that NRG allows financial assurance mechanisms whereby licensees recover decommissioning costs from ratepayers (e.g., external sinking funds funded by wire

• charges), the mechanism for rate recovery (e.g., the wire charges) must be authoriz~d by a PUC or by FERG. Furthermore, the asserted consequences of *a "stranded cost bailout" are unsupported.

B. Rate Recovery of Stranded Costs Using PNNL's Formula One commenter suggested that utilities be allowed to recover in their rates only a portion of their decommissioning costs. Specifically, the commenter suggested allowing decommissioning costs to be recovered up to a maximum amount determined using PNNL's*

51

1993 generic decommissioning cost formula. Estimated costs in excess of the generic PNNL estimate could not be recovered in rates a_nd would have to be funded by shareholders. Also, in the event of premature shutdown, the commenterwould make shareholders (rather than ratepayers) responsible for a// decommissioning costs that are not yet funded, including any unfunded portion of the generic PNNL estimate.

The comment described above addresses how decommissioning costs, including stranded decommissioning costs, might equitably be divided between ratepayers and shareholders. However, the comment is not directly relevant to decommissioning financial assurance. From NRG's standpoint, it does not matter whether the source for a licensee's financial assurance is the licensee's ratepayers or its shareholders, but only that the licensee has provided adequate financial assurance for decommissioning. The question of how much of the decommissioning cost should be borne by ratepayers as opposed to shareholders is one that has traditionally been answered by State PUGs. NRG, unlike the PUGs, does not have the authority to direct licensees to recover costs from ratepayers. Although the NRG did sponsor the development of PNNL's 1993 generic decommissioning cost formula, this formula, like its predecessor in 10 GFR 50.75(c), was designed to help answer a different question, namely, what constitutes a reasonable minimum level of decommissioning assurance for a given reactor. Within this more limited context (and outside the scope of this rulemaking), NRG is currently evaluating the 1993 formula relative to 10 GFR 50.75(c).

Finding of No Significant Environmental Impact: Availability The NRG is amending its regulations on financial assurance requirements for the decommissioning of nuclear power plants. The amendments are in response to the likelihood 52

of deregulation of the power generating industry and resulting questions on whether current

• NRC regulations concerning decommissioning funds and their financial mechanisms will need to be modified. The amendments allow a broader range of assurance mechanisms than under existing regulations for reactor licensees that lose the ability to recover decommissioning costs through regulated rates, add definitions of "Federal licensee" to address the issue of which licensees may use statements of intent and other relevant terms, and require power reactor licensees to report periodically on the status of their decommissioning funds and on the changes in their external trust agreements. Also, the amendments allow licensees to take credit for the actual and projected earnings on decommissioning trust funds .

• These changes would have the following effects on nuclear power reactor licensees: (1)

• potentially requiring licensees who have been "deregulated" to secure decommissioning financial assurance instruments that provide full current assurance for projected decommissioning costs, (2) limiting the types of licensees that can qualify for the use of Statements of Intent to satisfy decommissioning financial assuran~e requirements, (3) requiring periodic reporting on the status of their accumulation of decommissioning funds, thus leading to the potential for the NRC to require some remedial action if the licensee's actions are

• inadequate, and (4) permitting licensees to assume a real rate of return up to 2 percent per

• annum, or such other rate as is permitted by a PUC or the FERG, on their accumulated funds.

These actions are of the type focused upon financial assurances and mechanisms to ensure funding for decommissioning and are not actions that would have any effect upon the human environment. Neither this action nor the alternatives considered in the Regulatory Analysis supporting this final rule would lead to any increase in tl)e effect on the environment _of the decommissioning activities considered in the final rule published on June 27, 1988 (53 FR 53

24018), as analyzed in the "Final Generic Environmental Impact Statement on

• Decommissioning of Nuclear Facilities" (NUREG-0586, August 1988).4 Promulgation of these rule .changes will not introduce any impacts on the environment not previously considered by the NRG. Therefore, the Commission has determined, under the National Environmental Policy Act of 1969, as amended, and the Commission's regulations in Subpart A of 10 CFR Part 51, that this rule is not a major Federal action significantly affecting the quality of the human environment and, therefore, an environmental impact statement is not required. No other agencies or persons were contacted in reaching this determination, and the NRG staff is not aware of any other documents related to consideration of whether there would be any environmental impacts from the action. The foregoing constitutes the environmental assessment and finding of no significant impact for this final rule .

. Paperwork Reduction Act Statement This final rule amends information collection requirements that are subject *to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). These requirements were approved by the Office of Management and Budg.et, approval number 3150-0011.

The public reporting burden for this information collection is estimated to average 8 hours9.259259e-5 days <br />0.00222 hours <br />1.322751e-5 weeks <br />3.044e-6 months <br /> per response, including the time for* reviewing instructions, searching existing data 4

Copies of NUREG-0586 are available for inspection or copying for a fee from the NRG Public Document Room at 2120 L Street NW. (Lower Level) Washington, DC 20555-0001; telephone (202) 634-3273; fax (202) 634-3343. Copies may be purchased at current rates from the U.S. Government Printing Office, P.O. Box 370892, Washington, DC 20402-9328; telephone (202) 512-'2249; or from the National Technical Information Service by writing NTIS at 5285 Port Royal Road, Springfield, VA 221_61.

54

sources, gathering and maintaining the data needed, and completing and reviewing the information collection. Send comments on any aspect of this information collection, including suggestions for reducing the burden, to the Information and Records Management Branch (T-6 F33), U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, or by Internet electronic mail at bjs1@nrc.gov; and to the Desk Officer, Office of Information and Regulatory Affairs, NEOB-(3150-0011), Office of Management and Budget, Washington, DC 20503.

Public Protection Notification

• If an information collection does not display a currently valid 0MB control number, the NRC may not conduct or sponsor, and a person is not required to respond to, the information collection.

Regulatory Analysis The Commission has prepared a Regulatory Analysis of this regulation. The analysis examines the costs and benefits of the alternatives considered by the Commission. Interested persons may examine a copy of the Regulatory Analysis at the NRC Public Document Room, 2120 L Street NW (Lower Level), Washington, DC. Single copies of the analysis may be obtained from Brian J. Richter, Office of Nuclear Reactor Regulation (0-10 HS), U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, telephone (301) 415-1978, e-mail bjr@nrc.gov.

55

Regulatory Flexibility Certification As required by the Regulatory Flexibility Act of 1980, 5 U.S.C. 605(b), the Commission certifies that this rule will not have a significant economic impact on a substantial number of small entities. This rule affects only the licensing and operation of nuclear power plants. The companies that own these plants do not fall within the scope of the definition of "small entities" set forth in the Regulatory Flexibility Act or the Small Business Size Standards set out in

• regulations issued by the Small Business Administration at 13 CFR Part 121.

Backfit Analysis The Regulatory Analysis for the final rule also constitutes the documentation for the evaluation of backfit requirements, and no separate backfit analysis has been prepared. As defined in 10 CFR 50.109, the backfit rule applies to modification of or addition to systems, structures, components, or design of a facility; or the design approval or manufacturing license for a facility; or the procedures or organization required to design, construct or operate a facility; any of which may result from a new or amended provision in the Commission* rules or the imposition of a regulatory staff position interpreting the Commission rules that is either new or different from a previously applicable staff position ....

• The amendments to NRC's requirements for the financial assurance of

• decommissioning of nuclear power plants allow a broader range of. assurance mechanisms for reactor licensees who lose their ability to recover decommissioning costs through regulated rates and fees or other mandatory charges established by a regulatory body than previously, and define "Federal licensee." The amendments also add several associated definitions; add 56

new reporting requirements pertaining to the use of prepayment and external sinking funds; impose new reporting requirements for power reactor licensees on the status of decommissioning funding that specify the timing and contents of such reports; and permit power reactor licensees to take credit for up to a 2 percent annual real rate of return (or another rate if permitted by their rate regulators) on funds set aside for decommissioning from the time the funds are set aside through the end of the decommissioning period.

Although some of the changes to the regulations are reporting requirements, which are not covered by the backfit rule, other elements in the changes are considered backfits because they would modify, supplement, or clarify the regulations with respect to: (1) acceptable decommissioning funding options under various scenarios; and (2) which licensees may use statements of intent. The Commission has concluded, on the basis of the documented evaluation required by 10 CFR 50.109(a)(4) and set forth in the Regulatory Analysis, that the new or modified requirements are necessary to ensure that nuclear power reactor licensees provide for adequate protection of the .health and safety of the public in face of a changing competitive and regulatory environment not envisioned when the reactor decomm.issioning funding regulations were promulgated and that the changes to the regulations are in accord with the common defense and security. Therefore, the NRC has determined to treat this action as an adequate protection backfit under 10 CFR 50.109(a)(4)(ii). Consequently, a backfit

• analysis is not required and the cost-benefit standards of 10 CFR 50.109(a)(3) do *not apply.

Furth~r. these changes to the regulations* are required to satisfy 1o CFR 50.109(a)(5).

57

Small Business Regulatory Enforcement Fairness Act

. In accordance with the Small Business Regulatory Enforcement Fairness Act of 1996, the NRC has determined that this action is a major rule and has verified this determination with the Office of Information and Regulatory Affairs of the Office of Management and Budget.

List of Subjects Part 30 - Byproduct material, Criminal penalties, Government contracts, Intergovernmental relations, Isotopes, Nuclear Materials, Radiation protection, Reporting and recordkeeping requirements.

Part 50 - Antitrust, Classified information, Criminal penalties, Fire protection, Intergovernmental relations, Nucle.ar 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 amendments to 10 CFR Parts 30 and 50.

PART 30 - RULES OF GENERAL APPLICABILITY TO DOMESTIC LICENSING OF BYPRODUCT MATERIAL

1. The authority citation for Part 30 continues to read as follows:

58

AUTHORITY: Secs. 81, 82, 161, 182, 183, 186, 68 Stat. 935, 948, 953, 954, 955, as amended, sec. 234, 83 Stat. 444, as amended (42 U.S.C. 2111, 2112, 2201, 2232, 2233, 2236, 2282); secs. 201, as amended, 202, 206, 88.Stat. 1242, as amended, 1244, 1246 (42 U.S.C.

5841, 5842, 5846).

Section 30.7 also issued under Pub. L.95-601, sec. 10, 92 Stat. 2951 as amended by Pub. L. 102-486, sec. 2902, 106 Stat. 3123, (42 U.S.C. 5851). Section 30.34(b) also issued under sec. 184, 68 Stat. 954, as amended (42 U.S.C. 2234). Section 30.61 also issued under sec. 187, 68 Stat. 955 (42 U.S.C. 2237).

2. In 10 CFR Part 30, Appendix A paragraphs 11.A.1 (ii), (iv), II.A.2(ii), and (iv) are revised to read as follows:

APPENDIX A - Criteria Relating tq Use of Financial Tests and Parent Company Guarantees for Providing Reasonable Assurance of Funds for Decommissioning II. Financial Test A. * * *

1. * * *

(ii) Net working capital and tangible net worth each at least six times the current decommissioning .cost estimates for the total of all facilities or parts thereof (or prescribed amount if a certification is used), or, for a power reactor licensee, at least six times the amount of decommissioning funds being assured by a parent company guarantee for the total of all reactor units or parts thereof (Tangible net worth shall be calculated to exclude the net book value of the nuclear unit(s)); and 59

(iv) .Assets located in the United States amounting to at least 90 percent of the total

• assets or at least six times the current decommissioning cost estimates for the total of all

• facilities or parts thereof (or prescribed amount if a certification 1s used), or, for a power reactor.

licensee, at least six times the amount of decommissioning funds being assured by a parent company guarantee for the total of all reactor units or parts thereof.

2. * * *

(ii) Tangible net worth each at least six times the current decommissioning cost estimates for the total of all facilities or parts thereof (or prescribed amount if a certification is used), or, for a power reactor licensee, at least six times the amount of decommissioning funds being assured by a parent company guarantee for the total of all reactor units or parts thereof (Tangible net worth shall be calculated to exclude the net book value of the nuclear unit(s)); and (iv) Assets located in the United States amounting to at least 90 percent of the total assets or at least six times the current decommissioning cost estimates for the total of all*

facilities or parts thereof (or prescribed amount if a certification is used}, or, for a power reactor licensee, at least six times the amount of decommissioning funds being assured by a parent company guarantee for the total of all reactor units or parts thereof .

3. In 10 CFR Part 30 Appendix C, Paragraphs 11.A.(1) and (2) are revised to read as foliows:

Appendix C - Criteria Relating to Use of Financial Tests and.Self Guarantees for Providing Reasonable Assurance of Funds for Decommissioning 60

II. Financial Test A. * * *

(1) Tangible net worth at least 1O times the total current decommissioning cost estimate for the total of all facilities or parts thereof (or the current amount required if certification is used), or, for a power reactor licensee, at least 1O times the amount of decommissioning fun~s being assured by a self guarantee, for all decommissioning activities for which the company is responsible as self-guaranteeing licensee and as parent-guarantor for the total of all reactor units or parts thereof (Tangible net worth shall be calculated to exclude the net book value of the nuclear unit(s)).

(2) Assets located in the United States amounting to at least 90 percent of total assets

.or at least 1o times the total current decommissioning cost estimate for the total of all facilities or parts thereof (or the current amount required if certification is used), or, for a power reactor licensee, at least 10 times the amount of decommissioning funds being assured by a self guarantee, for all deco_mmissioning activities for which the company is responsible as self-guaranteeing licensee and as parent-guarantor for the total of all reactor units or parts thereof.

PART 50 - DOMESTIC LICENSING OF PRODUCTION AND UTILIZATION FACILITIES

4. 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.

61

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 50.1 0 also issued under secs. 101, 185, 68 Stat. 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). Section 50.37 also issued under E.O. 12829, 3 CFR 1993 Comp., p. 570; E.O.

12958, as amended, 3 CFR, 1995 Comp., p. 333; E.O. 12968, 3 CFR 1995 Comp., p. 391.

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 F also issued under sec. 187, 68 Stat. 955 (42 U.S.C. 2237).

5. In § 50.2, the definitions of Cost of service regulation, Federal licensee, Incentive

• regulation, Non-bypassable charges, and Price-cap regulation are added in alphabetical order to read as follows:

§ 50.2 Definitions.

62

.Cost of service regulation means the traditional system of rate regulation, or similar regulation, including "price cap" or "incentive" regulation, in which a rate regulatory authority generally allows an electric utility to charge its customers the reasonable and prudent costs of providing electricity services, including capital, operations, maintenance, fuel, decommissioning, and other costs required to provide such services.

Federal licensee means any NRC licensee, the obligations of which are guaranteed by and supported by the full faith and credit of the United States Government.

Incentive regulation means the system of rate regulation in which a rate regulatory authority establishes rates that an electric generator may charge its customers that are based

. on specified performance factors, in addition to cost-of-service factors.

Non-bypassable charges mean those charges imposed over an established time period by a Government authority that affected persons or entities are required to pay to cover costs associated with the decommissioning of a nuclear power plant. Such charges inclucje, but are nqt limited to, wire charges, stranded cost charges, transition charges, exit fees, other similar charges, or the securitized proceeds of a revenue stream.

63

Price-cap regulation means the system of rate regulation in which a rate regulatory authority establishes rates that an electric generator may charge its customers that are based on a speclfied maximum price of electricity.

6. In § 50.43, paragraph (a) is revised to read as follows:

§ 50.43 Additional standards and provisions affecting class 103 licenses for commercial power.

(a) The NRC will:

(1) Give notice in writing .of each application to the regulatory agency or State as may have jurisdiction over the rates and services incident to the proposed activity; (2) Publish notice of the application in trade or ne'A'.s publications as it deems appropriate to give reasonable notice to municipalities, private utilities, public bodies, and coope_ratives which might have a potential interest in the utilization or production facility; and (3) Publish notice of the application once each week for 4 consecutive weeks in the Federal Register. No license will be issued by the NRC prior to the giving of these notices and until 4 weeks after the last notice is published in the Federal Register.

64

7. In§ 50.54, the introductory text of paragraph (w) is revised to: read as follows:

§ 50.54 Conditions of licenses.

(w) Each power reactor licensee under this part for a production or utilization facility of the type described in§§ 50.21 (b) or 50.22 shall take reasonable steps to obtain insurance available at reasonable costs and on reasonable terms from private sources or to demonstrate to the satisfaction of the NRC that it possesses an equivalent amount of protection covering the licensee's obligation, in the event of an accident at the licensee's reactor, to stabilize and decontaminate the reactor and the reactor station site at which the reactor experiencing the accident is located, provided that:

8. In § 50.63, paragraph (a)(2) is revised to read as follows:

§ 50.63 Loss of alternating current power.*

(a) * * *

(2) The reactor core and associated coolant, control, and protection systems, including station batteries and any other necessary support systems, must provide sufficient capacity and capability to ensure that the core is cooled and appropriate containment integrity is maintained 65

in the event of a station blackout for the specified duration. The capability for coping with a station blackout of specified duration shall be determined by an appropriate coping analysis.

Licensees are expected to have the baseline assumptions, analyses, and related information used in their coping evaluations available for NRG review.

9. In§ 50.73, paragraph (b)(2)(ii)(J)(g)@) is revised to read as follows:

§ 50.73 Licensee event report system.

(b) * * *

(2) * * *

(ii) * * *

(J) . * * *

(g) * * *

@) The type of personnel involved (i.e., contractor personnel, licensed operator, nonlicensed operator, o~her licensee personnel).

66

10. In § 50.75, paragraphs (a), (b), (d), and (e) are revised, and paragraphs (f)(1 ), (2),

and (3) are redesignated as paragraph (f)(2), (3), and (4) and a new paragraph (f)(1) is added to read as follows:

§ 50.75 Reporting and recordkeeping for decommissioning planning.

(a) This section establishes. requirements for indicating to NRC how a licensee will provide reasonable assurance that funds will be available for the decommissioning process.

For power reactor licensees, reasonable assurance consists of a series of steps as provided in paragraphs (b), (c), (e), and (f) of this section. Funding for the decommissioning of power reactors may also be subject to the regulation of Federal or State Government agencies (e.g.,

Federal Energy Regulatory Commission (FERC) and State Public Utility Commissions) that have jurisdiction over rate regulation. The requirements of this section, in particular paragraph (c) of this section, are in addition to, and not substitution for, other requirements, and are not intended to be used, by them~elves, by other agencies to establish rates.

(b) Each power reactor applicant for or holder of an operating license for a production or utilization facility of the type and power level specified in paragraph (c) of this section shall submit a decommissioning report, as required by 10 C.FR 50.33(k) of this part.

(1) The report must contain a *certification that financial assurance for decommissioning will be (for a license applicant) or has been (for a license holder) provided in an amount which may be more but not less than the amount stated in the table in paragraph (c)(1) of this section.

(2) The amount to be provided must be adjusted annually using a rate at least equal to that stated in paragraph (c)(2) of this section.

67

(3) The amount must use one or more of the methods described in paragraph (e) of this section as acceptable to the NRC.

(4) The amount stated in the applicant's or licensee's certification may be based on a cost estimate for decommissioning the facility. As part of the certification, a copy of the financial instrument obtained to satisfy the requirements of paragraph (e) of this section must be submitted to NRC.

(d)(1) Each non-power reactor applicant for or holder of an operating license for a production or utilization facility shall submit a decommissioning report as required by 10 CFR

?0.33(k) of this part.

(2) The report must:

(i) Contain a cost estimate for decommissioning the facility; (ii) Indicate which method or methods described in paragraph (e) of this section as acceptable to the NRC will be used to provide funds for decommissioning; and (iii) Provide a description of the means of adjusting*the cost estimate ar:td associated funding level periodically over the life of the facility ..

(e)(1) Financial assurance is to be provided by the following methods.

(i) Prepayment. Prepayment is the deposit made preceding the start of operation into an account segregated from licensee assets and outside the licensee's administrative control of cash or liquid assets such that the amount of funds would be sufficient to pay decommissioning costs. Prepayment may be in the form of a trust, escrow account, Government fund, certificate of deposit, deposit of Government securities or other payment 68

acceptable to the NRC. A licensee may take credit for projected earnings on the prepaid decommissioning trust funds using up to a 2 percent annual real rate of return from the time of future funds' collection through the projected decommissioning period. This includes the periods of safe storage, final dismantlement, and license termination, if the licensee's rate-setting authority does not authorize the use of another rate. However, actual earnings on existing funds may be used to calculate future fund needs.

(ii) External sinking fund. An external sinking fund is 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. An external sinking fund may be in th~ form of a trust, escrow account, Government fund, certificate of deposit,_ deposit of Government securities, or other payment acceptable to the NRC. A licensee may take credit for projected earnings on the external sinking funds using up to a 2 percent annual real rate of return from the time of future funds' collection through the

• decommissioning period. This includes the periods of safe storage, final dismantlement, and license termin1:1tion, if the licensee's rate-setting authority does not authorize the use of another rate. However, actual earnings on existing funds may be used to calculate future fund needs.

A licensee, whose rates for decommissioning costs cover only a portion of such costs, may

. make use of these met_hods only for that portion of such costs that are collected in one of the manners described in this paragraph, (e)(1 )(ii). This method may be used as the exclusive mechanism relied upon for providing financial assurance for decommissioning in the_ following circumstances:

(A) By a licensee that recovers, either directly or indirectly, the estimated total cost of decommissioning through rates established by "cost of service" or similar ratemaking 69

regulation. Public utility districts, municipalities, rural. electric cooperatives, and State and Federal agencies, including associations of any of the foregoing, that establish their own rates and are able to recover their cost of service allocable to decommissioning, are assumed to meet this condition.

(B) By a licensee whose source of revenues for its external sinking fund is a "non-bypassable charge," the total amount of which will provide funds estimated to be needed for decommissioning pursuant to sections 50.75(c), 50.75(f), or 50.82 of this part.

(iii) A surety method, insurance, or other guarantee method:

(A) These methods guarantee that decommissioning costs.will be paid. A surety method may be in the form of a surety bond, letter of credit, or line of credit. Any surety method or insurance used to provide financial assurance for decommissioning must contain the following conditions:

(1) The surety method or insurance must be open-ended, or, if written for a specified term, such as 5 years,*must be renewed automatically, unless 90 days or more prior to the renewal day the issuer notifies the NRC, the beneficiary, and the licensee of its intention not to renew. The surety or insurance must also provide that the full face amount be paid to the beneficiary automatically prior to the expiration without proof of forfeiture if the licensee fails to provide a replacement acceptable to the NRC within* 30 days after receipt of notification of cancellation.

(g) The surety or insurance must be payable to a trust established for decommissioning costs. The trustee and trust must be acceptable to the NRC. An acceptable trustee includes an appropriate State or Federal government agency or an entity that has the authority to act as a trustee and whose trust operations are regulated and examined by a Federal or State agency.

70

(B). A parent company guarantee of funds for decommissioning costs based on a financial test may be used if the guarantee and test are as contained in Appendix A to 10 CFR Part 30.

(C) For commercial companies that issue bonds, a guarantee of funds by the applicant or licensee for decommissioning costs based on a financial test may be used if the guarantee and test are as contained in Appendix C to 10 CFR Part 30. For commercial companies that do not issue bpnds, a guarantee of funds by the applicant or licensee for decommissioning costs may be used if the guarantee and test are as contained in Appendix D to 10 CFR Part 30. For non-profit entities, such as colleges, univers_ities, and non-profit hospitals, a guarantee of funds by the applicant or licensee may be used if the guarantee and test are as contained in Appendix E to 10 CFR Part 30. A gua,rantee by the applicant or

.licensee may not be used in any situation in which the applicant or licensee has a parent company holding majority control of voting stock of the company.

(iv) For a power reactor licensee that is a Federal licensee, or for a non-power reactor licensee that is.a Federal, State, or local government licensee, a statement of intent containing a cost estimate for decommissioning, and indicating that funds for decommissioning will be obtained when necessary.

(v) *Contractual obligation(s) on the part of a licensee's customer(s), the total amount of which over the duration of the contract(s) will provide the licensee's total share of uncollected funds estimated to be needed for decommissioning pursuant to§§ 50.75(c), 50.75(f), or 50.82.

To be acceptable to the NRC as a method of decommissioning funding assurance, the terms of the contract(s) shall include provisions that the electricity buyer(s) will pay for the decommissioning obligations specified in the contract(s), notwithstanding the operational status either of the licensed power reactor to which the contract(s) pertains or force majeure 71

provisions. All proceeds from the contract(s) for decommissioning funding will be deposited to the external sinking fund. The NRG reserves the right to evaluate the terms of any contract(s) and the financial qualifications of the contracting entity(ies) offered as assurance for decommissioning funding.

(vi) Any other mechanism, or combination of mechanisms, that provides, as determined by the NRG upon its evaluation of the specific circumstances of each licensee submittal, assurance of decommissioning funding equivalent to that provided by the mechanisms specified in paragraphs (e)(1 )(I) - (iv) of this section. Licensees who do not have sources of funding described in paragraph (e)(1 )(ii) of this section may use an external sinking fund in combination with a guarantee mechanism, as specified in paragraph (e)(1 )(iii) of this section, provided that the total amount of funds estimated to be necessary for decommissioning is assured.

(2) . The NRG reserves the right to take the following steps in order to ensure a licensee's adequate accumulation of decommissioning funds: review, as needed, the rate of accumulation of decommissioning funds; and, either independently or in cooperation with the FERG and the licensee's State PUC, take additional actions as appropriate on a case-by-case basis, including modification o_f a licensee's schedule for the accumulation of decommissioning funds.

(f)(1) Each power reactor licensee shall report, on a calendar-year basis, to the NRG by March 31, 1999, and at least once every 2 years thereafter on the status. of its decommissioning funding for each reactor or part of a reactor that it owns. The information in 72

this report must include, at a minimum: the amount of decommissioning funds estimated to be required pursuant to 10 CFR 50.75(b) and (c); the amount accumulated to the end of the calendar year preceding the date of the report; a schedule of the annual amounts remaining to be collected; the assumptions used regarding rates of escalation in decommissioning costs, rates of earnings on decommissioning funds, and rates of other factors used in funding projections; any contracts upon which .the licensee is relying pursuant to paragraph (e)(1 )(ii)(C)

.of this section; any modifications occurring to a licensee's current method of providing financial assurance since the last submitted report; and any material changes to trust agreements. Any licensee for a plant that is within 5 years of the projected end of its operation, or where conditions have changed such that it will close within 5 years (before the end of its licensed life), or has already closed (before the end of its licensed life), or for plants involved in mergers or acquisitions shall submit this report annually.

'  ;/Ji..

Dated at Rockville, Maryland this / '7 - day of September, 1998.

For the Nuclear Regulatory Commission.

Jot:,

• Sec of the Commission.

73

J UNITED STATES NUCLEAR REGULATORY COMMISSION° 0 WASHINGTON, D.C. IDIIH 0001 JtJTlD December 5, 1997 "97 lIC 10 A9 :33 OFFlCF: OF Sr(?HARY Mr. Douglas L. Patch. Chairman RUU:M~-.l-<l *I::.:.) 1:t D New Hampshire Public Utilities Comnission AOJUDIC1\ llONb ~;TAFF 8 Old Suncook Road Concord. New Hampshire 03301-7319 DOCKET NlM -

PROPOSED RULE .--5 0

Dear Chairman Patch:

( ltJ J. F le. 41 5 f1'6)

I am responding to your letter dated November 13. 1997. to Chairman Shirley Jackson of the U.S. Nuclear Regulatory Conmission (NRC). In your letter. you asked for an extension of the public conment period from November 24. until at least December 19. 1997. for the proposed rule on financial assurance requirements for decomnissioning nuclear power reactors (62 FR 47588: September 10. 1997). Unfortunately. because the conment period for this rule has already closed. and because it would be unfair to those who have already submitted comnents on the proposed rule to formally reopen the comnent period for one comnenter. we are unable to grant your request.

However. the NRC intends to seriously consider any conments that the New Hampshire Nuclear Oecomnissioning Finance Comnittee (NDFC) or other represen-tatives of the State of New Hampshire submits. Because the NRC staff will need at least several weeks to analyze public corrments on the proposed rule and to incorporate them into a final rule. the NRC should be able to consider any comments that NDFC submits within the next few weeks. If you have any questions on this matter. please contact Robert Wood of my staff by telephone on 301-415-1255 or by e-mail at RSWl@NRC.GOV.

Sincerely, l~g17r~ .

"\". Office of Nuclear Reactor Regulation

U.S. NUCLEAR REGULATORY COMMI .;_,.;.,

fU.EMAKINGS &ADJUDlrATIONS $mi--;E OFFICE OF THE SECRETARY Of THE COMMISSION OocllnGnt Statistics Postmalk Date 1acorrn*oj to Cr~ £ rDrn J~~

Ga.U a.6

SHAW PITTMAN POTTS &TROWBRIDGE DOCKETED A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS USNRC 2300 N Street, N .W.

Washington, D.C. 20037-1128 202.663.8000 Facsimile 202.663.8007 "97 CIC -3 All :oa MILTON B. WHITFIELD New York 202.663.8955 milton_ whitfield@shawp ittman.com OFFICi; 0 S::C'. ; 1 .r11 Virginia RULH ..1" Vii Jt"'S ;-,I JD ADJUDICA-1 t(. r.,s .:.TAFF December 1, 1997 Secretary of the Commission Nuclear Regulatory Commission U.S. Nuclear Regulatory Commission Washington, D.C. 20555-0001 Attn: Rulemakings and Adjudications Staff Re: Comments on Proposed Rule 11 Financial Assurance Requirements for Decommissioning Nuclear Power Reactors"

Dear Sir:

On behalf of a number of utilities, our firm filed comments on November 24, 1997 on the above-referenced rulemaking. A copy of these comments are enclosed for your reference. Also, I subsequently received correspondence from your agency that our comments have been docketed as Comment No. 20.

The purpose of this letter is to advise you that another utility, Vermont Yankee Nuclear Power Corporation, should be designated as a sponsor of these comments.

Sincerely yours, SHAW, PITTMAN, POTTS & TROWBRIDGE Enclosure

U.S. NUCLEAR REGULATORY COMM1S810N RULEMAKINGS &ADJUDICATIONS STAFF OFFICE OF THE SECRETARY OF THE COMMISSION DocumentSlalfsb Postmar1< Date I Q. f /11 Copies Received ~

Add'I Copies Reproduced- f. f s~ 1;r~ i:--r cb.. . i-

,. 1q- -

l t.t:; _pol

SHAW PITTMAN POTTS &TROWBRIDGE I\ PI\HNEI\SHIP INCtUOINC 1".0 F!SSIO N AL CO~ PO!V.TIONS ZJOO N Street, N.W.

Washington, D.C. 20037-1128 202.663.8000 Facsimile 202.663.8007 MILTON B. WHITFIELD New York 202. 663 8955 Virginia mdton_ whitfield@shawpittman.co m November 24, 1997 Secretary of the Commission Nuclear Regulatory Commission U.S. Nuclear Regulatory Commission Washington, D.C. 20555-0001 Attn: Rulemakings and Adjudications Staff Re: Comments on Proposed Rule "Financial Assurance Requirements for Decommissioning Nuclear Power Reactors"

Dear Sir:

As provided by Federal Register notice of September 10, 1997 ( 62 Fed. Reg. 47,588), we are submitting written comments on the Nuclear Regulatory Commission's ("NRC") proposed rule concerning "Financial Assurance Requirements for Decommissioning Nuclear Power Reactors." These comments are being submitted on behalf of Boston Edison Company, Cleveland Electric Company, The Toledo Edison Company, Centerior Service Company, Consolidated Edison Company of New York, Duquesne Light Company, MidAmerican Energy Company, Northern States Power Company, Rochester Gas & Electric Company, Wisconsin Electric Power Company, Wolf Creek Nuclear Operating Corporation, Kansas Gas and Electric Co., and Kansas City Power & Light Co., (referred to hereinafter as "Utilities").

The proposed rule would, among other things, revise the Commission's regulatory definition of "electric utility" found in 10 C.F .R. § 50.2. Those entities which remain electric utilities under the new definition would continue to provide decommissioning funding assurance under 10 C.F.R. § 50. 75(e)(3). Those entities which are no longer considered electric utilities under the revised definition would be required to provide decommissioning funding assurance in accordance with 10 C.F.R. § 50.75(e}(2). For non-electric utilities, this could require up-front funding of decommissioning costs. The proposed rule would also require licensees to report periodically on the status of their decommissioning funds. Finally, the NRC's proposal would allow licensees to take a two percent (2%) credit for their earnings on decommissioning trust funds.

SHAW PITTMAN POTTS &TR.OWBR.IDCE A PAJ<.TNEkSHJP JNCl.UDINC P~ O FESSIONAI. CO~l'O!\ATIO NS Secretary of the Commission November 24, 1997 Page 2 As discussed more specifically below, the Utilities appreciate the Commission's concern for adequate decommissioning funding in the face of electricity restructuring and deregulation of the power generating industry. The Utilities maintain, however, that the Commission can achieve its desired results without some of the changes it has proposed and should endeavor to provide as much flexibility as possible to accommodate the differing approaches to deregulation that may emerge in different states. Moreover, since electricity restructuring is still in the process of being implemented, the Utilities maintain that the Commission should not overreact by imposing requirements that are so restrictive that they impose unreasonable economic burdens on entities no longer qualifying as electric utilities. It makes no sense subjecting deregulated licensees to economic requirements they cannot meet. Such an approach merely increases the risk of premature shutdowns and exacerbates the possibility of unfunded decommissioning liability. It its therefore imperative that the NRC allow deregulated licensees to chose reasonable funding options (options that provide reasonable, not absolute assurance, of funding 1).

I. The Commission Should Consider Additional Approaches The NRC's proposed rule does not consider other alternatives to address the potential impact of deregulation on decommissioning funding. In particular, rather than establishing very burdensome and prescriptive financial requirements that may be imposed suddenly on a licensee as a result of state deregulation (and that may produce other unintended results), the Commission should consider exercising its broad authority under the Atomic Energy Act (section 161 of the Atomic Energy Act of 1954) to require the continuing recovery of decommissioning costs through rates. The NRC already recognizes that it has the authority to take actions as warranted to protect the public health and safety. 61 Fed. Reg. 185 (September 23, 1996). Indeed, the Commission said it intends to work with state and federal agencies as electric utilities face deregulation to minimize the possibility of actions that would have an adverse safety impact. Id.

at 49,713.

The public health and safety is much better served by assuring continued ratepayer funding than by establishing financial requirements that cannot be met. We, therefore, strongly suggest that the NRC consider a proactive rather than reactive approach to the decommissioning issue. The NRC's decommissioning funding regulations relied for nearly a decade on ratepayer funding, which the NRC has recognized as providing the requisite level of financial assurance for this liability. If, as it appears, this established funding mechanism is the best method of As the Commission recently explained, the NRC's decommissioning funding regulations are intended only to require reasonable assurance of funding, not an absolute guarantee. Yankee Atomjc Electric Co, (Yankee Nuclear Power Station), CLl-96-7, 43 N.R.C. 235,262 (1996).

SHAW PITTMAN POTTS &TROWBRIOCE

/\ PAllTNO..SHIP INClUOINC V,..Q FESSIO NAL COllPOMTIO NS Secretary of the Commission November 24, 1997 Page 3 providing decommissioning funding assurance, the Commission should take actions to require its continuation even in a deregulated market.

For these reasons, the Utilities urge the Commission to consider exercising its authority to maintain ratepayer funding as a means of protecting the public health and safety. We also suggest that this and other reasonable alternatives be comprehensively considered in the NRC's regulatory analysis to ensure that any new decommissioning requirements are reasonable, appropriate, and cost effective.

II. The NRC Should Clarify the Scope of the Proposed Rule The Commission has described its proposed rule as an amendment of the regulations on financial assurance for decommissioning (see 62 Fed. Reg. 47,588). This characterization is unfortunate, because the proposed changes are not limited to decommissioning funding requirements but also affect the financial qualifications requirements for operations. By changing the definition of electric utility, the NRC will affect the scope of financial qualifications review under 10 C.F.R. § 50.33(f) and thus establish a new test applicable to initial licensing, to transfers of control under 10 C.F.R. § 50.80, and to operating reactors. By failing to have made this impact clear, the NRC's description of the change has the potential of misleading some interested parties and does not adequately explain or analyze the implications of the rule.

For this reason the NRC may wish to consider renoticing the proposed rule (with a more accurate description and analysis of the changes) before proceeding further.

III. The Proposed Definition of Electric Utility Should Be Revised In its proposed rule, the Commission is proposing to amend the definition of electric utility in 10 C.F.R. § 50.2 as follows:

Electric utility means any entity that generates, transmits, or distributes electricity and which recovers the cost of this electricity. ei~keF al,eedy er ineireetl~*. through rates established e~' tke entiiy iEself er by a se~araEe regulatory authority, such that the rates are sufficient for the licensee to operate, maintain, and decommission its nuclear plant safely. Rates must be established by a regulatory authority either directly through traditional cost ofservice regulation or indirectly through another non-bypassable charge mechanism. An entity whose rates are established by a regulatory authority by mechanisms that cover only a

SHAW PITTMAN POTTS &TROWBRIOCE A P.'\'-TNE'-SH lr INC\.UDINC PK.O fts.sl()NAL COk.f'OII..ATIO NS Secretary of the Commission November 24, 1997 Page4 portion of its costs will be considered to be an "electric utility" only for that portion of the costs that are collected in this manner. .,....

[R1i'estor owRee Htilities, iRelHdiRg geReration ane eisu:ibHtion sHbsiaiaries, f)Public utility districts, municipalities, rural electric cooperatives, and State and Federal agencies, including associations of any of the foregoing, that establish their own rates are included within the meaning of "electric utility."

See 62 Fed. Reg. at 47605. In addition, the Commission is adding the following definitions of "cost of service regulation" and "non-bypassable charges" to 10 C.F.R. § 50.2.

Cost of service regulation means the traditional system of rate regulation in which a rate regulatory authority allows an electric utility to charge its customers all reasonable and prudent costs of providing electricity services, including a return on the investment required to provide such services.

Non-bypassable charges means those charges imposed by a governmental authority which affected persons or entities are required to pay to cover costs associated with operation, maintenance, and decommissioning of a nuclear plant. Affected individuals and entities would be required to pay those charges over an established time period.

The Utilities have a number of concerns with the NRC's proposed changes to the definition of electric utility in 10 C.F.R. § 50.2. First, the phrase "directly or indirectly" should not be deleted from the first sentence of the definition because the deletion could be interpreted as eliminating the exemption from financial qualification requirements applicable to non-owner operators who cover their costs under contracts with the owners. The NRC has traditionally held that such non-owner operators are "electric utilities" exempt from further financial qualification reviews because they recover their costs indirectly from the regulated rates of the owners who are contractually committed to pay the operators' expenses.

Not only should the NRC leave the phrase "directly or indirectly" in the first sentence of the definition, the NRC should further revise its regulations to make it clear that the financial qualifications and decommissioning funding requirements are the obligations of licensed owners.

This is important both to clarify where the real financial responsibility lies and also to facilitate

SHAW PITTMAN POTTS &TROWBRIDGE A P.4..1'-TNE'-SHlP INO.UOINC Pl'- O FE.SSIONAL CO l'-f'OMTIONS Secretary of the Commission November 24, 1997 Page 5 the formation of operating service companies, which may be particularly important in a deregulated market. Where an operator has no ownership interest and is merely operating a nuclear plant under contract with the owners, that entity should not be liable for decommissioning funding and should not be subject to these regulations. 2 Returning to the proposed definition of electric utility, the phrase "such that the rates are sufficient to operate, maintain, and decommission its nuclear plant safely" should be deleted from the first sentence because it unnecessarily invites challenges to the underlying sufficiency of the rates established by the regulatory authority. For example, in a proceeding involving a license transfer or reorganization, an intervenor might contend that the licensees are not electric utilities because the rates established by a state are not sufficient to operate, maintain or decommission the plant safely. As a result, litigation might result before the NRC concerning the sufficiency of the rates established by a state public utility commission (PUC), and the NRC might find itself acting as an arbiter of the state ratemaking process. The Utilities do not believe that the NRC or the licensees which recover their costs via rate regulation (and hence qualify as electric utilities) should be subjected to the possibility of such litigation.

Similarly, a challenge to the sufficiency of the underlying rate regulation could result from the addition of the second sentence of the proposed definition for electric utility coupled with the new definition for cost of service regulation. Specifically, a requirement that rates be established through traditional cost of service regulation which requires that "all" reasonable and prudent costs be recovered invites a challenge to the sufficiency of the licensee's rate regulation.

Also, it is inconsistent with the ongoing practice of ratemaking agencies which, while they generally allow the inclusion of reasonable and prudent costs in the rate base, only require that the end result for cost of service regulation be just and reasonable. The Utilities, therefore, maintain that the modifier "all" should be deleted from the definition for the cost of service regulation.

Finally, the Utilities question why the Commission is proposing to delete investor-owned utilities, including generation and distribution subsidiaries, from the list of entities that may qualify as electric utilities. The reason for this deletion is not explained, and the change could imply or be construed as an indication either that investor-owned utilities can no longer qualify as an electric utility, or that investor-owned utilities are subject to different "electric utility" In particular, we recommend adding a new, third sentence to section 50.75(a) stating, "The funding of decommissioning is an obligation of the owner or owners of facilities subject to this Part, and applicants for or holders of an operating license for a production or utilization facility that provide operating services for such facility and have no ownership interest therein arc not subject to any decommissioning funding responsibilities under these regulations."

SHAW PITTMAN POTTS &TROWBRIOCE

., PMTNE~SHIP lNClUDlNC "'-O fBSlONAl COU O M TIO NS Secretary of the Commission November 24, 1997 Page 6 criteria that are public utility districts, electric cooperatives, and other types of licensees.

Clearly, either inference would be inappropriate.

The Utilities support the Commission's proposed definition of electric utility in two particular aspects. First, the third sentence of the definition allowing a licensee to qualify as an electric utility with respect to those portions of its costs recoverable through rates, which we understand to be a provision allowing the NRC to decouple its review of decommissioning funding from other financial qualifications reviews, is very beneficial in concept. However, the provision also could be misconstrued as requiring review of the sufficiency of rate treatment.

For example, suppose a public utility commission only allowed a ten percent contingency in the decommissioning amount included in rates, as opposed to 25% often used by the industry and NRC. Moreover, the third sentence could be misconstrued as requiring further financial assurance(~ prepayment, surety, or guarantee) for this unfunded contingency. Such an approach could rapidly escalate into complex proceedings and second-guessing of state ratemaking decisions. To avoid this misinterpretation, the NRC should revise the third sentence so that it avoids referring to "portions" of costs and instead states, "An entity whose rates are established by a regulatory authority by mechanisms that cover only decommissioning costs will be considered to be an 'electric utility' with respect to its decommissioning funding responsibilities."

The Utilities also support as a prudent concept the provision in the proposed definition allowing qualification as an electric utility based on non-bypassable charges. The Utilities do believe, however, that the definition of non-bypassable charges should be expanded to cover those instances in which state public service commissions or other agencies establish mechanisms for recovery of such costs in lieu of assessing them as "charges." For example, a decommissioning liability might be covered by so-called state "securitization" legislation, assumed by the state, or recovered through a tax.

For the foregoing reasons, the Utilities submit that the proposed definitions of electric utility, cost of service regulation and non-bypassable changes in l O C.F .R. § 50.2 should be revised as set forth below :

Electric utility means any entity that generates, transmits, or distributes electricity and which recoven the cost of this electricity, either directly or indirectly, through rates established by a regulatory authority. Rates must be established by a regulatory authority either directly through traditional cost of service regulation or indirectly through another non-bypassable charge

SHAW PITTMAN POTTS &TROWBRIOCE

,\ PA!lTNE'-SHII' INctUOING P"-Oft.SSIONALCO"-.POMTIONS Secretary of the Commission November 24, 1997 Page 7 mechanism. An entity whose rates are established by a regulatory authority by mechanisms that cover only decommissioning costs will be considered to be an "electric utility" with respect to its decommissioning funding responsibilities. Investor-owned utilities, including generation or distribution subsidiaries, public utility districts, municipalities, rural electric cooperatives, and State and Federal agencies, including associations of any of the foregoing, that establish their own rates, are included within the meaning of "electric utility."

Cost of service regulation means the traditional system of rate regulation in which a rate regulatory authority allows an electric utility to charge its customers those reasonable and prudent costs of providing electricity services, including a return on the investment required to provide such services.

Non-bypassable charges means those charges imposed by a governmental authority which affected persons or entities are required to pay to cover costs associated with operation, maintenance, and decommissioning of a nuclear plant. Affected individuals and entities would be required to pay those charges over an established time period. Charges shall also include any other funding mechanisms imposed or established by a governmental authority to provide for payment of such costs.

IV. The Proposed ChanKes to Section 50,75(e)Q) are Redundant and Confusioi The proposed rule inserts several new sentences in section 50.75(e)(3) (the provision establishing funding methods for electric utilities) repeating language from the proposed definition of electric utility. The first two sentences of this proposed provision should be deleted for several reasons. First, they are redundant and add nothing to the section; the term "electric utility" has already been defined and there is no need to repeat the definition. Second, they are particularly confusing in this context. They suggest that to qualify as an electric utility for purposes of decommissioning funding, a licensee's rates must be sufficient for the licensee "to operate, maintain, and decommission its plant safely." ~ 62 Fed. Reg. at 47,606. There is no reason why financial assurance for operations and maintenance should be mentioned in this section when the definition of electric utility allows the decommissioning inquiry to be decoupled from other aspects of financial qualifications. Moreover, like the troublesome

SHAW PITTMAN POTTS &TROWBR.IOCE I\ PA"-TNE~HIP INCLUDING ~OFESSIONAL COkPOMTIONS Secretary of the Commission November 24, 1997 Page 8 language in the definition (as discussed earlier in these comments), these sentences suggest that qualifying as an electric utility requires a factual "sufficiency" review of a state's ratemaking decisions -- a result that would inject unnecessary complexity and controversy into these rules.

V. The Financial Assurance ReQuirements for Non-Electric Utilities Are Not Sufficiently Flexible to Accommodate Dereiulation In promulgating a new definition for electric utility, the Commission stated in the proposed rulemaking that it is concerned that the financial assurance mechanisms available in 10 C.F.R. § 50.75(e)(2) may not be available to some licensees who do not qualify as electric utilities. This regulation limits non-electric utilities to providing decommissioning funding assurance through (i) prepayment, (ii) an external sinking fund coupled with a surety or similar third-party guarantee for the outstanding balance, or (iii) a parent or self guarantee. The Commission asked for additional comments on alternative methods of financial assurance, including accelerating funding, which might provide the desired financial assurance (62 Fed.

Reg. at 47,596).

The Utilities strongly support the idea of amending 10 C.F.R. § 50.75(e)(2) to allow non-electric utilities more flexibility in establishing alternative financial mechanisms to fund decommissioning of a nuclear facility. As stated at the beginning of our comments, it makes no sense to impose economic requirements on deregulated entities if those requirements cannot be met. Unreasonable or unrealistic economic requirements will simply increase the stress on deregulated entities, increase the possibility of premature shutdowns, and exacerbate the possibility of unfunded decommissioning liabilities. In sum, rather than promoting the public health and safety, unreasonable requirements may in fact diminish such protection. For these reasons, unless the NRC takes steps to require the continuation of ratepayer funding, it is imperative for deregulated entities to have available to them reasonable, flexible funding options.

For instance, 10 C.F.R. § 50.75(e)(2) should be amended to provide greater flexibility in the parent company guarantee or self guarantee provisions of Appendix A and Appendix C of l 0 C.F.R. Part 30 respectively. Among other tests, Appendix A requires for a parent company guarantee that the parent have a net worth of at least six times the estimated cost of decommissioning. Appendix C requires, among other tests, that the licensee have a net worth of at least ten times the estimated decommissioning cost. Both of these amounts were originally developed for materials licensees and the Utilities submit that they are excessive for decommissioning funding by reactor licensees. Lowering the required amounts to one or two times the estimated decommissioning costs would be more than adequate.

SHAW PITTMAN POTTS &TROWBRIDGE A PMTNE~HIP JNCtUDING P~OFBSIONAL CO~POMTIONS Secretary of the Commission November 24, 1997 Page 9 Further, 10 C.F.R. § 50.75(e)(2) should be amended to allow a licensee to utilize parent or self guarantees in conjunction with other authorized financial assurance mechanisms under 10 C.F.R. § 50.75(e)(2). The regulation currently precludes the use of a parent or a self-guarantee in combination with any of the other financial assurance mechanisms provided for by the regulation. It is, however, unreasonable, particularly in the era of the competitive marketplace, to prohibit a licensee from combining the different authorized financial assurance mechanisms into the most economical package in order to provide the reasonable assurance of decommissioning funding required by the NRC regulations. Nor does it make sense to allow a licensee to provide aguarantee for the entire decommissioning liability but not for a lesser amount when a portion

- has already been accumulated in trust.

A modest acceleration of decommissioning fund payments into an external sinking fund is also an approach that could be reasonable, provided the period of time is not too short.

However, too great an acceleration (and in particular, prepayment) could adversely impact the non-electric utilities' competitiveness in the marketplace and force early closure of the affected nuclear facilities. The Utilities also suggest that the timeframe for the accelerated payments should not be based solely on an arbitrary number of years but should consider the remaining operating license life of the plant. For example, the accelerated funding might require accumulation of necessary funds either within ten years or within two-thirds of the remaining license term, which ever is greater. This approach would avoid prejudicing those non-electric utilities which have many years remaining on their operating licenses.

• In addition to the above-suggested amendments to 10 C.F.R. § 50.75(e)(2), Utilities believe that the regulations should also be amended to allow other mechanisms to be developed by a governmental authority(~. states) or the licensees themselves and approved by the Commission once reasonable assurance of decommissioning funding has been established.

VI. Rate of Return on External Sinkin~ Funds The Commission has proposed that a two percent (2%) annual real rate of return be allowed to licensees on external sinking funds from the time of the funds' collection through the decommissioning period. The Utilities respectfully submit that this rate of return is inadequate and inconsistent with prior promulgations by the agency. In the Regulatory Analysis Guidelines of the Nuclear Regulatory Commission, NUREG/BR-0058, Revision 2 (December 20, 1995), the Commission adopted a real discount rate of 7% as recommended in the latest version of the Office of Management and Budget Circular A-94 (October 29, 1992). Moreover, in a prior version of its own regulatory analysis guidelines (SECY93-167, June 14, 1993 }, the Commission stated that a 7% discount rate should be used unless there are unique circumstances where the

SHAW PITirvtAN POTTS &TROWBRIOCE I\ l'Mn.lEk.SHIP INCLUDING ?~CFESSIONAL CO~P'OllATIONS Secretary of the Commission November 24, 1997 Page 10 regulatory analysis considers consequences in excess of 100 years (and even where the analysis extends beyond l 00 years, 3%, not 2%, should be used for present worth analysis). These promulgations provide evidence not only that a 2% real rate of return on the extended sinking funds is inadequate but also that a 7% annual real rate return is both reasonable and justifiable.

VII. Conclusion Utilities appreciate the opportunity to provide these comments on the proposed rule on financial assurance requirements for decommissioning funding. Utilities recognize the legitimate concerns arising as a result of electricity restructuring that the Commission seeks to address in this proposed rule. Utilities, however, caution the Commission to not promulgate a rule which is more stringent than necessary, especially when implementation of electricity restructuring is far from complete. Otherwise, the adverse effects could not only be detrimental to companies already in the industry but could also result in early nuclear plant closings. It would be unfortunate if the NRC's regulations had the effect of increasing unfunded decommissioning liability, but this could indeed be the result if unreasonable or unrealistic requirements force premature plant closures. Utilities respectfully submit that the suggested amendments provided herein would greatly assist the industry and still provide the Commission with the assurance that adequate funds will be available to decommission nuclear facilities.

Sincerely yours, SHAW, PITTMAN, POTTS & TROWBRIDGE 111731--02 / DOC SOC I

O PS~G DOCKETED IISNRC Public Service Electric and Gas Company P.O. Box 236 Hancocks Bridge, New Jersey 08038-0236' Nuclear Business Unit "97 DEC -2 Al O:25 November 25, 1997 LR-N970772 Mr. John C. Hoyle Secretary U.S. Nuclear Regulatory Commission Washington, DC 20555-0001 ATTENTION: Rulemakings and Adjudications Staff

Dear Mr. Hoyle:

PSE&G'S COMMENTS ON (1) THE NUCLEAR REGULATORY COMMISSION'S PROPOSED RULE ON FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISSIONING NUCLEAR POWER REACTORS (62 FED. REG. 47588; SEPTEMBER 10, 1997); AND (2) DRAFT REGULATORY GUIDE 1060, FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) FOR DECOMMISSIONING COST ACCOUNTING PSE&G is pleased to provide the following comments in response to the NRC's Notice of Proposed Rulemaking on Funding Assurance for Decommissioning Nuclear Power Reactors.

In general, PSE&G agrees with the comments submitted by the Nuclear Energy Institute to the NRC on the subject rulemaking. Additionally, PSE&G submits the following specific comment for NRC's consideration:

Decommissioning of nuclear power reactors is a public health and safety imperative and the funding for decommissioning must be assured. Funding must be secured and insulated from market risk. Therefore, PSE&G's preferred method of assuring proper funding is through a non-bypassable charge established by a regulatory mandate. This position is consistent with the filing of PSE&G's Energy Master Plan to the New Jersey Board of Public Utilities. This fundir:ig mechanism will create a win situation for all involved. It will assure the NRC, the utility and the state regulatory body of continued and adequate funding at all times which of course is the prime objective of all parties. It will also allow the regulatory body to adjust the non-bypassable charge up or down, following the adoption of a new decommissioning cost estimate, thus making the fund accumulation equitable. The non-bypassable charge will effectively remove the OEC_ - 4 19~

Acfmowfedged by card.. --- -

The power is in your hands.

95-2168 REV. 6/94

U.S. NUCLEAR REGULATORY COMMISSION flJLEMAKINGS &ADJUDICATIONS STAFF OFFICE OF THE SECRETARY OF THE COMMISSION Document Statistics POS1mark Date Hti.nd 7)e/,*,;ered o n ,~ / r;./91 Copies R808N8d _ _ _ / _ _ __

Add1 ~ Reproduced ---~ - - -

Special Distr1bution f_ ,

~r,*cbfer, G~ l/~g l,erl INOJ1d P D£ J 1? I DS

Mr. John C. Hoyle 11/25/97 decommissioning issue out of the electric competition equation, and thereby facilitate utilities in making optimal business decisions in the competitive environment.

Please do not hesitate to call me if you have any questions.

Sincerely, David R. Powell Director - Licensing/Regulation &

Fuels C:\ED\FEA97185

John Hoyle 3 LR-N970772 C Mr. Hubert J. Miller, Administrator - Region I U. S. Nuclear Regulatory Commission 475 Allendale Road King of Prussia, PA 19406 Mr. Patrick Milano, Licensing Project Manager U. S. Nuclear Regulatory Commission One White Flint North 11555 Rockville Pike Mail Stop 14E21 Rockville, MD 20852 Ms. Brenda Mozafari, Licensing Project Manager U. S. Nuclear Regulatory Commission One White Flint North 11555 Rockville Pike Rockville, MD 20852 Ms. M. Evans (X24)

USNRC Senior Resident Inspector Salem Generating Station Mr. S. Morris (X24)

USNRC Senior Resident Inspector Hope Creek Generating Station Mr. K. Tosch, Manager, IV Bureau of Nuclear Engineering PO Box 415 Trenton, NJ 08625

North DOCKETED North Atlantic Energy Service Corporation USNRC P.O. Box 300 Atlantic Seabrook, NH 03874 (603) 474-9521 "97 DEC -1 Pl :54 The Northeast Utilities System Docket No. 55-443 NYN-97116 The Secretary of the Commission 50 U.S. Nuclear Regulatory Commission Washington, D. C. 20555-0001 Attention: Rulemakings and Adjudications Staff Seabrook Station Comments on the Proposed Rule for Financial Assurance Requirements for Decommissioning Nuclear Power Reactors (62 FR 47588 - September 10, 1997).

These comments are submitted by North Atlantic Energy Service Corporation (North Atlantic) in response to the subject Federal Register notice. North Atlantic is the managing agent and operator of Seabrook Station. Enclosure 1 provides detailed comments and recommendations on the proposed rule.

Seabrook Station is jointly owned by 11 investor-owned, municipal-owned and cooperatively-owned utilities whose sales are regulated by four states and the Federal Energy Regulatory Commission. Although some are further along than others, each of the states is in the process of restructuring its electric industry to establish competition among electricity suppliers.

Even at this early stage of deregulation we believe that the revisions proposed by the NRC do not fully address how future nuclear plant owners will be structured and how they will recover their decommissioning costs. As a first step, we believe that the financial assurance and decommissioning funding tests must be separated. In particular, we believe that the term electric utility should only be applied when the determination of financial qualification is made. For

.decommissioning, we believe that financial assurance tests specific to decommissioning should be used.

It is important to note that many of the arrangements for the recovery of decommissioning costs have yet to be worked out between the affected utilities and their regulators. These arrangements will all have the same fundamental goal of providing reasonable assurance that decommissioning OEC - 4 1997 Aclcnowledged by card-------

U.S. NUCLEAR REGULATORY COMMISSION RULEMAKINGS &ADJUDICATIONS STAFF OFFICE OF THE SECRETARY Of THE COMMISSION Document Statlsllcs Postmark Date II / ;;, 4) q '7 Coples Received _ ___,__ __ _

Add'I Coples Reproduced L Special 01skibut1on 7<,' C/f~ tf G:~ U ~ j he Yj 1> D ~}

The Secretary of the Commission U.S. Nuclear Regulatory Commission NYN-97116/Page 2 will be fully funded. It is very likely, however, that some funding assurance arrangements will take forms that are not even being discussed yet. The NRC should ensure that its regulations provide licensees the flexibility to employ these creative solutions while at the same time achieving the underlying goal of full decommissioning funding assurance. The specific comments made in the enclosure are not meant to limit the NRC's consideration of even more flexible arrangements but simply address mechanisms and issues that we are aware of today.

North Atlantic has had the opportunity to input substantively into the comments being provided by the Nuclear Energy Institute and supports those comments. North Atlantic considers the concept in those comments of a "qualified nuclear entity" as determined by certain tests to be sound. We endorse this approach. Further, we believe that flexibility in the NRC's regulations is essential and the NEI proposal provides such flexibility. Our comments represent a somewhat less comprehensive approach than NEI' s towards achieving the separation of the financial qualification and decommissioning funding assurance regulations. The detailed comments provided in the enclosure to this letter are meant to support NEI' s comments.

Should you have questions regarding these comments, please feel free to contact Mr. Terry Harpster, Director of Licensing Services at (603) 773-7765.

Very truly yours, NORTH ATLANTIC ENERGY SERVICE CORP.

ed C. Feigenbaum Executive Vice Presid t and Chief Nuclear Officer cc: Adrian Heymer, NEI Nuclear Energy Institute 1776 I Street, NW Suite 400 Washington, DC 20006-3708 Craig W. Smith, NRC Project Manager, Seabrook Station R. K. Lorson, Senior NRC Resident Inspector, Seabrook Station United States Nuclear Regulatory Commission Document Control Desk Washington, DC 20555-00021

ENCLOSURE 1 TO NYN-97116 Enclosure 1 Detailed Comments on Proposed Rule Changes Regarding Funding Assurance for Decommissioning I. Definition of Electric Utility The Proposed Rule Needs to be Revised to Reflect Industry Restructuring The NRC's proposed rule revises the definition of an electric utility to reflect the anticipated form ofNRC licensees under the restructuring of the electric utility industry. However, applying the revised definition creates several difficulties for both licensees and the NRC in achieving the underlying objective of the decommissioning rule, namely the guarantee of the availability of decommissioning funds. As explained in the following, the rule as proposed unnecessarily limits a licensee's ability to demonstrate financial assurance and unnecessarily complicates the NRC's review of a licensee's assurance of decommissioning funding.

The Definition of an Electric Utility was Intended as a Financial Qualification Test Not a Decommissioning Funding Assurance Test The definition of an electric utility that exists today was added to the NRC's regulations in support of a revision to the NRC's rules that eliminated NRC financial qualification reviews for electric utilities (49CFR3 5747). The inclusion of the definition of an electric utility was intended solely to address the test that a prospective licensee have assurance of the funds necessary to safely operate a nuclear plant. This was made clear in the statement of considerations that accompanied the rule where the NRC stated its concerns. Examples of the NRC's intent can be seen in the following statements:

"Even though the rate process does no more than assure that regulated utilities will have the financial resources needed to operate safely. this limited assurance is all that the financial qualifications rule was intended to achieve." (49CFR35749) (Emphasis added), and, "Its (the NRC's) concern is that reasonable and prudent costs of safely maintaining and operating nuclear plants will be allowed to be recovered through rates." (49CFR35749) (Emphasis added)

The NRC continued this philosophy of applying the electric utility test when it issued the 1985 proposed revisions to its rules that added decommissioning criteria for nuclear facilities (S0CFR5600). There, the NRC proposed adding requirements for what constituted acceptable decommissioning funding assurance mechanisms. The reason why the definition of electric Page 1 of 6

utility was applied to decommissioning appears to have occurred because the decommissioning funding assurance rules were originally proposed as an addition to § 50.33, Contents of Applications. Since the NRC's regulations already considered a licensee's status as an electric utility as the seminal criteria for whether a potential licensee was financially qualified, it followed that the NRC would use this as a test of the certainty of a licensee's recovery of decommissioning costs on an ongoing basis. The NRC based its distinction between the financial assurances required for electric utilities and non-electric utilities on the "guarantee" that recovery of operating costs allowed by state utility commissions presented.

In the 1988 final rule that established the requirements for the decommissioning of nuclear facilities (53FR24018), the NRC moved its criteria out of§ 50.33 into a new section, § 50.75, Reporting and Recordkeeping for Decommissioning Planning. The criteria that established which decommissioning funding assurance requirements applied to a licensee still, however, contained the financial qualification test of whether the entity was an electric utility.

The NRC fully understood that FERC and the state utility commissions had the established responsibility for setting rates to allow the recovery of decommissioning costs. Illustrative of how the NRC saw the utilities commissions' roles is a statement in the section addressing unfunded decommissioning costs. There the NRC stated, "because public utility commissions are to set a utility's rates such that all reasonable costs of serving the public may be recovered and because NRC requirements concerning termination of a license are part of the reasonable cost of havin~ operated a reactor, it is reasonable to assume that added costs beyond those in the prescribed amount could be obtained if the latter were too low as suggested by the commenters."

The linkage between the electric utility test and the objective of assuring full decommissioning funding merely recognized the then-existing regulatory "guarantee" established by the FERC and state utility commissions' allowance of the recovery of decommissioning costs.

The Proposed Rule Should Decouple the Financial Qualification and Decommissioning Funding Assurance Tests The NRC, in its proposed rules has modified its definition of an electric utility to include recognition of the recovery of costs through either traditional cost of service rate recovery or through the establishment of a non-bypassable cost recovery mechanism (e.g. wires charge).

This approach does not recognize that cost recovery under restructuring will not be as well defined as the NRC's proposed rules anticipate.

The restructuring of the electric utility industry is still in its early stages, however, several examples exist which point out the unnecessary results that will arise from the rule as proposed.

In Massachusetts, utilities are restructuring in accordance with the model rules issued in Massachusetts Department of Public Utilities (MDPU) Docket 96-100. Those model rules encourage the filing of offers of settlement as a way to expedite the restructuring process.

Individual utility restructurings, therefore, are being carried out in accordance with specific Page 2 of 6

settlement agreements involving the Massachusetts Attorney General, other parties and the utility.

Typically, these Massachusetts settlement agreements, which are currently pending before the Massachusetts Department of Public Utilities for approval, distinguish between recovery of decommissioning costs for nuclear plants and the going forward operating and capital additions costs for nuclear plants. The settlement agreements provide for full recovery of post-shutdown, decommissioning and site restoration costs of nuclear plants through a contract termination charge (CTC). This CTC is a non-bypassable "wires charge".

However, under these settlements, the going forward costs of operation of nuclear plants are typically divided with a portion of those costs recovered through the same non-bypassable CTC and the remainder subject to market based sales which result in either the over- or under-recovery of the going forward costs. Thus, despite the fact that these settlement agreements assure a Massachusetts licensee of recovery of 100% of its decommissioning costs through the CTC, it is not clear whether the NRC proposed revision of §50.75 would impose a prefunding requirement upon such a licensee because the new definition of electric utility combines all costs "to operate, maintain and decommission its nuclear plant" and §50.75 appears to incorporate that combined concept rather than focusing on decommissioning costs alone. Since the Massachusetts settlements assure 100% recovery of decommissioning, no prefunding is necessary to achieve the purposes of §50.75.

In New Hampshire, the utility restructuring order issued by the New Hampshire Public Utilities Commission (NHPUC) contained an approach that anticipated less than full recovery of nuclear operating costs as stranded costs, but that nonetheless recommended full recovery of decommissioning costs via a stranded cost approach. The NHPUC's Plan on Restructuring the Electric Industry, issued February 28, 1997 contained the following:

"In all instances, companies will not be allowed to add the going forward costs of nuclear operation as stranded costs, with the exception of decommissioning costs. We believe the public good is served by allowing distribution companies to recover decommissioning costs through stranded cost charges .... "

While this order has been temporarily stayed pending litigation, this specific provision would create more "partial electric utilities" that nevertheless had full regulatory guarantee of decommissioning cost recovery.

The Solution is to Separate the Financial Qualification and Decommissioning Funding Assurance Tests The tests that the NRC has established in its proposed definition of electric utility are useful ones and would give a clear indication of the assurance that a licensee (or potential licensee) needed to Page 3 of 6

provide. However, by referring solely to the definition of electric utility as a matter of convenience could create "partial electric utilities" and require unnecessary prefunding.

A solution is to adopt the definition of electric utility proposed by the NRC as the test applied solely for financial qualification. In addition, §50.75 should be modified to apply financial tests specific to decommissioning funding in determining whether "prefunding" should be required.

The concepts used by the NRC in modifying its definition of electric utility should be included in

§50.75. North Atlantic believes that the NEI concept of a "qualified nuclear entity" provides a suitable replacement to the use of the term "electric utility". Another acceptable alternative is to use the suggested language provided as Attachment 1.

North Atlantic also endorses the three-tiered approach being proposed by NEI which grants additional flexibility in the evaluation of a licensee's ability to reasonably assure decommissioning funds.

II. Unavailability of the Financial Assurance Mechanisms Envisioned Under 10CFRS0. 7S(e)(2)

As the Commission is well aware, Great Bay Power Corporation (Great Bay), a 12.1324% owner in Seabrook Station has been found to not meet the definition of an electric utility contained in

§50.2. As a result, Great Bay must satisfy the more stringent funding requirements of

§50.75(e)(2).

As of July 1997, Great Bay had been unsuccessful in locating any of the funding mechanisms described in the decommissioning regulations and has sought and received a continued temporary exemption from those requirements. It is continuing to search diligently for a financial instrument that would satisfy the Commission's requirements but has been unsuccessful.

The only alternatives that Great Bay has been able to identify would have required them to fully fund or collateralize the insurance company or surety in the form of a pre-funding of the total obligation by Great Bay. More recent discussions with insurance companies have found that the shifting of decommissioning risk to them is a difficult hurdle. The insurance companies have been focusing on an annuity type of product that is based on cash security provided by Great Bay up front. This in essence becomes simply another form of prepayment.

Great Bay's experience is consistent with the Commission's own findings that the forms of guarantees called for in §50.75(e)(2) were not available. In the statement of considerations for the final rule on General Requirements for Decommissioning Nuclear Facilities the Commission found:

"Use of insurance for non-accident related decommissioning was found in an earlier study performed for the NRC, NUREG/CR-2370 (Ref.16), to Page 4 of 6

have potentially serious problems of insurability and moral hazard and is not currently available." (53FR24034) and, "Finally, earlier studies in NUREG-0584 found that surety bonds were not generally available in the amounts necessary for decommissioning power reactors." (53FR24034).

While it is impossible to predict with certainty the form that restructured nuclear plants ownership will take, the examples we have to date in Massachusetts and New Hampshire indicate that it is likely that the vast majority of generating companies that will exist after restructuring will have an assured recovery mechanism through a non-bypassable charge. The result will be that there will be no new market created for such financial instruments leaving those few utilities that must seek them saddled with an extremely large operating expense that their competitors will not have to incur.

III. Alternative Methods of Financial Assurance In its proposed rulemaking, the Commission has asked for comment on alternative methods of financial assurance given that some entities may not be able to obtain the assurance required under §50.75(e)(2). We believe that additional consideration of such alternatives is warranted.

Assignment of Rights to Decommissioning Funds Collected In the example cited above involving Massachusetts utilities, should a new entity purchase a portion of a nuclear plant owned by a Massachusetts utility the resulting licensee would not be part of the former corporate organization. In that case, under the terms of the settlement agreement the distribution companies of the former owner would continue to collect decommissioning costs under a non-bypassable charge. The monies collected under that charge would then need to be assigned to the new owner of the nuclear plant. The NRC needs to recognize that this type of arrangement is likely in those cases where interests in nuclear plants are sold and the distribution company is collecting the decommissioning cost.

The language as proposed in Attachment 1 addresses this event.

Accelerated Funding Accelerated funding has been offered as one potential alternative to the funding assurance requirements of §50.75(e)(2). While this mechanism has some attraction, there are certain aspects that appear problematic.

The period of time over which the accelerated funding would occur is undefined by the NRC.

Clearly, this would vary depending on how long a nuclear plant had been operating when this new requirement was imposed. For a newer unit with greater than 25 years remaining on its Page 5 of 6

license, it may be appropriate to accumulate funds over a 15 or 20 year period. The unfunded decommissioning obligation for a plant early in its life is very large and spreading that cost over a short time period of 5 or even 10 years would impose competitive inequities when compared to licensees recovering funds via a cost of service or non-bypassable charge mechanism or those accelerating the far smaller balances of older plants.

The tax implications of accelerated funding must also be considered and we would request the NRC to approach the Internal Revenue Service for a ruling on this matter.

Page 6 of 6

ATTACHMENT 1 TO NYN-97116 Attachment 1 Proposed Revisions to the NRC's Financial Assurance Proposed Rulemaking

§ 10CFR50.2 Non-byoassable charges

1. Insert two new sentences at the end of the definition as follows. - Monies collected under a non-bypassable charge must be available to a licensee through assignment or some other mechanism. Other state-mandated provisions that impose guarantees of decommissioning funding (e.g. imposition of joint and several liability) on the owner(s) of a nuclear power plant are to be considered to provide guarantees equivalent to non-bypassable charges.

§ 10CFR50.75(e)(2)

1. Renumber section as (e)(3)

2. Delete - "For a licensee other than an electric utility, acceptable methods of providing financial assurance for decommissioning are -"

3. Insert - "For a licensee that does not recover any of its decommissioning costs through rates established by a regulatory authority either directly through traditional cost of service regulation or indirectly through another non-bypassable charge mechanism as defined in

§ 50.2, acceptable means of providing financial assurance for decommissioning are described in (i) through (iv) of this section.

§ 10CFR50.75(e)(3)

1. Renumber section as (e)(2)

2. Delete - "For an electric utility, acceptable methods of providing financial assurance for decommissioning are-"

3. Insert - "For a licensee that recovers all or part of the costs to decommission its nuclear plant through rates established by a regulatory authority, either directly through traditional cost of service regulation or indirectly through another non-bypassable charge mechanism as defined in §50.2, acceptable means of providing financial assurance for decommissioning are described in (i) through (iv) of this section. An entity whose rates as so established cover only a portion of its decommissioning costs may use the methods described in (i) through (iv) of this section for only that portion of the decommissioning costs collected through such rates.

The Commission reserves the right to take the following steps in order to assure a licensee's adequate accumulation of decommissioning funds: review, as needed, the rate of accumulation of decommissioning funds: and either independently or in cooperation with either the FERC or the State PUCs, take additional actions as appropriate on a case-by-case basis, including modification of a licensee's schedule for accumulation of decommissioning funds."

Page 1 of 1

CHARLES H. CRUSE DOCKETED Baltimore Gas and Electric Company

@)

Vice President USNRC Calvert Cliffs Nuclear Power Plant 1650 Calvert Cliffs Parkway Nuclear Energy Lusby, Maryland 20657 410 495-4455 "97 OEC 15 P2 :5 2 JQCKET NUMBBi -

~Rl"'\~~eo RULE 50

( (o~F~ '+ 75~8)

December 11, 1997 U.S. Nuclear Regulatory Commission Washington, DC 20555-0001 ATTENTION: Secretary, Rulemakings and Adjudications Staff

SUBJECT:

Calvert Cliffs Nuclear Power Plant Unit Nos. 1 & 2; Docket Nos. 50-317 & 50-318 Comments on Proposed Rule for Financial Assurance Requirements for Decommissioning Nuclear Power Reactors (62 FR 47588 September 10, 1997) and the Draft Regulatory Guide 1060, Financial Accounting Standards Board Standards for Decommissioning Cost Accounting Baltimore Gas and Electric Company is pleased by the opportunity to provide comments on the subject proposed rule and draft regulatory guide. Baltimore Gas and Electric Company commends the Nuclear Regulatory Commission for proposing to allow licensees some additional flexibility in how they provide financial assurance for decommissioning in an era of deregulation. However, the NRC's approach could result in a substantial and unnecessary financial impact on licensees. A more flexible approach would still ensure reasonable financial assurance for decommissioning without placing unnecessary financial burdens on them. In this regard, Baltimore Gas and Electric Company has reviewed and endorses the comments prepared by the Nuclear Energy Institute.

Should you have questions regarding this matter, we will be pleased to discuss them with you.

Very truly yours, y4cz_

CHC/SJR/bjd cc: Document Control Desk, NRC H. J. Miller, NRC R. S. Fleishman, Esquire Resident Inspector, NRC J. E. Silberg, Esquire R. I. McLean, DNR Director, Project Directorate 1-1, NRC J. H. Walter, PSC A. W. Dromerick, NRC Acknowledged by card .*JEC 1 9 1997

U.S. UCLEAA REGUlATORY COMMISSION RULEMAKINGS & ADJUDICATIONS STAFF OFFICE OF THE SECRETARY OF THE COMMISSION Docll1'Gnl Statlab Postmark _-4_1-J-1~---

Date _ _ _,.__ __

Coples Recetved Add't .

s

701 Pennsylvania Avenue, NW Washington, D.C. 20004-2696 Telephone 202-508-5527 r-v

.... DOCKETED 1 1 1997 DAVID K. OWENS AD EDISON ELECTRIC INSTITUTE \

Senior Vice President Finance, Regulation, & Power Supply Policy December 11, 1997 1CKE NUMBER

~ROPOSED RULE Pft 50

( ~.:l. Fl<. 'f7£°88)

Mr. John C. Hoyle Secretary U.S. Nuclear Regulatory Commission Washington, D.C. 20555-0001 Attention: Rulemaking and Adjudications Staff RE: Edison Electric Institute's Comments on the Proposed Rule for Financial Assurance Requirements for Decommissioning Nuclear Power Reactors (62 Fed. Reg. 47588

- September 10,1997), and the Draft Regulatory Guide 1060, Financial Accounting Standards Board (FASB) Standards for Decommissioning Cost Accounting.

Dear Mr. Hoyle:

The Edison Electric Institute (EEi) appreciates the opportunity to respond to the NRC's proposed rulemaking on providing assurance of adequate funding for decommissioning of nuclear power plants. As part of the ongoing process of adapting to a transforming electricity market, this is an important step in the process. The enclosure provides EEi's comments.

Edison Electric Institute is the association of the United States investor-owned electric utilities and industry affiliates and associates worldwide. Its U.S. members serve 97 percent of all customers served by the investor-owned segment of the industry. They generate approximately 74 percent of all the electricity generated by electric utilities in the country and service 73 percent of all ultimate customers in the nation. Its members own or partially own a high percentage of the nuclear power reactors with operating licenses.

We are in full accord that the adequacy of funding for decommissioning is a public health and safety issue. The adequacy of funding also raises economic and environmental issues.

It will take sound judgment to weigh these important issues and arrive at optimum solutions.

OE.C 1 g 1997 Acknowledged by card Ill 11111 HI t r 1 .,._..

U.S. NUCLEAR REGULATORY COMMISSION RULEMAKtNGS & ADJUDICATIONS STAr.

OFFICE OF THE SECRETARY OF THE COMMISSION Doclfflant Statistics Pomnlllk Data , r; /11 / 'I '1 /-/c,"u:/_ De l/vf! r'ed Caples Recaved _ _a.. . , , - --

Add'I Cqllaa ~ --= 5__

SpaclaJ Dlslll>ution :3 id,fe. ~

~c,~ I .'~ 1 I

Mr. John C. Hoyle December 11, 1997 Page Two With the significant amount of restructuring underway, there is uncertainty as to how the industry will evolve. Retail electricity markets are just commencing to be developed in some states. Thus, we would recommend an evolving and flexible aJ!Proach to assuring decommissioning funding in order to recognize the current evolution of electricity markets.

Sincerely, David K. Owens DKO:lk:ms Enclosure cc: Honorable Shirley Ann Jackson, Chair, NRC Ms. Greta Joy Dicus, Commissioner, NRC Mr. Nils J. Diaz, Commissioner, NRC Mr. Edward McGaffigan, Jr., Commissioner, NRC Mr. Leonard J. Callan, EDO/NRC

Enclosure EEI's Detailed Comments on the Notice of Proposed Rulemaking for Financial Assurance Requirements for Decommissioning Nuclear Power Plants (62 Fed. Reg. 47588 - September 10, 1997)

Introduction EEi appreciates the opportunity to comment on the Notice of Proposed Rulemaking for Financial Assurance for Decommissioning Nuclear Power Plants. We commend the NRC for raising important issues that must be discussed and understood concerning restructuring. These inquiries will lead to rule changes that will protect the public interest with regard to health and safety as well as recognize the economic issues involved. Also, the decisions should, to the extent consistent with protecting public health and safety, recognize the importance of nuclear power in maintaining a diversified energy mix.

Our comments are based on the following principles:

The adequacy of decommissioning funding is a public health and safety issue. Thus, reasonable assurance should be provided that there will be adequate funds for decommissioning.

Nuclear plants were built to serve customers for a number of public policy reasons under a rate regulatory regime that is now rapidly changing. Thus, nuclear decommissioning cost recovery, if not part of cost of service rates, should be dealt with as part of a rate order associated with the current transition to competitive electricity markets.

Because of the potentially varying methods of calculating required revenues and setting rates or prices, consideration of decommissioning and O&M costs should be decoupled rather than serially linked in the process of determining decommissioning funding assurance.

License transfer and decommissioning cost assurance proceedings should allow added methods that provide reasonable assurance of decommissioning funding. This will provide a flexibility to allow workable solutions in a restructured environment.

Flexibility is required because much is unknown about the future shape of electricity markets.

Any decommissioning assurance rules issued should treat all competitors equally.

Nuclear power is an important part of our nation's energy infrastructure. It is used to generate more than 20 percent of the electricity in the country. It contributes to an energy portfolio that, because of the importance of energy to our nation and the vitality of our economy, must be diversified in order to provide reliability. The federal government encouraged the use of civilian nuclear power to generate electricity in order to promote energy security and reliability . The installation of our nation's nuclear power capability was accomplished and facilitated in a rate-regulated environment.

Construction was begun on all nuclear plants before retail and wholesale competition in the electricity industry was envisioned. Some plants had many years of service when the Energy Policy

Act of 1992, which began the formal introduction of competition, was enacted. Nuclear powered plants have provided service for many years under a wholesale rate regulatory regime that is now rapidly changing.

Based on this history, we also want to emphasize our support for the concept that the full amount of nuclear decommissioning costs should be considered a cost of the transition to competition and, thus, should be fully recovered through regulatory mechanisms that will allow the licensee to continue to be considered an electric utility by the NRC. Thus, EEI fully agrees with and supports NRC's policy of conducting liaison with state and federal rate regulators so as to urge them to recognize the full amount of nuclear decommissioning costs as a transition cost as both a matter of equity and sound public policy. This will allow the most workable method of fund assurance to remain in place.

The Definition of an Electric Utility 1 As electricity market restructuring proceeds, regulators generally have recognized that transition costs should be recovered as a matter of market efficiency and equity. In the cases so far, decommissioning costs generally either have been recognized as one of the transition costs or have been assured using other regulatory methods.

In this proceeding, the NRC correctly recognizes that the process of recovering competition transition costs is part of the regulatory process by adding to the definition of an electric utility, non-bypassable wires charges as a method ofrecovering costs. EEI agrees with this. Additionally, an entity may have a binding contract with another organization to provide full funding for its share of decommissioning costs. In most cases, this will be secured by legislation and/or a regulatory utility commission order. EEi recommends that this option also be recognized as acceptable assurance of decommissioning cost recovery.

For some cases, the transition from one method of collecting decommissioning costs to another may not be direct for some small period of time. In this case, the NRC should look to the overall intent of the legislation or order.

EEi believes that the definition of an electric utility for nuclear decommissioning purposes should be one that is separate from the determination of the ability to safely operate the plant. The definition of an electric utility for decommissioning assurance purposes should be one that is concerned only with recovering the costs of decommissioning (but not also O&M costs) through rates established by a regulatory authority. Using the criterion of recovering electricity costs in the definition adds significant complications. As an example, a non by-passable charge to recover 1

In EEI's comments, we continue to use the term "electric utility". However, we agree with NEI that this term may not accurately characterize the entity that will emerge. We endorse NEI's suggestion of the term "qualified nuclear entity." This term and its definition should apply for purposes of nuclear decommissioning funding assurance only and, therefore, should be contained in§ 50.75.

2 .

stranded costs would be designed to reduce costs to the market price level. Some of the costs of electricity would be recovered through the non-by-passable charge and some of the costs would be recovered through the market. Yet, the non-by-passable charge or some other mechanism could allow separately for the full recovery of decommissioning costs. For this and other reasons, we agree with NEI' s comments that safe operation and decommissioning fund assurance should be decoupled in this rulemaking. As we have stated in footnote 1, the definition of an electric utility should be in §50.75 because it pertains to nuclear decommissioning fund assurance.

Finally, the same level of assurance required of investor-owned licensees should be required of public power agencies. Such agencies should be allowed to meet the definition of an "electric utility" only to the extent that the rates they establish provide assurance of the payment of decommissioning costs equivalent to that required of investor-owned licensees.

Assurance of the Adequacy of Decommissioning Funding If an electric utility no longer meets the definition of an electric utility for decommissioning assurance purposes, then it would have to provide the up-front assurance as described in § 50.75 (e)(2). The up-front assurances - prepayment, insurance, a surety method or guarantees - are problematical in that they could be difficult if not impossible to provide. Any financial criteria, either those as part of the self or parent guarantees or newly proposed criteria, are difficult to evaluate because a relatively definitive view of the shape of electricity markets and the future structure of licensees is mainly conjectural at this time.

EEi recommends a multi-part process in order to meet the significant difficulties of§ 50.75(e)(2).

This process would include the development of financial qualification criteria that would be used to evaluate if there would be reasonable assurance to permit periodic deposits to an external trust fund or some other permissable method.

If the financial criteria would not be satisfied, then the licensee should be permitted to demonstrate to the NRC that it could provide reasonable assurance of adequate funds to decommission the plant.

These methods should include prepayment, accelerated payments2, a surety method, a case-by-case basis and a demonstration that power sales contracts are in place that would provide a partial source of decommissioning funding. A combination of methods should be considered. These methods would provide the flexibility to consider a wider range of options that would be reflective of the evolving business environment.

For a licensee that does not meet the definition of an electric utility, the process would be somewhat similar to that which fixed income rating agencies use to assess the ability of a securities-issuer to continue to pay interest or dividends and repay principle. While these agencies use financial criteria as part of the process, the criteria do not provide hard and fast boundries by which to assess ratings.

The rating agencies use other evaluative criteria in their process so as to obtain a more comprehensive view of the firm.

2 The facts and circumstances of an accelerated payment plan could lead to negative tax consequences.

3

The current financial criteria are for materials licensees. Because the situations of materials licensees and power licensees are very different, separate financial criteria are needed. The development of financial criteria will not be easy given the current and projected changing nature of electricity markets and the variations in ownership and operating structures that might take place.

Security analysts and fixed income rating agency personnel who follow the industry are finding that their methods and criteria are evolving to match the changes the industry is undergoing. EEi proposes that a draft regulatory guide for the industry's proposed new decommissioning funding assurance framework be developed. Periodically, the financial qualification criteria should be reviewed to determine if they are relevant and workable. EEi is working with industry groups to address the financial qualification criteria that would be appropriate to provide the necessary assurance and flexibility. We will share the outcome of this effort with the NRC.

Joint Liability EEi agrees that there should not be joint liability among the owners. Joint liability presents numerous difficulties. First, it would be unfair to have to assume another company's obligations.

Second, this liability adds risk to all joint owners and raises their cost of capital. We agree with the NRC that other methods of assurance are adequate and, therefore, there is no need to impose an added obligation.

Combination of Funding Methods EEi recommends that the NRC allow a combination of assurance methods to satisfy its requirements. The proposed regulations place restrictions on the ability of licensees to use a combination of methods to assure decommissioning funding. However, using a combination of methods may more adequately reflect the reality of funding methods and of future market and ownership situations. Also, allowing for a variety of methods represents diversification which in itself is a method of reducing the risk of dependence on only one method and so serves to increase funding assurance.

Reporting Requirements EEi agrees with the need for a report on the status of nuclear decommissioning funding and trust fund balances and with the proposed reporting frequency. At this time, EEi does not support the use of the Financial Accounting Standards Board's (FASB) proposed accounting Statement "Accounting for Certain Liabilities Related to Closure or Removal of Long-Lived Assets" (F ASB File Reference No. 158-B) as the FASB Statement is still a draft and subject to change. We suggest that a draft regulatory guide be issued after the FASB Statement of Financial Accounting Standards on Removal of Long-Lived Assets is issued in final form. When initiated, all NRC-required reports should be as of the end of a calendar year to match the financial accounting report time period.

Real Rate of Return EEi agrees that it is appropriate to use a real rate of return of two percent, after-tax, with the exception that, if a rate-setting body authorizes another return, then that return can be used.

Alternatively, there may be some companies that have a situation which would indicate that they should use a return lower than two percent. An example is a company that has a short period of time to decommission and thus, would switch to lower risk, lower return investments. This lower return should be allowed. Also, we believe that there should be a procedure to allow an entity that no 4

longer meets the definition of an electric utility, and thus would not have the assumed fund rate of return set by its regulators, to use another rate of return.

With respect to the tax aspects of the fund earnings in a qualified decommissioning trust, we suggest that the NRC conduct dialogs with economic regulators to stress the importance of the collection of decommissioning costs in what are defined by the IRS as cost of service proceedings in order to take advantage of the current deductibility of certain contributions to decommissioning trusts and the lower tax rates on trust fund earnings. EEi also suggests that the NRC discuss with the Treasury Department and the Joint Committee on Taxation the public policy issues involved in securing for investor-owned electric utilities the ability to continue to contribute to qualified nuclear decommissioning trusts, funds derived from rate payers which are ordered as a result of regulatory proceedings which serve to collect nuclear decommissioning costs. The proceedings that should allow for qualification and current deductibility include those that would order the collection of nuclear decommissioning charges through stranded cost proceedings, non by-passable wires charges, charges ordered by legislative or regulatory authority to be collected by a power exchange or other similar methods wherein a state or federal authority sets the rates for recovering decommissioning costs.

Definition of Federal Licensee Although the intent of the definition of federal licensee as expressed in the response to comments is appropriate, the actual definition is ambiguous in that the term "full faith and credit backing" of the government is neither defined nor commonly used in other legislation relating to federal agencies. The intent of the definition of federal licensee is obviously to exclude from the definition any federal agency whose obligations do not constitute the obligations of the United States, and, therefore, are not supported by the full faith and credit of the United States. Therefore, the definition should be modified as follows:

"Federal Licensee means any NRC licensee, the obligations of which are guaranteed by and supported by the full faith and credit of the United States Government."

Conclusion The NRC's nuclear decommissioning cost assurance rulemaking recognizes that the potential new environment in which nuclear power licensees would operate requires changes to nuclear decommissioning funding regulations. We agree that the definition of an electric utility should include nuclear decommissioning costs collected through a non-bypassable wires charge. We have suggested that contracts for the collection of nuclear decommissioning costs also be included in the definition of an electric utility. We are recommending that new financial criteria and workable assurance methods be added to the NRC's proposed methods in order to provide both flexibility and reasonable assurance for decommissioning funding.

5

STATE OF NEW HAMPSHIRE CHAIRMAN EXECUTIVE DIRECTOR Douglas L. Patch DOCKETED AND SECRETARY COMMISSIONERS USNRC Thomas B. Getz Bruce B. Ellsworth TDD Access: Relay NH Susan S. Geiger 1-800-735-2964 "97 DEC -1 AlO :53 Tel. (603) 271-2431 PUBLIC UTILITIES COMMISSION 8 Old Suncook Road Concord, N.H. 03'301-7319 November 13, 1997 Honorable Shirley Jackson Chairman U.S. Nuclear Regulatory Commission Washington, D.c. 20555

Dear Chairman Jackson:

By letter dated October 9, 1997 I wrote to you concerning the New Hampshire Nuclear Decommissioning Finance Committee (NDFC) to let you know that this committee is looking into the issue of financial assurance and that it hoped to provide comments to the NRC by the November 24, 1997 deadline in your proposed rulemaking. The NDFC has met twice since then and received some very interesting comments on this issue. In addition, a number of the interested parties have been meeting out of the NDFC's presence in an attempt to work out a consensual solution and have made some progress in that direction. This group has asked the NDFC if it could have until December 19 to continue to address the issue, which the NDFC granted at its November 6, 1997 meeting.

Since the NDFC will not be able to conclude its proceeding concerning this issue before November 24, 1997, on behalf of the NDFC I would respectfully request, to the extent possible, an extension of that deadline in the hope that the NDFC will have some constructive comments on your rulemaking. To the extent that you cannot grant such an extension, I would plan to file with the NRC any conclusions which the NDFC reaches on this issue so that you may give it whatever wei~ht or consideration possible, and so that you could at least be aware of what is happening on this issue in New Hampshire.

Thank you for your consideration of this request.

~tP~

s L. Patch irman DLP/cd cc: Honorable Jeanne Shaheen, Governor Honorable Beverly Hollingworth, State Senator NDFC Members NDFC Service List

U.S. NUClEAR REGULATORY COMMISS1N RULEMAKINGS &ADJUDICATIONS STA -=

OFACE OF THE SECRETARY OF THE COMMISSION Document Statistics Postmark Date :rn co tn if'I j To Crf.

Coples Received A ~t,on ed Add'I ~ Reproduced _ _ __ _

Special Distribution,______ _

1?ichfer. ~ a /(a. Alier, 7<ti\

-P1>

• f7 I ~

JAMF.S P. O'HANWN Innsbrook '/echnical Center Senior Wee President 5000 Dominion Boulevard Glen Allen, Virginia 23060 804*273*3551 DOCKETED US RC v, NOV 28 P2 :08 November 24, 1997 OFFICE I 1F ' : ~ * ' RY AULEMnt 'i . D ADJUOIC""'f ..,, -1B STAFF VIRGINIA POWER Serial No. GL 97-104/ 107 Mr. John C. Hoyle Secretary of the Commission JOCKET U.S. Nuclear Regulatory Commission p 50 Washington, DC 20555-0001 ( (o fJ. F 12 I/ 7 5 ~8)

Attn: Rulemakings and Adjudications Staff Re: 10 CFR Part 50 Financial Assurance Requirements for Decommissioning Nuclear Power Reactors Proposed Rule (62 ;&d. ~ - 47588; September 10, 1997) and Draft Regulatory Guide DG-1060 Financial Accounting Standards Board (F ASB)

Standards for Decommissioning Cost Accounting

Dear Mr. Hoyle:

This letter and enclosure set forth Virginia Power' s comments in response to the above referenced Proposed Rule and Draft Regulatory Guide as issued by the Nuclear Regulatory Commission (NRC). Virginia Power is most appreciative of the opportunity to provide comments on the proposed changes and commends the NRC for involving the industry prior to implementing regulatory modifications.

Virginia Power agrees that adequate financial coverage for an entity' s future decommissioning obligation is a vital issue of public safety and health, and as such, requires careful regulatory oversight. Recent moves toward deregulation in the electric utility industry provide sufficient impetus to question the propriety of current NRC requirements for decommissioning financial assurance. The Proposed Rule, with certain caveats, is an admirable attempt to add flexibility to the regulations by broadening the definition of "electric utility." Such actions are appropriate steps in addressing expected changes in the industry. As developments unfold, the incorporation of additi_onal flexibility may be desirable.

The enclosure discusses two primary issues raised by the Proposed Rule that Virginia Power has identified as requiring further consideration. One is the notion of segregating a utility' s total decommissioning liability based upon its source and level of revenues. The other is the precipitate reliance upon a draft standard published by the Financial Accounting Standards Board.

DEC - 4 1997 AcknoWfedged by card ..- - -...

U.S. NUCLEAR REGULATORY COMMr FU.EMAl(JNGS &ADJUDICATIONS OFFICE OF THE SECRETARY OF THE COMMISSION Document Statistics Postmark Date ----'~ ~.:..._i....- -

Coples Reoetved _ _..:..,___,.--

Add'! Copies Reproduced _ ,____

SpiM:ial Distribution -J?t' Ch f'e Y'I= .

~" //q..~her; 7 D~1 'K /J)S

Mr. John C. Hoyle November 24, 1997 Page 2 As we have commented in previous correspondence, the minimum financial assurance amount currently prescribed by NRC regulations is dated and requires instant review with this Proposed Rule. The final outcome of the Proposed Rule would be incomplete if the NRC did not also address the recognized deficiencies in the current prescribed amount for decommissioning financial assurance.

While the enclosed comments detail specific concerns of Virginia Power, we also generally endorse the comments of the Nuclear Energy Institute, which represents the nuclear energy industry from a broader perspective.

We look forward to continued interactions regarding this and related issues as the industry moves along the path of deregulation. Again, thank you for the opportunity to provide comment.

Very truly yours, James P. O'Hanlon Enclosure cc: Rules and Directives Branch Office of Administration U.S. Nuclear Regulatory Commission Washington, DC 20555 Mr. Brian J. Richter Office of Nuclear Regulatory Research U.S. Nuclear Regulatory Commission Washington, DC 20555-0001 Mr. Marvin S. Fertel Vice President Nuclear Infrastructure Support &

International Programs Nuclear Energy Institute Suite 400 1776 I Street, NW Washington, DC 20006-3708 Mr. Timothy Lough Commonwealth of Virginia State Corporation Commission P. 0. Box 1197 Richmond, VA 23209-1197

Virginia Power Comments on NRC Proposed Rule Financial Assurance Requirements for Decommissioning Nuclear Power Reactors And Draft Regulatory Guide DG-1060 I. Overview Virginia Electric and Power Company (Virginia Power) is providing these comments in response to the publication by the Nuclear Regulatory Commission (NRC) of the Proposed Rule for the Financial Assurance Requirements for Decommissioning Nuclear Power Reactors, 10 CFR Part 50, in the Federal Register, Volume 62, No. 175, September 10, 1997, Page 47588 et seq. and the Draft Regulatory Guide DG-1060, Financial Accounting Standards Board (FASB)

Standards for Decommissioning Cost Accounting in the Federal Register, Volume 62, No. 178, September 15, 1997, Page 48322 et seq.

Virginia Power is a regulated public utility engaged in the generation, transmission, distribution and sale of electric energy (over 65 million megawatt-hours in 1996) to nearly 2 million retail and wholesale customers within the states of Virginia and North Carolina. It owns and operates four nuclear units, which provided over 30 percent of the company's total system output in 1996. Nuclear energy represents a substantial investment and commitment on the part of Virginia Power. More specifically, the future decommissioning obligation for the company's nuclear units is recognized as an important and significant item that must be adequately addressed during these preliminary stages to the deregulation of the electric utility industry as well as the ultimate era of deregulation.

Virginia Power provided comments to the Advance Notice of Proposed Rulemaking (Advance NOPR) on Financial Assurance Requirements for Decommissioning Nuclear Power Reactors published in early 1996 (Federal Register, Volume 61, No. 68, April 8, 1996, Page 15427 et seq.) and is appreciative of this additional opportunity to provide input prior to the promulgation of final regulations. The Proposed Rule reviews the comments received to the Advance NOPR, summarizes the NRC's position and response, and specifies proposed modifications to the current regulations regarding decommissioning financial assurance.

One of the primary modifications being proposed is a broadening of the definition of an "electric utility" for decommissioning financial assurance purposes to include recent alternate ratemaking/regulatory recovery mechanisms for decommissioning costs, specifically non-bypassable charge mechanisms. In general, such inclusion is supported by Virginia Power.

However, the proposed language introduces several distinctions or segregations of an entity's total decommissioning cost with unintended and possibly undesirable consequences.

Page Virginia Power Comments on NRC Proposed Rule Financial Assurance Requirements for Decommissioning Nuclear Power Reactors And Draft Regulatory Guide DG-1060 Another primary thrust of the Proposed Rule is to institute periodic reporting requirements. The NRC published Draft Regulatory Guide DG-1060 to provide guidance for licensees to comply with the proposed reporting requirement. The Draft Regulatory Guide endorses a draft of a FASB standard, presumably under the assumption that a final FASB standard will not be significantly altered from the draft and will be forthcoming in a timely manner. This presumption may be untenable.

II. Segregation of Costs The proposed definition of an "electric utility" implies that a company's total decommissioning cost obligation must be segregated in at least two different dimensions. One dimension involves the revenue source for decommissioning cost recovery. If the revenue source is derived from rates developed through traditional "cost of service regulation" or the more recently devised mechanism of "non-bypassable charges" (both defined terms in the Proposed Rule), then for that portion of the total decommissioning cost, an entity will be considered an electric utility and thus permitted to use a sinking fund in addition to other options as a mechanism for providing financial assurance. For remaining portions, the entity must rely solely upon other, more onerous financial assurance mechanisms. Another dimension deals with the sufficiency of the revenues to cover costs to operate, maintain, and decommission the nuclear plant. However, prior to implementation, further clarification is needed to define acceptable methods to perform such segregation of an entity's total decommissioning obligation and to determine sufficiency.

As to the first dimension, a multi-jurisdictional utility, which determines rates for its various jurisdictions based upon varying allocation methodologies, may find a nominal portion of its decommissioning costs "unallocated." If the proposed definition is taken literally, a utility could arguably be prohibited from the continued use of a sinking fund to meet the NRC's financial assurance requirements for this "unallocated" portion of its decommissioning costs.

Such unallocated amount varies from year to year and from rate case to rate case. In point of fact, it is more likely that the sum of the allocation factors used under traditional ratemaking falls short or exceeds, rather than equals, 100%. This situation gives rise to the questions: would an annual assessment have to be made and actions taken to address shortfalls? Would an excess Page Virginia Power Comments on NRC Proposed Rule Financial Assurance Requirements for Decommissioning Nuclear Power Reactors And Draft Regulatory Guide DG-1060 amount create a situation wherein monies in an external trust could be withdrawn? Virginia Power submits that such an outcome was not intended when the proposed language was crafted.

The avowed purpose of the new definition of "electric utility" is to "introduce additional flexibility to address potential impacts of electric industry deregulation. The Commission notes that the key component of the revised definition is a licensee's rates being established either through cost of service mechanisms or through other non-bypassable charge mechanisms ... "

62 Fed. Reg. 47,592 (emphasis added). As suggested by such comment, the Commission's primary concern is that future changes in the nature of the electric industry may produce increased uncertainty as to the funding of nuclear decommissioning. Implicit in this opinion is the principle that absent such change in the industry, there is not a need to change the current requirements imposed on electric utilities. Indeed, the Commission recognized this very principle in its comments:

With respect to the question of impacts, the Commission has considered the comments relating to potential impacts in arriving at the positions taken. The Commission understands that financial assurance would place a burden on licensees that may affect their competitiveness in a deregulated environment. The Commission has chosen to take an approach that would create no additional financial impact over present regulation for electric utilities and has also expanded the definition of electric utility to accommodate types of rate regulation not previously anticipated.

Id. 47,594 (emphasis added). Virginia Power is concerned that, notwithstanding the Commission's clear intent to the contrary, the proposed definition of "electric utility" can be misconstrued to impose new obligations on licensee's even in the absence of any change in the regulatory environment in which the licensee operates.

This is of particular concern for those utilities that already, prior to deregulation, recover a portion of their decommissioning costs from customers whose rates are established through contractual negotiations. Virginia Power has a monopoly service territory in Virginia within which it is the sole provider of electric service. However, within that service territory, governmental entities purchase electricity at rates that are negotiated by the parties. Such non-Page Virginia Power Comments on NRC Proposed Rule Financial Assurance Requirements for Decommissioning Nuclear Power Reactors And Draft Regulatory Guide DG-1060 jurisdictional customers in Virginia include state and local government facilities, state universities and the federal government, including military installations. Even though these sales are made within Virginia Power's exclusive service territory, they seemingly might not be treated as "electric utility" sales merely because the rates themselves are not set in the context of a regulatory proceeding.

These customers are not currently free to choose their supplier of electricity. Prior to deregulation of retail electric sales, the expected revenues from these contract customers are as certain as the revenues from the company's jurisdictional customers. All of these contracts have a provision for nuclear decommissioning costs specified either in the contract itself or in the working papers supporting the resulting rates. Although contractually arranged, the rates are essentially based upon traditional cost of service methodologies. As an example of the specific language contained in Virginia Power's contracts, the following is an excerpt from the company's contract with the Military Services (MS) class of non-jurisdictional customers:

The MS Class shall be responsible for decommissioning costs associated with the MS Class. The Parties are in agreement that the Contractor shall track such costs as a separate liability with a charge to a depreciation expense subaccount so that the amount of decommissioning costs recovered may be readily identified and assigned. The total annual decommissioning revenue recovery component included in the rates in Schedule MS and MS Alternate for the entire MS Class shall be ...

Thus, Virginia Power submits that it should be allowed to continue to use a sinking fund to meet decommissioning financial assurance for these non-jurisdictional customers and recommends expansion of the proposed definition of "electric utility" to include contract customers.

Virginia Power joins other nuclear utilities in fully expecting that there will be full recovery of nuclear decommissioning costs in a restructured electric industry through either non-bypassable charge mechanisms or other regulatory and/or contractual provisions. If, however, such expectations do not come to fruition, then it is at that time (rather than now) that a utility should have to abandon the sinking fund method of providing decommissioning financial assurance and rely upon the more onerous options as currently prescribed by the NRC.

As to the second dimension of revenue segregation, the proposed definition of "electric utility" implies a requirement that rates, even if established through traditional cost of service regulation, must be "sufficient for the licensee to operate, maintain, and decommission its Page Virginia Power Comments on NRC Proposed Rule Financial Assurance Requirements for Decommissioning Nuclear Power Reactors And Draft Regulatory Guide DG-1060 nuclear plant safely." Id. 47,605. The issue of sufficiency of traditional ratemaking is not adequately discussed in the Proposed Rule. This requirement would seemingly require some type of separation or allocation and possibly prioritization of the components of bundled rates for electric service that has not heretofore been a part of the traditional ratemaking process. The apparent inclusion of costs related to operation and maintenance in addition to decommissioning is particularly confusing since this particular rulemaking's focus is decommissioning financial assurance. Clarification and guidance as to acceptable methods to determine rate sufficiency is needed.

Additionally, current Regulatory Guide 1.159, Assuring the Availability of Funds for Decommissioning Nuclear Reactors, recognizes the time lag inherent in the traditional ratemaking process and provides for a reasonable time period (not to exceed five years) wherein

• any required changes in customer collections (and commensurate deposits to a sinking fund) to address shortfalls in meeting decommissioning financial assurance can be implemented. Virginia Power submits that such a time period is still needed, most especially during this transition period to deregulation. The Proposed Rule could be interpreted in a manner that would force a utility to immediately switch (presumably at the effective date of the final rule) to an alternate financial assurance mechanism for a relatively short, interim period; only to switch back to a sinking fund methodology once a required change in rates is implemented.

III. Reliance on FASB Exposure Draft The Proposed Rule and the Draft Regulatory Guide DG-1060 state that the NRC endorses the draft FASB standard No. 158-B and plans to endorse the final standard when issued. The premise being that companies' adoption of FASB' s standards for accounting and financial reporting purposes will provide the NRC with sufficient information to monitor the status of decommissioning funding for those who elect the external sinking fund as their financial assurance mechanism.

Virginia Power is in agreement that the listing of disclosure items, as contained in paragraph no. 25 of the draft standard, are appropriate items to be included in a report to the NRC. These items are essentially listed in revised paragraph 50.75(f)(l) included in the Proposed Rule. The company also agrees that submittal of annual financial statements as required by other NRC regulations will aid the NRC in generally tracking the status of funds.

However, Virginia Power does not believe that the methodologies described in FASB's draft Page Virginia Power Comments on NRC Proposed Rule Financial Assurance Requirements for Decommissioning Nuclear Power Reactors And Draft Regulatory Guide DG-1060 standard, which establishes accounting procedures, are the appropriate computations to be used in determining cash flows (i.e., appropriate funding levels to external trusts). As addressed in paragraph no. 22 of FASB's draft standard, there are significant differences in the ratemaking treatment of decommissioning costs primarily as a result of timing differences in recognition of costs.

There are other issues encompassed in FASB' s draft standard that are at odds with computations relevant for NRC purposes. One is that FASB' s draft standard presumes a site-specific study, a concept the Company endorses; whereas, the NRC is concerned primarily with the NRC's defined minimum for decommissioning financial assurance. Another is FASB's proposed use of a constant, risk free discount rate; whereas, computations relevant for the NRC of necessity would make use of a discount rate based upon the expected earnings of the external trusts.

Also, further FASB deliberations on the myriad and complex issues raised during the comment period for their draft standard have been impeded by higher priority items. The NRC should be cognizant that the scope of the draft standard has been somewhat broadened since its initial publication and that implementation of a final standard is not expected in the near term.

IV. Summary The NRC' s stated concerns regarding deregulation of the industry and its impact upon decommissioning financial assurance are shared by Virginia Power. We agree that decommissioning funding must be secure. However, any imposed change in financial assurance options for an electric utility should be the consequence of a change in law or regulation related to decommissioning cost recovery. Deregulation efforts to date have recognized the need for continued recovery of decommissioning costs through regulated means, which provides the same assurances as traditional cost of service based rates.

Virginia Power has identified several specific issues wherein implementation of the Proposed Rule, without added clarification, could cause unexpected and undesired results that are at odds with the NRC's stated intentions. Given these issues, the company requests the NRC to further refine its proposed definition of an "electric utility" as proposed herein, and suggests that a substantial expansion of the Draft Regulatory Guide needs to be developed prior to implementation.

Page Duke Power Company

. . Duke A Duke Energy Company

,_Power. . DOCKETED II 'lf'l EC07H A Dulu Enngy Company 526 South Church Street P.O. Box 1006 Charlotte, NC 28201-1006 M. S. Tuckman Executive Vice President "97 NOV 28 p? :o~704) 382-2200 OFFICE (704) 382-4360 FAX Nuclear Generation LJOCKET Nl.-1DC11 November 21, 1997 PRCFOSED (f&,a~te."1-158~)

Secretary of the Commission U. S. Nuclear Regulatory Commission Washington, D. C. 20555-0001 Attention: Rulemaking and Adjudications Staff

Subject:

Financial Assurance Requirements for Decommissioning Nuclear Power Reactors; Duke Energy Corporation Comments In response to the proposed rulemaking on the financial assurance requirements for the decommissioning of nuclear power reactors which appeared in the September 10, 1997 Federal Register, Duke Energy Corporation offers the following comments.

Comment 1 The Commission states at 4 7594 that a licensee other than an electric utility, " ... would need to comply with the decommissioning funding assurance requirements of

§50.75(e)(2) unless that licensee can otherwise conclusively demonstrate a government-mandated, guaranteed revenue stream for all unfunded decommissioning obligations."

This statement raises the question of whether a licensee can assure adequate funding through proof of decommissioning funding assurance through means other than a "government-mandated" revenue stream. It would seem that on a proper showing of such a private contract or contracts, the onerous provisions of §50.75(e)(2) should not apply.

Comment 2 The definition of "electric utility" found in §50.2 seems to contain a requirement to have not only decommissioning costs recovered through "traditional cost of service regulation or indirectly through another non-bypassable charge mechanism", but ALSO operating and maintenance costs. This definition does not allow flexibility for a utility to operate in Acknowledged by card"DEC - 4 1997

U.S. NUCLEAR REGULATORY COMM!"

RULEMAKINGS &ADJUDICATIONS St .'

OFFICE OF THE SECRETARY OF THE COMMISSION Document Statistics Postmark Date /4, /e; I/ 5 1 Copies Received * / '

Add'I Copies Repr_od_uced

______ 'f____

Special Dls1ribution i chte Y-Ga I/a.j/2 e~ '7>~ tDs

U.S. Nuclear Regulatory Commission November 21, 1997 Page2 a deregulated market where the utility may obtain funds to operate and maintain the plant through the market clearing price for energy/capacity and obtain funds to decommission through a non-bypassable charge or other satisfactory mechanism.

As long as decommissioning costs are assured, there is no need to provide any additional advance funding of anticipated operational and maintenance costs. Section 50.75 limits itself to providing financial assurance for decommissioning. It does not implicate operation and maintenance, and neither should the Commission with respect to deregulated electric utilities. Thus, by way of example, if a licensee recovers decommissioning requirements through a non-bypassable lines charge or other satisfactory mechanism, the licensee should have no other prepayment/guaranteed funding requirements, even though the cost of operating and maintaining the plant are not recovered through rates established by a regulatory authority.

Comment 3 In §50.75(f)(l) the Commission proposes that each power reactor licensee shall report to the Nuclear Regulatory Commission " ... at least once every 2 years thereafter on the status of its decommissioning funding for each reactor facility or part of a reactor facility that it owns." Once every five years would be a sufficient frequency to report on the status of the decommissioning funding. Five years provides a reasonable time period to ensure that the funds are performing as projected and that the collections are on schedule. A five year time period would also coincide with the recommended five year adjustment to site specific cost estimates in Nuclear Regulatory Commission Regulatory Guide 1.159.

Duke Energy generally agrees with and endorses the comments of the Nuclear Energy Institute and the comments of Winston & Strawn on behalf of the participating members of the Utility Decommissioning Group.

U.S. Nuclear Regulatory Commission November 21, 1997 Page 3 Conclusion Due to the importance of nuclear power in the generation mix and the funding of decommissioning, it is imperative that the proposed rulemaking allow the flexibility for nuclear to compete in a deregulated market while still allowing recovery of the decommissioning costs. Duke Energy Corporation appreciates the opportunity to comment on the proposed rulemaking and believes that nuclear power can play a viable role in the deregulated industry.

Very truly yours, M. S. Tuckman xc: Richard J. Myers Nuclear Energy Institute 1776 I Street, NW - Suite 400 Washington, D. C. 20006-3708 Joseph B. Knotts, Jr.

Winston & Strawn 1400 L Street, N. W.

Washington, D. C. 20005-3502

Florida Power & Light Company, P.O. Box 14000, Juno Beach, FL 33408-0420 DOCKETED USNRC

• 97 NOV 28 P12 :36 November 24, 1997

_ .L-::97-302 OFFICE OF "!'.' >-n ,,:--f:iY RULE~\v.:<Y-') 1 ,S ,_,s-lq Secretary ADJUOICAl !(Y't3 -~lAFF U. S. Nuclear Regulatory Commission DOCKET NlllBER III SO Washington, DC 20555-0001 PROPOSED 11.-.1._E.a.rRu......

( (p ~ FI< ;7 5U} ---m:

ATTN: Rulemakings and Adjudications Staff

Subject:

Proposed Rule on "Financial Assurance Requirements for Decommissioning Nuclear Power Reactors" (62 Fed. Reg. 47588; September 10, 1997)

Florida Power & Light Co. (FPL) is a licensed operator of two nuclear power plant units in Dade County, Florida and two units in St. Lucie County, Florida.

FPL endorses the comments of the Nuclear Energy Institute (NEI) regarding the subject rulemaking. FPL agrees with the NRC's overall proposal to allow power reactor licensees with additional flexibility for providing financial assurance for decommissioning in a changing economic marketplace and regulatory environment. However, FPL is concerned that the proposal does not sufficiently address the types of entities that may own and operate nuclear plants in the future. FPL believes that these concerns would best be addressed by adopting the comments and changes proposed by NEI.

FPL offers the following comment on one aspect of the proposal not specifically addressed by NEI. The proposed rule would adopt a two percent real rate of return allowed to licensees on external sinking funds from the time of collection through the decommissioning period. In other promulgations by NRC, (NUREG/BR-0058, Rev. 2; SECY 93-167, June 14, 1993) the agency has adopted real discount rates up to seven percent. Based on these promulgations, a rate of return greater than 2% on external sinking funds is reasonable and a higher rate should be adopted in the final rule.

FPL appreciates the opportunity to comment on the proposed rnlemaking.

Respectfully submitted,

~~Gfl-Harry N. aduano

?Q~~~. '-' ~'

Mana Licensing and Special Programs HNP:dcr an FPL Group company Acknowledged by card-----

OEC

• 4 l99'7

U.S. NUCLEAR REGULATORY COMMISSION RULEMAKINGS &ADJUDICATIONS STAFF OFFICE OF THE SECRETARY OF THE COMMISSION Document Statistics Postmark Date // /~ 5'" /ti1 Coples Reoelved ' /

Add'I ~ Reprod-uced------- - -

Special Dls1ribution 1( i C {,,-fer.

Ga f(et9/2er; 7?P&, 1? tOS

1633 Broadway New York, New York 10019 212 468.6000 DOCKETED USNRC

, . NewYorkPower "97 NOV 28 P12 :36

. , Authority DOCKET N pfa0SED 0

( (i, '2 November 24, 1997 The Secretary of the Commission, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, Attention: Rulemakings and Adjudication Staff

Dear Secretary Hoyle:

Enclosed please find the comments of the New York Power Authority's on the Commission's proposed rule on Financial Assurance Requirements for Decommissioning Nuclear Power Reactors which was noticed in the Federal Register on September 10, 1997. 62 FR 47588.

Sincerely, OEC - 4 1997 Acknowledged by can:I F ,, U tl i Id i r.f re

U.S. NUCLEAR REGULATORY 00INS8l0N RULEMAKINGS &AOJll>lr,A1'D4S mfF OFFICE OF THE SECRETARY OF THE COMMIS8Kl4 Ooc:tma"l Slalllllcl Po tmar1< Date Copies Received _ _

// L~s/'J ~

• _ ' __/ ....,__ __

Add'I Copies S~ cial Dis . .

{:,(). {(a..

NEW YORK POWER AUTHORITY COMMENTS ON PROPOSED RULEMAKING FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISSIONING NUCLEAR POWER REACTORS 62 FR 47588 - SEPTEMBER 10, 1997 The Authority has review the proposed changes to 10 CFR 50.2, 50.75, and 50.82, 62 FR 47588 September 10, 1997. Two issues, the definition of "electric utility" and the 11 rate of return allowed on investments" warrant further consideration or clarification.

The Authority supports the comments of the Nuclear Energy Institute. These include the substitution of "qualified nuclear entity" for "electric utility, 11 the criteria for inclusion of public power entities in such category and the assurance mechanisms necessary to demonstrate financial ability to decommission a licensee's facility.

If the present concept of "electric utility" is retained, however, the proposed definition should be amended. In attempting to clarify and restrict the meaning of "electric utility" with respect to entities that establish rates themselves, the proposed rule has created an ambiguity for political subdivisions of the state such as the Power Authority. By stating that the proposed definition includes only certain listed entities, i.e., public utility districts, municipalities, rural electric cooperatives, and State and Federal agencies, the proposed regulation creates uncertainty. Entities like the Authority or other entities with characteristics and powers similar to the listed entities but whose authorizing statute does not describe them in the exact words of the proposed regulations are left to informal interpretation. To provide for entities that are similar to the listed entities, the following revision to 10 CFR 50.2 is proposed:

Electric utility means ... Public utility districts, municipalities, rural electric cooperatives, and other Local, State and Federal governmental entities, including associations of any of the foregoing, that establish their own rates are included within the meaning of "electric utility. 11 The Authority continues to believe that while it should be made clear that a rate of return can be applied in estimating Decommissioning Fund (Fund) requirements, NRC should not specify a single allowable rate of return, but should allow licensees to take credit for any rate they can justify. If a specific rate of return is specified in the 1

regulations, it should be a default figure rather than a ceiling for estimating future Fund requirements. We agree with other comments that a rate of3 percent is reasonable and achievable and consistent with historical real return on Treasury bonds.

The proposed regulations provide that 10 CFR 75 (e)(ii) be revised to specify a 2% rate of return applied to funds collected through the decommissioning period. Since it is contemplated that a licensee will periodically reevaluate its sinking fund to assure that it meets the requirements of 10 CFR 50.82, the net result is that the same amount of money should be in the sinking fund when the facility ceases scheduled operations regardless of what rate ofreturn is used. The rate of return essentially determines the proportion of financial burden carried by electric users through time. A low rate of return imposes higher burdens on current users to the advantage of future users. While the Authority believes that historical evidence supports the use of at least a 3% rate of return, it would accept 2% if it were a default value. The Authority reevaluates its

• decommissioning sinking fund annually. In the case of the Authority's facilities equity would dictate that the Authority use a 3% historical rate of return rather than a "conservative" 2% rate of return. Licenses for the Authority's two facilities expire in 2014 and 2015. By that time the total funds required by Part 75 must be in the sinking fund. Since annual assessments are based upon future needs (projected 15 years in the future), underestimating the rate of return by 1% per year for the life of the reactors produces significant cost to current electric users that will not be recovered until the end of the licensed period. Even though adjustments could be made annually, most of the benefits of the overpayment would not be realized until the final years of reactor operation. The burden therefore shifts to the current electric users. On the other hand, if a reasonable rate of return were not realized in a given year an immediate adjustment in payments could be made that affect primarily the current electric users, i.e., those who would most likely benefit from the overestimate. The Authority therefore proposes 10 CFR 75 (e)(ii) be revised as follows:

(ii) External sinking fund ... An external sinking fund is 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. An external sinking fund may be in the form of a trust, escrow account, government fund, certificate of deposit, or deposit of government securities. A licensee may take credit for earnings on the external sinking funds using a 2 percent annual real rate of return from the time of the funds' collection through the decommissioning period, unless 2

the licensee can demonstrate that use of another rate of return in conjunction with periodic reevaluation of the funds collected will provide similar assurances or the licensee's rate-setting authority does not authorize the use of another rate .

3

Commonwealth l*. di,o n <.omp.ttl\

I 100 Opu~ l'LtLT D o \\*ncr~ (,ro, *L*. II. (10'i I 'i ;-o I "97 NO 28 P12 :36 ComEd November 21, 1997 DOCKET Nl.MBER II S PROPOSED fl.,.M.._f.a._:.a...;_0_..,

Mr. John C. Hoyle ( ~:lF~L/7588)

Secretary Nuclear Regulatory Commission Washington, D.C. 20555-001 Re: Docket RIN 3150-AF41, Financial Assurance Requirements for Decommissioning Nuclear Power Reactors

Dear Mr. Hoyle:

Commonwealth Edison Company ("ComEd") respectfully submits the following comments on the Proposed Rule of the Nuclear Regulatory Commission ("NRC" or the "Commission") in Docket No. RIN 3150-AF41, Financial Assurance Requirements for Decommissioning Nuclear Power Reactors, 62 Fed. Reg. 47,588 (Sept. 10, 1997)

("Proposed Rule").

ComEd is the largest operator of nuclear power reactors generating electric power in the United States. All of ComEd's nuclear generating stations are located in the State of Illinois, where the General Assembly recently passed, and the Governor is currently

• considering whether to sign, legislation that would make fundamental changes to the way ComEd and other utilities in the Illinois will be regulated in the decades to come.

Accordingly, ComEd is vitally interested in the Commission's Proposed Rule on financial assurance requirements for decommissioning, and is also vitally interested in the impact that this Proposed Rule could have on the NRC's financial qualifications requirements generally. ComEd previously provided comments on the Commission's Advanced Notice of Proposed Rulemaking on Financial Assurance Requirements for Decommissioning Nuclear Power Reactors, 61 Fed. Reg. 15,427 (Apr. 8, 1997), and incorporates those comments here by reference. ComEd is also a member of the Nuclear Energy Institute

("NEI") and joins in the NEI's comments in this docket.

I. ComEd Generally Supports the Proposed Rule Although ComEd suggests in the next section of these Comments that the Commission clarify aspects of, and make changes to, the Proposed Rule, ComEd generally is very supportive of the Commission's Proposed Rule. As discussed below in this section, ComEd believes that the Commission is correct to revise its rules now so that they do not DEC - 4 1997 Acknowledged by card---.,.....

,\ l nic om <:o mpa tl\'

U.S. NUCLEAR REGULATORY COMMISSION RJLEMAKINGS & ADJUDICATIONS STAFF a=FICE OF THE SECRETARY OF THE COMMISSION Document Statistics Postmark Date II /:i ~ /'I '1 Coples Received _ _ _ , - ---

Add'! ~ Reproduced _ _ _ __

Special Qistrib.ution ,c r Ga. {r~,be"; 7>1>12, 'RIDS

Mr. John C. Hoyle November 21, 1997 Page 2 become obsolete in the face of changes in the electric power industry, that the Commission is right to provide licensees with greater flexibility in meeting the financial assurance requirements for decommissioning, and that the Commission's reporting requirements are realistic and helpful in monitoring licensees' compliance with decommissioning financial assurance requirements.

First, ComEd believes that it is appropriate for the Commission to re-examine its financial assurance requirements for decommissioning in light of the changes that are occurring and will likely occur in the electric power industry at the federal level and in the fifty states. See Proposed Rule 62 Fed. Reg. at 47,591. When the Commission promulgated its decommissioning financial assurance regulations in 1988, the electric power industry was composed almost entirely of heavily regulated companies which recovered their capital, operating, maintenance, and other costs through rates set by federal and state regulatory bodies. While ComEd agrees with the Commission that even under deregulation "regulators are likely to allow prudently incurred stranded costs to be recovered in some manner" (id.), there can be little doubt that the industry will be different in the future than it is today. It is, of course, important and appropriate for the Commission to tailor its rules to the changing regulatory environment. Therefore, ComEd agrees with the Commission that a revision of its current rules "is necessary and timely, given utility restructuring and the deregulation legislation being proposed or enacted in several states or Congress." Proposed Rule, 62 Fed. Reg. at 47, 590.

Second, ComEd strongly supports the Commission's steps to introduce additional flexibility for licensees in meeting their decommissioning financial assurance obligations. In particular, the proposed new definition of "electric utility" is a significant improvement over the existing definition. As the Commission recognizes in its Proposed Rule, the existing definition could conceivably be interpreted to strip a licensee of "electric utility" status under 10 C.F.R. § 50.2 -- and thus require the licensee to "conclusively demonstrate a government-mandated, guaranteed revenue stream" through, for instance, prepayment of all decommissioning obligations, an external sinking fund coupled with a surety method or insurance, or a surety method -- simply because a small portion of the licensee's costs were recovered through competition and not "through rates established by ..

. a separate regulatory authority." Proposed Rule, 62 Fed. Reg. at 47,594.

The proposed definition would eliminate the possibility of that incorrect interpretation, by making clear that, so long as a licensee recovers its decommissioning costs through cost-of-service ratemaking or through "other non-bypassable charge mechanisms, such as wire charges, non-bypassable customer fees, including securitization or exit fees," it remains an "electric utility" as to the Commission's decommissioning financial assurance regulations, even if it also recovers other costs through competition or other means. Id. at 47,952-53. This change will ensure that a licensee such as ComEd, which currently has a dedicated, non-bypassable decommissioning funding stream (and will almost certainly continue to have such a revenue stream under the pending legislation

Mr. John C. Hoyle November 21, 1997 Page 3 recently passed by the Illinois General Assembly1) does not have to provide up-front funding or other assurances to the Commission simply because the licensee recovers its other capital, operating and maintenance costs through other means.

Third, ComEd strongly agrees with the Commission's decision to permit licensees to assume real rates of return approved by state regulatory bodies in setting their decommissioning collections. See Proposed Rule, 62 Fed. Reg. at 47,599. ComEd agrees with the Commission that permitting licensees to establish decommissioning collections accords with the economic reality that decommissioning collections placed in dedicated trust funds (as is the case with ComEd's decommissioning trust funds) will be invested in financial instruments, which over the long term will likely earn returns well above the rate of inflation. Id. at 4 7,599-600. The Commission's proposal also has the benefit of requiring lower decommissioning collections than would be required using an unrealistic assumption that decommissioning trust funds earn no interest. Id. at 47,600. Finally, the Commission correctly concludes that the proposal does not materially increase the risk that "there will be major shortfalls in decommissioning funds." Id.

Fourth, although ComEd continues to believe that the existing federal and state reporting requirements are sufficient to permit interested parties to ensure that licensees are collecting adequate funds for decommissioning, ComEd understands the Commission's desire to impose appropriate periodic reporting requirements of the sort suggested in the Proposed Rule. Under existing Illinois law, ComEd must annually provide to the Illinois Commerce Commission information of the sort suggested in the Proposed Rule. See 220 ILCS 5/9-201.5. Moreover, as the Commission notes, ComEd will be required to collect the information in order to maintain compliance with Generally Accepted Accounting Principles under the F ASB's draft standard No. 158-B. Therefore, providing the information likely to be required under the new reporting requirements on a biannual basis should be minimally burdensome for ComEd.

Finally. ComEd respectfully states that the Commission was correct to reject some of the more onerous suggestions from some commenters: requiring accelerated funding for all plants to cover the possibility of premature shutdown (Proposed Rule, 62 Fed. Reg. at 47,592); requiring full up-front assurance of all decommissioning funding (id.);

imposing joint and several liability on all owners of nuclear plants (id. at 47,594); and requiring licensees to contribute to an "insurance pool" (id. at 47,957) . All of these suggestions would have the perverse effect of financially weakening licensees, which would disserve the ultimate objective of ensuring that adequate funds are available to 1

As the Commission notes in its Proposed Rule, "experience to date indicates that PUCs and FERC are addressing decommissioning costs through various recovery mechanisms."

Proposed Rule, 62 Fed. Reg. at 47,954. This is true in Illinois, where legislation restructuring the electric power industry recently passed by the General Assembly (and awaiting the Governor's signature) contains a provision for a non-bypassable decommissioning charge imposed on every kilowatt hour sold at retail in the state.

Mr. John C. Hoyle November 21, 1997 Page4 decommission nuclear power plants. At the same time, given the Commission's recognition that most states, including Illinois, have put in place non-bypassable decommissioning funding sources, there is no need to impose additional and draconian federal requirements.

In sum, with the clarifications and modifications discussed in the next section, ComEd generally supports the Commission's Proposed Rule. The Proposed Rule appropriately introduces additional flexibility into the existing rules, and rejects some of the more onerous proposals by some commenters.

II. ComEd's Suggested Clarifications and Modifications to the Proposed Rule While ComEd is generally supportive of the Proposed Rule, it does propose that the Commission modify its Proposed Rule in several respects. Some of these modifications are in the nature of clarification; others are minor but necessary changes to the Proposed Rule.

A. Changes to the Definition of "Electric Utility" and "Non-Bypassable Charge" As the Commission recognized in its Final Policy Statement on the Restructuring and Economic Deregulation of the Electric Utility Industry. 62 Fed. Reg.

44,071, 44,075 (Aug. 9, 1997) ("Policy Statement"), the Section 50.2 definition of "electric utility" has consequences not only for decommissioning funding assurance but also for financial qualification requirements. If a licensee loses all or part of its "electric utility" status, it is required not only to provide heightened decommissioning funding assurance (see 10 C.F.R. § 50.75(e)(2)), but also to provide the NRC with "additional or more detailed information" regarding its financial status (Policy Statement, 62 Fed. Reg. at 44,073).

Accordingly, the Commission must ensure that any changes it makes to this definition are appropriate not just for decommissioning funding assurances but also for financial qualifications requirements. 2 As discussed above, the Proposed Rule's definitions are a definite improvement over the existing definition, as the Proposed Rule makes it more likely that a licensee will be able to maintain its "electric utility" status even after a restructuring or deregulation. However, ComEd believes that the rule would be further improved with two modifications:

First, and foremost, ComEd believes that the Commission should modify somewhat its definitions of "electric utility" and/or "non-bypassable charges" to make clear 2

The NEI's comments propose decoupling the decommissioning and financial qualification issues by creating a new term, "qualified nuclear entity," to be used only for decommissioning purposes, and using the term "licensee" elsewhere in the NRC's rules. As discussed in the text, ComEd believes that NEI's approach would meet ComEd's objectives in a different manner, and thus joins in NEI's comments. ComEd's approach seeks to meet these same objectives without fundamentally revising the Commission's proposals in the Proposed Rule. If the Commission were to accept NEI's proposal, ComEd respectfully suggests that its comments on the definitions of "electric utility" and "non-bypassable charge" would be applicable to, and should be considered in developing, the definition of a "qualified nuclear entity."

Mr. John C. Hoyle November 21, 1997 Page 5 which sorts of "non-bypassable charges" are sufficient to maintain electric utility status.

This modification is important because, under the current proposed definition, it is not completely clear that mechanisms such as wire charges, stranded cost or transition charges, exit fees, and securitization are "non-bypassable charges" within the meaning of the decommissioning and financial qualification requirements.

The proposed definition states only that "rates must be established by a regulatory authority directly through traditional cost-of-service ratemaking or indirectly through another non-bypassable charge" (Proposed Rule, 62 Red. Reg. at 47,605), and then defines "non-bypassable charge" vaguely as "charges imposed by a governmental authority which affected persons are required to pay to cover costs associated with operation, maintenance, and decommissioning of a nuclear power plant" (id.). These definitions do not make clear, as the discussion of the Proposed Rule elsewhere does, that "non-bypassable charge" includes specifically "wire charges, non-bypassable customer fees, including securitization or exit fees." Id. at 47,952-53. Nor do these proposed definitions make clear that alternative forms ofregulation used in many states, such as "price cap" or incentive regulation, are sufficient to ensure cost recovery. Given that the federal government and 50 states will likely put in place many different means of collecting stranded costs and decommissioning charges, the Commission's rule should not unnecessarily exclude any of the many ways in which regulatory authorities can facilitate cost recovery. As the Commission stated in the Policy Statement, "other mechanisms that involve non-bypassable charges may provide comparable levels of assurance and should not be excluded from consideration by state officials." 62 Fed. Reg. at 44,073. If the Commission is to defer to state regulatory officials (see id. at 44,076), it should make clear in the final rule that a utility that collects costs through state-imposed mechanisms such as wire charges, stranded cost charges, securitization, exit fees, or price cap regulation continues to qualify as an "electric utility" as to those costs. Therefore, the Commission should modify its proposed definitions to eliminate any possible misunderstanding as to this issue.

Second, the language in the Commission's proposed definition of "electric utility" concerning an entity which has only a portion of its costs recovered through cost-of-service ratemaking or non-bypassable charges could possibly be misconstrued in one respect. The proposed rule's definition states that "[a]n entity whose rates are established by a regulatory authority by mechanisms that cover only a portion of its costs will be considered to be an 'electric utility' only for that portion of the costs that are collected in this manner." (Id. at 47,605). As the Commission states in its discussion, the meaning of this statement is that a utility that collects 100 percent of, say, its decommissioning costs is treated as an electric utility for purposes of decommissioning funding assurance requirements. See id. at 47,953 ("Should a licensee be under the jurisdiction of a rate-regulating authority for only a portion of the licensee's cost of operations, covering only a portion of the decommissioning costs that are recoverable by rates set by a rate-regulating authority, the licensee will be considered an 'electric utility' only for that part of the Commission's regulations to which those portions of the costs pertain."). But the rules could be misconstrued to state that even a utility that collects 100 percent of its

Mr. John C. Hoyle November 21, 1997 Page 6 decommissioning costs through a non-bypassable charge is not an "electric utility," even for purposes of the decommissioning funding requirements, if a substantial "portion" of its other costs are not recovered through such a charge or traditional ratemaking.

A hypothetical assists in understanding this possible misinterpretation.

Suppose 5 percent of a licensee's costs are decommissioning-related costs, which are fully recovered through a non-bypassable charge, while the remaining 95 percent of the licensee's costs are capital, operations and maintenance costs, which are recovered solely through competition. Although ComEd believes that this hypothetical licensee should maintain its "electric utility" status for purposes of the decommissioning rules, parties could conceivably maintain that the licensee was only an "electric utility" as to 5 percent of its overall costs, that it is predominantly not an "electric utility," and thus that it should be subject to both the 10 C.F.R. § 50.75(e)(2) funding requirements and the 10 C.F.R. § 50.33(f) detailed financial qualifications review. ComEd is confident that this was not the intent of the Commission, and thus urges the Commission to eliminate this possible misinterpretation of its rules.

Finally. in addition to its proposal to spell out types of "non-bypassable charges" in the definition of such charges, ComEd proposes other, minor changes in the definition of "non-bypassable charges." The verb "means" should be corrected to "mean" to agree with the plural subject. The word "and" in "operation. maintenance, and decommissioning" should be changed to "or," as a charge could be non-bypassable even if it only applied to, for instance, decommissioning costs but not other costs. And the last sentence, which would impose a requirement that a non-bypassable charge be collected over an "established time period," is incorrect when applied to mechanisms such as exit fees and securitization, which the Commission elsewhere categorizes as "non-bypassable charges."

Accordingly, ComEd proposes that the Commission modify its proposed

- definitions as follows:

Electric utility means any entity that generates, transmits, or distributes electricity and that recovers the cost of this electricity through rates established by a regulatory authority, such that the rates are sufficient for the licensee to operate, maintain, and decommission its nuclear plant safely.

Rates must be established by a regulatory authority either directly through traditional cost-of-service ratemaking or similar ratemaking, including price-cap or incentive regulation, or indirectly through another non-bypassable mechanism (including, but not limited to, wire charges, stranded cost charges, transition charges, exit fees, other similar charges, or the securitized proceeds of a revenue stream). An entity whose rates are established by a regulatory authority by mechanisms that cover only a portion or discrete category of its costs will be considered to be an "electric utility" only for that portion or category of its costs that are collected in this manner. Public utility districts , municipalities, rural electric cooperatives, and State and

Mr. John C. Hoyle November 21, 1997 Page 7 Federal agencies, including associations of any of the foregoing, that establish their own rates are included within the meaning of "electric utility."

Non-bypassable charges means those charges imposed by a governmental authority which affected persons or entities are required to pay to cover costs associated with operation, maintenance, ftHti or decommissioning of a nuclear power plant. Such charges include. but are not limited to. wire charges. stranded cost charges. transition charges. exit fees. other similar charges. or the securitized proceeds of a revenue stream. Affected individuals and entities would be required to pay those charges over an established time period.

B. Real Rate of Return

- As discussed above, ComEd strongly supports the Commission's proposal to permit licensees to assume rates of return approved by state commissions in setting the levels of their decommissioning funding collections. However, the Proposed Rule contains one unexplained exception to this rule: it states that licensees will only be permitted to assume state-approved rates of return "from the times of the funds' collection through the decommissioning period" but not during the safe storage period. Proposed Rule, 62 Fed.

Reg. at 47,600. Because the Commission provides no explanation for this distinction, it is difficult to provide comments on it. However, ComEd believes that there is no basis to distinguish between the pre-decommissioning time period and the safe storage period.

Indeed, given that SAFSTOR could involve time periods even longer than operation and decommissioning of a plant, there would seem to be even stronger reasons for assuming higher earnings during the SAFSTOR period than during the operation period.

Accordingly, ComEd respectfully suggests that the Commission permit licensees to assume the same state-approved rate of return through the end of decommissioning, regardless of

- the decommissioning methodology a licensee chooses.

ComEd commends the Commission for tackling these difficult and complex issues, and appreciates very much the opportunity to comment on these important rules.

Senior Vice President

Indiana Michigan Power Company 500 Circle Drive Buchanan, Ml 49107 1395 DOCKETED

~("

I......

I l ('

• _.J INDIANA

• 97 NOV 28 Pl2 :36 MICHIGAN POWER November 14, 1997 AEP:NRC:0508AW Office of the Secretary of the Commission Vvf\ 1 N Br::R ATTN: Rulemakings and Adjudications Staff PROPOSED RULE 5Q U.S. Nuclear Regulatory Commission Mail Stop 0-16 Gl5 ( (cQ_ Ff< t.1758~)

Washington, D.C. 20555-0001 Gentlemen:

On September 10, 1997, the Nuclear Regulatory Commission issued a proposed rule on the "Financial Assurance Requirements for Decommissioning Nuclear Power Reactors" . We support the Commission's effort to issue rules on financial requirements for decommissioning. We share the Commission's concern regarding adequate decommissioning funding and continued emphasis on safe operations in a changing and uncertain utility environment.

However, we do offer comments to improve the proposed rule. Our comments are contained in the attachment to this letter.

Sincerely, E. E. Fitzpatrick Vice President

/vlb Attachment c: A. A. Blind A. B. Beach MDEQ - DW & RPD NRC Resident Inspector J. A. Abramson c - 4 1997_

edged

U.S. NUCLEAR REGULATORY COMMISSION RULEMAKINGS & ADJUDICATIONS STAFF OFFICE OF THE SECRETARY OF THE COMMISSION Document Statistics Postmark Date Copies Received

/t I I 71/ Cf

/

1 Add'I Copies Repr_odu_ced

____ l{-_,___ __

SMcial Distrlbution '1?i c er.

_G. a. ({~ 9ner; 'P7:> ~ "R CDS

ATTACHMENT TO AEP:NRC:0S0SAW COMMENTS REGARDING PROPOSED RULE ON "FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISSIONING NUCLEAR POWER REACTORS"

Attachment to AEP:NRC:0508AW Page 1 The following comments are offered on the Nuclear Regulatory Commission's (NRCs) proposed rule on "Financial Assurance Requirements for Decommissioning Nuclear Power Reactors", as reported in the federal register on September 10, 1997.

1. The definitions section provides that an entity whose rates are established by a regulatory authority by mechanisms that cover only a portion of its costs will be considered an "electric utility" only for that portion of the costs that are collected in that manner.

There should be a de-minimus modification where the portion not covered is small (perhaps 10%). Then the entity will still be considered an electric utility for the entire plant if it treats for decommissioning purposes the portion not covered on a similar and proportional basis consistent with the basis that qualifies as an electric utility.

2. The regulation proposes requiring the first report within nine months of the effective date of the rule, and annually after that. It is desirable to report trust fund balances on a calendar year basis rather than some "odd" fiscal year.

The rule should be changed to establish the report to be due on or before March 31 each year a report is required for the amount collected as of December 31 of the preceding year. If the final rule is issued in the first three months of the year, the report should not be due that March 31 (first year), but should be due on March 31 in the second year.

3. The financial requirements in 10 CFR 50.75(b) and (c) were developed using actual plant data and the adjustment factors are based on the change in labor rates, energy costs, and disposal costs. The most dominating cost is now the disposal costs, and while it is true that the costs have risen substantially, it is also true that volume reduction technology has improved such that the net impacts are not as severe as the increase in these unit costs alone would suggest. The adjustment factors need to be revised to reflect the true cost rise in radioactive waste disposal.

The proposed rule should allow site-specific studies to be done to assure adequate funding is being collected. If site-specific studies are not allowed, the initial reports should not occur until the updates to the studies or factors are completed.

4. The reporting interval should be extended from two to three years as long as decommissioning is expected to commence more than five years in the future.

5. It should be clarified that the amount accumulated to the date of the report means the "as of" date, and not the date of the report.

6. We believe there would be considerable merit in limiting this report to the single item of accumulated trust fund balances.

The Commission's general expertise and its specific knowledge of the nuclear plant, its size, type, and age, should be adequate for the Commission to determine whether the dollars collected for decommissioning to date represent a reasonable total. Where the Commission has concerns based on this overview that the funding program is not adequate, it should

Attachment to AEP:NRC:0S0SAW Page 2 then require the particular licensee to file more complete information such as that proposed. This step-wise approach would avoid burdening the Commission and the licensee with preparing and reviewing numerous detailed reports where the adequacy of the decommissioning funding program can be evaluated from the status of fund balances.

7. The reference to a funding schedule of the amounts remaining to be collected, and the assumption used regarding rates of escalation in decommissioning costs and rates of earnings on decommissioning trust funds and other factors, may not fully recognize the complexities of various decommissioning studies. Some utilities are multi-jurisdictional and prepare decommissioning studies at different dates for different utility commissions. The different regulatory commissions, based on their evaluation of this comprehensive information, establish provisions for decommissioning, or they conclude that previously established recovery levels remain appropriate and should be continued.

This problem might be resolved by authorizing filing copies of reports filed with regulatory commissions, rather than filing a new report with the NRC.

8. The Commission's right to take action to modify the schedule for accumulation of decommissioning funds should be subject to appropriate notice, hearing, due process, and appeal provisions.

9. The requirements to include in the report any modification to a licensee's current trust fund agreements since the last report submitted to the NRC appears excessive and unnecessary. There can be revisions to these agreements for any number of reasons. If the Commission decides to retain this item in some form, it should be restricted to modifications that materially adversely impact funds for nuclear decommissioning. The existing requirements that trust agreements be available for inspection by the Commission should be adequate for the Commission's purposes.

10. The projected reporting burden of eight hours per response may or may not be accurate. Based on our suggestion regarding data content in the periodic report, it is reasonable. Based on our concern of what might be involved considering some of the language in the rulemaking, this time estimate could be substantially more than 100 hours0.00116 days <br />0.0278 hours <br />1.653439e-4 weeks <br />3.805e-5 months <br />.

SPIEGEL & MCDIARMID GEORGE SPIEGEL, PC MATTHEW W . WARD ROBERT C . MCDIARMID 1350 NEW YORK AVENUE NW DOC ETEO JEFFREY A . S CHWARZ SANDRA J . STREBEL ROBERT A . JABLON WASHINGTON , DC 20005-4798 USNRC

• THOMAS J . BYRNE J AMES N . HORWOOD ALAN J . ROTH FRANCES E . FRANCIS TELEPHONE (202 ) 879-4000 NOV 26 P2 .

OF C O UNSEL DANIEL I . DAVIDSON FACSIMILE (202) 393- 2 86 ~7 THOMAS C . TRAUGER JOHN J. CORBETT EMAIL SPIEGEL@SPIEGEL . BECL TD.CO M .24 LEE C . WHITE MARGARET A . McGOLDRICK P. DANIEL BRUNER CYNTHIA S . BOGORAD GARY J . NEWELL DIRECT DIAL (202) 879r ! \U1,

~fl-OMJ/ *)'!

Ru LE/'vJ,-.r\/1 -! ; ,:J\10 SCOTT H . STRAUSS EMAIL NEWELLG@SPIEGEL . ~ i f ' . ',,

BEN FINKELSTEIN r'\i,f PUBLI C A FFAIR S DIRE C T O R LISA G . DOWDEN -1 RISE J . PETERS ADJUDIC 1' 1 , 1, 1* -,

- ., c KENNETH A . BROWN PETER J . HOPKINS DAVIDE . PDMPER November 24, 1997 rll ' ' * ,) ,._; AFF ( N OT A hl E ,..8E" 01' TH E BA" )

MARK S. HEGEDUS Office of the Secretary U.S. Nuclear Regulatory Commission One White Flint North. 16th Floor 11555 Rockville Pike Rockville, MD 20852 ATTN: Rulemaking and Adjudications Staff Re: Financial Assurance Requirements for Decommissioning Nuclear Power Plants, 10 C.F.R. Part 50

Dear Sir or Madam:

Pursuant to the Commission's Notice of Proposed Rulemaking (published on September 10, 1997, 62 Fed. Reg. 47588), I submitted for filing in the captioned docket the Public Systems Group's Comments on Proposed Rule. This letter is to request that you add the City of Anaheim, California to the list of members of the Public Systems Group set forth in Attachment A to the Comments. Anaheim joins in the Public Systems Group's Comments.

Anaheim owns and operates a municipal electric utility system and provides retail electric service to residential, comn1ercial and industrial customers in and around the City. Anaheim is the owner of 3.16% undivided interests in Units 2 and 3 of the San Onofre Nuclear Generating Station, which is operated by Southern California Edison Company.

Thank you for your attention to this matter.

Very. 1;yyo~ - *;,://

~ --; , ~ic{___

Gary J. Newell Attorney for the Public Systems Group cc: Mr. Mark Frazee City of Anaheim

U.S. NUCLEAR REGULATORY MISSION RULEMAKINGS & ADJUDICATIONS STAFF OFFICE OF THE SECRETARY OF THE COMMISSION Document Statistics Postmark Date 11/ :;.t1 /t:J 7 Copies Received---~ - - - -

Add'I Copies Reproduced_...,__ _ __

So cial Distribution Y.'

G-a..UCt_1bC" J>Prf J 'RIDS

Pacific Gas and Electric Company 77 Beale Street San Francisco, CA 415/973-6695 Christopher J Warner Chief Counsel-Gen~ KET ED Telecopier 415/973-9271 USNRC Telecopier 415/973-5520 PO Box 7442 "97 NOV 26 P 1 ;47 November 24, 1997 San Francisco, CA 94120 Via Federal Express OFFICE- u*-r ~,. __ , .

• h)I '(

c-,:--r-:;

RULE d:Y1:\C:i ,-i ,O ADJUDIC/-*\T'.~) ~* 3 SlAFF The Secretary of the Commission uOCKE:T NlMBERPI U. S. Nuclear Regulatory Commission PROPOSED fU.E _ 5 0 Washington, DC 20555-0001 ( VJ Q FR.'/ 76 8'8')

Attn. Rulemakings and Adjudications Staff Re. Comments on Proposed Rule, Financial Assurance Requirements for Decommissioning - Nuclear Power Reactors. 62 Fed. Reg. 47588

Dear Secretary of the Commission:

Pacific Gas and Electric Company (PG&E) hereby provides its comments on the U.S.

Nuclear Regulatory Commission's (Commission's) proposed rule amending financial assurance requirements for decommissioning nuclear power reactors, published on September 10, 1997, at 62 Fed. Reg. 47588. In particular, PG&E provides the following comments on the Commission's proposal to revise the definition of "Electric Utility," and to add the new definitions of "cost of service regulation" and "Non-bypassable charges" at 10 CFR 50.2.

PG&E believes that the proposed definition of electric utility is unduly punitive and restrictive in its requirement that rates established by a regulatory authority be sufficient for the licensee to "operate" and "maintain" as well as decommission the nuclear power plant safely. This definition does not reflect the reality of electric industry restructuring in California, under which utilities like PG&E are assured continued and full cost of service ratemaking recovery of decommissioning costs in distribution rates on a non-bypassable basis, while the "going forward" costs of operating and maintaining the nuclear plant will be recovered in market prices after 2001 . See California Public Utilities Code Sections 379, 8325(c).

These California statutes assure that the decommissioning costs for PG&E's nuclear facilities are fully recoverable on a traditional cost of service basis as an independent, nonbypassable obligation of PG&E's electric distribution ratepayers, and that PG&E's overall distribution revenues remain available to fund these decommissioning costs, even though the operating and maintenance costs of the nuclear facilities are recovered in the marketplace. PG&E believes that this statutory ratemaking requirement provides more than adequate financial assurance for recovery of decommissioning costs, and therefore the Commission's proposed definition should delete the requirement for traditional cost of service recovery of operating and maintenance costs in order for a licensee to qualify as an "electric utility" under 10 C.F.R. 50.2.

~ by card r<<>v 2 1997

U.S. NUCLEAR REGULATORY COMMISSION RULEMAKINGS & ADJUDICATIONS STAFF OFFICE OF THE SECRETARY OF THE COMMISSION Docwnent Statistics

The Secretary of the Commission November 24, 1997 Page2 Furthermore, PG&E believes that the Commission's proposed definition of"cost of service regulation" is too narrow and unintentionally may exclude the types of "performance based" and "incentive" ratemaking adopted by utility commissions in California and other states. These alternative forms of utility commission ratemaking actually enhance and increase the financial security of nuclear power plants based on performance and reliability benchmarks. This is because, under these benchmarks, improved plant performance results in higher economic returns. Because of the positive nature of these types of ratemaking, PG&E believes that the Commission's proposed definition should be clarified to add the phrase: '"Cost of service regulation' includes, but is not limited to, alternative forms of ratemaking which provide for a portion of costs to be recovered based on reasonable benchmarks and incentives for good performance."

Other than these changes and clarifications, PG&E believes that the Commission's proposed rule is reasonable and well thought out, and the Commission should be commended for moving forward to update its requirements in light of electric industry restructuring.

Very truly yours,

-~

Christopher J. W er CJW:rvdt cc: Steven D. Bloom Ellis W. Merschoff Kenneth E. Perkins David L. Proulx Diablo Distribution

CP&L Carolina Power & Light Company PO Box 1551 411 Fayetteville Street Mall Raleigh NC 27 602 10 CFR 50.75 PE&RAS-97-098 November 24, 1997 The Secretary of the Commission U.S. Nuclear Regulatory Commission

!- Washington, DC 20555-0001 Attn: Rulemakings and Adjudications Staff

Subject:

Proposed Rule on Financial Assurance Requirements for Decommissioning Nuclear Power Reactors [62 FR 47588]

Dear sir:

Carolina Power & Light Company (CP&L) respectfully submits the following comments regarding the subject proposed rulemaking:

• The proposed rulemaking should be crafted to be as flexible as possible since electric industry restructuring is still at a relatively early stage and is rapidly evolving. The impact of decommissioning funding on electric utilities during and after the transition from a regulated to a deregulated environment must be viewed from a broad perspective. Specifically, issues such as stranded costs, tax liabilities and other significant financial issues associated with decommissioning funding must be fully understood and addressed. The industry is in the process of developing a draft guidance document for a decommissioning funding framework that could be the basis for a NRC regulatory guide. Such guidance could assist licensees in preparing, and the NRC staff in assessing, case by case submittals. This approach will reduce unnecessary confusion in the coming years.

• CP&L notes that the rule, as amended, still only leaves a licensee with the option of funding at the NRC minimum. SECY-95-223, Attachment 3, has acknowledged serious shortcomings with the current process of establishing a minimum level of funding:

Regulatory problem to be resolved The decommissioning cost estimates derived from §50.75 are at variance with recent studies from Battelle Pacific Northwest Laboratories (PNL). Consequently, the present regulations, which require more funds than presently estimated, may represent an unnecessary financial burden on power reactor licensees.

6 1997

U.S. NUCt.EAR REGULATORY COMMISSION RULEMAKINGS &ADJUOICATIONSllff OFRCE OF THE SECRETARY OFTHE COMMISSION Docllnel48'ltlBUcl Postmar1c Data ~ 4 ~ /41J_~ ,h\ 11 /~s-/q1f~ ~ ~ ~ ~k,;.-a)

Copies Received I ~ ~ 11

/ rJr,,/'1'1

~ 1-- ,-----

,7?icn f L tjt'As Add'I Copies Reproduced Special Distribjltion G~ffa.jfu't E~

Secretary of the U.S. Nuclear Regulatory Commission November 24, 1997 Page 2 Both the current and the proposed rule state that licensees may use a site-specific estimate to establish the appropriate level of funding provided it is greater than or equal to the NRC minimum in 10 CFR 50.75(c). No provision is made for funding at lower though justifiable levels. CP&L proposes that, in the course of reporting on status of funding, licensees should be allowed the option of submitting site-specific estimates for NRC approval of their use in establishing adequate funding.

NRC's current approach of waiting for data from currently ongoing decommissioning projects to be analyzed is of concern. These data in their final state will not be available for many years to come. The industry needs a rule that addresses current needs on a current basis, and holding to an outdated minimum funding assumption (cf. SECY-95-223, Attachment 3) while waiting for "more reliable data" is not helpful. Electric utilities are permitted by their ratemaking authorities to fund at levels commensurate with their site-specific studies, and tax laws agree with that conceptually. The rule should allow electric utilities to fund accordingly rather than be caught between conflicting regulatory jurisdictions.

• The proposed rulemaking amends 10 CFR 50.2 to revise various definitions in response to deregulation of the electric generating industry. In particular, "Federal licensee" is defined, so that the characteristics of a licensee that may make use of a statement of intent as a mechanism to satisfy financial assurance requirements for decommissioning, is clarified. At this time, some Federal licensees are considering privatization. In a deregulated market, the proposed rule should ensure that at such a time as these Federal entities become private enterprises, they are subject to the definition of "electric utility." In doing so, they must provide the same measures of financial assurance currently required of electric utilities, i.e.,

they must provide the same level of external funding or other assurance that would otherwise have been required of them from the initial issuance of their operating license.

• CP&L does not favor providing a specific funding schedule as the new rule suggests because it unnecessarily interferes with a licensee's business planning. CP&L is concerned that providing a set schedule becomes a licensing basis commitment that would be difficult to modify as business needs may dictate. The reporting scope of the proposed rule provides adequate measures for determining whether a licensee is providing adequate funding based on balances available over time.

• CP&L also does not favor setting a fixed real rate of return on decommissioning trust fund earnings assumptions unless this is intended to be used in the absence of any other justifiable rate. CP&L urges NRC to allow a licensee to determine and apply a realistic real rate of return. For example, this could be accomplished by allowing a licensee to use the average historical after-tax return on the fund and the average historical change in the Consumer Price Index (CPI) to determine the real rate of return. Such guidance could be incorporated into the future regulatory guide as discussed above.

• 10CFRS0.75 (f)(l), as proposed, would require each power reactor licensee to submit a biennial report on the status of its decommissioning funding for each reactor facility or part

Secretary of the U.S. Nuclear Regulatory Commission November 24, 1997 Page 3 of a reactor facility that it owns. Additionally, any licensee for a plant that is within 5 years of the projected end of its operation shall submit such a report annually. CP&L notes that Draft Regulatory Guide DG-1060, for which comments are also requested today, also contains annual reporting requirements as part of each power reactor licensee's annual financial statement. These statements are required to be submitted to NRC in accordance with 10 CFR 50.7l(b). To avoid unnecessary work, CP&L urges NRC to determine if both reporting requirements are necessary.

CP&L supports NRC's intentions of addressing this issue in a proactive manner and appreciates the opportunity to provide comments on this significant rulemaking. If you have any questions regarding our comments, please contact me at (919) 546-6901.

Sincerely yours,

~/J-0~ f- 0 . rJ ~

Donna B. Alexander Manager, Performance Evaluation and Regulatory Affairs MLM/

c: Mr. L. J. Callan, Executive Director for Operations Mr. S. J. Collins, Director, USNRC Office of Nuclear Reactor Regulation Mr. L. A. Reyes, Regional Administrator, Region II Mr. J.B. Brady, USNRC Resident Inspector - HNP, Unit 1 Mr. B. B. Desai, USNRC Resident Inspector - HBRSEP, Unit 2 Mr. V. L. Rooney, USNRC Project Manager - HNP, Unit I Ms. B. L. Mozafari, USNRC Project Manager- HBRSEP, Unit 2 Mr. C. A. Patterson, USNRC Resident Inspector - BSEP, Units 1 and 2 Mr. D. C. Trimble, USNRC Project Manager - BSEP, Units 1 and 2 Chairman J. A. Sanford - North Carolina Utilities Commission USNRC Document Control Desk

NUCLEAR ENERGY INSTITUTE Marvin 5. Fertal VICE PRESIDENT ,

NUCLEAR INFRASTRUCTURE SUPPORT & INTERNATIONAL November 24, 1997 PROGRAMS NOV 2 5 tn97 11r r1 _,

Mr. John C. Hoyle Secretary U.S. Nuclear Regulatory Commission Washington, D.C. 20555-0001 ATTENTION: Rulemakings and Adjudications Staff

SUBJECT:

Nuclear Energy Institute's comments on (1) the Nuclear Regulatory Commission's Proposed Rule on Financial Assurance Requirements for Decommissioning Nuclear Power Reactors (62 Fed. Reg. 47588; September 10, 1997); and (2) Draft Regulatory Guide 1060, Financial Accounting Standards Board (FASB) Standards for Decommissioning Cost Accounting.

Dear Mr. Hoyle:

These comments are submitted by the Nuclear Energy Institute (NEI) 1 on behalf of the nuclear energy industry in response to the Nuclear Regulatory Commission's Notice of Proposed Rulemaking on Funding Assurance Requirements for Decommissioning Nuclear Power Reactors and the Draft Regulatory Guide 1060, Financial Accounting Standards Board (FASB) Standards for Decommissioning

- Cost Accounting.

The industry commends the Nuclear Regulatory Commission (NRC) for its initiative in addressing the issue of providing reasonable assurance of decommissioning funding as the electric power industry is restructured. The industry also commends the NRC for proposing to allow nuclear power plant licensees some additional flexibility in how they provide that reasonable assurance. NEI's comments build on the NRC proposal and, if adopted, will result in a regulatory process that (1) continues to provide reasonable assurance of decommissioning funding, and (2) is compatible with the new electricity generating business environment.

fDi 2 11997 AdnMledged bf*-----

1 NEI is the organization responsible for establishing unified nuclear industry policy on matters affecting the nuclear energy industry, including regulatory aspects of generic operational and technical issues. NEI members include all utilities licensed to operate commercial nuclear power plants in the United States. nuclear plant designers, major architect/engineering firms , fuel fabrication facilities. materials licensees, and other organizations and individuals involved in the nuclear energy industry.

' ,UIT E 4t_1n

l, L.ATORY COMMISSION ADJUDICATIONS srAFF

.. OFTHE SECRETARY OF THE COMMISSION OoMientStallatlcl f -narkDate fuxsenfof"\ 11/~4/11/ ff.and 'De/i'vC'Y-ec{ 011'1 ,,/~e,fq7 C es Recetvad_.-.:../- . . . - - - - -

A 1'1C o p i e s ~

S ecial Distribution

__.+/-r.. -----

~h/Jer;

~~ lle.. @h, r, 1?l>t< 1 -rc:>1PS

Mr. John C. Hoyle November 24, 1997 Page 2 The industry agrees that decommissioning of nuclear power reactors is a public health and safety necessity. There must be reasonable assurance that decommissioning will be funded, regardless of whether a plant is operating or shut down, and regardless of the market uncertainties associated with industry restructuring.

The industry also believes that decommissioning funding assurance should continue to be separated from other financial qualification issues as it is in existing regulations and recommends that this proposed rule should focus solely on decommissioning funding assurance.

Industry restructuring is still evolving. As a result, it is impossible to predict the broad variety of corporate structures and ownership arrangements that might develop in the future. Therefore, we strongly recommend that the rule provide a general framework, with specific implementation details to be described in a regulatory guide that could be developed in parallel with the rulemaking process.

The industry has been actively discussing possible financial criteria that might be included in such guidance, but at this time we are not in a position to propose specific criteria, methodologies, or assumptions. The industry will continue its efforts to develop implementing guidance and will share our findings with NRC at the appropriate time so that the industry document could become the basis for a future NRC regulatory guide.

It is apparent that the traditional structural model of exclusive franchise territories and vertically integrated companies is changing. In the future, the term "electric utility" may correctly apply only to a regulated local distribution company with no ownership interest in generation. For this reason, we recommend that in 10 CFR

50. 75, the term "electric utility" be replaced by the term "qualified nuclear entity."

We believe this term more accurately describes the kinds of companies that will own and operate nuclear power plants in the future. The term "nuclear entity" was chosen to describe the essential characteristics without unduly constraining the type of ownership or form of operating company. The term "qualified" was chosen to make clear that approved NRC criteria would have to be met to achieve the status of being "qualified" with respect to decommissioning funding assurance.

In addition, the 10 CFR 50.2 definition of "electric utility" should remain unchanged. The possible need to change the§ 50.2 definition should be resolved when considering other changes to NRC regulations to address other industry restructuring matters.

Any entity that meets the definition of "qualified nuclear entity" should be permitted to continue to accumulate decommissioning funding in an external trust fund over the licensed life of the facility, or by any other means that satisfies the requirements of the Atomic Energy Act.

Mr. John C. Hoyle November 24, 1997 Page 3 Licensees should also be permitted to use any combination of acceptable methods to provide reasonable assurance that decommissioning will be funded. A licensee should be allowed the flexibility to provide that reasonable assurance in ways that are commensurate with the many business structures and practices that are emerging in the course of industry restructuring.

From a practical perspective, the proposed rule would require a "non-electric utility" to satisfy the criteria in 10 CFR Part 30, Appendix A and Appendix C, or prepay the full decommissioning estimate. The tests in Part 30 were developed for materials licensees, and are not reasonable or workable for power reactor licensees. We believe that a better approach is to establish a three-tier framework:

(1) funding options for licensees that satisfy the criteria for a "qualified nuclear entity;"

(2) funding options for licensees that satisfy a new set of financial criteria; or (3) case-by-case review and approval by the NRC staff of other innovative funding options that would provide reasonable assurance that decommissioning will be funded.

The enclosure to this letter provides additional details and comments.

We commend the Commission for having taken a leadership position on industry restructuring issues, for having recognized early the need to revise its regulations and requirements to accommodate changing conditions, and for encouraging public discussion and dialogue on these important and evolving issues. The detailed comments enclosed provide the industry's proposals to improve the effectiveness of the NRC's existing and proposed rules for assuring decommissioning funding. We look forward to continuing the regulatory interactions that will establish an appropriate process to provide reasonable assurance of decommissioning funding.

Sincerely, Marvin S. Fertel Enclosures c: The Honorable Shirley Ann Jackson, Chairman, NRC The Honorable Greta Joy Dicus, Commissioner, NRC The Honorable Nils J. Diaz, Commissioner, NRC The Honorable Edward McGaffigan, Jr., Commissioner, NRC Mr. Leonard J. Callan, EDO/NRC

ENCLOSURE NEI'S DETAILED COMMENTS ON THE NOTICE OF PROPOSED RULEMAKING FOR FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISSIONING NUCLEAR POWER PLANTS (62 FED. REG. 47588, SEPTEMBER 10, 1997)

I. GENERAL PRINCIPLES The foundation principles on which these comments rest are as follows:

First, the industry agrees with the NRC on the need to revise and improve existing NRC regulations to reflect changes that are occurring, and are likely to occur, in the electric power business.

Second, the industry, like the NRC, considers decommissioning a public health and safety issue.

Third, the industry, like the NRC, believes that there must be reasonable assurance that funds will be available for decommissioning at the end of the license.

Decommissioning funding is a regulatory obligation and, as such, unfunded decommissioning requirements should not be subject to significant market risks that are associated with industry restructuring activities.

II. THE QUALIFIED NUCLEAR ENTITY: A NEW CONCEPT AND FRAMEWORK FOR A NEW INDUSTRY ENVIRONMENT To the extent that new models of industry structure are emerging, new regulatory models must be developed that properly reflect the industry being regulated, while preserving the NRC's legitimate role as the guardian of public health and safety.

Industry Concerns over the Proposed Definition of nElectric Utility" Existing NRC regulations to assure decommissioning funding proceed from the assumption that an "electric utility"-broadly defined in §50.2 as an entity subject to rate regulation and thus presumably assured of recovering prudently incurred costs through rates-is permitted to fund the decommissioning obligation over the full license term in an external trust fund . The current regulations establish other standards and requirements for entities that do not meet the definition of "electric utility."

The industry does not believe that the term "electric utility" represents an accurate, appropriate, or acceptable classification at a time when industry structure is 1

changing. The term "electric utility" was a useful regulatory convenience when first adopted, at a time when the electric power business consisted largely of vertically integrated companies with interests in generation, transmission and distribution and protected franchises. From the early restructuring activities in those states that have acted, it appears that such a structural model may not endure . Indeed, a broad variety of corporate structures may develop as different jurisdictions tailor their approaches to accommodate local needs and interests. The time may be approaching when the term "electric utility" signifies only a regulated local distribution company with no direct ownership interest in generation.

As proposed, however, the revised definition of "electric utility" could create difficulties for licensees, and could inhibit licensee flexibility in addressing the issues emerging during industry restructuring activities. The proposed definition explicitly links operation, maintenance and decommissioning activities, and could unnecessarily invite challenges to the underlying sufficiency of the rates established by a regulatory or rate-setting authority. Thus, as a federal agency, the NRC could become unnecessarily involved in state or local rate-setting activities. Moreover, the definition does not adequately express the intent of the proposed rule that an entity that can "conclusively demonstrate a government-mandated, guaranteed revenue stream for all unfunded decommissioning obligations," by virtue of a non-bypassable charge which covers only decommissioning costs, would provide adequate assurance of decommissioning funding. Also, the proposed definition could create confusion regarding the responsibility of a non-owner operator for providing reasonable assurance for the financing of decommissioning. Although we are sure it is not the intent, we are concerned that the proposed definition could result in a non-owner operator being required to assume the responsibility for providing financial assurance for decommissioning. We emphasize that the responsibility for providing assurance for decommissioning funding rests with the plant owners. The possibility of such a contrary interpretation could inhibit the formation of joint operating companies. Therefore, the proposed alternative definition introduces significant uncertainties, and may unnecessarily place nuclear power plants at a disadvantage.

Industry Proposals on nElectric Utility" Definition We recommend that for the purposes of this rulemaking, and only in 10 CFR 50.75, the term "electric utility" should be replaced with the term "qualified nuclear entity," which more accurately describes the kinds of companies that will own and operate nuclear power plants in the future. Any entity that meets the definition of "qualified nuclear entity" should be permitted to continue to accumulate decommissioning funding in an external trust fund over the licensed life of the facility, or through any other means that satisfy the requirements of the Atomic Energy Act.

2

There is no need to change the existing 10 CFR 50.2 definition of "electric utility" in this rulemaking. The existing definition of "electric utility" should remain in §50.2 for the present time. The possible need to change this definition can be resolved later when the industry and NRC have gained additional experience with the new corporate entities that are evolving as a result of industry restructuring.

Scope and Qualifying Criteria for a "Qualified Nuclear Entity" We recommend that §50.75 be amended to include a definition of "qualified nuclear entity." To be considered a "qualified nuclear entity," a licensee must satisfy one of the following criteria:

the entity is subject to rate regulation with decommissioning funds recovered through a rate-setting mechanism, or in the case of public power entities, by that entity's board of directors/governors; or decommissioning is funded through a non-bypassable charge established by legislative or regulatory mandate, or in the case of public power entities, by that entity's board of directors/governors; or the entity must have a binding contractual agreement 2 with another party to provide reasonable assurance of the collection of its share of the unfunded decommissioning obligation. For example, there may be instances in which a licensee sells its ownership interest in one or more nuclear power plants and, as part of that transaction, the obligation to continue payments into decommissioning funds would remain with the customers who have received, and may continue to receive, electricity from the facility or facilities in question.

In such situations, we expect the buyer would (1) assume responsibility for the decommissioning trust fund and any money already collected; (2) receive a contractual commitment from the seller that payments into the decommissioning trust fund would continue over the remaining license term (or some agreed-upon shorter period of time); and (3) assume responsibility for decommissioning the plant at the end of its useful life.

New General Framework for Financial Assurance for Decommissioning The industry believes the existing general regulatory approach for financial assurance for decommissioning-defining a broad category or classification under which a licensee can fund decommissioning over a plant's lifetime, then specifying alternate means of providing assurance of funding-is conceptually sound.

However, the proposed rule is still too rigid, and in some cases impractical, for the 2 The contractual agreement(s) should be equal to the amount required to fund the unfunded decommissioning obligation, taking into account the earnings on the prepaid funds, as defined in the NRC proposed rule.

3

broad variety of new corporate structures and ownership arrangements that are evolving as a result of industry restructuring.

As proposed, the new rule would unnecessarily place additional burdens on nuclear licensees that do not satisfy the proposed definition of electric utility. Licensees that do not satisfy the conditions for an "electric utility" would be required to (1) prepay the unfunded decommissioning obligation; (2) provide a surety method, insurance or other guarantee; or (3) provide a parent company or self-guarantee if the parent or the licensee can meet the financial tests in Appendix A and Appendix C of 10 CFR Part 30. From a practical perspective, there is only one option for a "non-electric utility" licensee, and that is prepayment. This would place such licensees at a significant and unnecessary financial disadvantage since other options could be made available that would provide reasonable assurance that decommissioning will be funded.

The financial tests in Part 30, Appendix A and Appendix C, were developed for Part 70 materials licensees, where decommissioning costs are measured in millions of dollars, at most, not hundreds of millions of dollars as is the case with power reactors. These financial tests are neither practical nor appropriate for power reactors. The industry's preliminary analysis suggests that even the largest electric power companies in the United States could not meet these tests. The NRC is also aware of this, for the Notice of Proposed Rulemaking states that "these financial assurance mechanisms may not be available to some licensees" (62 Fed. Reg.,

47596).

We recommend that a better approach is to create a three-tier framework based on the existing regulatory concept:

(1) funding options for licensees that satisfy the criteria for a "qualified nuclear entity";

(2) funding options for licensees that satisfy a set of new, standard financial criteria; or (3) a case-by-case review and approval by the NRC staff of other innovative funding options.

The implementation details and criteria for items (2) and (3) would be described in a regulatory guide. Given the evolving nature of industry restructuring, it is difficult to predict with any degree of certainty the broad variety of corporate structures and ownership arrangements that might be developed over the next several years. As a result, we strongly recommend that the rule provide a general framework, with specific implementation details to be described in a regulatory guide that could be developed in parallel to the rulemaking process.

The industry has been actively discussing possible financial criteria that might be included in such guidance, but at this time we are not in a position to propose 4

specific criteria, methodologies, or assumptions. The industry will continue its efforts to develop implementing guidance and will share the findings with the NRC at the appropriate time so that an industry guideline could become the basis for a future NRC regulatory guide.

Funding Options for a Qualified Nuclear Entity A licensee that satisfies the criteria for being a "qualified nuclear entity" can use an external sinking fund, as currently described in §50.75, or any other methods that are consistent with the Atomic Energy Act. These could include:

prepayment of the unfunded decommissioning liability. Although the industry does not regard this as a particularly attractive alternative, licensees should be permitted this option. In some cases, for example, minority owners that wish to sell their share of a nuclear unit or units may wish to exercise this option in order to extinguish their responsibilities as licensees.

acceleration of payments 3 for the unfunded decommissioning liability. In this instance, the schedule of accelerated payments would be at the discretion of the licensee.

a surety method, as presently described in §50. 75.

other methods that are consistent with the provisions of the Atomic Energy Act.

Assurance Mechanisms for Entities That Are Not "Qualified Nuclear Entities" The proposed rule on decommissioning funding assurance makes no change in the requirements imposed by §50. 75(e)(2) on entities that do not meet the definition of "electric utility." This could place an unnecessary and additional burden on licensees when other options and alternatives could be available to achieve the overall objective-namely, providing reasonable assurance that funding will be available for decommissioning. Given this fact, the industry proposes that a licensee that does not meet the definition of "qualified nuclear entity" should first make a determination on whether it can satisfy a new set of standard financial criteria that are described in a regulatory guide.

A licensee that satisfies the set of financial criteria on a pro rata basis would be permitted to accumulate funds for decommissioning in an external sinking fund over the facility's lifetime, or use any of the other methods that are available to a qualified nuclear entity.

A licensee that cannot satisfy the financial criteria described in the regulatory guide would have the following options:

3 Depending on the specific circumstances, accelerated payments to the decommissioning trust may create adverse tax consequences.

5

prepayment of the unfunded decommissioning liability; acceleration of payments 4 for the unfunded decommissioning liability; a surety method, including a corporate guarantee; or case-by-case licensee-specific proposals to assure decommissioning funding that have been reviewed and approved by the NRC, and support a conclusion that there is reasonable assurance that the licensee will be able to fund decommissioning. The industry is pleased that the NRC's Notice of Proposed Rulemaking acknowledges that such a case-by-case approach may be necessary:

"new and unique restructuring proposals will necessarily involve ad hoc reviews by the NRC (62 Fed. Reg., 47602) .

The industry has had extensive discussions on the issue of what might constitute appropriate and acceptable financial tests and criteria to support a corporate or self guarantee of financing for decommissioning, or a case-by-case submission. Such things as coverage ratios, measures of cash flow, or the existence of bilateral contracts for the sale of power from a nuclear power plant might represent some of the plausible tests and criteria. However, with industry restructuring still evolving, we are uncertain whether any tests or criteria we define today would remain valid in the future to support a conclusion that there is reasonable assurance that decommissioning will be funded. This also applies to the criteria for developing and assessing a case-by-case submission that a licensee can assure decommissioning funding.

The major credit rating agencies are still in the process of defining the risk factors associated with stand-alone generating companies and with merchant plants, and developing criteria on which to rate such companies' creditworthiness. These criteria will likely change as industry restructuring proceeds. As such, we do not believe it would be appropriate or prudent to include in the NRC rule any specific proposals or criteria, which will likely be changed. The NRC appears to have recognized this point in the Statements of Consideration accompanying the proposed rule: "Criteria could be developed and thresholds developed, but evolution of the industry might mean that the criteria would become outdated and misleading relatively quickly" (62 Fed. Reg., 47595).

The industry suggests that it work with NRC staff to develop appropriate and acceptable tests and criteria. The industry proposes that such tests and criteria be developed in a Regulatory Guide, separate from this rulemaking. Such guidance could also assist licensees in preparing, and NRC staff in assessing, case by case submittals.

4 The schedule for accelerated funding would be contingent on the financial strength of the company as determined through the process described in a NRC regulatory guide.

6

III. COMBINATION OF FUNDING METHODS The industry supports and endorses the concept that a licensee should only be responsible for its pro rata share of decommissioning funding based on the licensee's percentage ownership interest in the power plant(s). In this regard, the industry endorses the NRC's proposal that a licensee should be subject to alternate financial assurance requirements only for the portion of its decommissioning obligation that is not provided for under the "qualified nuclear entity" (electric utility) framework.

In addition, we strongly recommend that licensees be allowed to use a combination of methods for assuring that funds are available for decommissioning.

In the new electricity business environment, co-owners may use different collection and funding mechanisms to meet the decommissioning obligation for a single plant.

In such cases, decommissioning funding would be assured through a combination of methods. The current requirements for electric utilities allow licensees to use a combination of methods for assuring decommissioning funding. However, under the proposed rule and from a practical perspective, a non-electric utility would be unnecessarily limited by the restrictions on combining methods for assuring decommissioning funding. In the new restructured business environment, licensees for a specific power plant may represent a broad spectrum of corporate structures.

Each type of corporate structure should have the same degree of flexibility to provide reasonable assurance for funding decommissioning.

The NRC should allow a combination of methods-for example, a non-bypassable charge for some portion of decommissioning costs, a contract for revenue for some portion, and a corporate guarantee for some portion-to assure funding for decommissioning whether or not the licensee can be categorized as a qualified nuclear entity. The objective is to provide reasonable assurance that funds will be available for decommissioning IV. PERIOD FOR REASSESSMENT AND EVALUATION In the changing business environment, a licensee may determine that it no longer satisfies the criteria for a qualified nuclear entity (electric utility). Under the current regulations, a licensee has 30 days in which to develop a NRC submittal that describes how, under the new circumstances, funding for decommissioning will be assured. In some cases, a licensee may be faced with raising substantial sums of money in the financial markets. The 30-day limitation is not a practical requirement.

We recommend that licensees be given 180 days in which to prepare a formal NRC submittal that demonstrates continuing reasonable assurance that decommissioning will be funded. Further, a licensee should be permitted to continue to make payments into the decommissioning fund until the NRC 7

determines whether the alternative proposal is sufficient to provide reasonable assurance of decommissioning funding. The 30-day requirement could remain a notification requirement for a change of circumstance.

V. SEPARATION OF FINANCIAL QUALIFICATIONS ISSUES FROM DECOMMISSIONING The current regulations separate financial requirements for decommissioning and financial qualifications for applicants for an operating license. We believe decommissioning should continue to be treated separately because of its significant importance from a public health and safety perspective. We fully support the premise that decommissioning must be funded, whether a plant is operating or shut down, and regardless of the market uncertainties associated with industry restructuring.

The criteria for determining whether a nuclear power plant can be operated safely are different from those required to assure decommissioning funding. The industry does not believe there should be any connection between assuring decommissioning funding assurance and financial qualifications for safe operations. We believe it is necessary to address each of these areas separately.

The NRC has a large array of monitoring, inspection and enforcement resources and programs at its disposal, and those resources and programs have proven to be capable of detecting a lapse in safety performance that might represent a threat to public health and safety. That comprehensive program provides necessary assurance of adequate protection of public health and safety from any cause, including reduced revenue situations.

In recent regulatory discussions on criteria for identifying declining performance, the public and the industry have emphasized that O&M spending levels are not a valid measure or predictor of operational safety. Funding for operations and maintenance is, at best, only a secondary means of assuring safety in nuclear power plant operations. It has not been demonstrated that there are plausible or credible financial "indicators" that would signal potential safety performance problems at a nuclear power facility.

The NRC itself acknowledged this fact in its Final Policy Statement on Restructuring and Economic Deregulation of the Electric Utility Industry:

"In its previous experience, the NRC has found that there is only an indirect relationship between financial qualifications and operational safety .... " (62 Fed. Reg., 44073).

8

".. .it is not clear that enhanced financial qualifications programs by themselves would be a sufficient indicator of general ability to operate a facility safely .... " (62 Fed. Reg., 44073)

For all these reasons, we strongly recommend that issues associated with financial qualification should be treated separately, and that this rulemaking should focus solely on decommissioning funding assurance.

VI. REPORTING REQUIREMENTS The industry agrees with the requirement in the proposed rule that NRC be kept fully informed on the status of nuclear facilities' decommissioning funds. We also agree that the mechanism for making reports should not be prescribed in the rule, but in a regulatory guide.

The industry generally accepts the scope and frequency of reporting described in the proposed rulemaking, with a number of caveats.

We agree that the industry should not be subject to additional and unnecessary administrative costs to provide information that is already available elsewhere. A standard reporting mechanism that does not add burden should be adopted. At this time, the industry does not believe the NRC should endorse the use of FASB standard 158-B because it is still in draft. The final standard may not provide the information that is required by an amended§ 50.75, or provide the required information in a manner that is readily retrievable.

We recommend that the language in the rule remain unchanged, but that draft Regulatory Guide 1060 be changed to reflect options that will not add to a licensee's reporting burden by allowing the use of an established form or process.

VII. SITE-SPECIFIC DECOMMISSIONING ESTIMATE As the NRC and the industry modify the financial assurance requirements for decommissioning, it is equally important to ensure that other NRC requirements associated with decommissioning reflect current practices and estimates of decommissioning costs.

We recommend that the NRC include in this rulemaking a provision that allows licensees the option to develop and submit alternative site-specific decommissioning funding estimates that better reflect current industry practices and estimates for decommissioning. As such, these estimates may be greater than or less than the prescribed NRC methodology in§ 50.75. Naturally, a licensee would describe the assumptions and bases for any new site-specific estimates that are lower than the prescribed NRC methodology.

9

VIII. SEPARATION OF REQUIREMENTS FOR FINANCIAL ASSURANCE FOR DECOMMISSIONING OF POWER REACTORS AND NON-POWER REACTORS When the regulations governing financial assurance for decommissioning were last revised, it was not recognized that an entity other than a utility might operate a nuclear generating station. Generally, decommissioning costs for non-power reactors and materials licensees are several orders of magnitude below those for power reactors. The imposition of financial tests-such as requiring assets 10 times the decommissioning estimate (10 CFR 30, Appendix C)-presents an insurmountable burden for most generating companies. The current regulations mix power reactors, non-power reactors and material licensees in the same regulations. While this may have been appropriate and more efficient in the past, it is no longer practical or appropriate, given the changes underway in the business environment.

We recommend that the decommissioning funding requirements for power reactor licensees and non-power reactor licensees be separated--either by having specific and separate paragraphs relating to power reactor licensees and non-power reactor licensees, or by having new and separate sections within Part 50 and Part 30. We emphasize that we are not proposing to change the criteria for non-power reactor licensees.

IX. TAX-RELATED ISSUES As the NRC is aware, the methods chosen to provide decommissioning funding can have significant tax-related implications. Specifically, under current tax law, entities subject to cost-of-service regulation are permitted to deduct for income tax purposes certain qualified amounts collected for decommissioning. In addition, earnings on decommissioning trust funds are taxed at a lower rate than the corporate tax rate.

The industry suggests that NRC use every opportunity to stress with federal, state and local economic regulators the importance of collection of decommissioning costs in what are defined by the IRS as cost-of-service proceedings.

X. ALLOWABLE RATE OF RETURN The industry acknowledges the NRC's proposals for allowing a two percent annual real rate of return, if the licensee's rate-setting authority does not authorize the use of another rate. Rate-setting authorities have sometimes allowed a higher rate of return based on general accounting principles or information from the Securities and Exchange Commission. In the future a licensee may not be subject to a rate-setting authority, even for the collection of decommissioning funds. As such, we suggest that the NRC consider allowing a real rate of return in excess of the two 10

percent proposed, providing the licensee can justify such a rate to the NRC on a case-by-case basis.

XI. CONCLUSION These comments are offered as constructive recommendations to improve the regulatory process, and satisfy the NRC's legitimate need for providing reasonable assurance that decommissioning funds will be available when needed.

We emphasize the importance of recognizing that industry restructuring is still evolving. While it is important to provide early guidance and requirements, and to establish predictability in the regulatory process, it is also important to provide reasonable flexibility in implementing those requirements so that licensees have the flexibility to reposition their nuclear generating assets should they choose to do so.

11

SHAW PITTMAN POTTS &TROWBRIDGE I\ PMThlEI\SHIP INCLUDING l'J.OFIS.510N/\L CORPORATIONS 2300 N Street, N.W.

Washington, D.C. 20037-1128 202.663.8000 Facsimile 202.663.8007 MILTON B. WHITFIELD New York 202.663.8955 Virginia milton_whitfield@shawpittman.com November 24, 1997 Secretary of the Commission Nuclear Regulatory Commission U.S. Nuclear Regulatory Commission

- Washington, D.C. 20555-0001 Attn: Rulemakings and Adjudications Staff DOCKET NtllBERPR PROPOSED RULE SO Re: Comments on Proposed Rule "Financial Assurance Requirements

( (,~Fll.'i7S6g')

for Decommissioning Nuclear Power Reactors"

Dear Sir:

As provided by Federal Register notice of September 10, 1997 (62 Fed. Reg. 47,588), we are submitting written comments on the Nuclear Regulatory Commission's ("NRC") proposed rule concerning "Financial Assurance Requirements for Decommissioning Nuclear Power Reactors." These comments are being submitted on behalf of Boston Edison Company, Cleveland Electric Company, The Toledo Edison Company, Centerior Service Company, Consolidated Edison Company ofNew York, Duquesne Light Company, MidAmerican Energy Company, Northern States Power Company, Rochester Gas & Electric Company, Wisconsin Electric Power Company, Wolf Creek Nuclear Operating Corporation, Kansas Gas and Electric Co., and Kansas City Power & Light Co., (referred to hereinafter as "Utilities").

The proposed rule would, among other things, revise the Commission's regulatory definition of "electric utility" found in 10 C.F.R. § 50.2. Those entities which remain electric utilities under the new definition would continue to provide decommissioning funding assurance under 10 C.F.R. § 50.75(e)(3). Those entities which are no longer considered electric utilities under the revised definition would be required to provide decommissioning funding assurance in accordance with 10 C.F.R. § 50.75(e)(2). For non-electric utilities, this could require up-front funding of decommissioning costs. The proposed rule would also require licensees to report periodically on the status of their decommissioning funds. Finally, the NRC's proposal would allow licensees to take a two percent (2%) credit for their earnings on decommissioning trust funds.

Adcnowledged by c:em r<<>V 2 8 1997

U.S. NUCLEAR REGULATORY COMMISSION RULEMAKINGS & ADJUDICATIONS STAFF OFFICE OF THE SECRETARY OF THE COMMISSION Document Statistics Postmark Date (a y(I on ,,/45/q7i II,.<</ iH/,'rtl'~I o,-,~;,.,c/ o,, 1foe/,7 CopiesReoelved _ _ _ _ _ __

Add'I Copies Reproduced _ _ _ __

Special Distribution_ _ _ _ __

SHAW PITTMAN POTTS &TR.OWBRIDCE A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS Secretary of the Commission November 24, 1997 Page 2 As discussed more specifically below, the Utilities appreciate the Commission's concern for adequate decommissioning funding in the face of electricity restructuring and deregulation of the power generating industry. The Utilities maintain, however, that the Commission can achieve its desired results without some of the changes it has proposed and should endeavor to provide as much flexibility as possible to accommodate the differing approaches to deregulation that may emerge in different states. Moreover, since electricity restructuring is still in the process of being implemented, the Utilities maintain that the Commission should not overreact by imposing requirements that are so restrictive that they impose unreasonable economic burdens on entities no longer qualifying as electric utilities. It makes no sense subjecting deregulated licensees to economic requirements they cannot meet. Such an approach merely increases the risk of premature shutdowns and exacerbates the possibility of unfunded decommissioning liability. It its therefore imperative that the NRC allow deregulated licensees to chose reasonable funding options (options that provide reasonable, not absolute assurance, of funding 1).

I. The Commission Should Consider Additional Approaches The NRC's proposed rule does not consider other alternatives to address the potential impact of deregulation on decommissioning funding. In particular, rather than establishing very burdensome and prescriptive financial requirements that may be imposed suddenly on a licensee as a result of state deregulation (and that may produce other unintended results), the Commission should consider exercising its broad authority under the Atomic Energy Act (section 161 of the Atomic Energy Act of 1954) to require the continuing recovery of decommissioning costs through rates. The NRC already recognizes that it has the authority to take actions as warranted to protect the public health and safety. 61 Fed. Reg. 185 (September 23, 1996). Indeed, the Commission said it intends to work with state and federal agencies as electric utilities face deregulation to minimize the possibility of actions that would have an adverse safety impact. Id.

at 49,713.

The public health and safety is much better served by assuring continued ratepayer funding than by establishing financial requirements that cannot be met. We, therefore, strongly suggest that the NRC consider a proactive rather than reactive approach to the decommissioning issue. The NRC's decommissioning funding regulations relied for nearly a decade on ratepayer funding, which the NRC has recognized as providing the requisite level of financial assurance for this liability. If, as it appears, this established funding mechanism is the best method of

-- ~- - - - -- --

As the Commission recently explained, the NRC's decommissioning funding regulations are intended only to require reasonable assurance of funding, not an absolute guarantee. Yankee Atomic Electric Co, (Yankee Nuclear Power Station), CLI-96-7, 43 N.R.C. 235,262 (1996).

SHAW PITTMAN POTTS&TROWBRIO(;E A PARlNWHIP INCLUDING PM)fESSIONAl COII.PORATIONS Secretary of the Commission November 24, 1997 Page 3 providing decommissioning funding assurance, the Commission should take actions to require its continuation even in a deregulated market.

For these reasons, the Utilities urge the Commission to consider exercising its authority to maintain ratepayer funding as a means of protecting the public health and safety. We also suggest that this and other reasonable alternatives be comprehensively considered in the NRC's regulatory analysis to ensure that any new decommissioning requirements are reasonable, appropriate, and cost effective.

II. The NRC Should Clarify the Scswe of the Proposed Rule The Commission has described its proposed rule as an amendment of the regulations on financial assurance for decommissioning (.s.ee 62 Fed. Reg. 47,588). This characterization is unfortunate, because the proposed changes are not limited to decommissioning funding requirements but also affect the financial qualifications requirements for operations. By changing the definition of electric utility, the NRC will affect the scope of financial

• qualifications review under 10 C.F.R. § 50.33(t) and thus establish a new test applicable to initial licensing, to transfers of control under 10 C.F.R. § 50.80, and to operating reactors. By failing to have made this impact clear, the NRC's description of the change has the potential of misleading some interested parties and does not adequately explain or analyze the implications of the rule.

For this reason the NRC may wish to consider renoticing the proposed rule (with a more accurate description and analysis of the changes) before proceeding further.

III. The Proposed Definition of Electric Utility Should Be Revised In its proposed rule, the Commission is proposing to amend the definition of electric utility in 10 C.F.R. § 50.2 as follows:

Electric utility means any entity that generates, transmits, or distributes electricity and which recovers the cost of this electricity, either direetly or iedireetly, through rates established by the entity itself or by a separate regulatory authority, such that the rates are sufficient/or the licensee to operate, maintain, and decommission its nuclear plant safely. Rates must be established by a regulatory authority either directly through traditional cost ofservice regulation or indireclly through another non-bypassable charge mechanism. An entity whose rates are established by a regulatory authority by mechanisms that cover only a

SHAW PITTMAN POTTS &TROWBRIDGE A PAIUNERSHIP INCLU DI NG Pl'.OFESSIONAL COl'. POl'.ATIONS Secretary of the Commission November 24, 1997 Page 4 portion of its costs will be considered to be an "electric utility" only for that portion of the costs that are collected in this manner. ..-

IR"1i1estor oWfl:ed utilities, iRoh:idiRg geReration a0d distribution subsidiaries, pPublic utility districts, municipalities, rural electric cooperatives, and State and Federal agencies, including associations of any of the foregoing, that establish their own rates are included within the meaning of "electric utility."

See 62 Fed. Reg. at 47605. In addition, the Commission is adding the following definitions of

cost of service regulation" and "non-bypassable charges" to 10 C.F.R. § 50.2.

Cost of service regulation means the traditional system of rate regulation in which a rate regulatory authority allows an electric utility to charge its customers all reasonable and prudent costs of providing electricity services, including a return on the investment required to provide such services.

Non-bypassable charges means those charges imposed by a governmental authority which affected persons or entities are required to pay to cover costs associated with operation, maintenance, and decommissioning of a nuclear plant. Affected individuals and entities would be required to pay those charges over an established time period.

- Id.

The Utilities have a number of concerns with the NRC's proposed changes to the definition of electric utility in 10 C.F .R. § 50.2. First, the phrase "directly or indirectly" should not be deleted from the first sentence of the definition because the deletion could be interpreted as eliminating the exemption from financial qualification requirements applicable to non-owner operators who cover their costs under contracts with the owners. The NRC has traditionally held that such non-owner operators are "electric utilities" exempt from further financial qualification reviews because they recover their costs indirectly from the regulated rates of the owners who are contractually committed to pay the operators' expenses.

Not only should the NRC leave the phrase "directly or indirectly" in the first sentence of the definition, the NRC should further revise its regulations to make it clear that the financial qualifications and decommissioning funding requirements are the obligations of licensed owners.

This is important both to clarify where the real financial responsibility lies and also to facilitate

SHAW PITTMAN POTTS &TROWBRIDGE

/\ P/\1<.TNE~HIP INCLUDING PROFESSION/\LCO~ PO~/\TIONS Secretary of the Commission November 24, 1997 Page 5 the formation of operating service companies, which may be particularly important in a deregulated market. Where an operator has no ownership interest and is merely operating a nuclear plant under contract with the owners, that entity should not be liable for decommissioning funding and should not be subject to these regulations. 2 Returning to the proposed definition of electric utility, the phrase "such that the rates are sufficient to operate, maintain, and decommission its nuclear plant safely" should be deleted from the first sentence because it unnecessarily invites challenges to the underlying sufficiency of the rates established by the regulatory authority. For example, in a proceeding involving a license transfer or reorganization, an intervenor might contend that the licensees are not electric utilities because the rates established by a state are not sufficient to operate, maintain or decommission the plant safely. As a result, litigation might result before the NRC concerning the sufficiency of the rates established by a state public utility commission (PUC), and the NRC might find itself acting as an arbiter of the state ratemaking process. The Utilities do not believe that the NRC or the licensees which recover their costs via rate regulation (and hence qualify as electric utilities) should be subjected to the possibility of such litigation.

Similarly, a challenge to the sufficiency of the underlying rate regulation could result from the addition of the second sentence of the proposed definition for electric utility coupled with the new definition for cost of service regulation. Specifically, a requirement that rates be established through traditional cost of service regulation which requires that "all" reasonable and prudent costs be recovered invites a challenge to the sufficiency of the licensee's rate regulation.

Also, it is inconsistent with the ongoing practice of ratemaking agencies which, while they generally allow the inclusion of reasonable and prudent costs in the rate base, only require that the end result for cost of service regulation be just and reasonable. The Utilities, therefore, maintain that the modifier "all" should be deleted from the definition for the cost of service regulation.

Finally, the Utilities question why the Commission is proposing to delete investor-owned utilities, including generation and distribution subsidiaries, from the list of entities that may qualify as electric utilities. The reason for this deletion is not explained, and the change could imply or be construed as an indication either that investor-owned utilities can no longer qualify as an electric utility, or that investor-owned utilities are subject to different "electric utility" In particular, we recommend adding a new, third sentence to section 50.75(a) stating, "The funding of decommissioning is an obligation of the owner or owners of facilities subject to this Part, and applicants for or holders of an operating license for a production or utilization facility that provide operating services for such facility and have no ownership interest therein are not subject to any decommissioning funding responsibilities under these regulations."

SHAW PITTMAN POTTS &TROWBRIDGE A PMTNf~IP INCUJDINC "'-Off55IONAl Cot\l'OI\AllONS Secretary of the Commission November 24, 1997 Page 6 criteria that are public utility districts, electric cooperatives, and other types of licensees.

Clearly, either inference would be inappropriate.

The Utilities support the Commission's proposed definition of electric utility in two particular aspects. First, the third sentence of the definition allowing a licensee to qualify as an electric utility with respect to those portions of its costs recoverable through rates, which we understand to be a provision allowing the NRC to decouple its review of decommissioning funding from other financial qualifications reviews, is very beneficial in concept. However, the provision also could be misconstrued as requiring review of the sufficiency of rate treatment.

For example, suppose a public utility commission only allowed a ten percent contingency in the decommissioning amount included in rates, as opposed to 25% often used by the industry and NRC. Moreover, the third sentence could be misconstrued as requiring further financial assurance(~ prepayment, surety, or guarantee) for this unfunded contingency. Such an approach could rapidly escalate into complex proceedings and second-guessing of state ratemaking decisions. To avoid this misinterpretation, the NRC should revise the third sentence so that it avoids referring to "portions" of costs and instead states, "An entity whose rates are established by a regulatory authority by mechanisms that cover only decommissioning costs will be considered to be an 'electric utility' with respect to its decommissioning funding responsibilities."

The Utilities also support as a prudent concept the provision in the proposed definition allowing qualification as an electric utility based on non-bypassable charges. The Utilities do believe, however, that the definition of non-bypassable charges should be expanded to cover those instances in which state public service commissions or other agencies establish mechanisms for recovery of such costs in lieu of assessing them as "charges." For example, a decommissioning liability might be covered by so-called state "securitization" legislation, assumed by the state, or recovered through a tax.

For the foregoing reasons, the Utilities submit that the proposed definitions of electric utility, cost of service regulation and non-bypassable changes in 10 C.F.R. § 50.2 should be revised as set forth below :

Electric utility means any entity that generates, transmits, or distributes electricity and which recovers the cost of this electricity, either directly or indirectly, through rates established by a regulatory authority. Rates must be established by a regulatory authority either directly through traditional cost of service regulation or indirectly through another non-bypassable charge

,-- SHAW PITTMAN POTTS&TR.OWBRIDCE A PARTNERSH IP IN CLUDING PRO FESSIO NAL CORPORATIONS Secretary of the Commission November 24, 1997 Page 7 mechanism. An entity whose rates are established by a regulatory authority by mechanisms that cover only decommissioning costs will be considered to be an "electric utility" with respect to its decommissioning funding responsibilities. Investor-owned utilities, including generation or distribution subsidiaries, public utility districts, municipalities, rural electric cooperatives, and State and Federal agencies, including associations of any of the foregoing, that establish their own rates, are included within the meaning of "electric utility."

Cost of service regulation means the traditional system of rate regulation in which a rate regulatory authority allows an electric utility to charge its customers those reasonable and prudent costs of providing electricity services, including a return on the investment required to provide such services.

Non-bypassable charges means those charges imposed by a governmental authority which affected persons or entities are required to pay to cover costs associated with operation, maintenance, and decommissioning of a nuclear plant. Affected individuals and entities would be required to pay those charges over an established time period. Charges shall also include any other funding mechanisms imposed or established by a governmental authority to provide for payment of such costs.

IV. The Proposed Chanli!es to Section 50.75(e)(3) are Redundant and Confusinli!

The proposed rule inserts several new sentences in section 50.75(e)(3) (the provision establishing funding methods for electric utilities) repeating language from the proposed definition of electric utility. The first two sentences of this proposed provision should be deleted for several reasons. First, they are redundant and add nothing to the section; the term "electric utility" has already been defined and there is no need to repeat the definition. Second, they are particularly confusing in this context. They suggest that to qualify as an electric utility for purposes of decommissioning funding, a licensee's rates must be sufficient for the licensee "to operate, maintain, and decommission its plant safely." ~ 62 Fed. Reg. at 47,606. There is no reason why financial assurance for operations and maintenance should be mentioned in this section when the definition of electric utility allows the decommissioning inquiry to be decoupled from other aspects of financial qualifications. Moreover, like the troublesome

SHAW PITTMAN POTTS &TROWBRIDGE A PARTNERSH IP INCLUDING PRO F£SSIO NAL CORPORATIONS Secretary of the Commission November 24, 1997 Page 8 language in the definition (as discussed earlier in these comments), these sentences suggest that qualifying as an electric utility requires a factual "sufficiency" review of a state's ratemaking decisions -- a result that would inject unnecessary complexity and controversy into these rules.

V. The Financial Assurance Requirements for Non-Electric Utilities Are Not Sufficiently Flexible to Accommodate Dere11rnlation In promulgating a new definition for electric utility, the Commission stated in the proposed rulemaking that it is concerned that the financial assurance mechanisms available in 10 C.F.R. § 50.75(e)(2) may not be available to some licensees who do not qualify as electric utilities. This regulation limits non-electric utilities to providing decommissioning funding assurance through (i) prepayment, (ii) an external sinking fund coupled with a surety or similar third-party guarantee for the outstanding balance, or (iii) a parent or self guarantee. The Commission asked for additional comments on alternative methods of financial assurance, including accelerating funding, which might provide the desired financial assurance (62 Fed.

Reg. at 47,596).

The Utilities strongly support the idea of amending 10 C.F.R. § 50.75(e)(2) to allow non-electric utilities more flexibility in establishing alternative financial mechanisms to fund decommissioning of a nuclear facility. As stated at the beginning of our comments, it makes no sense to impose economic requirements on deregulated entities if those requirements cannot be met. Unreasonable or unrealistic economic requirements will simply increase the stress on deregulated entities, increase the possibility of premature shutdowns, and exacerbate the possibility of unfunded decommissioning liabilities. In sum, rather than promoting the public health and safety, unreasonable requirements may in fact diminish such protection. For these reasons, unless the NRC takes steps to require the continuation of ratepayer funding, it is imperative for deregulated entities to have available to them reasonable, flexible funding options.

For instance, 10 C.F.R. § 50.75(e)(2) should be amended to provide greater flexibility in the parent company guarantee or self guarantee provisions of Appendix A and Appendix C of 10 C.F.R. Part 30 respectively. Among other tests, Appendix A requires for a parent company guarantee that the parent have a net worth of at least six times the estimated cost of decommissioning. Appendix C requires, among other tests, that the licensee have a net worth of at least ten times the estimated decommissioning cost. Both of these amounts were originally developed for materials licensees and the Utilities submit that they are excessive for decommissioning funding by reactor licensees. Lowering the required amounts to one or two times the estimated decommissioning costs would be more than adequate.

SHAW PITTMAN POTIS&TR.OWBRIDGE A PMTNEllSHIP INCLUDING PROFES610NAl CORPOl'.ATIONS Secretary of the Commission November 24, 1997 Page9 Further, 10 C.F.R. § 50.75(e)(2) should be amended to allow a licensee to utilize parent or self guarantees in conjunction with other authorized financial assurance mechanisms under 10 C.F .R. § 50. 75(e)(2). The regulation currently precludes the use of a parent or a self-guarantee in combination with any of the other financial assurance mechanisms provided for by the regulation. It is, however, unreasonable, particularly in the era of the competitive marketplace, to prohibit a licensee from combining the different authorized financial assurance mechanisms into the most economical package in order to provide the reasonable assurance of decommissioning funding required by the NRC regulations. Nor does it make sense to allow a licensee to provide a guarantee for the entire decommissioning liability but not for a lesser amount when a portion has already been accumulated in trust.

A modest acceleration of decommissioning fund payments into an external sinking fund is also an approach that could be reasonable, provided the period of time is not too short.

However, too great an acceleration (and in particular, prepayment) could adversely impact the non-electric utilities' competitiveness in the marketplace and force early closure of the affected nuclear facilities. The Utilities also suggest that the timeframe for the accelerated payments should not be based solely on an arbitrary number of years but should consider the remaining operating license life of the plant. For example, the accelerated funding might require accumulation of necessary funds either within ten years or within two-thirds of the remaining license term, which ever is greater. This approach would avoid prejudicing those non-electric utilities which have many years remaining on their operating licenses.

In addition to the above-suggested amendments to 10 C.F.R. § 50.75(e)(2), Utilities believe that the regulations should also be amended to allow other mechanisms to be developed by a governmental authority(~, states) or the licensees themselves and approved by the Commission once reasonable assurance of decommissioning funding has been established.

VI. Rate of Return on External Sinkini Funds The Commission has proposed that a two percent (2%) annual real rate of return be allowed to licensees on external sinking funds from the time of the funds' collection through the decommissioning period. The Utilities respectfully submit that this rate of return is inadequate and inconsistent with prior promulgations by the agency. In the Regulatory Analysis Guidelines of the Nuclear Regulatory Commission, NUREG/BR-0058, Revision 2 (December 20, 1995), the Commission adopted a real discount rate of 7% as recommended in the latest version of the Office of Management and Budget Circular A-94 (October 29, 1992). Moreover, in a prior version of its own regulatory analysis guidelines (SECY93-167, June 14, 1993), the Commission stated that a 7% discount rate should be used unless there are unique circumstances where the

SHAW PITTMAN POTIS&TROWBRIDCE

/\ PMTNERSHIP INO.UDINC PROFESSION/\LCOI\POMTIONS Secretary of the Commission November 24, 1997 Page 10 regulatory analysis considers consequences in excess of 100 years (and even where the analysis extends beyond 100 years, 3%, not 2%, should be used for present worth analysis). These promulgations provide evidence not only that a 2% real rate of return on the extended sinking funds is inadequate but also that a 7% annual real rate return is both reasonable and justifiable.

VII. Conclusion Utilities appreciate the opportunity to provide these comments on the proposed rule on financial assurance requirements for decommissioning funding. Utilities recognize the legitimate concerns arising as a result of electricity restructuring that the Commission seeks to address in this proposed rule. Utilities, however, caution the Commission to not promulgate a rule which is more stringent than necessary, especially when implementation of electricity restructuring is far from complete. Otherwise, the adverse effects could not only be detrimental to companies already in the industry but could also result in early nuclear plant closings. It would be unfortunate if the NRC's regulations had the effect of increasing unfunded decommissioning liability, but this could indeed be the result if unreasonable or unrealistic requirements force premature plant closures. Utilities respectfully submit that the suggested amendments provided herein would greatly assist the industry and still provide the Commission with the assurance that adequate funds will be available to decommission nuclear facilities .

Sincerely yours, SHAW, PITTMAN, POTTS & TROWBRIDGE S 18738-02 / DOCSOCI

[(ID Tennessee Valley Authority, 1101 Market Street, Chattanooga, Tennessee 37402-2801 November 24, 1997 DOCKET NUMBER PROPOSED RULE 50 Mr. John C. Hoyle, Secretary ( (p:;. Fl<t/-75~~)

U.S. Nuclear Regulatory Commission ATTN: Rulemakings and Adjudications Staff Washington, D.C. 20555-0001

Dear Mr. Hoyle:

NRC - REQUEST FOR COMMENTS ON PROPOSED RULEMAKING - FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISSIONING NUCLEAR POWER REACTORS TVA is pleased to provide comments on the subject rulemaking published at 62 Federal Register 47,588 (September 10, 1997).

As stated in the "

SUMMARY

" portion of the proposed rule, NRC is proposing to amend its regulations on financial assurance requirements for the decommissioning of nuclear power plants in response to potential deregulation of the power generating industry. In general, the proposed rule changes would require power reactor licensees to report periodically on the status of their decommissioning funds and on changes to their external trust agreements, and would also allow licensees to take credit for the earnings on decommissioning trust funds.

In regard to TVA in particular, the proposed rule would redefine the term "Federal licensee" in a manner that would foreclose TVA's ability to use statements of intent as a method by which to provide funding assurance for its future decommissioning activities.

NRC earlier published an Advance Notice of Proposed Rulemaking (ANPR) at 61 Federal Register 15,427 (April 8, 1996), in which it questioned, among other things, whether to continue to allow Federal Government electric utility licensees to use statements of intent to provide financial assurance for decommissioning. TVA responded by letter dated June 24, 1996, and explained why continuing the use of these statements of intent under current regulations was entirely appropriate and reasonable in TVA's case.

r<<JV '6 1997 Printed on recycled paper

U.S. NUCLEAR REGULATORY COMMISSION RULEMAKINGS & ADJUDICATIONS srAFF OFFICE OF THE SECRETARY OF THE COMMISSION Oocwnent Statlsb Postmark Date fa.ted °" 11p5/11 / pa/'"'ri~t! 11/:Jr,/:,1 Copies Received / I Add'I ~ Reprodu(?!d __,....,.. l/_ _ __

Sf)ecial DlstribUtion ~ ,*J., fe r.J.

G~ll&1glie,; 7>7>'7 1r1bi

Mr. John C. Hoyle Page 2 November 24, 1997 In regard to the overall changes contemplated under the proposed rule, TVA agrees with the comments of the Nuclear Energy Institute (NEI). TVA agrees that the term "qualified nuclear entityn as defined by NEI has greater relevance in the framework of providing financial assurance for decommissioning. Those entities, so defined, should be permitted to use the full range of methods to provide assurance of decommissioning funding consistent with the provisions of the Atomic Energy Act. This would include, for Federal Government licensees, the statement of intent.

In regard to the specific proposed rule change which would define "Federal licenseen in a manner that would preclude TVA's use of the statement of intent, we oppose such change and believe that there are ample reasons to support its continued use by TVA. The enclosure to this letter explains, first and foremost, that distinguishing TVA from other Federal licensees on the basis of their having the "full faith and creditn backing of the Federal Government is without merit.

Insofar as providing decommissioning funding assurance is concerned, the key fact is that Federal law requires TVA to adequately fund the conduct of TVA's power activities, and this includes operating, maintaining, and decommissioning its nuclear facilities. Well before NRC began to address the decommissioning responsibilities of nuclear licensees and insist upon some type of funding assurance, TVA was taking action to meet its responsibilities to ensure that funds would be available to decommission each of its nuclear units. We will continue to meet our decommissioning obligations.

Absolutely no public health or safety benefit would be gained by imposing separate regulatory requirements to oversee the manner in which TVA is meeting its statutory obligations to the citizens of the Tennessee Valley.

The enclosure to this letter also describes the actions that TVA has taken over the years to reinforce its commitment to ensure adequate funds for decommissioning. As we explained in our June 24, 1996, response to the ANPR, TVA's most recent establishment of external trusts provide additional confidence that TVA's decommissioning funds will continue to grow to meet future needs. Finally, the enclosure to this letter describes the most recent actions TVA has taken to ensure that it will remain a competitive force, and fully able to meet its decommissioning obligations in the upcoming deregulated electric utility environment.

Mr. John C. Hoyle Page 3 November 24, 1997 TVA also recognizes NRC's interests in being kept informed about the status of TVA's decommissioning funds. Accordingly, we would agree to inform NRC about the status of our decommissioning funds in the same frequency as that described in the proposed rule.

For these reasons, as they are explained in greater detail in the enclosure, we believe that no worthwhile purpose would be served by changing the decommissioning funding requirements as they presently apply to TVA. Accordingly, we recommend that NRC not adopt the definition of "Federal licensee" described in the subject proposed rulemaking.

We appreciate the opportunity to respond to the subject proposed rule.

-mcJ:.g ~17fl:J~

Mark J. Burzynski Manage Nuclear Licensing Enclosure cc (Enclosure):

Mr. R. W. Hernan, Senior Project Manager U.S. Nuclear Regulatory Commission One White Flint, North 11555 Rockville Pike Rockville, Maryland 20852-2739 Mr. R. E. Martin, Senior Project Manager U.S. Nuclear Regulatory Commission One White Flint, North 11555 Rockville Pike Rockville, Maryland 20852-2739 NRC Senior Resident Inspector Browns Ferry Nuclear Plant 10833 Shaw Road Athens, Alabama 35611 cc: Continued on page 4

Mr. John C. Hoyle Page 4 November 24, 1997 cc (Enclosure):

NRC Resident Inspector Sequoyah Nuclear Plant 2600 Igou Ferry Road Soddy Daisy, Tennessee 37379 NRC Resident Inspector Watts Bar Nuclear Plant 1260 Nuclear Plant Road Spring City, Tennessee 37381 U.S. Nuclear Regulatory Commission Region II 61 Forsyth Street, SW, Suite 23T85 Atlanta Federal Center Atlanta, Georgia 30303 Mr. J. F. Williams, Project Manager U.S. Nuclear Regulatory Commission On White Flint, North 111555 Rockville Pike Rockville, Maryland 20852-2739 U.S. Nuclear Regulatory Commission ATTN: Document Control Desk Washington, D.C. 20555-0001

Enclosure TVA's Use of Statements of Intent Section D of the "SUPPLEMENTARY INFORMATION: Discussion of Comments" portion of NRC's proposed rulemaking entitled, "Federal Government Licensee Use of Statement of Intent,"

contains the discussion of Federal licensees ability to use statements of intent to provide financial assurance for decommissioning. This section specifically eliminates TVA's ability to use such statements. As justification for its position, NRC questions whether the Federal Government would pay the financial obligations of TVA should it be unable to do so. The assumption that the Federal Government would pay the financial obligations of TVA is cited as key to NRC's past decision to allow TVA to use the statement of intent.

As TVA has pointed out in the past, however, the question that NRC asks itself is misplaced. From NRC's perspective, the question should be whether there is reasonable assurance that the licensee, in this case, TVA, will have adequate funding to ensure the conduct of decommissioning activities.

The unqualified answer is yes, and the reason is because Federal law requires TVA to provide such funds.

Section 15d(f) of the Tennessee Valley Authority Act of 1933, 16 U.S.C. §§ 831-83ldd (1994), mandates that TVA charge rates for power which will produce gross revenues sufficient to cover, among other things, all operating expenditures of the power system. This section also allows TVA to charge such additional margin as may be considered desirable for any other power system purposes. TVA has also explained on several occasions* that the TVA Board is obligated by Federal law to set TVA's electric power rates in a manner that will produce sufficient revenues to meet all operating expenses, including those that will arise from decommissioning TVA's nuclear units. We have also made it clear that the TVA Act provides the TVA Board with the authority and unfettered ability to set TVA's electric power rates to meet power system obligations, including those associated with decommissioning. It is only if one assumes that TVA would act contrary to its clear, legal obligations and would also fail to exercise its legal authority to set

• As noted previously, TVA responded to this issue in our June 24, 1996, response to the Advance Notice of Proposed Rulemaking (ANPR). In addition, TVA has engaged in separate discussions with representatives from NRC's Office of Inspector General, the most recent discussion held in the TVA Nuclear offices in Chattanooga, Tennessee, on January 26, 1996.

E-2 appropriate power rates, could one justify the imposition of separate, duplicative legal requirements to oversee the collection of decommissioning funds. Nonetheless, NRC now proposes to institute a regulatory scheme which would oversee another Federal agency's exercise of its statutory duty. This constitutes unnecessary and duplicative government regulation.

TVA has also made it clear that it has long understood its responsibility to provide adequate decommissioning funds.

Beginning in 1977, TVA was one of the first electric utilities in the United States to collect and set aside funds for future decommissioning expenses. A separate, dedicated decommissioning fund was established in 1982. In its "Discussion of Comments" section of the proposed rule, NRC recognizes the existence of this fund, but notes that, "However, because this is an internal fund it can be used for other purposes. In fact, TVA had at one time temporarily depleted its decommissioning fund." On several occasions, however, TVA has provided NRC with a full explanation of the reasons for the sale of this fund. TVA explained that, at the time it maintained and administered this internal decommissioning fund, it did so in the same responsible, prudent manner as any skilled investment manager. With the dramatic drop in interest rates in 1993, the market value of the securities in this fund became significantly higher than their book value, and they were sold to capture this gain in value. At that time, the TVA Board put in place a plan to reinvest the proceeds of that sale over the subsequent three years. In 1994 and 1995, TVA reinvested $150 million and $100 million, respectively; and in 1996, the TVA Board approved the contribution of an additional $123 million to this internal fund. To make the unqualified statement that TVA sold its decommissioning fund without also providing this explanation in the proposed rule is incomplete and misleading. To refer to the sale of the fund as a means of implying irresponsible behavior on TVA's behalf is unfair and unwarranted.

As TVA also explained in its June 24, 1996, response to NRC's ANPR, last year TVA transferred all monies that had been contained in the internal decommissioning fund to external trust agreements established with three trustees.

These external trusts will ensure that TVA is in an even stronger position to meet its future decommissioning obligations for each of its licensed nuclear units.

Rather than relying on TVA's clear, statutory obligation to provide for decommissioning funding, and rather than taking into account TVA's long-standing collection of

E-3 decommissioning funds in accordance with the requirements of the law, NRC has proposed to define "Federal licensee" in a manner that would limit the use of statements of intent to only those Federal licensees having the "full faith and credit backing of the Federal Government." We agree with NRC that the risk is remote that a Federal licensee, so defined, would not be able to fund its decommissioning expenses. However, we are unable to see how the risk is any less remote that a Federal agency such as TVA, having the statutory obligation to sufficiently fund its operations, including its decommissioning obligations, and having historically done so, would not be able to fund its decommissioning expenses. Moreover, placing greater reliance on the future ability of a Federal licensee to obtain what will likely continue to be dwindling Congressional appropriations may not, necessarily, prove valid. This is especially so in TVA's case where an established, growing, dedicated decommissioning fund already exists, and TVA is legally required to maintain adequate decommissioning funding in the future.

TVA would also like to comment on the points raised by other commenters that Federal licensees should be treated in the same way as nonFederal licensees, that there are competitive advantages associated with use of statements of intent, that Federal licensees should be required to set aside funds rather than rely on statements of intent, and that NRC should regulate this area in a way that maintains a "level playing field." It is first worth mentioning that while it is NRC's responsibility to regulate licensees equitably in order to protect the health and safety of the public, it is not the responsibility of the NRC to regulate licensees in a manner that will "level the playing field" to account for any perceived economic or competitive advantage.

Furthermore, the fact of the matter is that both Federal law and the history of TVA's decommissioning funding activities make it clear that TVA has never stood back and merely relied upon statements of intent to cover its decommissioning obligations. As mentioned above, TVA has long collected funds to meet its decommissioning obligations, and it will continue to do so in the future.

As such, TVA agrees with NRC's statement that it does not believe that the elimination of the statement of intent option for a Federal licensee can be justified on a public health and safety basis. However, making TVA distinguishable from other Federal licensees from a "full faith and credit" standpoint in no way supports NRC's decision to disallow TVA's ability to use statements of intent. Rather, NRC should recognize that TVA's legal

E-4 obligations, and TVA's history of meeting those obligations, provides more than reasonable assurance that adequate decommissioning funds will be available and that TVA's continued use of statements of intent is appropriate.

As the NRC states in its "

SUMMARY

" portion of the proposed rule, the proposed changes are in response to the uncertainties raised by upcoming deregulation and the need to modify financial mechanisms regarding decommissioning funds. In our June 24, 1996, response to the ANPR, TVA explained how it was positioning itself to compete in a deregulated environment. Since the time of our response to the ANPR, TVA has taken a significant additional step to strengthen its competitive position. In 1997, TVA unveiled a ten-year business plan with the objective of achieving a 50 percent reduction in debt and setting a target of reducing the total cost of power by 15 percent by 2007.

These actions have been taken to ensure that TVA will continue to play a major role as a competitive electric utility in the upcoming deregulated environment. The implementation of the ten-year business plan began when the Board of Directors approved an electric rate increase effective October 1, 1997. This rate increase, the first in over a decade, will produce a 5.5 percent increase in firm power revenues. In accordance with Board directives, all revenue from the price increase will be used for debt reduction. The plan also calls for a continuation of building customer allegiance and satisfaction for a competing environment by developing opportunities for mutual support and partnership. The plan also recommends an offer to TVA distributor customers to change their power contracts after five years from a rolling ten-year term to a rolling five-year term. In total, we believe that implementation of this business plan will significantly further TVA's ability to meet the challenges of the coming restructured marketplace.

For all of the above reasons, TVA should continue to be able to rely on statements of intent as a means of providing NRC with assurance of adequate decommissioning funding. No public health and safety benefit would be served by extending NRC's regulations to oversee TVA's decommissioning funding obligations. However, TVA recognizes the benefit, and NRC's interest, in keeping informed about the status of TVA's decommissioning funds. Accordingly, it would agree to inform NRC about the status of its decommissioning funds in the same frequency as that described in the proposed rule, i.e., within nine months after the effective date of the final rule and once every two years thereafter.

NOV 25 '97 11:14AM BALCH & BINGHAM LLP P.2/3(!!)

AT1'0RNEYS ANO COUNSELO~S TENTH F'L.OOR DOCKETED 1275 F'E:NNSTLVANIA AVENUE, N,W, USNRC WASHINGTON, 0 . C. 20004

,AC:SIMl~f. 12021 ;347-8001 °97 NOV 25 A11 :37 November 24, 1997 Mr. John C. Hoyle Secretary of the Commission U.S. Nuclear Regulatory Commission Washington, DC 20S55-0001 ATTENTION: Rulemakings and Adjudications Staff Comments on Proposed Rule 11

Financial Requirements For Decommissioning Nuclear Power Reactors (62 Federal Reinster 47588 of September 10, 1997)

Dear Mr. Hoyle:

This letter constitutes comments by TVA Watch Coalition (TV A Watch). TVA Watch which consists of the following companies, American Electric Power Services Cozp., Southern Company, SCANA Corporation, Duke Energy, Carolina Power and Light, Kentucky Utilities and Entergy, has reviewed I) the proposed rule regarding the financial requirements for decouunissioning nuclear power reactors published in the Federal Register on September 10, 1997, ii) the draft Regulatory Guide l 060, Financial Accounting Standards Board (FASB)

Standards for Decommissioning Cost Accounting, and iii) the draft comments of the Nuclear Energy Institute (NEI) and the Edison Electric Institute (EEI). TVA Watch supports the comments ofNEI and EEi to be filed with the Nuclear Regulatory Commission today.

In addition, TVA Watch believes that the same decommissioning funding security required of investor-owned licensees should be required of public power agencies, Such agencies should meet the definition of "electric utility" only to the extent that the rates they establish provide security for the payment of decommissioning costs equivalent to that required of investor-owned licensees. The definition of "electric utility" in the proposed rule does not appear to require that such agencies recover all of their costs in their rates, only that they set their own rates. In a competitive market, it does not follow that the authority of such agencies to set their own rates will, in and of itself, provide assurance of decommissioning funding.

Finally, although the intent of the definition of Federal Licensee as expressed in the response to comments is appropriate, the actual definition is ambiguous in that the term " full faith and credit backing" of the govemment is neither defined nor commonly used in other legislation relating to federal agencies. The intent of the definition of Federal Licensee is obviously to exclude from the definition any federal agency whose obligations do not constitute the r<<)V 26 19g,

'710 SIXTH A\IENUE N0~M 1901 SIXT .. AVE;NUE: N0RTM Z CE:XH.R A\IENUE 6!55 GALl,,ATIN STFIEE:T l;l75 PENNSYLVANIA A\IENUE . N.\1/,

e,AMINGHAM, *~BAMA 35203 BIC!MIMGHAM. ALABAMA 35203 M0NTG0lofEFl'I'. ALAl3AMA 3610-4 MUNT$VILLE:, ALABAMA 35801 WA$MINGTON. D. e . ZOOO*

C:!0$1 :es*-e.100 l'i!0':11 i:$1-8100 (;3341 834*6500 <,0,:5) 551-0171 <ZO~) 347,6000

U.S. NUCLEAR REGULATORY COMMISSION RULEMAKINGS & ADJUDICATIONS STAFF OFFICE OF THE SECRETARY OF THE COMMISSION Document Statlstlcl Postmark Date 'Fa,:eJ en ,

Copies Received _ _ _ _

,/~0/t:1'1 Add'I Copies Reproduced ___ 1/-_______

Sf)ecial Distribution 0: chf~r.

GfA.t4?,b~r, ',- ~ ti>$.

NOV 25 '97 11:15AM BALCH & BINGHAM LLP obligations of the United States and, therefore, are not supported by the full faith and credit of the United States. Therefore, the definition should be modified as follows: "Federal Licensee means any NRC licensee, the obligations of which are guaranteed by and supported by the full faith and credit of the United States Government" Should you have any questions, please advise.

Respectfully submitted.

~~/~vs Karl R. Moor KRM/ck cc: Members of TV A Watch

@)

TNI/A: THREE MILE ISLAND ALER~ INS.

315 Peffer St., Harrisburg, Penna. 17102 DO ETt lt~3-7897 "97 NOV 25 A9 :27 TABLE OF CONTENTS I. INTRODUCTION . . . . . . . . . . . . . . . . . . . 1 II. STATEMENT OF THE ISSUES ................... 3 A. Cost Estimates for Radiological Decommissioning . . . . . . . 3 B. Planned Operating Life for Susquehanna . . . . . . . . . . . . 11 C. Generic Challenges . . . . . . . . . . . . . . . . . . . . . . . . . 14 D. Spent Fuel Disposal . . . . . . . . . . . . . . . . . . . . . . . . 16 E. Low Level Radioactive Waste Disposal . . . . . . . . . . . . . 19 Ill. STATEMENT OF FACTS AND LAW . . . . . . . . . . . . . . . . . . 22 IV. ARGUMENT ............................. 28 V. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 klcnowfedged by card r<<,v ' 6 19'7

U.S. NUCLEAR REGULATORY COMMISSION RULEMAIONGS & ADJUDICATIONS STAFF OFFlCEOFTHESECRETARY OF THE COMMISSION Doctlnent Statistics Postmark Date II /tq/q1 C,opies Received _ _ _/_ _ __

Add'I Copies Reproduced ~ -:--:--,.----

Sp.e._cial istrit)ution---=~.ll£Ll.~~ - -

e:,;~ l A h er'

TM/A: THREE MILE ISLAND ALERT, INC.

315 Peffer St., Harrisburg, Penna. 17102 (717) 233-7897 BEFORE THE NUCLEAR REGULATORY COMMISSION NUCLEAR REGULATORY  : 10 CFR 50.2, 50.75, & 50.82 COMMISSION  : Proposed Rule Making Amendments

RIN 3150-AF41 THREE MILE ISLAND ALERT COMMENTS on FINANCIAL ASSURANCE REQUIREMENTS for DECOMMISSIONING NUCLEAR POWER REACTORS I. INTRODUCTION Three Mile Island Alert (TMIA) has been actively involved with issues pertaining to nuclear decommissioning since the March 1979 accident at Three Mile Island (TMI)

Unit-2. Specifically, who should pay for the cost of nuclear decommissioning and radioactive waste management. Three Mile Island Alert does not dispute the nuclear industry's contention, as evidenced in the Annual Reports 1996 of Pennsylvania nuclear utilities (1) , that radiological decommissioning and radioactive waste isolation expenses are subject to change and likely to increase. However, the fact of this matter is that the management, together with the shareholders of nuclear utilities, aggressively pursued he licensing, construction and operation of nuclear generating 1 Duquesne Light Company (DLC); General Public Utilities (GPU); Pennsylvania Power Company (PPC): Pennsylvania Power & Light Resources, Inc. (PPL);

Philadelphia Electric Company Energy (PECO). Also, the Allegheny Electric Cooperative's (AEC) 10% stake in the Susquehanna Electric Steam Station (SESS).

stations fully cognizant that no commercial nuclear reactor had been decommissioned and that a solution to nuclear waste disposal did not exist. Furthermore, the industry has not actively sought a solution to the permanent storage and isolation of low-level and high-level radioactive waste. The industry has thus willfully pursued a financial investment in nuclear energy which was knowingly fraught with huge uncertainties.

Therefore, it is grossly unfair and inequitable to request the rate payers to provide a financial safety net for the utilities' risky nuclear investment strategy. TMIA argues that rate payer equity and corporate accountability necessitates that a substantial portion (See Proposed Formula on Decommissioning, p.29) of what is being referred to as "stranded costs," (2) relating to nuclear decommissioning and nuclear waste disposal, should be borne by the entities that are traditionally held responsible for imprudent and unreasonable management decisions -- the electric industry shareholder.

2 PECO Energy stated: This legislation [Pennsylvania] provides the possibility of, but does not assure, full recovery of uneconomic or stranded costs." Report to Shareholders: Third Quarter 1996, J.F. Paquette, Chairman of the Board, December, 1996.

For the purpose of clarity, "stranded costs" are "uneconomical" costs that utilities would not recover in a competitive market place.

2

II. STATEMENT OF THE ISSUES A. Cost Estimates for Radiological Decommissioning The wild fluctuation in the cost estimates for radiological decommissioning are based, in large part, upon the lack of any prior decommissioning activity in nuclear plants. The largest commercial nuclear power plant to be decommissioned, Shippingport, a 72 megawatt (MWe) light-water breeder reactor is substantially smaller than the Beaver Valley-1& 2 (833 Net MWe; 836 Net MWe); Limerick (1,055 Net MWe at each unit); Peach Bottom-2&3 (1,065 Net MWe at each unit)

Susquehanna Electric Steam Station-1 & 2 (1,050 Net MWe for each unit); and Three Mile Island Unit-I (819 MWe) During Pennsylvania Power & Light's Base Rate Case (1995) (PA PUC v. PP&L, Docket No. R-00943271; R-00943271COO1, et seq.),

Company witness Thomas LaGuardia President of TLG (3) admitted that Shippingport was "almost like a pilot plant." (Transcript, page 2103, Lines 17-20) Shippingport was owned and operated by Duquesne Light Company under special agreement with the Department of Energy. The entire core was removed and replaced three times prior to decommissioning, and as noted by Company witness LaGuardia during cross examination, "[T]here were several cores at Shippingport starting out as a pressurized

- water reactor and later being converted to a light water reactor." (Page 2105, Lines 19-21 ). Furthermore, the reactor vessel was shipped to the Hanford Reservation (through an exclusive and unique agreement with the Department of Energy) thus depriving the industry of critical hands-on decommissioning experience. In fact, Shippingport was 3 TLG contracts with most commercial nuclear utilities in to provide funding targets for nuclear decommissioning and nuclear waste disposal.

3

dismantled and not decommissioned. The immense differences between Shippingport and commercial nuclear power plants currently operating; therefore, make any financial comparison between the two inadequate and baseless.

Several other nuclear reactors are being prepared for decommissioning but provide little meaningful decommissioning experience that could be used reliably to predict the decommissioning costs of large nuclear generating stations.

For instance, Yankee Rowe was cited during the 1995 PP&L Base Rate Case as a reliable predictor of the decommissioning cost estimates associated with a large commercial reactor. Yankee Rowe, however, is a small commercial plant (167 MWe) that had two unique advantages which make it an unlikely predictor of decommissioning costs at other nuclear plants: 1) Barnwell, the regional low-level radioactive waste disposal site, has increased its tipping fees; and, 2) The most significant component removal, steam generators, was completed without Nuclear Regulatory Commission (NRC) approval. The PP&L's witness, Thomas LaGuardia, admitted, "[t]hat's correct, at the time. They [Maine Yankee Atomic Power Company]

didn't have the decommissioning plan approved at that time." (PP&L Base Rate Case,

- Page 2095, Lines 17-18.) Moreover, this plant is only in the initial phase of decommissioning and costs have already mushroomed from $247 to $370 million from 1993 to 1995 primarily for spent fuel management costs. (PP&L witness, Thomas LaGuardia, confirmed the figures on page 1029, Lines 16-22.)

4

Shoreham, a large Boiling Water Reactor (809 MWe), was decommissioned after two full power days of operation or 1/7,300 of the "expected" operating life of Pennsylvania nuclear generating stations, thus making it; too, an unpredictable and unstable indicator of future decommissioning costs.

As of this filing, no commercial nuclear power plant has been decommissioned, decontaminated and returned to free-release. Nuclear decontamination and decommissioning technologies are in their infancy and several identifiable industrial trends are apparent when reviewing the Nuclear Regulatory Commission's treatment of prematurely shutdown reactors: 1) There is a reluctance to undertake, initiate or finance decommissioning research; 2) Prematurely shutdown reactors place an additional financial strain on the licensee; and, 3) These reactors have been retired for mechanical or economic reasons. [United States Nuclear Regulatory Commission, Advisory Panel for the Decontamination of Three Mile Island Unit-2, September 23, 1993.]

Pennsylvania Power & Light contracted with the nuclear industry's decommissioning consultant, TLG, to construct decommissioning cost estimates 4t based on work completed at Shippingport, Shoreham, Yankee Rowe and small, prototype reactors such as: BONUS (17 MWe) placed in ENTOMBMENT; Elk River (20 MWe) a reactor approximately 2% of Susquehanna's size which operated for five years; and, Pathfinder (60 MWe), which operated for 283 full power days (PP&L Base Rate Case, LaGuardia, Page 1044, Line 1) before being placed in SAFESTOR in 1989.) These estimates, made by LaGuardia, relied on: 1) The development of nonexistent technologies; 2) Anticipated projected cost of radioactive disposal; and, 3) 5

The assumption that costs for decommissioning small and short lived reactors can be accurately extrapolated to apply to large commercial reactors operating for forty years.

At the Susquehanna Steam Electric Station, projected costs for decommissioning have increased by 553% since 1981. In 1981, PP&L engineer Alvin Weinstein predicted that PP&L's share to decommission SESS would fall between

$135 and $191 million. By 1985, the cost estimate had climbed to $285 million, and by 1991 the cost in 1988 dollars for the "radioactive portion" of decommissioning was

$350 million. The Company then contracted out for a site-specific study which projected that the cost of immediate decommissioning [DECON] would be $725 million in 1993 dollars. The 1994 cost estimate remained steady at $724 million, but the market value of securities held and accrued in income in the trust funds declined, and thus the estimate reflected another increase in decommissioning costs. (PP&L Base Rate Case, Page, 1016, Lines 7-27 and Page 1017, Lines 1-24.)

Additionally , the impact of the review of the Financial Accounting Standards Board [FASB] (Security Exchange Commission) has yet to be configured into the decommissioning formula. "As a result, current electric utility industry accounting practices for decommissioning may change, including the possibility that the estimated cost for decommissioning could be recorded as a liability on a basis other than an accrual over the estimated life of the plant." ( Pennsylvania Power & Light Company, 1994 Annual Report ," Nuclear Decommissioning Cost, p.34.) According, to General Public Utilities: "The FASB is expected to release an Exposure Draft in early 1996, and a final statement is expected to be effective for fiscal years beginning after December 15, 1996." (General Public Utilities, 1995 Annual Report, p. 36.)

6

One of the most disturbing and bizarre aspects of the radiological decommissioning is the "Who's on first? What's on second relationship?" between majority and minority shareholders of nuclear power plants. For example, the Susquehanna Electric Steam Station is owned by PP&L (90%) and the Allegheny Electric Cooperative (10%). The Allegheny Electric Cooperative (AEC) AEC is scheduled to contribute 10% of the cost of decommissioning. Company consultant, TLG, estimated PP&L's decommissioning share to be $724 million for 90% of the total cost of decommissioning. Based on this calculation, AEC 's 10% share of $804 million should be $79 million. However, Allegheny is setting aside a figure based on 5% of the final decommissioning costs even though Laurence V. Bladen, Director of Finance and Administrative Services told Epstein that AEC is basing its decommissioning costs on data supplied by PP&L. (Telephone conversation, March 30, 1995.) "Allegheny's portion of the estimated cost of decommissioning SESS is approximately $37.8 million and is being accrued over the estimated useful life of the plant." (Allegheny Electric Cooperative 1994 Annual Report, The Power of Initiative: Seizing Opportunities on the Horizon. Decommissioning Trust Fund, Cost of Decommissioning Nuclear Plant, p.49.) The cost projections have not changed since the AEC's 1993 Annual Report (p.27). (See 1995 Annual Report: Beyond Electricity. p.29.)

Unfortunately, PP&L has adopted a distant and negligent attitude toward AEC's obligations. Mr. Ronald E. Hill, senior vice-president of Finance for PP&L was questioned by Mr. Epstein during the PP&L Base Rate Case (1995) on the relationship between AEC and PP&L, and he exhibited this distant and negligent attitude:

Q: Have you read Allegheny Electric Cooperative's annual report from last year by any chance?

Witness: I believe I glanced at it, but I can't recall specifics. (Page 448, Lines 15-22.)

7

Q: Can you tell me why they're [AEC] only putting aside $37.8 million?

Witness: Not specifically except they're probably using a different estimate than we used. (page 449, Lines 5-8.)

Q: Allegheny could be planning it [decommissioning] on entomb, they could be planning it on decon?

Witness: They could be basing they're estimate on the NRC required funding level, too. There are several different methodologies of coming up with the estimate to decommission plants.

Q: But it's possible that you could be putting aside money -- I believe, actually, your method is decon and their method is safe store.

Witness: I don't know what their method is. I don't believe it's safe store. (PP&L Base Rate Case, Page 450, Lines 11-25 and Page 451, Lines 1-12.)

Unfortunately, AEC does not know what method it is employing to calculate decommissioning costs either. On March 30, 1995, Mr. Epstein contacted Mr. Bladen of the Allegheny Electric Cooperative. Mr. Bladen informed Mr. Epstein that decommissioning costs were based on estimates supplied by PP&L. Bladen noted:

"It's not like we could decommission [Susquehanna] using a different method."

However, Mr. Bladen could not identify the decommissioning mode. Mr. Epstein called on May 12, 1995 and Mr. Bladen informed him that the method for decommissioning Susquehanna was "Greenfield." Mr. Epstein informed Mr. Bladen that Greenfield is not a decommissioning mode and Mr. Bladen responded, "I'll have to do some further checking." Mr. Epstein recontacted Mr. Bladen on June 5, 1995, at which time Mr.

Bladen replied, "I keep asking the engineers. I know its not ENTOMBMENT." Mr.

Bladen is charged with financial oversight of AEC, and although sincere and responsive, has absolutely no idea about the method and financial expectations associated with the decommissioning of Susquehanna.

8

The impact of this uncertainty between decommissioning partners is clear.

Since PP&L has no enforcement mechanism to compel Allegheny Electric to fund 10%

of the decommissioning costs for SESS, the question of financial responsibility looms large. Mr. Epstein queried the Company witness during PP&L Base Rate Case (1995),

Mr. Ronald Hill, about the relationship:

Q: But there is actually no coordination?

A: There is coordination, but they're under no obligation to accept our estimate and to fund in the same manner that we do. They are obligated to come up with their share of the money at the end.

Judge Christianson: Coordination but not control.

Witness: That's right your honor.

Q: Do you know what method right now they're anticipating Susquehanna will be decommissioned as?

A: No, I don't.

Q: So it's possible they may be envisioning the decommissioning of Susquehanna say, entomb, whereas right now you're envisioning it as decon?

Witness: They may be. (Page 450, Lines 11-25 and Page 451, Line 1-12.)

The Allegheny Electric Cooperative is owned and controlled by fourteen (14) distribution cooperatives. AEC is not regulated by the Public Utility Commission nor does the company have publicly traded stock. Therefore, there is no behavior modifying mechanism afforded to state regulators or shareholders to oversee AEC's contributions. If current trends continue unabated, AEC's expected decommissioning savings will be grossly inadequate and will therefore undermine PP&L's decommissioning plans for Susquehanna.

In addition, the Allegheny Electric Cooperative "generates approximately 64%

of the power it delivers to its members through operation of the Raystown Hydroelectric Project...and its 10% ownership of the Susquehanna Steam Electric Station ... "

(Allegheny Electric Cooperative, Annual Report 1995: Beyond Electricity.. p. 9.)

9

Any sudden and unexpected interruption in electric distribution, e.g., premature shutdown of Susquehanna, would further erode AEC's ability to make decommissioning contributions.

AEC's tenuous financial position in regard to inadequate decommissioning savings will place a greater fiscal burden on PP&L and, thereby; 1) Create further uncertainties about PP&L's ability to meet its financial commitments to decommission SESS; 2) Undermine TLG's net decommissioning estimates; and, 3) Dilute TLG's contingency factor.

- This case example is not unique among Pennsylvania electric utilities. Peach Bottom is owned by four companies, i.e. PECO (42.5%), Public Service Electric and Gas Company (42.5%), Atlantic City Electric Company (7.5%) and Delmarva Power and Light Company (7.5%). Regulatory oversight is dispersed among four state utility commissions and two federal authorities, i.e. Nuclear Regulatory Commission and the Federal Energy Regulatory Commission (FERC) . Yet there is no coordination in decommissioning planning among owners or regulatory agencies. If any one entity is unable to fund its portion of decommissioning, the entire process is in jeopardy. This fragile arrangement is replicated at majority of the nation's nuclear generating stations.

Additionally, Three Mile Island is carved up among three utilities operating in two states, i.e., Metropolitan Edison (50%), Jersey Central Power & Light {25%) and Pennsylvania Electric {25%). And in the case of TMl-2, decommissioning funding strategies vary from company to company. Met Ed is planning for SAFESTOR while Jersey Central Power & Light presumes DECON will be the mode of decommissioning. Further complicating the equation at TMl-2, is the fact that rate 10

payers were charged $700 million for a unit that was on-line for 90 days (1/120 of its expected operating life.) At the time of the March 1979 accident, TMl-2 had set no monies for decommissioning. Rate payers also contributed three times as much as General Public Utilities toward defueling the crippled reactor, i.e., $246 million to $82 million (GPU Nuclear, Press Release, January 10, 1985).

The cost estimates for non-radiological decommissioning, (an imprecise term),

are not mandated by the NRC although the agency stipulates that all nuclear power plants be returned to Greenfield, i.e. the original environmental status of the facilities prior to construction of the nuclear power plant. The fact that Greenfield has not been

- achieved by any large commercial nuclear plant and utilities are not required to save for this phase, places additional strain on the companies ability to finance radiological and non-radiological decommissioning.

B. Planned Operating Life for Nuclear Generating Stations Experience at large commercial nuclear power plants over 200 MWe has clearly demonstrated that TLG's assumption, which is shared by the nuclear industry, that nuclear units will operate for 40 years is a cruel fantasy that will penalize hostage

- rate payers. In fact, PP&L's counsel, Mr. David MacGregor conceded during the 1995 Base Rate proceedings, "He [Thomas LaGuardia] knows nothing about the operations of the Susquehanna plant." (PP&L Base Rate Case, Page 455, Lines 22-25 and Page 456 Line 1). The Company's witness, Thomas LaGuardia, was asked by Mr. Epstein:

"[H]ow many commercial nuclear power plants in this country have completed their full operating lives?" Mr. LaGuardia replied: "[N]one, essentially." (PP&L Base Rate Case, Page 1023, Lines 20-22.) Additionally, George T. Jones, Vice-President of Nuclear Engineering, was asked by Mr. Epstein:

11

Q: "In your experience, which is rather extensive at TVA, Energy and CE, can you at least let me know what is the longest life of a plant you've been associated with?"

Mr. Jones: "I've never been associated with one that -- none of them have ever reached the end of their licensed life.

There has been a lot of work done and continues to be done on life extension, not by us but by the industry. I don't know." (Page 2272, Lines 8-16.)

Even Mr. MacGregor wavered on Susquehanna's ability to operate for its full-life. Mr.

Epstein asked him: "But his [LaGuardia] methodology is based on the fact the plant will operate for 40 years; is that not correct." Mr. MacGregor answered, "I'm not sure that's true." (Page 456, Lines 15-18.)

Mr. LaGuardia's and Mr. Jones's acknowledgments are confirmed by empirical data. The following reactors have been shut down prematurely: Shoreham, 809 MWe, operated for two full-power days (which is .000136986% of the estimated life of Pennsylvania nuclear units) and closed before it could begin commercial operation in May 1989; Trojan, 1095 MWe which operated for 40% of its operating life (May 1976 to November 1992); Three Mile lsland-2, 792 MWe which operated for 1/120 of its operating life (December 1978 to March 1979), Dresden, 200 MWe which operated for 45% of its operating life (July 1960 to October 1978); Indian Point-1, 257 MWe which operated for 30% of its operating life (January 1963 to October 1974); San Onofre-1, 436 MWe which operated for 35% of its expected life (from January 1968 to November 1992); and, Fort Saint Vrain, 330 MWe which operated for 27.5% of its expected life (January 1979 to to August 1989). [World List of Nuclear Power Plants:

Operable, Under Construction. or on Order (30 MWe and Over) as of December 31.

19.9.4, "Nuclear News," March, 1995, pp. 38-42.]

12

On December 4, 1996, Haddam Neck, a 582 MWe Pressurized Water Reactor operated by Connecticut Yankee Atomic Power Company, closed prematurely in the hope of saving rate payers $100 million ("Nuclear Monitor", p.4, December 1996.) The plant came on-line in January 1968 and operated for 72.5% of its predicted life.

A sense of fiduciary accountability and fair play dictate that utilities plan for decommissioning based on the assumption that their nuclear units will be prematurely shut down. The chief indicators that the nuclear industry relies on to measure plant longevity are spurious and imprecise. There is no clear nexus between operating capacity (measure of electricity actually produced compared to what would have been generated if the plant had operated continuously at full power) and plant longevity. As previously noted, operating capacity and historical evidence from commercial nuclear power plants give no indication that nuclear generating stations will operate for 40 years. On the contrary, empirical data has resoundingly demonstrated that nuclear power plants have not operated for the term of their license. [See infra II-A Discussion.]

Obviously, there is chronic shortfall between targeted" funding levels and actual costs for nuclear decommissioning. The burden of proof rests squarely on the shoulders of the nuclear utilities to demonstrate that a 40 year operating life, which they predicate

- their financial planning upon, is realistic. Furthermore, the nuclear industry has exasperated this problem by resolutely refusing to put aside adequate funds for nuclear decontamination and decommissioning.

13

C. Generic Challenges Commercial Nuclear power plants in the United States are predominately boiling water reactors {BWR) or pressurized water reactors {PWR) supplied by General Electric, Westinghouse, Combustion Engineering or Babcock & Wilcox. Historically, each vendor has encountered generic challenges at the reactors they construct.

The most serious potential generic issues that face BWR's are vessel shroud cracks and containment vessel integrity.

Vessel shroud cracks are a serious problem which were first identified at

- Carolina Power & Light's Brunswick-2 in 1991 {767 MWe; began operation in March 1977) and Brunswick-2 {754 MWe; began operation November 1975) in September 1993. The cracks at this facility were attributable to stress corrosion and irradiation.

Both are signs of premature aging. Cracks have also been identified at the following General Electric Boiling Water Reactors: Dresden-3 {794 MWe which came on line in November 1971) and Quad Cities-1 {789 MWe which came on line February 1973). In addition, on June 30, 1994, PECO Energy Company reported vessel shroud cracking in Unit-3 {1034 MWe; began operation in December 1974). [World List of Nuclear Power Plants, see supra].

The BWR Vessel and Internals Project owners group has announced "cracking of the core shroud is a warning that additional safety-class reactor internals are increasingly more susceptible to the same age related deterioration." ["Nuclear Monitor," November 21, 1994, pp.1-2.] As Boiling Water Reactors age, they become more vulnerable to age-related problems such as vessel shroud cracks, which have 14

begun to appear at General Electric Boiling Water Reactors. Stan Maingi of the Pennsylvania Department of Environmental Resources told Mr. Epstein on June 9, 1995: "That's an issue that can shut them [BWR's] all down. They formed BWR Vessel and Internals Project."

PP&L settled out of court with General Electric (GE) in March 1992 for $55 million for problems relating to generic flaws in the Mark I containment structure.

(PP&L Base Rate Case, Page 1038, Line 23-25 and Page 1039, Lines 1-18.) "Certain designs have prompted the NRC and others to raise questions about potential safety problems. These include General Electric's Mark I containment shell and the Babcock

&Wilcox designed reactors." (See "The Wall Street Journal," Wednesday March 18, 1987, p.63.)

The nuclear industry has yet to resolve generic challenges caused by the faulty fire barrier, Thermo-Lag. The NRC declared this faulty fire retardant "inoperable" in 1992.Yet Pennsylvania's nuclear plants continue to endanger citizens to replace Thermo-Lag. For example, PP&L deployed over 15,000' (linear) of Thermo-Lag in Susquehanna (Robert G. Byram, Letter to the US NRC, Document Control Desk,

- December 22, 1994) and conducted tests that demonstrated that the material would not comply with regulations as admitted by Mr. Gorge Jones during surrebuttal cross examination on May 26, 1995 (PP&L Base Rate Case, Page 2276, Lines 1-10.) In addition, Robert G. Byram, senior Vice President-Nuclear for PP&L acknowledged in a letter to the NRC that the performance record of Thermo-Lag "has led us to the conclusion that Thermo-Lag elimination through reanalysis is the only realistic approach to resolving this issue.(Robert G. Byram, see supra.)

15

Kent Walker, Chairman, OIG Thermal Sciences Inc. Task Force, NRC stated:

During OIG inspection team reviews with Pennsylvania Power & Light Company (PP&L) fire protection engineers on January 29 & 30, 1992, regrading the Thermo-Lag 330-1 installed at Unit-1 at Susquehanna, George Mulley and Harold Fossett learned that PP&L is using a failed test to qualify test to qualify O percent of the Thermo-Lag installed on cable trays in Unit-1 ... ln summary, based on the above information provided by the PP&L engineers, it appears possible that Susquehanna Unit-1 has been operating since 1982 with an unqualified Thermo-Lag fire barrier configuration which may not perform adequately.

(MEMORANDUM FOR: Frank J. Miraglia, Jr., Deputy Director, Office of Nuclear Reactor Regulation, February 3, 1992.)

Unfortunately, the nuclear industry has failed to respond properly to NRC initiatives. As a consequence, the Nuclear Energy Institute has assumed responsibility for interfacing with licensees on this issue. On October 1, 1996, the Nuclear Regulatory Commission fined Thermal Science, Inc. (TSI) $900,000 for "deliberately providing inaccurate or incomplete information to the NRC concerning TSl's fire endurance and ampacity testing programs." (James Lieberman, Director, NRC's Office of Enforcement, October 1, 1996.)

To date, the above mentioned generic issue remains unresolved.

D. Spent Fuel Disposal There is no location to permanently store spent fuel generated by nuclear power plants. This is a significant problem for Peach Bottom, Susquehanna and Three Mile Island where the fuel storage capacity will be exhausted before their license expires. Licenses' expire at Peach Bottom's 2-3 in 2013-2104; Susquehanna 1-2 in 2020; and, Three Mile lsland-1 in 2014. These facilities have become a high-level, 16

radioactive waste (HLW) disposal sites and are seeking to increase storage capacity through an untested commercial technology, i.e., dry cask storage.

Even if spent fuel storage is increased, the additional cost will have a significant impact on decommissioning. For example, at the Susquehanna Steam Electric Station cost was omitted from TLG's decommissioning estimate: "None of the estimates we have prepared include the cost of disposal of spent nuclear fuel," PP&L Base Rate Case, Page 1032, Lines 20-12). But spent fuel is the main contributing factor in the escalation of decommissioning costs at Yankee Rowe. Thomas LaGuardia, the Company's witness, admitted the increase during cross examination:

Mr. Epstein: "Are you aware that the cost has increased for the decommissioning of Yankee Rowe from $247 million to $370 million over the last two years?"

Witness: Yes. I'm aware of what the estimate concludes."

Mr. Epstein: "And half of the cost was attributable to spent fuel storage?"

Witness: "That's correct." (PP&L Base Rate case, Page 1029, Lines 16-22.)

Aggravating the critical shortage of HLW storage space is the bleak estimate for the completion of Yucca Mountain, the designated repository for high level nuclear waste. The earliest date this site could be available is 2010. Lynn M. Shishido-Topel, commissioner of the Illinois Commerce Commission testified on behalf of the

- National Association of Regulatory Commissioners before the House Subcommittee on Energy and Mining Resources and the House Committee on Oversight and Investigations (March 17, 1995.) She told the panel that she was "fairly certain that DOE would not meet its revised 201 O deadline to begin accepting spent fuel from commercial reactors." [Bureau of National Affairs (BNA), "Federal Facilities:

Industry, DOE Struggle to Find Acceptable Solution to Interim Storage of Spent Fuel, 17

Daily Environment Report News, March 18, 1994 [1994 DEN 52 d10] .) Shishido-Topel also predicted that the amount of spent fuel generated by 2000 will be 40,000 metric tons (MTU).

The State of Nevada has demonstrated that Yucca Mountain will probably hold about 20% of the total 85,000 MTU of spent fuel earmarked for the facility. (PP&L Base Rate Case, Page 2287, Lines 4 -19.) [State of Nevada, Nuclear Waste Project Office, Scientific and Technical Concerns, pp.8-11.]

Despite the overwhelming evidence that Yucca Mountain will not be operational

- by 2010, the NRC recently submitted a Revised Program Plan (10 CFR 960, 1996) which points to a "Viability Assessment" to make "a reliable appraisal of the prospects for geological disposal." This revised strategy will ask the President of the United States of America for a site recommendation authorization in 2002.

Isolation of high-level radioactive waste, which is primarily composed of spent nuclear fuel, can not be separated from nuclear decommissioning. At the earliest, Yucca Mountain will be available 2015. Nuclear generating stations can not be

- immediately decontaminated and decommissioned with the presence of spent fuel on-site or inside the reactor vessel. Aggressive and destructive decontamination clean-up processes will be unavailable until the spent fuel is removed the nuclear generating stations' temporary storage facilities. Additionally, front-end generic decommissioning tasks require skilled workers for site-specific tasks. Labor costs are erratic and should be linked to inflationary indices. Finally, the NRC and the nuclear industry devote scant resources to decommissioning research and development. This laissez-faire approach should not be rewarded by financially penalizing rate payers.

18

As noted earlier, certain generic challenges face every nuclear power plant

[See infra Discussion 11-C.] Spent fuel storage is no exception. Two consulting engineers for Pennsylvania Power & Light warned that flaws at Susquehanna and the other 37 BWRs (including Limerick 1-2 and Peach Bottom 2-3) could result in a loss of pool cooling water that shields the partially spent uranium fuel. Their concerns languished for almost a year; yet, both engineers assert that PP&L is the best utility they've ever worked for. These flaws already exist at Pilgrim and the Washington Nuclear Power-2 reactors. In fact, PP&L who originally played down the engineers report, agreed in June 1994 to modify both their spent fuel pools to make them less likely to boil. [Andrew Maykuth, The Dallas Morning Star, 4A, July 31, 1994.]

If a long term solution to spent-fuel isolation is not found in the next several years, Peach Bottom, Susquehanna and Three Mile Island nuclear generating stations in Pennsylvania will most likely be shut down prematurely due to a lack of storage space. (See E. Low-level Radioactive Waste Disposal for further discussion.)

E. Low Level Radioactive Waste Disposal

- Most nuclear generating stations currently serve as a temporary repository for low-level radioactive waste (LLRW). (The term is "low-level" is not analogous to low-risk.) PP&L's attitude of waste disposal mirrors that of that industry and government.

"Storage at the plant is an interim measure until a permanent, monitored above-ground [actually the facility is specified to be above grade] disposal site is ready in Pennsylvania. That facility, expected to open in 1999, will serve nuclear power plants, hospitals, medical research labs, universities and hundreds of industries that use 19

radioactive materials." (PP&L, "Inside Susquehanna," Special Office of the President, p.2)

TLG provides nuclear waste storage and nuclear decommissioning costs estimates for all Pennsylvania utilities regulated by the Public Utility Commission.

However, TLG's recent testimony during the PP&L base rate case discredits their projections. Mr. La Guardia based his cost estimates for low-level radioactive waste disposal on the assumption that the Appalachian Compact would be available when the SESS closes (PP&L Base Rate Case, Page 1034, 17-20). He concluded that the disposal of LLRW is the most expensive component in the decommissioning formula (Page 2091, Lines 21-25.) Furthermore, Mr. LaGuardia conceded it may be necessary to recomputate cost estimates for disposal because it now appears imminent that Barnwell will open for seven to ten years for all states except North Carolina (Page 2108, Lines 4-9.)

In addition to recomputing the cost of LLRW disposal downwards, the reopening of Barnwell could further postpone the siting of a regional waste facility in Pennsylvania. Marc Tenan, Appalachian Sates LLRW Commission executive director

- observed: "If Barnwell's going to open to the entire country for at least the next 1O years, is there really a pressing need to continue work on regional disposal facilities?"

("ACURIE Newsletter, About Low-Level Radioactive Waste Management," May 1995, p.1.)

20

TLG's decommissioning estimates from a dose assessment concentrated on the half-life of the radionuclides cobalt-60 and cesium-137. The timing of decommissioning is based to a large degree on the period in which the above mentioned isotopes decay and present an amenable workplace. However, Mr.

LaGuardia stated his unfamiliarity with the term hazardous life during the 1995 PP&L Base Rate Case:

Witness: The half-life is the period of time a radionuclide takes to decay to half the radioactive level that occurred during that period. The hazardous life generally is referred to chemical hazardous materials which don't go by the same definition. I'm not familiar with that term with respect to radionuclides of concern." (PP&L Base Rate Case, Page 2118, Lines 1-6.)

This is a glaring and costly omission. The hazardous life is ten to twenty half lives.Therefore, the hazardous life of cobalt-60, (mostly a gamma medical source) is at least 52.7 years and cesium-137, (fission product) is at least 301 years. (Projected hazardous life is based on half life values in the CRC Handbook of Chemistry and Physics. 1988). Moreover, as Mr. LaGuardia attested (Page 2100, Line 24), there are conflicting radiation clean-up standards for soil, water and surface as defined by the Environmental Protection Agency and the Nuclear Regulatory Commission and each agency has conflicting cleanup standards for site restoration. (PP&L Base Rate Case, Witness, LaGuardia, Page 2099, Lines 20-25 and page 2100, Lines 1-18.)

(For further discussion see FR 52061, October 23, 1981; 42 FR 60956, November 30, 1977; 40 CFR 192, 12, July, 1989 and US NRC, "Guidelines for Decontamination of Facilities and Equipment Prior to Release for Unrestricted Use of Termination of Licenses for Byproduct, Source, or Special Nuclear Material." Policy and Guidance Directive FC 83-23, Division of Industrial and Medical Nuclear Safety, Washington, DC, August, 1987.)

21

Ill. STATEMENT OF FACTS AND LAW A. Imposition of Nuclear Operating Costs onto Rate Payers United States jurisprudence has never recognized the right of utilities to recover imprudent, highly speculative utility expenditures. Bluefield Water Works &

Improvement Company v. Public Service Commission of the State of West Virginia, 262 U.S. 668, 678 (1923) (no "constitutional right to profits such as are realized or anticipated in highly profitable enterprises or speculative ventures"); State of Missouri ex rel. Southwestern Bell Telephone Company v. Public Service Commission of Missouri, 262 U.S. 276, 289 91923) (an "abuse of discretion ... by the corporate officers" disallows recovery for those expenditures). This emphasis, not on micro management of the corporate leadership of the utility, but on the preservation of the legitimate regulatory authority of the states, was magnified in Pike County Light and Power Company v. Pennsylvania Public Utility Commission, 465 A. 2d 735 (Pa.

Cmwlth, 1983), in which the Commonwealth Court of Pennsylvania stated that:

The electric utility's reliance on its parent company as a source of power represented an abuse of management discretion in consideration of available alternative supplies of electricity, thus requiring a reduction in its purchase power expense.

In the same case, the court stated that the "PUC has broad discretion in rate making matters" and that the actions of the utility were imprudent based upon the availability of lower cost power and the failure of the utility to pursue this alternative. Id. at 739.

22

This "prudent investment" approach was also explored in New Orleans Public Service, Inc. v. Council of the City of New Orleans, 491 U.S. 350 (1989), in which the State utility commission questioned the utility's actions in undertaking an investment in a nuclear generating station. The Supreme Court was asked by the utility to force the New Orleans City Council to grant the utility an increase in retail rates as determined by the FERC, after the District Court had refused to rule on the basis of the abstention doctrine. Id. at 355. The Council had refused to grant the retail rates, and stated that the utility's "oversight and review of its Grand Gulf obligation . . . was uncritical and severely deficient." Id. at 356 (citing App. 24)(citation omitted). The Council also stated that the utility "acted imprudently in failing to reduce the risk of its Grand Gulf commitment, in the wake of the Three Mile Island nuclear accident in March, 1979, 'by

[not) selling all or part of its share [in Grand Gulf] off station." Id. at 357. The Court declared that the abstention doctrine did not apply to the case, and reversed and remanded the case for further consideration to the District Court.

Other courts have also held that the imprudent activity of the utility in investing in nuclear generating capacity is a relevant factor to be taken into consideration when determining the amount of a rate increase request. In Pa. PUC et al. v. Metropolitan

- Edison Company, 141 P.U.R. 4th 321 (1993), the Commission was faced with a request from Met-Ed for a rate increase prompted by the TMl-2 accident and subsequent need for decommissioning. In its threshold inquiries, the Commission explored whether the decommissioning costs were a "necessary and reasonable cost of doing business." Id. at 328. In addition, the Commission sought to determine whether the actions following the TMI accident were "imprudent or improper." Id. The Commission then noted that "no challenge ha[d] been made to the overall reasonableness of decommissioning costs."

23

Given the uncertainty surrounding decommissioning, radioactive waste costs, unavailability of radioactive waste disposal facilities, and increased safety concerns surrounding nuclear plant operation, the pudency of the utility's decision to dedicate large amounts of capital to the nuclear venture are called into question.

The wild fluctuations of decommissioning costs based in large part upon the inability of the nuclear industry to maintain a nuclear generating plant for its full predicted operating life offered sound reasoning for a deviation in energy planning by corporate management. Reasonable and prudent utility decision-making demand more than a simple acknowledgement of an industry-wide change in the form of a rate hike request. As stated by the Court in Duquesne Light Co. v. Barasch, 488 U.S. 299 (1989), the proper scope of analysis for the Commission is whether the decisions at the time, were "reasonable and prudent."

As reflected by the Commissions and the courts in many of the above cases, an extensive prudence inquiry is undertaken by the Public Utilities Commission under Sections 515 and 1308(f) of the Public Utility Code whenever a utility requests rate recovery based in whole or in part on the cost of constructing an electric generating

- unit. The roots of this prudence inquiry were discussed by the Commission in Pa. PUC

v. Pa. Power Company, 85 PUA 4th 323 (1987), in which the Commission explained that a prudence review is demanded by the premise that "[l]t is the utility, not its rate payers, which selects the firms which work on a construction project. Therefore, the utility, not its rate payers, must bear the consequences of a firm's failure to perform adequately." Id. at 336. In addition, the Commission stated that rate recovery may be denied even if a utility has acted prudently on the basis of inadequate performance by 24

its agents, contractors, or subcontractors. Id. In the instant case, the decisions involving investment alternatives in the nuclear field were not made by the rate payers, but by the corporate management. A solid analogy can be drawn from the reasoning in Pa.

Power to the issue of "stranded costs" at nuclear power plants concerning the hands in which the decision making powers reside and the subsequent allocation of costs.

An extensive prudence review is necessary in rate increase request or "stranded investment" proceedings to determine whether corporate mismanagement has resulted in costs that are then unjustly transferred to the rate payers. In a forceful dissent filed by Commissioner Joseph Rhodes, Jr., to the decision of the Pennsylvania PUC in Pa. PUC v. Metropolitan Edison Company, 141 PUA 4th 321 (1993),

Commissioner Rhodes disagreed with the balance struck in the Majority opinion between costs borne by the shareholder and costs borne by the rate payer. In discussing the equity of the arrangement by which Met-Ed rate payers were forced to pay rates which included the costs of decommissioning TMl-2, Rhodes stated the relevance of this case to future nuclear plant decommissioning cases:

Premature retirements bear great similarities to TMl-2 because they involve liabilities for premature retirements and decommissioning.

Therefore, the policy set forth in determining who should pay for TMl-2's decommissioning grows in significance because it may well establish a precedent for additional early retirement cases that might involve substantial rate increases.

Rhodes characterized the equitable considerations in this case between the rate payers and the shareholders in a simple but direct question: "Is it fair to impose these costs on rate payers?"

25

In Re Wolf Creek Nuclear Generating Facility, 70 PUA 4th 475 (1985), the Kansas State Corporation Commission was confronted with the pudency of the construction of a nuclear generating plant. The Commission discussed risk assumption and risk sharing through a summary of the testimony of one of the intervener's witnesses, who testified to the proper role of regulation in the determination of rates. The witness, Dr. Sturgeon, explained that:

One of the goals of public utility regulation is to create the same results within the regulated industry as would occur in a competitive market. In a competitive market, if a firm does not use the efficient alternatives, it must either exit the market or receive a lower than normal return. Id. at 528.

Another witness, Mr. Drazen, argued that "Even without a showing of imprudence, shareholders should bear a portion of the cost of Wolf Creek since regulation is a surrogate for competition." Id. at 529 The Corporation Commission declared that the "risk-sharing" approach advocated by the witnesses had considerable merit. It continued to discuss the need for "clear, equitable, and strong risk-sharing policies to be established by regulatory commissions to be able to deal with the consequences of poor planning, even when no imprudence is demonstrated."

On the issue of decommissioning, the Commission stated that "Decommissioning cost estimates are inherently uncertain and speculative" and that

"(t]o date, there has been no actual experience decommissioning a large, commercial nuclear plant and cost estimates have been traditionally low." In addition, the Commission held that "The current shortage (indeed nonexistence) of the site for the disposal of large quantities of radioactive waste makes detailed estimates of shipping 26

distance and cost virtually impossible." Id. at 540-41. In the Wolf Creek rate case, Mr.

LaGuardia (also a Company witness in the 1995 PP&L Base Rate Case) failed to include inflation in his cost estimates and assumed a forty year operating life for the nuclear plant. Id. On the basis of this omission and the speculative predictions of operating life, the Commission chose a "midpoint" of LaGuardia's testimony.

The Commission also declared, "We believe that the NRC and general industry estimates of 30 years is a valid and realistic life to utilize for purposes of decommissioning estimates." Id. at 541.

Additionally, the Commission cited to NRC guidelines that suggested five criteria for evaluating alternative financing mechanisms for nuclear decommissioning .

One of the components of analysis in the discussion was titled "Intergenerational equity - that the cost of decommissioning be spread equitably to all rate payers throughout the life of the facility." Id. (See Discussion on p. 32.)

The concerns expressed in the various cases discussed by the Commissions vested with the responsibility of approving rate hike requests, and recovery of new 9 construction costs, are valid and applicable to the issue of imprudent "stranded costs."

An extensive prudence review of the costs incurred by nuclear utilities in the construction of nuclear generating stations and the subsequent decision by the owners and operators in their continuing operation is mandated by the speculative and imprudent nature of the corporate management. Duquesne Light Company, General Public Utilities, Pennsylvania Power & Light (and the Allegheny Electric Cooperative) and Philadelphia Electric Company, aggressively pursued nuclear 27

ventures at Beaver Valley, Three Mile Island, Susquehanna Steam Electric Station, Limerick and Peach Bottom with full and complete knowledge of the uncertainties that serve as the economic foundation of the nuclear industry. The present operating status of U.S. nuclear facilities bear out this premise: no commercial nuclear generating facility has completed its full operating life, due to safety and economic considerations, nor has a safe, permanent repository been found for the disposal of high-level and low-level radioactive waste. Clearly, the rate payer should not be made to bear the brunt of expenses incurred by premeditated imprudent and speculative management decisions. Once again, the admonishment of Commissioner Rhodes is pivotal: "[A]side from whether it is legal, is it fair to impose these costs on rate payers?"

IV. ARGUMENT Objective empirical data clearly demonstrate commercial nuclear power plants will not operate for their projected life of forty years. While the electric industry is entitled to recover a portion of decommissioning funding through the rate making process, the industry is not entitled to a full and complete rebate on "stranded investments." These companies must assume responsibility for its business decisions.

The industry aggressively sought to license, construct and operate a nuclear facility despite the fact that the riddle of how to resolve the "back-end" of nuclear power production, i.e. (nuclear waste disposal and decommissioning) had not been solved.

To allow nuclear utilities to recover 100% of decommissioning funding from the rate payer would be a de facto endorsement of corporate socialism. That is, shareholders profit from their investment decisions but are accorded rate relief when their imprudent and speculative decisions become uneconomical. Additionally, complete rate recovery 28

on speculative investments such as "stranded costs," penalizes electric utilities such I

as West Penn Power which pursued a non-nuclear electric portfolio.

TMIA encourages the adaptation of Batelle Pacific Northwest laboratories (PNL) 1993 generic decommissioning formula by the Nuclear Regulatory Commission in regard to "stranded cost" rate recovery for the decommissioning costs of nuclear generating stations. Allow full recovery for the Nuclear Regulatory Commission's official projections for the minimum cost to decommission Boiling Water Reactors. That figure is currently set at $131.8 million (1986 dollars) for DECON; SAFESTOR $128.3 million (ten years), $131.4 million (30 years) and $106.1 million (100 years). PNL estimates the minimal cost to decommission a Pressurized Water Reactor at $105 million. These figures are based on a 3,400 MWT or greater. For the purpose of the study, Batelle Pacific Northwest Laboratories, the contractor, used WNP-2 (Washington Nuclear Power Plant-2) (1112 MWe) (operated by the Washington Public Power Supply System) as a reference reactor. The inflation factor formula is: (0.75 L + 0.07 E + 0.18 B ) + TAXES/INSURANCE

- Where:

L = Labor & materials E = Energy & Transport, B= Waste burial.

This formula allows the costs to be indexed to any generic increases projected by the Commission. [Decommissioning Costs Reassessment: Briefing for the TMI-Advisory Panel, September 23, 1995, Dr. Carl Feldman.] Funding in excess of the NRC's 29

financial goals should be paid into an external, segregated sinking fund by the shareholders. However, should any individual nuclear unit shut down prematurely, the entire residue of decommissioning funding must necessarily be derived from shareholder contributions.

PNL's formula is sound and is periodically readjusted. Three Mile Island Alert encourages the study as a baseline counterweight to TLG's estimates. In fact, TLG examined the same reference reactor as PNL and the only significant cost differential was in relation to labor costs.

The issue of rate payer equity and mandated feasibility of shared costs was highlighted in PP&L's 1995 Base Rate request before the Pa. PUC. The Company went on record during the hearings as being disgruntled with the manner in which decommissioning costs are unfairly distributed among rate payers. Mr. Douglas A.

Krall, Manager-Integrated Resource Planning for PP&L is on record decrying the current decommissioning formula during the PP&L Base Rate Case:

Mr. Epstein: "That if the rate increase for decommissioning fossil fuel plants are delayed future customers would unnecessarily be at risk."

Mr. Krall: "Yes. There would be an exposure that a customer who came on the last day of operation of the plant would get very little service from the plant and end up paying the whole cost of decommissioning." (Page 1925, Lines 16-24.)

Mr. Epstein: "But you would not be adverse to assessing future customers who got no electrical benefit from a plant decommissioning costs?"

Mr. Krall: "It doesn't seem to me to be an equitable situation." (Page 1927, Lines 9-13.)

The nuclear industry has been pursuing a billing policy articulated by Luther J.

Carter:

30

These industry actors, for the most part, find themselves nicely insulated from the costs of waste management. The Price-Anderson Act, for example limits industry liability, and the nuclear waste policy act allows utilities to pass waste management costs through to rate payers. Thus nuclear waste management costs, like nuclear wastes, are a residue of the 1950s nuclear promotion policy. Moreover, a portion of nuclear wastes and their management costs is the result of improperly underpricing nuclear electricity and creating an over-investment in nuclear plants and equipment. As a result, more waste than optimum was created. Furthermore, waste management costs are to be absorbed by taxpayers and rate payers instead of the shareholders of the industry actors who put their externality-creating products on the market without fully accounting for social costs. [Luther J. Carter, "Jurimetrics Journal," Fall , 1988. 29 JURIM J 97.]

Unless a more equitable funding formula for decommissioning is established, rate payers who are not yet born will be burdened for payment for the cleanup of a plant that they derived no benefit from. Society as a whole, and the industry in specific, must assume responsibility for the decisions it makes. Creating and perpetuating intergenerational problems is not constructive ,prudent or equitable.

Future generations may be exposed to gross rate payer inequity if adequate decommissioning funding based on realistic estimates (and not "funding targets") are not assured. The solution should not simply be foisted on the backs of immediate hostage rate payers. The industry must assume financial responsibility for its decision

- to invest in nuclear power which necessarily means the shareholder should bear a substantial portion of decommissioning expenses. Clearly, a formula must be established that recognizes rate payer equity.

31

V. CONCLUSION In summation, Three Mile Island Alert invokes the comments of Peter Bradford, former Nuclear Regulatory Commission Member, former Chairman of the New York Public Service Commission and current member of the Vermont Department of Public Service.

There never was such a regulatory compact [to ensure recovery of prudent, though 'stranded' costs]. This statement may surprise anyone whose involvement in utility regulation predates 1985. Since that time, the breaching of the regulatory compact has been described and decried so often and so vociferously that a casual observer might easily believe that this compact was a lesser known outcome of the original Constitutional Convention.

The utility claim seems to be that they have an entitlement [for stranded costs] despite this history because the particular traumas of retail competition could not have been foreseen. As a factual matter, this claim is dubious. Furthermore, it mocks the notion of risk, which is by its nature not entireable foreseeable.

Utilities assert that they have the right to recovery extends to every dollar not disallowed as imprudent. However, regulators know how small a percentage of the total utility revenue stream is ever actually reviewed for prudence. In many states, utilities actively harass regulatory budgets and appointments in a manner hardly consistent with a statesmanlike compact. Even where such conduct is absent, the probability that regulators have actually disallowed every imprudent dollar is zero.

Strandable investment is the public's best leverage to an effectively competitive and an environmentally acceptable future. Regulators, legislators and others in public sector must not give it away until that future is well secured.

(Peter Bradford, Presentation before the Vermont Department of Public Service, July 16, 1996.)

32

~n , ; : :;:;-

Respectfully submitted, Eric J eph pste* , hairman Three ile Island lert 315 Peffer Street Harrisburg, PA 17102 NOVEMBER 20, 1997 Enclosure 33

TNIIA: THREE MILE ISLAND ALERT, INC.

315 Peffer St., Harrisburg, Penna. 17102 (717) 233-7897 HISTORY OF THREE MILE ISLAND ALERT Three Mile Island Alert (TMIA) is a non-profit citizens' organization formed in 1977 after the construction and licensing of Three Mile Island Unit-1 and after TMl-2 was constructed. TMIA is the largest and oldest safe-energy group in central Pennsylvania. TMIA has enjoyed widespread public and political support in its role as a watchdog of the Three Mile Island Nuclear Generating Station. In the spring of 1987, TMIA was recognized by the Pennsylvania House of Representatives for 10 years of community service. The House, along with the City of Harrisburg, formally applauded TMIA's efforts on behalf of the community at their 20th anniversary.

Since the March 1979 accident at TMl-2, TMIA has been actively involved with many Three Mile Island related issues including: active intervener before the Nuclear Regulatory Commission (NRC) in hearings involving safety, technical and managerial issues; monitoring and tracking chronic safety, technical and managerial problems at Unit-1 and Unit-2; tracking adverse health effects as a result of the TMl-2 accident and the normal operation of Unit-1 (since 1974); participating in two radiation monitoring networks; evaluating security problems at the Island; and, providing information, research and educational materials to the general public, media and elected officials.

TMIA also serves as regional clearinghouse on a broad spectrum of issues relating to nuclear power production including problems at Peach Bottom-2 and -3, Susquehanna-1 and -2 and the proposed siting, licensing and construction of a low-level radioactive waste dump in Pennsylvania.

TMIA's policy is generated by a seven member planning council which meets quarterly. TMIA meets regularly with the NRC and Pennsylvania Department of Environmental Resources to discuss issues and problems relating to TMl-1 and -2.

The organization has two part-time volunteers who staff the office. In addition, several individuals write, edit and mail TMIA's newsletter which is issued five to six times a year. All of TMIA's funding comes from membership dues, private contributions and fund raising events.

TMIA's office is open Monday through Friday from 10:00 am to 6:00 pm.

Weekend visits are available by appointment. The public and all interested parties are encouraged to stop by or contact the group by phone or mail.

SHAW PITTMAN POTTS &TROWBRIDGE DOCKETED

/\ PMTNEI\SHIP INCLUDING PII.OFESSION/\L COI\POMTIONS US RC 2300N Street, N.W.

Washington, D.C. 20037-1128 202.663.8000 Facsimile 202.663.8007 "97 NOV 25 A9 :26 G ER.ALO CHAR.NOFF, P.C.

202.663.8032 gerald_chamoff@shawpittman.com November 24, 1997 DOCKET Nl Q Secretary, Nuclear Regulatory Commission ( ~ t1. Fl< L/1!> BS Attn: Rulemakings and Adjudications Staff U.S. Nuclear Regulatory Commission Washington, D.C. 20555-0001 Re: Comments on Proposed Rule "Financial Assurance Requirements for Decommissioning Nuclear Power Reactors"

Dear Sir:

As provided for by Federal Register notice of September 10, 1997 (62 Fed.

Reg. 47,588), Great Bay Power Corporation ("Great Bay") is submitting these writ-ten comments on the Nuclear Regulatory Commission's ("NRC") proposed rule concerning "Financial Assurance Requirements for Decommissioning Nuclear Power Reactors." Among other things, the proposed rule would revise the NRC's regulatory definition of electric utility found in 10 C.F.R. § 50.2 with direct impli-cations for the decommissioning financial assurance requirements applicable to en-

• tities no longer considered to be electric utilities under the revised definition. Such entities would be required under the proposed rule to provide decommissioning funding assurance in accordance with the requirements for non-electric utilities set forth in 10 C.F.R. § 50.75(e)(2), which could in the extreme require, as a practical matter, up-front funding of the total expected decommissioning costs.

Great Bay would be directly affected by the proposed rule, if it were adopted as proposed. Great Bay has always believed and continues to believe that it is an electric utility under the NRC's current definition of electric utility, and, until re-cently, the NRC Staff had agreed. Under the proposed regulation, Great Bay and similarly situated electric utilities would now, for the first time, be required to comply with the decommissioning funding assurance requirements for non-electric utilities set forth in 10 C.F.R. § 50.75(e)(2), which the NRC itself recognizes are burdensome. Indeed, the NRC has expressly acknowledged that the financial assur-ance mechanisms set forth in 10 C.F.R. § 50.75(e)(2) through which non-electric utilities are required to demonstrate reasonable assurance of decommissioning Adcnowledged bJ en rt)'/ 2 , 1997

U.S. NUCLEAR REGULATORY COMMISSIC1N AULEMAKINGS &ADJUDICATIONS STAFF OFFICEOFTHESECRETARV OF THE COMMISSION DoCl8nent Sta1lsb P05'nark Data Hand ])e u*vered 11kf/q7 Ooples Received----------

Add't Copies Reproduc Sp . . .

SHAW PITTMAN POTTS &TROWBRIDGE A PARTNERSH IP INCLUDING PROFESSIONAL CORPORATIONS Secretary, Nuclear Regulatory Commission November 24, 1997 Page 2 funding may be unavailable. Great Bay has experienced first-hand the difficulty in attempting to obtain decommissioning funding assurance in accordance with the requirements of 10 C.F.R. § 50.75(e)(2) and, to date, it has been unable to do so.

This predicament, in which Great Bay and similarly situated currently li-censed electric utilities would find themselves as a result of the proposed rule, raises serious questions of both law and public policy. The application of 10 C.F.R. § 50.75(e)(2) to currently licensed entities, once considered but no longer viewed as electric utilities, could directly or indirectly result in the premature shutdown of nuclear plants and bring about the very result that the Commission seeks to avoid, i...e..., a nuclear power plant that is prematurely shut down with insufficient funds set aside to pay for its decommissioning. Such a result would be unsound as a matter of public policy. Moreover, for the Commission to require existing licensees to provide financial assurance through mechanisms it knows are unavailable, thereby causing premature plant shutdowns, would be arbitrary and capricious agency ac-tion under the Administrative Procedure Act.

Great Bay recognizes that the NRC has a legitimate public health and safety function in ensuring licensees continue to provide reasonable assurance of adequate decommissioning funding as the electric utility industry restructures. However, the Commission's rules should retain flexibility for the provision of such assurance and should not require immediate decommissioning funding up-front for currently licensed entities that would no longer qualify as an electric utility, which could, as a practical matter, be the result under the proposed rule. It is unfair to require up-front decommissioning funding for existing licensees, such as Great Bay, who have proceeded under the NRC-authorized presumption that they could set aside funds for decommissioning on an annual basis over the life of the plant. Moreover, there is the practical matter of whether existing licensees -- never having contemplated or planned for up-front funding -- could provide such funding. Thus, both as a matter of fairness and to avoid triggering the very result that the Commission seeks to avoid, as well as avoiding agency action that would be declared arbitrary and capri-cious, such entities should be allowed a reasonable extended period of time to pro-vide adequate assurance of decommissioning funding.

The Commission in the Statement of Considerations to the proposed rule expressly recognized the dilemma that would be faced by licensees no longer con-sidered to be electric utilities under the proposed rule and requested comments on

SHAW PITTMAN POTTS &TROWBRIDGE

/\ P/\RTNERSH IP INCLUDING PROFESSIONAL CORPORATIONS Secretary, Nuclear Regulatory Commission November 24, 1997 Page 3 allowing such entities to partially accelerate their payment of decommissioning funds into a sinking account instead of requiring a surety or a similar up-front guar-antee. Great Bay supports such an approach provided a sufficient period of time is allowed for the accelerated payment of decommissioning funds to the sinking ac-count. Further, the Commission should amend its decommissioning financial as-surance requirements for non-electric utilities to allow greater flexibility in the alternatives that could be used by such entities to provide financial assurance. For example, individual states may undertake initiatives not expressly contemplated by

• the NRC rules that ensure adequate decommissioning funding for nuclear power plants within their states. New Hampshire is currently considering such initiatives with respect to Seabrook. Any rule promulgated by the NRC should retain suffi-cient flexibility to allow such state initiatives or similar initiatives by individual li-censees to satisfy the NRC's financial assurance requirements for decommissioning funding. As the Commission has recognized, those requirements call for '"reason-able assurance of funds for decommissioning,' not an absolute guarantee of such funds."u Great Bay elaborates further on these points below. In Part I, Great Bay dis-cusses in greater detail why it believes that the proposed rule should not be adopted as presently crafted. In Part II, Great Bay discusses potential changes to the pro-posed rule which could both ameliorate its concerns while providing reasonable as-surance of adequate decommissioning funding.

I. The Commission Should Not Adopt The Proposed Rule As Drafted A. Regulatory And Factual Background The nuclear plants currently operating in the United States were financed and constructed by the electric utility industry. Although the NRC required elec-tric utilities to establish their financial qualifications to construct their plants, since the 1984 amendment of the financial qualifications rule, the NRC has presumed that entities falling within its regulatory definition of electric utility are financially qualified to operate and maintain their plants.

1L Yankee Atomic Electric Company (Yankee Nuclear Power Station), CLI-96-7, 43 N.R.C. 235, 262 (1996) (emphasis in original).

SHAW PITTMAN POTTS &TROWBRIDGE A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS Secretary, Nuclear Regulatory Commission November 24, 1997 Page 4 Further, until the promulgation of its decommissioning rules in 1988, the NRC did not require its licensees, whether considered to be electric utilities or not, to set aside monies for the decommissioning of their nuclear power plants. The ini-tial NRC financial qualification rules (prior to the adoption of the 1984 amend-ments) required applicants for an operating license, including electric utilities, to demonstrate:

reasonable assurance of obtaining the funds necessary to cover estimated operation costs for the period of the license, plus the estimated costs of permanently shutting the facility down and maintaining it in a safe condition.

10 C.F.R. § 50.33(~(2) (1980). In addition, 10 C.F.R. § 50.82 ("Applications for termination of licenses") provided that a licensee could submit an application "to surrender a license voluntarily and to dismantle the facility and dispose of its component parts." 10 C.F.R. § 50.82(a) (1980). The Commission could require information as to proposed procedures for the disposal of radioactive material, decontamination of the site, and other procedures, to provide reasonable assurance that the dismantling of the facility and disposal of the component parts ... will not be inimical to the common defense and security or to the health and safety of the public.

Id. Upon such a showing, the Commission could "issue an order authorizing such dismantling and disposal, and providing for the termination of the license upon completion." 10 C.F.R. § 50.82(b) (1980).

Thus, as acknowledged by the NRC in NUREG-0436, its regulations ad-dressed decommissioning "in only a limited way. "u In particular, its financial qualification provisions only addressed the "financial qualifications of prospective licensees," did not require licensees to set aside monies for decommissioning, and did not even "speak directly to final disposition of the facility, but only of shutting u NUREG-0436, Rev. 1, "Plan for Reevaluation of NRC Policy on Decommissioning of Nuclear Facilities" at 3 (Dec. 1978).

SHAW PITTMAN POTTS &TROWBRIDGE A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS Secretary, Nuclear Regulatory Commission November 24, 1997 Page 5 down and maintaining it in a safe condition. "1:". As reflected in NUREG 0584, the Commission assumed "in evaluating the financial qualifications of reactor licensees that if an applicant for a reactor operating license [were] financially qualified to construct or operate a nuclear facility, it [was] also qualified to shut [the facility]

down" and decommission it.1L In 1977, the Public Interest Research Group ("PIRG"), and others, requested the Commission to initiate rulemaking to promulgate regulations for nuclear

• power plant decommissioning. The petitioners sought the promulgation of regula-tions that would require licensees "to post bonds to be held in escrow, prior to each plant's operations, to ensure that funds [would] be available for proper and ade-quate isolation of radioactive material upon each plant's decommissioning. n.2L The petitioners argued that this arrangement would "ensure that the cost of decommis-sioning is paid for by current beneficiaries and not by future generations. n£L:

The Commission did not adopt the regulatory approach proposed by the pe-titioners. Rather, it promulgated regulations that allowed electric utilities to pro-vide financial assurance for decommissioning by setting aside funds on a periodic basis into external sinking funds dedicated to covering plant decommissioning costs.ZL In adopting this approach, the NRC expressly rejected the posting of surety bonds as sought by PIRG and others because the NRC found upon review that "surety bonds were not generally available in the amounts necessary for de-commissioning power reactors. "u The NRC's finding was based on inquiries to the ten largest bonding compa-nies on "whether surety bonds in the amount of $50 million for a term of 40 years 31 Id,_ at 4.

1L NUREG-0584, Rev. 3, "Assuring the Availability of Funds for Decommissioning Nuclear Facilities" at 2 (March 1983) (hereinafter NUREG-0584).

51 43 Fed. Reg. 10,370, 10,371 (1978) (Advance Notice of Proposed Rulemaking)

("Decommissioning Criteria for Nuclear Facilities").

!,L Id,_

ZL 53 Fed. Reg. 24,018 (1988) (Final rule) ("General Requirements for Decommissioning Nuclear Facilities"); see also 50 Fed. Reg. 5,600 (1985) (Proposed rule) ("Decommissioning Criteria for Nuclear Facilities").

u 53 Fed. Reg. at 24,034 (citing NUREG-0584).

SHAW PITTMAN POTTS &TR.OWBR.IDGE

/\ P/\RTNE"'5HIP INCLUDING PROFESSION/\LCORPOR/\TIO NS Secretary, Nuclear Regulatory Commission November 24, 1997 Page 6 would be available, and if so, what would be their cost. n2L The unanimous response of all the companies was that such "bonds would .Il.Qt be available in that large an amount for that long a term. "101 Accordingly, the NRC adopted rules which al-lowed its electric utility licensees to provide financial assurance for decommission-ing funding through external sinking funds, which to date has been the usual and accepted method for nuclear power plant licensees to provide decommissioning funding assurance. 10 C.F.R. § 50.75(e)(3).

The decommissioning regulations promulgated by the NRC in 1988 also in-cluded 10 C.F .R. § 50.75(e)(2) which requires non-electric utility licensees to pro-vide decommissioning funding assurance either through surety bonds or similar third party guarantees, or by prepayment, or by self or parent guarantees. Histori-cally, however, the NRC's reactor power licensees have been deemed to be electric utilities falling within the current definition set forth in 10 C.F.R. § 50.2. Indeed, the draft regulatory impact analysis accompanying the proposed rule states such is still the NRC's current belief as follows:

NRC believes that, at tllli ti.me., all power reactor licensees meet the current definition of electric utility.llL In this regard, as set forth in Great Bay's October 20, 1997 letter to Chairman Jackson, both Great Bay and its predecessor, EUA Power Corporation ("EUA Power"), were considered and treated as electric utilities for over a decade -- from 1986 to January 1997 -- even though the NRC was fully aware that both Great Bay

21. NUREG-0584 at 36-37 .

.l.QL Id. at 37 (emphasis in original).

11L "Regulatory Analysis on Decommissioning Financial Assurance Implementation Requirements for Nuclear Power Reactors," Draft Report for Comment at 44 (1997) (emphasis added)

(hereinafter "Draft Regulatory Impact Analysis"). Great Bay notes that this statement is inconsistent with the NRC's treatment of Great Bay beginning with the issuance of its January 22, 1997 exemption order and its subsequent exemption order of July 23, 1997. ~ Exemption Order, North Atlantic Energy Service Corporation and Great Bzy Power Corporation (Seabrook Station Unit No. 1), Docket No. 50-443 Gan. 22 1997) (hereinafter "January 22, 1997 Exemption Order");

Exemption Order, North Atlantic Energy Service Corporation and Great Bay Power Corporation (Seabrook Station Unit No. 1) Docket No. 50-443 Guly 23 1997) (hereinafter "July 23, 1997 Exemption Order").

SHAW PITTMAN POTTS &TROWBRIDGE A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS Secretary, Nuclear Regulatory Commission November 24, 1997 Page 7 and EUA Power sold power at wholesale at market based rates established under the jurisdiction of the Federal Energy Regulatory Commission ("FERC"). 121 Under the NRC's proposed rule, however, restructured entities such as Great Bay would no longer be electric utilities. Therefore, they would be faced with providing decommissioning assurance funding under 10 C.F.R. § 50.75(e)(2).

However, the only mechanism provided for in 10 C.F.R. § 50.75(e)(2) conceivably available to Great Bay and similarly situated licensees are surety bonds or similar third-party guarantees which the NRC correctly found were not reasonably avail-able alternatives in promulgating its existing decommissioning regulations.ill Indeed, the NRC acknowledges that surety type mechanisms under 10 C.F.R. § 50.75(e)(2) may not be available to licensees who would no longer be con-sidered electric utilities under the NRC's proposed rule. In Section 3.2.4 of the draft regulatory impact analysis -- which addresses the impacts of the proposed rule on licensees that "are no longer defined as 'electric utilities"' -- the NRC notes the difficulty entailed in obtaining a surety and other third party guarantees as follows:

There are likely to be limits on the availability of surety bonds and other third-party guarantee financial mechanisms, such as letters of credit and lines of credit, to nuclear reactor licensees that are required to obtain

.l1L Letter to Chairman Jackson of the NRC from Gerald Charnoff, counsel for Great Bay dated October 20, 1997 (hereinafter "October 20, 1997 Great Bay Letter"). Thus, until the NRC Staff's issuance of its January 22, 1997 Exemption Order with respect to Great Bay, the NRC Staff had never viewed one of its nuclear power plant licensees as falling outside the regulatory definition of electric utility and subject to the requirements of 10 C.F.R. § 50.75(e)(2). As set forth in Great Bay's pleadings and other communications with the NRC, Great Bay believes that the NRC Staff's determination is wrong and that it is an "electric utility" as that term is defined in 10 C.F.R. § 50.2. ~ October 20, 1997 Great Bay Letter; Letter to Samuel J. Collins, Director of Office of Nuclear Reactor Regulation, from Gerald Charnoff, counsel for Great Bay dated August 11, 1997; Petition Of Great Bay Power Corporation For Partial Reconsideration Of Exemption Order, dated February 21, 1997; Supplement to Great Bay Power Corporation's Petition for Partial Reconsideration of Exemption Order to Submit Requested Cost Data and to Request, in the Alternative, a Further Exemption, dated June 4, 1997 .

.uL Great Bay does not have sufficient funds to prepay its decommissioning funding obligation nor does it satisfy the requirements for parent or self-guarantee of its decommissioning funding obligation set forth in 10 C.F.R. § 50.75(e)(2).

SHAW PITTMAN POTTS &TROWBRIOCE A PAll.lNEI\SHIP INO.UDINC Pl<.OFESSIONAl COI\PORATIONS Secretary, Nuclear Regulatory Commission November 24, 1997 Page 8 such mechanisms to demonstrate financial assurance for the difference between their external sinking funds and the full amount of required assurance if the licensee no II 11 longer qualifies as an electric utility. These limits may be created by the possibility, on the one hand, that the nuclear reactor licensees will no longer have recourse to the asset base of the utility, and that, on the other hand, providers of such financial mechanisms will require high levels of collateral and security before they will make such mechanisms available.

[T]he providers of financial mechanisms such as surety bonds and letters of credit have frequently required collateral for a portion or the full amount of the mechanism, and there is no reason to expect that they will relax this requirement for mechanisms assuring the very large decommissioning costs of nuclear generating facilities. Generating [companies] without access tQ substantial .as.s.et.s lllil}'.: find it difficult tQ provide w necessary collateraLliL Similarly, in the Statement of Considerations, the Commission expressly recognizes that surety bonds and other financial assurance mechanisms allowed 11 non-electric utilities under 10 C.F.R. § 50.75(e)(2) may not be available to some 11 licensees. 62 Fed. Reg. at 47,596.

Great Bay's recent experience in attempting to obtain a surety, as required by the exemption orders, confirms the difficulty alluded to above by the NRC in obtaining such third-party guarantees. Great Bay has met, and is continuing to meet, with various insurance and bonding entities in an attempt to obtain a surety bond or other third-party guarantee for its outstanding decommissioning funding obligation. However, so far the only terms under which Great Bay could obtain such a third-party guarantee would require it to fully fund or collateralize the in-surer for the entire decommissioning obligation. As observed by the NRC Staff in

.1il Draft Regulatory Impact Analysis at 32-33 (emphasis added).

SHAW PITTMAN POTTS &TROWBRIDGE A PA~TNEllSHIP INCLUDING ~OFESSIONALCO~PO~ATIONS Secretary, Nuclear Regulatory Commission November 24, 1997 Page 9 the July 23, 1997 Exemption Order, such terms "would make it difficult, if not im-possible, for Great Bay to meet its day-to-day obligations." Thus, although Great Bay is continuing its efforts to obtain a surety or similar third-party guarantee, to date its efforts have been unsuccessful.

B. The Proposed Rule As Currently Drafted Is Unsound Both As A Matter Of Policy And As A Matter Of Law The above discussion of the regulatory and factual background establishes three salient points. These are:

• Eirst, the NRC has found, and continues to believe, that surety bonds and similar third-party guarantees are not reasonably available to reactor power licensees for providing decommissioning funding assurance. The difficulty in obtaining such third-party guarantees is confirmed by Great Bay's ongoing efforts to obtain a surety or similar third-party guarantee.

• Second, as a result, the NRC has never sought to require existing licensees (until recently Great Bay) to obtain a surety or similar third-party guarantees in order to provide the necessary financial assurance for decommissioning funding. Rather, historically, the NRC has always considered its existing licensees (including until recently Great Bay) to be electric utilities for whom the NRC did not require the obtaining of a surety in part because of its unavailability and high costs.

• Third, as the Commission has observed, none of the financial assurance mechanisms provided for by 10 C.F.R. § 50.75(e)(2) may be reasonably available to some existing licensees, such as Great Bay, who would be considered non-electric utilities under the proposed rule and thus subject to the financial assurance requirements of 10 C.F.R. § 50.75(e)(2). Such existing licensees were licensed by the NRC without requiring such surety, or similar guarantees, or up-front funding and thus they never contemplated or planned their business ventures to be able to accommodate and to meet such requirements. Indeed, such requirements would have likely caused entities, such as Great Bay and its predecessor,

SHAW PITTMAN POTTS &TROWBRIDGE A PARTNEJ<.SHIP INCLUDING PROFESSIONAL CORPORATIONS Secretary, Nuclear Regulatory Commission November 24, 1997 Page 10 EUA Power, not to have filed a license application or transfer application with the NRC in the first place. 151 In these circumstances, the Commission's adoption of the proposed rule as it is currently drafted would be unsound both as a matter of policy and as a matter of law. As a matter of fundamental fairness, it would be unfair for the NRC to re-quire a surety or analogous up-front decommissioning funding for existing licen-sees, such as Great Bay, who relied upon the presumption that they could set aside funds for decommissioning on an annual basis over the life of the plant. The pro-posed rule imposes major new requirements on those existing licensees no longer classified as electric utilities that were not in existence at the time of licensing. Fur-ther, there is the practical matter of whether existing licensees -- never having con-templated or planned for up-front funding -- could provide such funding, and even assuming that they could, whether they would be able to remain in business. As recognized by the NRC, Great Bay could not do so.

Thus, the proposed rule as drafted could place current reactor licensees who would no longer be classified as electric utilities in a difficult if not an impossible situation. As the NRC has recognized in both the Statement of Considerations and the Draft Regulatory Impact Analysis, the required financial assurance mechanisms for non-electric utilities provided for by 10 C.F.R. § 50.75(e)(2) may not be avail-able to some licensees. Accordingly, strict and literal application of the require-ments of 10 C.F.R. § 50.75(e)(2) to existing licensees, such as Great Bay, once considered but no longer classified as electric utilities, could result in the shutting down of nuclear plants with decommissioning funding not fully assured -- the very result which the Commission seeks to avoid with the proposed rule. Such a result would be contrary to the public health and safety mandate and policies underlying the Atomic Energy Act. Therefore, both as a matter of fundamental fairness and to 151 Applying the current requirements of 10 C.F.R. § 50.75(e)(2) to a new licensee would not result in such inequities, for the new licensee's owners could factor such requirements into their determination of the economic viability of the business venture before undertaking the venture.

With respect to Great Bay, the new shareholders in 1994 provided additional capital and undertook an ownership role in Great Bay in reliance on the NRC's approval of the transfer, which treated Great Bay as an electric utility and did not require a surety or similar guarantee or up-front funding for Great Bay's decommissioning obligation. &e October 20, 1997 Great Bay Letter.

SHAW PITTMAN POTTS &TROWBRIDGE

/\ P/\RTNEllSHIP INCWOINC PII.OFESSION/\LCOII.POIVITIONS Secretary, Nuclear Regulatory Commission November 24, 1997 Page 11 avoid triggering the very result that the Commission seeks to avoid, the proposed rule should not be promulgated as currently drafted.

Moreover, such a result would most likely be deemed arbitrary and capri-cious agency action. Under the arbitrary and capricious standard, which would be applicable if the proposed rules were adopted, an agency must consider the relevant factors, examine the relevant data and information, and articulate a rational connec-tion between the facts found and the choice made. ~ .e...g.., Motor Vehicle Mfrs.

Ass'n v. State Farm Mut. Auto. Ins., 463 U.S. 29, 43-44 (1983); New England Coali-tion on Nuclear Pollution v. NRC. 727 F.2d 1127, 1130-31 (D.C. Cir. 1984).

Here, if the proposed rule were adopted as it is currently written, existing li-censees, such as Great Bay, who were previously considered but would no longer be classified as electric utilities, would be required to demonstrate reasonable assur-ance of decommissioning funding through use of one of the financial assurance mechanisms set forth in 10 C.F.R. § 50.75(e)(2). However, the Commission itself II 11 has acknowledged that these mechanisms may not be available to some licensees.

62 Fed. Reg. at 47,596. For the NRC to order action that it knows is not possible would be arbitrary and capricious. The net result would be the shutting down of nuclear plants with decommissioning funding not fully assured -- the very result the Commission purportedly seeks to avoid by promulgating the rule. Thus, there is no rational connection between the facts as found by the Commission and the im-plementation of the rule as drafted, and the rule would be subject to being struck down on grounds of being arbitrary and capricious agency action.

In short, the NRC should not adopt the rule as currently drafted because it would leave existing licensees, who no longer would be deemed electric utilities, in an untenable position that would be unsound as a matter of policy as well as a mat-ter of law.

II. Proposed Changes To Draft Rule For Entities Which No Longer Would Be Considered Electric Utilities The Commission in the Statement of Considerations to the proposed rule recognizes the dilemma faced by licensees that would no longer be classified as elec-tric utilities. It acknowledges and expresses concern that the financial assurance

SHAW PITTMAN POTTS &TROWBRIDGE A PAl<.TNEKSH IP INCLUDING PROFESSIONAL CORPORATIONS Secretary, Nuclear Regulatory Commission November 24, 1997 Page 12 mechanisms provided for by 10 C.F.R. § 50.75(e)(2) may not be available to some licensees no longer classified as electric utilities and it requests comments on alter-native methods of financial assurance for such entities, such as allowing them to ac-celerate their payment of decommissioning funds into an external sinking account.

62 Fed. Reg. at 47,596.

Great Bay strongly supports the Commission's initiative for developing, as part of this rulemaking, alternatives to the financial assurance mechanism currently

- provided for non-electric utilities under 10 C.F.R. § 50.75(e)(2). Additionally, Great Bay believes that 10 C.F.R. § 50.75(e)(2) should generally be amended to be made more flexible in order to take into account that individual licensees or states may develop satisfactory decommissioning funding assurance mechanisms that do not fall within the categories of mechanisms provided for by the regulation.

A. Alternative Financial Assurance Mechanisms Great Bay believes that the accelerated payment of decommissioning funds into an external sinking fund could be a viable financial assurance mechanism for non-electric utilities provided a sufficient period of time is allowed for the acceler-ated payment of funds into the sinking account. Currently, electric utilities must make periodic payments into the sinking fund such that the total amount of the funds in the sinking fund at the time termination of operation is expected -- the end of the 40-year operating license -- are sufficient to pay decommissioning costs. 5..e.e 10 C.F.R. § 50.75(e)(1). If the time frame for the accelerated payments for non-electric utilities is too short, the large accelerated payments will put the non-electric utility at a significant competitive disadvantage in the deregulated generation mar-ket compared to an electric utility which can both spread decommissioning pay-ments out over the 40-year operating license time frame and recover those funds from sources other than its sales of electricity in the deregulated market. The Commission should therefore recognize that to accelerate significantly decommis-sioning funding payments by non-electric utilities would greatly exacerbate the competitive disadvantage that such non-electric utilities will already face in the de-regulated market. This in turn could potentially cause the insolvency of non-electric utility licensees and possibly early closure of a plant and thus create the very result the Commission seeks to avoid.

SHAW PITTMAN POTTS &TROWBRIDGE A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS Secretary, Nuclear Regulatory Commission November 24, 1997 Page 13 The Commission's Statement of Considerations suggested the possibility of accelerating payments into a sinking fund over a ten year period. This would be far too short and would create a non-level playing field with all the advantages to 11 11 electric utilities, and in a non-regulated market, make it difficult for utilities such as Great Bay to compete. An accelerated payment alternative would be helpful but only if it is extended over a period of time approaching the end of the licensed pe-riod.

B. The Commission Should Amend 10 C.F.R. § 50.75(e)(2) To Allow The Use Of Financial Assurance Mechanisms Other Than Those Set Forth In The Regulation To Provide Reasonable Assurance Of Decommissioning Funding Finally, the Commission should amend 10 C.F.R. § 50.75(e)(2) to allow the use of financial assurance mechanisms other than those specifically authorized by the regulation. As a practical matter, as the electric utility industry restructures, in-dividual states are likely to develop various different mechanisms or means for as-suring the funding of decommissioning costs for nuclear power plants located within their borders. States have just as great an interest as does the NRC in assur-ing adequate funding for the decommissioning of nuclear plants within their bor-ders. In this regard, New Hampshire is currently undertaking a review to ensure that decommissioning funding will be available for the Seabrook plant. Further, individual licensees may develop singly or jointly different methods for assuring the funding of decommissioning costs for particular nuclear plants.

Thus, the NRC's decommissioning regulations should be flexible enough to allow the use of any financial assurance mechanisms developed by individual states or licensees which provide reasonable assurance of the adequate funding for nuclear power plant decommissioning. Specifically, Great Bay urges the Commission to amend 10 C.F.R. § 50.75(e)(2) to include a new subsection which provides as follows:

(2) For a licensee other than an electric utility, acceptable methods of providing financial assurance for decommissioning are --

SHAW PITTMAN POTTS &TROWBRIDGE A PAl'.TNERSHIP INCLUDING PROFES.510NALCORP01'.ATIONS Secretary, Nuclear Regulatory Commission November 24, 1997 Page 14 (v) Any other method or methods that provides reasonable assurance that adequate funds will be available to decommission the nuclear facility.

CONCLUSION Great Bay appreciates the opportunity to provide comments on the pro-posed rule. For the reasons expressed in these comments, Great Bay believes that the rule should not be adopted as it is currently drafted because, as the Commission recognizes, it could place licensees that would no longer be classified as electric utilities in an untenable position in which they could not provide reasonable assur-ance of decommissioning funding as required by the NRC's regulations. For the NRC to order action that it knows is not possible would be arbitrary and capri-cious agency action subject to being struck down under the Administrative Proce-dure Act. Instead, the Commission should allow existing licensees that would no longer be classified as electric utilities, such as Great Bay, a reasonable time in which to make accelerated payments to an external sinking fund, and further, the Commission should modify its regulation for non-electric utilities to provide gener-ally greater flexibility in the methods available to such licensees for providing rea-sonable assurance that adequate funds will be available to decommission their nuclear facilities.

Gerald Charnoff Paul A. Gaukler Counsel for Great Bay Power Corporation cc: Dr. Shirley Ann Jackson, Chairman Office of the Chairman Nils J. Diaz, Commissioner Office of the Commissioners

SHAW PITTMAN POTTS &TROWBRIDGE A PAHN ERSHIP INCLUDING PROFESSIONAL CORPORATIONS Secretary, Nuclear Regulatory Commission November 24, 1997 Page 15 Greta J. Dicus, Commissioner Office of the Commissioners Edward McGaffigan, Jr., Commissioner Office of the Commissioners

C. K. McCoy Southern Nuclear Vice Pre sident Operating Company, Inc.

Vogtle Project 40 Inverness Center Parkway P.O . Box 1295 Birmingham, Alabama 35201 Tel 205. 992.71 22 Fax 205.992.0403 November 24, 1997 Docket Nos. 50-321 50-348 50-424 HL-5524 50-366 50-364 50-425 LCV-1132 Mr. John C. Hoyle Secretary of the Commission U.S . Nuclear Regulatory Commission Washington, DC 20555-0001 UOCKET PROPOSED SO ATTENTION: Rulemakings and Adjudications Staff (~~FR. '/76 '8~

Comments on Proposed Rule "Financial Requirements For Decommissioning Nuclear Power Reactors" (62 Federal Register 47588 of September 10, 1997)

Dear Mr. Hoyle:

Southern Nuclear Operating Company (Southern Nuclear) has reviewed the proposed rule regarding the financial requirements for decommissioning nuclear power reactors published in the Federal Register on September 10, 1997 as well as draft Regulatory Guide 1060, Financial Accounting Standards Board (FASB) Standards for Decommissioning Cost Accounting. In accordance with the request for comments, Southern Nuclear is in total agreement with the NEI comments which are to be provided to the NRC.

In addition, Southern Nuclear believes that the same decommissioning funding security required of investor-owned licensees should be required of public power agencies. The definition of "Electric Utility" in the proposed rule does not appear to require that such agencies recover all of their costs in their rates, only that they set their own rates. In a competetive market, it does not follow that the authority of such agencies to set their own rates will, in and of itself, provide assurance of decommissioning funding. Such agencies should be deemed to meet the definition of "Electric Utility" only to the extent that the rates they establish provide security for the payment of decommissioning costs equivalent to that required of investor-owned licensees.

Finally, although the intent of the definition of Federal Licensee as expressed in the Federal Register notice is appropriate, the actual definition is ambiguous in that the term "full faith and NOV 2 6 1997

U.S. NUCLEAR REGULATORY COMMI..,

RULEMAKINGS &ADJUDICATIONS S,1  ;

OFFICE OF THE SECRETAR OF THE COMMISSIO J Document Statisti, Postmark Date Fgre/ oo Copies Received /

11/?'l-/17;: pa.t-fn.arl~I 11/as-/97 Ado'I Conies Reproducer '::[_ _ _

Spec1a1 Distribution t?/d._ fe~ _

Gt;_//4,@hec, --P"Dlj pips

November 24, 1997 U.S . Nuclear Regulatory Commission Page2 credit backing" of the government is neither defined nor commonly used in other legislation relating to federal agencies. The intent of the definition of Federal Licensee is obviously to exclude from the definition any federal agency whose obligations do not constitute the obligations of the United States and, therefore, are not supported by the full faith and credit of the United States. Therefore, the definition should be modified as follows: "Federal Licensee means any NRC licensee, the obligations of which are guaranteed by and supported by the full faith and credit of the United States Government."

Should you have any questions, please advise.

Respectfully submitted, (l.£ffef 't!

C. K. McCoy/

I CKM/JMG cc: Southern Nuclear Operating Company Mr. D . N. Morey, Vice President, Plant Farley Mr. H. L. Sumner, Jr., Vice President, Plant Hatch Mr. J.B. Beasley, General Manager - Plant Vogtle Mr. R. D. Hill, General Manager - Plant Farley Mr. P.H. Wells, General Manager - Plant Hatch U.S . Nuclear Regulatory Commission, Washington, DC Mr. J. I. Zimmerman, Licensing Project Manager - Farley Mr. N. B. Le, Licensing Project Manager - Hatch Mr. L. L. Wheeler, Senior Project Manager - Vogtle U. S. Nuclear Regulatory Commission, Region II Mr. L. A. Reyes, Regional Administrator Mr. T. M. Ross, Senior Resident Inspector - Farley Mr. B. L. Holbrook, Senior Resident Inspector - Hatch Senior Resident Inspector - Vogtle HL-5524 LCV-1132

From: Paul Gunter To: Secretary NRC Date: 11/24/97 Time: 16:25:26 Page 1 of 4 DOCKET ED USHRC

~uch~ar Infr)nnation and Resource SerYice "97 NOV 25 A8 :38 1424 16th Stred N\\/ Suite 404

\,\' ashington DC 20036 OFFICt= J:= SUf 1 -, * ~R' Tel: 202-328-0002 Fax: 202-462-2183 RUU:-ivA,,,\.-,

• I',* *If'--".)

. .., /-\, -i D*

ADJUDIC,\ 1101\JS STAFF vKET NlJ.tBEA The Secretarv of the Commission tJROPOSED RULE 5O l*.s. ~uclear Regulatory Commission Washington. DC 20555 ( fo ~ F~ L/758'8)

Attention: Docketing and Seffice Branch Bv FA"\: Transmission: 301-415-1672

'.\TIRS Comments on NRC Proposed Rule On Financial Assurance Requirements for Decommissioning Nuclear Power Reactors

Dear Sir:

In response to the C.S. ~uclear Regulatory Commission's (~RC) proposed rule on the Financial Assurance Requirements for Decommissioning Nuclear Power Reactors as proYided fix public conunent in the Federal Register September 10. 1997 (Volume 62. :\umber 175). ~uclear Infonnation and Resource Service (NIRS) submits the following comments.

I. L-\CK. OF E~FORCEl\fE~T OF CCRRE~T ~RC REGCL-\ TIO NS WITH REGARD TO

.-\ ><TCLEAR PO\\'ER STATION O\\1\ER \VHO DEFAULTS O~ DECO~I~IISSIONl~G FINA~CE OBLIGATIONS SETS A BAD PRECEDENT FOR THE Fl TTl "RE As it pertains to the proposed rule as stated above. it is of major concern to :\'IRS that the

~RC is issuing incremental exemptions from 10 CFR 50.75(e)(2) to Great Bay Power Corporation in response to the company's default on its decommissioning financial obligations for the partial ownership in the Seabrook nuclear power station.

Great Bay Power. fonnerly Eastern Ctilities Associates Power Inc. (EUA) is a twelve percent (12 °o) joint owner in the Seabrook nuclear power generating station. Great Bay does not have a franchise area and therefore does not have a captiYe customer base. Great Bay has only been able to sell 10 megawatts in long tenn contracts of its approximately 150 mega,vatt share in Seabrook generating capacity. This has resulted in a shortfall in paying into the decommissioning fond. As a result Great Bay required increased scrutiny of the :\'RC. The NRC staff has concluded that the reorganized Great Bay Po\\er did not meet the definition of an d,xtric utility" under 10 CFR 50.2. Because Great Bay did not meet the definition. the corporation is required to med its share of its financial obligation for decommissioning Seabrook Station as a "non-electric utility" by immediately prepaying their share of the projected decommissioning costs. The corporation also has the option to secure a surety bond through a financial agent which Mcnowtedged bJ card 111V 2 a 1s91

U.S. NUCLEAR REGlAATORY COMMISSION RULEMAKINGS & ADJUDICATIONS STAFF OFFICE OF THE SECRETARY OF THE COMMISSION Docunent Statistics Postmar1< Date [4KeJ C>Q 11{~4 /q1 Copies Received ____ 1 _ _ _ _ __

Add'I Copies Reproduced __,_ _ _ __

SRecialp istribution_1d_ch~

GaJi~ gber, 7f>D7~

I'

From: Paul Gunter To: Secretary NRC Date: 11/24/97 Time: 16:27:51 Page 3 of4

\"IRS Comments Page 3 additional assurance that the public health and safety ,Yill be prioritized by th.: a\'ailability of adequate funds fr)r the decommissioning. Since the construction. operation and maintenance of the nuclear power station is a jointly shared responsibility of all of the o\\ners. it is common s~ns~

that the reactor's deconunissioning should a jointly held responsibility fix all the o,rners in the e,*ent of any one O\\-n er's default. To do othen\'ise would only represent an dfort on the part of the regulator to shield the economic interests of the other joint owners rather than to live up to the agenc~,*s regulatory mandate to protect public health and safety.

2) :\"IRS finds that the :\"RC reluctance to adequately address the issues raised by the Great Bay default on its deconunissioning liability and the example which it provides fix a lack of any requirement for joint owner liability of a co-owner's default to be a regulatory obfuscation of an emerging issue periaining to utility default on the adequate provision of decommissioning funds.

\"IRS belie\'es that the ad\'ent of electric utility restructuring will exacerbate problems to secure decommissioning financial assurance as more and more co-owners in nuckar power stations face increased competition. ?\RC needs to establish strict enforcement standards as a regulator with the nuclear power industry as it pertains to the emerging issue of default on decommissioning fund liabilities.

II. CHANGING THE DEFINITION OF AN ELECTRIC UTILITY The Commission notes that the main component in re,*ising its definition of an "electric utility" is a licensee's rates being established either tlu*ough a cost-of.-sen*ice mechanism or tlu-ough other non-bypassable charge mechanisms. such as ,vire charges. non-bypassable customer fees. including securitization or exit fees. by rate regulation authority.

\"IRS does not support the inclusion of any mechanisms which provide frx a stranded cost bailout of the nuclear industry. Bad managerial decisions made over the past decades resulting in the phenomenal cost over runs and time to completion of many of these nuclear power stations should not be re,varded by a corporate welfare program. Other industries. such as in telecommunications. did not receive a bailout for their lossi;;s after restructuring. therefore. ni;;ither should the nuclear industry. Such a bailout would destroy real competition, inhibit employment gains. and the economic growth of more viable cost effective and less polluting power gen..::rating teclmologies. A bailout of the nuclear industry would also further damage the enviromnent by allo,ving nuclear power stations that might othen:visc shutdown to continue operation.

III. REPORTING REQUIRE~lE:'\TS The Commission is proposing that each license submit an initial decommission finance status report nine months after the effective date of the rule and a minimum of a hvo y\;ar reporting requirement with an additional mrnual filing requirement "h~n the licens~e comes \\ithin 5 years of closure. Given a number of reputable electric utility in\'estment firms ha\'e the projected a broad range of numbers for early closures nuclear facilities in th,;; United States and the rapidly accelerating cost projections for nuclear decommissioning operations. NIRS feels it would be prudent for NRC to require armual filings from all station co-o\\ners as an appropriate measure to address these uncertainties as they potentially impact public health and safety.

IV. TI~HNG OF THE RLTLEI\IAK.ING

From: Paul Gunter To: Secretary NRC Date: 11/24/97 Time: 16:26:38 Page 2 of 4

\"IRS Con11nents Page 2

,,ill assure that their decommissioning obligation is covered. Since Seabrook' operation commenced in 1990, Great Bay has proved neither assurance.

The );RC has responded by pn.) ,iding the corporation with a series of incremental exemptions. The first one in February, 1997 was granted fix six months ,vith the proviso that Great Bay secure a bonding agent to cover their liability. Great Bay was unable to secure a surdy in that time frame. Great Bay then requested a 5 year exemption and ~RC responded by granting an additional exemption for one year ,vith the proviso that the company seek financial options.

Should Seabrook Station shut down early as the result of economic presstire or by some accidental event there will be an inadequacy in the decommissioning funds as a result of Great Bay Corporation's shortfall alone.

In a letter dated October 20, 1997 from the ~RC Commission Chair. Dr. Shirlev Am1 Jackson responded to Attorney Robert Backus, NIRS Board :\Iember. that the incremental exemptions do not set precedent for offering "financial succor" to future utilities that might experience adwrse etfocts of increased competition arising out of economic deregulation. );RC staff was merely providing Great Bay with additional time to meet the );RC's requirements and that such an exemption is based on the merits of the Great Bay exemption alone. Fmther. ~RC does not believe the cutTent default situation constitutes a crisis.

);IRS responds that ever since the commercial operating license for Seabrook \\as issued in July, 1990, Great Bay Power (fonnerly EC..\ before reorganization from bankruptcy) has demonstrated historical financial problems which have culminated into the ClllTcmt crisis with regard to decommissioning financial responsibility. Combined with the fact that the other co-o\\ners in Seabrook have expressed their refusal to either come to the aid of the Great Bay or any sense of responsibility for the emerging default ~IRS believes to be evidence indicating that a crisis situation already exists.

>JIRS believes this series of incremental exemptions to be an abandonment of ?\RC statTs role to enforce of federal regulations requiring nuclear power station O\\ners to meet their financial obligation in order to protect the public from underfunded and ther~fore inadequate decommissioning activities. Therefore. NIRS has grave concerns regarding the cmTent eil<.xt by

\'RC to amend any of its requirements if in fact it means that the agenc~* will not serious enforce the outcome.

Therefore:

1) NIRS finds that the NRC proposed rule change does not adequately address the need fix shared responsibility of a nuclear pm,er station's joint o\\ners to cover a co-owner's default of its decommissioning financial obligations. \\'hile the );RC has recently mticulated that the agency res~rves the right to impose joint and se,*eral liability "in highly unusual circumstances where adequate protection of public health and safoty would h~ compromised." NIRS is concerned by such vague policy and language referenced by NRC as it pertains the assurance of the availability of adequate funds to protect the public health and safoty. This was the intent* of specif\ing the different requirements for an "electric utility" and a "non-electric utility" for setting aside adequate funds. A specific requirement for joint coverage is the logical mechanism to provide the needed

From: Paul Gunter To: Secretary NRC Date: 11/24/97 Time: 16:29:05 Page 4 of 4 NIRS Comments Page 4 NIRS believes the rulemaking to be timely given the example provided by the Great Bay default of its decommissioning obligation. Therefore, an appropriate rulemaking is necessary and timely.

Sincerely, Paul Gunter, Director Reactor Watchdog Project

WINSTON & STRAWN 35 WEST WACKER DRIVE 1400 L STREET, N.W. 6 , AUE DU CIRQUE CHICAGO, ILLINOIS 60601-9703 75008 PARIS, FRANCE WASHINGTON, D.C. 20005-3502 200 PARK AVENUE 43, RUE DU RHONE (202) 371-5700 NEW YORK, NY 10166-4193 1204 GENEVA , SWITZERLAND FACSIMILE (202) 371-5950 JOCKET NlMBER PR PROPOSED RULE,...,_.:;a,_..:=5....0______

November 24, 1997

( fo:J.F~ '17688)

IOV 2 It 1997 John C. Hoyle An l11 HII>

MIIDIIIIII- f Secretary, U.S. Nuclear Regulatory Commission 8l!CMAD '<>

Washington, D.C. 20555

- ATTN.: Docketing and Service Branch Re: Utility Decommissioning Group Comments on Proposed Rule on Financial Assurance Requirements for Decommissioning Nuclear Power Reactors (62 Fed. Re2. 45788; September 10, 1997)

Dear Mr. Hoyle:

On September 10, 1997, the Nuclear Regulatory Commission ("NRC") published in the Federal Register a Proposed Rule regarding NRC financial assurance requirements for decommissioning nuclear power reactors to address issues associated with electric utility deregulation. On behalf of the Utility Decommissioning Group ("Group"),l" and Niagara Mohawk Power Corporation, we submit the attached comments on the proposed rule.

Wisua:ed, ,

Joseph Knotts ~

B.

William A. Horin WAH:mlf Enclosure 11 The members of the Utility Decommissioning Group are Duke Power Company, Texas Utilities Electric Company, and Northeast Utilities. Each Group member company owns or operates one or more nuclear power plants subject to NRC regulation.

AcknoWledged by cad r<<>V 2 I 1997

U.S. NUCLEAR REGU JORY CO ~ ISSI RULEMAKINGS & A0JU ICATIO S STAFF OFFICE OFT SECRETARY OF THE ,OMMISSI Document Stab Postmark Date Hd on 11 ;Jill '1 1 / ~Pcsftn4r,tel 11/:J~/4 '1 Copies Received _ __ _ __ _

AdO't Copies Aepmciucerl. _ _ __ _

Special Distribution. _ __ _ _ __

WINSTON & STRAWN Attachment Utility Decommissioning Group and Niagara Mohawk Power Corporation Comments on Proposed Rule on Financial Assurance Requirements for Decommissioning Nuclear Power Reactors (62 Fed. Reg. 45788; September 10, 1997)

I. Definition of "Electric Utility" NRC Proposal The definition of "electric utility" would be revised such that an entity would be an electric utility, and therefore permitted to continue to fund for decommissioning on a "pay-as-you-go" basis, if the entity "generates, transmits, or distributes electricity and ... recovers the cost of this electricity through rates established by a regulatory authority, such that the rates are sufficient for the licensee to operate, maintain, and decommission its nuclear plant safely. Rates must be established by a regulatory authority either directly through traditional cost of service regulation or indirectly through another non-bypassable charge mechanism." Non-bypassable charges means those charges imposed by a governmental authority which affected persons or entities are required to pay to cover costs associated with operation, maintenance, and decommissioning of a nuclear power plant.

Comment In its June 25, 1996 comments on the Advance Notice of Public Rulemaking (61 Fed.

Reg. 15,427 (April 8, 1996)), the Group encouraged the Commission to offer licensees as much flexibility as possible regarding qualification as an "electric utility"Y and suggested a number of "regulatory" and "non-regulatory" tests that could be applied in making such a determination. While the Group supports the proposed use of "non-bypassable charge" as a means of demonstrating decommissioning funding assurance, in general the Group believes that the Commission has proposed too narrow a definition.

In this regard, the Group does not consider appropriate or necessary the Commission proposal that "any license no longer overseen by a rate-setting regulatory authority, i.e., a licensee other than an electric utility, would need to comply with the decommissioning funding assurance requirements of § 50.75(e)(2) unless that licensee can otherwise demonstrate a governrnent-mandated, guaranteed revenue stream for all unfunded decommissioning obligations." (62 Fed. Reg.

at 47,594, col. 1). NRC regulations have never required a "guarantee" of availability of decommissioning funds, but rather "reasonable assurance" of such availability.

As noted below, we agree with NEI that it may be better to use another term such as "qualified nuclear entity."

WINSTON & STRAWN John C. Hoyle Attachment November 24, 1997 Page 2 For example, the Commission should reconsider its dismissal of the possibility of some sort of PUC or FERC certification as a basis for retaining or achieving "electric utility" status.

In support of its proposal not to pursue this option, the Commission notes the views of commenters that "no current commission can bind a future commission" and that a PUC "could not give a blanket guarantee that all licensees would be allowed to collect revenues to complete decommissioning funding" (62 Fed. Reg. at 47,595, col.2). However, these uncertainties arguably are no greater than those associated with cost of service regulation, which certainly does not constitute a "guarantee" of availability of sufficient decommissioning funds. The underlying regulatory standard is "reasonable assurance," and the various tests to be built into the rule (e.g., in the definition of "electric utility") should be no more stringent than that underlying standard.11 Further to these principles, the NRC should allow for case-by-case approval of decommissioning funding arrangements for those licensees who can establish that they have provided an adequately high degree of assurance through whatever method may be developed, including methods involving the approval of the state PUCs and the FERC, or in the case of entities setting their own rates (e.g., public power authorities or others) the appropriate rate body or Board, to provide the requisite reasonable assurance called for by NRC's historic safety standards. In particular, a licensee should be afforded the opportunity to demonstrate that ample margins exist following restructuring to cover decommissioning funding contributions during the operating life of the facility, including extended outages, and to cover decommissioning costs in the event of premature shutdown.

Accordingly, any contemplated changes to the NRC regulatory framework governing decommissioning funding should accommodate, to the maximum extent possible, reasonable regulatory showings other than cost-of-service rate recovery, or non-regulatory showings, as a basis for allowing power reactor licensees to continue to fund for decommissioning on a "pay-as-you-go" basis. Examples ofregulatoi:y circumstances which may support continued "pay-as-you-go" funding could include mandated or allowed stranded cost recovery for decommissioning costs (e.g., through a charge on distribution or transmission or some other special charge on all electric power or energy

'JI The proposed rule commentary suggests that securitization of a licensee's interest in "irrevocable, non-bypassable" charges may be an acceptable method of providing decommissioning funding assurance (62 Fed. Reg. at 47,591). This seems to suggest that the mere existence of a licensee's entitlement to such irrevocable, non-bypassable charges may not be sufficient to allow that licensee to avoid "up-front" funding and that the licensee would instead be required to securitize its interest in the revenue stream associated with such charges and apply the proceeds to decommissioning funding. This result seems inconsistent with the basic tests proposed in the definition of "electric utility," as set forth above, which, if met, would to allow a licensee to avoid up-front funding.

WINSTON & STRAWN John C. Hoyle Attachment November 24, 1997 Page 3 sales), a regulatory "certification" that such costs will be recovered, or other arrangements involving continued regulatory control, such as priority dispatch for nuclear units, which provide assurances that nuclear decommissioning costs will continue to be funded.

Examples of non-regulatory showings which could be used to support ongoing contributions to a decommissioning fund could include, for example, self-guarantees, parent or affiliate guarantees, or other tests of the financial strength and prospects of the licensed entity(ies),

such as ownership of other revenue-generating assets (e.g., where nuclear assets are consolidated with electricity transmission and/or distribution and/or natural gas operations). Another relevant factor may be whether the licensee has insurance for premature decommissioning caused by an accident. At bottom, in considering whether the current "pay-as-you-go" decommissioning funding system will remain appropriate for power reactor licensees, the NRC should not frame the discussion simply in terms of whether licensees' nuclear operations will continue to be subject to cost-of-service rate making, but rather should consider other regulatory arrangements or economic showings that can provide an alternative basis for finding reasonable assurance that decommissioning funds will be available when needed. 11 The rule also should make clear that responsibility for decommissioning funding rests entirely on those entities having an ownership interest in a nuclear facility to the extent of and in proportion to their ownership share or contractually assumed liability for decommissioning. As presently drawn, the rule could be interpreted to impose decommissioning funding obligations on companies that are mere operators, with no ownership interest (or contractual assumption of decommissioning liability) in a particular facility. Clarifying this matter is essential to preserving the option of having nuclear plants operated by specialized nuclear operating companies with no ownership interest in the facilities they operate. 21 Further, the Group endorses the comments ofNEI encouraging much more flexibility for demonstrating reasonable assurance of availability of decommissioning funds and urging the Commission not to foreclose at this very early stage in the deregulation restructuring process what 11 NRC's support may be needed for revisions to Internal Revenue Code Section 468A, since under present law, contributions to an external trust are deductible in the year made only if collected from ratepayers per a PUC order.

21 The Commission could accomplish this by adding language to 10 C.F.R. § 50.75(a) that would make clear that decommissioning funding is the obligation of the owners of a facility subject to decommissioning requirements and that applicants that would provide, or licensees that do provide, only operating services without an ownership interest are not subject to decommissioning obligations.

WINSTON & STRAWN John C. Hoyle Attachment November 24, 1997 Page 4 may prove to be sound, reasonable alternatives for making the necessary regulatory showing. Lastly, the Group endorses the comments of NEI that suggest use of a term other than "electric utility" for decommissioning funding purposes and that encourage separate treatment of the subject of financial qualification.§/

II. Commission Discretion To Require Alternative Funding Accumulation Rates NRC Proposal The proposed rule would amend 10 C.F.R. § 50.75(e)(3) to provide that "[t]he Commission reserves the right to take the following steps in order to assure a licensee's adequate accumulation of decommissioning funds: review, as needed, the rate of accumulation of decommissioning funds; and either independently or in cooperation with either the FERC and the State PUC's take additional actions as appropriate on a case-by-case basis, including modification of a licensee's schedule for accumulation of decommissioning funds" (62 Fed. Reg. at 47,605).

Comment This proposal is troublesome in that it contemplates the exercise of Commission discretion in a manner which could undermine the "generic" nature of the rulemaking and result in inequitable regulatory treatment among licensees. A principal purpose of establishing decommissioning funding requirements applicable to all, or particular categories of, licensees is to ensure predictability and fairness in the implementation of the regulatory framework. To date, the decommissioning regulations have given licensees assurances that, during the operating life of their reactors and at least until premature shutdown or five years prior to cessation of commercial operations, they can satisfy regulatory requirements by funding for decommissioning in accordance with the certification amounts and adjustment formulas provided in 10 C.F.R. § 50.75. The proposed amendment to 10 C.F.R. § 50.75(e)(3) contemplates that the Commission may impose some alternative funding requirements (including those with respect to the rate of accumulation of

§! The proposed definition of "electric utility" seems somewhat self-fulfilling or circular in requiring that the entity's rates be "sufficient for the licensee to operate, maintain, and decommission its nuclear plant safely." First, it is arguably impossible to demonstrate during the operating life of the plant that such rates are sufficient to decommission the facility.

Second, even if such a showing were possible, it would be at odds with the "reasonable assurance" standard that underlies the rule. In other words, the regulations are not intended to require showings during the operating life of a facility that a licensee will have sufficient funds to decommission; accordingly, it seems inappropriate to offer "electric utility" status only to entities that can make a showing that their rates are sufficient to ensure that result.

WINSTON & STRAWN John C. Hoyle Attachment November 24, 1997 Page 5 funds) on a case-by-case basis during this operating period. 11 While the Commission certainly has the authority to take docket-specific action to ensure compliance with its regulations and protection of public health and safety (which itself supports the view that the proposed amendment to 10 C.F .R.

§ 50.75(e)(3) is unnecessary), the provision is unsettling in that it does not specify or give examples of the types of situations that would subject a licensee to such alternative funding requirements. The possibility that decommissioning funding requirements may vary from licensee to licensee based on unspecified factors is particularly troubling in the present deregulatory environment, where a licensee's operating costs, relative to its peers', may be especially significant. The Commission should either delete this proposed language and rely on its traditional administrative powers to monitor compliance with the regulations or should develop more specific requirements or guidance to ensure that this provision cannot be applied inadvertently in a manner that results in inequitable regulatory compliance costs among licensees.

III. Alternatives for Non-Electric-Utilities to Providing "Up Front" Assurance NRC Proposal Power reactor licensees not qualifying as "electric utilities" would be required to fund for decommissioning in accordance with one of the methods provided in 10 C.F.R. § 50.75(e)(2).

The Commission seeks additional comments on alternative methods of financial assurance that would provide assurance equivalent to that already provided under the Commission's regulations (62 Fed. Reg. at 47,596).

Comment Satisfaction of the criteria in 10 C.F.R. Part 30 for providing a parent or self-guarantee of decommissioning funds (which are among the funding methods allowed by 10 C.F .R.

§ 50.75(e)(2) for non-"electric utility" licensees) could be problematic for power reactor licensees.

In response, the Commission noted only that it "would need to conduct additional research and analysis to determine which additional financial measures would be most useful and appropriate if a financial test requirement for parent or self-guarantee were pursued" and concluded that it is "not presently offering any changes to its financial test criteria" (62 Fed. Reg. at 47,595). The Commission should undertake such an analysis in connection with this proposed rulemaking and z; In this regard, the proposed amendment seems misplaced in Section 50.75(e)(3) of the proposed rule, which concerns methods for providing decommissioning funding assurance, rather than in Section 50.75(c), which governs the amount of required decommissioning funding (and hence, for licensees employing an external trust arrangement, the rate of accumulation of funds).

WINSTON & STRAWN John C. Hoyle Attachment November 24, 1997 Page 6 before limiting former 11 electric utility 11 licensees to use of these pre-existing funding requirements.

Given the uncertainties in the future cause of electric utility deregulation, the Commission should at this early stage of the process endeavor to consider and accommodate all reasonable alternatives for demonstrating financial assurance for decommissioning (whether that flexibility allows a licensee to fall within the definition of 11 electric utility" or to use some funding method not previously available to non-power reactor, non- 11 electric utility 11 licensees).

IV. Premature Shutdown NRC Proposal The Commission proposes not to mandate accelerated decommissioning funding in all cases of premature shutdown and to continue to rely on the case-by-case approach set forth in 10 C.F.R. § 50.75(e)(2) (62 Fed. Reg. at 47,592).

Comment The Group agrees with this approach.

V. Joint Liability for Co-owners/Co-licensees NRC Proposal The Commission 11 sees no need to impose an additional regulatory obligation of joint liability [for decommissioning funding obligations] on co-owners or co-licensees 11 (62 Fed. Reg.

at 47,594).

Comment The Group agrees with this much of the Commission's conclusion.

VI. Insurance Pool NRC Proposal

" The Commission proposes to eliminate from further consideration the concept of a captive insurance pool to pay unfunded decommissioning costs.

WINSTON & STRAWN John C. Hoyle Attachment November 24, 1997 Page 7 Comment The Group urged this result in its comments on the ANPR and agrees with the Commission's decision.

VII. Reporting Requirements NRC Proposal The Commission is proposing that licensees report to the NRC on the status of decommissioning funding within 9 months after the effective date of the rule, at least once every two (2) years thereafter, and annually beginning five (5) years prior to planned cessation of operations.

The report must indicate the amount of funds identified and available for required decommissioning purposes.

Comment While the Group supports the NRC proposed rule reporting terms, the NRC should also ensure that any reporting requirements for decommissioning funding draw upon, and not extend beyond, licensee's current reporting obligations to other entities. The Group encourages the NRC to refrain from imposing new or duplicative reporting obligations.

VIII. Credit for Earnings NRC Proposal The Commission proposes to allow licensees to take credit for earnings on external sinking funds from the time of the funds' collection through the decommissioning period, using a two (2) percent annual real rate of return or any higher earnings amount approved by a rate-setting authority (62 Fed. Reg. at 47,599, 47,600).

Comment Although clear in the commentary accompanying the proposed rule (62 Fed. Reg. at 47,599, 47,600), the text of the proposed rule should be revised to make clear that a licensee may assume a real rate of return on fund earnings that is higher than two (2) percent if such higher rate is approved by a rate-setting authority.

Further, the language "through the decommissioning period" would seem to encompass an extended intervening SAFESTOR period, especially in light of the discussion in the

WINSTON & STRAWN John C. Hoyle Attachment November 24, 1997 Page 8 Supplementary Information. However, the rule should be clarified that this 2% rate of return can be adjusted higher during the entire period from the time of the funds collection through the decommissioning period. The discussion ofthis portion of the rule, on pp. 47599-600 says "Higher earnings amounts will be allowed during the period ofreactor operation if specifically approved by a rate-setting authority." This is inconsistent with the actual language of the rule.

National Association of Regulatory Utility Commissioners Incorporated BRUCE B. ELLSWORTH, President New Hampshire Public Utilities Commission MARGARET A WELSH Executive Director 8 Old Suncook Road, Building No . I Concord, New Hampshire 03301-7319 GAILE ARGIRO Treasurer JoLYNN B ARRY BUfLER, First Vice President Ohio Public Utilities Commission JIM SULLIVAN, Second Vice President DOCKET Alabama Public Service Commission PROPOSED RULE

( I,~ F~ t./75 8'~8~ .._,.,-__,

November 24, 1997 Secretary Nuclear Regulatory Commission Washington, D.C. 20555-0001 Attention: Rulemakings and Adjudication Staff Re: Financial Assurance Requirements for Decommissioning Nuclear Power Plants

Dear Sir or Madam:

Enclosed for filing in the referenced proceeding, please find the comments of the National Association of Regulatory Utility Commissioners (NARUC). The comments were also sent electronically today to Mr. Brian Richter, the NRC staff person referenced in the September 10, 1997 Federal Register notice in this proceeding.

Thank you for your assistance in this matter.

~ oms, Chfilles D. 9/47 General Counsel Enclosure D 2I 1997 1100 Pennsylvania Ave., N.W., Suite 603, Washington, D.C. 20004 Mailing Address: Post Office Box 684, Washington, D.C. 20044-0684 Telephone: 202-898-2200 Fax: 202-898-2213 http://www.erols.com/naruc

lJ. .. ........ AA REGULATORY COMMISSION RULEMAKINGS & ADJUDICATIONS STAFF OFFICE OF THE SECRETARY OF THE COMMISSION Document Statistics Pr*5tmark Date f-tnfli [(J by {piros 'Dro~jifi.s ~n 1/~41/q7i f PJfl'Mrted on 11/-11j91 C Jies Received J A d'I Copies* RepfocJ'-:---:~

uaMj.:- l;---:q.,--

Special Distribution 1<,d, ter.

Ct.-/ltt~h,~ ?pg; 1?fps

BEFORE THE NUCLEAR REGULATORY COMMISSION Washington, D.C.

Financial Assurance Requirements for ) 10 CFR Part 50 Decommissioning Nuclear Power Reactors ) RIN 3150-AF41 COMMENTS OF THE NATIONAL ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS The National Association of Regulatory Utility Commissioners (NARUC) hereby submits

- its comments in response to the Notice of Proposed Rulemaking (Notice) issued by the Nuclear Regulatory Commission (NRC or the Commission) in the above-captioned proceeding on September 4, 1997. 62 Fed. Reg. 47588-47606 (September 10, 1997).

NATURE OF THE PROCEEDING By the Notice, the Commission has proposed to amend 10 CFR §§ 50.2, 50.43, 50.54, 50.63, 50.73, and 50.75 to establish new standards to provide financial assurances for the decommissioning

- of nuclear power plants. The proposal is part of the Commission's initiative to review its regulatory policies in response to the ongoing economic restructuring of the electric utility industry.

Specifically, the Commission proposes to require utilities licensed to own or operate nuclear generating stations to report periodically on the status of their decommissioning funds and on the changes in their external trust agreements. The Notice also proposes to allow utility licensees to take credit for earnings on their decommissioning trusts.

Finally, to provide assurance of decommissioning funding in cases in which power sales from a nuclear facility are subject to market risks, the Commission proposes to amend the definition

2 of"electric utility" in§ 50.2 of its regulations to provide that to qualify as a utility, the plant owner must have its power sales rates established through traditional cost of service regulation or must recover decommissioning costs through "another non-bypassable charge mechanism." As a result, full up-front funding of decommissioning expenses would not be required for utilities, but only for licensees with no State commission or FERC-mandated guaranteed revenue stream for decommissioning costs. The NRC further proposes that the imposition of joint and several liability

- on co-owners of nuclear generating facilities would not be necessary because other proposed changes would provide adequate assurance of decommissioning funding.

INTEREST OF THE NARUC The NARUC is a quasi-governmental nonprofit organization founded in 1889. Within its membership are the governmental bodies of the fifty States engaged in the economic and safety regulation of carriers and utilities. The mission of the NARUC is to serve the public interest by

- seeking to improve the quality and effectiveness of public regulation in America. More specifically, the NARUC contains the State officials charged with the duty of regulating the retail rates and services of electric utilities operating within their respective jurisdictions. These officials have the obligation under State law to assure the establishment and maintenance of utility services as may be required by the public convenience and necessity, and to ensure that such services are provided at rates and conditions which are just, reasonable, and nondiscriminatory for all consumers.

The NARUC has been an active participant in the NRC's efforts to adapt its programs for the regulation of the safe operations of nuclear power stations to the changing economic landscape

3 in which those stations are operating. We have been pleased and honored to provide State commissioners to participate in the Commission's periodic workshops on restructuring issues. We have filed written comments in NRC proceedings, including comments in response to the Advanced Notice of Proposed Rulemaking in this proceeding. We have strongly supported a close working relationship between NRC personnel and State commission and NARUC staffers. We commend the Commission for its efforts to reach out to State regulators through the public briefings it has

- convened, attendance ofNRC commissioners and staff at NARUC meetings, and more informal contacts. In each case, we believe that the public interest in safe, reliable and efficient operation of nuclear facilities has been well served.

COMMENTS The NARUC deeply appreciates the opportunity to respond to the issues raised by the Commission in its Notice. We again wish to express our support for the Commission's decision to

- reconsider its regulatory policies in light of growing competition in wholesale and retail electric markets. Clearly, to the extent NRC requirements to ensure safe operation and decommissioning of power reactors were premised on traditional "rate base/rate of return" methodologies, they should be reexamined as market-based pricing and policies promoting customer choice are implemented.

Moreover, we continue to support the Commission's decision to adopt a deliberative approach to reforming its financial regulatory policies.

In our comments in response to the Advanced Notice of Proposed Rulemaking, we provided our views on a series of questions posed by the Commission concerning decommissioning funding

4 and broader questions of industry performance in a more competitive economic environment. We are pleased that the September 1997 Notice is generally consistent with our earlier recommendations and observations.

In fact, as the attached memo from the NARUC Staff Subcommittee on Nuclear Issues and Waste Disposal indicates, we would recommend only two modifications of the Commission's proposed regulations. First, proposed section 50.75(f)(l) should be revised to make clear that the

- annual reporting requirements should begin if a nuclear generating plant is prematurely decommissioned. This revision is consistent with our understanding of the NRC's goal of ensuring that adequate information on decommissioning status be made available in a timely manner.

Second, proposed section 50.75(e)(3) should be revised to clarify the scope of the regulations in light of the proposed revision to the definition of "electric utility" in section 50.2. Under that section, a licensee may qualify as an electric utility for its decommissioning costs even in cases in which other costs are subject to market risks. To eliminate any possibility of confusion, section

- 50.75(e)(3) should be revised as recommended by the Staff Subcommittee.

In both cases, the Staff Subcommittee's memo provides additional explanation for these proposed revisions and includes specific amendments for the Commission's consideration and adoption in final regulations. We urge their inclusion in any final regulations issued in this proceeding.

5 CONCLUSION The NARUC appreciates this opportunity to provide its views on the issues raised by the Notice. We pledge to build on the progress that the Commission, the nuclear industry and all affected parties have made in ensuring that changes in the structure and operation of the electric utility industry are consistent with the safe operation of nuclear facilities and adequate funding for their safe decommissioning. We look forward to a continuing dialogue with the NRC as the restructuring process goes forward.

say Assistant General Counsel National Association of Regulatory Utility Commissioners Suite 603 Old Post Office Pavilion 1100 Pennsylvania Avenue, N.W.

Post Office Box 684 Washington, D.C. 20044-0684 (202) 898-2200 November 24, 1997

MEMORANDUM TO: NARUC Subcommittee on Nuclear Issues & Waste Disposal FROM: NARUC Staff Subcommittee on Nuclear Issues & Waste Disposal DATE: November 10, 1997

SUBJECT:

NUCLEAR REGULATORY COMMISSION (NRC): PROPOSED RULES FOR FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISSIONING NUCLEAR POWER REACTORS Introduction In a series of teleconferences and meetings the NARUC Staff Subcommittee on Nuclear Issues and Waste Disposal has discussed the NRG proposed rules for financial assurance requirements for decommissioning nuclear power reactors and recommends that the following issues be addressed in a NARUC Response to the NRG.

The proposed rule appears to need only slight modification in §50.75(e)(3) and

§50.75(f)(1 ).

REVISION/CLARIFICATION OF §50.75(f)(1)

We would recommend the modification [double underlined] of the NRG revision [single underline] to §50.75(f)(1) to also require the annual reporting to begin if a plant is prematurely decommissioned. This modification seems to be consistent with the intent of the NRG. §50.75(f)(1) as modified would state:

(f)( 1) Each power reactor licensee shall report to the NRC within 9 months after [the effective date of the final rule), and at least once every 2 years on the status of its decommissioning funding for each reactor or part of a reactor that it owns. The information in this report must include, at a minimum: the amount of decommissioning funds estimated to be required pursuant to 10 CFR 50.75(b) and (c): the amount accumulated to the date of the report; a schedule of the annual amounts remaining to be collected; the assumptions used regarding rates of escalation in decommissioning costs, rates of earnings in decommissioning trust funds, and rates of other factors (e.g., discount NUCLEAR REGULATORY COMMISSION (NRC): PROPOSED RULES FOR FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISSIONING NUCLEAR POWER REACTORS PAGE 1

rates) used in funding projections; and any modifications occurring to a licensee's current trust agreement since the last submitted report. Any licensee for a plant that is within 5 years of the projected end of its operation or where conditions have changed such that it will close within 5 years <before the end of its licensed life} or has already closed <before the end of its licensed life} shall submit such a report annually.at or about 5 years prior to the projected end of operations submit a preliminary decommissioning cost estimate v.ihich includes an up to date assessment of the major factors that could affect the cost to decommission.

REVISION/CLARIFICATION OF §50.75(e)(3) th In its October 16 , 1997 reply to the New York Public Service Commission's August 1997 Staff Report on Nuclear Generation, a utility cited the proposed NRC Rule in pages 5 and 6 of its reply. On page 5 that utility stated:

... It is unlikely under these circumstances that the divestiture sale purchaser would be deemed an "electric utility" under the NRC's definition set forth at 10 CFR §50.2. The NRC definition requires that operational and decommissioning expenses be accumulated through traditional cost-of-service mechanisms.

The utility makes the argument that unless it can recover all of its costs to

" ... operate, maintain, and decommission ... " through either rates established through some regulatory authority by traditional cost of service regulation or by some non-bypassable charge mechanism then:

" ... t(T)he consequences to decommissioning funding requirements of loss of traditional cost-of-service ratemaking status are substantial. A license holder that does not qualify as an "electric utility" under the NRC's definition is not permitted to accumulate decommissioning funds ratably over the 40-year license term of the unit, but is instead obligated to supply significantly stepped-up decommissioning funding under 10 CFR

§50.75 amounting to either prepayment or a surety, insurance, or other guarantee method. According to the NRC, "to the extent that licensees no longer qualify, in whole or in part, as electric utilities, they will, in effect, have to 'accelerate' funding by getting 'up front' forms of financial assurances, 62 FR 47592."

This utility raises a serious question that implies that the only answer is for State PUC's to NOT expose nuclear units to competition because of its interpretation that State PUC's must provide for the recovery of costs to operate and decommission these facilities. The utility emphasizes its position on page 6 of its reply to the New York Commission Staff when it says:

The NRC has recently issued a proposed rule entitled "Financial Assurance Requirements for Decommissioning Nuclear Power Reactors," 62 Federal Register 47588 NUCLEAR REGULATORY COMMISSION (NRC): PROPOSEc3 RULES FOR FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISSIONING NUCLEAR POWER REACTORS PAGE2

(September 10, 1997). If the proposed rule is adopted, it would revise the definition of "electric utility" to more clearly impose operational cost sufficiency criteria, as well as to include license holders recovering funds sufficient "to operate, maintain and decommission its nuclear plant safely" through a "non-bypassable charge mechanism,"

see 62 FR 47606.

It is clear that the NRC's proposed rule reaches to both operations and decommissioning funding, requiring both categories of costs to be recovered under either cost-of-service or non-bypassable charge mechanisms. Proposed new regulation 10 CFR

§50.75(e)(3) would mandate in pertinent part that:

"[f]or an electric utility, its rates must be sufficient to recover the cost of the electricity it generates, transmits, or distributes. These rates must be established by a regulatory authority such that they are sufficient for the licensee to operate, maintain, and decommission its plant safely." See 62 FR 47606.

This utility lifted "parts" of the NRC definition of an "electric utility" out of context in order to make its argument. If one turns to the third sentence in the proposed NRC definition we find clarification of the previous two sentences: "An entity whose rates are established by a regulatory authority by mechanisms that cover only a portion of its costs will be considered to be an "electric utility" only for that portion of the costs that are collected in 1

this manner." This language explains that if decommissioning funds are collected through either rates or some non-bypassable charge then in regard to decommissioning funds the entity will be considered an "electric utility."

The proposed language in 10 CFR Section §50.75(e)(3) may be more problematic because it does seem to imply that rates must be established by a regulatory authority such that a licensee can operate, maintain, and decommission its plant safely.

(3) For an electric utility, its rates must be sufficient to recover the cost of the electricity it generates. transmits. or distributes. These rates must be established by a regulatory authority such that they are sufficient for the licensee to operate.

maintain, and decommission its plant safely. The Commission reserves the right to take the following steps in order to assure a licensee's adequate accumulation of decommissioning funds: review, as needed, the rate of accumulation of decommissioning funds: and either independently or in cooperation with either the FERC and the State PUC's, take additional actions as appropriate on a case-by-case basis, including modification of a licensee's schedule for accumulation of decommissioning funds.

6acceptable methods of providing financial assurance for decommissioning for an electric utility are -- [emphasis added]

This language certainly appears to be in conflict with the NRC definition of an electric utility in 50.2. We believe that this can be easily clarified by deleting 1

10 CFR Section 50.2.

NUCLEAR REGULATORY COMMISSION (NRC): PROPOSED RULES FOR FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISSIONING NUCLEAR POWER REACTORS PAGE3

some of the language in the first two sentences of §50.75(e)(3) to state:

(3) For an electric utility, its rates must be sufficient to recover the cost of the electricity it generates, transmits, or distributes. These rates must be established by a regulatory authority such that they are sufficient for the licensee to operate, maintain, and decommission its plant safely. T the Commission reserves the right to take the following steps in order to assure a licensee's adequate accumulation of decommissioning funds: review, as needed, the rate of accumulation of decommissioning funds; and either independently or in cooperation with either the FERC and the State PUC's, take additional actions as appropriate on a case-by-case basis, including modification of a licensee's schedule for accumulation of decommissioning funds. Acceptable methods of providing financial assurance for decommissioning for an electric utility are -

Since an electric utility is defined in §50.2 it is understood by its definition that if its rates are not sufficient to recover costs. Then it is not an electric utility for those cost classes (operation, maintenance, or decommissioning) and financial requirements for other entities would come into play.

NUCLEAR REGULATORY COMMISSION (NRC): PROPOSED RULES FOR FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISSIONING NUCLEAR POWER REACTORS PAGE4

STATE OF ILLINOIS DOCKETED ILLINOIS COMMERCE COMMISSION US RC

~ ,;_ '/ ~Lj-: 31 Office of General Counsel °97 NOV~ P~

November 24, 1997 DOCKET N The Secretary of the Nuclear PROPOSED Regulatory Commission ( (p;1.Pf( If 7588 Washington, DC 20555-0001 Attn: Rulemaking and Adjudications Staff Re: Proposed Rules: 10 CFR Part 50 To whom it may concern:

Enclosed herein are an original and a copy of the Coments of the Illinois Commerce Commission to your proposed rulemaking 10 CFR Part 50 [Federal Register, Vol. 62, No. 75 (Sep. 10, 1997) pp. 47588-47606]. A copy has been e-mailed to you as of today.

Very truly yours, r

~* f.Tu '

mesE.Wegi~

ecial AssistaU U Y General JEW/sr attch.

1111 2 6 l997 by 160 North LaSalle Street, Suite C-800, Chicago, Ulinois 60601-3104 Telephone (312) 793-2877 Fax (312) 793-1566 TDD ("V/TTV-) [312) 814-5845

U.S. NUCLEAR REGULATORY COMMISSION RULEMAKINGS &ADJUDICATIONS STAFF OFFICE a:THE SECRETARY OF THE COMMISSION Docllnant Statisllcl Postmark Dale f Copies Recalv9d _

cvadtJ

__...,2 kj ?l"COI ] roJJih5 oil 11 !~11/,1,- p().JfP'/Ark.ed 12/1-"/n (prpbl4hly,1~"',JJ bt ,,~ef17 J Add1 Cq,les Reproduced lf Special Dlstnbutlon j?i ch --.-

t~-v,- G

_li._Z,.... 6er;

(,.,-~.....

~tJ~ ~l'l>S ,

BEFORE THE NUCLEAR REGULATORY COMMISSION Financial Assurance Requirements for Decommissioning Nuclear Power Reactors - Proposed Rules 10 CFR Part 50 COMMENTS OF THE ILLINOIS COMMERCE COMMISSION The Illinois Commerce Commission, an agency of the State of Illinois which, inter alia, regulates the electric public utilities within the State of Illinois hereby comments on the proposed rules of the Nuclear Regulatory Commission, 10 CFR Part 50. [Federal Register, Vol. 62, No. 175 (Sep. 10, 1997), pp. 47588 - 47606]. The Illinois Commerce Commission will comment on two of the amended provisions.

REVISION/CLARIFICATION OF §50.75(f)(1)

The Commission recommends the modification of the NRC revision to

§50.75(f)(1) in order to also require the annual reporting to begin if a plant is prematurely decommissioned. This modification is consistent with the overall intent of the NRC. As modified the provision would read:

(f)(1) Each power reactor licensee shall report to the NRC within 9 months after [the effective date of the final rule], and at least once every 2 years thereafter on the status of its decommissioning funding for each reactor or part of a reactor that it owns. The information in this report must include, at a minimum: the amount of decommissioning funds estimated to be required pursuant to 10 CFR 50.75(b) and (c); the amount accumulated to the date of the report; a schedule of the annual amounts remaining to be collected; the assumptions used regarding rates of escalation in decommissioning costs, rates of earnings in decommissioning trust funds, and rates of other factors (e.g., discount

rates) used in funding projections; and any modifications occurring to a licensee's current trust agreement since the last submitted report. Any licensee for a plant that is within 5 years of the projected end of its operation or where conditions have changed such that it will close within 5 years (before the end of its licensed life) or has already closed (before the end of its licensed life) shall submit such a report annually REVISION/CLARIFICATION OF §50.75(e)(3)

In its October 16th , 1997 reply to the New York Public Service Commission's August 1997 Staff Report on Nuclear Generation, a utility cited the proposed NRC Rule in pages 5 and 6 of its reply. On page 5 that utility stated:

. . . It is unlikely under these circumstances that the divestiture sale purchaser would be deemed an "electric utility" under the NRC's definition set forth at 10 CFR §50.2. The NRC definition requires that operational and decommissioning expenses be accumulated through traditional cost-of-service mechanisms.

The utility makes the argument that unless it can recover all of its costs to

" ... operate, maintain, and decommission ... " through either rates established through some regulatory authority by traditional cost of service regulation or by some non-bypassable charge mechanism, then:

" t(T)he consequences to decommissioning funding requirements of loss of traditional cost-of-service ratemaking status are substantial. A license holder that does not qualify as an "electric utility" under the NRC's definition is not permitted to accumulate decommissioning funds ratably over the 40-year license term of the unit, but is instead obligated to supply significantly stepped-up decommissioning funding under 10 CFR §50.75 amounting to either prepayment or a surety, insurance, or other guarantee method. According to the NRC, "to the extent that licensees no longer qualify, in whole or in part, as electric utilities, they will, in effect, have to

'accelerate' funding by getting 'up front' forms of financial assurances, 62 FR 47592."

2

This utility raises a serious question that implies that the only answer for the State PUC is to bar nuclear units from competition because the State PUC must provide for the recovery of costs to operate and decommission these facilities. The utility emphasizes its position on page 6 of its reply to the New York Commission Staff, when it says:

The NRC has recently issued a proposed rule entitled "Financial Assurance Requirements for Decommissioning Nuclear Power Reactors,"

62 Federal Register 47588 (September 10, 1997). If the proposed rule is adopted, it would revise the definition of "electric utility" to more clearly impose operational cost sufficiency criteria, as well as to include license holders recovering funds sufficient "to operate, maintain and decommission its nuclear plant safely" through a "non-bypassable charge mechanism," see 62 FR 47606.

It is clear that the NRC's proposed rule reaches to both operations and decommissioning funding, requiring both categories of costs to be recovered under either cost-of-service or non-bypassable charge mechanisms. Proposed new regulation 10 CFR §50.75(e)(3) would mandate in pertinent part that:

"[f]or an electric utility, its rates must be sufficient to recover the cost of the electricity it generates, transmits, or distributes. These rates must be established by a regulatory authority such that they are sufficient for the licensee to operate, maintain, and decommission its plant safely." See 62 FR 47606.

This utility lifted "parts" of the NRC definition of an "electric utility" out of context in order to make its argument. If one turns to the third sentence in the proposed NRC definition, there is a clarification of the previous two sentences: "An entity whose rates are established by a regulatory authority by mechanisms that cover only a portion of its costs will be considered to be an "electric utility" only for that portion of the costs that 3

are collected in this manner." 1 This language explains that, if decommissioning funds are collected through either rates or some non-bypassable charge, then in regard to decommissioning funds the entity will be considered an "electric utility."

The proposed language in 10 CFR Section §50.75(e)(3) implies in its first two sentences that rates must be established by a regulatory authority such that a licensee can operate, maintain, and decommission its plant safely. This language conflicts with the NRC definition of an electric utility in §50.2. The Commission believes that this conflict can be easily clarified by deleting most of the first two sentences of

§50.75(e)(3). Since an electric utility is defined in §50.2, it is understood by its definition that, if its rates are not sufficient to recover costs, then it is not an electric utility for those cost classes (operation, maintenance, or decommissioning) and financial requirements for other entities would come into play.

The proposed revision reads as follows:

(3) For an electric utility, its rates must be sufficient to recover the cost of the electricity it generates, transmits, or distributes. These rates must be established by a regulatory authority such that they are sufficient for the licensee to operate, maintain, and decommission its plant safely. T the Commission reserves the right to take the following steps in order- to assure a licensee's adequate accumulation of decommissioning funds:

review, as needed, the rate of accumulation of decommissioning funds; and either independently or in cooperation with either the FERC and the State PUC's, take additional actions as appropriate on a case-by-case basis, including modification of a licensee's schedule for accumulation of decommissioning funds. Acceptable methods of providing financial assurance for decommissioning for an electric utility are -

1 10 CFR Section 50.2.

4

Thank you for your consideration.

Respectfully submitted, Illinois Commerce Commission 160 North LaSalle Street Suite C-800 Chicago, Illinois 60601 (312) 793-2877

• Attorney for the Illinois Commerce Commission JEW/sr 5

SPIEGEL & MCDIARMID GEORGE SPIEGEL , PC ROBERT C . McDIARMID 1350 NEW YORK AVENUE, NW DOCK ETED MATTHEW W . WARD JEFFREY A. SCHWARZ SANDRA J. STREBEL ROBERT A. JABLON JAMES N. HORWOOD WASHINGTON, DC 20005-4798 US NRC

• THOMAS J. BYRNE ALAN J . ROTH FRANCES E . FRANCIS TELEPHONE (202) 879-4000 OF COUNSEL DANIEL I. DAVIDSON THOMAS C. TRAUGER FACSIMILE (202) 393-2866 EMAIL SPIEGEL@SPIEGEL.BECL TD.CO~

• 07 NOV 24 p4 *20 '

LEE C . WHITE MARGARET A. MCGOLDRICK JOHN J. CORBETT P. DANIEL BRUNER CYNTHIA S. BOGORAD GARY J . NEWELL DIRECT DIAL (202) 879-4011 SCOTT H . STRAUSS EMAIL NEWELLG@SPIEGEL BECL T f f i f ' fC!:~  ! ;: ;:-,i:;*~,h

• 1,11.J~Y BEN FINKELSTEIN LISA G. DOWDEN RISE J. PETERS Ru *,...\r*'.'~. ii.I'* i,,10.

L.t: J*. 1'\ 1 '*

I.:*. ,...,_J

• 1*,

f--1,j " 1-j

• ,)"TAFF PUBLIC AFFAIRS DIRECTOR KENNETH A. BROWN November 24 1997 ADJUDl --* " .,_.,

(NOT A M E MBER OF THE IAIIIJ PETER J. HOPKINS 1*~ 1 - -

DAVIDE . POMPER MARK S . HEGEDUS Via Hand Delivery DOCKET NU1 ER PROPOSED AU E 1 5'-""'0_ _,

Office of the Secretary

( ~/l (I< '115'3'3)

U.S. Nuclear Regulatory Commission One White Flint North, 16th Floor 115 55 Rockville Pike Rockville, MD 20852 ATTN: Rulemaking and Adjudications Staff Re: Financial Assurance Requirements for Decommissioning Nuclear Power Plants, 10 C.F.R. Part 50

Dear Sir or Madam:

Pursuant to the Commission's Notice of Proposed Rulemaking (published on September 10, 1997, 62 Fed. Reg. 47588), I enclose for filing in the captioned docket an original and twelve copies of the Public Systems Group's Comments on Proposed Rule.

Please time stamp two of the copies and return them to our messenger for our files.

Thank you for your attention to this matter.

/L':;{-

'1ary7 New~

Attorney for the Public Systems Group Enclosure cc: Brian J. Richter, Office of Nuclear Regulatory Research JIW 2 8 1997 ldnowledged by

U.S. NUCLEAR REGULATORY COMMISSION RULEMAKINGS &ADJUDICATIONS STAFF OFFICE OF THE SECRETARY OF THE COM,A!SS!ON Postmarl<Datci f/rind ])e/,'vfr'1t/ /I ~/'I 1 Copiss Rece:. ::! _ _ /3_ ,.___ _ __

Add'I Cc'Jies ri~or ., j ~ -'""--- - - -

Special L' "' 1..i .,..,,_

• t~

Ga ({tA3her p/)£; K l DS_ _

UNITED STATES OF AMERICA BEFORE THE NUCLEAR REGULATORY COMMISSION Financial Assurance Requirements for 10 CFR Part 50 Decommissioning Nuclear Power Reactors COMMENTS OF THE PUBLIC SYSTEMS GROUP ON PROPOSED RULE Pursuant to the notice published by the Commission in the Federal Register on September 10, 1997 (62 Fed. Reg. 47588), the Public Systems Group hereby submits its comments on the proposed amendments to the Commission's regulations on financial assurance requirements for the decommissioning of nuclear power reactors. The publicly-owned utility systems sponsoring these comments as members of the Public Systems Group are listed in Attachment A.

The Commission states in the preamble to its proposed rule that the amendments are "in response to the potential deregulation of the power generating industry and respond to questions on whether current NRC regulations concerning decommissioning funds and their financial mechanisms will need to be modified." As a preliminary matter, the Public Systems Group wish to express their support for the Commission's decision to take the initiative in addressing the fundamental changes now sweeping the electric power markets. The restructuring of the electricity industry presents numerous challenges to the regulatory agencies that have interfaced with the industry in various ways over the years. The Commission is to be applauded for taking early action to address the manner in which restructuring may affect the funding of nuclear

decommissioning costs. However, the Public Systems Group is concerned that the proposed rule may unintentionally impede certain activities and potential transactions that will be essential to an effective restructuring of the industry. The proposed rule should be modified so that the assurance of decommissioning funding can be maintained without impeding the industry's momentum toward restructuring or conflicting with other national policy goals.

COMMENTS ON PROPOSED RULE I. DECOMMISSIONING ASSURANCE REQUIREMENTS FOR NON-REGULATED ENTITIES A. The Proposed Decommissioning Assurance Requirements for Non-Regulated Entities May Impede Transactions that are Essential for an Effective Restructuring of the Electricity Industry.

In the preamble to its proposed rule, the Commission states its conclusion that the advent of deregulation in the electric utility industry requires a modification to the Commission's decommissioning funding regulations. The new funding assurance requirements applicable to non-regulated entities, in particular, are a direct outgrowth of this determination.

The principal change proposed by the Commission is a modification to the regula-tory definition of "electric utility" set forth in l O CFR § 50.2. Under the modified definition, a licensee will be considered an "electric utility" only to the extent that decommissioning costs are recovered through cost-of-service rates or non-bypassable

1 charges. If a licensee loses the status of an "electric utility" because its rates are deregu-lated, the licensee may be required to comply with more stringent funding requirements.2 Specifically, a licensee that loses its status as an "electric utility" could no longer comply with the funding requirements by showing a plan to deposit decommissioning funds into an external trust fund over the life of the facility. Instead, such a licensee may be required to provide decommissioning assurance through "up-front" means, such as (i) prepayment of decommissioning costs, (ii) use of an external sinking fund coupled with a surety method or insurance that would cover any unfunded balance, or (iii) a surety method, insurance or other guarantee method for the full amount of decommissioning costs.

The Commission recognizes that imposing the requirement of up-front assurance would severely reduce the field of entities who could become licensees of nuclear power plants. In this regard, the Commission states as follows:

The Commission understands that financial assurance would put a burden on licensees that may affect their competitiveness in a deregulated environment. The Commission has chosen to take an approach that would create no additional financial impact over present regulations for electric utilities. It has also expanded the definition of electric utility to accommodate types of rate regulation not previously anticipated. There are also 1

The examples of a "non-bypassable charge" given by the NRC are a wires charge, or a non-bypassable customer fee, including securitization or exit fees.

2 An exception is made for self-regulated municipal and state-owned systems. The proposed regulation states that "public utility districts, municipalities, rural electric cooperatives, and State and Federal agencies, including associations of any of the foregoing, that establish their own rates are included within the meaning of'electric utility."'

sufficient existing options to demonstrate financial assurance for non-electric utilities. Entities without adequate financial capital may find it difficult to finance up-front decommissioning funding and operate nuclear power plants safely. These newly formed companies may not be good candidates for nuclear plant ownership.

62 Fed. Reg. at p. 47594.

The Public Systems Group is concerned that, while this element of the proposed rule may have a laudatory goal, it could severely impede transactions that are essential to an effective restructuring of the electricity industry. The above quotation suggests that the Commission's principal concern is that regulated utilities will spin off their nuclear generation assets to unregulated enterprises that are thinly capitalized and might go out of existence without having provided for decommissioning costs. However, the rule also would inhibit transfers to more substantial, well-capitalized entities that may be attractive transferees of nuclear assets.

As the Commission is aware, a number of operating nuclear plants have been plagued in recent years by inadequate maintenance, spotty performance, and poor overall management. As the Public Systems Group argued in their comments in response to the Advance Notice of Proposed Rulemaking, these poorly performing plants have acted as a drag on the industry as a whole. For this reason, the transfer of poorly performing plants to more capable and efficient operators should be encouraged. Many substantial, well-capitalized entities (PECO Energy and Duke Energy, for example) have, in recent years, investigated or expressed interest in the purchase of operating nuclear plants. These entities may be better equipped to run a plant in a safe and efficient manner than the

incumbent operator. However, to the extent that the up-front assurance requirement specified in the proposed rule might apply, it would impose such a financial burden that it would likely prevent the sale of a nuclear plant even where a sale is the best course of action for consumers, the public, and the utility involved.

There is no reason to obstruct beneficial transfers to substantial entities simply because the new operator proposes to sell a plant's output into competitive (as opposed to regulated) markets. The Commission is fully capable of dealing on a case-by-case basis 3

with the specific circumstances presented by any particular case. An inflexible approach will inhibit beneficial transfers of ownership along with the "problematic" transfers. This impact, in tum, may serve to impede industry restructuring since the divestiture of generating assets is becoming an increasingly common ingredient in state-level restructuring plans.

In many ways, the proposed rule will have serious anticompetitive effects. The up-front funding requirement would erect a huge "barrier to entry" to plant ownership by any new entrant to the field. This could result in a plant remaining in the hands of the current owner regardless of that owner' s skill or diligence in operating the plant, or even its willingness to continue operating the plant. There is no good reason to hinder the sale of a plant by a regulated utility company to a non-regulated entity if the utility has managed the plant poorly and if the new operator is capable of improving the plant's 3

In this regard, there should be some commitment to prompt action by the NRC since regulatory delay can often be fatal to a business transaction.

operations and selling its output in competitive markets. The Commission should seek to facilitate beneficial transfers of ownership, or at least refrain from erecting barriers to such transfers. 4 B. The Commission Should Investigate a Government-Sponsored Insurance Plan/or Decommissioning Costs.

The Public Systems Group's concern about the impact of the proposed rule arises, in part, from skepticism about the availability of the alternative funding methods (surety bonds, for example) that the NRC claims could be used by unregulated entities to meet the up-front funding obligation. (See 62 Fed. Reg. at p. 47596.) There is real doubt, or at least uncertainty, as to whether an insurance product or a surety bond could be procured to secure a non-electric utility's share of decommissioning costs. 5 The cost of procuring such a bond could potentially exceed the cost of pre-funding decommissioning expenses in cash. In any case, we are unaware of any evidence that the financial markets will provide such instruments at a reasonable cost. In the absence of such evidence, it would be wrong for the Commission to assume the availability of these instruments to justify its decision.

4 North Carolina Municipal Power Agency No. 1 and North Carolina Eastern Municipal Power Agency believe that the Commission also (i) should consider providing its views to legislators and regulators in states that are engaged in industry restructuring activities, and (ii) should express the position that the states should seek to provide assured revenues for the operation and decommissioning of nuclear plants.

5 The Commission seems to share the concern, at least in part. In requesting additional comment on forms of financial assurance, the Commission refers to the mechanisms described in 10 CFR 50.75(e)(2) and states that it "is concerned that these financial assurance mechanisms may not be available to some licensees .... " 62 Fed. Reg. at p. 47596. The truth of the matter is that these mechanisms may not be available to many licensees, or even at all, at a reasonable cost.

The NRC should consider other ways of ensuring the availability of decommissioning funding without obstructing beneficial transfers of nuclear plants or otherwise impeding competition. While the NRC has rejected the Public Systems Group's suggestion that the Commission seek to classify well-run and poorly-run plants,6 such distinctions among plants may be necessary in order to balance the competing objectives sought to be addressed in the proposed rule. In any event, one result of the Commission's proposed rule would be to deprive existing licensees of the value of their ownership shares by establishing hurdles that cannot be met or by so restricting the market that there can be no buyers.

One concept that should be investigated by the Commission is the creation of a government-managed decommissioning insurance plan, in which a licensee could purchase from the government a surety bond or insurance policy of the sort that the NRC seems to assume may be purchased in the open market. The cost of the bond or policy could be geared to each plant's performance history or SALP rating, with licensees of poorly run plants paying a higher premium, and licensees of well-run plants paying a 7

lower premium. The goal of ensuring decommissioning funding would be satisfied, while also introducing an additional economic incentive for the transfer of poorly run plants to more efficient operators, and encouraging continued good operations by the 6

See 62 Fed. Reg. at pp. 47601-02.

7 Government participation in the private insurance markets is not unprecedented, especially where the risk is not readily subject to management or the level of potential exposure is large. Federal flood insurance is a good example.

well-run plants. In short, the incentives would be running in favor of preserving well-run plants rather than preserving all plants (both well-run and poorly-run).

C. The Commission Should Take Steps to Avoid Possible Double-Charging of Transmission-Dependent Utilities.

A further concern of the Public Systems Group is the possibility that a double-charging of certain transmission-dependent utilities ("TDUs") could result under the proposed rule. Specifically, the NRC states that if a utility's nuclear assets are no longer subject to conventional cost-of-service regulation, the utility may retain eligibility as an "electric utility" if it has been authorized to collect a non-bypassable "wires charge" for the cost of its nuclear assets. (See 62 Fed. Reg. at pp. 47592-3, and the revised definition of "Electric utility" in proposed 10 CFR § 50.2).

However, in many instances of jointly owned nuclear plants, the minority owners of a plant are also TD Us. That is, the minority owners rely on transmission over the system of the majority owner (or other utilities) to obtain their share of plant output and other power resources. If these minority owners are directly funding their own share of decommissioning costs while also paying a portion of another owner's costs through a "wires charge," the minority owner is being double-charged for decommissioning. This would have an anti-competitive cost-shifting effect. The NRC should be alert to this possibility, and should require that licensees make a demonstration or sworn statement (to be reaffirmed annually) that there are no such double charges occurring.

D. The Commission Should Clarify its Position on Joint and Several Liability.

Among the other matters addressed in the preamble to the proposed rule is the subject of joint and several liability for decommissioning costs. The NRC expressly declines to impose joint and several liability, citing potential problems with respect to disagreement on decommissioning methods, the inhibition of flexibility, the weakening of competitive position, and the difficulty in implementation. The Commission also states that joint and several liability may not be needed, in light of other financial

• assurance requirements (including the modified definition of "electric utility"). 62 Fed.

Reg. at p. 47594.

The Public Systems Group agrees with the Commission's decision to refrain from seeking to impose joint and several liability for decommissioning costs. However, it is not entirely clear how the Commission's comments in the preamble to its proposed rule are reconciled with the statements on joint and several liability contained in the Commission's recent Final Policy Statement on electric industry restructuring. 8 In the latter issuance, the Commission states that it "reserves the right, in highly unusual situations where adequate protection of public health and safety would be compromised if such action were not taken, to consider imposing joint and several liability on co-owners of more than de minimis shares when one or more co-owners have defaulted." (62 Fed.

Reg. at p. 44074).

8 Final Policy Statement on the Restructuring and Economic Deregulation of the Electric Utility Industry, 62 Fed. Reg. 44071 (August 19, 1997).

The "reservation" contained in the quoted portion of the Final Policy Statement could be read to conflict (at least in part) with the Commission's broader rejection of joint and several liability set forth in the preamble to its proposed financial assurance rule. For that reason, clarification of the Commission's position is needed. The Public Systems Group believes that the industry would benefit from a clarification of the Commission's views on the matter, since the prospect of joint and several liability is so directly at odds 9

with numerous contractual arrangements for nuclear plant ownership and operation.

Such clarification is hereby requested.

II. TRUST FUND EARNINGS CREDIT FOR EXTENDED SAFE STORAGE PERIOD The proposed rule also addresses the question of whether the anticipated earnings on decommissioning trust funds should be credited against the costs, thereby reducing the required level of collections. For example, significant earnings could accrue to the fund over the period of time between plant shutdown and the commencement and completion of decommissioning activities (the "safe storage" period). Current NRC policy does not permit such earnings to be credited against the estimated decommissioning costs in determining an appropriate level of recovery.

9 With respect to the issue of joint and several liability, certain members of the Public Systems Group also sponsor the "Publicly Owned Systems' Request for Reconsideration or, in the Alternative, Motion to Delay Effectiveness of a Portion of the Final Policy Statement in Order to Receive Additional Public Comment,"

filed on October 14, 1997. That request, which sets forth the bases for the sponsoring parties' opposition to joint and several liability, is pending before the Commission.

The proposed rule appears to reflect a determination by the Commission that its current policy is too conservative. The Commission proposes to allow a credit for earnings from the time funds are collected through the decommissioning period. The Commission proposes to allow crediting based on an assumed 2% real rate of return. The 2% figure is a "default earnings amount" during the period of time of reactor operations; if a higher earnings amount has been approved by a rate-setting authority in establishing decommissioning collections, that higher amount may be used by the licensee. (See 62 Fed. Reg. at pp. 47599-600.) The Commission believes that its monitoring requirements and authority to require adjustments in fund collections will be adequate to ensure that sufficient decommissioning funds are collected if realized rates of return are lower than 2%.

The Public Systems Group believes that the proposal to allow crediting of fund earnings is reasonable, and is consistent with regulatory policy at FERC which recognizes both earnings and inflation. Recognizing a reasonable level of earnings relieves some of the burden on current ratepayers to fund decommissioning activities. Moreover, it is reasonable to assume some level of earnings while the fund is being drawn down for actual decommissioning activities. The assumption of a 2% real rate of return seems reasonable (and perhaps even conservative, given current inflation and capital market conditions).

The proposed rule indicates that the assumption of a 2% rate of return is optional.

While the 2% figure appears reasonable, there may be unusual circumstances where a licensee's status causes it to be subject to restrictive investment requirements that result

in a lower rate of real growth in its decommissioning fund. In such instances, the licensee may wish to use a lower growth rate. The Commission should clarify that an earnings rate ofless than 2% may be used, if a licensee demonstrates that it is subject to investment restrictions that limit the return it is able to achieve to less than 2%.

III. REPORTING REQUIREMENTS FOR DECOMMISSIONING FUND STATUS The Commission proposes to require periodic reporting on decommissioning fund status so that the Commission has assurance that licensees are achieving the required level of funding. With respect to the content of the required reports, the Commission states that it is in the process of issuing a draft Regulatory Guide which would endorse FASB Draft Standard No. 158-B, "Accounting for Certain Liabilities Related to Closure or Removal of Long-Lived Assets." (See 62 Fed. Reg. at pp. 47600-601.) The Commission also states that it is endorsing the draft F ASB standard "as a means of providing guidance for licensees to comply with those portions of the NRC's regulations regarding a licensee's reporting on the status of its decommissioning funding."

The required information on fund status is to be submitted on a "per-unit" basis.

(See 62 Fed. Reg. at p. 47601.) The first report on the status of decommissioning funds would be due within nine months after the effective date of the proposed rule. Thereafter, reports must be submitted at least once every two years, except that the licensees of any plants that are within five years of their planned end of operation must submit reports annually. (62 Fed. Reg. at p. 47601.)

The Public Systems Group supports the NRC's proposed reporting requirement; indeed, a comprehensive reporting requirement is long overdue. Such a requirement is particularly appropriate given that the FERC and state commissions have not been active in monitoring fund status on an ongoing basis. The monitoring requirement should permit the NRC to determine whether funding targets are being met in a prudent manner, and, if not, whether corrective action is necessary.

It is important, however, that the periodic reports on fund status be made available to all interested parties. Accordingly, the Commission should require that a licensee's periodic reports be made available to the public, or, at a minimum, to other co-licensees of the same plant. This information will allow affected parties to take action if, in their opinion, an appropriate level of funding is not being achieved. Also, other co-owners should have the information to ensure that all co-licensees will be in a position at shutdown to shoulder their share of the decommissioning cost burden.

The Public Systems Group believes that one point of clarification of the proposed reporting requirement is needed. It is not entirely clear from the proposed rule whether individual licensees of a jointly owned plant must submit their own status reports, or whether the plant operator can submit a report on behalf of all co-licensees. The statement that reporting will be on a "per-unit" basis appears to be in contrast to an approach where individual co-licensees would submit a report on the status of decommissioning funds for their individual shares. However, this is not entirely clear.

Clarification would be useful as to whether individual co-licensees each must file the periodic reports, or whether the plant operator could file the reports on behalf of all

owners. There may be some efficiency or economy in having the operator provide the data for all owners, where that is appropriate (for example, in a decommissioning situation where the aggregate of available funds is the central element).

IV. CONCLUSION The Public Systems Group supports the NRC's effort to address the changes sweeping the electricity industry. However, aspects of the proposed rule could have adverse and anticompetitive effects on the transfer of nuclear plant ownership, even in cases where a transfer of ownership is the best course of action from the perspective of ratepayers and the public at large. The proposed rule appears to have the practical effect oflimiting nuclear plant ownership to electric utilities with cost-of-service rate recovery.

Given the vast sweep of electric utility restructuring, that notion is antiquated and not realistic. A "one size fits all" approach to the problem will not do. The Commission should recognize that in many instances facilitating the transfer of "problem plants" is good public policy, and for that reason the Commission should avoid interposing regulations that would hamper beneficial transfers of ownership.

Respectfully submitted, G

Frances E. Francis Attorneys for the Public Systems Group Law Offices of:

Spiegel & McDiarmid 1350 New York Avenue, NW Suite 1100 Washington, DC 20005-4798 (202) 879-4000 November 24, 1997

ATTACHMENT A ENTITIES SPONSORING COMMENTS ON BEHALF OF THE PUBLIC SYSTEMS GROUP

1. North Carolina Eastern Municipal Power Agency ("NCEMPA") is a public body and body corporate and politic under the Joint Municipal Electric Power and Energy Act (codified as Chapter 159B of the General Statutes ofNorth Carolina).

NCEMP A is the all requirements bulk power supplier to 32 cities and towns located in Piedmont or eastern North Carolina that own and operate their own electric distribution systems. NCEMPA owns a 18.33% undivided ownership interest in each of the two nuclear generating units at the Brunswick Steam Electric Plant, and a 16.17% undivided ownership interest in Unit 1 at the Shearon Harris Nuclear Power Plant.

2. North Carolina Municipal Power Agency No. 1 ("NCMPAl ") is a municipal joint action agency organized in 1976 under North Carolina's Joint Municipal Electric Power and Energy Act (Chapter 159B of the General Statutes of North Carolina). NCMPAl is the all-requirements power supplier to 19 North Carolina cities and towns that own and operate their own municipal electric systems.

NCMPAl owns a 75% undivided ownership interest in Unit No. 2 at the Catawba Nuclear Station.

3. Piedmont Municipal Power Agency ("PMPA") is a public body, and body corporate and politic of the State of South Carolina organized in 1979 pursuant to Chapter 23, Title 6 of the Code of South Carolina. PMPA is the all-requirements bulk electric power supplier to nine South Carolina cities and towns that own and operate their own municipal electric systems. PMPA owns a 25% undivided interest in Unit No. 2 at the Catawba Nuclear Station.

4. New Hampshire Electric Cooperative, Inc. ("NHEC") is a consumer-owned electric cooperative that provides service in parts of nine New Hampshire counties. NHEC is the owner of an approximately 2.17%

undivided ownership interest in Unit No. 1 at the Seabrook Nuclear Station. NHEC also has an entitlement to a portion of the output of the Maine Yankee nuclear generating station.

5. Massachusetts Municipal Wholesale Electric Company ("MMWEC")

is a political subdivision of the Commonwealth of Massachusetts engaged in the development of bulk power supply for its municipal electric system members. MMWEC is a joint owner of Millstone Unit No. 3 (a nuclear electric generating unit located at the three-unit Millstone station operated by Northeast Utilities and located near Waterford, Connecticut) and Unit No. 1 at the Seabrook nuclear power station (a single-unit generating station operated by Public Service Company of New Hampshire and located in Seabrook, New Hampshire). MMWEC's share of Millstone 3 capability is 55.2 megawatts, and its share of Seabrook 1 capability is 133.3 megawatts.

6. Connecticut Municipal Electric Energy Cooperative ("CMEEC") is a subdivision of the State of Connecticut formed under Connecticut law to

• serve the bulk power needs of its five municipal electric utility members .

CMEEC is the owner of a 12.5 megawatt undivided ownership interest in the Millstone Unit No. 3 nuclear generating unit.

REID & PRIEST LLP 0)

MARKET S QUARE oocKETEO 701 PENNSYLVANIA AVE NUE , N . W . USNRC WASHINGTON, D . C . 20004 NEW YORK O FFIC E

.."'V 011 40 WEST 57TH STREET TELE P HON E 202 508

• 4000 FAX 202 5 08

• 4 3 21 "91 l'tU 2"f,1J.ECT

.4wA p *e f fN O FFICE

• DIAL N U M B ER NEW YORK , N . Y . 10019 - 40 9 7 2 12 00 3 -2000 FAX : 212 603 - 2 001 November 24, 1997 HAND DELIVERED Mr. John C. Hoyle Secretary U.S. Nuclear Regulatory Commission 11555 Rockville Pike Rockville, Maryland 20852 Re: Financial Assurance Requirements for Decommissioning Nuclear Power Reactors

Dear Mr. Hoyle:

Enclosed are the comments of the Utility Decommissioning Tax Group (Group) to the Proposed Rule of the Nuclear Regulatory Commission concerning Financial Assurance Requirements for Decommissioning Nuclear Power Reactors. A listing of the members of the Group is attached to the comments.

If you have any questions regarding the enclosed comments, please contact the undersigned or Martha G. Pugh at (202) 508-4000.

Very truly yours, Patricia M. Healy PMH/bd Enclosures cc: Mr. Brian J. Richter (w/enc.)

l l /24/97/BSD/06507/002/ LETIER/8067 1.1/80671. I AdnMledg,adbJClld fl>V 2 8 1987 ,,

1

U.S. NUCL::AR REGULATO Y CO ISSION RULEMAKINGS& ADJUDICIJIONS STAFF OFFICE OF TH * -CRETARY OFTHECO,

REID & PRIEST LLP COMMENTS OF UTILITY DECOMMISSIONING TAX GROUP CONCERNING THE PROPOSED RULE ON FINANCIAL ASSURANCE REQUIREMENTS FOR DECOMMISSIONING NUCLEAR POWER PLANTS Introduction The Utility Decommissioning Tax Group (Group) through its attorneys, Reid & Priest LLP, submits these comments to the Proposed Rule (Proposed Rule) concerning the Financial Assurance Requirements for Decommissioning Nuclear Power Plants (62 ~- .B&g. 47,588 (September 10, e 1997)). The Group is comprised of 38 nuclear electric utility companies and 29 trust companies or investment management/consulting firms involved in the administration and management of external nuclear decommissioning trust funds. A list of the members of the Group is attached.

Because the Group primarily focuses on tax and funding issues affecting nuclear decommissioning trust funds, these comments are limited to those sections of the Proposed Rule dealing with these issues.

General Comments The Group commends the Nuclear Regulatory Commission (NRC) for proposing to amend its regulations on financial assurance requirements for the decommissioning of nuclear power plants in response to the deregulation of the electric utility industry. In particular, the Group views the expanded definition of electric utility set forth in the Proposed Rule at 10 C.F.R. § 50.2 to be a positive change which, if promulgated as proposed, will include entities that recover the cost of generating, transmitting, or distributing electricity indirectly through a non-bypassable charge mechanism in addition to those entities that recover that cost through traditional cost-of-service regulation. The Group believes this revised definition of electric utility will permit many entities

REID & PRIEST LLP that currently meet the definition of electric utility to continue to do so by recovering decommissioning costs through a non-bypassable charge in a deregulated environment.

As previously stated in the comments of the Group with regard to the Advance Notice of Proposed Rulemaking on the Financial Assurance Requirements for Decommissioning Nuclear Power Reactors (61 ~- ~- 15,427 (April 8, 1996)), the Group continues to believe that, notwithstanding the collaborative efforts of the industry and the NRC, the issue of appropriate financial assurance requirements for an entity not meeting the definition of an electric utility may

- not be fully resolved by a single alternative applicable to all licensees nor within one set of regulations; ultimately the scope of permissible financial assurance methods may need expansion as deregulation proceeds. For example, the NRC should note that there are situations in which licensees which meet the current definition of electric utility under 10 C.F .R. § 50.2 either will no longer meet the revised definition under the Proposed Rule or will qualify as an electric utility for only a portion of their decommissioning costs. These situations may occur where the licensee does not recover decommissioning costs through rates established by a regulatory authority or recovers

- only a portion of such costs in this manner. Therefore, the Group continues to urge the NRC to provide for adequate transition time to allow for legislative or regulatory changes to accommodate the revised NRC definition of electric utility. Additionally, the NRC should continue to evaluate licensees on a case-by-case basis when necessary and to offer a variety of mechanisms from which licensees may select to satisfy the financial assurance re.quirements of the NRC. The Group also commends the NRC for allowing licensees to take credit for earnings on the decommissioning funds using a two percent annual real rate of return under the Proposed Rule at 10 C.F.R. §50.75(e)(l),

where the licensees' rate setting authority does not authorize the use of another rate.

REID & PRIEST LLP The Group suggests the following items present issues that arise from the changes made by the Proposed Rule.

Definitions {10 C.F.R. § 50.2)

The definition of non-bypassable charges included in the Proposed Rule includes those charges imposed by a governmental authority which affected persons or entities are required to pay to cover costs associated with operation, maintenance and decommissioning of a nuclear power plant. The Group submits that the definition instead should require that costs associated with operation, maintenance or decommissioning of a nuclear power plant be included within the definition of non-bypassable charges.

The Group notes that the trend developing under state legislative or regulatory action causes costs associated with decommissioning nuclear units to be addressed separately from costs associated with the operation and maintenance of nuclear plants. This direct attention and provision by state action to recover decommissioning costs is a positive development in the recognition of the e obligation to decommission. The Group therefore believes that the specific identification of decommissioning costs with respect to financial assurance for the recovery of decommissioning costs should be encouraged. Thus, the definition of non-bypassable charges shpuld acknowledge that the costs may be associated with operation, maintenance, or decommissioning of a nuclear power plant.

Rate of Return no C.F.R. § 50.75(e))

The Group supports allowing licensees to take credit for earnings on the decommissioning funds using a two percent annual rate of return. The Group believes that the flexibility to use an

REID & PRIEST LLP alternate annual real rate of return authorized by the licensees' rate setting authority is particularly useful. The NRC provided the following in response to comments regarding this issue:

Therefore, the Commission proposes to use a 2 percent real rate of return throughout the decommissioning collection period as a default earnings amount and in the safe storage period as a specified amount. ... Higher earnings amounts will be allowed during the period of reactor operation if specifically approved by a rate setting authority.

62 ~- ~ - 47,599 - 47,600 (September 10, 1997). 1 The Group submits that in certain circumstances a different earnings rate might be

- appropriate for the safe storage period as well as throughout the decommissioning collection period.

For example, a particular nuclear unit in a plant may no longer be in operation and , therefore, the unit may be in a safe storage period until the other reactors at the same plant shut down and begin decommissioning. Thus, the Group urges the NRC to permit greater flexibility and conformity with ratemaking determinations by allowing a different rate of return throughout the safe storage period if specifically approved by a rate setting authority.

e Reportin& and Recordkeepin,: for Decommissionin,: Plannina: 00 C.F.R. § 50.75(f)(l))

Under 10 C.F.R. § 50.75(t)(l) , as set forth in the Proposed Rule, each power reactor licensee shall report to the NRC within nine months after the effective date of the final rule and at least once every two years thereafter on the status of its decommissioning funding for each reactor facility it owns. This reporting requirement specifies that the amount of decommissioning funds accumulated to the date of the report is to be provided. The Proposed Rule is silent regarding the

1. The NRC should note that there is a discrepancy between the Proposed Rule at 10 C.F .R. § 50. 75(e)(l)(i) and (ii) which state that the licensee may take credit from the time of collection of the funds only through the decommissioning period and this response which refers to the safe storage period. The Group suggests that the NRC resolve this discrepancy in the final rule.

REID & PRIEST LLP reference date as of when the additional information is to be provided. The Group submits that licensees generally gather and accumulate the information that must be included in this report on a calendar year basis. The Group therefore suggests that all information required by the report be presented on the basis of the licensees' most recent calendar year end in order to relieve any unnecessary administrative burden associated with re-processing the information for submission to the NRC.

Conclusion The Group appreciates the opportunity to submit these comments to the NRC. If further information is required, please contact Patricia M. Healy, Esquire or Martha G. Pugh, Esquire, of Reid & Priest LLP by mail at 701 Pennsylvania Avenue, N.W. , Suite 800, Washington, D.C.

20004, or by telephone at (202) 508-4000.

Respectfully submitted, 0~71,.~

Patricia M. Healy Reid & Priest LLP 701 Pennsylvania Avenue, N.W.

Suite 800 Washington, D. C. 20004 (202) 508-4140 Fax: (202) 508-4321

~ ) j . B _ !l Martha G. Pugh ~

Reid & Priest LLP 701 Pennsylvania Avenue, N. W.

Suite 800 Washington , D. C . 20004 (202) 508-4147 Fax: (202) 508-4321 79644.1

REID & PRIEST LLP MEMBERS OF THE UTILITY DECOMMISSIONING TAX GROUP Alliance Capital Management, L.P.

American Electric Power Service Corp.

Arizona Public Service Company Baltimore Gas & Electric Company Bankers Trust Company BlackRock Financial Management, Inc.

Brown Brothers Harriman & Company Capital Guardian Trust Company Carolina Power & Light Company Central & South West Services, Inc.

Central Hudson Gas & Electric Corporation Commonwealth Edison Company Consolidated Edison Company of New York Delaware Investment Advisers Delmarva Power & Light Company The Detroit Edison Company Duke Power Company Duquesne Light Company El Paso Electric Company Entergy Services, Inc.

Fidelity Management Trust Company Florida Power Corporation FPL Group, Inc.

The Glenmede Trust Company IES Utilities Inc.

Illinois Power Company J.P. Morgan Kansas City Power & Light Company Lehman Ark Management Long Island Lighting Company Loomis Sayles & Company Inc.

Maine Yankee Atomic Power Company Mellon Bank Mercer Investment Consulting, Inc.

MidAmerican Energy Company NBD Bank, N.A.

New York State Electric & Gas Corporation Niagara Mohawk Power Corporation NISA Investment Advisors, L.L.C.

Northern States Power Company Nuveen Asset Management Ohio Edison Company

REID & PRIEST LLP Pacific Gas & Electric Company PanAgora Asset Management PECO Energy Company Phoenix Duff & Phelps Investment Advisors Provident Investment Counsel Public Service Company of New Mexico Public Service Electric & Gas Company San Diego Gas & Electric Company Sanford Bernstein & Company, Inc.

Schoenke & Associates Scudder, Stevens & Clark, Inc.

Southern California Edison Company Southern Company Services, Inc.

State Street Bank and Trust Company Strong Capital Management, Inc.

Summit Strategies Group T. Rowe Price Associates Texas Utilities Services, Inc.

TradeStreet Investment Associates U.S. Trust Company Vermont Yankee Nuclear Power Corp.

Western Resources, Inc.

W.H. Reaves & Co., Inc.

Wisconsin Electric Power Company Yankee Atomic Electric Company

DOCKET N BER PROPOSED RULE 5o

( <i,~~R '-1158~)

UNITED STATES OF AMERICA DOCKETED NUCLEAR REGULATORY COMMISSION USNRC 24 pJ :29 Financial Assurance Requirements Docket No. RIN 3150-A~l NOV for Decommissioning Nuclear Power Reactors OFF/Cr l1r sr-:. ~ ,, r:-;*1 RUU f '. f'H\Jr;~* *\hif '1 coMMENTs oF THE PUBLic sERvicE coMMissioN ADJuo1cA.T10 ~s ~:;TAFF OF THE STATE OF NEW YORK The Public Service Commission of the State of New York (PSCNY) appreciates this opportunity to comment on the Notice of Proposed Rulemaking (NOPR) issued by the Nuclear Regulatory Commission (NRC or Commission) on financial assurance for nuclear decommissioning costs in a competitive electric industry. PSCNY requests that the NRC consider the comments contained in Appendix A, which address the specific questions raised in the NOPR. On April 8, 1996, the NRC published its Advanced Notice of Proposed Rulemaking (ANOPR) soliciting commments by June 24, 1996. On September 10, 1997, the NRC issued its Notice of Proposed Rulemaking (NOPR) and solicited comments due November 24, 1996.

- The PSCNY responded to the ANOPR, and we now offer these comments in response to the NOPR.

PSCNY has traditionally taken pains to assure adequate funding of decommissioning costs, and New York State also shares the concerns expressed by NRC that adequate funding mechanisms be assured for the responsible decommissioning of nuclear generating stations. The NRC, therefore, should not attempt to either lock states into a particular ratemaking method or dictate levels of cost recovery. As discussed in POINT I infra, such incursions into state regulation would be not only needless but unlawful. The AclcrauradgedbJCfld 11W 2 8 1997

U.S. NUCL::AR REGULATORY COMMISSION RULEMAKINGS & ADJUDIC/'JIONS STAFF OFFICE OF THE SECRETARY OF THE COMMISSIO Do , .., t St'tistics

proposed rule's definition of "electric utility," however, would infringe on state ratemaking. By limiting the definition to companies that recover "the cost of this electricity," including operations and maintenance costs, through cost-based rates or a non bypassable charge,li the NRC's proposed rule infringes on state ratemaking. Though we do not think it was the NRC's intention to preempt state rate regulation, this definition implies otherwise.

Certainly, we appreciate the NRC's legitimate concerns with safe and efficient decommissioning but, again, states have allowed recovery of decommissioning costs in the past. For the purposes of this regulation, the definition of "electric utility" simply should be "any entity that generates, transmits, or distributes electricity."

Similarly, the definition of "non-bypassable charges" is also problematic in that reference is made to "operation" and "maintenance" costs. This definition is simply not necessary.

Additionally, the proposed regulation under 10 CFR section

- 50. 75 (e) (3) again makes reference to recovery of operation and maintenance expenses. Lastly, PSCNY does not oppose the proposed funding mechanisms to cover non-"electric utility" licensees' decommissioning costs.

New York's stake in the future of nuclear generation is substantial. Six investor-owned utilities and the New York Power Authority own and operate six nuclear generating plants in New York State. These plants produce about 18 percent of the state's 11 10 CFR §§ 50 . 2 & 5 0 . 7 5 ( e) ( 3 )

electric energy. In addition, Consolidated Edison Company of New York, Inc. owns a retired nuclear facility, Indian Point No. 1.

The cost of removing and disposing of the radioactive components and wastes from these seven facilities, as they are decommissioned, will be substantial.

Competition in New York In May 1996, the PSCNY set forth its vision for the implementation of electric competition in New York State.!L to reduce high rates and provide choice and better service quality to consumers. PSCNY is now reviewing settlements with each utility and recently approved the Consolidated Edison settlement. There is no basis to assume that any of the settlements will leave a utility (or possible successors in interest) unable to fund nuclear decommissioning costs.

Additionally, the PSCNY recently issued a Notice Soliciting Comments on Nuclear Generation.~ The Staff Report accompanying the Notice includes a recommendation that prudently

- incurred decommissioning costs (and spent fuel storage costs) continue to be paid by transmission and distribution customers after the transition to competition . .1!'. Following the comment period, the PSCNY will consider the need for further analysis of

.!L N.Y.P.S.C. Case No. 94-E-0952, Opinion and Order Regarding Competitive Opportunities for Electric Service, Opinion 96-12 (May 20, 1996).

li N.Y.P.S.C. Case No. 94-E-0952, Notice Soliciting Comments on Nuclear Generation (August 27, 1997) .

.1!: Case 94-E-0952, Staff Report on Nuclear Generation (August 1997) at 5.

nuclear issues related to ratemaking, including decommissioning costs, and work with stakeholders, including the NRC, to develop reasonable solutions. Accordingly, there certainly is no reason for the NRC to attempt to preempt New York from exercising rate authority regarding decommissioning funds. Rather, NRC should work with New York and the affected owners to address decommissioning needs. For example, the NRC and states should consider proposing legislation that would make decommissioning liabilities first priority in the event of bankruptcy of a private nuclear facility owner.

POINT I AS STATED IN OUR ANOPR REPLY, THE NRC SHOULD NOT SEEK TO PREEMPT STATE EFFORTS TO ASSURE ADEQUATE FUNDING FOR DECOMMISSIONING DURING THE TRANSITION TO ELECTRIC COMPETITION.

Since its enactment, the Atomic Energy Act ("Act") has provided a dual system of regulation in the nuclear power industry . .!L This dual scheme of regulation extends to nuclear decommissioning costs, with NRC having authority to assure the safety of nuclear decommissioning and the states having power to address decommissioning costs in rates.

The Act vests the NRC with authority to assure the public health and safety with respect to nuclear generation through 1

L 42 U.S.C. Section 2011, et seq., Pacific Gas & Electric Company v. State Energy Resources Conservation and Development Commission, 461 U.S. 190, 211-212 (1983).

ownership, licensing and operation requirements.li Concomitantly, the economics of nuclear generation, including the need and rates to be set for nuclear capacity, have always been the domain of the states. The Atomic Energy Act itself provides that:

Nothing in this chapter shall be construed to affect the authority or regulations of any Federal, State, or local agency with respect to the generation, sale or transmission of electric power produced through the use of nuclear facilities licensed by the Commission.~

The Supreme Court of the United States has upheld state authority over the economics of nuclear generation costs. In Pacific Gas & Electric Company v. State Energy Resources Conservation and Development Commission, the Court upheld, against preemption challenges, a California Statute that required a demonstration of adequate waste storage capacity and federally approved waste disposal techniques before nuclear power plants could be built in the state.~ The Court held that the statute I£ 42 U.S. C. Sections 2012 (d) , 2013 (d) , 2133, 2201, 2232 and 2233.

2L 42 U.S. C. Section 2018. The Act also states that each NRC licensee that holds a license for generation of commercial electricity "shall be subject to the provisions of the Federal Power Act." Id., Section 2019. Section 20l(a) of the Federal Power Act provides that federal regulation extends to wholesale sales of power and transmission in interstate commerce, and specifically reserves to the states authority over retail electric rates and local distribution of electricity. 16 U.S.C.

Section 824(a); Federal Power Comm'n v. Southern California Edison Co., 376 U.S. 205, 211 (1964), Reh'g denied, 377 U.S. 913 (1964).

3/

461 U.S. 198, 222-223 (1983).

legitimately addressed state concerns regarding the economics of nuclear power, and did not interfere with the NRC's authority to regulate the nuclear industry.li Thus, the NRC does not have statutory authority to preempt the states' rate treatment of nuclear decommissioning costs. Moreover, inasmuch as the treatment of particular costs are simply intermediate steps to the development of actual retail rates, which plainly remain the domain of the state commissions, such preemption would serve no useful purpose.

POINT II THE NRC SHOULD WORK COLLABORATIVELY WITH THE STATES TO ASSURE NUCLEAR DECOMMISSIONING FUNDING DURING AND AFTER THE TRANSITION TO COMPETITION IN THE ELECTRIC INDUSTRY.

In the ANOPR and NOPR, NRC proposes to require non-

"electric utility" licensees to meet equivalent financial assurance requirements for nuclear decommissioning costs as "electric utility" licensees. PSCNY agrees that funding assurance is needed where, because of competition, "licensees are no longer subject to rate regulation by PUCs or FERC."~

However, NRC's concern that states will not have authority to assure nuclear decommissioning funding during or after the transition to electric competition is unfounded. The New York Commission has authority to address potential threats to health and 1L Id. at 216.

2L 61 Fed. Reg. 15427, 15428 (April 8, 1996).

safety posed by electric generation.U Recently, PSCNY determined that the best way to assure just and reasonable rates in the future is by implementation of a competitive industry model that will enable generators to compete for end use customers at the wholesale and retail levels.li PSCNY also determined, however, that it will continue to exercise its authority to ensure that the competitive market meets the needs of New York's ratepayers. Moreover, in its opinion and order, PSCNY decided that stranded costs it determines to be recoverable will be assured recovery through rate mechanisms, such as a non-bypassable wires charge on the local distribution system.~ In fact, the Final Generic Environmental Impact Statement issued by PSCNY in the state competition proceeding recognized inadequate funding for nuclear decommissioning as a potential adverse impact of competition.~ The New York Commission determined that decommissioning funds could be assured through a wires charge.~

NRC and the states should work collaboratively to assure

- that adequate funding for nuclear decommissioning is available.

PSCNY is committed to the efficient and safe decommissioning of IL N.Y. Pub. Serv. Law, Sections 65-66.

li N.Y.P.S.C. Case No. 94-E-0952, Opinion and Order Regarding Competitive Opportunities for Electric Service, Opinion No. 96-12 (May 20, 1996) 3£ Id. at 52.

4

£ N.Y.P.S.C.Case No. 94-E-0952, Final Generic Environmental Impact Statement, Vol. I, at 5-88.

5

£ Id. at 6-45.

nuclear power plants. The states have substantial experience designing the most cost-effective means to ensure the availability of sufficient funds for utility decommissioning.

POINT III NRC SHOULD CONSIDER ADDITIONAL STEPS THAT WOULD ASSURE FUNDING FOR NUCLEAR DECOMMISSIONING COSTS THROUGH CHANGES IN BANKRUPTCY CODE PROVISIONS.

NRC is taking important steps to promote the responsible decommissioning of nuclear generators during and following the transition to competition. As separation of generation from monopoly transmission and distribution functions proceeds under competition, some nuclear plants could become independently-owned.

In the event of bankruptcy of a privately-owned nuclear generator, assuring adequate decommissioning funds will be imperative.

The Supreme Court has held that a Bankruptcy Court cannot authorize abandonment of a hazardous waste site "without formulating conditions that will adequately protect the public's health and safety."li Given that public health and safety

- imperatives for decommissioning nuclear reactors are equally great, NRC or state commissions would seek funds for decommissioning costs in a bankruptcy proceeding. Nevertheless, the current Bankruptcy Code does not explicitly create a priority for nuclear decommissioning costs.li To assure adequate decommissioning funds in bankruptcy, NRC and the states should consider proposing 1L Midlantic National Bank v. New Jersey Department of Environmental Protection, 474 U.S. 494, 507 (1986).

2/

11 U.S.C. Section 101, et seq.

legislation that would amend the bankruptcy law to expressly require payment of nuclear decommissioning liabilities over other creditors.

In sum, the NRC should not upset the federal balance of nuclear regulation, but seek collaboration with states.

Additionally, PSCNY suggests examination of certain bankruptcy provisions that may aid in the assurance of adequate decommissioning funding. Finally, Appendix A provides specific commentary on the issues raised in the NOPR.

CONCLUSION For the reasons stated above, the Nuclear Regulatory Commission should consider the views of the Public Service Commission of the State of New York in determining how best to assure adequate decommissioning funds for nuclear power plants .

Respectfully submitted,

- a ~ ( : ) , ~ pr~

Lawrence G. Malone, General Counsel New York State Public Service Commission Penny Rubin, Managing Attorney William Derasmo, Assistant Counsel Three Empire State Plaza Albany, New York 12223-1350 Dated: November 24, 1997 Albany, New York APPENDIX A UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION Financial Assurance Requirements For Decommissioning Docket No. RIN 3150-AF41 Nuclear Power Reactors In light of the aforementioned legal authority and responsibility regarding the economics of nuclear regulation, the PSCNY offers the following comments concerning the NOPR discussion of the proposed rules and the actual language contained in the proposed regulation.

A. Timing and Extent of Electric Utility Industry Deregulation PSCNY agrees that the NRC "must act now to be in a position to respond to the upcoming changes in the electric utility environment that could affect protection of public health and safety. 11 li It now appears reasonable to assume that increased competition will result in economic pressures which will, in turn, affect how all generators of electricity (hydro, nuclear and fossil) address all aspects of the generation business, including operation and maintenance. Because cost-of-service regulation has resulted in marked differences in the cost of electricity on a regional basis, competition is considered, by rate regulators in high cost regions, to be worth pursuing to bring energy costs in line with national averages. The role of state and federal rate regulators is to establish a level financial "playing field" by introducing competition into the business of generating electricity.

It now seems likely that the electric generation industry will change from cost-of-service rate regulation to a system that allows market pressures to pervade all generation business decisions. It remains to be seen whether nuclear power will survive in a competitive environment. Should the nuclear option prove to be uncompetitive, then it will not be helpful for any state or federal agency to continue to advocate its financial support. Responsible government should ensure that uneconomic options are retired safely and efficiently. Accordingly, the NRC should expect its licensees to develop innovative methods for making the nuclear option profitable in a competitive environment, without reducing safety margins.

li62 Fed. Reg. 47590.

The NRC should ensure that regardless of the economic pressures that are now being put in place during the transition to competition, managers of nuclear plants will continue to be faithful stewards of nuclear power by ensuring that plants are safely operated or retired. In the end, NRC regulations should enable the nuclear option to compete without sacrificing safety, and allow uncompetitive plants to retire on a least-cost basis.

B. Stranded Costs The NRC is not responsible for determining the economics of continued operation of nuclear plants, nor is it empowered to resolve issues related to stranded, sunk, running, or decommissioning costs where the solution involves electric rates.li Therefore, even if the NRC "see [s] a need to interfere in the financial regulation of nuclear power plants with respect to the question of stranded costs 11 £l PSCNY maintains that the NRC has no authority to take action in an area traditionally regulated by state commissions. While we expect that it is not the intention of the NRC to interfere in financial regulation of traditional electric utilities, rate-regulators are understandably sensitive to language, such as the quotation above, which can be interpreted to mean otherwise.

C.l Funding Assurance if Plants Shut Down Prematurely Funding nuclear plants which elect to shut down prematurely, where decommissioning funds would not have been fully collected, is an important issue. In the event that such funding is needed, however, PSCNY believes that rate regulators~ are in the best position to evaluate the reasonableness and best method of collecting such funds.

C.2 When Does an Operator Cease To Be a Utility According to the NRC' s proposed regulations, an operator apparently ceases to be a "electric utility" when it does not recover the cost of electricity that it delivers through rates established by a regulatory authority either through traditional cost of service regulation or through a non-bypassable charge mechanism.1L PSCNY has already articulated its objection to the li See POINT I above.

£l 62 Fed. Reg. 47591 (emphasis added).

~ e.g. state commissions.

1L 62 Fed. Reg. 47605.

proposed definition of "electric utility. 11 !.L PSCNY offers further comment on the effects of that definition were it to be adopted. First, PSCNY agrees that responsibility for ensuring that non-"electric utility" licensees are able to fully fund nuclear plant decommissioning costs rests with the NRC where a license is transferred to a non-rate regulated entity. Alternatively however, PSCNY feels that state regulatory commissions remain the best evaluators of the reasonableness of operation and maintenance costs for "electric utilities. 11 li Second, after positing that a licensee may find itself recovering only a portion of its cost of operations under the jurisdiction of a rate-regulating authority, the NRC's proposed rule implies that decommissioning fund costs can be separated from all other nuclear costs. The NRC proposes that licensees will be considered an "electric utility" only for the fractional part of its annual decommissioning costs received under the jurisdiction of the rate-regulating authority. The result is that licensees no longer provided an opportunity to recover decommissioning costs either through cost-of-service regulation or a non-bypassable charge will have to provide for decommissioning costs under one of the methods specified in 10 CFR 50. 75 (e) (2). The four methods include: (1) prepayment of fees; (2) an external sinking fund combined with a surety method; (3) a surety method; or (4) for federal, state, or local government licensees only, a statement of intent indicating that the funds will be obtained when needed.

C.3 Assurance Options PSCNY does not oppose the NRC's proposed position that "new owners and operators should assume the obligation to safely operate the facility and assure adequate funding for decommissioning, as they have the incentives to properly manage and operate the units. nlL We assume tha t the NRC means that ratepayers would be li Supra, pp. 1-2.

li The NRC should be aware of Consolidated Edison Company of New York, Inc.'s ("Con Edison") October 16, 1997 reply to PSCNY's Notice Soliciting Comments on Nuclear Power. Con Edison's reply cites the proposed language for the NRC's definition of an electric utility and s tates the utility's opinion that the rates established by a regu l atory authority must be sufficient to recover both operations and decommissioning costs, either through cost-of-service regulation or a non-bypassable charge mechanism.

Such a position, if adopted, would likely frustrate efforts to subject nuclear generation to competition.

~62 Fed. Reg. 47594.

responsible for no more than prudently incurred decommissioning costs, as opposed to "all ... decommissioning obligations. 11 11 C.4 Financial Test Qualifications To the extent that the PSCNY allows non-bypassable wires charges, plant owners will meet the definition of an "electric utility" for decommissioning purposes. To the extent that a licensee no longer qualifies as an "electric utility" under the new definition, the entity will need to provide the NRC with the appropriate financial assurance for both decommissioning using one of the four options provided under 10 CFR 50. 75 (e) (2), as discussed earlier.Y..

C.6 Impact of Accelerated Funding Depending upon the methods of financial assurance imposed upon non-"electric utility" licensees, and the competitiveness of a particular plant, financial assurance mechanisms may precipitate early closure or impact the marketability of particular nuclear plants. PSCNY is considering recovery of nuclear decommissioning costs through non-bypassable charges, a process that would presumably satisfy the NRC's decommissioning funding concerns, and to attempt to optimize the market value of nuclear plants in an auction.

When a licensee continues to be a rate-regulated company with recovery of operations and maintenance expenses subject to the competitive market rather than cost-of-service regulation, that licensee would be considered a non "electric utility" for operations and maintenance expense (and all other "running costs")

purposes and an "electric utility" for decommissioning purposes.

The standard, sought here by the NRC, for decommissioning funding assurance should not be applied to other non "electric utility" licensees (i.e. commercial nuclear plants) for adequate funds for safe operation. The proposed definition of "electric utility" should be modified to allow electric utilities and non-electric utilities to recover operations and maintenance costs from the competitive market, without the support of a non-bypassable charge.

If adequate revenues are not available from the competitive market to cover nuclear plant "running costs, " the licensee has the option of closing the plant.

C.7 Potential Shortfalls From Underestimates of Costs PSCNY has traditionally supported a process to allow a reasonable opportunity for the recovery of prudently incurred 11 62 Fed. Reg. 47594.

2/ See Section C.2.

decommissioning costs. The NRC can apprise state rate regulators of underfunding, but the states are responsible for the collection and timing of decommissioning costs in rates.

C.9 If PUC or FERC oversight is either substantially limited or eliminated, are there other options for financial assurance of decommissioning that the NRC should consider?

Four mechanisms have already been proposed. The PSCNY does not oppose these four mechanisms.

E.l Real Rate of Return See comments under C.7.

E.2 Appropriate Time Period See comment under C.7.

F. Reporting on the Status of Decommissioning Funds NRC should avoid duplication of state requirements. The PSCNY currently requires that its nuclear utilities report annually on the status of decommissioning funds for the plants they own.

Specifically, New York utilities must report the yearly change in the qualified, non-qualified, and internal decommissioning funds to include activity related to deposits, earnings, expenses, and withdrawals for decommissioning . New York also requires specific information about decommissioning allowances granted in the utility's most recent rate proceeding, estimated decommissioning costs, and the progress of the fund in accumulating decommissioning dollars as compared to the time remaining until the scheduled date of decommissioning.

F.l Contents Rate regulators understand that the NRC has issued a draft regulation guide on the proposed requirement which would endorse FASB draft standard No. 158-B "Accounting for Certain Liabilities Related to Closure or removal of Long-Lived Assets." The PSCNY notes that in case the FASB standard is not adopted in a timely manner, other reporting requirements may need to be imposed in the interim.

F. 2 Frequency PSCNY feels that reports should be submitted annually for units nearing or in the process of decommissioning. This is consistent with FASB standards.

KYCEN01H.WDC/kyc

• -===- ENTERGY DOCKETED USNRC Entergy Operations, Inc.

PO Box 31995 Jackson. MS 39286-1995 Tel 601 368 5760 Fax 601 368 5768 (j)

Jerrold G. Dewease "97 NOV 24 P2 :25 Vice Prt-'s1dc11t OpPrat1u11s Suppor!

November 20, 1997 Secretary of the Commission U. S. Nuclear Regulatory Commission Washington, DC 20555-0001 Attention: Rulemakings and Adjudications Staff

Subject:

Comments on Proposed Rule 10 CFR Part 50, "Financial Assurance Requirements for Decommissioning Nuclear Power Reactors," and associated Draft Regulatory Guide DG-1060, "Financial Accounting Standards Board (FASB) Standards for Decommissioning Cost Accounting" CNRO-97/00021 Gentlemen:

Entergy Operations, Inc. (Entergy) appreciates the opportunity to comment on the subject proposed rule pertaining to financial assurance requirements for decommissioning nuclear power reactors (62 Fed. Reg. 47588, dated September 10, 1997) and associated Draft Regulatory Guide DG-1060. Entergy supports the comments provided by the Nuclear Energy Institute (NEI) and the Utility Decommissioning Tax Group. In addition to comments from these organizations, Entergy is providing the following comments:

1. Entergy has a concern regarding the financial assurance mechanisms required if a licensee fails to meet the proposed definition of an "electric utility". In the proposed rule, non-utility generating companies will be required to satisfy the financial tests specified in 10 CFR Part 30 or prepay the outstanding estimates for funding decommissioning. This requirement will most likely impose upon certain licensees a significant financial burden that may not have been recognized when the regulations were originally developed. 10 CFR Part 30, Appendices A and C were developed for material licensees, not for licensees of power reactors.

2. Entergy is concerned with the NRG endorsing draft FASB Standard No. 158-B, as stated in DG-1060, Section C. We understand the draft standard may not be approved and issued for another year. Because the standard is subject to change, the final approved version may not prove suitable for meeting the NRC's requirements and expectations.

IIJV 2 I 1997 AdcnowledgedbJClld- JildllM. Bl If

U.S. NUCLEAR REGULATORY COMMISSION RULEMAKINGS & ADJUDICATIONS STAFF OFFICE OF THE SECRETARY OF THECOMMISSION Docume..t S** .:stic3 Postmarl< D:i'., _ _ _ ..,.._..._.___ __

Copies Re *, j _ ___.__ _ _ __

Add'! C ')*"s . . J ..::..:

Special D1 1 1 7<i'ch +eVj Ga {fa.. i i . e r : , ~

Comments on Proposed Rule 10 CFR Part 50, "Financial Assurance Requirements for Decommissioning Nuclear Power Reactors" November 20, 1997 CNRO-97/00021 Page 2 of 2

3. Also regarding the draft FASB standard, DG-1060 seems to indicate that adopting the standard will ensure funding of decommission liability. The FASB standard as proposed in the earlier Exposure Draft focuses on recognizing the liability and periodic expense for decommissioning. Entergy does not believe reliance on this standard is appropriate with regard to the adequacy of funding unless the final standard is considerably different from the Exposure Draft version.

Again, thank you for the opportunity to provide our comments on this proposed rule.

Sincerely, Mr. C. M. Dugger (W-GSB-300) Rules and Directives Branch Mr. J. J. Hagan (G-ESC3-VPO) Office of Administration Mr. C. R. Hutchinson (N-GSB) U.S. Nuclear Regulatory Commission Mr. J. R. McGaha (R-GSB-40) Washington, DC 20555 Mr. J. W. Yelverton (M-ECH-65)

Mr. Jack N. Donohew Mr. Chandu P. Patel Project Manager (GGNS) Project Manager (W-3)

Office of Nuclear Reactor Regulation Office of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission U. S. Nuclear Regulatory Commission Mail Stop 13-H-3 Mail Stop 13-H-3 Washington, DC 20555 Washington, DC 20555 Mr. George Kalman Mr. David L. Wigginton Project Manager (ANO) Project Manager (RBS)

Office of Nuclear Reactor Regulation Office of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission U.S. Nuclear Regulatory Commission Mail Stop 13-H-3 Mail Stop 13-H-3 Washington, DC 20555 Washington, DC 20555

Comments on Proposed Rule 10 CFR Part 50, "Financial Assurance Requirements for Decommissioning Nuclear Power Reactors" November 20, 1997 CNRO-97/00021 bee: W. B. Abraham (G-SSB1-NSR)

K. A. Courtney (R-GSB-43)

E. C. Ewing (W-GSB-310)

T. J. Gaudet (W-GSB-318)

W. K. Hughey (G-SSB1-NSR)

R. J. King (R-GSB-42)

J.M. Manzella (W-GSB-318)

E. A. Means (N-GSB)

D. C. Mims (N-GSB)

Central File (GGNS)

Corporate File [ 3 ]

DCC (ANO)

SOC (RBS)

Records Center (W-3)

lllmrns Po=, CompaoyG Clinton Power Station DOCKETED PO Box 678 US~RC Clinton. IL 61727 Te l 217 935-888 1 ILLIN915 "97 NOV 24 Pl2 :42 Joseph V. Sipek POWER Director - Licensing U-602875 lA.120 November 21, 1997 DOC ~~~ -

PROPO 60 Docket No. 50-461

( (.t}:)..Fl<.4758~)

Secretary of the Commission, U.S . Nuclear Regulatory Commission, Attention: Docketing and Service Branch Washington, D.C. 20555

Subject:

Illinois Power's (IP's) Comments on the Proposed Rule for Financial Assurance Requirements for Decommissioning Nuclear Power Reactors

Dear Madam or Sir:

Federal Register, Volume 62, No. 175, Pages 47588 through 47606 requests comments to the NRC' s proposed rule change to current financial assurance requirements for decommissioning. Listed below are the specific changes that are proposed and IP's comments. The proposed changes are in bold type followed by IP's comments.

Sec. 50.2 Definitions.

Cost of service regulation means the traditional system of rate regulation in which a rate regulatory authority allows an electric utility to charge its customers all reasonable and prudent costs of providing electricity services, including a return on the investment required to provide such services.

IP Comment: Cost of service regulation: Being a definition that is intended to outline the present system, IP has one comment. It is not likely that a utility will go from a position of complete cost of service regulation to no longer having any of the utility meeting the proposed NRC definition of electric utility. Therefore, there should be another definition added to define the particular requirements for when there may be a "partial" cost of service regulation.

lllV 2 I 1997 ld,mledged by -V*-----

It*

U.S. NUCLEAR REGULATORY COMMISSION RULEMAKINGS & ADJUDICATIONS STAFF OFFICE OF Tt!E S~CRETARY OF THEC'2': ',iSSlC;*J Post;ncrl< C: *

• Coples _

• Acd'I CC'**~~ ,,. J SP,.e_CI .I D,.,'. 1t)'**; 1

<:ra U1A5 be. t',___..'--""""- - t - ~ ~

U-602875 Page 2 Electric utility means any entity that generates, transmits, or distributes electricity and that recovers the cost of this electricity through rates established by a regulatory authority, such that the rates are sufficient for the licensee to operate, maintain, and decommission its nuclear plant safely. Rates must be established by a regulatory authority either directly through traditional cost of service regulation or indirectly through another non-bypassable charge mechanism. An entity whose rates are established by a regulatory authority by mechanisms that cover only a portion of its costs will be considered to be an "electric utility" only for that portion of the costs that are collected in this manner. Public utility districts, municipalities, rural electric cooperatives, and State and Federal agencies, including associations of any of the foregoing, that establish their own rates are included within the meaning of" electric utility."

IP Comment: Electric utility: IP concurs with this definition. This definition seems to allow latitude for licensees. This could allow licensees to maintain, at least to some extent, collection abilities of an electric utility for operation and decommissioning costs. However, IP believes that not meeting the definition of Electric utility should not place licensees of power reactors to fall under the same requirement (10 CFR 30, Appendix C, assets of 10 times current decommissioning estimates) as non-power reactors. Since decommissioning cost for power versus non-power reactors is magnitudes of order more, IP believes that this section should also be modified to differentiate non-power reactor operators and lower the 10 times standard for power reactors.

Federal licensee means any NRC licensee that has the full faith and credit backing of the United States Government.

IP Comment: Federal licensee: Although not applicable to Illinois Power, IP believes that all licensees should operate under the same requirements.

Non-bypassable charges means those charges imposed by a governmental authority which affected persons or entities are required to pay to cover costs associated with operation, maintenance, and decommissioning of a nuclear power plant. Affected individuals and entities would be required to pay those charges over an established time period.

IP Comment: Non-bypassable charges: This change has positive benefits for both customers and utilities/licensees. Only one change to this definition is necessary; "governmental authority," may not be the correct wording. This should be regulatory authority as used above in cost of service regulation and electric utility definitions.

-- _J

U-602875 Page 3 In Sec. 50.43, paragraph (a) is revised to read as follows:

Sec. 50.43 Additional standards and provisions afTecting class 103 licenses for commercial power.

(a) The Commission will give notice in writing of each application to such regulatory agency or State as may have jurisdiction over the rates and services incident to the proposed activity; will publish notice of the application in such trade or news publications as it deems appropriate to give reasonable notice to municipalities, private utilities, public bodies, and cooperatives which might have a potential interest in such utilization or production facility; and will publish notice of the application once each week for 4 consecutive weeks in the Federal Register. No license will be issued by the Commission prior to the giving of such notices and until 4 weeks after the last publication in the Federal Register.

IP Comment: This is practical in that the affected states or those that have potential legitimate interest in said facilities should be made aware of any actions regarding change of ownership of class 103 licenses within their states.

In Sec. 50.54, the introductory text of paragraph (w) is revised to read as follows:

Sec. 50.54 Conditions of licenses.

(w) Each power reactor licensee under this part for a production or utilization facility of the type described in Secs. 50.2l(b) or 50.22 shall take reasonable steps to obtain insurance available at reasonable costs and on reasonable terms from private sources or to demonstrate to the satisfaction of the Commission that it possesses an equivalent amount of protection covering the licensee's obligation, in the event of an accident at the licensee's reactor, to stabilize and decontaminate the reactor and the reactor station site at which the reactor experiencing the accident is located, provided that:

IP Comment: Illinois Power does not disapprove of this editorial change. This change will be needed to add consistency in terminology regarding the proposed change in the electric utility definition.

In Sec. 50.63, paragraph (a)(2) is revised to read as follows:

Sec. 50.63 Loss of alternating current power.

(a) * * *

(2) The reactor core and associated coolant, control, and protection systems, including station batteries and any other necessary support

U-602875 Page4 systems, must provide sufficient capacity and capability to ensure that the core is cooled and appropriate containment integrity is maintained in the event of a station blackout for the specified duration. The capability for coping with a station blackout of specified duration shall be determined by an appropriate coping analysis. Licensees are expected to have the baseline assumptions, analyses, and related information used in their coping evaluations available for NRC review.

IP Comment: Illinois Power does not disapprove of this editorial change. This change will be needed to add consistency in terminology regarding the proposed change in the electric utility definition.

In Sec. 50.73, paragraph (b)(2)(ii)(J)(2)(iv) is revised to read as follows:

Sec. 50.73 Licensee event report system.

(b) * * *

(2) * * *

(ii) * * *

(J) * * *

(2) * * *

(iv) The type of personnel involved (i.e., contractor personnel, licensed operator, nonlicensed operator, other licensee personnel.)

IP Comment: Illinois Power does not disapprove of this editorial change. This change will be needed to add consistency in terminology regarding the proposed change in the electric utility definition.

In Sec. 50.75, paragraphs (a), (b), (d), (e)(l)(i), (e)(l)(ii), and (e)(3) introductory text are revised and paragraphs (f)(l), (2), and (3) are redesignated as paragraph (f)(2), (3), and ( 4) and a new paragraph (f)(l) is added to read as follows:

Sec. 50. 75 Reporting and recordkeeping for decommissioning planning.

(a) This section establishes requirements for indicating to NRC how reasonable assurance will be provided that funds will be available for decommissioning. For power reactor licensees it consists of a step-wise procedure as provided in paragraphs (b), (c), (e), and (f) of this section. Funding for decommissioning of electric utilities is also subject to the regulation of agencies (e.g., Federal Energy Regulatory Commission (FERC) and State Public Utility Commissions) having jurisdiction over rate regulation. The requirements of this section, in particular paragraph (c), are in addition to, and not substitution for,

U-602875 Page 5 other requirements, and are not intended to be used, by themselves, by other agencies to establish rates.

(b) Each power reactor applicant for or holder of an operating license for a production or utilization facility of the type and power level specified in paragraph (c) of this section shall submit a decommissioning report, as required by 10 CFR 50.33(k) of this part containing a certification that financial assurance for decommissioning will be provided in an amount which may be more but not less than the amount stated in the table in paragraph (c)(l) of this section, adjusted annually using a rate at least equal to that stated in paragraph (c)(2) of this section, by one or more of the methods described in paragraph (e) of this section as acceptable to the Commission. The amount stated in the applicant's or licensee's certification may be based on a cost estimate for decommissioning the facility. As part of the certification, a copy of the financial instrument obtained to satisfy the requirements of paragraph (e) of this section is to be submitted to NRC.

(d) Each non-power reactor applicant for or holder of an operating license for a production or utilization facility shall submit a decommissioning report as required by 10 CFR 50.33(k) of this part containing a cost estimate for decommissioning the facility, an indication of which method or methods described in paragraph (e) of this section as acceptable to the Commission will be used to provide funds for decommissioning, and a description of the means of adjusting the cost estimate and associated funding level periodically over the life of the facility.

(e)(l) * * *

(i) Prepayment. Prepayment is the deposit prior to the start of operation into an account segregated from licensee assets and outside the licensee's administrative control of cash or liquid assets such that the amount offunds would be sufficient to pay decommissioning costs.

Prepayment may be in the form of a trust, escrow account, government fund, certificate of deposit, or deposit of government securities. A licensee may take credit on earnings on the prepaid decommissioning trust funds using a 2 percent annual real rate of return from the time of the funds' collection through the decommissioning period, if the licensee's rate-setting authority does not authorize the use of another rate.

(ii) External sinking fund. An external sinking fund is 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

U-602875 Page6 operation is expected. An external sinking fund may be in the form of a trust, escrow account, government fund, certificate of deposit, or deposit of government securities. A licensee may take credit for earnings on the external sinking funds using a 2 percent annual real rate of return from the time of the funds' collection through the decommissioning period, if the licensee's rate-setting authority does not authorize the use of another rate.

(3) For an electric utility, its rates must be sufficient to recover the cost of the electricity it generates, transmits, or distributes. These rates must be established by a regulatory authority such that they are sufficient for the licensee to operate, maintain, and decommission its plant safely. The Commission reserves the right to take the following steps in order to assure a licensee's adequate accumulation of decommissioning funds: review, as needed, the rate of accumulation of decommissioning funds; and either independently or in cooperation with either the FERC and the State PUC's, take additional actions as appropriate on a case-by-case basis, including modification of a licensee's schedule for accumulation of decommissioning funds.

Acceptable methods of providing financial assurance for decommissioning for an electric utility are--

IP Comment: The intended change is of positive benefit to customers and utilities/licensees. The change to allow taking credit for sinking fund earnings between plant shutdown and the conclusion of decommissioning is a reflection of how the fund is expected to perform in the financial markets.

The change has the effect of allowing decommissioning funds to compound earnings for a longer period. Customers throughout the time of collection would benefit to the extent increased earnings reduce the necessary customer contribution for a given funding level. This would also reduce the risk that present customers' contributions far exceed those than the later customers.

The specified annual real rate of return may be too rigid to accommodate the investment strategy of a specific utility. A particularly risk-averse investment strategy in a less than robust economy should be allowed to choose a real rate of return that is no larger than 2 percent. IP suggests that the provision be worded, 11 *** using a rate not to exceed 2 percent annual real rate of return ... 11 (t)(l) Each power reactor licensee shall report to the NRC within 9 months after [the effective date of the final rule], and at least once every 2 years thereafter on the status of its decommissioning funding for each reactor facility or part of a reactor facility that it owns. The information in this report must include, at a minimum: the amount of

U-602875 Page7 decommissioning funds estimated to be required pursuant to 10 CFR 50.75(b) and (c); the amount accumulated to the date of the report; a schedule of the annual amounts remaining to be collected; the assumptions used regarding rates of escalation in decommissioning costs, rates of earnings in decommissioning trust funds, and rates of other factors (e.g., discount rates) used in funding projections; and any modifications occurring to a licensee's current trust agreement since the last submitted report. Any licensee for a plant that is within 5 years of the projected end of its operation shall submit such a report annually.

IP Comment: Presently, the Illinois Commerce Commission (IP's state regulatory body) requires that the decommissioning fund status be reported annually. Until such time that this is not required for IP and other utilities, sufficient NRC protective measures already exist. These measures are contained in 10 CFR 50. 75, "Reporting and recordkeeping for decommissioning planning,"

C.3d of 10 CFR 140.15, "Proof of Financial Protection," and 10 CFR 140.16, "Commission Review of Proof of Financial Protection." These sections require that funds be collected for decommissioning and sufficient funds be present for all phases of operation, to include decommissioning, prior to a license being transferred.

When a utility or licensee or a portion thereof would not meet the NRC definition of an electric utility, then additional reporting requirements could be justified. Much of this information does little to provide any additional assurance for sufficient decommissioning funds. There also does not seem to be technical justification of added safety for requiring annual reporting within 5 years of decommissioning. IP believes that a report containing less information should be submitted in its entirety once every 5 years.

Since this information will most likely continue to be updated annually, this report could be sent to the NRC annually. These reporting requirements would be equal to that suggested by the NRC. In addition, it could be acceptable to add caveats such as, "Major changes [with definition] must be reported within 2 years.

In the event the reporting requirements remain as proposed, utilities could be submitting NRC reports in addition to State PUC reports. When the State PUC specifies reporting requirements that parallel the NRC requirements, except for the due date of the report, the utility should not be required to undertake the burden of dual reporting. Illinois Power Company would find itself in this situation should the proposed language be adopted in its current form. The dual reporting could be alleviated by the insertion of an additional sentence following the first sentence of Sec.

50.75(f)(l), "For utilities that are required by State PUCs to make similar reports on a frequency of every two years or more frequently, this reporting requirement is satisfied by a copy of the most recent report filed with the State PUC."

U-602875 Page8 If you have any questions regarding these comments, please contact Jim Pilarski of my staff at (217) 935-8881, extension 3401.

Sincerely yours, J_

seph V.Si~.?

rector-Licensing JSP/krk

Florida DOCKETED Power CORPORATION USNRC "97 NOV 24 P12 :41 OFFIC;:: OF !3'::CHt: 1/\RY ROY A. ANDERSON RULFM 1'.i<L ,:~'*: ; 1*JD SENIOR VICE PRESIDENT ADJuo,cAno;,r STAFF NUCLEAR oPERAnoNs November 21, 1997 DOC l't":T ~ I  ;- ,"'*:*-*.,.,.

3F1197-52 PRO SEO kU' ~ ', 5D

( (p~ Fl( '-/7588)

The Secretary of the Commission U.S. Nuclear Regulatory Commission Washington, D.C. 20555-0001 Attn: Rulemakings and Adjudications Staff Re: Comments on Proposed Rule Regarding Financial Assurance Requirements for Decommissioning Nuclear Power Reactors; 62 Fed. Reg. 47588 (September 10, 1997)

Dear Sir:

Florida Power Corporation (FPC) hereby provides comments on the above-referenced proposed rulemaking. Given the move toward electric industry restructuring, FPC commends the NRC for addressing this important issue now.

FPC agrees that, in light of restructuring, changes should be made to existing regulations to more effi ci entl y assure that the eventua 1 decommi ssi oni ng of nuclear power reactors is adequately funded. As discussed more fully below, FPC believes that a number of NRC' s proposals wi 11 further this goal. FPC, however, disagrees with some of the NRC's proposed changes -- in particular to the 10 C.F.R. § 50 . 2 definition of "electric utility" -- which FPC believes do not provide enough flexibility to nuclear utility licensees in funding future decommissioning costs and unnecessarily link O&M costs to decommissioning funding. FPC appreciates the opportunity to provide these comments and welcomes additional public dialogue on this important issue.

Proposed Changes to the Definition of "Electric Utility" The NRC' s proposed redefi ni ti on of "e 1 ect ri c utility" under 10 C. F. R. § 50. 2 is the most important aspect of the proposed rulemaking and has the most far-reaching impact on utility licensees. FPC believes that the current definition and proposed revisions to the definition of "electric utility" are outdated and should be abandoned as they rel ate to decommi ssi oni ng funding issues. FPC suggests that the NRC replace the current definition with the "qua1 i fi ed nuclear entity" concept set forth in the comments fi 1 ed by the Nuclear Energy Institute (NEI) on behalf of the nuclear power industry. FPC further recommends that the NRC develop, based on additional public input, financial criteria, which, if met, would allow a licensee that did not meet 3201 Thirty-fourth Street South

• P.O. Box 14042 *St.Petersburg, Florida 33733 * (813) 866-4641

• Fax: (813) 866-4941 Acknowledged by -----

r<<>v 2 I 1197

U.S. NUCL::AR REGULATORY COMMISSION RULEMAKINGS &ADJUDICATiONS STAFF OFFICE OF THE SECRETAR (

OF THE CO,.~~ .i ... wlO:-.J JI ~, 'j Postmark oa*

r I

• I I

• The Secretary of the Commission November 21, 1997 Page 2 the "qualified nuclear entity" definition to nonetheless cover decommissioning costs through an external sinking fund.

Moreover, because restructuring is a fluid process which is still evolving, FPC suggests that any final rule provide broad requirements only. Specific, detailed criteria should be included in a regulatory guide or similar non-binding criteria. FPC believes that flexibility -- in the regulatory process and in the mechanisms for funding decommi ssi oni ng -- is the key as we move into a quickly changing environment of electric utility restructuring.

Under the current NRC regulations, an "electric utility" is exempt from financial qualifications reviews and may use an external sinking fund to accumulate decommissioning funds gradually during the life of a plant. A licensee that is not an electric utility is subject to financial qualifications review, which may be a significant issue in licensee reorganizations and license transfers, and may use an external sinking fund only if the unfunded balance is guaranteed by some surety method. The Commission would amend the definition of electric utility under 10 C.F.R. §

50. 2 to, among other things, (a) include securi ti zati on as an acceptable mechanism to assess non-bypassable charges for the purpose of recovering decommissioning and other stranded costs, (b) delete the phrase "directly or indirectly" from the first sentence of the definition, and (c) add a phrase qualifying that an electric utility is a utility that recovers the cost of electricity through rates, "such that the rates are sufficient for the licensee to operate. maintain. and decommission its nuclear plant safely."

These proposed revisions do not address adequately the rapidly evolving electric utility business environment. NEI's proposed "qualified nuclear entity" concept does and should be given careful consideration by the NRC.

Under this concept, a nuclear utility licensee could continue to utilize an external sinking fund to cover future decommissioning costs if it recovers decommissioning funds through (a) a traditional cost of service mechanism, or (b) a non-bypassable charge set by a regulatory agency, or (c) a contractual agreement to cover outstanding decommi ssi oni ng funding payments taking into account the earnings on prepaid funds. This new term is somewhat broader than the NRC's revised definition of electric utility. More significantly, however, "qualified nuclear entity" better captures the changing business environment of electric industry restructuring and more clearly reflects the type of companies that will own and operate nuclear plants in the future.

In addition to this change, nuclear utility licensees should be able to utilize the external sinking fund method even if they do not constitute a "qualified nuclear entity" if they meet some objective tests of their ability to provide the necessary funding. For example, financial tests could be developed taking into account, among other things, the size, assets, liquidity, net worth, bond rating, or other indicia of financial ability of the nuclear utility licensee. Such a test would allow large, financially stable nuclear utilities (which may not techni ca 11 y meet the defi ni ti on of "qualified nuclear entity" or "electric utility") to continue to fund decommi ssi oni ng through external sinking funds while providing the desired financial assurances.

The Secretary of the Commission November 21, 1997 Page 3 Standards are currently being developed by credit rating agencies and the financial investment community to assess the financial strength of a merchant power plant and whether money will be lent to such an entity. These criteria, which consider, among other things, bond ratings, company coverage ratios, net worth, and long-term contracts, which provides reasonable assurance of covering decommissioning costs, should be carefully reviewed by the NRC, the industry, and the public, prior to issuance of a final rule. After additional, critical review, it may be evident that such criteria provide needed flexibility to a licensee while still assuring the NRC that the company has the financial means and ability to cover its outstanding decommissioning liability.

In this regard, the Commission noted in the proposed rule that it "wi 11 continue to evaluate this issue, but is not presently offering any changes to its financial test criteria." FPC recommends that, given the relevance to the fundamental principles driving this proposed rulemaking, the NRC evaluate fully the merits of developing and implementing a revised financial qua l i fi cation test for nuclear utility licensees prior to issuing a final rule.

If the NRC nonetheless chooses to retain the definition of "electric utility" under 10 C.F.R. § 50.2, FPC suggests that the NRC revise its redefinition as outlined below. While the NRC expands the definition of electric utility in one regard, its redefinition unduly restricts a licensee's funding options in two other significant respects. FPC supports the NRC's proposed revision that would broaden a utility's ability to use an external sinking fund to cover decommissioning costs where that utility recovers rates indirectly through a non-bypassable charge mechanism (for example, through securitization). FPC, however, disagrees with the two other proposed revisions referenced in (b) and (c) above, which if implemented would unnecessarily limit the ways in which a licensee could assure adequate funding and/or could potentially have unintended consequences in a proceeding involving a license transfer or reorganization.

First, licensees who enter into long-term power sales agreements, which are approved by their state public service commissions or a federal regulator such as the Federal Energy Regulatory Commission, should not cease to be considered an electric utility for purposes of decommissioning funding. Such approved contracts, which constitute an "indirect" cost recovery mechanism, offer adequate assurances that plant decommissioning will be funded. By deleting the term "indirectly" from the 50.2 definition, the NRC would unduly restrict licensees from competing in the open market without any material public health or safety benefit.

Second, the addition of the phrase "such that all rates are sufficient to operate, maintain, and decommission its nuclear plant safely" to the definition of electric utility could significantly weaken the exemption from financial qualification reviews that electric utilities currently receive and unnecessarily a 11 ow changes to the sufficiency of the rates and ratemaki ng process. Under the current regulations, a licensee is not subject to a financial qual i fi cation review if it establishes that it is subject to rate regulation. The proposed revision would apparently require the consideration of an additional issue concerning the sufficiency of rate regulation. For

The Secretary of the Commission November 21, 1997 Page 4 example, in a license transfer or licensee reorganization proceeding, contentions could be raised that the licensees are not electric utilities because rates are not sufficient to operate, maintain, or decommission the plant safely. This might result in litigation before the NRC concerning the sufficiency of the rates and the ratemaking process -- an area traditionally and appropriately left to state public utility commissions. FPC recommends that the NRC delete this language from the final definition of electric utility.

This proposed revision also inappropriately links O&M funding to decommissioning. The principal focus of any requirement related to decommissioning funding assurance should be to provide reasonable assurance that a utility will fund its outstanding decommissioning costs.

Decommissioning funding issues are and should be entirely separate from financial assurances for ongoing nuclear plant operations and maintenance, and licensees should not be required to demonstrate that they can fund O&M costs in the same context*as decommissioning. FPC suggests that the NRC delete the words "operate, maintain" from the first sentence of the proposed, revised definition of "electric utility."

Proposed Changes to Reporting Requirements and Rate of Return Credits The proposed rule would also (a) revise reporting provisions to require an initial decommissioning funding status report within nine months of the rule's effective date and periodic funding status reports every two years thereafter, and (b) allow a credit for earnings on accumulated trust funds using a 2 percent real rate of return from the time of the funds' collection through the decommissioning period. FPC supports these proposed revisions.

Recoupment of Decommissioning Costs in a Restructured Environment Finally, in its response to comments, the NRC stated that it "will work and consult more closely in the future with the National Association of Regulatory Utility Commissioners (NARUC), FERC and the Securities and Exchange Commission (SEC) so that the NRC may express its positions on safety and encourage the various regulatory bodies to continue their allowances of adequate expenditures for pl ant safety." 62 Fed. Reg. at 47,591. FPC strongly supports continued consultations among the various state and federal agencies.

FPC believes that continued allowances by state public utility commissions of adequate expenditures such as those to fund future decommissioning costs are critical to the competitive position of nuclear utilities in a restructured market and urges the NRC, in such consultations, to recommend that state public utility commissions continue to allow recovery of decommissioning costs through some non-bypassable mechanism.

In the event state public utility commissions or legislatures choose not to allow recoupment of some or all costs associated with decommissioning, FPC believes that accelerated funding of decommissioning costs should be permitted prior to the date of deregulation. In the proposed rule, the NRC emphasized that although it "is not proposing to expressly require accelerated funding to address premature shutdowns . . . [it] expects, however, that PUCs and FERC will address decommissioning funding through cost recovery mechanisms." 62 Fed. Reg. at 47,592. FPC hopes that, in any consultations with state public

The Secretary of the Commission November 21, 1997 Page 5 utility commissions, the NRC support the position that licensees be allowed to accelerate funding prior to the implementation of any restructuring plan under which decommissioning costs are not recovered through traditional cost of service regulation.

FPC again commends the NRC for addressing an issue of paramount importance in a timely manner. We appreciate the opportunity to provide the Commission with our views and would be happy to discuss this matter further at your convenience.

Sincerely,

SOUTHERN CALIFORNIA Harold B. Ray EDISON DOCKETE D Executive Vice President An EDISON INTERNATIONAL Company USNRC November 24, 1997

'97 NOV 24 All :13 Mr. John C. Hoyle Secretary U.S. Nuclear Regulatory Commission 11555 Rockville Pike DOCKET NUMBER ID Rockville, Maryland 20812 PROPOSED RULE w ffll 5 0

(<i,~FRL/7688 Re: Proposed Rule On Financial Assurance Requirements For Decommissioning Nuclear Power Reactors (Federal Register Volume 62, No. 175, September 10, 1997)

Attention: Rulemakings and Adjudications Staff

Dear Mr. Hoyle:

In the proposed rule on financial assurance requirements for decommissioning nuclear power reactors, the Nuclear Regulatory Commission (NRC) proposes to amend its regulations as a "response to the potential deregulation of the power generating industry." Southern California Edison Company (Edison) supports efforts by the NRC to revise regulations to provide explicit criteria for decommissioning funding assurance for licensees. Edison supports and joins comments offered by the Nuclear Energy Institute (NEI), which it will not reiterate in detail here. The following comments are offered as a supplement to the NEI comments. The NRC should provide specific criteria on this issue during this period of restructuring of electric utilities so that regulatory uncertainty does not impede either the transition to a competitive electric market or the viability of nuclear generation in that market.

I.

EDISON RECOMMENDS ADOPTION OF A NEW APPROACH TO DECOMMISSIONING FUNDING ASSURANCE A. Edison Recommends That The Term "Electric Utility

No Longer Be Used To Identify Entities Exempt From Surety Requirements For Decommissioning Funding Assurance For a non-"electric utility licensee, the NRC's proposed decommissioning funding assurance rule continues to require pre-funding or other reasonable assurance through a letter of credit or insurance that all NRC-required AdrlC>wladged bJ cad flJV 2 I 1997 P.O. Box 800 2244 Walnut Grove Ave. Rosemead, California 91770 (626) 302-1695 Fax (626) 302-4737

f' -

I

' \*

-..... , - *..,. - I,..

l*r ~ ~;.: . .

NOi V * * ** , ~ / , ** , II ' * -

Mr. John C. Hoyle Secretary Page 2 November 24, 1997 decommissioning funds are currently available. For an "electric utility," the proposed rule continues to allow accumulation of NRC-required decommissioning funds over time through an external sinking fund. Thus, the definition of a "electric utility is of critical importance to whether there is a need for additional assurance that adequate decommissioning funds will be available when needed.

Industry restructuring includes the development of a competitive generation market including market-based pricing for generation. As a result, disaggregation of at least generation from other utility services, such as transmission and distribution, is likely to occur. There will be progressively fewer traditional vertically-integrated electric utilities owning nuclear generating facilities. These developments, which will proceed in a variety of ways and on a variety of schedules throughout the country, make continued reliance on the defined term, "electric utility," increasingly unclear. For this reason, Edison recommends that the NRC separate its requirements for decommissioning funding assurance from its definition of "electric utility and from its financial qualifications requirement.

The need for decommissioning funding is associated with the existence of a nuclear generating facility. The decommissioning obligation is incurred when a nuclear generating facility is constructed and enters service, regardless of how long that facility operates. All existing nuclear generating facilities were constructed to meet a utility's obligation to serve its ratepayers. The decommissioning funding obligation is a ratepayer responsibility separate from recovery of operating costs.

This is because of the important public health and safety interest in assuring adequate funding to safely decommission nuclear generating facilities. The decommissioning funding assurance requirement should focus on recovery of decommissioning costs alone. Separate financial qualifications requirements should provide reasonable assurance of recovery of operating costs.

The proposed rule is an improvement over the existing rule because it recognizes that some costs may be recovered by a non-bypassable charge mechanism and some may not. However, the proposed rule defines "electric utility

as an entity which "recovers the cost of this electricity through rates." The meaning of the phrase "recover the cost of the electricity through rates" is unclear. Even under traditional cost of service regulation, an investor-owned utility may not fully recover the cost of electricity through rates, nor should the cost of electricity be the focus for NRC's definition. The appropriate test should be one of reasonable assurance of recovery of decommissioning funds only.

The proposed rule should adopt a test of reasonable assurance of decommissioning cost coverage. This means that, based on reasonable assumptions, the decommissioning costs will be recovered. Edison recommends

Mr. John C. Hoyle Secretary Page 3 November 24, 1997 utilizing the definition of "qualified nuclear entity proposed by NEI with some modifications as the test for the decommissioning funding assurance requirement.

A "qualified nuclear entity," exempt from surety requirements for decommissioning funding assurance, should have reasonable assurance of recovery of decommissioning funding. All other licensees would not be "qualified nuclear entities" and would, therefore, be subject to surety requirements for decommissioning funding assurance. An entity that is not a "qualified nuclear entity would most likely only be able to recover decommissioning funding through a competitive generation market or through a power sales contract.

The "electric utility exemption, relative to decommissioning funding, was developed because the NRC presumed that rate regulation agencies have a public interest responsibility to provide reasonable assurance of recovery of all decommissioning costs. A "qualified nuclear entity" has reasonable assurance of recovering decommissioning funds over the entire term of the required decommissioning funding. This definition is consistent with the bases for the original "electric utility exemption relative to decommissioning funding.

Edison recommends adoption of a modified version ofNEI's definition of a "qualified nuclear entity," as an entity meeting one of the following three criteria:

• Decommissioning funds being recovered through a rate-setting mechanism or, in the case of public power entities, by that entity's Board of Directors/Governors;

• Decommissioning funds recovered through a non-bypassable charge established by legislative or regulatory mandate, or in the case of public power entities, by that entity's Board of Directors/Governors; or

• Decommissioning is funded through a binding contractual agreement)/

with another party21 to provide reasonable assurance that the other party will continue to fund its share of unfunded decommissioning expenses separate from any requirement to continue power production ..Q/

li The contractual agreement(s) should be equal to the amount required to fund the outstanding decommissioning payment(s), taking into account the earnings on the pre-paid funds, as defined in the NRC proposed rule.

21 The party bound to provide the unfunded balance shall meet one of the first two criteria for "qualified nuclear entity" or reasonable financial criteria, like those proposed by Edison below for a non-"qualified nuclear entity" providing a self-guarantee.

11 For example, there may be instances in which licensees sell one or more nuclear power plants to other entities and, as part of those transactions, the obligation to continue payments into decommissioning funds would remain with the ratepayers who have received, and may continue

Mr. John C. Hoyle Secretary Page 4 November 24, 1997 With regard to the third criterion, Edison modifies NEI's criterion by proposing that the party committing to provide the unfunded balance shall meet one of the first two criteria for "qualified nuclear entity" or shall meet reasonable financial criteria, like those proposed by Edison below for a non-"qualified nuclear entity" providing a self-guarantee. Unless the party committing to provide the unfunded balance is required to meet these criteria, the third criterion would not provide reasonable assurance of the availability of decommissioning funding. In addition, the binding contractual agreement should be separate from any requirement to continue power production. Recovery of decommissioning funds should not be contingent upon operation. In Edison's view, decommissioning funding is related to an existing liability, not to a going-forward cost. Therefore, decommissioning funding assurance should be provided through rate recovery, a non-bypassable wires charge, or a third-party contract that is binding irrespective of continued power production.

B. Edison Recommends That New Mechanisms Be Made Available To Entities Requiring Additional Decommissioning Funding Assurance The functional unbundling of the electric utility industry increases the probability that generating companies with no assured recovery of decommissioning costs may become owners of nuclear facilities. New standards are necessary for Congress, State Commissioners, investors and the public to have reasonable assurance that decommissioning funding will be available when needed, while, at the same time, nuclear generating facilities remain a viable source of power in a restructured industry. In response to the NRC's request in paragraph C.6 of the discussion of comments, Edison recommends that the NRC consider adopting the following additional options for decommissioning funding assurance for either non-

"electric utilities" or non-"qualified nuclear entities:"

• Parental guarantee of decommissioning funding from a parent meeting the criteria for self-guarantee

• Self-guarantee of decommissioning funding assurance for licensees that meet at least two of the following financial tests:

The licensee has an investment grade bond rating, Continued from the previous page to receive, electricity from the facility or facilities in question. In such situations, the buyer could (1) assume custodial responsibility for the decommissioning trust fund and any monies already collected; (2) receive a contractual commitment, secured either by regulatory or legislative mandate, the payments into the decommissioning trust fund would continue; and (3) acquire responsibility for decommissioning the plant at the end of its useful life.

Mr. John C. Hoyle Secretary Page 5 November 24, 1997 The licensee's pre-tax income before interest expense divided by interest applicable to debt must be greater than or equal to 2; i.e.,

the licensee's pre-tax income before taking any deduction for interest expense must be at least two times the amount required to service the licensee's long- and short-term debt; and The net worth of the licensee is at least twice the current remaining unfunded cost of decommissioning in nominal current year dollars.

• Accelerating payments over 5/8 of the remaining period of the license term for the unfunded decommissioning liability, providing there are sufficient company, or parent company, assets equal to twice the unfunded decommissioning obligation.

• Case-by-case licensee-specific proposals to assure decommissioning funding that had been reviewed and approved by the NRC, and support a conclusion that there is reasonable assurance that the licensee will be able to fund decommissioning.

Unlike NEI, Edison proposes certain specific financial tests to support parental guarantee or self-guarantee of decommissioning funding assurance. The development of specific financial criteria for providing decommissioning funding assurance leads to regulatory certainty and stability which will help to assure NRC licensees continued access to capital. However, Edison agrees with NEI that such criteria could be developed in a Regulatory Guide, rather than in the proposed rule itself.

C. If The Proposed Rule Retains Use Of The Defined Term "Electric Utility," It Should Explicitly Include Utilities That Can Recover Only Decommissioning Costs Through A Nonbypassable Charge Edison supports NEI's "qualified nuclear entity" proposal as described above. However, if the NRC does not choose to adopt NEI's proposal, the proposed rule offered by the NRC still requires some clarification. The proposed rule suggests that an entity can be "partly an electric utility and partly a non "electric utility," as follows:

"... an entity whose rates are established by a regulatory authority by mechanisms that cover only a portion of its costs will be considered to be an "electric utility only for that portion of the costs that are collected in this manner .... "

Mr. John C. Hoyle Secretary Page 6 November 24, 1997 This construct requires clarification.

Under California Public Utilities Code Section 379, all California entities are authorized to recover nuclear decommissioning costs through a non-bypassable charge, indefinitely. For decommissioning funding assurance purposes, entities which recover decommissioning costs through a non-bypassable charge, such as that established in California Public Utilities Code Section 379, should be defined as "electric utilities." This should occur regardless of whether the entities are assured recovery of other costs through a non-bypassable charge.

The proposed rule could be interpreted to mean that whatever percentage of an entity's costs going-forward were recovered through rates would be considered to be "electric utility costs, not subject to a surety mechanism for decommissioning funding assurance. In Edison's opinion, this is not the interpretation which the NRC intended, and the language should be clarified to provide that entities which recover all of their decommissioning costs, but no other costs, through a nonbypassable charge would be fully considered to be "electric utilities" for purposes of decommissioning funding assurance. Edison recommends that the following sentence be added to the definition of "electric utility to clarify that entities which recover decommissioning costs through a non-bypassable charge would be "electric utilities" for purposes of decommissioning funding assurance:

For purposes of determining whether an entity is an electric utility for purposes of decommissioning funding assurance, an entity whose decommissioning costs are recovered through a non-bypassable charge mechanism is an electric utility.

II.

ASSUMING A REAL RATE OF RETURN OF 2% MAY ALLOW UTILITIES TOBECOMEUNDERFUNDED,ASITDOESNOTTAKEINTOACCOUNT THE EFFECT OF INCOME TAXES In the NRC's response to commenters (p. 48), it indicates that a 2%

real rate of return (i.e., inflation adjusted, after tax) "represents as close to a "risk free" return as possible and has increased confidence that the 2% value can be consistently achieved. Edison's review of historical data from 1926-1996 (for intermediate and long-term government bonds from 1997 Ibbotson Yearbook) indicates the average real rate of return from 1926-96 before tax has been about 2%.

After taxes, even assuming the recently enacted Qualified Trust tax rate of 20%,

real rates of return would have been closer to 1%. And, these returns should not be

Mr. John C. Hoyle Secretary Page 7 November 24, 1997 characterized as risk-free, even with a long-term perspective. Historically, for annualized periods extending many years, real returns on bonds were negative.

III.

EDISON SUPPORTS A REPORTING REQUIREMENT, BUT RECOMMENDS THAT DRAFT FASB NO. 158-B NOT BE USED AS A TEMPLATE FOR SUCH REPORTS BECAUSE IT IS NOT YET FINAL Edison does not oppose reporting to the NRC on the status of decommissioning in accordance with whatever provisions the final FASB 158-B would require to calculate the decommissioning liability to be reported to the shareholders and the Securities and Exchange Commission.

The FASB 158-B exposure draft was published in February 1996, and EEI provided comments and recommendations to the F ASB about several of the proposed accounting and reporting requirements called for in the draft, in a letter dated May 29, 1996. Edison continues to support the EEI's position on these issues as it awaits the release of a final standard or new exposure draft from the FASB.

The project has been inactive in recent months and the FASB has not announced when they plan to reactivate it. Therefore, it is recommended that the NRC not require the FASB 158-B draft to be used for decommissioning status reporting.

Very truly yours, A/,iC

~~B.R CAS:sbw:LW972410.149

DOCK ETED November 18, 1987 USNRC Lynne Goodman 727 Scarlet Oak ct. "97 NOV 24 A10 :OQ Monroe, MI 48162-3473 The Secretary of the Commission U.S. Nuclear Regulatory Commission Washington, D.C. 20555-0001 Attn: Rulemaking and Adjudications Staff

Dear Mr. Hoyle:

I am writing to comment on the proposed rule on Financial Assurance Requirements for Decommissioning Nuclear Power Plants(RIN 3150-AF41).

I am writing because of a couple of concerns I have with the proposed rule. I agree decommissioning needs to be properly funded, and that we don't want to leave ourselves vulnerable to abandoned nuclear plants without adequate funding for decommissioning. Deregulation could increase the probability of premature shutdown and inadequate funds for decommissioning.

My main issue deals with how utility is being redefined to only include entities that receive the cost of electricity through rates established by a regulatory authority, and that such rates must be sufficient to operate, maintain and decommission its nuclear plant safely, and that only utilities who meet this definition will be allowed to use the sinking fund method of financing the decommission fund. If only a portion of these costs are covered by regulatorily set rates, the entity will only be considered an electric utility for the portion of assets covered in this manner. My concerns are

1) Does this mean if the entity recovers decommissioning costs through rates or regulatory fees, but covers operation and maintenance costs through market sales, that it is considered an electric utility for decommissioning purposes or only part of an electric utility? If only part of an electric utility, will the entity need to use a means other than a sinking fund for a part of decommissioning funding even though it is collecting decommissioning costs through fees or rates? If decommissioning costs are being recovered by a regulatorily set rate or fee, the entity should be considered a utility for decommissioning funding purposes.

2) If the collection of decommissioning funds is fixed, but the cost estimate or earnings rate fluctuates, will a proportional part of decommissioning funding need to be covered by other than a sinking fund if the analysis in any year shows the collection will not be adequate?

11W 2 8 1997 Aclcnowledgad bJ * - - - -

This would be very complicated and contrary to the philosophy of collecting at least the majority of the cost in a fund over the years and then performing more detailed analysis to address any additional needs as plant permanent shutdown approaches.

3) I believe that if there is reasonable assurance that all or most of decommissioning costs will continue to be collected, a licensee should be able to use the sinking fund decommissioning funding method. Other methods add significant costs to funding. These costs, especially if unnecessary, will serve to drive the price of nuclear power ever higher and possibly lead to permanent closure. Premature closures are contrary to the purpose of decommissioning funding regulations, since plants that are prematurely closed typically don't have adequate decommissioning funds. Premature closures are also wasteful and will lead to increased carbon dioxide emissions from substitute power.

My second issue deals with the specific wording used to allow a licensee to take credit for earnings on prepaid decommissioning trust funds and external sinking funds using a 2 percent annual real rate of return from the time of the funds' collection through the decommissioning period(if the licensees rate-setting authority does not authorize the use of another rate). I agree with the NRC's proposed allowance for fund earnings from time of collection through decommissioning, however I believe that a licensee should be able to take credit for actual earnings for current and past years since collection, and up to 2%(with the given exception) for future years predicted earnings. Let me provide to examples to explain what I mean by this comment.

1) If a utility has been earning an average 10% income, in predicting future collection needs, they should be able to use their current fund amounts(including funds deposited and 10% income) in predicting future needs.

The future needs prediction should include any future deposits plus up to 2% real rate of return.

2) If the utility only wants to use a 1% real rate of return, it should have that choice rather than be limited to 2% or nothing based on the current proposed wording, unless the rate-setting authority authorizes something else.

The latter example concern can be handled by adding "up to" or "maximum" before 11 2 percent". The first example concern may be able to be handled by adding "future" and deleting "the" before "funds' collection".

I also received draft comments from NEI and agree in general with these comments.

I hope these comments will be useful in formulating a final rule that will help ensure adequate decommissioning funding without being excessively burdensome and without contributing to prematurely shutdown nuclear plants.

Sincerely Lynne Goodman

701 Pennsylvania Avenue, N.W.

Washington, D.C. 20004-2696 Telephone 202-508-5527 DOCKETED USNRC

°97 NOV 24 A8 :16 DAVID K. OWENS fijfi EDISON ELECTRIC INSTITUTE OFFICl: ur" S1:'Cfll:1:.RY RUU:MtJ(li~.--:'/~ Ar D Senior Vice President Finance, Regulation, & Power Supply Policy ADJUDICATIOt S SlAFF November 18, 1997 DOCKET NUMBER PROPOSED 50

( (p:1 FR t/7S'f5~)-, _____,,_

Mr. John C. Hoyle Secretary U.S. Nuclear Regulatory Commission Washington , District of Columbia 20555-0001

Dear Mr. Hoyle:

The purpose of this letter is to inform you that the Edison Electric Institute intends to respond to the Nuclear Regulatory Commission's rulemaking on the Proposed Rule for Financial Assurance Requirements for Nuclear Power Reactors (62 Fed .

Reg. 47588- September 10, 1997), and the Draft Regulatory Guide 1060, Financial Accounting Standards Board (FASB) Standards for Decommissioning Cost Accounting. However, at this time, we anticipate that we will be forced to submit EEi's comments in early December due to the need to fully consult with all of our members during this holiday season, particularly in light of the complexity of the issues involved in the rulemakings.

We appreciate the opportunity to comment on the proposed rule and the draft regulatory guide, your announced flexibility in accepting late-filed comments, and the consideration you will give to our comments.

Sincerely, David K. Owens DKO:lkm

U.S. NUCLl:AR REGULATORY COMMISSfON RULEMAKINGS & ADJUDICATIONS STAFF OFFICE OF THE SECRETARY OF THE COMMISSION Document Statistics Postmark Date fl / I C, / q '1 Copies Received /

Add'I Copies Repr-od_u_ce_d___._'+_____

Special Distribution Ki c hte~

Ga. l(et9he't ?J:>~ 1<1Ds

Commissioners:

STATE OF FLORIDA DOCKETED JULIAL. JOHNSON, CHAIRMAN GENERAL COUNSEL us NRC SUSANF. CLARK ROBERT D . VANDIVER J. TERRY DEASON (904) 413-6248 JOE GARCIA °97 NOV 21 P1 :58 DIANE K. KIESLING l)ublit 6trbitt Commtsston November 20, 1997 DOCKET NUMBERplf .'i-c PROPOSED RULE .:, O BY AIRBORNE EXPRESS (lo~ ~f<. t./-7 588')

Secretary of the Commission U.S. Nuclear Regulatory Commission 11555 Rockville Pike Rockville, Maryland 20852-2738 Re: 10 CFR Part 50, RIN 3150-AF41 - Financial Assurance Requirements for Decommissioning Nuclear Power Reactors - Proposed Rule SP-97-066

Dear Secretary:

Enclosed are the original and one copy of the Florida Public Service Commission's comments in the above docket. Please date-stamp one copy and return it in the enclosed self-addressed stamped envelope.

Sincerely, Cynthia B. Miller Senior Attorney CBM:jmb r<<JV 2 8 1917 Adcnowledged bJ CAPITAL CIRCLE OFFICE CENTER* 2540 SHUMARD OAK BOULEYARD* TALLAHASSEE, FL 32399-0850 An Affirmative Action/Equal Opportunity Employer Internet E-mail CONTACT@PSC.STATE.FL. US

RULEMAl<L 'G..: ~:.t ** ;:- '_;*:.\1.T.:

OFF'.c*= c.:

_ __ _ J

UNITED STATES NUCLEAR REGULATORY COMMISSION Washington, D.C. 20555-0001 In the Matter of:

Financial Assurance Requirements 10 CFR Part 50 for Decommissioning Nuclear RIN 3150-AF41 Power Reactors.

COMMENTS OF THE FLORIDA PUBLIC SERVICE COMMISSION The Florida Public Service Commission (FPSC) appreciates the opportunity to submit comments to the Nuclear Regulatory Commission (NRC) regarding its Notice of Proposed Rulemaking (NOPR) on amendments to the financial assurance requirements for the decommissioning of nuclear power plants in light of the potential regulatory changes in the electric utility industry. While we basically support the proposed rule amendments, we believe several areas of the rule could be subject to interpretation and should be clarified.

The NOPR proposes a revised definition of "electric utility" as one that recovers its costs through rates established by a regulatory authority, "such that the rates are sufficient for the licensee to operate, maintain, and decommission its nuclear plant safely." To the extent the NRC finds that its safety standards are not being met, the FPSC agrees the entity should not be classified as an "electric utility" for the purposes of NRC regulation.

However, we believe the proposed language could suggest state regulatory jurisdictional issues that the NRC does not intend. For this reason, we believe the NRC should clarify that it does not intend to infringe upon state ratemaking authority. Furthermore, given the revised definition, we believe that some of the language in §50.75(e) (3) is unnecessary and should be removed in order to avoid the potential for confusion and misinterpretation. We suggest that §50. 7 5 ( e) ( 3) be revised as follows:

For an electric utility, its rates ffiUSt be sufficient to recover the cost of the electricity it generates, transffiits, or distributes. These rates ffiUSt be established by a regulatory authority such that they arc sufficient for the licensee to operate, ffiaintain, and dccoffiffiission its plant safely. T~he Commission reserves the right to take the following steps in order to assure a licensee's adequate accumulation of decommissioning funds: review, as needed, the rate of accumulation of decommissioning funds; and either independently or in cooperation with either the FERC and the State PUC's, take additional actions as appropriate on a case-by-case basis, including modification of a licensee's schedule for accumulation of decommissioning funds . . . .

The NOPR also proposes a definition for "non-bypassable charges" as "charges imposed by a governmental authority which 2

associated with operation, maintenance, and decommissioning of a nuclear power plant. II This definition could be interpreted that a non-bypassable charge is required to provide recovery for "all" categories of costs (operation, maintenance, and decommissioning). First, the FPSC believes the NRC should clarify that "costs" relate to prudent costs rather than all costs.

Additionally, we believe that clarification is needed that the non-bypassable charge is not required to recover "all" categories of costs. The charge could, in fact, be designed to only recover prudent decommissioning costs if the regulatory body decided that operation and maintenance costs should be market driven. In this case, the entity would qualify as an electric utility in regard to decommissioning funds only and not in regard to operation and maintenance. The regulatory body should have the discretion to decide what prudent costs, if any, should be recovered through a non-bypassable charge.

Finally, the NRC is proposing periodic reporting requirements to monitor the status of decommissioning funds. The initial report will be required to be submitted within nine months after the effective date of the rule, and at least once every two years thereafter. According to the proposed language, any licensee of a plant that is within five years of the projected end of the plant's operation shall submit a report annually. The FPSC agrees that this reporting requirement is a way for the NRC to be informed of 3

licensees' decommissioning funding status and potential underestimates of cost. However, we believe the NRC should clarify that the projected end of the plant's operation includes situations in which a plant shuts down prematurely before the end of its operating license. We believe the annual reporting requirement could be construed to relate only to plants within five years of the end of their operating licenses. Additionally, the FPSC requests that the NRC include the requirement for licensees to also submit a copy of these reports to the state regulatory authority.

Respectfully submitted,

~

FLORIDA PUBLIC SERVICE COMMISSION 2540 Shumard Oak Boulevard Tallahassee, Florida 32399-0850

- DATED: November ~D , 1997 4

s (!)

DEPARTME SPRI ,

Jim Edgar Governor November 13, 1997 DOCKET NlNBER PROPOSED RULE PR 50

( 1p,2 Fil. 1/1 ssg )

The Secretary of the Commission U.S. Nuclear Regulatory Commission Washington, DC 20555-0001 Attention: Rulemakings and Adjudications Staff Re: Financial Assurance Requirements for Decommissioning Nuclear Power Reactors--Proposed Rule (Federal Register, September 10, 1997)

Dear Secretary:

These comments are submitted by the Illinois Department of Nuclear Safety (IDNS) in response to NRC's proposed rule amending 10 CFR Part 50 regarding financial assurance requirements for decommissioning nuclear power reactors.

IDNS has primary responsibility for the coordination and oversight of all State governmental functions in Illinois concerning the regulation of nuclear power, including low level radioactive waste management, environmental monitoring, and transportation of nuclear waste. IDNS implements Illinois' responsibilities under the Agreement State program and memorandums of understanding with the NRC regarding regulation and inspection of nuclear power plants in Illinois. Rate regulation of public utilities in Illinois is the responsibility of the Illinois Commerce Commission.

Electric utility deregulation is presently being considered by the Illinois General Assembly, as in other states. IDNS is following legislative developments, although the focus of deregulation relates more specifically to economic issues than radiation safety issues. The.outcome of efforts to deregulate electric utilities is unclear at the present time and will likely be

@ recyclable r<<>Y 2 e 1997 Aclo'lowlqed by c a r d - -

o*

U.S. NUCU:AR REGULATORY COMMISSl<W RULEMAKINGS & ADJUDICATIONS STAFF OFFICE OF THE SECRETARY OF THE COMMISSION Document Statistics Postmark Date II/,$/

• CJ '1

Secretary of the Commission Page 2 unclear for several years. Nuclear power plant licensees, like other persons licensed to use radioactive material, must be responsible for properly decommissioning licensed facilities at the end of their productive lives.

Although NRC is not responsible for setting rates charged by operators of nuclear power plants, NRC is justifiably concerned that the public health and safety may not be adequately protected if sufficient funding for decommissioning is not provided. NRC should coordinate its efforts with public utility commissions (PUCs) to the extent that PUCs continue to have rate setting responsibilities which include provision of funds for nuclear power plant decommissioning.

Specific Comments Restructuring of Deregulation Scenario Deregulation of nuclear electric utilities is well underway in Illinois as in other states throughout the nation. NRC should act now to be in a position to respond to changes resulting from deregulation that could affect protection of the public health and safety. In addition, costs of decommissioning licensed facilities are the responsibility of, and must be borne by, the entities licensed to operate the facilities, not the federal or state treasuries.

When Does an Operator Cease to Be a Utility It seems extremely unlikely that any state would deregulate the electric utility industry so completely that there would be no requirements to provide funds for decommissioning of nuclear power plants. Accordingly, it is appropriate to revise the definition of "electric utility" to provide that should a licensee be subject to rate regulation for only a portion of its costs covering only a portion of its decommissioning costs (40% in NRC's example), then the licensee would be considered to be an "electric utility" for purposes of guaranteeing decommissioning costs only to that same extent. In the example provided, 60 % of decommissioning costs would need to be accounted for in a manner consistent with methods acceptable for non-electric utility licensees.

IDNS suggests that similar flexibility be allowed for assurance options, as will be discussed below.

e

• e l

Secretary of the Commission Page 3 Impacts Nuclear power plant licensees which no longer meet the definition of "electric utility" because they are no longer overseen by a rate-setting regulatory authority must comply with the decommissioning funding requirements of 10 CFR 50. 75(e)(2). As NRC obtains additional experience with facility decommissioning (both reactor and non-reactor), NRC should validate the financial standards in appendices A and C to Part 30. IDNS questions the justification for the prohibition of use of a parent company guarantee in combination with other methods of providing financial assurance. IDNS suggests that NRC reconsider allowing use of a parent company guarantee in combination with other allowable assurance methods. See comments under Financial Test Qualifications below.

NRC should continue to require that licenses for nuclear power plants shall not be transferred, directly or indirectly, as a result of any merger, reorganization or sale, without the NRC's written approval. Entities without financial ability to finance the costs of both safe operations and plant decommissioning are not good candidates for nuclear power plant ownership.

Financial Test Qualifications NRC notes that several commenters stated that the financial structure of utilities could preclude satisfaction of the parent company guarantee standard.

IDNS suspects that at least part of the reason is that portions of the parent company financial test require balance sheet amounts equal to six times the entire current decommissioning cost estimates. If, however, NRC allowed a combination of methods, it might be feasible for more licensees to meet the parent company guarantee standards for a portion of the decommissioning cost estimate while providing for the remainder of decommissioning cost estimate with other methods. To illustrate, assume that a licensee's estimated decommissioning costs are $1 00x million. The second portion of the financial test in paragraph A.1. of Part 30, Appendix A requires net working capital and tangible net worth each at least $600x million. If, however, the licensee had a qualified external sinking fund of $40x million and a combination of methods were allowed, the net working capital and tangible net worth requirements would

Secretary of the Commission Page 4 drop to $360x million [( 100-40) x 6]. NRC should reconsider use of parent company guarantees in combination with other allowable assurance methods.

Reporting on the Status of Decommissioning Funds IDNS supports periodic reporting on the status of decommissioning funds and has submitted a comment supporting NRC's endorsement of FASB draft standard No. 158-B.

If you have any questions, please contact IDNS' Chief Legal Counsel, Stephen J. England, at 217/524-5652.

Thomas W. Ortciger Director TWO:lam

STATE OF NEW HAMPSHIRE DOCKETEn DOUGLAS L. PATCH GEORGIE A- US" ~ s CHAIRMAN SECRETARY "97 NOV -6 A10 :14 NUCLEAR DECOMMISSIONING FINANCE COMMITTEE State House Concord, New Hampshire 03301 October 9, 1997 Honorable Shirley Jackson Chairman

• U.S. Nuclear Regulatory Commission Washington, D.C. 20555

Dear Chairman Jackson:

I am writing to you in my capacity as the Chairman of the New Hampshire Nuclear Decommissioning Finance Committee (NDFC) concerning the financial assurance issue. This Committee, established by our Legislature in 1981 to "provide assurance of adequate funding by utilities for the decommissioning" of nuclear electric generating facilities in our state, is composed of eight individuals, including two legislators, various state officials and representatives of the town where the facility is located and of the lead company. The NDFC has asked me to communicate with you regarding an informal proceeding we will be conducting this fall on the financial assurance issue.

Attorney Robert Backus, who represents one of the parties taking an active part in the financing of decommissioning proceedings before the NDFC, wrote two letters to you, in July and August of this year, concerning the Great Bay Power Decommission Funding Exemption and brought this issue and the letters he sent you to the attention of the NDFC. As a consequence of his raising the issue, as well as the fact that our Legislature is considering legislation on this same issue, and the fact that our Legislature and Public Utilities Commission have taken steps toward competition in the electric industry, the NDFC has undertaken an informal proceeding this fall to consider this issue. The NDFC has scheduled two days of informal hearings, on October 29 and November 6, to hear presentations from various parties on the issue of whether more financial assurance protections ought to be in place to assure that there is adequate funding available to decommission the Seabrook Nuclear Facility. It is the NDFC's hope that this process will culminate in a recommendation to our Legislature on this issue which we would also send to the NRC.

t;.S. ;* ""' *~- .! ... ::  ;

ftJ LJ:.t~. * :-l:-*- . .

_ Y2;:rY25_; _pt}n.,.1-li~iit.e.c _

- ~~fl ,._j _S:te,r . __.::_

Honorable Shirley Jackson Chairman U.S. Nuclear Regulatory Commission Page 2 We further understand that the NRC has an open rulemaking docket in which it is considering this issue and that there is a deadline of November 24 for comments. We will endeavor to complete our proceeding and come up with a recommendation by that time.

I hope this will be of interest to your agency. We will provide whatever information and comments we can. Thank you for

{lt your consideration .

• e ely, cc: NDFC Members NDFC Service List Honorable Jeanne Shaheen, Governor Honorable Beverly Hollingworth, State Senator

DOCKETED

[7590-!0$.-m(;

NUCLEAR REGULATORY COMMISSION "97 SEP -4 p 4 :1 4 10 CFR Part 50 RIN 3150-AF41 Financial Assurance Requirements for Decommissioning Nuclear Power Reactors AGENCY: Nuclear Regulatory Commission.

DOCKET NUMBER PR PROPOSED RULE 50

( /pf}. Fl?. 'i 1588)

ACTION : Proposed rule .

SUMMARY

The Nuclear Regulatory Commission (NRC) is proposing to amend its regulations on financial assurance requirements for the decommissioning of nuclear power plants. The proposed amendments are in response to the potential deregulation of the power generating industry and respond to questions on whether current NRC regulations concerning decommissioning funds and their financial mechanisms will need to be modified . The proposed action

• - would require power reactor licensees to report periodically on the status of their decommissioning funds and on the changes in their external trust agreements. Also . the proposed amendment would allow licensees to take credit for the earning on decommissioning trust funds .

DATE : Submit comments by [iflsert a date to allow 75 days public comment]

. 1997 . 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.

ADDRESSES: Mail comments to: The Secretary of the Commission. U.S. Nuclear Regulatory Commission. Washington. DC 20555-0001. Attention: Rulemakings and Adjudications Staff.

Deliver comments to: 11555 Rockville Pike. Rockville. Maryland. between 7:30 am and 4:15 pm. Federal workdays.

Examine copies of comments received at: The NRC Public Document Room.

2120 L Street NW. (Lower Level). Washington. DC.

FOR FURTHER INFORMATION CONTACT: Brian J. Richter. Office of Nuclear Regulatory Research. U.S. Nuclear Regulatory Commission. Washington. DC 20555- e, 0001. telephone (301) 415-6221. e-mail bjr@nrc.gov.

SUPPLEMENTARY INFORMATION:

Background

The NRC published an advance notice of proposed rulemaking (ANPR) for "Financial Assurance Requirements for Decommissioning Nuclear Power Reactors"

• on April 8. 1996 (61 FR 15427). The NRC was seeking comments on its proposal to amend 10 CFR 50.2. 50.75. and 50.82 to require that electric utility reactor licensees provide assurance that the full estimated cost of decommissioning their reactors will be available through an acceptable guarantee mechanism if the licensees are no longer subject to rate regulation by State public utility cOfJITlissions (PUCs) or the Federal Energy Regulatory Commission (FERC) and do not have a guaranteed source of income. The proposed amendments would also allow licensees to assume a positive real rate of return on decommissioning funds during the safe storage period. Lastly. a periodic reporting requirement would be established.

The ANPR specifically requested comments on the above amendments and on six areas of consideration for decommissioning:

1. The timing and extent of deregulation of the electric utility industry;

2. Stranded costs:

3. Financial qualifications and decommissioning funding assurance for nuclear power plants:

4. Decommissioning funding assurance for a Federal Government 1icensee;

5. The status of decommissioning trust funds during the safe storage period: and

6. Reporting on the status of decommissioning funds.

In response, the NRC received 650 comments from 42 commenters. and the commenters have been classified into 4 groups. The largest group of respondents was utilities and utility groups (28 commenters). followed by public utility commissions and related organizations (9 conmenters). Two public interest groups submitted corrrnents. as did a group of 3 commenters referred to as "other."

The discussion of the comments received is presented by general comment area and specific questions posed within each area. The questions appear in the order as presented in the ANPR. followed by the Commission's responses.

Discussion of Comments A. TIMING AND EXTENT OF ELECTRIC UTILITY INDUSTRY DEREGULATION A.l Likely Timetable On the issue of the timing and extent of deregulation. most cormnenters addressed only the timing question. If commenters also discussed the question of extent. they generally only distinguished between deregulation of the wholesale market and deregulation of retail power sales. although timing estimates usually referred to retail deregulation . Almost half of the commenters did not take a position on the timing issue. Seven commenters e stated that the timing of deregulation could not be predicted.

Several commenters stated only that they took the same position as the Nuclear Energy Institute (NEI). an organization that represents many nuclear utilities. NEI estimated that about ten years would be necessary to bring about restructuring and deregulation. A few cormnenters suggested*that from five to ten years would be sufficient. Two cormnenters pointed to events in States that were scheduled to occur as early as 1998 and others predicted significant deregulation within five years or less or "rapidly . " Two -

cormnenters suggested that deregulation would take place slowly and require a considerable time to complete.

A.2 Restructuring or Deregulation Scenario Phases of Deregulation. Several co1T1T1enters stated that an initial phase of deregulation of the generation or wholesale electricity market has already begun and is likely to continue. Utilities are now preparing for deregulation by undertaking cost reductions (e.g .. workforce reductions. contract renegotiations. regulatory asset reductions. operating cost reductions).

strategic alliances and mergers. and expansion into unregulated venues .

Five commenters expressed their belief that a second deregulatory phase would follow and lead to the restructuring of the transmission sector and to retail competition. However. many commenters noted that significant uncertainty exists regarding the breadth. timing . and implementation of the new competitive electricity business.

The pace of deregulation. according to one commenter. will be set by Federal and State regulation. One commenter stated that competition would be phased in slowly with existing generation assets being "kept whole" through standard regulated rates .

Ultimate Extent of Rate Regulation or Deregulation . Four commenters expect that electricity prices from generators will ultimately be largely deregulated or unregulated. One commenter stated that generation of electricity will become partially deregulated. but may not be fully deregulated if reliance on market forces does not adequately ensure safe and reliable generation supplies.

- Nine commenters expect that transmission rates will remain subject to Federal Energy Regulatory Commission jurisdiction. Regional power markets (RPM) and independent system operators (ISO) (discussed below) would also fall under FERC jurisdiction . according to one commenter. Ten commenters anticipate that distribution (retail) rates are likely to remain subject to State jurisdiction. One of these commenters stated that distribution rates may be regulated under a price cap or incentive-based regulation .

Retail wheeling and pool-based pricing 1 will provide market pricing at all levels. including the retail level. according to one commenter. Three commenters believe that retail wheeling will become widespread.

One commenter indicated that nuclear power plants and non-utility generators. even if released from rate regulation by States or FERC. may remain under some forms of regulation. including State and Federal siting and environmental regulation.

Resulting Business and Industry Structure. Although one commenter stated that NRC should abandon any attempt to anticipate market structure.

other commenters suggested that the following features might characterize the 4t industry subsequent to deregulation and restructuring:

• Functional unbundling which is the divestiture of generation.

transmission. or distribution systems.

• Many, and perhaps all. transmission systems operated on a State-wide or region-wide basis. An ISO will operate the system. coordinating energy production and delivery with demand and provide a pool-based spot market price for energy. RPMs or power market exchanges (PMEs) for competitive generation will accept bids from all generators that want to participate -

in the market. establish the clearing price. and determine the sequence of generator dispatch. Bilateral contracts for the direct purchase of power will also be allowed.

• Different treatment for nuclear generation than for other types of utility-owned generation. Even if nuclear generation is permitted to compete in an open market. some regulatory mechanisms may remain in 1

Retail wheeling refers to the selling of bulk power to a retail customer by way of a third party's transmission system. Pool-based pricing is a pooling of 2lectricity produced by various generators for resale to consumers.

place to ensure that nuclear-related costs (safety. security. waste disposal. decommissioning) are recovered by some means other than the market price of power. One of these commenters stated that regulated local distribution companies would end up owning nuclear generating plants.

• Continued economic viability for nuclear generation for many years as a result of marginal costs that are quite low. Another commenter argued.

however. that there is no obvious deregulated market for many or most existing nuclear power plants because of the uncertainty of the costs of decommissioning and the disposal of high-level nuclear wastes. This commenter stated that neither NRC rulemakings nor short-term passage of time will resolve these issues. A third commenter asserted that competitive pressures will lead to the early retirement of some nuclear plants.

One commenter argued that. given the changes under consideration and already under way, it is no longer credible to assume that utilities can always raise rates or otherwise recover whatever costs are needed to safely operate and decommission nuclear plants. Another commenter suggested that if the NRC chooses to proceed with a rulemaking. the rule should accommodate both nuclear units subject to traditional regulation and nuclear units in the competitive markets.

A.3 Differences in State Policies and Implications Commenters expressed viewpoints on the likely differences in State deregulatory efforts and policies. One colTITlenter declared that all States will ultimately undergo restructuring and deregulation in some form. Nine commenters. however. suggested that some States may reject restructuring entirely. regardless of what other States do.

Four commenters feel that States will possibly or probably be compelled by competitive forces to deregulate. particularly if neighboring States do so.

One of these commenters added that States within a geographic region (where there are no physical barriers to electric transmission) are likely to migrate to a similar industry structure. either as a result of Federal legislation or market pressures. Two other commenters provided examples of market or political pressures that could affect neighboring States* decisions to deregulate.

One commenter stated that some regulators in States that already enjoy low-cost electric service appear reluctant to endorse competition because of concerns that indigenous utilities will seek to sell power to the external market where profit margins could be greater. Should market factors provide an advantage to States that foster competition (by allowing indigenous utilities to gain strength by acquiring market share). States that resist competition could put their utilities at a disadvantage. While State regulators may elect to defer the decision on competition. economic or social -

pressures could influence that decision.

Another commenter indicated that States implementing retail competition may face the risk that a utility in a neighboring State could obtain open access without reciprocal access being provided to in-State utilities seeking to enter the State that does not provide competition.

Three commenters remarked that reform may proceed at different speeds in different States because of local market and political pressures. One of these commenters recommended that NRC accommodate the varied pace to avoid hindering or forcing transitions.

In response to the ANPR's query regarding "hybrid" systems. one commenter believes that a hybrid system of regulation is likely to emerge as States deal with economic issues in a variety of ways. Another commenter stated that a hybrid system could exist for some time. A third commenter reported that. while a hybrid system could probably exist. it may not result in the least expensive electricity. Under a hybrid system. industry structure may vary from region to region. Other commenters. however. felt that a hybrid

- system is unlikely to prevail. They stated that a hybrid may be operationally cumbersome or even unworkable because the markets are not defined by State boundaries and because the grid is highly integrated and interdependent. One of these commenters also stated that a patchwork or hybrid system may reduce the opportunities to market some nuclear generation. Three commenters said they could not predict whether a hybrid system can exist or how one State's policies will affect its neighbors.

One commenter expressed concern that deregulation and reduced oversight at the State level may reduce the certainty that out-of-State partial owners of nuclear-facilities will collect and expend decommissioning funds.

Response. The above questions were posed for corrment so the NRC could obtain estimates on the timing of deregulation. phases. and possible different approaches that may be used in how States would address deregulation. These comments are being grouped under one response as they all contribute to whether the Commission should proceed with a proposed rule now. While the responses to this set of questions ran the gamut of opinion on this issue. the comments have not caused the Commission to change its position that it must act now to be in a position to respond to the upcoming changes in the electric utility environment that could affect protection of public health and safety.

Increased competition could result in economic pressures that affect how licensees address maintenance and safety in nuclear power plant operations. as well as the availability of adequate funds for decommissioning. The comments received and the NRC staff's independent review of deregulation activities also indicate that NRC power reactor licensees are likely to have sufficient notice of changes in their regulatory regimes so as to be able to secure necessary financial assurance for decommissioning should they no longer -

qualify. in whole or in part. as electric utilities. (The staff notes that most. if not all. PUCs and FERC are addressing decommissioning funding assurance in their deregulatory initiatives.) Hence. these comments reinforce the Commission's position that a rule is necessary and timely. given electric utility restructuring and the deregulation legislation being proposed or enacted in several States and by Congress.

B. STRANDED COSTS Many commenters expressed the view that regulators are likely to allow prudently incurred stranded costs to be recovered in some manner. Many of these commenters felt this was particularly true for prudently incurred decommissioning costs. Following are viewpoints typical of these comments .

The probability is high that regulatory mechanisms will be developed to replace cost recovery procedures established through "traditional" regulatory procedures . These mechanisms (e.g .. wire charges. non-bypassable customer fees. including securitization. exit fees) may be different from current mechanisms. but the probability of recoverability under these mechanisms is no less than it would have been under conventional regulation. The mechanism chosen. and its associated equitable allocation of cost responsibility between customers and shareholders. will be determined through the inevitable give and take of the restructuring process. if one is implemented.

FERC. in Order 888. April 24. 1996. effectively established a precedent that. for electric sales under FERC jurisdiction. there will be full recovery of all costs that were prudently incurred. based on an expectation of serving customers in the future. but have or may become stranded as a result of moving to a competitive market. Although the FERC order pertains to wholesale markets. most believe the precedent has been set and the same standard will apply to stranded costs that result from retail competition. It is reasonable to assume that legislators and generators will take distinct precautions in relation to nuclear generation. Even if nuclear plants are permitted to compete on the same basis as other baseload generation. regulatory mechanisms must be in place to ensure that certain costs (safety. security. waste disposal. and plant decommissioning) are recovered by some means other than the market price of power. Plausible mechanisms that regulators could use to recover costs include competition transition charges and non-bypassable charges. One utility fully expects that there would be 100 percent recovery of nuclear stranded costs in a restructured electric industry.

However. other commenters expressed some uncertainty. Some commenters thought cost recovery was appropriate. but did not address its likelihood. In some cases. commenters advocated specific NRC action to address the situation.

One commenter stated it is premature to speculate as to who will ultimately bear the responsibility for stranded costs (estimated between $7 and $17 billion in New Jersey alone). While FERC Order 888 addresses this issue for the wholesale market. that decision remains open to legal challenges that may affect its final outcome. Moreover. because potential retail stranded costs are orders of magnitude larger than wholesale stranded costs. a different solution to this issue for retail competition may ultimately be deemed appropriate. Where stranded costs may be determined to be recoverable.

it is conceivable that those costs will be recovered through some form of non-bypassable "wire" charge.

The commenter further stated that it is not clear how construction costs will be treated as State PUCs define policy for restructuring . FERC and some -

State PUCs already have proceedings under way to determine the amount and means of stranded cost recovery . There is also the possibility of Congressional action. NRC should take a proactive position with FERC and State regulators that potential stranded costs. including those that may be related to specific decommissioning cost obligations. should be recovered by the electric utility as part of their rates. (Several other commenters also suggested that NRC should aggressively lobby FERC and/or PUCs to allow utilities to recover stranded decommissioning costs . ) -

One PUC does not accept that any source of electrical generation is "non-competitive" per se. and thus does not accept that nuclear plants are non-competitive because of high construction costs. It is premature. an oversimplification of a complex issue. and a potential disincentive to mitigate costs to label any type of generation non-competitive at this early stage in restructuring . Even if nuclear generation is sold at less than current combined fixed and variable costs. the market price will probably exceed the variable component. so there will be some recovery of fixed costs.

Costs that are not recoverable could be the subject of Federal or State stranded cost proceedings. Federal and State authorities must inquire whether the unit is necessary to the continued safe and reliable operation of the interconnected grid. and if the answer is yes. a proration of the costs may be necessary among all customer classes that benefit from the continued operation of the unit. If the unit is not necessary. it should be removed from service .

The individual State commissions will have to decide who should bear the cost to prematurely shut down. as opposed to decommission. an uneconomic plant.

A commenter stated that the treatment accorded stranded investment or

- costs may vary from jurisdiction to jurisdiction and few generalizations are possible. The NRC should not become embroiled in individual rate proceedings or debates about particular cost recovery mechanisms. but should instead define a clear policy that. from a public health and safety perspective.

licensees must be allowed to maintain an adequate financial posture to support ongoing safe operation and decommissioning. The NRC's policy statement2 should be a strong statement of its expectations. NRC should participate in the NARUC subcommittee addressing restructuring.

Some commenters stated that decommissioning obligations are qualitatively different from other stranded costs. FERC has not yet adopted a mechanism that provides for recovery of decommissioning costs. Order 888 provides for recovery of wholesale stranded costs through the "revenues lost" approach. However. this approach only accounts for and allows recovery of fixed costs already incurred by utilities and does not address costs that must be collected in the future. A better solution is for the Federal Government 2

See Draft Policy Statement on the Restructuring and Economic Deregulation of the Electric Utility Industry. (61 FR 49711: September 23.

1996).

7 to assure the continuing recovery of decommissioning costs in utility rates.

through non-bypassable fees to be paid by utility customers leaving the system. or through other surcharges tied to the use of transmission facilities. The NRC should support cost recovery initiatives and help educate State commissions on the importance of ensuring continued full collection of decommissioning costs.

Another commenter noted that the best ultimate assurance of the collection of the cost of decommissioning is the ability of the plant to operate at sufficiently low marginal costs to collect decommissioning costs in gross margins. The NRC could improve the likelihood of this outcome by (1) e encouraging the IRS to allow payments for decommissioning costs to be generally deductible rather than deductible only if they are ordered by a regulatory agency and (2) strengthening utilities* efforts to recover stranded costs. As plants are further depreciated and the cost of nonnuclear generation escalates. existing plants will become more competitive.

Some commenters asserted that in the process of identifying well-run plants and seeking the sale or closing of the not-well-run plants. the problem of who should pay for unrecovered costs must be addressed. To the extent that -

the nonsalability is caused by problems created by poor management. the seller is responsible. If the NRC or another agency would undertake a program to address the problem of poorly performing nuclear plants and encourage continued maintenance of efficiently operated plants. many of the questions asked by the ANPR might find answers. Timeliness in identifying poorly performing plants is critical because while the industry is reforming itself.

the ability to affect the inventory of nuclear plants is at its highest level.

Once plants have been evaluated. the NRC should be prepared with a task force to recommend an orderly plan for the disposition of those few plants and operators who will not be recommended for further operations.

A few commenters believed that the full burden of covering the costs.

including decommissioning costs. of uneconomic nuclear plants should fall on utility shareholders rather than customers unless there is a compelling case otherwise.

Response. The Commission does not see a need to modify its position that its regulations need to be modified at this time to address the changing

- regulatory situation for power reactor licensees because of the comments received. Specifically. the Commission agrees with the commenters who hold the view that regulators are likely to allow prudently incurred stranded costs to be recovered in some manner and do not see a need to interfere in the financial regulation of nuclear power plants with respect to the question of stranded costs. Some of the comments. in which actions were proposed for the NRC's involvement with respect to stranded costs. were beyond the NRC's sphere of regulation. Examples include having the NRC identify poorly run plants.

- requiring the plants to be sold and for the Federal Government to be the purchaser of last resort and even run the plants if necessary.

The NRC has addressed the issue of stranded decommissioning costs elsewhere in this notice. However. the NRC is aware that stranded costs.

insofar as their recovery affects a licensee's ability to obtain sufficient funds to protect public health and safety, must be addressed to ensure that they are being adequately handled. Further. States are considering a number of options for assessing non-bypassable charges to recover decommissioning costs. as well as other stranded costs. One such option is "securitization."

which entails financing the recovery of stranded costs through issuance of bonds whose prfocipal and interest would be repaid by an irrevocable. non-bypassable charge set by State statute on an electric utility's distribution customers. Because the income stream to repay the bonds would be securitized by the irrevocable. non-bypassable charge, the bonds would be highly rated and would thus require a lower interest rate than riskier debt. Also. these securitized bonds would not be part of the utility's capital structure. and so would not reflect the higher cost of equity capital. The spread in interest cost between highly rated securitized debt and lower rated utility capital that includes both debt and equity makes securitization attractive to many -

states. The NRC believes that securitization has the potential to provide an acceptable method of decommissioning funding assurance. although other mechanisms that involve non-bypassable charges provide comparable levels of assurance and should not be excluded from consideration by State authorities.

As stated in the NRC's "Draft Policy Statement on the Restructuring and Economic Deregulation of the Electric Utility Industry" September 23. 1996 (61

. FR 49711): "Notwithstanding the primary role of economic regulators in rate matters. the NRC has authority under the Atomic Energy Act of 1954. as -

amended. (AEA) to take actions that may affect a licensee's financial situation when these actions are warranted to protect public health and safety. " The po 1icy a1so goes on to exp1ain that the NRC wil 1 work and consult more closely in the future with the National Association of Regulatory Utility Commissioners (NARUC). FERC. and the Securities and Exchange Commission (SEC) so that the NRC may express its positions on safety and encourage the various regulatory bodies to continue their allowances of adequate expenditures for plant safety. Lastly, the proposed reporting requirements of this rulemaking are seen by the NRC as a vehicle for the Commission to monitor this potential concern.

C. NUCLEAR FINANCIAL QUALIFICATIONS AND DECOMMISSIONING FUNDING ASSURANCE C.1 Funding Assurance if Plants Shut Down Prematurely Most commenters accepted the premise of the question. whether costs of a shortfall in decommissioning funding of a prematurely shut down plant could be passed along to ratepayers. This conclusion was based in part on past experience and in part on a belief that State PUCs will develop methods to ensure that decommissioning costs are covered. Several commenters said that recovery from ratepayers or shareholders would depend on the plant management's responsibility for the premature shutdown. If management were deemed responsible. efforts would be made to have the shareholders pay for decommissioning: but if the management were not deemed responsible. State PUCs would find methods to have the ratepayers provide the funds. Commenters noted that. in the past. decommissioning costs had been recovered for prematurely

- closed reactors (e.g .. Dresden 1. Fort St. Vrain. San Onofre Unit 1. Trojan.

Yankee Rowe). In a transition from full regulation to full competition. one commenter suggested a window to allow continued or possibly accelerated recovery. Another commenter said that a surcharge might be placed on customers. Under competition. recovery could be made through other revenue streams of the licensee. a non-bypassable fee. or debt or equity of the licensee. Two other commenters suggested that transmission charges would be the most likely source of funding. Retained earnings of the utility were suggested as a source of funds. Two commenters expected shareholders to be responsible for providing decommissioning funds in cases of premature shutdown.

Two commenters. including one PUC. conceded that PUCs might not have jurisdiction to require funding from ratepayers. Under such circumstances.

one PUC stated. funding of decommissioning would be greatly dependent on the financial viability of the regulated firm. The risk of recovery would rest squarely on its shareholders. If the shareholders could not pay. the liability would then transfer to taxpayers. For this reason. the commenter suggested. decommissioning might be accorded special treatment.

One commenter argued that the solution to premature shutdown was for NRC -

to require assurance for decommissioning costs prior to approving reorganizations or license transfers. Potential funding shortfalls should be addressed. another argued. on a case-by-case basis. and might be avoided by sale of the nuclear plant to an entity better able to manage it effectively.

Two others suggested that a proper funding mechanism would have to be identified and put into place at shutdown. without further specifying what that mechanism could be. In the opinion of one of these commenters. such funding could be a difficult problem because currently, on an aggregate basis. -

• utilities* decommissioning costs are only about 25 percent funded (about $9 billion out of $35 billion). although plants are at about 43 percent of their aggregate service lives. Early underfunding could force high back-end funding. making the plants uncompetitive.

A commenter stated that. contrary to the planned 40-year operating life of nuclear power plants. material and operating evidence suggests plants*

operating lives are closer to 15-25 years. Hence. the plan to recoup decommissioning costs of over a 40-year operating life may be unrealistic.

NEI took the position that the source of funds to shut down a plant prematurely would be different from company to company and would have to come from other ongoing revenue streams of the company or from alternative sources such as transmission or distribution charges. exit fees charged customers leaving the system. or other regulatory charges . NEI also supported NRC requirements for financial assurance . such as those currently found in 10 CFR 50.75. Five commenters stated that they explicitly adopted the NEI position .

Response. The Commission recognizes the importance of decommissioning f~nding assurance for prematurely shutdown plants and believes that its current case-specific approach. outlined in§ 50.82. strikes the best balance between level of assurance and cost. The alternative of requiring accelerated funding for all plants over a defined period. to cover the possibility of premature shutdown at some plants. would be too arbitrary and would lead to wide variations in impacts on licensees. Accelerated funding results in the inequitable inter-generational problem of the present generation paying for the decommissioning costs. while the future generation may receive the

- benefits of future electricity generation without incurring the costs of decommissioning. Although the Commission is not proposing to expressly require accelerated funding to address premature shutdowns. to the extent that licensees no longer qualify. in whole or in part. as electric utilities. they will. in effect. have to "accelerate" funding by getting "up-front" forms of financial assurance. The staff expects. however. that PUCs and FERC will address decommissioning funding through cost recovery mechanisms. The Corrmission is aware that some plants have not operated for the full 40 years.

However . it is likely that some plants will continue operating for the full 40 years and beyond. Therefore. the Commission does not believe any change is required for the planned 40-year life.

C.2 When Does an Operator Cease To Be a Utility On the question of when an operator of a nuclear power plant ceases to be a "utility" as defined in 10 CFR 50.2. seven commenters interpreted the definition strictly and concluded that. if an operator ceases to satisfy the terms of the definition. the operator is no longer a "utility." Several commenters used almost the same formula: an operator would cease to be a "utility" when it ceases to provide service to retail or wholesale customers -

at rates set by a separate regulatory authority. One commenter supported a clarification of NRC's regulations that would establish its continued ability to require the proper accumulation of decommissioning funds. while two argued that the NRC should relax its definition to cover entities that purchase electricity and recover the costs from rates charged customers or from other revenue guarantees. Another commenter argued that NRC should seek additional assurance in advance of deregulation .

NEI stated the contrary argument. noting that it is not apparent that -

any licensee will fall outside the definition of "utility" in the near future.

even after restructuring. NEI argued that as long as a licensee has adequate cost-recovery mechanisms under the authority of State or Federal regulations.

it should continue to be considered a utility .

Other commenters argued that even after deregulation the price charged for electricity will be established by the regulatory process or in other ways that will mean a nuclear plant will continue to be an "electric utility." One stated that the term "electric utility" should be construed to include all entities that have been authorized by a State PUC. FERC. or other governing entity to recover decommissioning costs from customers. Two commenters expected plants to remain subject to State PUC jurisdiction. and therefore to satisfy the regulatory definition. Another argued that if a portion of a vertically integrated company is subject to cost recovery pricing. the definition is satisfied. Two said that if a plant sets its own rates for electricity. the definition is satisfied.

One commenter rejected the NRC's emphasis on an operator's satisfying the definition of utility. and argued that the emphasis should be on the 4t financial viability of the entity responsible for decommissioning the unit.

Response. Consistent with the position taken in the ANPR. the NRC is proposing to revise its definition of "electric utility" to introduce additional flexibility to address potential impacts of electric industry deregulation. The Commission notes that the key component of the revised definition is a licensee's rates being established either through cost-of-

_service mechanisms or through other non-bypassable charge mechanisms. such as wire charges. non-bypassable customer fees. including securitization or exit fees. by a rate-regulating authority. Several States are considering deregulation of future operations of nuclear power plants so that revenues will not be determined by cost-of-service but by market-set prices. Should a licensee be under the jurisdiction of a rate-regulating authority for only a portion of the licensee's cost of operation. covering only a corresponding portion of the decommissioning costs that are recoverable by rates set by a rate-regulating authority. the licensee will be considered to be an "electric utility" only for that part of the Commission's regulations to which those portions of costs pertain. For example. if a licensee were able to collect 40 percent of its decommissioning costs through rate-regulated activities. such as traditional cost of service regulation or use of non-bypassable charges.

the remaining 60 percent of the costs would need to be accounted for in a manner consistent with methods acceptable for a licensee other than an electric utility. In this proposed rule. the definitions of several relevant terms are also provided for the first time in§ 50.2. It is noted that some commenters misinterpreted the intent of the existing definition of "electric utility" with respect to entities that establish rates themselves. As stated in the proposed definition. those entities include only public utility districts. municipalities. rural electric cooperatives. and State and Federal agencies. Therefore. the proposed definition is being proffered as clarification and to show the continued importance the NRC places on the role of regulatory authorities in the setting of electric utilities* rates with respect to the collection of funds for decommissioning and other costs. This is consistent with the NRC's draft policy statement.

C.3 Assurance Options The following topics were discussed by commenters in response to the ANPR's questions relating to the options to be considered if an electric utility found itself operating a reactor that was no longer regulated by a rate-setting State or Federal body.

Full Up-Front Assurance. Most commenters opposed requiring all nuclear plants to provide full up-front assurance. often arguing that it is unnecessary or that it is overly burdensome to nuclear plant owners. Many commenters reminded NRC that deregulation does not inherently mean a total lack of regulation or a lack of cost recovery. One commenter believed NRC should. at the time of restructuring, require only an assurance level commensurate with the completed percentage of the operating life of the plant.

One commenter opposes advance funding on the grounds that doing so would incorrectly view all properly executed reorganizations as resulting in successor operators being unqualified to ensure decommissioning compliance.

One commenter believes that assurance should be provided before licensees are exposed to the full pressures of competition (3-5 years). Two 4t commenters supported the idea of requiring assurance prior to NRC's approval of reorganizations that transfer control of a nuclear plant.

Many commenters favor requiring reasonable financial assurance for entities that cease to be rate-regulated utilities. Many of these commenters.

and others. view NRC's current regulations as basically adequate to address these situations. although the regulations might expand upon the allowable methods of assurance.

Additional Financial Assurance Methods. Additional financial assurance methods suggested include continued rate-regulating entity determinations. an appropriate charge for decommissioning in contracts for the plant's output or in the transmission or distribution charges of the licensee or its affiliate if the charges are assigned to the licensee or its decommissioning fund. and exit fees charged against customers leaving the system. A few commenters would include any insurance for premature decommissioning caused by an accident. One commenter would allow utilities to establish any method that may be developed. including methods requiring approval of PUCs or FERC. Two others would allow assurance through a plan for gradually recovering decommissioning funds via rates and prices. even for deregulated entities .

Others argued that NRC should offer the utilities flexibility and that each situation should be assessed on a case-by-case basis if and when it occurs.

Timing of Rulemaking. With regard to the timing of the rulemaking, a few commenters support prompt NRC regulatory action to ensure that adequate financial assurance is in place prior to restructuring. before waiting further to learn exactly how the industry will develop. Several other commenters.

however. believe that rulemaking is premature until more is known about -

restructuring. Several commenters suggested that NRC already has the authority to approve or disapprove any transfer of license related to a merger or reorganization . Two commenters stated that NRC should evaluate the regulations only after further studies that (1) identify those nuclear plants that are not likely to survive the imposition of competitive forces Ci .e ..

those plants that are not run efficiently or that cannot be made to run well).

or (2) develop quantitative measures for assessing the adequacy of decommissioning funds and rates of accrual. New rules. according to one commenter. should be timed to enable utilities to take advantage of stranded cost recovery.

Added Assurances for Safe Operation and Decommissioning. Many corranenters voiced opposition to the ANPR's query regarding whether the NRC should require additional assurance for adequate funds for safe operation and decorranissioning in anticipation of deregulation. One corranenter argued that additional assurances in this area may not add to or strengthen the obligation already imposed by the terms and conditions of the license. Others reasoned it unnecessary, given other existing NRC requirements and FERC's framework for recovery of stranded costs. including decommissioning.

Only one commenter supported additional assurance for safe operation and decommissioning in anticipation of deregulation.

Joint Liability3 . In response to the ANPR's query regarding newly created organizations or holding companies being held jointly liable for decommissioning costs. four commenters supported the idea because of the added assurance it would provide. Three commenters would consider requiring joint liability on a pro rata basis. possibly taking into account the remaining years of licensed life. One commenter cautioned that jointly liable parties may disagree on decommissioning methods (e.g .. prompt vs. deferred) because of the cash flow implications.

Numerous other commenters opposed the idea of joint liability, arguing that it was unnecessary, would inhibit flexibility. would weaken competitive position. or would undermine the separate corporate identity or the responsibility of the individual entities. Some of these commenters suggested that joint liability could be acceptable if it were an optional method of financial assurance.

One commenter stated that new owners and operators should have to assume the responsibilities and liabilities of the previous owners and operators.

3 The concept of joint liability is defined in Black's Law Dictionary (4th Ed.) as:

One wherein joint obliger has right to insist that co-obliger be joined as a codefendant with him. that is. that they be sued jointly.

Another stated that the financial assurance obligation should follow the owners and operators. whether regulated or unregulated. who have incentives to properly manage and operate the units.

Impacts. Many commenters claimed that requiring full up-front assurance would be overly burdensome to nuclear plant owners. Others argued that additional assurances could inhibit competitiveness relative to nonnuclear facilities. impede reorganization. aggravate potential stranded investment. or create additional problems for utilities. ratepayers. or taxpayers at a time when competitive forces are already causing economic concerns. Examples of -

such problems would include the difficulty for affiliated businesses to raise capital. or the need for affiliated entities to charge more for its services reducing its competitive position in the industry. Some commenters argued these effects could reduce the likelihood that decommissioning will be fully funded or could increase the likelihood of premature shutdown.

Response. The Commission is addressing most of these comments by revising the definition of "electric utility" and by instituting a reporting

• requirement. As to the issue of requiring full up-front funding in advance of deregulation. the Commission agrees with the commenters that such a requirement would be overly burdensome if applied to all licensees. However.

given the proposed change to the definition of "electric utility" in this action. any licensee no longer overseen by a rate-setting regulatory authority, i.e .. a licensee other than an electric utility. would need to comply with the decommissioning funding assurance requirements of

§ 50.75(e)(2) unless that licensee can otherwise conclusively demonstrate a 1

government-mandated. guaranteed revenue stream for all unfunded decommissioning obligations. The options contained in that section include prepayment; an external sinking fund coupled with a surety method or insurance for any unfunded balance; or a surety method. insurance. or other guarantee method.

The Commission emphasizes that the changes to the definition of "electric utility" introduce additional flexibility to address deregulatory developments. Thus. the NRC would expect licensees to be more likely to continue to qualify. in whole or in part. as electric utilities under the

- revised definition. Although licensees who no longer qualify, in whole or in part. as electric utilities could encounter difficulties in securing alternative decommissioning funding. experience to date indicates that PUCs and FERC are addressing decommissioning costs through various recovery mechanisms.

The timing of the rulemaking was addressed in the response to colllllents in section A of this notice. Any additional rulemaking in this area would result from experience gained from industry and regulatory actions. As

- several of the commenters stated. the NRC has the authority to approve or disapprove any transfer of license related to a merger or reorganization.

Section 184 of the Atomic Energy Act of 1954. as amended. and 10 CFR 50.80 provide that control over a license may not be transferred. directly or indirectly, unless the Commission consents to such transfer in writing.

The regulations do not explicitly impose joint liability on co-owners and co-licensees. As stated by some commenters. joint liability may create problems with respect to potential disagreement on decommissioning methods.

the inhibition of flexibility, the weakening of competitive position. and the difficulty in implementation. Also. as some noted. joint liability may not be needed. The new owners and operators should assume the obligation to safely operate the facility and assure adequate funding for decommissioning. as they have the incentives to properly manage and operate the units. More importantly. however. is the fact that with the proposed modified definition of "electric utility," restructured entities would either have to have adequate coverage of decommissioning funding obligations through some non-bypassable cost recovery mechanism or would be required to provide the types of up-front assurance described in§ 50.75(e)(2). Those licensees who remain utilities would have the funding assurance provided through being rate-regulated under§ 50.75(e)(3). The Commission considers this level of assurance to be adequate and therefore sees no need to impose an additional regulatory obligation of joint liability on co-owners or co-licensees.

Lastly. with respect to the question of impacts. the Commission has considered the comments relating to potential impacts in arriving at the positions taken. The Commission understands that financial assurance would place a burden on licensees that may affect their competitiveness in a deregulated environment. The Commission has chosen to take an approach that

• would create no additional financial impact over present regulations for electric utilities and has also expanded the definition of electric utility to accommodate types of rate regulation not previously anticipated. There are also sufficient existing options to demonstrate financial assurance for non-electric utilities. Entities without adequate financial capital may find it difficult to both finance up-front decommissioning funding and operate a nuclear power plant safely. These newly formed companies may not be good candidates for nuclear power plant ownership.

C.4 Financial Test Qualifications About half the commenters flatly opposed requiring licensees to demonstrate financial assurance by satisfying minimum standards of net worth.

cash flow. or other financial measures.

Many of the conmenters, including NEI and four commenters who adopted the NEI position. argued that such a test was not necessary or appropriate.

If NRC is concerned about the financial condition of a particular licensee.

three commenters said. an individualized case-by-case review would be more appropriate. Some commenters said that financial measures appropriate for investor-owned utilities would not be useful for cooperatives. or for utilities that do not have parent companies. Because generation and transmission companies typically are highly leveraged. with many of their assets in the nuclear generating facility, they cannot meet a test with a tangible net worth requirement of ten times the current decommissioning costs.

but this does not mean that they cannot satisfy their financial obligations.

A non-bypassable charge was suggested as an alternative.

Some commenters suggested that NRC should adopt more than one alternative test. none of which would be mandatory. Any alternative adopted should be consistent among owners. and should not discriminate against one class of owners, and should not be applied as a static one-time requirement.

Other suggestions included a requirement that a firm demonstrate that it had "ample margins. subsequent to restructuring" to cover funding contributions or to cover decommissioning costs in the event of a premature shutdown. Another suggested disclosure standards, developed through the Financial Accounting Standards Board, for use in annual reports and 10-K filings, that would be reviewed by Federal regulators. Still another argued that measures of market l

value and cash flow. rather than net worth. were appropriate in a competitive environment. and that the ratio of available cash and cash equivalents to unfunded decommissioning requirements would be the best measure of ability to support decommissioning, along with an assessment of the utility's competitive situation. Determining whether a utility had minimum cash flow sufficient to maintain its plants in a non-operating, interim stage prior to decommissioning, and the period of time the utility could sustain such cash flows. was suggested by one commenter.

One commenter suggested using a financial test as an indicator. from which a Federal agency could determine that the utility needed assurance of -

continued rate recovery of the decommissioning obligation.

Only two commenters endorsed a test of financial stability as a financial test qualification. One pointed to assets sufficient to fund an immediate decommissioning, or a minimum level of financial stability (measured through investment grade securities) or insurance. or a surety to cover decommissioning costs as three potentially acceptable mechanisms. The other approved of parent or self-guarantees. but noted that generators with nuclear facilities might have difficulty meeting the financial test criteria.

including the investment grade bond rating requirement.

Response. With the proposed revision of the definition of "electric utility," licensees who no longer meet the new definition will need to comply with the requirements of§ 50.75(e)(2). which describes the acceptable methods of financial assurance for decommissioning for a licensee other than an electric utility. These methods are flexible and contain at least four major categories of acceptable methods to ensure funding for decommissioning as identified in the previous response. Few commenters offered insights on other potential test qualifications. although several stated that the financial structure of utilities means that meeting the criteria in 10 CFR Part 30 could be problematic. The NRC would need to conduct additional research and analysis to determine which additional financial measures would be most useful and appropriate if a financial test requirement for parent or self-guarantee were pursued. Criteria could be identified and thresholds developed. but evolution of the industry might mean that the criteria would become outdated and misleading relatively quickly. Hence. the Commission will continue to evaluate this issue. but is not presently offering any changes to its financial test criteria.

C.5 PUC/FERC Certification Only two commenters gave unequivocal support to the idea of requiring PUC/FERC certification. One encouraged NRC to undertake direct dialogue on certifications with the appropriate PUCs and FERC: the other stated that PUCs and FERC must undertake such certifications and that NRC should impress upon them the importance of doing so. A few PUCs. in the opinion of this commenter. such as California and New York. had already recognized the need to provide this assurance during restructuring. Two other corm1enters expressed optimism that State regulators would resolve the decommissioning funding problem in the transition to competition. with or without certification. but one went on to say that certification would probably be unnecessary. Of these. six adopted the NEI position. which was that without new Federal legislation it would be difficult to require legally binding certification from PUCs or FERC . Requiring a licensee to obtain such certification would place it in noncompliance. with no way of achieving compliance. If a licensee did obtain certification. however. NEI suggested that it be allowed to satisfy the financial assurance requirements using that mechanism.

Two commenters opposed to certification argued that it would be counter-productive because the utility would have no incentive to maintain adequate decommissioning funds. NARUC and several PUCs either opposed the idea or expressed strong reservations about it. NARUC noted first that no current commission can bind a future commission at either the Federal or State level.

However. NARUC was confident that State PUCs would examine the causes of underfunding, if it occurred. and seek remedies. A PUC stated that it might not have the authority to certify that nuclear plant licensees under its jurisdiction would be allowed to collect decommissioning funds through rates after restructuring. and another PUC similarly stated that it could not give a blanket guarantee that all licensees would be allowed to collect revenues to complete decommissioning funding. A third PUC stated that no current commission could legally bind a future commission. so it could not identify an effective form of certification . Another PUC also expressed doubt about how certification would change current procedures. in which PUCs can adjust rates -

based on the cause for and the prudence of the underfunding . A different PUC noted that. in the past . ratemaking authorities had allowed recovery and expected them to act in the future in the same way, but could not be certain that they would issue certifications. Another PUC stated that it already has and would maintain authority to ensure that utilities collect sufficient funds for decommissioning. One c0111Tlenter pointed out that FERC has jurisdiction only over rates for wholesale sales of power. Over 80 percent of decommissioning costs are recovered through rates for retail power sales. over which PUCs have jurisdiction. Relying on State regulators would be particularly problematic for multi-State utilities. Another commenter stated that within five years the issue would become moot and certification would become impractical because of competition and evolving antitrust law. A public interest group had questions about whether PUCs and FERC could certify, but in any case thought NRC should concentrate instead on the licensees.

Another commenter noted that since a significant portion of nuclear licensees*

business are not FERC-regulated. FERC certification would have no relevance to them.

One commenter suggested procedures through which NRC could interact with State PUCs and FERC: the NRC could determine that a utility's rate of recovery for decommissioning was insufficient. and that determination could be the basis of an action by a PUC to modify the rates.

The final set of commenters argued that the question of certification was one that the PUCs and FERC should determine.

Response . The Commission does not plan to implement certification by

- the State PUC's or FERC because of the reasons given in many of the comments outlined above. Although "certification" initially appeared to the NRC to be an option meriting further consideration. since experience to date has indicated that PUCs and FERC are addressing decommissioning funding assurance through more viable mechanisms. the NRC is not pursuing this option further.

C.6 Impact of Accelerated Funding Only a small number of commenters supported the idea of accelerating funding of decommissioning costs. Two expressed general support. Two provided quantitative analyses that suggested that the impact of accelerated funding would not create a large financial burden on either licensees or ratepayers. The Public Utility Commission of Texas reported analysis for three Texas plants that suggested that. for a ten-year recovery period.

electric base rates would need to be increased by about 0.5 percent and the fund earnings would be increased by about 50 percent. For a five-year recovery period. rates would increase by about 1 percent: total life-of-facility contributions by customers would be decreased by about 55 percent.

In addition to arguments that the burden would not be great. another argument made in support of accelerated funding was that. after funding was completed. -

the licensees who had paid up their decommissioning funds would be in a better competitive position. Commenters also argued that earnings from the accelerated funding. because they would have a longer time to earn interest.

would grow substantially and provide a gain to the licensees that they would not otherwise obtain.

Licensees both supporting and opposing accelerated funding noted that unless the Internal Revenue Service changed its rule on the deductibility of payments into the decommissioning trust fund. the accelerated payments would -

not be deductible. The NRC was urged to encourage the IRS to change the rule.

Almost three-quarters of the commenters opposed accelerated funding of decommissioning. Their arguments against the idea stressed (1) that it would adversely impact the competitive situation of nuclear licensees and (2) that it would be inequitable because the amount that each plant would have to supply in an accelerated payment would depend on the age of the plant and the amount it had previously paid in the its decommissioning fund. The financial marketplace. rather than regulation. should determine the speed with which funding is provided. Accelerated funding. in the view of some commenters.

could not be accomplished through rate increases and would have to be paid by licensees* stockholders. One commenter argued that utility shareholders should bear the burden of decommissioning costs. but would not do so under accelerated funding. Other commenters argued that accelerated funding would shift the costs of decommissioning onto current ratepayers from future ratepayers. Commenters believed accelerated funding would lead to cash flow problems for licensees and could result in increased borrowing to cover cash outlays. Accelerated funding could lead to the shutdown of marginal e facilities. which would be contrary to the intent of the policy and lead to additional shortfalls of decommissioning funding. One commenter argued that the amount of decommissioning funding that will ultimately be required is too uncertain to be collected through accelerated funding.

Response. The Commission continues to be concerned with the availability and efficacy of financial assurance mechanisms for decommissioning for those licensees whose rate regulatory oversight by FERC or e the State PUC's is substantially reduced or eliminated. Under the NRC's current regulations (and as proposed to be modified in this rule). licensees who no longer meet the definition of "electric utility" may use financial assurance mechanisms for decommissioning as defined in 10 CFR 50.75(e)(2).

including (i) prepayment: (ii) an external sinking fund coupled with a surety method or insurance: (iii) a surety method. insurance. or other guarantee method. including parent company guarantees and self guarantees coupled with financial tests: and (iv). in the case of Federal. State. or local licensees.

a statement of intent.

The Commission is concerned that these financial assurance mechanisms may not be available to some licensees and is thus asking for additional comment on alternative methods of financial assurance that would provide assurance equivalent to that already provided under the Commission's regulations. For example. in the advance notice of proposed rulemaking, the Commission raised the issue of whether requiring the acceleration of decommissioning funding over a shorter period of time (e.g .. 10 years) than the period of the operating license would provide an equivalent level of assurance to current allowed mechanisms. As discussed above. most commenters stated their opposition to accelerated decommissioning funding. However. this opposition appeared to be predicated on the assumption that the NRC would require accelerated funding for all power reactor licensees. and not only those who no longer met the definition of "electric utility." Thus. the Commission is asking for additional comments on whether this. or some other equivalent assurance mechanism. should receive additional consideration in this rulemaking for those entities which would not be classified as "electric utilities."

C.7 Potential Shortfalls from Underestimates of Costs Commenters suggested a range of responses to decommissioning shortfalls occurring as many as 50 years into the future. after a period of safe storage.

None. however. clearly identified a source of funding to make up the shortfall.

NEI and eight additional commenters argued that there is a reasonable probability that future cost estimates could decrease rather than increase because of several factors. including accumulated industry experience.

application of new technologies. and reductions in the ultimate disposal volumes of decommissioning wastes. They also suggested that periodic re-estimates of decommissioning costs and adjustments to the rate of collection to reflect these re-estimates. both during operation and in the post-operation phase. could resolve the problem.

Several other commenters emphasized solutions that involved cost estimates. One PUC suggested that the NRC should allow utilities to use State-required facility-specific cost estimates if they were higher than NRC estimates. Two others suggested that NRC should review cost estimates every five years. with more frequent reviews as license termination approaches. The Utility Decommissioning Group predicted that shortfalls would be unlikely to arise suddenly or to be drastic. Two utilities also suggested that periodic reviews of cost estimates. coupled with increased collections as necessary, would remedy underfunding. Two other commenters made only the general statement that current procedures would be adequate. and any shortfalls should be handled through appropriate funding mechanisms.

Some commenters recognized that the problem of underfunding arising after the safe storage period could be serious. One public interest group did not suggest any remedy. stating only that NRC could be virtually certain that the funds accumulated for decommissioning would be insufficient. A utility suggested that the only solution would be to delay decommissioning activities to allow the decommissioning fund to accumulate additional earnings and to modify the decommissioning plans to reduce cash flow needs. Another suggestion was that NRC could require every licensee to adopt an investment strategy that would ensure that the decommissioning fund earned at least the rate of inflation measured by the consumer price index (CPI). and that NRC could require the utility to place additional money into the fund if necessary.

Several commenters recommended approaches to the problem that involved PUCs. Two suggested that underfunding would be remedied by application to the PUC. One suggested such PUC involvement would occur after the shortfall was identified. the other suggested that PUCs would take potential shortfalls into account prior to utility restructuring and that the shortfall would not occur until after several years of competition. This commenter suggested that a wires charge could be used to ensure that such shortfalls did not occur.

Three commenters said that NRC should intervene with State PUCs to ensure that e shortfalls do not occur. either immediately or when the underfunding was recognized. A few comrnenters argued that the causes of the shortfall should be identified. If the plant's management was responsible. the additional decommissioning costs should be recovered from stockholders. NRC could require additional contributions if the invested decommissioning funds are insufficient. Alternatively. if the utility management is not responsible.

customers should bear the additional cost. However. as one PUC noted.

underestimates that are not identified until far into the future could become -

a social problem. If the underestimate is not identified until after the plant is removed from service. no ratepayers will be required to provide additional funding. If the company still exists and is solvent. shareholders may be held accountable. but only to the point of insolvency. Gross underestimates could very well bankrupt the company and place a significant burden on regulators and legislators to step in to fund completion of the decommissioning.

None of the commenters recommended increasing contingency factors to provide for potential short fa 11 s far in the future. Several argued that contingency factors are intended to address "unforeseeable cost elements" or that contingencies are inappropriate for some other reason. The size of such contingencies would be too arbitrary. In addition. some State PUCs would not apply larger contingencies. particularly since the current cost estimates already contain a significant contingency factor. Finally. one commenter argued that larger contingencies would lead to over-collection and distortion of prices for electricity. Seven commenters joined NEI in taking a position against the use of contingencies to address the problem of potential shortfalls occurring far in the future.

Response. The Commission sees its proposed reporting requirement as a way to keep informed of licensees* decommissioning funding status and potential underestimates of cost. However. the Commission has undertaken a study to analyze the actual costs incurred by the power reactor licensees that

. are in the process of decommissioning. and the Commission will act accordingly after studying those results. Further. the Commission has the authority to require power reactor licensees to submit their current financial assurance mechanisms for NRC review. revision as necessary, and approval. The Commission reserves the right to take the following steps in order to assure a licensee's adequate accumulation of decommissioning funds: review. as needed.

the rate of accumulation of decorranissioning funds: and either independently or in cooperation with either the FERC and the State PUC's, take additional actions as appropriate on a case-by-case basis. including modification of a licensee's schedule for accumulation of decommissioning funds.

C.8 Captive Insurance Pool The idea of setting up a captive insurance pool to pay unfunded decommissioning costs did not obtain strong support. A few commenters endorsed it. with qualifications. One said that. in fact. the mechanism would more nearly resemble a mutual insurance pool. and listed a number of factors.

including the size of premiums. when deregulation occurred. Federal mandates.

the ability to recover costs. and the attitude of participants. that would determine success. Several commenters responded that if such a pool could be developed. it would be a useful or constructive mechanism.

NE! and six commenters taking the same position expressed doubts about the usefulness of such a pool. but suggested that the industry should examine it. They argued that in addition to an insurance pool. NRC should also consider approving self-insurance as an option.

Almost half the commenters expressed strong doubts about the insurance concept. No such product currently exists. and insuring against shortfalls in funding a known and planned event would be a novel concept. open to problems of adverse selection and moral hazard. 4 Some commenters said it would be difficult to underwrite. and wondered whether in a competitive environment one -

company would be interested in supporting the financial obligations of its 4

"If the risk of the insurable event varies between potential buyers. if the buyers know their risk level better than the insurer. and if the coverage is not mandatory, then the worst risks will tend to buy the most insurance.

As a result. the loss experience will tend to be higher than expected.

premiums will increase. the best risks will leave the programs. and the process can cycle on itself until only the worst risks are left." This phenomenon is known as adverse selection. Moral hazard is defined as a general laxity in loss prevention. laxity in cost control. once a loss has occurred. and the intentional destruction of property. U.S. Nuclear Regulatory Commission. "Design. Costs. and Acceptability of an Electric Utility Self-Insurance Pool for Assuring the Adequacy of Funds for Nuclear Power Plant Decommissioning Expense." NUREG/CR-2370. December 1981.

competitors. A cross-subsidy of this sort. one said. was what deregulation was being undertaken to eliminate. Participation also might be affected by the policies of individual State PUCs. Premium setting would be difficult because of the possibility that utilities that had been prepared to pay their decommissioning costs would be reluctant to subsidize utilities that had not.

and because premiums. to provide sufficient coverage. might need to be large.

The pool could face the problem of motivating utilities to close plants when it would otherwise not be economic to do so. or motivating State PUCs to disallow the recovery of decommissioning costs through rates in reliance on the pool. Some utilities might underestimate their decommissioning costs. to keep their premiums low. A pool would increase costs of electricity because.

in addition to decommissioning costs. insurance premiums would need to be recovered. Finally, one serious decommissioning shortfall might deplete the pool.

Other commenters stated flatly that they opposed the concept. Several said that it raised the problem of insuring against an event that a facility could choose to create (the moral hazard problem). An insurance pool would

- create. at the least. an incentive for less responsible utilities to underfund their decommissioning assurance. burdening responsible utilities with high insurance premiums. Some commenters argued that licensees demonstrating strong financial capability should not be required to participate.

Reinsurance and diversification to larger pools would make better policy, in the view of one commenter.

Response. The Commission recognizes the problems associated with the concept of a captive insurance pool as identified by the above commenters. and believes that they are serious enough to eliminate this option from further consideration. The Commission is also of the opinion that those in favor of this option do not offer sufficient evidence that the identified problems can be overcome.

C.9 Other Options for NRC in Case of Limited Role for PUC or FERC Commenters suggested a wide variety of financial assurance options for NRC to consider if PUC or FERC oversight is limited or eliminated. One utility suggested that financial assurance requirements should be focused on the financial viability of the responsible entity. Other utilities suggested, as nonregulatory showings, self-guarantees or other tests of financial strength such as ownership of other revenue-producing assets (e .g.,

electricity transmission and/or distribution and/or natural gas operations).

Another relevant factor could be whether the licensee has insurance for premature decommissioning caused by an accident. One commenter stated its opposition to the use of surety bonds and insurance because of cost and limited availability.

Two utility commenters suggested that regulatory approaches include -

mandated or allowed stranded cost recovery through a charge on distribution or transmission or some other charge on all electric power or energy sales, regulatory certification that such costs will be recovered, and other arrangements involving regulatory control such as priority dispatch for nuclear units. Another commenter suggested that NRC could request FERC to clarify Order No. 888 to make certain that competitive access or other transmission charges intended to recover stranded costs also include a load-proportionate contribution to fund decommissioning costs. Another commenter stated that NRC and FERC should urge Congress to adopt stranded cost legislation that will ensure recovery of decommissioning costs as the most prudent solution. The commenter specifically advocates a wires charge that would include decommissioning costs.

One commenter asked NRC to consider its actions in the event that a licensee enters into bankruptcy. In such a case. the NRC could enter the proceeding and argue that full funding for decommissioning must be fulfilled as the first priority. The commenter also asked NRC to consider proposing legislation that would amend the Bankruptcy Code to give first priority to nuclear decommissioning costs. as the Supreme Court has already held for hazardous waste cleanup costs.

NEI and several other commenters raised the possibility that NRC could rely on the Financial Accounting Standards Board's 5 (FASB) financial disclosures for information in assessing the nature. timing. and extent of the company's commitment of its future resources.

According to one commenter. NRC should evaluate each utility's particular situation on a case-by-case basis to determine the degree of assurance needed depending on the financial strength of the utility. the size of the remaining unfunded obligation. the age of the plant. and other factors as may be appropriate to the specific situation. Another believes NRC could retain control through licensing constraints and financial evaluations made when NRC approves transfers of assets and licenses.

A number of utilities commented that NRC need not identify all options immediately. but could ultimately authorize a number of alternative 5

The Financial Accounting Standards Board is a private body that establishes authoritative financial accounting and reporting standards in the United States.

approaches. either based on 10 CFR 50.75 or on options that have not yet been recognized. A *Puc commenter asked NRC to work collaboratively with States to explore. as necessary, alternative financial assurance mechanisms in the event that privately owned nuclear generators are no longer regulated.

One commenter suggested that NRC's support for existing Federal obligations to provide a national nuclear fuel repository would also contribute to the financial assurance of responsible nuclear decommissioning.

Another called for financial assurance to be mandated at the Federal level.

and a third said NRC should consider whether DOE responsibility can be developed for providing solutions to decommissioning.

Four commenters said no other options were necessary. They reasoned that current options are sufficient irrespective of PUC or FERC oversight.

regulatory oversight is unlikely to be curtailed, and FASB standards and competitive pressures will provide sufficient assurance.

Response. The Commission believes that additional consideration of

. accelerated decommissioning funding or other alternative financial assurance mechanisms may be warranted. as discussed in its response at C.6. In -

addition. it should be pointed out that the Commission enters bankruptcy proceedings to protect the integrity of the decommissioning funding, as suggested by a commenter. Also. the Commission is proposing use of the FASB standard as a means for the reporting decommissioning obligations. Further.

the Commission believes that the proposed change to the definition of "electric utility" will be adequate to address all contingencies with respect to financial assurance for decommissioning under deregulation. Further. the proposed reporting requirement will provide the NRC with the opportunity to be informed on the status of licensees* financial assurance for decommissioning.

0. Federal Government Licensee Use of Statement of Intent Slightly fewer than half of the comrnenters (20 commenters) expressed an opinion on this question. Almost all comrnenters took the position that Federal licensees should be treated in the same way as non-Federal licensees.

NE! argued that regardless of who owns the plant. a number of options for financial assurance should be allowed. and the current options should continue to be permitted. One commenter stated clearly that because Federal licensees were expected to face the same problems as other licensees. they should be required to set aside funds rather than rely on statements of intent. Several commenters pointed out that different treatment for Federal licensees could create competitive advantages for the Federal licensees . NRC should ensure that the playing field remained level. One licensee argued that if a financial assurance option. such as a statement of intent. meets NRC's criteria, it should be available for use by all licensees. Others took the position that the statement of intent should not be allowed, because it does not provide any assurance . Its use by Federal licensees means that the taxpayers are providing the assurance. One licensee questioned the long-term financial condition of the Tennessee Valley Authority (TVA). One commenter argued that use of tax exempt bonds provides a similar competitive advantage to those licensees who can issue them.

Only TVA took the position that ample reasons exist for continuing the use of statements of intent as provided under the current regulations.

However. TVA also provided an extended description of the steps it has taken to use an external trust. "all requirements" contracts. and its power to issue indebtedness to ensure its decommissioning costs.

Response. The NRC's Office of the Inspector General published an Audit Report. "NRC's Decommissioning Financial Assurance Requirements for Federal Licensees May Not be Sufficient," OIG/95A-20. dated April 3. 1996. The report found that" ... NRC's decision to allow Federal licensees to use a statement of intent ... was based primarily on the assumption that the Federal Government would pay the financial obligations of the lone Federal licensee .... should it be unable to do so. However. based on our review of the U.S. Code and discussions with officials from the Department of the Treasury. the Office of Management and Budget and TVA. we believe NRC's assumption is questionable."

The report also found" ... that. although not required. TVA has established a fund dedicated to meet its decommissioning obligations. However. because this is an internal fund it can be used for other purposes. In fact. TVA had at one time temporarily depleted its decommissioning fund."

The majority of those who commented were opposed to allowing the TVA's use of a statement of intent. their reason basically being that all licensees -

should have the same "level playing field." The Commission. however. does not believe that the elimination of the statement of intent option for a Federal licensee can be justified on a public health and safety basis. The Commission believes that the risk of a Federal licensee not being able to fund its decommissioning expenses is remote. as the Commission is proposing to define a "Federal licensee" as having the full faith and credit backing of the Federal Government. The Commission considers the issue of whether TVA qualifies for the use of a statement of intent to be distinguishable from the question of whether other "Federal licensees" should have this option. Further. the Commission does not believe it to be in the public interest to foreclose the possibility of a future licensee with the full faith and credit backing of the Federal Government using a statement of intent. Hence. the Commission does not propose to eliminate the statement of intent as an option for Federal licensees. but realizes that this proposed definition may result in the TVA no longer being able to meet NRC's definition of "Federal licensee."

E. TRUST FUND EARNINGS CREDIT FOR EXTENDED SAFE STORAGE PERIOD Two commenters opposed credits for earnings during extended safe storage, arguing that earnings assumptions could be manipulated and that earnings could otherwise act as a hedge against increases in the cost of decommissioning. Seventeen commenters. however. supported allowing credit for earnings on funds during extended storage periods. Some of these commenters argued that if credits for earnings are not allowed. more funds than necessary would be collected. thereby generating unwarranted expense for licensees and customers and possibly intergenerational inequities.

An additional eight commenters supported allowing earnings credits. not only for the extended safe storage period. but also for other periods:

• The period before safe storage, when funds are accumulated:

• The decommissioning period. when funds flow out of the trusts: and

• Both the accumulation and outflow periods.

Three coIT1Tienters expressed the opinion that States should decide whether or not to allow credit for projected earnings.

One group of commenters understood that NRC's ANPR considered a net positive rate of return when assessing the status of decommissioning funding during a SAFSTOR period. and not that a licensee would be allowed to consider prospectively during the license term the possibility of a net positive rate of return over some extended period following shutdown and prior to actual decommissioning. These commenters felt that it would be largely irrelevant to start considering positive earnings during a SAFSTOR period because. by the time of termination of operations. licensees should have already accumulated sufficient funds to pay for decommissioning.

Another commenter disagreed with the position that excludes the benefit of future tax deductions Ci .e .. in "non-qualified" trust accounts) in determining the adequacy of a licensee's decommissioning funding program because the deductions will have value for those who assume the responsibility for decommissioning.

Response. The Commission is proposing to allow credit for earnings and believes that its existing implicit assumption of a zero rate of return is too conservative and not borne out by the data. The Commission is proposing licensees may take credit using a 2 percent real rate of return from the time of the funds' collection through the decommissioning period. As stated below. -

this proposed action provides licensees relief from current requirements with no adverse impact on public health and safety, licensees. or NRC resources.

and the proposed reporting requirements would allow the licensees*

decommissioning funds to be monitored by the Commission.

E.l Real Rate of Return Five commenters took the position that NRC should not specify a single allowable rate of return. but should allow licensees to take credit for any rate they can justify given their specific situation. Some of these commenters supported their positions by stating that licensees employ different investment strategies depending on factors such as the number of plants. when they expect to begin decommissioning, applicable State taxes. and whether the funds are in a qualified or nonqualified trust. Another commenter suggested that plant-specific annualized rates could be justified based on historical data. Considerable judgment will be needed to develop the rate.

argued one utility group. but no more judgment than is needed in developing decommissioning cost estimates.

Three commenters suggested that NRC use long-term. historical rates for the asset allocation employed. adjusted by the long-term. historical inflation rate.

Six commenters stated that NRC should not specify a single allowable rate of return. but should define the basis on which licensees may select an appropriate positive real rate.

Four commenters expressed the view that States should decide the rate.

and a fifth commenter thought either States or FERC should decide the rate.

Another commenter thought the rate should be determined by an (unidentified)

"acceptable third party."

One commenter suggested an after-tax rate of 3 percent as reasonable and achievable with acceptable levels of investment risk (e.g .. 50 percent equity.

50 percent fixed income). Another commenter proposed a rate of 3 percent because that rate is the historical real return on Treasury bonds. One commenter felt NRC should float the values based on contemporary 30-year Treasuries.

Two commenters opposed the use of a positive rate assumption for earnings during extended safe storage, arguing that earnings assumptions could be manipulated and that earnings could otherwise act as a hedge against increases in the cost of decommissioning.

Response. Based on the NRC review of historical data. real Ci .e ..

inflation adjusted. after tax) rates of return using U.S. Treasury issues have been on the order of 2 percent. Therefore. the Commission proposes to use a 2 percent real rate of return throughout the decommissioning collection period as a default earnings amount and in the safe storage period as a specified amount. The NRC acknowledges that the historical data is subject to some degree of interpretation. and that a 3 percent real rate may be viewed by some as a "reasonable" measure for this parameter. While some may propose use of higher values based on other types of investments. the Commission believes the proposed value represents as close to a "risk free" return as possible and has increased confidence that the 2 percent value can be consistently achieved.

Higher earnings amounts will be allowed during the period of reactor operation if specifically approved by a rate-setting authority. To the extent that -

earnings in a given year prove to be greater than 2 percent. the balance of the fund will be greater than anticipated. Licensees may take this higher balance into account in calculating subsequent contributions to their sinking funds. This means the size of subsequent contributions will decrease. even though these subsequent contributions will still be based on a 2 percent earnings assumption. If rates turn out to be lower than this. 10 CFR 50.82 already provides that licensees are to adjust decommissioning funds during safe storage to reflect changes in cost estimates. Thus. there is little risk that there will be major shortfalls in decommissioning funds. Further. the proposed reporting requirements will allow the licensees* decommissioning funds to be monitored by the Commission.

E.2 Appropriate Time Period Twelve commenters expressed the view that credit for projected earnings should be allowed over the full length of the extended safe storage period.

An additional eight commenters also thought credit should be allowed for earnings projected over additional periods:

• The period before safe storage. when funds are accumulated.

• The decommissioning period. when funds flow out of the trusts.

• Both the accumulation and outflow periods.

Two more would allow commensurate credit for a period with site-specific schedules for funding and decommissioning. Another commenter noted that considerable judgment would be needed to determine the appropriate time period. but no more than would be needed to develop the decommissioning cost estimate. Four commenters. all PUCs or PUC groups. felt NRC should leave the issue of the length of the period to the States.

Only two commenters suggested that credit be limited to a fixed number of years. One of these suggested 10 years. The other proposed a maximum of 20 years. and a minimum of 5 years.

Two commenters opposed the use of positive earnings assumptions during any period. arguing that earnings assumptions could be manipulated and that earnings could otherwise act as a hedge against increases in the cost of decommissioning.

Response. The Commission proposes to allow licensees to take credit for earnings on external sinking funds from the time of the funds' collection through the decommissioning period. Because the NRC is requiring the funding.

it is reasonable for the NRC to provide for a positive rate of return on the collected funds. where justified. Further. the NRC is proposing a longer period in which credit should be allowed for earnings because the justification for allowing a positive rate of return over the safe storage period also holds for allowing credit from the time of fund collection through the decommissioning period. Again. the proposed reporting requirement provides the NRC with the ability to monitor licensees* decommissioning funds.

Lastly, this proposed action provides licensees relief from current requirements with no adverse impact on public health and safety. licensees. or NRC resources.

F. REPORTING ON THE STATUS OF DECOMMISSIONING FUNDS Many commenters supported a reporting requirement in light of concerns about decommissioning funding. Some of these felt that NRC should require relatively comprehensive reports because NRC's authority extends beyond that -

of FERC and the States. and because FERC and the States do not always require uniform information to be submitted at regular intervals. One commenter stated that an NRC regulatory amendment is needed even in the absence of deregulation to correct the flawed assumption that PUCs and FERC actively monitor decommissioning funds. The commenter stated that PUC and FERC monitoring efforts are. in most cases. limited in scope and may take place infrequently (i.e .. when a rate case is filed). Each PUC is generally concerned only about its jurisdictional portion of the decommissioning funds.

and FERC's jurisdiction is limited to only the wholesale portion of a company's sales. Moreover. many States do not have jurisdiction over municipal and cooperative agencies. some of which are owners or partial owners of nuclear plants. Therefore. the NRC may be the only regulating agency that can provide an effective and timely monitoring function for all the funds required for decommissioning.

Three commenters opposed a reporting requirement as unnecessary, while two others believed such a requirement was premature and could conflict with or be duplicative of information that may be required by forthcoming FASB standards. Two commenters stated that NRC requirements should not duplicate requirements of States or FASB. Lastly, a commenter stated that if PUC oversight is limited or eliminated. NRC should assume oversight of decommissioning funds.

Response. The Commission is proposing that a periodic reporting requirement be implemented so that the Commission has appropriate assurance that licensees are collecting their required decommissioning funds. The

- benefits of obtaining this information through a reporting requirement. in terms of both determining licensee compliance with NRC decommissioning funding regulations and responding to Congressional and other requests. outweigh the minimal impact of the requirement and would be less burdensome to licensees and the NRC than relying on the existing NRC inspection process.

F.1 Contents Three commenters stated that reporting requirements would be unobjectionable if they were minimal and limited to material of the nature historically provided to State regulators or in other financial reports.

Similarly, others stated that NRC should rely on the same information as will be required by the proposed FASB statement regarding accounting for certain liabilities related to closure or removal of long-lived assets. Five commenters agreed with the NEI that reports should be kept as simple as possible. One commenter stated that comprehensive reports should be prepared for each facility, integrating information for all owners. Thus. if a facility has multiple owners. one consolidated report would be prepared with separate data for each owner attached . On the other hand. one commenter argued that reports should be based on the licensee's interest in the nuclear unit and not on a total unit basis.

One group of commenters stated that NRC could make the annual reports from plant operators available to the public. which would be consistent with the availability of information required under proposed FASB standards.

A PUC stated that New Jersey's reporting rules may be adequate for NRC's purposes.

Suggested contents for the reports included 50 items under the following general headings: Decommissioning Costs and Activities. Contributions. Trust -

Status and Activity. Other Financial Information. and several Miscellaneous Items.

Response. The Commission is in the process of issuing a draft regulatory guide on this proposed requirement which would endorse FASB draft standard No. 158-B. "Accounting for Certain Liabilities Related to Closure or Removal of Long-Lived Assets." The NRC is endorsing this draft FASB standard as a means of providing guidance for licensees to comply with those portions of the NRC's regulations regarding a licensee's reporting on the status of its decommissioning funding. Licensees would comply with the FASB standard once it becomes final in order to remain consistent with generally accepted accounting principles. The NRC believes that the FASB standard would. if adopted. provide the required information. However. because of the ambiguity in the FASB standard with respect to whether the required information will be reported on a per-unit basis. the NRC has defined its reporting requirement to include such per-unit information. The NRC has reviewed the proposed contents of the reports on decommissioning funds to ensure that the needs of the agency are balanced versus the time constraints of the licensees in assembling the reports. The Commission is also proposing to require that any modifications to a licensee's external trust agreement also be reported.

F.2 Frequency Several commenters stated that licensees should report on the status of decommissioning funds on an annual basis. Others believed reports should be required no more frequently than annually. NE! stated that NRC should not require licensees to report on the status of their decommissioning funds any more frequently than every 3 to 5 years. NE! noted that SEC rules and proposed FASB standards require utilities to disclose the decommissioning costs in financial statements.

Two commenters suggested reporting at 5-year intervals. One of these suggested that interim status reports could be required on an annual basis.

One commenter stated that NRC should require no more frequent reporting beyond FASB requirements. Another commenter stated that reports should be no less frequent than specified by the Securities and Exchange Act of 1934.

One commenter suggested that NRC consider more frequent reporting for plants approaching the end of commercial operation and for plants experiencing operating problems. One commenter stated that the timing of required reports should parallel that of other reports such as FERC Form 1. SEC 10-K. and annual financial reports. Similarly, two commenters felt that annual reports should be caused by NRC by September 30 of the following year. Two commenters stated that interim reports could be required for significant events (e.g ..

merger. acquisition. financial deterioration). This commenter also suggested that limited or negative growth of the fund in a given year due to overall market conditions should not automatically trigger adjustments to funding levels but rather that a 3- to 5-year time frame should be used.

Response. The Commission is proposing that every licensee submit its initial report on the status of decommissioning funds to the NRC within 9 months after the effective date of this rule. and at least once every 2 years thereafter. Annual submission is not being proposed as an option because the NRC believes it can adequately review licensee financial assurance status for decommissioning biennially while reducing licensee reporting burden. However.

the licensee(s) of any plant that is within 5 years of its planned end of operation would be required to submit its report annually.

G. COMMENTS ON TOPICS NOT SPECIFICALLY RAISED IN THE ANPR Cormnenters suggested several actions that NRC had not asked about specifically in the ANPR. First. a corrmenter stated that NRC should require sites to be decommissioned to "green field" status. consistent with FERC guidelines.

Response . The Commission's position is that once radioactive contamination of the reactor facility is removed to a level acceptable to the NRC. there is no longer a health and safety concern preventing the NRC license from being terminated.

A commenter suggested the imposition of a mandatory insurance requirement for licensees to cover fund shortfalls at the time of premature decommissioning in States where accelerated collection from ratepayers and intergenerational subsidies are not allowed.

Response. The Commission does not agree with the commenter on the need for mandatory insurance. As stated in the response to comments on Stranded Costs. Section B. the previously referenced "Draft Policy Statement on the Restructuring and Economic Deregulation of the Electric Utility Industry" stated that the NRC has the authority "to take actions that may affect a licensee's financial situation when these actions are warranted to protect public health and safety." The Commission believes that there are enough alternatives available to address the potential problems caused by premature decommissioning so that mandatory insurance would not be required.

One commenter stated that the requirements for subaccounts should be waived. Their position is that licensees that have contributed monies to a single trust fund for multiple decommissioning-related purposes be required simply to demonstrate to the NRC that there are or will be sufficient assets in the trust fund. in the aggregate. to pay for the NRC-defined decommissioning cost of the nuclear unit and for any other decommissioning-related purposes identified in the trust agreement.

Response. The Commission is not concerned with the details of how a licensee keeps accounts for decommissioning as long as a licensee is able to demonstrate. on a per-unit basis. the amount of funds identified and available for the required decommissioning purposes. Thus. the Commission accepts the commenter's position in general. although it notes that there is no current requirement. only guidance. relating to the use of subaccounts.

A commenter stated that NRC should undertake as a priority task the identification of nuclear plants that do not perform well. For plants with performance problems. NRC should take aggressive steps to persuade the operator to sell the plant to another operator at a price that recognizes its market value or to terminate the license. In some cases. particularly when plants were financed with bond indentures or other instruments that limit the owner's ability to sell the plant or impose conditions on such sales. these restrictions would need to be identified in the process of identifying well-

• run plants. Further. the commenter states that if the plant does not produce a price acceptable to the operator. the Federal Government will offer a price that will provide the operator with some fraction of the purchase price and take over control and ownership. including any decommissioning fees that have been collected. The Federal Government would restart any plant it believes can continue as a source of power and will deconmission the others from public funds.

Response. The Commission does not see its position as one to force a licensee to sell its plant. While the NRC does aggressively attempt to identify poorly performing plants through such processes as the "Watch List."

the decision as to whether another entity should become the operator of a facility is for the owners of that facility to make. Although the NRC would have to approve any transfer of control over any power plant license under Section 184 of the Atomic Energy Act and 10 CFR 50.80. the NRC is reluctant to become involved in the business decision-making processes of the licensees on

- such matters. As to the NRC taking over poorly performing plants. the Atomic Energy Act confers "takeover" authority on the NRC only in extremely limited circumstances . See Section 108 of the Atomic Energy Act (42 U.S.C. 2138) limiting such authority to circumstances where" ... the Congress declares that a state of war or national emergency exists .... "

A commenter stated that the NRC should develop a reliable. sound estimate (or method of estimating) decommissioning costs. and should update the estimates on a regular basis to incorporate technological and other changes.

Response . The Commission is planning to revise its estimates of decommissioning costs after it obtains actual plant-specific data from ongoing decommissioning projects.

Another commenter stated that NRC should sponsor technical conferences on decommissioning so the pace of technological resolutions for cleaning up and decommissioning plants could be increased.

Response. While the proposed action is not a suggested rulemaking. the Commission is taking the suggestion under consideration. However. the Commission is aware of a number of deregulation and decommissioning conferences that have been held or are being planned.

A commenter stated that the NRC should ask separately about other financial issues because changes to the definition of "electric utility" could have implications in contexts other than decommissioning. such as general financial qualifications reviews for initial licensing and related license amendments. from which utilities are now exempted.

Response. While the Commission is not presently asking questions on other financial issues. it is attempting to address the concerns by proposing revisions to Part 50 to be consistent with the proposed change in the definition of "electric utility."

A commenter stated that NRC should delay action as the Texas PUC has initiated three regulatory investigation projects focusing on the -

restructuring and partial deregulation of the electric industry in that State.

Further. the State has not developed a formal policy on many of the issues set forth in the ANPR.

Response. It is because of the number and variety of State actions being proposed in the areas of deregulation and restructuring that the Commission is proposing this rulemaking now. The Commission wishes to prepare for any new types of nuclear power generating licensees resulting from the States* actions. However. the Commission is well aware that this proposed rulemaking may not be the last action for it to undertake in this area.

One commenter stated that the Commission should support revisions to Internal Revenue Code Section 468A regarding deductibility for contributions to an external fund.

Response. The commenter does not make a suggestion as to what should be done in this rulemaking. Rather. the suggestion goes to questions regarding consideration of whether any changes to the U.S. Code are needed to address decommissioning financial assurance. in particular any changes to the Bank-ruptcy Code. This matter will be addressed separately by the NRC as part of its input to an inter-agency review process for the development of proposed legislation.

Lastly, a commenter stated that the NRC should hold all licensees to the same high standard for assurance of decommissioning funds. Previously. the NRC had one standard for non-utility licensees and a much more lenient standard for rate-regulated utilities. NRC must establish strict and thorough standards for the collection. investment. segregation. and reporting of decommissioning funds and those standards must apply to all licensees.

including those that have traditionally been considered regulated utilities.

Response. The Commission position is that it is not necessary to impose any additional decommissioning funding requirements on those entities that meet the proposed definition of "electric utility." However. as explained above. the Commission believes that those entities that no longer meet the proposed definition should be required to meet the more "strict" standards.

The Commission also believes that most power reactor licensees would be allowed to fund decommissioning costs through non-bypassable charges.

To summarize. the Commission's underlying philosophy of financial assurance for decommissioning is unchanged. Basically. those licensees that remain "electric utilities" by the Commission's revised definition should follow the same financial assurance regulations as before. However. the Commission believes that this proposed rulemaking provides for adequate protection in the face of a changing environment that was not envisioned when the existing rule was originally written. Further. with deregulation. the Commission does not believe that it would be able to identify all the potential types of licensees to which it will be exposed. Therefore. new and unique restructuring proposals will necessarily involve ad hoc reviews by the NRC. Further. the Commission will exercise direct oversight of such reviews to maintain consistent NRC policy toward new entities. In addition to the proposed definition revisions. the Commission is proposing two other -

modifications. The first is to require power reactor licensees to periodically report on the status of their decommissioning funds and changes to their external trust agreements. Second. the Commission is proposing to allow licensees to take credit for the earnings on decommissioning trust funds. The Commission does not see the need to take actions proposed by some commenters that would. in its view. strain licensees unnecessarily, because of licensees* competing needs.

SECTION-BY-SECTION DESCRIPTION OF CHANGES 10 CFR Part 50 Section 50.2 is amended to revise the definition of "electric utility" in response to deregulation of the electric generating industry. The section also is amended by the insertion of definitions of previously undefined terms that aid in the understanding of the NRC's rulemaking position. Further.

"Federal licensee" is defined. so that the characteristics of a licensee that may make use of a statement of intent as a mechanism to satisfy financial assurance requirements for decommissioning is clarified. Sections 50.43.

50.54. 50.63. 50.73. and 50.75 are amended to replace the term "licensees" or a similar term depending on the context for the term "electric utility" to be consistent with the proposed changes to 10 CFR 50.2.

Section 50.43 is amended so States are added to regulatory agencies as those entities to which the Commission will give notice of application for a class 103 license for a commercial power generation facility.

Section 50.54(w) is amended by requiring that power reactors. as opposed e to electric utilities. obtain insurance in the manner prescribed.

Section 50.63 is amended so that licensees. as opposed to the originally used term utilities. are required to provide specific material for NRC review relating to reactor core and associated systems.

Section 50.73 is amended to refer to "licensee" rather than "utility" personnel in stating the information required to be reported regarding personnel errors related to matters requiring a Licensee Event Report.

Section 50.75 is amended in three paragraphs to include the definitional change in the reporting and recordkeeping for decommissioning planning.

Section 50.75 also is amended to allow licensees to take 2 percent credit on earnings for prepaid trust funds and external sinking funds . to institute a reporting requirement for licensees on the status of their decommissioning funding and on changes to licensees* external trust agreements.

Electronic Access Cooments may be submitted electronically. in either ASCII text or WordPerfect format (version 5.1 or later). by calling the NRC Electronic Bulletin Board (BBS) on FedWorld. The bulletin board may be accessed using a personal computer. a modem. and one of the commonly available communications software packages. or directly via Internet. Background documents on the advance notice of proposed rulemaking are also available. as practical. for downloading and viewing on the bulletin board.

If using a personal computer and modem. the NRC rulemaking subsystem on FedWorld can be accessed directly by dialing the toll free number 1-(800) 303-9672. Communication software parameters should be set as follows: parity -

to none. data bits to 8. and stop bits to 1 (N.8.1). Using ANSI or VT~l00 terminal emulation. the NRC rulemaking subsystem can then be accessed by selecting the "Rules Menu" option from the "NRC Main Menu." Users will find the "FedWorld Online User's Guides" particularly helpful. Many NRC subsystems and data bases also have a "Help/Information Center" option that is tailored to the particular subsystem.

The NRC subsystem on FedWorld can also be accessed by a direct dial phone number for the main FedWorld BBS. (703) 321-3339. or by using Telnet via Internet: fedworld.gov. If using (703) 321-3339 to contact FedWorld. the NRC subsystem will be accessed from the main FedWorld menu by selecting the "Regulatory. Government Administration and State Systems." then selecting "Regulatory Information Mall." At that point. a menu will be displayed that has an option "U.S. Nuclear Regulatory Commission" that will take you to the NRC Online main menu. The NRC Online area also can be accessed directly by typing "/go nrc" at a FedWorld command line. If you access NRC from FedWorld's main menu. you may return to FedWorld by selecting the "Return to FedWorld" option from the NRC Online Main Menu. However. if you access NRC at FedWorld by using NRC's toll-free number. you will have full access to all NRC systems. but you will not have access to the main FedWorld system.

If you contact FedWorld using Telnet. you will see the NRC area and menus. including the Rules Menu. Although you will be able to download documents and leave messages. you will not be able to write comments or upload files (comments). If you contact FedWorld using FTP. all files can be accessed and downloaded but uploads are not allowed: all you will see is a list of files without descriptions (normal Gopher look). An index file listing all files within a subdirectory. with descriptions. is available.

There is a 15-minute time limit for FTP access.

Although FedWorld also can be accessed through the World Wide Web. like FTP that mode only provides access for downloading files and does not display the NRC Rules Menu.

You may also access the NRC's interactive rulemaking web site through the NRC home page (http://www.nrc.gov). This site provides the same access as the FedWorld bulletin board. including the facility to upload comments as files (any format) if your web browser supports that function.

For more information on NRC bulletin boards call Mr. Arthur Davis.

Systems Integration and Development Branch. NRC. Washington. DC 20555.

telephone (301) 415-5780: e-mail AXD3@nrc.gov. For information about the interactive rulemaking site. contact Ms . Carol Gallagher. (301) 415-6215:

e-mail CAG@nrc.gov.

Finding of No Significant Environmental Impact: Availability The NRC is proposing to amend its regulations on financial assurance requirements for the decommissioning of nuclear power plants. The proposed amendments are in response to the likelihood of deregulation of the power generating industry and resulting questions on whether current NRC regulations concerning decommissioning funds and their financial mechanisms will need to be modified. The proposed action would revise the definition of "electric utility" contained in 10 CFR 50.2. would add a definition of "Federal licensee" to address the issue of which licensees may use statements of intent. and would require power reactor licensees to report periodically on the status of their decommissioning funds and on the changes in their external -

trust agreements. Also. the proposed amendments would allow licensees to take credit for the earning on decommissioning trust funds.

These proposed changes could have the following effects on nuclear power reactor licensees: (1) potentially requiring licensees who have been "deregulated" to secure decommissioning financial assurance instruments that provide full current coverage of projected decommissioning costs. (2) limiting the types of licensees that can qualify for the use of Statements of Intent to satisfy decommissioning financial assurance requirements. (3) requiring periodic reporting on the status of their accumulation of decommissioning funds. thus leading to the potential for the NRC to require some remedial action if the licensee's actions are inadequate. and (4) permitting licensees to assume a real rate of return of two percent per annum. or such other rate as is permitted by a Public Utility Commission or the Federal Energy Regulatory Commission. on their accumulated funds. These actions are of the type focused upon financial assurances and mechanisms to assure funding for decommissioning and are not actions that would have any effect upon the human environment. Neither this action nor the alternatives considered in the Regulatory Analysis supporting the proposed rule would lead to any increase in the effect on the environment of the decommissioning activities considered in the final rule published on June 27. 1988 (53 FR 24018). as analyzed in the Final Generic Environmental Impact Statement on Decommissioning of Nuclear Facilities (NUREG-0586. August 1988). 6 Promulgation of these rule changes would not introduce any impacts on the environment not previously considered by the NRC. Therefore. the Commission has determined. under the National Environmental Policy Act of 1969. as amended. and the Commission's regulations in subpart A of 10 CFR Part 51. that this rule. 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 in reaching this determination. and the NRC staff is 6

Copies of NUREG-0586 are available for inspection or copying for a fee from the NRC Public Document Room at 2120 L Street NW. (Lower Level)

Washington. DC 20555-0001: telephone (202) 634-3273: fax (202) 634-3343.

Copies may be purchased at current rates from the U.S. Government Printing Office. P.O. Box 370892. Washington. DC 20402-9328: telephone (202) 512-2249:

or from the National Technical Information Service by writing NTIS at 5285 Port Royal Road. Springfield. VA 22161.

not aware of any other documents related to consideration of whether there would be any environmental impacts of the proposed action. The foregoing constitutes the environmental assessment and finding of no significant impact for this proposed rule.

Paperwork Reduction Act Statement This proposed rule amends information collection requirements that are subject to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). This rule has been submitted to the Office of Management and Budget for review and approval of the information collection requirements.

The public reporting burden for this information collection is estimated to average 8 hours9.259259e-5 days <br />0.00222 hours <br />1.322751e-5 weeks <br />3.044e-6 months <br /> per response. including the time for reviewing instructions. searching existing data sources. gathering and maintaining the data needed. and completing and reviewing the information collection. The U.S . Nuclear Regulatory Commission is seeking public comment on the potential impact of the information collections contained in the proposed rule and on 9 the following issues:

1. Is the proposed information collection necessary for the proper performance of the functions of the NRC. including whether the information will have practical utility?

2. Is the estimate of burden accurate?

3. Is there a way to enhance the quality, utility. and clarity of the information to be collected?

4. How can the burden of the information collection be minimized. including the use of automated collection techniques?

Send comments on any aspect of this proposed information collection.

including suggestions for reducing the burden. to the Information and Records Management Branch (T-6 F33). U.S. Nuclear Regulatory Commission. Washington.

DC 20555-0001 . or by Internet electronic mail at BJSl@NRC.GOV: and to the Desk Officer. Office of Information and Regulatory Affairs. NEOB-10202. (3150-0011). Office of Management and Budget. Washington. DC 20503.

Comments to 0MB on the information collections or on the above issues should be submitted by (insert date 30 days after publication in the Federal Register). Comments received after this date will be considered if it is practical to do so. but assurance of consideration cannot be given to comments received after this date.

Public Protection Notification The NRC may not conduct or sponsor. and a person is not required to respond to. an information collection unless it displays a currently valid 0MB control number.

Regulatory Analysis The Commission has prepared a draft regulatory analysis on this proposed regulation. The analysis examines the costs and benefits of the alternatives considered by the Commission. The draft analysis is available for inspection in the NRC Public Document Room. 2120 L Street NW. (Lower Level). Washington.

DC. Single copies of the analysis may be obtained from Brian J. Richter.

Office of Nuclear Regulatory Research. U.S Nuclear Regulatory Commission.

Washington. DC 20555-0001. telephone (301) 415-6221. e-mail bjr@nrc.gov.

The Commission requests public comment on the draft analysis. Comments on the draft analysis may be submitted to the NRC as indicated under the ADDRESSES heading.

Regulatory Flexibility Certification In accordance with the Regulatory Flexibility Act of 1980 (5 U.S.C.

605(b)) as amended by the Small Business Regulatory Enforcement Fairness Act of 1996. Pub. L. No. 104-121 (March 29. 1996). the Commission certifies that 9 this rule will not. if promulgated. have a significant economic impact on a substantial number of small entities. This proposed rule affects only the licensing. operation. and decorrmissioning of nuclear power plants. The companies that own these plants do not fall in the scope of the definition of "small entities" set forth in the NRC's size standards (10 CFR 2.810).

Backfit Analysis The regulatory analysis for the proposed rule also constitutes the documentation for the evaluation of backfit requirements. and no separate backfit analysis has been prepared. As defined in 10 CFR 50.109. the backfit rule applies to

... modification of or addition to systems. structures. components. or design of a facility; or the design approval of manufacturing license for a facility; or the procedures or organization required to design.

construct. or operate a facility: any of which may result from a new or amended provision in the Commission rules or the imposition of a regulatory staff position interpreting the Commission rules that is either new or different from a previously applicable staff position The proposed amendments to NRC's requirements for the financial assurance of decommissioning of nuclear power plants would revise the definition of "electric utility," define "Federal licensee." and add several associated definitions: add new reporting requirements pertaining to the use of prepayment and external sinking funds; impose new reporting requirements for power reactor licensees on the status of decommissioning funding that specify the timing and contents of such reports; and permit power reactor licensees to take credit for a 2 percent annual real rate of return on funds set aside for decommissioning from the time the funds are set aside through the end of the decommissioning period. These proposed actions are necessary to ensure that nuclear power reactors provide for adequate protection of the health and safety of the public in the face of a changing environment not envisioned when the reactor decommissioning funding regulations were promulgated.

Although some of the changes proposed to the regulations are reporting requirements. which are not covered by the backfit rule. other elements in the proposed changes could be considered backfits because they would modify or clarify procedures with respect to (1) acceptable decommissioning funding options under various scenarios. (2) what licensees may use statements of intent. and (3) permitted credit for real rates of return on funds set aside for decommissioning. The NRC has determined to treat this action as an adequate protection backfit. because the action is necessary for the NRC to maintain assurance of adequate funding for power plant decommissioning, particularly in the face of the uncertainties associated with electric utility restructuring and deregulation. Accordingly. these proposed changes to the regulations are required to satisfy 10 CFR 50.109(a)(5) and a full backfit analysis is not required pursuant to 10 CFR 50.109{a)(4)(ii).

List of Subjects in 10 CFR Part 50 Antitrust. Classified information. Criminal penalties. Fire protection.

Intergovernmental relations. Nuclear power plants and reactors. Radiation protection. Reactor siting criteria. Reporting an~ 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. 553. the NRC is proposing to adopt the following amendments to 10 CFR Part 50.

PART 50--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 w.s .c. 5851). Section 50.10 also issued under secs. 101. 185.

68 Stat. 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. and 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 4t amended (42 U.S.C. 2234). Appendix Falso issued under sec. 187. 68 Stat. 955 (42 U.S.C 2237).

2. In Section 50.2 the definition of Electric Utility. is revised and the definitions of Cost of service regulation. Federal licensee. and Non-bypassable charges are added in alphabetical order to read as follows:

§ 50.2 Definitions.

_ J

Cost of service regulation means the traditional system of rate regulation in which a rate regulatory authority allows an electric utility to charge its customers all reasonable and prudent costs of providing electricity services. including a return on the investment required to provide such services.

Electric utility means any entity that generates. transmits. or distributes electricity and that recovers the cost of this electricity through rates established by a regulatory authority, such that the rates are sufficient for the licensee to operate. maintain, and decommission its nuclear plant safely. Rates must be established by a regulatory authority either directly through traditional cost of service regulation or indirectly through another non-bypassable charge mechanism. An entity whose rates are established by a regulatory authority by mechanisms that cover only a portion of its costs will be considered to be an "electric utility" only for that portion of the costs that are collected in this manner. Public utility districts. municipalities. rural electric cooperatives. and State and Federal 9 agencies. including associations of any of the foregoing. that establish their own. rates are included within the meaning of "electric utility."

Federal licensee means any NRC licensee that has the full faith and credit backing of the United States Government.

Non-bypassable charges means those charges imposed by a governmental authority which affected persons or entities are required to pay to cover costs associated with operation . maintenance. and decommissioning of a nuclear power plant. Affected individuals and entities would be required to pay those charges over an established time period.

3. In Section 50.43. paragraph (a) is revised to read as follows :

§ 50.43 Additional standards and provisions affecting class 103 licenses for commercial power .

(a) The Commission will give notice in writing of each application to such regulatory agency or State as may have jurisdiction over the rates and services incident to the proposed activity: will publish notice of the application in such trade or news publications as it deems appropriate to give reasonable notice to municipalities. private utilities. public bodies. and cooperatives which might have a potential interest in such utilization or production facility: and will publish notice of the application once each week for 4 consecutive weeks in the Federal Register. No license will be issued by the Commission prior to the giving of such notices and until 4 weeks after the last publication in the Federal Register.

4. In Section 50.54. the introductory text of paragraph (w) is revised to read as follows:

§ 50.54 Conditions of licenses.

(w) Each power reactor licensee under this part for a production or utilization facility of the type described in Sections 50.2l(b) or 50.22 shall take reasonable steps to obtain insurance available at reasonable costs and on reasonable terms from private sources or to demonstrate to the satisfaction of the Commission that it possesses an equivalent amount of protection covering the licensee's obligation. in the event of an accident at the licensee's reactor. to stabilize and decontaminate the reactor and the reactor station site at which the reactor experiencing the accident is located. provided that:

5. In Section 50.63. paragraph (a)(2) is revised to read as follows:

§ 50.63 Loss of alternating current power.

(a) * * *

(2) The reactor core and associated coolant. control. and protection systems. including station batteries and any other necessary support systems.

must provide sufficient capacity and capability to ensure that the core is cooled and appropriate containment integrity is maintained in the event of a station blackout for the specified duration. The capability for coping with a station blackout of specified duration shall be determined by an appropriate coping analysis. Licensees are expected to have the baseline assumptions, analyses. and related information used in their coping evaluations available for NRC review.

6. In Section 50.73. paragraph (b)(2)(ii)(J)(2)(iv) is revised to read as follows:

§ 50.73 Licensee event report system.

Cb) * * *

(2) * * *

(ii) * * *

(J) * * *

(2) * * *

( i V) The type of personnel involved (i.e .. contractor personnel.

licensed operator. nonlicensed operator. other licensee personnel.)

7. In Section 50.75. paragraphs (a). (b). (d). (e)(l)(i), (e)(l)(ii).

(e)(3) are revised and paragraphs (f)(l). (2). and (3) are redesignated as paragraph (f)(2). (3). and (4) and a new paragraph (f)(l) is added to read as follows:

§ 50.75 Reporting and recordkeeping for decommissioning planning.

(a) This section establishes requirements for indicating to NRC how reasonable assurance will be provided that funds will be available for decommissioning. For power reactor licensees it consists of a step-wise procedure as provided in paragraphs (b). (c). (e). and (f) of this section.

Funding for decommissioning of electric utilities is also subject to the regulation of agencies (e.g .. Federal Energy Regulatory Commission (FERC) and State Public Utility Commissions) having jurisdiction over rate regulation.

The requirements of this section. in particular paragraph (c). are in addition to. and not substitution for. other requirements. and are not intended to be used. by themselves. by other agencies to establish rates.

(b) Each power reactor applicant for or holder of an operating license for a production or utilization facility of the type and power level specified in paragraph (c) of this section shall submit a decommissioning report. as required by 10 CFR 50.33(k) of this part containing a certification that financial assurance for decommissioning will be provided in an amount which may be more but not less than the amount stated in the table in paragraph (c)(l) of this section. adjusted annually using a rate at least equal to that stated in paragraph (c)(2) of this section. by one or more of the methods described in paragraph (e) of this section as acceptable to the Commission.

The amount stated in the applicant's or licensee's certification may be based on a cost estimate for decommissioning the facility. As part of the certification. a copy of the financial instrument obtained to satisfy the requirements of paragraph (e) of this section is to be submitted to NRC.

Cd) Each non-power reactor applicant for or holder of an operating license for a production or utilization facility shall submit a decommissioning report as required by 10 CFR 50.33(k) of this part containing a cost estimate for decommissioning the facility. an indication of which method or methods described in paragraph (e) of this section as acceptable to the Commission will be used to provide funds for decommissioning. and a description of the means of adjusting the cost estimate and associated funding level periodically over the life of the facility.

(e)(l) * * *

(i) Prepayment. Prepayment is the deposit prior to the start of operation into an account segregated from licensee assets and outside the licensee's administrative control of cash or liquid assets such that the amount of funds would be sufficient to pay decommissioning costs. Prepayment may be in the form of a trust. escrow account. government fund. certificate of deposit. or deposit of government securities. A licensee may take credit on earnings on the prepaid decommissioning trust funds using a 2 percent annual real rate of return from the time of the funds' collection through the decorrmissioning period. if the licensee's rate-setting authority does not authorize the use of another rate.

(ii) External sinking fund. An external sinking fund is 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. An external sinking fund may be in the form of a trust. escrow account.

government fund. certificate of deposit. or deposit of government securities.

A licensee may take credit for earnings on the external sinking funds using a 2 percent annual real rate of return from the time of the funds' collection through the decommissioning period. if the licensee's rate-setting authority does not authorize the use of another rate.

(3) For an electric utility, its rates must be sufficient to recover the cost of the electricity it generates. transmits. or distributes. These rates must be established by a regulatory authority such that they are sufficient for the licensee to operate. maintain. and decommission its plant -

safely. The Commission reserves the right to take the following steps in order to assure a licensee's adequate accumulation of decommissioning funds:

review. as needed. the rate of accumulation of decommissioning funds: and either independently or in cooperation with either the FERC and the State Puc*s. take additional actions as appropriate on a case-by-case basis.

including modification of a licensee's schedule for accumulation of decommissioning funds.

Acceptable methods of providing financial assurance for decommissioning for an electric utility are-(f)(l) Each power reactor licensee shall report to the NRC within 9 months after [the effective date of this rule]. and at least once every 2 years thereafter on the status of its decommissioning funding for each reactor

• facility or part of a reactor facility that it owns. The information in this report must include. at a minimum: the amount of decommissioning funds estimated to be required pursuant to 10 CFR 50.75(b) and (c): the amount accumulated to the date of the report: a schedule of the annual amounts remaining to be collected: the assumptions used regarding rates of escalation in decommissioning costs. rates of earnings in decommissioning trust funds.

and rates of other factors (e.g .. discount rates) used in funding projections:

and any modifications occurring to a licensee's current trust agreement since the last submitted report. Any licensee for a plant that is within 5 years of e the projected end of its operation shall submit such a report annually.

Dated at Rockville. Maryland. thisl'~day of September. 1997.

For the Nuclear Regulatory Commission.

John Seer From: Carol Gallagher To: ATBl Date: 9/10/97 3:47pm

Subject:

Another Published Rulemaking

Adria, A proposed rule on Financial Assurance Requirements for Decommissioning Nuclear Power Reactors was published in the Federal Register today.

Please send me copies of any comment letters you may receive on this rulemaking.

Thanks, Carol Gallagher

From: Robert Wood To: WND1.WNP2.ELJ Date: 12/1/97 3:06pm

Subject:

DISTRIBUTION FOR PUBLIC COMMENTS Emile; I would like to be on distribution for public comments received on the proposed rule on decommissioning funding assurance that was issued on September 10th (PR50 - 62 FR 47588). Thanks.

Bob Wood