[Federal Register Volume 61, Number 185 (Monday, September 23, 1996)]
[Proposed Rules]
[Pages 49711-49714]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-24275]


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NUCLEAR REGULATORY COMMISSION

10 CFR Part 50


Draft Policy Statement on the Restructuring and Economic 
Deregulation of the Electric Utility Industry

AGENCY: Nuclear Regulatory Commission.

ACTION: Draft Policy Statement request for public comment.

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SUMMARY: The NRC is seeking comment on the draft statement of policy 
regarding its expectations for, and intended approach to, its power 
reactor licensees as the electric utility industry moves from an 
environment of rate regulation toward greater competition. The NRC is 
concerned that rate deregulation and disaggregation resulting from 
various restructurings involving power reactor licensees could have 
adverse effects on the protection of public health and safety.

DATES: The public is invited to submit comments on this draft Policy 
Statement by December 9, 1996. Comments received after this date will 
be considered if it is practical to do so, but assurance of 
consideration cannot be given except as to comments received on or 
before this date. On the basis of the submitted comments, the 
Commission will determine whether to modify the draft Policy Statement 
before issuing it in final form.

ADDRESSES: Mail comments to: Secretary, U.S. Nuclear Regulatory 
Commission, Washington DC 20555, Attention: Docketing and Service 
Branch.
    Deliver Comments to: 11555 Rockville Pike, Rockville, Maryland, 
between 7:45 a.m. and 4:15 p.m., 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: Robert S. Wood, Office of Nuclear 
Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC 
20555, telephone (301) 415-1255, e-mail RSW[email protected]; or, for the 
antitrust aspects of this policy statement, William Lambe, telephone 
(301) 415-1277, e-mail [email protected].

SUPPLEMENTARY INFORMATION:

I. Purpose

    The purpose of this draft policy statement is to provide a 
discussion of the NRC's concerns regarding the potential safety impacts 
on NRC power reactor licensees resulting from the economic deregulation 
and restructuring of the electric utility industry and the means by 
which NRC intends to address those concerns. This draft policy 
statement recognizes the changes that are occurring in the electric 
utility industry and the importance these changes may have for the NRC 
and its licensees. The NRC's principal mission is to regulate the 
Nation's civilian use of byproduct, source, and special nuclear 
materials to ensure adequate protection of the public health and 
safety, to promote the common defense and security, and to protect the 
environment. As part of carrying out this mission, the NRC must monitor 
licensee activities and any changes in licensee activities, as well as 
external factors that may affect the ability of individual licensees to 
safely operate and decommission licensed power production facilities.

II. Background

    The electric utility industry is entering a period of economic 
deregulation and restructuring which is intended to lead to increased 
competition in the industry. Increasing competition may force 
integrated power systems to separate (or ``disaggregate'') their 
systems into functional areas. Thus, some licensees may divest 
electrical generation assets from transmission and distribution assets 
by forming separate subsidiaries or even separate companies for 
generation. Disaggregation may involve utility restructuring, mergers, 
and corporate spin-offs that lead to changes in owners or operators of 
licensed power reactors and may cause some licensees, including owners, 
to cease being an ``electric utility'' as defined in 10 CFR 50.2.1 
Such changes may affect the

[[Page 49712]]

licensing basis under which the NRC originally found a licensee to be 
financially qualified to construct, operate or own its power plant, as 
well as to accumulate adequate funds to ensure decommissioning at the 
end of reactor life.
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    \1\ Section 50.2 defines ``electric utility'' as ``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. Investor-owned utilities, including generation and 
distribution subsidiaries, public utility districts, municipalities, 
rural electric cooperatives, and State and Federal agencies, 
including associations of any of the foregoing, are included within 
the meaning of ``electric utility.'' ''
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    Rate regulators have typically allowed an electric utility to 
recover prudently incurred costs of generating, transmitting, and 
distributing electric services. Consequently, in 1984, the NRC 
eliminated financial qualifications reviews at the operating license 
stage for those licensees that met the definition of ``electric 
utility'' in 10 CFR 50.2 (49 FR 35747; Sept. 12, 1984). The NRC based 
this decision on the assumption that ``the rate process assures that 
funds needed for safe operation will be made available to regulated 
electric utilities'' (49 FR at 35750). However, the NRC recognized that 
financial qualifications reviews for operating license applicants might 
be appropriate in particular cases where, for example, ``the local 
public utility commission will not allow the total cost of operating 
the facility to be recovered through rates'' (49 FR at 35751). The 
Commission also has expressed potential concern with various State 
proposals to implement economic performance incentive programs.2
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    \2\ See Possible Safety Impacts of Economic Performance 
Incentives: Final Policy Statement, (56 FR 33945; July 24, 1991), 
for the NRC's concerns relating to State economic performance 
incentive standards and programs. The NRC understands that States 
instituted many of these programs as a means of encouraging electric 
utilities to lower electric rates to consumers. As States deregulate 
electric utilities under their jurisdictions, these economic 
performance incentive programs ultimately may be replaced by full 
market competition.
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    In its 1988 decommissioning rule, the NRC again distinguished 
between electric utilities and other licensees by allowing ``electric 
utilities'' to accumulate funds for decommissioning over the remaining 
terms of their operating licenses. NRC regulations require its other 
licensees (with the added exception of State and Federal government 
licensees of certain facilities) to provide funding assurance for the 
full estimated cost of decommissioning, either through full up-front 
funding or by some allowable guarantee or surety mechanism.
    A discussion of the current and future NRC review process will be 
contained in two Standard Review Plans that the NRC plans to issue--one 
for financial qualifications and decommissioning funding assurance 
reviews and the other for antitrust reviews. In addition, the NRC 
issued an Administrative Letter on June 21, 1996, that informed power 
reactor licensees of their ongoing responsibility to inform, and obtain 
advance approval from the NRC for any changes that would constitute a 
transfer of the license, directly or indirectly, through transfer of 
control of the NRC license to any person pursuant to 10 CFR 50.80. This 
administrative letter also reminded addressees of their responsibility 
to assure that information regarding a licensee's financial 
qualifications and decommissioning funding assurance which may have a 
significant implication for public health and safety is promptly 
reported to the NRC.

III. Policy Statement

    The NRC is concerned with the potential impact of utility 
restructuring on public health and safety. The NRC has not found a 
consistent relationship between a licensee's financial health and 
general indicators of safety such as the NRC's Systematic Assessment of 
Licensee Performance (SALP). Thus, the NRC has traditionally relied on 
its inspection process to indicate when safety performance has begun to 
show adverse trends. Based on inspection program results, the NRC can 
take appropriate action, including, ultimately, plant shutdown, to 
protect public health and safety. However, if a plant is permanently 
shut down, that plant's licensee(s) may no longer have access to 
adequate revenues or other sources of funds for decommissioning the 
facility. If rate deregulation and organizational divestiture occur 
concurrently with the shutdown of a nuclear plant either by NRC action 
or by a licensee's economic decision, that licensee may not be able to 
provide adequate assurance of decommissioning funds. Thus, the NRC 
believes that its concerns with deregulation and restructuring lie 
primarily in the area of adequacy of decommissioning funds, although it 
is also concerned with the potential effect that economic deregulation 
may have on operational safety.
    As the electric utility industry moves from an environment of 
substantial economic regulation to one of increased competition, the 
NRC is concerned about the pace of restructuring and rate deregulation. 
Approval of organizational and rate deregulation changes may occur 
rapidly without the NRC's knowledge. The pace and degree of such 
changes could affect the factual underpinnings of the NRC's previous 
conclusions that power reactor licensees can reliably accumulate 
adequate funds for operations and decommissioning over the operating 
lives of their facilities. For example, rate deregulation could create 
situations where a licensee that previously qualified as an ``electric 
utility'' under 10 CFR 50.2 may, at some point, no longer qualify for 
such status. At that point, the NRC may require licensees to submit 
proof pursuant to 10 CFR 50.33(f)(4) that they remain financially 
qualified and will require them to meet the more stringent 
decommissioning funding assurance requirements of 10 CFR 50.75 that are 
applicable to non-electric utilities.
    Although new and unique restructuring proposals will necessarily 
involve ad hoc reviews by the NRC, the Commission will exercise direct 
oversight of such reviews to maintain consistent NRC policy toward new 
entities. The NRC has considered mergers, the formation of holding 
companies, and the outright sales of facilities, or portions of 
facilities, to require NRC notification and prior approval in 
accordance with 10 CFR 50.80 in order to ensure that the transferee is 
appropriately qualified. For example, the NRC determines whether the 
surviving organization will remain an ``electric utility'' as defined 
in 10 CFR 50.2.
    In consideration of these concerns, the NRC will be evaluating 
deregulation and restructuring activities as they evolve. The NRC will 
take all appropriate actions to carry out its mission to protect the 
health and safety of the public and, to the extent of its statutory 
mandate, to ensure consistency with Federal antitrust laws.
    The NRC intends to implement policies and take action as described 
in this policy statement to ensure that its power reactor licensees 
remain responsible for safe operations and decommissioning. In summary, 
the NRC will:
    (1) Continue to conduct its financial qualifications, 
decommissioning funding and antitrust reviews as described in the 
Standard Review Plans being developed in concert with this policy 
statement;
    (2) Identify all owners, indirect as well as direct, of nuclear 
power plants;
    (3) Establish and maintain staff-level working relationships with 
State and Federal rate regulators;
    (4) Evaluate the relative responsibilities of power plant co-
owners/co-licensees; and
    (5) Reevaluate its regulations for their adequacy to address 
changes resulting from rate deregulation.

[[Page 49713]]

IV. Issues Related to Restructuring and Economic Deregulation of the 
Electric Utility Industry

    The NRC believes that its regulatory framework is generally 
sufficient to address many of the restructurings and reorganizations 
that will likely arise as a result of electric utility deregulation. In 
many instances, the NRC's review process will follow the current 
framework, or will otherwise follow policies consistent with the NRC's 
current regulations. However, the NRC believes that several other 
policy issues need to be further evaluated and options developed. 
Therefore, this section addresses NRC policies with respect to electric 
utility restructuring and economic deregulation both as these policies 
can be carried out under current regulations and as matters under 
consideration for further resolution.

A. NRC Responsibilities vis-a-vis State and Federal Economic Regulators

    The NRC has recognized the primary role that State and Federal 
economic regulators serve in setting rates that include appropriate 
levels of funding for safe operation and decommissioning. For example, 
the preamble to the 1988 decommissioning rule stated: ``The rule, and 
the NRC's implementation of it, does not deal with financial ratemaking 
issues such as rate of fund collection, procedures for fund collection, 
cost to ratepayers, taxation effects, equitability between early and 
late ratepayers, accounting procedures, ratepayer versus stockholder 
considerations, responsiveness to change and other similar concerns* * 
*. These matters are outside NRC's jurisdiction and are the 
responsibility of the State PUCs and [the Federal Energy Regulatory 
Commission] FERC'' (53 FR at 24038; June 27, 1988).
    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. To date, the NRC has found no significant instances where State 
or Federal rate regulation has led to disallowance of funds for safety-
related operational and decommissioning expenses. Some rate regulators 
may have chosen to reduce allowable profit margins through rate 
disallowances, or licensees have for other reasons encountered 
financial difficulty.
    In order for the NRC to make its safety views known and to 
encourage rate regulators to continue their practice of allowing 
adequate expenditures for nuclear plant safety as electric utilities 
face deregulation, the NRC intends to take a number of actions to 
increase cooperation with State and Federal rate and financial 
regulators to promote dialogue and minimize the possibility of rate 
deregulation or other actions that would have an adverse safety impact. 
We intend to work and consult with the State PUCs through the National 
Association of Regulatory Utility Commissioners (NARUC), and with FERC 
and the Securities and Exchange Commission (SEC) to coordinate 
activities and exchange information.

B. Co-owner Division of Responsibility

    Many of the NRC's power reactor licensees own their plants jointly 
with other, non-related organizations. Although some co-owners may be 
only authorized to possess the nuclear facility and its nuclear 
material, and not to operate it, the NRC views all co-owners as co-
licensees who are responsible for complying with the terms of their 
licenses. Public Service Company of Indiana, Inc. (Marble Hill Nuclear 
Generating Station, Units 1 & 2), ALAB-459, 7 NRC 179, 200-201 (1978). 
The NRC is concerned about the effects on the availability of operating 
and decommissioning funds, and about the division of responsibility for 
operating and decommissioning funds, when co-owners file for bankruptcy 
or otherwise encounter financial difficulty.3 The NRC is 
evaluating courses of action to ensure that operating and 
decommissioning costs are paid by owners.
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    \3\  The NRC has had experience with 3 licensees who have had 
much greater than de minimis shares of nuclear power plants and who 
filed under Chapter 11 of the U.S. Bankruptcy Code: Public Service 
Company of New Hampshire (PSNH), a co-owner and operator of the 
Seabrook plant; El Paso Electric Company (EPEC), a co-owner of the 
Palo Verde plant; and Cajun Electric Power Cooperative (Cajun), a 
co-owner of the River Bend plant. Both PSNH and EPEC continued their 
pro rata contributions for the operating and decommissioning 
expenses for their plants and successfully emerged from bankruptcy. 
Cajun remains in bankruptcy.
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C. Financial Qualifications Reviews

    The NRC believes that the existing regulatory framework contained 
in Sec. 50.33(f) and in the guidance in 10 CFR part 50, appendix C, is 
generally sufficient at this time to provide reasonable assurance of 
the financial qualifications of both electric utility and non-electric 
utility applicants and licensees under the various ownership 
arrangements of which the staff is currently aware. Licensees that 
remain ``electric utilities'' will not be subject to NRC financial 
qualifications review, other than to determine that such licensees, in 
fact, remain ``electric utilities.'' However, the NRC is evaluating the 
need to develop additional requirements to ensure against potential 
dilution of capability for safe operation and decommissioning that 
could arise from rate deregulation and restructuring.
    Section 184 of the Atomic Energy Act and 10 CFR 50.80 provide that 
no license shall be transferred, directly or indirectly, through 
transfer of control of the license, unless the Commission consents in 
writing. The NRC intends to review transfers to determine their 
potential impact on the licensee's ability both to maintain adequate 
technical qualifications and organizational control and authority over 
the facility and to provide adequate funds for safe operation and 
decommissioning. Such consent is clearly required where a corporate 
entity seeks to transfer a license it holds to a different corporate 
entity. See Long Island Lighting Co. (Shoreham Nuclear Power Station, 
Unit 1) CLI-92-4, 35 NRC 69 (1992). The NRC staff has advised licensees 
that agency consent should be sought and obtained under Sec. 50.80 for 
the formation of a new holding company over an existing licensee. Other 
types of transactions, including those involving transfers of operating 
authority or responsibility to non-licensed organizations, have been 
considered by the staff on a case by case basis to determine whether 
Sec. 50.80 consent is required. The NRC is evaluating what types of 
transfers or restructurings should be subject to Sec. 50.80 review. 
Effective December 28, 1995, all orders approving Sec. 50.80 transfers 
have been signed by the Director, Office of Nuclear Reactor Regulation. 
The NRC staff will inform the Commission of unique or unusual licensee 
restructuring actions.

D. Decommissioning Funding Assurance Compliance Reviews

    The NRC believes that the existing decommissioning funding 
assurance provisions in Sec. 50.75 generally provide an adequate 
regulatory basis for new licensees to provide reasonable assurance of 
decommissioning funds. However, to address this and other issues 
related to decommissioning funding assurance in anticipation of rate 
deregulation, the NRC published an advance notice of proposed 
rulemaking (ANPR) (61 FR 15427; April 8, 1996).

E. Antitrust Reviews

    The NRC must be able to accurately identify all owners of its 
licensees to meaningfully assess whether there have been ``significant 
changes'' since the

[[Page 49714]]

licensing reviews. The NRC anticipates that competitive reviews over 
the next 5 to 10 years will arise primarily from changes in control of 
licensed facilities. The regulatory review addressing transfer of 
control of licenses under 10 CFR 50.80 will be used to determine 
whether new owners or operators will be subject to an NRC significant 
change review with respect to antitrust matters.

Electronic Access

    Comments 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 by using a personal computer, a modem, and one of the commonly 
available communications software packages, or directly via Internet. 
Background documents on the draft policy statement 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 (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-100 terminal emulation, the NRC Rulemaking subsystem 
can then be accessed by selecting the ``Rules Menu'' option from the 
``NRC Main Menu.'' 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 
telephone 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 Mail.'' 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 can also 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.
    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 AXD[email protected].

    Dated at Rockville, Maryland, this 16th day of September 1996.

    For the Nuclear Regulatory Commission.
John C. Hoyle,
Secretary of the Commission.
[FR Doc. 96-24275 Filed 9-20-96; 8:45 am]
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