NUREG-0584, Responds to Re Decommissioning Funding Assurance. Discounting for Inflation Must Be Included in Decommissioning Costs.Present Value Irrelevant to Public Util Commissions
| ML19254F847 | |
| Person / Time | |
|---|---|
| Issue date: | 10/11/1979 |
| From: | Wood R Office of Nuclear Reactor Regulation |
| To: | Ferguson J MWS CONSULTANTS, INC. |
| Shared Package | |
| ML19254F841 | List: |
| References | |
| RTR-NUREG-0584, RTR-NUREG-0590, RTR-NUREG-584, RTR-NUREG-590, TASK-FP-902-1, TASK-OS NUDOCS 7911190182 | |
| Download: ML19254F847 (3) | |
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UNITED STATES
[N NUCLEAR REGULATORY COMMISSION 3
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WASHINGTON, D. C. 20555
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OCT 11 M3 s
Mr. John S. Ferguson Senior Vice President Middle West Service Company 12860 Hillcrest Road Dallas, Texas 75230
Dear John:
I enjoyed talking with you about decomissioning funding assurance in Columbia and Sun Valley.
I f{nd your work in this area to be interesting and informative and, with your permission, I would like to refer-to it in my redraft of NUREG-0584.
I would also like to respond to your coments dated September 20, 1979 on NUREG-0584 and offer some coments of my own on your Sun Valley talk.
I.
First, with respect to your September 20 letter, on page two you state that "it is unclear whether or not the author of the draft had an understanding of the classical sinking fund depreciation accrual techniques." While it is true that I am not familiar with the terminology of " classical sinking fund" or " modified sinking fund," NUREG-0584 discusses the techniques embodied in such terms.
My discussion of the "unfunded reserve" and " funded reserve" alternatives on pages 8-9 of NUREG-0584 and a cost sumary and analysis of these alternatives on pages 23 ff. are similar, with minor modifications, to the concepts to which you refer.
Your example is very similar to Preston Collins' case 16 of his September 1978 paper which I reference and sumarize in the cost analysis section of NUREG-0584, and is also similar to Collins' cases 3 and 4, and 9 through 12 of his revised paper.
You also state that "use of present value concepts in the rate regulatory environment can be dangerous as rate regulators do not base their decision making process on present value."
I disagree for two reasons.
First, without discounting for inflation, a discussion of decomissioning costs becomes meaningless. Costs incurred 50 years from now don't make any sense comparatively if inflation isn't considered.
I also disagree that present value is 1353 218
/ b 7911190
OC: 579 Mr. John S. Ferguson irrelevant to public utility comissions. The tiew England Regulatory Assistance Program, with whom I have had extensive contact, represents the six tiew England public utility comissions.
They have reviewed k
my paper and believe that the present value analysis I have used is appropriate.
Other coments I received in Columbia and Seattle support my continued use of this method.
I agree with your perception that public utility comissions operate in a political environment and would tend to favor those decomissioning funding options that minimize revenue requirements.
But it is exactly this political orientation coupled with the uncertainty ofAs a long planning horizon that makes funding assurance necessary.
with any other health and safety issue that flRC addresses, funding assurance should be part of the costs and conditions of a utility operating in the nuclear business and, as such, should be incorporated into the ultimate cost of the facility and should be allowed by the PUC's to be passed through to customers.
The " bottom line" of course is, "Which alternatives should 6e used when all criteria are weighed?" To fiRC as regulators, assurance of the availability of funds, through our mandate to protect public health and safety, must be paramount.
I agree with your statement at the top of page three that "The key question should be the ease with which the fund can be turned into an equivalent amount of cash at the time expenditures must be made." However, I would add that we don't definitely know the time when expenditures must be made (the critical problem of premature decommissioning); nor do we know how easy it would be for a bankrupt utility or its successor to turn its bandable property into cash sufficient to cover decommissioning costs.
(As an cside, if there was no risk associated with funding for decomissioning, why would the surety companies refuse to participate in what appears to be a very lucrative business arrangement?)
Also, to an investor, there is little perceived difference in risk in investing in a AA-rated utility or a AA-rated municipality.
I can't imagine tiRC condoning risky outside investment, whether in the public or private sector. With diversification, risk should be minimized.
t1UREG-0584 recognizes that the various negative salvage value depreciation approaches are cheaper than a prepaid fund; but as regulators protecting public health and safety, we must consider this secondary to providing adequate assurance of funds availability.
My conclusions on cost are essentially the same as yours, with the exception of some differences on the likelihood of tax exemption of some options.
(See my coment under Part III below)
If insurance is available to cover premature decomissioning, I would look on 1353 219
,lir. John S. Ferguson
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- CT 111973 internal funding for expected decomissioning much more favorably.
This conclusion was stated implicitly in NUREG-0584.
p II.
The attachment to your November 20 letter, "A Capital Recovery Technique Suitable for Decomissioning" was informative, although I found some confusing inconsistencies in it. On the bottom of page 2 it is stated, "The correct terminology for an undepreciated rate base is Sinking Fund and for the depreciated rate base is Modified Sinking Fund." But in Table 3, the sinking fund uses a depreciated rate base whereas the modified sinking fund uses an undepreciated rate base.
Also, in the last paragraph of page three, it is stated, " Table 3 illustratec the fact that revenue requirements under generally accepted accounting practices are greater than using either Sinking Fund or Modified Sinking Fund." Yet on Table 3, generally accepted depreciatica accounting practices yields a revenue requirement of
$135.00, which is cheaper by $2.76 than either sinking fund approach.
III. With regard to the printed version of your Sun Valley speech, as I wrote earlier, with your permission, I would like to reference and use its helpful analyses in the cost section of the revised version of NUREG-0584.
I take exception to one point that you make in the penultimate line of page 3.
You state that the tax exempt status of an external fund is highly unrealistic.
I don't think it is unrealistic for the reasons I outlined discussing IRS preconditions in NUREG-0584. At the same time, an internal fund, to the extent that revenues 7 e being applied to provide a return on equity, would be taxable.
Thus, the cost differences between internal and external funding options would be reduced and may be more palatable
, o state public utility comissions.
t Thank you again for your coments.
Sincerel,
5 Robert S. Wood Assistant to the Chief Antitrust & Indemnity Group Office of Nuclear Reactor Regulation cc:
Don Calkins. 050 15M 220