[Federal Register Volume 63, Number 183 (Tuesday, September 22, 1998)]
[Rules and Regulations]
[Pages 50465-50482]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-25278]



[[Page 50465]]

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NUCLEAR REGULATORY COMMISSION

10 CFR Parts 30 and 50

RIN 3150-AF41


Financial Assurance Requirements for Decommissioning Nuclear 
Power Reactors

AGENCY: Nuclear Regulatory Commission.

ACTION: Final rule.

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

EFFECTIVE DATE: November 23, 1998.

FOR FURTHER INFORMATION CONTACT: Brian J. Richter, Office of Nuclear 
Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC 
20555-0001; telephone: 301-415-1978; e-mail; [email protected].

SUPPLEMENTARY INFORMATION:

I. 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). This action was 
developed to amend the NRC's regulations relating to financial 
assurance requirements for the decommissioning of nuclear power plants 
in anticipation of rate deregulation of the power generating industry. 
In response to the comments received on the ANPR, the NRC published a 
proposed rule on September 10, 1997 (62 FR 47588). The NRC proposed to: 
(1) Revise the definition of ``electric utility'' and related 
definitions contained in 10 CFR 50.2; (2) add a definition of the term 
``Federal licensee'' to address the issue of which licensees may use 
statements of intent; and (3) require power reactor licensees to report 
periodically on the status of their decommissioning funds and changes 
in their external trust agreements. The rule also would have amended 10 
CFR 50.75 to expressly allow licensees to take credit for the earnings 
on decommissioning trust funds during the operating and decommissioning 
periods.

II. Comments on the Proposed Rule

    The Commission received 33 letters containing more than 200 
comments on the proposed rule representing 25 licensees or licensee 
organizations, 5 State agencies or Public Utility Commissions, 2 public 
interest groups, and an individual with no affiliation provided. Copies 
of the letters are available for public inspection and copying for a 
fee at the Commission's Public Document Room, located at 2120 L Street, 
NW. (Lower Level), Washington, DC 20555-0001.
    The comments have been organized by topic and an analysis of them 
follows.

1. Definition of Electric Utility

A. Linkage Between Decommissioning Financial Assurance Requirements and 
Financial Qualification Requirements (i.e., Linkage Between Costs of 
Operation, Maintenance, and Decommissioning)
    Several commenters, including the Nuclear Energy Institute (NEI), 
stated that NRC should not use the term ``electric utility'' in its 
decommissioning financial assurance rules because the term is used for 
different purposes in the context of NRC's financial qualification 
requirements in 10 CFR 50.33(f). These commenters stressed that only 
decommissioning costs are of concern with respect to the financial 
assurance requirements, whereas only operation and maintenance costs 
are of concern with respect to the financial qualification 
requirements. By referencing all these costs as well as the cost of 
``electricity,'' the proposed definition of electric utility is both 
unclear and problematic.
    The commenters cited several specific problems. First, the 
definition does not adequately express NRC's intent that an entity can 
demonstrate adequate assurance if it can ``conclusively demonstrate a 
government-mandated, guaranteed revenue stream for all unfunded 
decommissioning obligations'' by virtue of a non-bypassable charge that 
covers only decommissioning costs. (For example, one commenter stated 
that, in California, licensees are assured of recovering 
decommissioning costs in distribution rates through non-bypassable 
means, although recovery of the costs of operation and maintenance may 
not be assured.) Second, the definition could unnecessarily invite 
challenges to the rates established by regulators. Specifically, by 
requiring that an electric utility's rates be ``sufficient for the 
licensee to operate, maintain, and decommission its nuclear plant 
safely,'' the proposed definition could imply that NRC may in the 
future evaluate the sufficiency of rates established by other 
regulatory authorities to cover costs of operations and maintenance. 
Third, by referencing ``operation,'' the definition could create or 
imply some responsibility for decommissioning funding on the part of 
nonowner operators that, they argued, may inhibit the formation of 
joint operating companies.
    The NRC believes that commenters' concerns in this area were 
addressed by the third sentence of the proposed definition, that states 
that ``An entity whose rates are established by a regulatory authority 
by mechanisms that cover a portion of its costs will be considered to 
be an `electric utility' only for that portion of the costs that are 
collected in this manner.'' NRC did not intend to have all licensees 
consider only the combined costs of operation, maintenance, and 
decommissioning. Nevertheless, even some commenters who understood 
NRC's intent suggested modifying this third sentence. One suggestion 
was to replace it with ``An entity whose rates are established by a 
regulatory authority by mechanisms that cover only decommissioning 
costs will be considered to be an `electric utility' with respect to 
its decommissioning funding responsibilities.'' (Presumably an 
additional parallel sentence would address ``costs of operation and 
maintenance costs * * * with respect to its financial qualification 
requirements.'') Another suggestion was to clarify the third sentence 
by referring to recovery of a certain portion or discrete category of 
costs. Either of these suggestions would also obviate any need to 
include the 10 percent de minimis threshold for non-recovered costs 
that was suggested by one commenter (i.e., because the relevant 
category of costs--for decommissioning--would be recovered, even if 
they were less than 10 percent of all costs), and would allay the 
concerns of several commenters that an entity recovering only 
decommissioning costs through non-bypassable charges might be 
considered less than a 100 percent electric utility for purposes of the 
decommissioning requirements.
    One possible remedy, as suggested by NEI, would be for NRC to 
construct and define a new term such as ``qualified nuclear entity'' 
that would apply only to

[[Page 50466]]

the decommissioning financial assurance requirements. NEI would define 
a qualified nuclear entity as one that obtains decommissioning funds 
through: (1) A rate-setting mechanism; (2) a non-bypassable charge 
established by legislative or regulatory mandate; or (3) a binding 
contractual agreement with another party that is equal in amount to the 
entity's decommissioning funding obligation. Only the third option in 
NEI's definition is not generally consistent with NRC's proposed 
definition. NEI's comment does not fully or adequately explain the 
meaning or implications of the binding contractual agreement included 
as the third option in its definition. However, other commenters 
specifically referenced NEI's comments, and objected to the binding 
contractual agreement portion of NEI's suggested definition. Some of 
these commenters stated that a binding contractual agreement would 
provide inadequate assurance unless the party offering the contract 
were appropriately qualified.
    As a final point, NEI noted that the term ``electric utility'' may 
take on a different meaning as a result of industry restructuring, but 
would not alter the existing definition of electric utility which 
would, under NEI's proposal, remain applicable to NRC's financial 
qualification requirements. The logic of this position is that the 
current rule is intended to address the decommissioning financial 
assurance requirements rather than the financial qualification 
requirements. Nevertheless, the loss of regulatory oversight as a 
potential consequence of industry restructuring is as relevant to NRC's 
financial qualification requirements as it is to NRC's decommissioning 
financial assurance requirements. Therefore, the NRC has adopted 
another approach that is intended to address commenters' concerns, but 
that does not have some of the shortcomings of NEI's approach. The 
Commission has decided not to change the current definition of 
``electric utility'' as it applies to financial qualifications 
requirements in 10 CFR 50.33(f). Rather, the NRC is clarifying the 
applicability of external sinking funds and other mechanisms directly 
in 10 CFR 50.75.
B. Direct vs. Indirect Cost Recovery
    Some commenters argued against the proposed deletion of the phrase 
``either directly or indirectly'' in the first sentence of NRC's 
existing definition of electric utility, which states that ``Electric 
utility means any entity that generates or distributes electricity and 
which recovers the cost of this electricity, either directly or 
indirectly, through rates established by the entity itself or by a 
separate regulatory authority.'' These commenters stated that allowing 
cost recovery based only on regulated rates and non-bypassable charges 
might restrict licensees from competing in the open market. 
Specifically, the change might prevent licensees with Public Utility 
Commission (PUC)-or Federal Energy Regulatory Commission (FERC)-
approved, long-term power sales agreements from qualifying as electric 
utilities.
    It is not clear whether PUC-or FERC-approved, long-term power sales 
agreements would qualify as cost of service regulation or as non-
bypassable charges (and hence as cost recovery through regulated rates) 
under either the current definition or the proposed definition. 
Assuming that PUCs or FERC analyze these agreements to ensure that they 
are consistent with the entity's recovery of all reasonable and prudent 
costs, it would be reasonable for NRC to interpret these agreements as 
acceptable under either definition. Because this interpretation would 
not be obvious under either definition, however, such an interpretation 
by NRC would have to be implemented through existing or new guidance 
documents, whether or not the phrase is added to the definition. If 
these agreements are not consistent with the entity's recovery of all 
reasonable and prudent costs, then the phrase ``either directly or 
indirectly'' has been deleted appropriately.
    Another commenter stated that NRC should not delete the phrase 
``directly or indirectly'' because the deletion could be interpreted as 
eliminating the exemption from financial qualification requirements 
applicable to nonowner operators who cover their costs under contracts 
with owners. The commenter claimed that NRC has traditionally held that 
nonowner operators are ``electric utilities'' exempt from the regulated 
rates of the owners who are contractually committed to pay the 
operators' expenses. The logic of the commenter's argument seems to be 
that nonowner operators recover the costs of their electricity from 
owners, whose rates are directly regulated, thereby making the 
operator's cost recovery indirectly regulated. For the reasons that 
follow, the final rule should render this concern moot.
C. Consequences of Not Meeting the Definition
    One commenter suggested that the proposed definition could result 
in the premature shutdown of nuclear power plants that have 
insufficient funds set aside to pay for decommissioning. This comment 
appears to argue that premature shutdowns may result if, as a result of 
an entity's loss of status as an electric utility, it must (but is 
unable to) provide up-front financial assurance for decommissioning. 
This issue is analyzed in Section 7.B, Prepayment/Up-front Assurance.
D. Implications for State Ratemaking Authority
    Some commenters suggested that NRC clarify that it does not intend 
to infringe upon State ratemaking authority. To this end, one PUC 
stated that the NRC should remove from the definition the requirement 
that utilities recover ``the cost of electricity,'' which is only an 
intermediate consideration in the development of rates. This commenter 
suggested that the definition should be changed to ``any entity that 
generates, transmits, or distributes electricity.'' In response, the 
NRC has neither the intention nor the authority to infringe on State 
ratemaking authority. The NRC believes that the final rule described 
below will obviate these commenters' concerns.
E. Regulatory Efficiency
    Some commenters suggested that the proposed regulation at 
Sec. 50.75(e)(3) be revised to avoid repeating the definition of 
electric utility. This comment has been adopted, de facto, by the final 
rule.
F. Application of Definition to Public Power Agencies
    Some commenters noted that the proposed definition does not appear 
to require public power agencies to recover all of their costs in their 
rates, only that they set their own rates. In a competitive market, it 
does not follow that the authority of such agencies to set their own 
rates will, in and of itself, provide assurance of decommissioning 
funding.
    These comments appear to address the last sentence in the proposed 
definition of electric utility:

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

    This sentence automatically classifies any licensee that falls in 
one of the above-referenced groups (collectively referred to by the 
commenter as ``public power agencies'') as an electric utility. Thus, 
public power agencies automatically qualify as electric utilities 
without consideration of any of the definition's other conditions on 
rate recovery. The commenters' assessment

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appears sound in that, in a competitive market, such entities might not 
recover all their costs even if they can set their own rates. The 
ability to set rates adequate to achieve full cost recovery would be 
undermined by the loss of an exclusive service territory. Although the 
NRC is retaining, unmodified, the definition of ``electric utility'' 
for purposes of financial qualifications, the NRC has adopted this 
comment in its revised Sec. 50.75(e).

2. Definition of Non-Bypassable Charge

A. Stricter Definition Needed
    One commenter suggested revising the definition to require that 
monies collected via the non-bypassable charge be available to the 
licensee, either through assignment or some other mechanism. This 
comment seems reasonable. If charges are not available to the licensee 
(e.g., if the revenue stream resulting from the charge has been 
assigned to an unrelated party as a result of a securitization), then 
the non-bypassable charges would not provide reasonable assurance of 
decommissioning funding. The final rule has been modified to reflect 
that non-bypassable charges should be available to the licensee as part 
of funds for decommissioning deposited in an external sinking fund.
    One commenter stated that because decommissioning funding must be 
secured and insulated from market risk, the preferred funding method 
should be a non-bypassable charge established by a regulatory mandate. 
According to the commenter, this approach better assures adequate 
funding while removing decommissioning as an issue in future 
competition, and also would help utilities in making optimal business 
decisions in the competitive environment. Regardless of the validity of 
the comment, the NRC believes that it would be encroaching upon the 
responsibilities of other regulators if it were to establish a single 
method for cost recovery.
B. Link Between Operation, Maintenance, and Decommissioning
    One commenter stated that the definition's reference to ``costs 
associated with operation, maintenance, and decommissioning'' is 
problematic for the same reasons that were noted in the ``electric 
utility'' definition. (See discussion and analysis in Section 1-A.) 
Another commenter stated that NRC's proposed definition of non-
bypassable charge could be interpreted to mean that operation, 
maintenance, and decommissioning costs must all be covered by a charge 
in order to meet the definition. This may be inconsistent with actual 
charges established by PUCs. For example, a PUC could decide to 
establish a charge for decommissioning costs, but not for operation and 
maintenance costs.
    One feasible solution was suggested by several commenters, who 
stated that the definition should be revised to read ``costs associated 
with operation, maintenance, or decommissioning. * * * '' They noted 
that this is more consistent with the intent of the rule and would not 
exclude licensees that recover only decommissioning costs through a 
non-bypassable charge, but that recover all other costs through 
competition. The final rule reflects this modification.
C. Types of Non-Bypassable Charges
    One commenter stated that it is not clear whether the proposed 
definition encompasses wire charges, stranded cost charges, transition 
charges, exit fees, other similar charges, the securitized proceeds of 
a revenue stream, or price cap regulation. If NRC decides to defer to 
State regulatory officials, the final rule should be clear in stating 
the types of charges covered by the definition. Similarly, other 
commenters suggested expanding the definition to include other funding 
mechanisms imposed or established by a governmental authority. One 
commenter suggested the definition might include a decommissioning 
liability covered by State securitization legislation. Another 
suggested it might include binding contracts secured by legislation or 
a regulatory commission order or both.
    The proposed definition, as stated, includes

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

    As noted in the previous section, the NRC has modified the 
definitions of ``non-bypassable charges'' in the final rule to focus 
solely on ``costs associated with decommissioning of a nuclear power 
plant.'' With that modification, this definition seems to provide an 
effective performance standard for any type of charge that might be 
developed by State regulatory officials to cover decommissioning costs. 
Consequently, there seems to be little benefit to the commenter's 
suggestion, and some possible danger if any specific charges that might 
be listed in a revised definition were ultimately implemented by State 
regulatory officials in ways that did not meet the currently proposed 
definition. Nevertheless, the NRC has cited examples of non-bypassable 
charges in its definition, without limiting such charges only to the 
cited examples.
    Finally, one commenter stated that NRC's commentary that 
securitization of a licensee's interest in non-bypassable charges 
``may'' be an acceptable method of providing decommissioning funding 
assurance seems to suggest that the existence of a licensee's 
entitlement to non-securitized irrevocable, non-bypassable charges may 
not be sufficient to meet the definition and avoid up-front funding. 
This comment, however, seems at odds with the plain meaning of the 
definition of non-bypassable charges.
D. Other
    Finally, one commenter suggested revising the definition to replace 
the phrase ``governmental authority'' with the phrase ``regulatory 
authority.'' As pointed out by the commenter, this would make the 
definition more consistent with the definitions of ``electric utility'' 
and ``cost of service regulation.'' The NRC is aware of the difference 
and believes the definition as presented better represents the NRC 
position because the term ``governmental authority'' is more inclusive 
and allows for actions by non ``regulatory authorities,'' such as State 
legislatures.

3. Definition of Cost of Service Regulation

    The comments addressing the definition of ``cost of service 
regulation'' seemed, in general, more directly applicable to other 
parts of NRC's proposal, as discussed below.
    One commenter stated that the modifier ``all'' should be deleted 
from the ``cost of service'' definition. This commenter argued that a 
definition requiring that ``all'' reasonable and prudent costs be 
recovered invites a challenge to the sufficiency of a licensee's rate 
regulation. Similarly, another commenter stated that the definition 
should account for the possibility of ``partial'' cost of service 
regulation. The NRC believes that commenters'' concerns in this area 
were addressed by the third sentence of the proposed definition of 
electric utility, that states ``An entity whose rates are established 
by a regulatory authority by mechanisms that cover only a portion of 
its costs will be considered to be an ``electric utility'' only for 
that portion of the costs that are collected in this manner.'' NRC did 
not intend to imply that a licensee was subject to cost of service 
regulation only in the event that

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all its reasonable and prudent costs are recovered per the definition, 
but rather that the licensee would be deemed to be regulated under cost 
of service regulation for whatever portion of its reasonable and 
prudent costs are covered per the definition. This comment has been 
rendered moot by the NRC's revised final rule.
    Another commenter stated that the proposed definition of ``cost of 
service regulation'' should not exclude ``performance based'' and 
``incentive'' ratemaking adopted by some State ratemaking authorities. 
This commenter proposed adding the following to the definition: ``Cost 
of service regulation includes, but is not limited to, alternative 
forms of ratemaking which provide for a portion of costs to be 
recovered based on reasonable benchmarks and incentives for good 
performance.''
    This comment does not seem to recognize that the term ``cost of 
service regulation'' is actually referenced as ``traditional cost of 
service regulation'' by the proposed definition of electric utility, 
which distinguishes cost of service regulation from indirect cost 
recovery through non-bypassable charge mechanisms. In the final rule, 
this reference to traditional ratemaking is contained in the definition 
of ``cost of service regulation.'' In this broader context, the NRC's 
intention to keep the present focus of ``cost of service regulation'' 
seems clear and, moreover, the licensee's suggested additions seem 
inappropriate (because they are not precisely consistent with 
traditional direct recovery of reasonable and prudent costs). However, 
given that the NRC believes that incentive or price-cap-based 
ratemaking provides reasonable assurance of decommissioning funding, 
the NRC revised the definition of ``cost of service regulation'' to 
reflect this concern.

4. Need for General Flexibility

    The flexibility issue has two dimensions. First, several commenters 
wanted the maximum number of financial assurance options available to 
reactor licensees. Second, these commenters urged NRC not to include 
specific or detailed criteria in its rules, which should be kept 
general, but to address implementation details in a regulatory guide or 
similar non-binding form.
    Among the various financial assurance mechanisms, there are 
differences in cost, availability, and risk (i.e., degree of 
assurance). Similarly, because licensees vary in their financial 
situations and prospects, they pose different degrees of risk in terms 
of their abilities to provide funding for reactor decommissioning. 
Making riskier financial assurance mechanisms available to riskier 
licensees compounds risk to the public that adequate funds will not be 
available when needed. Thus, prudent public policy may limit the range 
of mechanisms that should be offered to certain categories of 
licensees. This is recognized by the commenters themselves, who more or 
less endorsed the NRC framework, which distinguishes a category of 
licensees that should not be afforded the option of using an external 
sinking funding, by itself, as a mechanism of assurance. The commenters 
did not contend that all licensees should be allowed to use all 
mechanisms; however, they wanted the external sinking fund option to be 
made available to more reactor licensees than might qualify under the 
NRC proposal. If this mechanism were equal to the others in terms of 
risk, the NRC could make it more available in the interests of 
flexibility. Because this option has more risk than other available 
assurance options, the NRC believes it is prudent to restrict its use 
to licensees with stronger financial or rate regulatory 
characteristics.
    With respect to keeping the rule general and reserving details for 
a regulatory guide, there are two key considerations. First is a matter 
of regulatory philosophy and enforcement posture. Reserving details for 
regulatory guides is an approach that the NRC has used. However, 
regulatory guides are statements of one way in which licensees can meet 
regulations and do not establish requirements.
    The second consideration is the potential need to change the 
requirements. It is much easier to change, add, or delete methods as 
acceptable for meeting requirements in regulatory guides than in 
regulations. Inasmuch as the NRC's power reactor licensees have begun 
on a path of economic restructuring, and will be in a period of 
transition for a number of years, the flexibility afforded by using a 
regulatory guide as a vehicle for decommissioning financial assurance 
requirements may be an advantage. On balance, the NRC is maintaining a 
level of detail equivalent to previous rulemaking in this area, and 
reserves the right to issue more detailed guidance where necessary. The 
NRC, in acknowledging the use of combinations of assurance methods, 
cannot list all possibilities, but includes as an example, the recent 
New Hampshire legislation that provides for the proportionate liability 
of the co-owners of the Seabrook Nuclear Power Station in the event 
that another minority owner, Great Bay Power Company, defaults on its 
obligations.

5. Applicability of Requirements to Plant Owners and Operators

    Two commenters urged the NRC to clarify that the requirements for 
decommissioning financial assurance apply only to owners or entities 
that have assumed decommissioning liability under contracts and not to 
entities that are solely operators. The commenters argued that this 
clarification is important to the formation or use of specialized 
operating service companies with no ownership interests in the 
facilities they operate.
    Applying financial assurance requirements to both owners and 
operators provides flexibility, since either can demonstrate 
compliance. This approach also recognizes scenarios in which the 
operator has greater financial resources or creditworthiness or both 
than the owner. Such a scenario is conceivable following the economic 
restructuring of the electric power industry. To provide greater 
flexibility and assurance, the NRC will not specifically exempt 
operator licensees from the financial assurance requirement. This is 
unlikely to affect the formation or use of operating service companies, 
because they can negotiate with reactor owners regarding which party or 
parties will be responsible for demonstrating financial assurance for 
decommissioning purposes.

6. Site-Specific Cost Estimates

    Four commenters addressed the desirability of allowing licensees to 
use site-specific decommissioning cost estimates as the basis for 
financial assurance and reporting, even if these estimates are less 
than the current minimum amounts prescribed in Sec. 50.75. The primary 
advantage asserted would be to avoid unnecessary assurance expenses 
when a site-specific estimate is less than the current NRC minimum. 
Other asserted benefits of allowing licensees to use site-specific cost 
estimates below the NRC minimums include greater consistency with PUC 
approaches, tax treatment, and possible Financial Accounting Standards 
Board (FASB) requirements. Moreover, acceptance of site-specific 
estimates might enhance the integrity of the rule, given the perception 
stated by several licensees of problems with the current minimum 
amounts and the acceptance by PUCs of site-specific cost estimates as 
the basis for financial assurance even where the site-specific 
estimates are less than the NRC minimums. However, given other

[[Page 50469]]

potential weaknesses in current implementation (primarily relating to 
the adequacy of cost estimates and the potential under-funding 
indicated by current balances in decommissioning trust funds), such an 
allowance could aggravate the risk of potential under-funding 
associated with the external sinking fund mechanism. Submittal of site-
specific estimates to the NRC would enable it to better evaluate the 
funds needed for decommissioning. However, the Commission has decided 
to defer allowing site-specific estimates that are lower than the 
amounts specified in 10 CFR 50.75(c) until additional decommissioning 
data are obtained. (Staff Requirements Memorandum, SECY 97-251--
Proposed Rule on Nuclear Power Reactor Decommissioning Costs, February 
5, 1998.)

7. Alternative Methods of Assurance

A. Alternative Framework Proposed by NEI
    NEI's proposed framework for financial assurance for 
decommissioning resembles in broad outline NRC's framework, which 
broadens the range of allowable assurance mechanisms for reactor 
licensees that lose the ability to recover decommissioning costs 
through regulated rate fees or other mandatory charges established by a 
regulatory body. Although the external sinking fund, standing alone, is 
not allowed for the licensees losing such regulatory oversight, the NRC 
framework also offers opportunities for case-by-case consideration of 
non-standard financial assurance arrangements. Examples include 
Sec. 50.75(e)(1)(v), which allows unspecified, other guarantee methods; 
and certain contractual arrangements in Sec. 50.75(e)(1)(ii)(C).
    The NEI's framework involves three, rather than two, categories of 
power reactor licensees. Under the NEI framework, the broader set of 
assurance mechanisms (including the current external sinking fund 
approach) would be available to: First, licensees meeting the criteria 
for ``qualified nuclear entities'' and second, licensees that do not 
meet the requirements for ``qualified nuclear entities'' but that 
satisfy a set of financial criteria. NEI does not specify in its 
comments what these financial criteria would be. Third, licensees that 
satisfy neither the criteria for qualified nuclear entities nor the 
alternate financial criteria would not be allowed to use the external 
sinking fund option, but would be able to use the other mechanisms. NEI 
also includes an option for non-standard demonstrations of assurance.
    The effect of the NEI proposal would be to make the current 
external sinking fund financial assurance option available to a larger 
number of licensees than would be allowed under the NRC proposal. This 
effect is the result of: (1) Defining ``qualified nuclear entities'' in 
terms of criteria that may be less stringent than the proposed criteria 
for ``electric utility''; and (2) allowing licensees that satisfy 
certain financial criteria also to take advantage of the external 
sinking fund option, which they would not be allowed to do under the 
NRC proposal. The NEI proposal would mean an increase in the risk that 
adequate funds will not be available when needed because of an 
inadequate funding rate, inadequate earnings on invested funds, or 
premature shutdown. It would decrease the cost to licensees. NRC's 
proposal entails less risk of inadequate funding, but greater cost to 
licensees.
    On balance, to make the external sinking fund option more available 
to reactor licensees, the NEI framework would result in greater risk 
that sufficient decommissioning funds will not be available when 
needed. The NEI proposal also would require the development of 
appropriate financial criteria, which would be challenging to develop 
because of the unpredictable nature of the industry. An entity that 
meets the financial criteria, unlike those licensees who retain the 
ability to recover decommissioning costs through regulated rates and 
fees or other mandatory charges established by a regulatory body, would 
have no guarantee of collecting sufficient funds for decommissioning 
and could encounter deteriorating financial conditions that could cause 
a reduction or cessation of payments into the external sinking fund.
    The NEI framework would produce the same result if the financial 
criteria were made an alternate basis for being a ``qualified nuclear 
entity.'' This would produce a two-tier framework parallel in structure 
to the NRC proposal, though different in content.
    Based on these considerations, the NRC is not adopting NEI's 
proposed approach. Rather, the NRC is specifying in Sec. 50.75, a 
variety of mechanisms for providing decommissioning financial assurance 
that licensees may use, depending upon their circumstances. The revised 
regulations would also permit the use of ``other guarantee methods'' 
that are not specifically identified in the regulations.
B. Prepayment/Up-Front Assurance
    One commenter addressed the issue of up-front assurance. The 
commenter stressed that it is unfair for NRC to require up-front 
funding for licensees that no longer meet the definition of ``electric 
utility.'' In particular, the commenter argued that licensees have 
presumed all along that they would be able to gradually fund 
decommissioning throughout their plants' operating lives and that, as a 
result, licensees who are no longer considered electric utilities may 
be unable to remain in business.
    NRC's current financial assurance requirements for decommissioning 
nuclear power reactors are based on the premise that the reactors are 
owned by regulated or self-regulating entities that recover their 
decommissioning costs through a rate-setting process overseen by the 
applicable regulating body. This regulatory oversight provides 
reasonable assurance that such licensees will recover reactor 
decommissioning costs and continue paying into external sinking funds 
for decommissioning.
    It is true that those licensees no longer able to recover 
decommissioning costs through regulated rates and fees or other 
mandatory charges established by a regulatory body may incur a greater 
burden by having to provide up-front assurance. This up-front assurance 
could take the form of prepayment or it could take the form of some 
type of surety mechanism (e.g., a letter of credit, or a partner or 
self guarantee). It is possible, under some restructuring scenarios, 
that this could lead to premature shutdown of some reactors. However, 
the likelihood of this occurring is highly doubtful. Many PUCs have 
already indicated their intention to allow for the regulated recovery 
of decommissioning costs, either through rates or through some type of 
non-bypassable charge, even for otherwise deregulated entities. For 
licensees that will not be able to collect funds through such a process 
after industry restructuring, up-front assurance is necessary to ensure 
that reasonable financial assurance is provided for all decommissioning 
obligations. In the more competitive environment that is likely to 
prevail after restructuring, some of these licensees may not remain 
financially viable for reasons not related to decommissioning financial 
assurance, further suggesting the need for up-front assurance.
C. Accelerated Funding
    In the preamble to its proposed rule, NRC requested comment on 
whether accelerated funding should be

[[Page 50470]]

considered as a financial assurance option for licensees no longer 
meeting the definition of ``electric utility.'' Several commenters 
supported accelerated funding, provided that the accelerated funding 
period would be long enough. They generally stressed that, if the 
funding period were too short, non-electric utilities would be placed 
at a competitive disadvantage, potentially leading to insolvency and 
premature shutdown of plants. One commenter asserted that the burden of 
accelerated funding would be most severe for licensees with little time 
remaining before shutdown. Several commenters offered specific 
suggestions regarding the length of an accelerated funding period, 
stating that it should last most or all of the remainder of the license 
period, two-thirds of the remaining license term or 10 years (whichever 
is greater), or five-eighths of the remaining license period. One 
suggested that the licensee or the licensee's parent company should 
have to pass a financial test for any unfunded amount in order to use 
accelerated funding. Others cautioned that accelerated funding could 
interfere with licensees' business planning or lead to negative tax 
consequences.
    For licensees with reactors that have remaining operating lives of 
less than the accelerated funding period, the accelerated funding 
option would have no impact because licensees' funding schedules would 
be no different than they are currently. NRC would have less assurance 
from these licensees, given that they would no longer recover 
decommissioning costs through regulated rates and fees or other 
mandatory charges established by a regulatory body. For licensees 
associated with reactors that have remaining operating lives longer 
than the accelerated funding period, the accelerated funding option 
would be a significantly less burdensome means of demonstrating 
financial assurance than full, up-front funding. In all cases, however, 
the relative decrease in burden to the licensee must be weighed against 
the reduced level of financial assurance provided to NRC during any 
accelerated funding period.
    The length of an accelerated funding period would affect individual 
licensees differently, depending on the amount of unfunded 
decommissioning obligation and on the time period that the licensees 
would otherwise have had to complete the funding. The greater the 
amount of money that must be funded on an accelerated schedule, the 
more significant the impact will be on a licensee. For example, 
assuming licensees are otherwise identical and have been adequately 
funding an external sinking fund all along, the impact of a 10-year 
accelerated funding schedule would be greater for a licensee with 25 
years of operating life remaining than for a licensee with 15 years of 
operating life remaining. (This contrasts with the comment asserting 
that impacts would be most severe for licensees with little time 
remaining before shutdown. In fact, the opposite is true, except for 
licensees that have been making inadequate contributions to their 
decommissioning sinking funds.)
    The NRC believes that the alternative of requiring accelerated 
funding for all plants over a defined period, to cover the possibility 
of premature shutdown at some plants, would be too arbitrary and would 
lead to wide variations in impacts on licensees. Accelerated funding 
results in the inequitable inter-generational problem of the present 
generation paying for the decommissioning costs, while the future 
generation may receive the benefits of future electricity generation 
without incurring the costs of decommissioning. The suggestion that NRC 
should allow licensees to use accelerated funding only if they or their 
parent companies have sufficient assets is analogous to combining a 
self-guarantee or parent company guarantee with the external sinking 
fund mechanism. This idea has significant advantages to licensees, and 
is discussed in Section 7.J, ``Combinations of Methods.''
    Another way to reduce the burden of accelerated funding on 
licensees would be to ensure that the accelerated contributions are tax 
deductible. Under current Internal Revenue Service (IRS) rules, 
accelerated payments into decommissioning funds may not be deductible. 
However, these tax changes are beyond the NRC's mandate and 
Congressional or IRS action would be required to accomplish them. 
Consequently, unless these rules are changed, licensees may be 
ineligible to receive tax breaks on deposited funds.
    For the reasons stated above, the NRC does not consider accelerated 
funding to provide reasonable decommissioning financial assurance.
D. Parent Guarantees/Self-Guarantees
    The commenters generally endorsed parent company guarantees and 
self-guarantees as a reasonable method of assurance for licensees no 
longer meeting the definition of ``electric utility.'' However, a 
number of commenters stated that the financial tests specified in 
appendices A and C to 10 CFR part 30 are inappropriate for these 
licensees and would be overly burdensome. Several commenters suggested 
specific revisions to NRC's existing financial tests:
     One commenter suggested that NRC allow non-electric 
utilities to use: (1) A parent company guarantee from a parent meeting 
the criteria for self-guarantees; and (2) a self-guarantee for 
licensees meeting at least two of the following criteria:

--Licensee has an investment grade bond rating;
--Licensee's pre-tax income (before interest expense) divided by 
interest applicable to debt is greater than or equal to 2; and
--Licensee's net worth is at least twice the current remaining unfunded 
cost of decommissioning in current year dollars.

     One commenter stated that the self-guarantee test's ``10 
times requirement'' for assets should be lower, but did not suggest an 
alternative threshold.
     One commenter suggested that the financial tests should 
require total assets in the U.S. and tangible net worth to be one to 
two times the estimated decommissioning costs, rather than what is 
currently specified in the tests.
     One commenter suggested that the Commission consider 
ownership of other revenue-generating assets (besides the nuclear power 
plant).
     One commenter suggested that the NRC should develop a 
process similar to the one used by bond-rating agencies to assess the 
ability of firms to continue repaying principal or to continue paying 
interest or dividends.
     Finally, one commenter suggested that the NRC allow non-
electric utilities to use parent company guarantees in conjunction with 
other allowable financial assurance methods, such as external sinking 
funds. (The issue of using parent company guarantees in combination 
with other mechanisms is discussed in Section 7.J, ``Combinations of 
Methods'').
    NRC's parent company guarantee is based largely on a financial test 
developed by the EPA more than 15 years ago. EPA's test was intended to 
assess the financial condition of firms managing hazardous waste that 
were seeking to assure closure and post-closure care obligations that 
are substantially smaller than typical decommissioning costs for power 
reactors. In adopting these tests, the NRC believed that its objectives 
for financial assurance would be reasonably met, but recognized that 
the tests were most appropriate for materials licensees, although, at 
that time, the financial tests were also made applicable to nuclear 
power plant licensees who were not ``electric utilities.'' The NRC 
realized

[[Page 50471]]

that most power plant licensees would likely use external sinking funds 
rather than parent or self-guarantees to provide decommissioning 
funding assurance, and thus did not perform a detailed analysis of 
their applicability to power plant licensees.
    Because deregulation is still in its earliest phases, it is not yet 
possible to identify or define the financial characteristics of 
entities that may ultimately be responsible for reactor 
decommissioning. Consequently, evaluating or improving the test's 
applicability to those licensees who are no longer able to recover 
decommissioning costs through regulated rates and fees or other 
mandatory charges established by a regulatory body may be difficult, 
and any criteria that might be developed could become outdated or 
misleading relatively quickly. Finally, developing and implementing 
alternative tests (such as those suggested by commenters) could place a 
substantial burden on the NRC. For these reasons, the NRC is 
considering any changes to financial tests separate from this 
rulemaking. Nevertheless, the NRC is implementing some changes to 
parent and self-guarantees that may make these assurance methods more 
viable for power reactor licensees. Section 7.J describes these changes 
in more detail.
E. Surety Methods
    Three commenters addressed the issue of surety methods of financial 
assurance (i.e., surety bonds, letters of credit, lines of credit). The 
predominant issue raised by these commenters pertained to the limited 
availability of these mechanisms to licensees no longer meeting the 
definition of ``electric utility.'' One commenter claimed that because 
the majority of generating companies will have an assured recovery 
mechanism through non-bypassable charges, there will be no new market 
created for surety mechanisms after industry restructuring, and that 
licensees required to obtain these mechanisms will be faced with 
significant costs. Another argued that NRC should ascertain the 
availability of these instruments before issuing a final rule based on 
the assumption of their availability. This commenter proposed the 
creation of a Government-managed decommissioning insurance plan to 
provide such mechanisms (discussed in Section 7.G, ``Government-Managed 
Insurance Plan'').
    NRC recognizes that there are likely to be limits on the 
availability of surety mechanisms such as letters of credit, lines of 
credit, and, in particular, surety bonds, to licensees trying to 
demonstrate financial assurance. This limited availability would arise 
from two factors. First, the amount that would need to be assured under 
such a mechanism (i.e., the difference between the licensee's 
decommissioning cost estimate and the current balance in its external 
sinking fund) could in some cases be quite large and could pose a 
significant risk to potential providers of the mechanisms. Second, 
mechanism providers also may view some licensees (those that lose the 
ability to recover decommissioning costs through regulated rates and 
fees or other mandatory charges established by a regulatory body) as 
financially risky ventures given their restructured operations and 
newly deregulated financial characteristics (e.g., licensees may no 
longer have guaranteed service areas). Some licensees may be able to 
obtain these mechanisms only after offering significant levels of 
collateral to the provider as security. Generating subsidiaries without 
access to substantial assets other than the nuclear plant may find it 
difficult to provide the necessary collateral and may be unable to 
obtain a surety mechanism. Even if surety mechanisms are not available 
to some licensees, licensees may be able to use prepayment mechanisms 
(e.g., full up-front funding of the external sinking fund), possibly 
arranging for the necessary funding prior to restructuring (e.g., 
before a nuclear plant is placed in a generating subsidiary with few 
other assets). Licensees may also have access to parent and self-
guarantees, which are still less costly.
F. Power Sales Contracts
    Commenters suggested two possible roles for power sales contracts 
in the financial assurance program: (1) As a threshold condition for 
being able to use the external sinking fund; and (2) as a mechanism for 
demonstrating financial assurance. One commenter recommended that power 
sales contracts be accepted as a means by which licensees not meeting 
NRC's proposed definition of electric utility can qualify to use the 
broader range of assurance mechanisms--such as the external sinking 
fund. Another commenter concurred, stating that such contracts would be 
secured by legislation or a regulatory commission order or both. 
Commenters also recommended that, for licensees not qualified to use 
the external sinking fund, an assurance mechanism that would allow a 
licensee to show that power sales contracts are in place, could provide 
some or all decommissioning funding.
    There is an important difference between using power sales 
contracts as a threshold criterion, for reactor licensees that lose the 
ability to recover decommissioning costs through regulated rates and 
fees or other mandatory charges established by a regulatory body, and 
as a financial assurance mechanism. As a threshold criterion, power 
sales contracts would represent evidence of the financial status and 
prospects (e.g., sales backlog) of a company. These contracts would be 
considered when private financial organizations assess the credit-
worthiness of companies. However, power sales contracts have some 
disadvantages that work against their use as a threshold criterion. 
First, power sales contracts may have contingencies that make it 
difficult to project revenues or earnings. Such contracts are not 
equivalent to a Government-mandated revenue stream that would fully 
fund decommissioning costs. It also would be very difficult for NRC to 
define clearly how it would analyze and evaluate such contracts, 
potentially creating issues of fairness, consistency, and 
accountability. For example, the NRC would need to assess whether a 
given contract covers all licensee costs (including decommissioning), 
how binding it is, and its effective term. Unlike financial statement 
data, which can be statistically associated with subsequent financial 
performance, there is no objective basis or validated test for linking 
sales contracts to future financial performance. By making it easier 
for licensees that lose the ability to recover decommissioning costs 
through regulated rates and fees or other mandatory charges established 
by a regulatory body, or that do not have access to a Government-
mandated revenue stream to use the external sinking fund, acceptance of 
power sales contracts as a threshold criterion may increase the risk 
that funds will not be available when needed. However, under certain 
circumstances that the NRC has specified in this final rule, the NRC 
believes that long-term contracts can provide levels of decommissioning 
funding assurance that are equivalent to other acceptable methods.
    Power sales contracts also are unlikely to make good financial 
assurance mechanisms, unless they have terms that provide for payment 
of decommissioning costs under most likely occurrences. They often lack 
the provisions needed to ensure effective and continuing coverage 
(e.g., automatic renewal, notice of cancellation). For example, in Town 
of Boylston v. FERC (21 F.3D 1130, 305 U.S.APP.D.C. 382),

[[Page 50472]]

municipal purchasers successfully challenged an order to pay reactor 
decommissioning costs as a charge under their power purchase contracts. 
Moreover, FERC has authority to impose alternative provisions in the 
public interest if it finds contracts to be unjust and unreasonable. 
Power sales contracts often contain contingencies that may make it 
difficult to determine corresponding levels of revenues. Long-term 
contracts for the supply of uranium, natural gas, and coal have all 
been subject to litigation at one point or another because of market or 
regulatory changes, which may be specifically addressed in contracts or 
covered under ``force majeure'' 1 clauses. These contracts 
typically do not themselves effect the setting aside or guarantee of 
monies, although contracts could be written to serve as guarantees or 
to require that proceeds be deposited in external sinking funds. The 
NRC believes that power sales contracts that contain provisions to 
mitigate these shortcomings can provide reasonable assurance of 
decommissioning and have been allowed, under specified conditions, in 
the final rule.
---------------------------------------------------------------------------

    \1\ ``Force majeure'' refers to items largely beyond the control 
of the contracting parties (e.g., recession, inflation, severe 
market changes) that make it equitable to terminate or renegotiate 
contract terms.
---------------------------------------------------------------------------

G. Government-Managed Insurance Plan
    Two commenters addressed the NRC's decision to eliminate from 
future consideration the concept of a captive insurance pool to pay 
unfunded decommissioning costs. One noted only that it agreed with the 
decision not to pursue this option. The other commenter, however, 
disagreed with the decision and urged the NRC instead to investigate 
the creation of a Government-managed decommissioning insurance plan. 
Under this plan, the licensee would be able to purchase an insurance 
policy from the Federal Government. The cost of the policy could be 
determined by each plant's performance history or Systematic Assessment 
of Plant Performance (SALP) rating, with poorly run plants paying a 
higher premium and well-run plants paying a lower premium. The 
commenter noted that Federal Government participation in private 
insurance markets is not unprecedented, citing the example of Federal 
flood insurance. The commenter weakened the force of his example, 
however, by also pointing out that Federal Government participation in 
private insurance markets takes place ``especially where the risk is 
not readily subject to management or the level of potential exposure is 
large.'' Clearly, basing premiums on plant performance history implies 
that the commenter would expect poorly-run plants to close more 
frequently than well-run plants, suggesting that the risk can be 
managed.
    The commenter advocating further examination of an insurance plan 
did not make clear whether the commenter favored a captive insurance 
pool entirely funded by the industry or an insurance system that was 
funded, completely or partially, by the Federal Government.
    The arguments against a captive insurance pool are strong. The 
participants would be able to cause losses simply by not taking action 
to set aside adequate funds for decommissioning. Delay in setting aside 
funds could be beneficial because of the use value of the funds that a 
licensee could reallocate to some other purpose. In addition, the 
members of the insurance pool would be in competition with each other, 
and could shift costs to competitors by means of the insurance pool. 
Thus, an insurance pool for decommissioning would offer no incentive to 
licensees to reduce the magnitude of their potential claims on the 
pool, either from an insurance standpoint (because their 
decommissioning costs are insured) or from an economic standpoint 
(because of the advantages to them of delaying payment and of shifting 
costs to their competitors).
    The commenter's suggestion that rates should be based on plant 
performance is unlikely to satisfactorily address the problem of 
adverse selection. Those posing higher risks might continue to be more 
likely to enter an insurance pool, despite being assessed higher rates, 
thus raising the proportion of high-risk insureds. This could increase 
the price of the insurance and cause other relatively low-risk entities 
to avoid entering the pool, even if they were being charged less. The 
nexus between plant performance, however measured, and likelihood of 
premature closure is not so clear that the Government agency 
responsible for the insurance would be able to set premiums accurately. 
Eventually the proportion of high-risk insureds could increase to the 
point that providing the insurance becomes unprofitable or impossible. 
Alternatively, mandatory participation by low-risk insureds could lead 
to situations in which they were subsidizing the high-risk entities, 
even with a rate differential.
    The commenter did not present any arguments supporting Government 
management of a decommissioning insurance plan. If such a plan were set 
up without the inclusion of Federal funds, there seems to be little 
reason to assign a Government agency to manage it.
    Finally, insurance that is partially or wholly subsidized by the 
Federal Government, such as flood insurance, would require 
Congressional action, and is outside the scope of an NRC rulemaking. 
Thus, the Commission is not pursuing this option further.
H. Regulatory Certification
    Only one commenter suggested that NRC should reconsider its 
dismissal of the possibility of PUC or FERC certification that 
licensees within their jurisdiction would be allowed to collect 
sufficient revenues through rates to complete decommissioning funding. 
That commenter noted that NRC had relied upon the views expressed to 
the NRC that ``no current commission can bind a future commission'' and 
that a PUC ``could not give a blanket guarantee that all licensees 
would be allowed to collect revenues to complete decommissioning 
funding.''
    This commenter argued that these uncertainties are ``no greater 
than those associated with cost of service regulation, which certainly 
does not constitute a `guarantee' of availability of sufficient 
decommissioning funds,'' noting also that the underlying regulatory 
standard is only one of `` `reasonable assurance'.''
    The commenter, however, did not address a number of important 
considerations. First, the opponents of certification are particularly 
well informed. The comments upon which NRC relied in dismissing 
certification as an option came from the National Association of 
Regulatory Utility Commissioners (NARUC) and several State PUCs, that 
are particularly good sources of information concerning the limits of 
their own authorities and their ability to bind their successors. 
Second, the commenter did not address the argument, presented by NEI 
and endorsed by several PUCs, that new Federal legislation would be 
necessary to make such certifications binding. Third, the commenter did 
not address limitations on FERC's jurisdiction, and consequent 
limitations on FERC's ability to make binding certifications. Finally, 
the commenter suggested that NRC had adopted a ``guarantee of 
availability'' standard rather than the underlying regulatory standard. 
Given the weight of arguments in opposition to certification, however, 
NRC has concluded that certification is not a viable financial 
assurance mechanism.

[[Page 50473]]

I. ``Any Other Method''
    A number of commenters stated that NRC should permit more 
flexibility in the allowable methods for demonstrating reasonable 
assurance of decommissioning funding, particularly for licensees no 
longer meeting the definition of ``electric utility.'' Several 
commenters suggested that NRC review and evaluate licensee-specific 
funding proposals on a case-by-case basis. Another commenter 
recommended that NRC allow non-electric utilities to use mechanisms 
developed by governmental authorities and approved by NRC. Finally, one 
commenter suggested that NRC grant individual licensees or States the 
flexibility to develop initiatives/mechanisms for providing reasonable 
assurance of funding.
    Licensees, as discussed in Sections 7.B and 7.E of this statement 
of considerations, may well encounter cost and availability issues in 
trying to use some of the financial mechanisms allowed by NRC. In 
addition, the applicability of the NRC's parent company guarantees and 
self-guarantees to power reactor licensees is questionable (as 
discussed in Section 7.D.) because the underlying financial tests were 
developed primarily for other types of entities assuring smaller 
decommissioning obligations. Consequently, a case-by-case approach, 
through which reactor licensees that lose the ability to recover 
decommissioning costs through regulated rates and fees or other 
mandatory charges established by a regulatory body, could provide 
assurance equivalent to the other methods that the NRC is allowing. 
However, the NRC will need to ensure that the mechanisms used will, in 
fact, provide adequate financial assurance. Although, the NRC expects 
that only a very-limited number of licensees will use a case-by-case 
approach, this will potentially place a resource burden on the NRC to 
review individual ``non-standard'' mechanisms.
J. Combinations of Methods
    Several commenters stated that NRC should allow utility licensees 
and, in particular, non-utility licensees to use combinations of 
mechanisms to demonstrate financial assurance for decommissioning. Two 
commenters suggested specifically that NRC allow non-electric utility 
licensees to use parent company guarantees or self-guarantees or both 
in conjunction with other allowable methods.
    NRC's current requirements already allow combinations of 
mechanisms, except that two mechanisms--the self-guarantee and the 
parent company guarantee--may not be used in combination with other 
mechanisms. Allowing combinations of funding methods increases the 
regulatory flexibility to licensees trying to meet the requirements. 
(Note, however, that a licensee using a combination of mechanisms faces 
a greater administrative burden to obtain its mechanisms and, 
similarly, NRC faces an increased burden in reviewing multiple 
mechanisms.) For mechanisms that guarantee payment (e.g., trust fund, 
payment surety bonds, letters of credit), a combination of mechanisms 
that equals the total decommissioning cost estimate is unlikely to lead 
to any difficulty in assuring that decommissioning funds will be used 
for their intended purpose.
    Some mechanisms, however, guarantee performance rather than 
payment. These mechanisms are self-guarantees, parent company 
guarantees, performance surety bonds, and some insurance. The terms of 
these mechanisms promise that the issuer will complete required 
decommissioning activities if necessary. It can be problematic to 
combine a performance mechanism with another mechanism (payment or 
performance) because of the inherent subjectivity in valuing 
performance. For example, a licensee may wish to combine a $100,000 
parent company guarantee with a $100,000 letter of credit to assure a 
decommissioning cost estimate totaling $200,000. If the guarantor 
proves to be inefficient in conducting decommissioning, it may spend 
$100,000 on activities that should have cost less. In this case, the 
letter of credit would be inadequate to fund the remaining activities, 
even though the guarantor could claim to have fulfilled its performance 
guarantee.2
---------------------------------------------------------------------------

    \2\ In addition, firms providing guarantees must pass an 
underlying financial test which is not ``divisible'' under the 
regulations. For example, parent company guarantors must meet a 
criterion that they have tangible net worth at least equal to six 
times ``the current decommissioning cost estimates (or prescribed 
amount if a certification is used).'' Either a potential guarantor 
passes this criterion (and other similar and related criteria) in 
its entirety or the guarantor fails the test. If the guarantor 
cannot pass the criteria, then it is ineligible to provide a 
guarantee in any amount. In this case, combining the guarantee with 
another mechanism would not be an option. This final rule amends the 
financial test sections in Appendices A and C to 10 CFR Part 30 to 
address, in part, this issue.
---------------------------------------------------------------------------

    However, the NRC believes that this problem is of less concern in 
the specific case of a self-guarantee being used in combination with an 
external sinking fund because, in this case, the guarantor has no 
incentive or ability to shift costs or to avoid greater responsibility. 
However, if the self-guarantee were to be combined with a mechanism 
such as a letter of credit, that required the licensee to offer 
collateral to the issuer, then it is possible that if NRC were to draw 
on the letter of credit, the bank might seize the licensee's collateral 
which, in turn, might prevent the licensee from performing under the 
self-guarantee.
    The combination of a parent or self-guarantee and an external 
sinking fund also appears to provide a relatively low-cost means for 
licensees to demonstrate financial assurance while continuing to 
gradually fund decommissioning costs over time (either on the current 
schedule or on an accelerated schedule). Because of the low costs of 
guarantees, however, allowing this combination of mechanisms could 
create an incentive for licensees to delay or cease payments into the 
sinking fund and, instead, to rely on the guarantee for as much of the 
cost as possible. Given the magnitude of typical decommissioning costs 
for reactors, this possibility could hinder the timely conduct of 
decommissioning. In other words, decommissioning could be significantly 
delayed if, because of a licensee's inadequate contributions to its 
sinking fund, a guarantor had to come up with large amounts of money at 
the time of decommissioning.
    The NRC generally believes that it should not allow licensees to 
use parent company guarantees and self-guarantees in combination with 
each other to assure decommissioning obligations. Because parent 
companies typically consolidate the financial statements of all their 
subsidiaries into their own financial statements, combining parent 
company guarantees and self-guarantees could result in double counting 
of the same limited financial strength to pass separate financial tests 
(e.g., one for costs covered by a parent company guarantee, and one for 
costs covered by a self-guarantee).
    In sum, the NRC has eliminated the prohibition on combining parent 
company or self-guarantees with external sinking funds. The NRC will 
also consider other combinations of mechanisms on a case-by-case basis 
when the aforementioned concerns are addressed.
K. Required Timing of Alternative Methods
    Several commenters wrote that the NRC should allow affected 
licensees an extended period of time to secure alternative financial 
assurance mechanisms. One commenter stated that NRC's current 
regulations allow a

[[Page 50474]]

licensee 30 days to develop a submittal describing how decommissioning 
funding will be assured if the licensee no longer satisfies a given 
criterion (e.g., the definition of ``electric utility''). This 
commenter recommended that NRC allow licensees 180 days in these 
instances, and also suggested that NRC allow licensees to continue 
making payments to their existing decommissioning funds until NRC 
approves the alternative funding submittal. Another commenter stressed 
that NRC should allow ``adequate transition time for legislative and 
regulatory changes to accommodate the new definition of `electric 
utility'.''
    The comments presented the argument that licensees will need more 
time to obtain alternative financial assurance mechanisms (e.g., 180 
days) than they would in the event of the cancellation of an existing 
mechanism (only 30 days). This argument ignores the fact that 
deregulation will not occur instantly and unexpectedly. Licensees are 
likely to have months or even years to evaluate whether they may be 
able to recover decommissioning costs through regulated rates and fees 
or other mandatory charges established by a regulatory body and what 
mechanisms they might use to demonstrate financial assurance if and 
when that occurs. Consequently, no additional time should be provided 
to licensees in response to this comment.

8. Federal Licensees

A. Applicability to Federal Licensees
    A number of commenters argued that financial assurance requirements 
for electric utilities should apply equally to Federal licensees, that 
no special treatment should be afforded Federal licensees, and that all 
licensees should satisfy the same requirements. One stated explicitly 
that ``Federal'' licensees should be required to provide the same level 
of financial assurance as other power reactor licensees, but qualified 
his comment by stating that ``the proposed rule should ensure that at 
such time as these Federal entities become private enterprises, they 
are subject to the definition of `electric utility.' In doing so, they 
must provide the same measures of financial assurance currently 
required to electric utilities, i.e., they must provide the same level 
of external funding or other assurance that would otherwise have been 
required of them from the initial issuance of their operating 
license.'' This commenter apparently did not oppose the use of 
statements of intent by Federal licensees, until the point at which 
they become private.
    The Tennessee Valley Authority (TVA), the only current Federal 
licensee for a nuclear power reactor, was the sole commenter that 
argued in favor of special provisions that would apply only to Federal 
licensees. It noted, in particular, that under Federal law it is 
required to charge rates for power that will produce gross revenues 
sufficient to cover all operating expenditures of the power system, and 
that such operating expenses are considered to include decommissioning 
costs. TVA's arguments are evaluated below.
B. Definition of ``Federal Licensee''
    Several commenters made identical, or almost identical, 
recommendations concerning the definition of Federal licensee. Each 
supported the intent of the definition, which they considered to be to 
exclude from the definition any Federal agency whose obligations do not 
constitute the obligations of the United States. However, each 
recommended that the definition be modified to define a Federal 
licensee as ``any NRC licensee, the obligations of which are guaranteed 
by and supported by the full faith and credit of the United States 
Government.'' Each argued, without explaining fully, that the term 
``full faith and credit backing'' is neither defined nor commonly used 
in other legislation relating to Federal agencies.
    Presumably, the commenters who found the phrase ``full faith and 
credit backing'' ambiguous did so because it does not specify that all 
obligations of the entity are backed by the credit of the Federal 
Government, nor does it say explicitly that the obligations are 
``guaranteed,'' as does the proposed replacement definition. The 
proposed replacement definition thus is slightly more precise. Much of 
the suggested definition has been used previously and commonly in 
legislation pertaining to Federal agencies. Thus, it would have the 
advantage of removing any ambiguity that might arise from using a 
totally new definition. A preliminary search of the United States Code, 
Annotated, uncovered a number of situations in which the proposed 
phrase is used. For example, under Chapter 50 of Title 7, the Secretary 
of Agriculture is empowered under 7 U.S.C.A. 1928, to guarantee certain 
agricultural credit real estate loans and emergency loans. Section 1928 
specifies that contracts of insurance or guarantee executed by the 
Secretary under Chapter 50 ``shall be an obligation supported by the 
full faith and credit of the United States.'' Similarly, the Secretary 
of the Interior is empowered under Title 16 of the U.S. Code to insure 
certain loans of private lenders. Section 470d of Title 16 provides 
that ``Any contract of insurance executed by the Secretary under this 
section * * * shall be an obligation supported by the full faith and 
credit of the United States. * * * '' Finally, under Title 42, Chapter 
7 (Social Security) of the U.S. Code, the Secretary of the Treasury can 
issue obligations for purchase by the social security trust fund. 
Section 401 of Title 42 provides that ``the obligation is supported by 
the full faith and credit of the United States. * * * '' The commenters 
appear to have identified the phrase generally used to describe such an 
obligation, and therefore replacement of the current definition of 
``Federal licensee'' with the definition suggested by the commenters 
appears warranted.
    TVA argued against the proposed definition of Federal licensee 
because the proposed definition would preclude TVA's use of the 
statement of intent. In its view, there are ``ample reasons'' to 
support the continued use of the statement of intent by TVA. In 
particular, TVA argued that with respect to decommissioning funding 
assurance, ``the key fact is that Federal law requires TVA to 
adequately fund the conduct of TVA's power activities, and this 
includes operating, maintaining, and decommissioning its nuclear 
facilities.'' TVA pointed out that even before decommissioning funding 
assurance requirements from NRC, TVA was taking action to ensure that 
funds would be available to decommission its nuclear units. TVA argues, 
in effect, that a financial assurance requirement other than the 
statement of intent amounts to ``imposing separate regulatory 
requirements to oversee the manner in which TVA is meeting its 
statutory requirements. * * * ''
    These arguments amount, in sum, to an assertion that because TVA is 
subject to an existing statutory requirement to fund decommissioning, 
the Commission should not impose any different, or additional, 
requirements. TVA maintains that the NRC should have reasonable 
assurance that TVA will have adequate funding to ensure the conduct of 
decommissioning activities ``because Federal law requires TVA to 
provide such funds.'' (emphasis in original)
    It also could be correctly said, however, that Federal law requires 
other reactor licensees to provide reasonable assurance of 
decommissioning funding. The purpose of financial assurance is to 
present a second line of defense, if the financial operations of the 
licensee are insufficient, by themselves, to ensure that sufficient 
funds are available to carry out decommissioning. TVA

[[Page 50475]]

apparently concedes that its obligations are not supported by the full 
faith and credit of the United States Government; therefore, if TVA 
cannot fund the decommissioning, the Federal Government is not 
obligated to do so. Although the TVA board has the authority to set 
electric power rates to meet power system obligations, including 
decommissioning, it may not, contrary to its assertions, have the 
``unfettered ability'' to do this, because its markets may not support 
such rates. TVA noted that its current business plan recommends an 
offer to its distributor customers to change their power contracts 
after 5 years from a rolling 10-year term to a rolling 5-year term.
    TVA appears to misunderstand the purpose of the statement of 
intent, which is to obtain a commitment by another, and superior, 
governmental entity that the obligations of the subordinate 
governmental entity will be paid by the superior entity if the 
subordinate entity cannot pay them. Absent such a commitment, which 
would be represented by support for the obligations by the full faith 
and credit of the United States, there is no ``statement of intent'' 
upon which TVA can ``continue to be able to rely.''
    Following publication of this rule, the NRC will review TVA's 
current decommissioning financial assurance arrangements and determine 
whether any actions are required in light of the added definition of 
``Federal licensee.'' The publication of this rule, by itself, does not 
constitute an action of the NRC with respect to TVA's current 
decommissioning financial assurance.

9. Reporting on the Status of Decommissioning Funds

A. Use of Financial Accounting Standards Board (FASB) Standard
    The commenters generally did not oppose reporting to NRC on the 
status of decommissioning funding assurance in accordance with the 
requirements of a final FASB promulgation, on the grounds (as expressed 
by NEI) that a standard reporting mechanism should be used that does 
not add unnecessary burden. However, several commenters did oppose a 
requirement that they use the preliminary FASB exposure draft, or any 
other FASB-based position that is not final. They argued that changes 
from the proposed to the final FASB standard, which cannot be predicted 
because the standard is still under development, could make it 
inappropriate for meeting NRC's endorsement. Unless the FASB standard 
is adopted soon, these commenters argued, other reporting options 
should be adopted. Some commenters suggested that regulatory language 
need not be changed, but that the contents of DG-1060 would need to be 
amended to reduce the reliance on the FASB draft.
    Some commenters went further, and expressed criticisms of the FASB 
exposure draft, indicating that even if it became final in its current 
form they would not find it appropriate for use. In the view of these 
commenters, merely recognizing the liability and periodic expense for 
decommissioning, which is the focus of the FASB draft, is not 
sufficient to ensure adequate funding. In their view, the FASB 
standards establish accounting procedures but are not the appropriate 
computations for determining necessary cash flows for funding external 
trusts. One commenter stressed that the focus of the FASB draft, as 
well as issues concerning the appropriate discount rate, also made the 
FASB standard questionable for NRC's purposes.
    Neither the timing nor the ultimate contents of a FASB standard can 
be predicted at this time, and therefore the conclusion is warranted 
that alternative requirements should be found. According to a FASB 
report of January 14, 1998, the Board reviewed the status of the 
project in its October 2, 1997, meeting and decided it should proceed 
toward either a second Exposure Draft or a final Statement. However, at 
its November 26, 1997, meeting, the Board eliminated certain key 
provisions in the exposure draft relating to the scope of the 
Statement. According to FASB's ``Current Developments and Plans for 
1998'':

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

    Although the timing of future action on the draft is uncertain, 
reanalysis of the scope issue by the FASB staff during the first 
quarter of 1998, as well as FASB's statement that it is postponing 
other issues raised on the Exposure Draft until further progress is 
made on another Exposure Draft, suggests that action by FASB to issue a 
final Statement, or even a revised Exposure Draft, will be delayed for 
a considerable time. Notwithstanding any final FASB action, the NRC can 
proceed with its own requirement for reporting on the status of 
decommissioning funds.
B. Frequency of Reports
    Most commenters endorsed ``periodic'' reports to monitor the status 
of decommissioning assurance. Several commenters, particularly those 
from State PUCs, supported requiring a report soon (nine months) after 
the rule becomes effective, and at least every two years thereafter. 
(Other commenters from utilities suggested every three years or every 5 
years thereafter. The 5-year period was suggested to correspond to the 
recommended 5-year adjustment to site-specific cost estimates specified 
in Regulatory Guide 1.159.) A majority of the commenters also endorsed 
that utilities nearing decommissioning or in the process of 
decommissioning submit reports annually. However, commenters noted 
ambiguity in the requirement that reports should be submitted annually 
by licensees of plants that are within 5 years of their projected end 
of operations. Although agreeing with the concept of such annual 
reporting, they noted that ``the projected end of operations'' should 
be clarified so that it clearly covered premature shutdowns and not 
just plants within 5 years of the end of their operating licenses. 
Several State commissions submitted almost identical proposed language 
amending Sec. 50.75(f) of the proposed rule to require reporting by 
licensees for a plant within 5 years of the projected end of 
operations, ``or where conditions have changed such that it will close 
within 5 years (before the end of its licensed life) or has already 
closed (before the end of its licensed life) * * *.'' Requiring annual 
reporting on a calendar-year basis would, in the opinion of one 
commenter, reduce the administrative burden of annual reporting because 
that is how licensees generally gather and accumulate the required 
information. Another argued that reporting trust fund balances on an 
annual basis suggested that reports should be required by March 31 for 
the previous calendar year.
    Other commenters noted that when State regulatory bodies require 
annual reporting on the status of decommissioning funds, as many do, 
NRC's interests are already protected. One commenter could find no 
added safety justification for requiring annual reporting within 5 
years of decommissioning. A complete report could be required every 5 
years, in the opinion of this commenter, with updates annually or 
biennially.
    Another commenter recommended that NRC delay the reporting 
requirements until a Pacific Northwest National Laboratory (PNNL) study 
is final. However, the Commission's position is that such a delay would 
deny

[[Page 50476]]

the NRC and the public the benefits of the information required to be 
reported while conferring negligible benefits on licensees.
    Given NRC's information needs, and the multi-million-dollar size of 
the contributions that utilities make annually to their decommissioning 
funds, the potential pay-off per hour of staff labor that NRC invests 
in monitoring of funds is likely to be significant. Thus, the NRC is 
adopting a biennial reporting requirement. NRC also is adopting 
commenter suggestions that the reporting frequency be increased for 
plants approaching the end of commercial operation and for plants where 
conditions have changed such that they will prematurely close within 5 
years or have already prematurely closed before the end of their 
licensed life, or for plants involved in mergers/acquisitions.
C. Contents of Reports
    Most of the commenters who addressed reporting did not question the 
need for reports on the status of decommissioning funds and they did 
not address in detail the contents of such reports. Similarly, most of 
the commenters who raised questions about reliance on the FASB draft 
for decommissioning status reporting did not recommend alternative 
reporting standards. Several commenters implicitly suggested that the 
contents of reports submitted to State PUCs would be sufficiently 
similar to NRC's requirements, by recommending that copies of State 
reports should be acceptable to NRC.
    One commenter argued that NRC's proposed ``per unit'' reporting was 
unclear about whether individual licensees of a jointly owned plant 
would each be required to submit their own status reports, or whether 
the plant operator could submit reports on behalf of all co-licensees. 
The commenter suggested that having the operator submit the data for 
all owners could be the most efficient approach, assuming the aggregate 
of available funds is the most important question. In contrast, another 
commenter believed that it would be ``prudent'' for NRC to require 
annual filings from all co-owners. Requiring filings by all co-owners 
would provide NRC with more detailed information, but would also place 
on it the burden of combining and assessing the data. The NRC believes 
that plant owners and operators should decide who will submit the 
required information. However, even if all information is submitted by 
the operator, the information will need to be broken down by owner in 
order to evaluate each owner's contributions to decommissioning.
    One commenter recommended a clarification to ensure that the amount 
accumulated to the date of the report means the ``as of'' date, and not 
the date of the report. The same commenter wanted to limit the report 
to the single item of accumulated trust fund balances, unless NRC had 
concerns, based on its knowledge of the plant, about whether the amount 
accumulated for decommissioning is sufficient. In that case, more 
detailed information could be required.
    The comments did not address several issues raised by commenters on 
the NRC's Advance Notice of Proposed Rulemaking (ANPR) of April 8, 1996 
(61 FR 15427) concerning the information needed by NRC to monitor the 
status of decommissioning funds. In particular, the comments on the 
proposed rule did not address the 50-plus reporting items suggested by 
commenters in response to the ANPR.
    How the industry will understand the core concept of the reporting 
requirement, the ``status of the decommissioning fund,'' is not 
clarified by the comments on the proposed rule. At least one commenter 
suggested that ``status'' means simply the ``amount'' of the 
decommissioning trusts. Other commenters may be suggesting, by their 
emphasis on the responsibility of an operator to coordinate information 
from several co-owners, and on the possibility that NRC might need to 
obtain follow-up information, that ``status'' can include a 
quantitative or qualitative assessment of the ``adequacy'' of the fund 
relative to required or estimated decommissioning costs. The extent of 
that assessment is not clarified by the comments received, which do not 
address whether ``status'' implies a general discussion provided by the 
licensee or a specific report prepared by the trustee. The NRC has 
addressed some of the commenters' concerns discussed above by modifying 
the final rule. Because of their level of detail, other potential 
concerns are better addressed by a regulatory guide. The NRC will 
consider issuing such guidance after evaluating the first set of 
reports received.

10. Rate of Return

    NRC's proposed language in 10 CFR 50.75(e)(1)(i) and (ii) allows 
licensees to take credit for earnings on their prepaid decommissioning 
trust funds or external sinking funds using a 2 percent annual real 
rate of return from the time of the funds' collection through the 
decommissioning period. If the licensee's rate-setting authority 
authorizes the use of another rate, that rate would be used in 
projected earnings. By specifying that earnings can be credited 
``through the decommissioning period,'' NRC is allowing licensees to 
assume earnings credits for both the safe storage period and the period 
when funds flow out of the decommissioning financial assurance 
mechanisms.
    Many commenters generally supported NRC's proposed changes in 10 
CFR 50.75. Some described the rate as being reasonable, conservative, 
and consistent with FERC's policy of recognizing earnings and 
inflation. One commenter specifically endorsed the provision that 
allows licensees to use assumed rates of return that are approved by 
State regulatory bodies. A few commenters supported the changes but 
stated that licensees also should be given the flexibility to use a 
rate that is less than the proposed rate.
    Other commenters did not support NRC's selection of the 2 percent 
rate. One commenter claimed that the proposed 2 percent rate might 
result in underfunding if it does not account for the effect of income 
taxes. More typically, commenters argued that the rate is too low and 
should be increased. Suggested rates were 3 percent and 7 percent. Two 
commenters noted that 3 percent and 7 percent discount rates are used 
in NRC's regulatory analysis guidance (in NUREG/BR-0058 and SECY 93-
167). Other commenters stated that NRC should allow licensees to use 
any ``realistic'' rate of return or any rate they can justify, possibly 
in conjunction with periodic reevaluation of the funds collected. A few 
commenters argued that NRC should not specify a 2 percent rate of 
return during the period following operations (i.e., the safe storage 
and outflow periods) and that different rates should be allowed if 
specifically approved by a rate-setting authority.
    As stated in the preamble to the proposed rule, the 2 percent real 
rate of return suggested by NRC is based on historical data on returns 
from U.S. Treasury issues, and represents ``as close to a `risk-free' 
return as possible.'' Although this rate may seem relatively low given 
that higher interest rates are frequently paid on common stocks and 
corporate bonds, the lower rates paid on Government securities pose 
considerably less risk and are likely to be achieved on a more 
consistent basis.
    Given the need for ``reasonable'' assurance of decommissioning 
funding, there is little justification for selecting a rate greater 
than 2 percent. As shown in the table below, the historical average 
real return on long-term U.S.

[[Page 50477]]

Government bonds has been very close to 2 percent, and the historical 
average real return on ``risk-free'' U.S. Treasury Bills has been less 
than 1 percent. Based on this information, NRC would have difficulty 
justifying a higher rate.

              Real Rates of Return for Sample Time Periods              
------------------------------------------------------------------------
                                                             Long-term  
                                           U.S. treasury    government  
                  Rate                         bills           bonds    
                                             (percent)       (percent)  
------------------------------------------------------------------------
Current (1997)..........................            3.49           13.91
Contemporary Average (1975-1994)........            1.96            7.65
Long-Term Average (1926-1997)...........            0.6             2.1 
------------------------------------------------------------------------
Source: Ibbotson Associates, Chicago. Stocks, Bonds, Bills and          
  Inflation: 1998 Yearbook, Table 4-1 and Table 6-8. Averages are       
  calculated as geometric means.                                        

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

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

11. Other

A. Cost Recovery through Rates
    Several commenters opposed the inclusion of any mechanism that 
provides for a stranded cost bailout of the nuclear industry by 
ratepayers, arguing, among other things, that such a bailout would be 
unfair, destroy real competition, inhibit employment gains, slow the 
economic growth of more viable, cost effective, and less polluting 
power generating technologies, and harm the environment by allowing the 
continued operation of nuclear power stations that might otherwise shut 
down. These comments may reflect a misunderstanding of the roles played 
by NRC relative to State PUCs and FERC. Specifically, PUCs and FERC can 
determine whether decommissioning costs are stranded or whether they 
must be paid by ratepayers. NRC, unlike the PUCs, does not have the 
authority to prevent or to allow licensees to pass decommissioning 
costs on to customers. Thus, the issue of a ``bailout'' is not relevant 
to NRC. In the event that NRC allows financial assurance mechanisms 
whereby licensees recover decommissioning costs from ratepayers (e.g., 
external sinking funds funded by wire charges), the mechanism for rate 
recovery (e.g., the wire charges) must be authorized by a PUC or by 
FERC. Furthermore, the asserted consequences of a ``stranded cost 
bailout'' are unsupported.
B. Rate Recovery of Stranded Costs Using PNNL's Formula
    One commenter suggested that utilities be allowed to recover in 
their rates only a portion of their decommissioning costs. 
Specifically, the commenter suggested allowing decommissioning costs to 
be recovered up to a maximum amount determined using PNNL's 1993 
generic decommissioning cost formula. Estimated costs in excess of the 
generic PNNL estimate could not be recovered in rates and would have to 
be funded by shareholders. Also, in the event of premature shutdown, 
the commenter would make shareholders (rather than ratepayers) 
responsible for all decommissioning costs that are not yet funded, 
including any unfunded portion of the generic PNNL estimate.
    The comment described above addresses how decommissioning costs, 
including stranded decommissioning costs, might equitably be divided 
between ratepayers and shareholders. However, the comment is not 
directly relevant to decommissioning financial assurance. From NRC's 
standpoint, it does not matter whether the source for a licensee's 
financial assurance is the licensee's ratepayers or its shareholders, 
but only that the licensee has provided adequate financial assurance 
for decommissioning. The question of how much of the decommissioning 
cost should be borne by ratepayers as opposed to shareholders is one 
that has traditionally been answered by State PUCs. NRC, unlike the 
PUCs, does not have the authority to direct licensees to recover costs 
from ratepayers. Although the NRC did sponsor the development of PNNL's 
1993 generic decommissioning cost formula, this formula, like its 
predecessor in 10 CFR 50.75(c), was designed to help answer a different 
question, namely, what constitutes a reasonable minimum level of 
decommissioning assurance for a given reactor. Within this more limited 
context (and outside the scope of this rulemaking), NRC is currently 
evaluating the 1993 formula relative to 10 CFR 50.75(c).

Finding of No Significant Environmental Impact: Availability

    The NRC is amending its regulations on financial assurance 
requirements for the decommissioning of nuclear power plants. The 
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 amendments allow a broader 
range of assurance mechanisms than under existing regulations for 
reactor licensees that lose the ability to recover decommissioning 
costs through regulated rates, add definitions of ``Federal licensee'' 
to address the issue of which licensees may use statements of intent 
and other relevant terms, and require power reactor licensees to report 
periodically on the status of their decommissioning funds and on the 
changes in their external trust agreements. Also, the amendments allow 
licensees to take credit for the actual and projected earnings on 
decommissioning trust funds.
    These changes would have the following effects on nuclear power 
reactor licensees: (1) Potentially requiring licensees who have been 
``deregulated'' to secure decommissioning financial assurance 
instruments that provide full current assurance for projected 
decommissioning costs, (2) limiting the types of licensees that can 
qualify for the use of Statements of Intent to satisfy decommissioning 
financial 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

[[Page 50478]]

if the licensee's actions are inadequate, and (4) permitting licensees 
to assume a real rate of return up to 2 percent per annum, or such 
other rate as is permitted by a PUC or the FERC, on their accumulated 
funds. These actions are of the type focused upon financial assurances 
and mechanisms to ensure funding for decommissioning and are not 
actions that would have any effect upon the human environment. Neither 
this action nor the alternatives considered in the Regulatory Analysis 
supporting this final rule would lead to any increase in 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).4
---------------------------------------------------------------------------

    \4\ 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, PO 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 will 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 is not a major Federal action 
significantly affecting the quality of the human environment and, 
therefore, an environmental impact statement is not required. No other 
agencies or persons were contacted in reaching this determination, and 
the NRC staff is not aware of any other documents related to 
consideration of whether there would be any environmental impacts from 
the action. The foregoing constitutes the environmental assessment and 
finding of no significant impact for this final rule.

Paperwork Reduction Act Statement

    This final rule amends information collection requirements that are 
subject to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et 
seq.). These requirements were approved by the Office of Management and 
Budget, approval number 3150-0011.
    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. Send comments on any aspect of this information 
collection, including suggestions for reducing the burden, to the 
Information and Records Management Branch (T-6 F33), U.S. Nuclear 
Regulatory Commission, Washington, DC 20555-0001, or by Internet 
electronic mail at [email protected]; and to the Desk Officer, Office of 
Information and Regulatory Affairs, NEOB-(3150-0011), Office of 
Management and Budget, Washington, DC 20503.

Public Protection Notification

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

Regulatory Analysis

    The Commission has prepared a Regulatory Analysis of this 
regulation. The analysis examines the costs and benefits of the 
alternatives considered by the Commission. Interested persons may 
examine a copy of the Regulatory Analysis at the NRC Public Document 
Room, 2120 L Street NW (Lower Level), Washington, DC. Single copies of 
the analysis may be obtained from Brian J. Richter, Office of Nuclear 
Reactor Regulation (O-10 H5), U.S. Nuclear Regulatory Commission, 
Washington, DC 20555-0001, telephone (301) 415-1978, e-mail 
[email protected].

Regulatory Flexibility Certification

    As required by the Regulatory Flexibility Act of 1980, 5 U.S.C. 
605(b), the Commission certifies that this rule will not have a 
significant economic impact on a substantial number of small entities. 
This rule affects only the licensing and operation of nuclear power 
plants. The companies that own these plants do not fall within the 
scope of the definition of ``small entities'' set forth in the 
Regulatory Flexibility Act or the Small Business Size Standards set out 
in regulations issued by the Small Business Administration at 13 CFR 
part 121.

Backfit Analysis

    The Regulatory Analysis for the final rule also constitutes the 
documentation for the evaluation of backfit requirements, and no 
separate backfit analysis has been prepared. As defined in 10 CFR 
50.109, the backfit rule applies to

* * * modification of or addition to systems, structures, 
components, or design of a facility; or the design approval or 
manufacturing license for a facility; or the procedures or 
organization required to design, construct or operate a facility; 
any of which may result from a new or amended provision in the 
Commission rules or the imposition of a regulatory staff position 
interpreting the Commission rules that is either new or different 
from a previously applicable staff position * * * .

    The amendments to NRC's requirements for the financial assurance of 
decommissioning of nuclear power plants allow a broader range of 
assurance mechanisms for reactor licensees who lose their ability to 
recover decommissioning costs through regulated rates and fees or other 
mandatory charges established by a regulatory body than previously, and 
define ``Federal licensee.'' The amendments also add several associated 
definitions; add new reporting requirements pertaining to the use of 
prepayment and external sinking funds; impose new reporting 
requirements for power reactor licensees on the status of 
decommissioning funding that specify the timing and contents of such 
reports; and permit power reactor licensees to take credit for up to a 
2 percent annual real rate of return (or another rate if permitted by 
their rate regulators) on funds set aside for decommissioning from the 
time the funds are set aside through the end of the decommissioning 
period.
    Although some of the changes to the regulations are reporting 
requirements, which are not covered by the backfit rule, other elements 
in the changes are considered backfits because they would modify, 
supplement, or clarify the regulations with respect to: (1) Acceptable 
decommissioning funding options under various scenarios; and (2) which 
licensees may use statements of intent. The Commission has concluded, 
on the basis of the documented evaluation required by 10 CFR 
50.109(a)(4) and set forth in the Regulatory Analysis, that the new or 
modified requirements are necessary to ensure that nuclear power 
reactor licensees provide for adequate protection of the health and 
safety of the public in face of a changing competitive and regulatory 
environment not envisioned when the reactor decommissioning funding 
regulations were promulgated and that the changes to the regulations 
are in accord with the common defense and security. Therefore, the NRC 
has determined to treat this action as an adequate protection backfit 
under 10 CFR 50.109(a)(4)(ii). Consequently, a backfit analysis is not 
required and the cost-benefit standards of 10 CFR 50.109(a)(3)

[[Page 50479]]

do not apply. Further, these changes to the regulations are required to 
satisfy 10 CFR 50.109(a)(5).

Small Business Regulatory Enforcement Fairness Act

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

List of Subjects

10 CFR Part 30

    Byproduct material, Criminal penalties, Government contracts, 
Intergovernmental relations, Isotopes, Nuclear Materials, Radiation 
protection, Reporting and recordkeeping requirements.

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. 552 and 553, the NRC is adopting 
the following amendments to 10 CFR parts 30 and 50.

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

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

    Authority: Secs. 81, 82, 161, 182, 183, 186, 68 Stat. 935, 948, 
953, 954, 955, as amended, sec. 234, 83 Stat. 444, as amended (42 
U.S.C. 2111, 2112, 2201, 2232, 2233, 2236, 2282); secs. 201, as 
amended, 202, 206, 88 Stat. 1242, as amended, 1244, 1246 (42 U.S.C. 
5841, 5842, 5846).
    Section 30.7 also issued under Pub. L. 95-601, sec. 10, 92 Stat. 
2951 as amended by Pub. L. 102-486, sec. 2902, 106 Stat. 3123, (42 
U.S.C. 5851). Section 30.34(b) also issued under sec. 184, 68 Stat. 
954, as amended (42 U.S.C. 2234). Section 30.61 also issued under 
sec. 187, 68 Stat. 955 (42 U.S.C. 2237).

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

Appendix A--Criteria Relating to Use of Financial Tests and Parent 
Company Guarantees for Providing Reasonable Assurance of Funds for 
Decommissioning

* * * * *

II. Financial Test

    A. * * *
    1. * * *
    (ii) Net working capital and tangible net worth each at least 
six times the current decommissioning cost estimates for the total 
of all facilities or parts thereof (or prescribed amount if a 
certification is used), or, for a power reactor licensee, at least 
six times the amount of decommissioning funds being assured by a 
parent company guarantee for the total of all reactor units or parts 
thereof (Tangible net worth shall be calculated to exclude the net 
book value of the nuclear unit(s)); and
* * * * *
    (iv) Assets located in the United States amounting to at least 
90 percent of the total assets or at least six times the current 
decommissioning cost estimates for the total of all facilities or 
parts thereof (or prescribed amount if a certification is used), or, 
for a power reactor licensee, at least six times the amount of 
decommissioning funds being assured by a parent company guarantee 
for the total of all reactor units or parts thereof.
    2. * * *
    (ii) Tangible net worth each at least six times the current 
decommissioning cost estimates for the total of all facilities or 
parts thereof (or prescribed amount if a certification is used), or, 
for a power reactor licensee, at least six times the amount of 
decommissioning funds being assured by a parent company guarantee 
for the total of all reactor units or parts thereof (Tangible net 
worth shall be calculated to exclude the net book value of the 
nuclear unit(s)); and
* * * * *
    (iv) Assets located in the United States amounting to at least 
90 percent of the total assets or at least six times the current 
decommissioning cost estimates for the total of all facilities or 
parts thereof (or prescribed amount if a certification is used), or, 
for a power reactor licensee, at least six times the amount of 
decommissioning funds being assured by a parent company guarantee 
for the total of all reactor units or parts thereof.
* * * * *

    3. In 10 CFR part 30 appendix C, paragraphs II.A.(1) and (2) are 
revised to read as follows:

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

* * * * *

II. Financial Test

    A. * * *
    (1) Tangible net worth at least 10 times the total current 
decommissioning cost estimate for the total of all facilities or 
parts thereof (or the current amount required if certification is 
used), or, for a power reactor licensee, at least 10 times the 
amount of decommissioning funds being assured by a self guarantee, 
for all decommissioning activities for which the company is 
responsible as self-guaranteeing licensee and as parent-guarantor 
for the total of all reactor units or parts thereof (Tangible net 
worth shall be calculated to exclude the net book value of the 
nuclear unit(s)).
    (2) Assets located in the United States amounting to at least 90 
percent of total assets or at least 10 times the total current 
decommissioning cost estimate for the total of all facilities or 
parts thereof (or the current amount required if certification is 
used), or, for a power reactor licensee, at least 10 times the 
amount of decommissioning funds being assured by a self guarantee, 
for all decommissioning activities for which the company is 
responsible as self-guaranteeing licensee and as parent-guarantor 
for the total of all reactor units or parts thereof.
* * * * *

PART 50--DOMESTIC LICENSING OF PRODUCTION AND UTILIZATION 
FACILITIES

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

    Authority: Secs. 102, 103, 104, 105, 161, 182, 183, 186, 189, 68 
Stat. 936, 937, 938, 948, 953, 954, 955, 956, as amended, sec. 234, 
83 Stat. 1244, as amended (42 U.S.C. 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, 50.54(dd), 
and 50.103 also issued under sec. 108, 68 Stat. 939, as amended (42 
U.S.C. 2138). Sections 50.23, 50.35, 50.55, and 50.56 also issued 
under sec. 185, 68 Stat. 955 (42 U.S.C. 2235). Sections 50.33a, 
50.55a and Appendix Q also issued under sec. 102, Pub. L. 91-190, 83 
Stat. 853 (42 U.S.C. 4332). Sections 50.34 and 50.54 also issued 
under sec. 204, 88 Stat. 1245 (42 U.S.C. 5844). Section 50.37 also 
issued under E.O. 12829, 3 CFR 1993 Comp., p. 570; E.O. 12958, as 
amended, 3 CFR, 1995 Comp., p. 333; E.O. 12968, 3 CFR 1995 Comp., p. 
391. Sections 50.58, 50.91, and 50.92 also issued under Pub. L. 97-
415, 96 Stat. 2073 (42 U.S.C. 2239). Section 50.78 also issued under 
sec. 122, 68 Stat. 939 (42 U.S.C. 2152). Sections 50.80--50.81 also 
issued under sec. 184, 68 Stat. 954, as amended (42 U.S.C. 2234). 
Appendix F also issued under sec. 187, 68 Stat. 955 (42 U.S.C. 
2237).

    5. In Sec. 50.2, the definitions of Cost of service regulation, 
Federal licensee, Incentive regulation, Non-bypassable charges, and 
Price-cap regulation are added in alphabetical order to read as 
follows:


Sec. 50.2  Definitions.

* * * * *

[[Page 50480]]

    Cost of service regulation means the traditional system of rate 
regulation, or similar regulation, including ``price cap'' or 
``incentive'' regulation, in which a rate regulatory authority 
generally allows an electric utility to charge its customers the 
reasonable and prudent costs of providing electricity services, 
including capital, operations, maintenance, fuel, decommissioning, and 
other costs required to provide such services.
* * * * *
    Federal licensee means any NRC licensee, the obligations of which 
are guaranteed by and supported by the full faith and credit of the 
United States Government.
* * * * *
    Incentive regulation means the system of rate regulation in which a 
rate regulatory authority establishes rates that an electric generator 
may charge its customers that are based on specified performance 
factors, in addition to cost-of-service factors.
* * * * *
    Non-bypassable charges mean those charges imposed over an 
established time period by a Government authority that affected persons 
or entities are required to pay to cover costs associated with the 
decommissioning of a nuclear power plant. Such charges include, but are 
not limited to, wire charges, stranded cost charges, transition 
charges, exit fees, other similar charges, or the securitized proceeds 
of a revenue stream.
* * * * *
    Price-cap regulation means the system of rate regulation in which a 
rate regulatory authority establishes rates that an electric generator 
may charge its customers that are based on a specified maximum price of 
electricity.
* * * * *
    6. 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 NRC will:
    (1) Give notice in writing of each application to the regulatory 
agency or State as may have jurisdiction over the rates and services 
incident to the proposed activity;
    (2) Publish notice of the application in trade or 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 the utilization or production facility; and
    (3) Publish notice of the application once each week for 4 
consecutive weeks in the Federal Register. No license will be issued by 
the NRC prior to the giving of these notices and until 4 weeks after 
the last notice is published in the Federal Register.
* * * * *
    7. 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 NRC that it possesses an equivalent amount of 
protection covering the licensee's obligation, in the event of an 
accident at the licensee's reactor, to stabilize and decontaminate the 
reactor and the reactor station site at which the reactor experiencing 
the accident is located, provided that:
* * * * *
    8. In 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.
* * * * *
    9. 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).
* * * * *
    10. In Sec. 50.75, paragraphs (a), (b), (d), and (e) are revised, 
and paragraphs (f)(1), (2), and (3) are redesignated as paragraph 
(f)(2), (3), and (4) and a new paragraph (f)(1) is added to read as 
follows:


Sec. 50.75  Reporting and recordkeeping for decommissioning planning.

    (a) This section establishes requirements for indicating to NRC how 
a licensee will provide reasonable assurance that funds will be 
available for the decommissioning process. For power reactor licensees, 
reasonable assurance consists of a series of steps as provided in 
paragraphs (b), (c), (e), and (f) of this section. Funding for the 
decommissioning of power reactors may also be subject to the regulation 
of Federal or State Government agencies (e.g., Federal Energy 
Regulatory Commission (FERC) and State Public Utility Commissions) that 
have jurisdiction over rate regulation. The requirements of this 
section, in particular paragraph (c) of this section, are in addition 
to, and not substitution for, other requirements, and are not intended 
to be used, by 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 Sec. 50.33(k) of this part.
    (1) The report must contain a certification that financial 
assurance for decommissioning will be (for a license applicant) or has 
been (for a license holder) provided in an amount which may be more but 
not less than the amount stated in the table in paragraph (c)(1) of 
this section.
    (2) The amount to be provided must be adjusted annually using a 
rate at least equal to that stated in paragraph (c)(2) of this section.
    (3) The amount must use one or more of the methods described in 
paragraph (e) of this section as acceptable to the NRC.
    (4) The amount stated in the applicant's or licensee's 
certification may be based on a cost estimate for decommissioning the 
facility. As part of the certification, a copy of the financial 
instrument obtained to satisfy the requirements of paragraph (e) of 
this section must be submitted to NRC.
* * * * *
    (d)(1) Each non-power reactor applicant for or holder of an 
operating license for a production or utilization

[[Page 50481]]

facility shall submit a decommissioning report as required by 
Sec. 50.33(k) of this part.
    (2) The report must:
    (i) Contain a cost estimate for decommissioning the facility;
    (ii) Indicate which method or methods described in paragraph (e) of 
this section as acceptable to the NRC will be used to provide funds for 
decommissioning; and
    (iii) Provide a description of the means of adjusting the cost 
estimate and associated funding level periodically over the life of the 
facility.
    (e)(1) Financial assurance is to be provided by the following 
methods.
    (i) Prepayment. Prepayment is the deposit made preceding the start 
of operation into an account segregated from licensee assets and 
outside the licensee's administrative control of cash or liquid assets 
such that the amount of funds would be sufficient to pay 
decommissioning costs. Prepayment may be in the form of a trust, escrow 
account, Government fund, certificate of deposit, deposit of Government 
securities or other payment acceptable to the NRC. A licensee may take 
credit for projected earnings on the prepaid decommissioning trust 
funds using up to a 2 percent annual real rate of return from the time 
of future funds' collection through the projected decommissioning 
period. This includes the periods of safe storage, final dismantlement, 
and license termination, if the licensee's rate-setting authority does 
not authorize the use of another rate. However, actual earnings on 
existing funds may be used to calculate future fund needs.
    (ii) External sinking fund. An external sinking fund is a fund 
established and maintained by setting funds aside periodically in an 
account segregated from licensee assets and outside the licensee's 
administrative control in which the total amount of funds would be 
sufficient to pay decommissioning costs at the time termination of 
operation is expected. An external sinking fund may be in the form of a 
trust, escrow account, Government fund, certificate of deposit, deposit 
of Government securities, or other payment acceptable to the NRC. A 
licensee may take credit for projected earnings on the external sinking 
funds using up to a 2 percent annual real rate of return from the time 
of future funds' collection through the decommissioning period. This 
includes the periods of safe storage, final dismantlement, and license 
termination, if the licensee's rate-setting authority does not 
authorize the use of another rate. However, actual earnings on existing 
funds may be used to calculate future fund needs. A licensee, whose 
rates for decommissioning costs cover only a portion of such costs, may 
make use of these methods only for that portion of such costs that are 
collected in one of the manners described in this paragraph, 
(e)(1)(ii). This method may be used as the exclusive mechanism relied 
upon for providing financial assurance for decommissioning in the 
following circumstances:
    (A) By a licensee that recovers, either directly or indirectly, the 
estimated total cost of decommissioning through rates established by 
``cost of service'' or similar ratemaking regulation. Public utility 
districts, municipalities, rural electric cooperatives, and State and 
Federal agencies, including associations of any of the foregoing, that 
establish their own rates and are able to recover their cost of service 
allocable to decommissioning, are assumed to meet this condition.
    (B) By a licensee whose source of revenues for its external sinking 
fund is a ``non-bypassable charge,'' the total amount of which will 
provide funds estimated to be needed for decommissioning pursuant to 
Secs. 50.75(c), 50.75(f), or 50.82 of this part.
    (iii) A surety method, insurance, or other guarantee method:
    (A) These methods guarantee that decommissioning costs will be 
paid. A surety method may be in the form of a surety bond, letter of 
credit, or line of credit. Any surety method or insurance used to 
provide financial assurance for decommissioning must contain the 
following conditions:
    (1) The surety method or insurance must be open-ended, or, if 
written for a specified term, such as 5 years, must be renewed 
automatically, unless 90 days or more prior to the renewal day the 
issuer notifies the NRC, the beneficiary, and the licensee of its 
intention not to renew. The surety or insurance must also provide that 
the full face amount be paid to the beneficiary automatically prior to 
the expiration without proof of forfeiture if the licensee fails to 
provide a replacement acceptable to the NRC within 30 days after 
receipt of notification of cancellation.
    (2) The surety or insurance must be payable to a trust established 
for decommissioning costs. The trustee and trust must be acceptable to 
the NRC. An acceptable trustee includes an appropriate State or Federal 
government agency or an entity that has the authority to act as a 
trustee and whose trust operations are regulated and examined by a 
Federal or State agency.
    (B) A parent company guarantee of funds for decommissioning costs 
based on a financial test may be used if the guarantee and test are as 
contained in appendix A to 10 CFR part 30.
    (C) For commercial companies that issue bonds, a guarantee of funds 
by the applicant or licensee for decommissioning costs based on a 
financial test may be used if the guarantee and test are as contained 
in appendix C to 10 CFR part 30. For commercial companies that do not 
issue bonds, a guarantee of funds by the applicant or licensee for 
decommissioning costs may be used if the guarantee and test are as 
contained in appendix D to 10 CFR part 30. For non-profit entities, 
such as colleges, universities, and non-profit hospitals, a guarantee 
of funds by the applicant or licensee may be used if the guarantee and 
test are as contained in appendix E to 10 CFR part 30. A guarantee by 
the applicant or licensee may not be used in any situation in which the 
applicant or licensee has a parent company holding majority control of 
voting stock of the company.
    (iv) For a power reactor licensee that is a Federal licensee, or 
for a non-power reactor licensee that is a Federal, State, or local 
government licensee, a statement of intent containing a cost estimate 
for decommissioning, and indicating that funds for decommissioning will 
be obtained when necessary.
    (v) Contractual obligation(s) on the part of a licensee's 
customer(s), the total amount of which over the duration of the 
contract(s) will provide the licensee's total share of uncollected 
funds estimated to be needed for decommissioning pursuant to 
Secs. 50.75(c), 50.75(f), or Sec. 50.82. To be acceptable to the NRC as 
a method of decommissioning funding assurance, the terms of the 
contract(s) shall include provisions that the electricity buyer(s) will 
pay for the decommissioning obligations specified in the contract(s), 
notwithstanding the operational status either of the licensed power 
reactor to which the contract(s) pertains or force majeure provisions. 
All proceeds from the contract(s) for decommissioning funding will be 
deposited to the external sinking fund. The NRC reserves the right to 
evaluate the terms of any contract(s) and the financial qualifications 
of the contracting entity(ies) offered as assurance for decommissioning 
funding.
    (vi) Any other mechanism, or combination of mechanisms, that 
provides, as determined by the NRC upon its evaluation of the specific 
circumstances of each licensee submittal, assurance of decommissioning 
funding equivalent to

[[Page 50482]]

that provided by the mechanisms specified in paragraphs (e)(1)(I)-(iv) 
of this section. Licensees who do not have sources of funding described 
in paragraph (e)(1)(ii) of this section may use an external sinking 
fund in combination with a guarantee mechanism, as specified in 
paragraph (e)(1)(iii) of this section, provided that the total amount 
of funds estimated to be necessary for decommissioning is assured.
    (2) The NRC reserves the right to take the following steps in order 
to ensure a licensee's adequate accumulation of decommissioning funds: 
review, as needed, the rate of accumulation of decommissioning funds; 
and, either independently or in cooperation with the FERC and the 
licensee's State PUC, take additional actions as appropriate on a case-
by-case basis, including modification of a licensee's schedule for the 
accumulation of decommissioning funds.
* * * * *
    (f)(1) Each power reactor licensee shall report, on a calendar-year 
basis, to the NRC by March 31, 1999, and at least once every 2 years 
thereafter on the status of its decommissioning funding for each 
reactor or part of a reactor that it owns. The information in this 
report must include, at a minimum: the amount of decommissioning funds 
estimated to be required pursuant to 10 CFR 50.75(b) and (c); the 
amount accumulated to the end of the calendar year preceding the date 
of the report; a schedule of the annual amounts remaining to be 
collected; the assumptions used regarding rates of escalation in 
decommissioning costs, rates of earnings on decommissioning funds, and 
rates of other factors used in funding projections; any contracts upon 
which the licensee is relying pursuant to paragraph (e)(1)(ii)(C) of 
this section; any modifications occurring to a licensee's current 
method of providing financial assurance since the last submitted 
report; and any material changes to trust agreements. Any licensee for 
a plant that is within 5 years of the projected end of its operation, 
or where conditions have changed such that it will close within 5 years 
(before the end of its licensed life), or has already closed (before 
the end of its licensed life), or for plants involved in mergers or 
acquisitions shall submit this report annually.
* * * * *
    Dated at Rockville, MD this 16th day of September, 1998.

    For the Nuclear Regulatory Commission.
John C. Hoyle,
Secretary of the Commission.
[FR Doc. 98-25278 Filed 9-21-98; 8:45 am]
BILLING CODE 7590-01-P