[Federal Register Volume 62, Number 175 (Wednesday, September 10, 1997)]
[Proposed Rules]
[Pages 47588-47606]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-23962]
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Proposed Rules
Federal Register
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This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 /
Proposed Rules
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NUCLEAR REGULATORY COMMISSION
10 CFR Part 50
RIN 3150-AF41
Financial Assurance Requirements for Decommissioning Nuclear
Power Reactors
AGENCY: Nuclear Regulatory Commission.
ACTION: Proposed rule.
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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.
DATES: Submit comments by November 24, 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
20555-0001, telephone (301) 415-6221, e-mail [email protected].
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
commissions (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
licensee;
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 commenters).
Two public interest groups submitted comments, 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.1 Likely Timetable
On the issue of the timing and extent of deregulation, most
commenters 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 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
commenters suggested that from five to ten years would be sufficient.
Two commenters 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 commenters suggested that
deregulation would take place slowly and require a considerable time to
complete.
A.2 Restructuring or Deregulation Scenario
Phases of Deregulation. Several commenters 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
[[Page 47589]]
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.
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\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 electricity produced by various
generators for resale to consumers.
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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 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 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 commenter 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
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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 comment 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
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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 statement
2 should be a strong statement of its expectations. NRC
should participate in the NARUC subcommittee addressing restructuring.
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\2\ See Draft Policy Statement on the Restructuring and Economic
Deregulation of the Electric Utility Industry, (61 FR 49711;
September 23, 1996).
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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 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) 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 principal 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
policy also goes on to explain that the NRC 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 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
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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 funding assurance for prematurely shutdown plants and
believes that its current case-specific approach, outlined in
Sec. 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 Commission 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 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-
[[Page 47593]]
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 Sec. 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 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 (i.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
commenters voiced opposition to the ANPR's query regarding whether the
NRC should require additional assurance for adequate funds for safe
operation and decommissioning in anticipation of deregulation. One
commenter 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 Liability. 3 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.
---------------------------------------------------------------------------
\3\ The concept of joint liability is defined in Black's Law
Dictionary (4th Ed.) as:
One wherein joint obligor has right to insist that co-obligor be
joined as a codefendant with him, that is, that they be sued
jointly.
---------------------------------------------------------------------------
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
[[Page 47594]]
liabilities of the previous owners and operators. 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 Sec. 50.75(e)(2)
unless that licensee can otherwise conclusively demonstrate a
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
comments 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 Sec. 50.75(e)(2). Those
licensees who remain utilities would have the funding assurance
provided through being rate-regulated under Sec. 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 commenters, 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 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
[[Page 47595]]
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 Sec. 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 commenters 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 commenter 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
[[Page 47596]]
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 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 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
[[Page 47597]]
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 shortfalls do not occur, either immediately or when the
underfunding was recognized. A few commenters 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 shortfalls 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 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.
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.
NEI 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 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.
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\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.
---------------------------------------------------------------------------
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
[[Page 47598]]
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.
---------------------------------------------------------------------------
\5\ The Financial Accounting Standards Board is a private body
that establishes authoritative financial accounting and reporting
standards in the United States.
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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 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.
D. Federal Government Licensee Use of Statement of Intent
Slightly fewer than half of the commenters (20 commenters)
expressed an opinion on this question. Almost all commenters took the
position that Federal licensees should be treated in the same way as
non-Federal licensees. NEI 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
[[Page 47599]]
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 commenters 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 (i.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.1 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 (i.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
[[Page 47600]]
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
[[Page 47601]]
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. NEI 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. NEI
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
Commenters suggested several actions that NRC had not asked about
specifically in the ANPR. First, a commenter 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 decommission 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
[[Page 47602]]
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 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
[[Page 47603]]
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
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 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-100 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 AXD[email protected]. For information about
the interactive rulemaking site, contact Ms. Carol Gallagher, (301)
415-6215; e-mail [email protected].
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
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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
[[Page 47604]]
determination, and the NRC staff is 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 hours 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 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 [email protected]; 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 OMB on the information collections or on the above
issues should be submitted by October 10, 1997. 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 OMB 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 [email protected].
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, Public Law 104-121 (March 29, 1996), the
Commission certifies that 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
decommissioning 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 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. 553, the NRC is proposing to
adopt the following amendments to 10 CFR Part 50.
[[Page 47605]]
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 U.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 amended (42 U.S.C. 2234). Appendix F also
issued under sec. 187, 68 Stat. 955 (42 U.S.C. 2237).
2. In Sec. 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:
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.
* * * * *
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.''
* * * * *
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 Sec. 50.43, paragraph (a) is revised to read as follows:
Sec. 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 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. 50.21(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 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 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 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 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.)
* * * * *
7. In Sec. 50.75, paragraphs (a), (b), (d), (e)(1)(i), (e)(1)(ii),
and (e)(3) introductory text 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:
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
[[Page 47606]]
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)(1) 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)(1) * * *
(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
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
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)(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 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 the projected end of its operation shall submit such
a report annually.
* * * * *
Dated at Rockville, Maryland, this 4th day of September, 1997.
For the Nuclear Regulatory Commission.
John C. Hoyle,
Secretary of the Commission.
[FR Doc. 97-23962 Filed 9-9-97; 8:45 am]
BILLING CODE 7590-01-P