Nuclear Regulation: NRC's Assurances of Decommissioning Funding  
During Utility Restructuring Could Be Improved (03-DEC-01,	 
GAO-02-48).							 
								 
In most of the requests approved by the Nuclear Regulatory	 
Commission (NRC) to transfer licenses to own or operate nuclear  
power plants, the financial arrangements have either maintained  
or enhanced the assurance that adequate funds will be available  
to decommission those plants. However, when new owners proposed  
to continue relying on periodic deposits to external sinking	 
funds, NRC's reviews were not always rigorous enough to ensure	 
that decommissioning funds would be adequate. Varying cleanup	 
standards and proposed new decommissioning methods introduce	 
additional uncertainty about the future costs of decommissioning 
nuclear power plants. Changes to the Financial Accounting	 
Standards Board's financial reporting standard will require, for 
the first time, owners of facilities that require significant	 
end-of-life cleanup expenditures--such as nuclear power 	 
plants--to consistently report estimated decommissioning costs as
liabilities in their financial statements. However, the new	 
accounting standard is not intended to, and will not, establish a
legal requirement that these licensees set aside adequate funding
for decommissioning costs.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-48						        
    ACCNO:   A02066						        
    TITLE:   Nuclear Regulation: NRC's Assurances of Decommissioning Funding During Utility Restructuring Could Be Improved             
     DATE:   12/03/2001 
  SUBJECT:   Radioactive waste disposal 			 
	     Funds management					 
	     Utility rates					 
	     Nuclear powerplants				 
	     Licenses						 

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GAO-02-48
     
Report to the Honorable Edward J. Markey, House of Representatives

United States General Accounting Office

GAO

December 2001 NUCLEAR REGULATION

NRC?s Assurances of Decommissioning Funding During Utility Restructuring
Could Be Improved

GAO- 02- 48

Page i GAO- 02- 48 Nuclear Regulation Letter 1

Executive Summary 2 Background 3 Results in Brief 4 Principal Findings 5
Recommendations for Executive Action 8 Agency Comments and GAO?s Evaluation
8

Chapter 1 Introduction 10 Decommissioning Regulations Outline Technical
Procedures 11 Decommissioning Regulations Outline Financial Procedures 14
Deregulation of Electric Utilities and Resultant Industry

Restructuring 16 Objectives, Scope, and Methodology 18

Chapter 2 Most Restructuring License Transfers Have Maintained or Enhanced
Assurance of Decommissioning Funding 21

Funding Assurance Is Maintained for License Transfers Related to Contracting
Out Operations 22 Prepayment and Company Guarantee Methods Have Enhanced

Funding Assurances When Licenses Are Transferred 23 Funding Assurance Was
Not Always Maintained in License

Transfers That Continued to Rely on the External Sinking Fund Method 25
NRC?s Reviews of New Owners? Financial Qualifications Have

Been Complete, With One Significant Exception 30 Conclusions 34
Recommendation for Executive Action 34 Agency Comments and Our Response 34

Chapter 3 Regulatory Policies Under Consideration May Affect Decommissioning
Costs and Nuclear Waste Policies 37

Varying Cleanup Standards Create Cost Uncertainties 37 Alternative
Decommissioning Methods May Marginally Decrease

Costs but Raise Significant Technical and Policy Issues 40 Contents

Page ii GAO- 02- 48 Nuclear Regulation

Site Contamination Can Go Undetected Until Late in Cleanup Process 50
Conclusions 51 Recommendations for Executive Action 52 Agency Comments and
Our Response 53

Chapter 4 New Accounting Standard Improves Financial Reporting but Cannot
Ensure Adequate Decommissioning Funding

54 New Accounting Standard Will Improve Consistency of Reporting 55 New
Accounting Standard Does Not Ensure Adequate Funding for

Decommissioning Costs 57 Agency Comments 57

Appendix I Comments From the Nuclear Regulatory Commission 58

Appendix II GAO Contact and Staff Acknowledgments 64

Related GAO Products 65

Tables

Table 1: Nuclear Power Plants With Non- owner Operating Arrangements 22
Table 2: Decommissioning Funds Needed, Transferred, and

Assurance Methods Used for Nuclear Power Plants Approved for Sale 24 Table
3: Comparison of Methods to Report Decommissioning

Liability 56

Figures

Figure 1: Ongoing Decommissioning Work Within the Containment Building at
the Connecticut Yankee Atomic Power Company Haddam Neck Plant 12

Page iii GAO- 02- 48 Nuclear Regulation

Figure 2: Map of Nuclear Power Plants in the United States and Status of
Deregulation by State 17 Figure 3: The Decommissioning Connecticut Yankee
Haddam Neck

Plant 40 Figure 4: Methods Currently Used to Account for Decommissioning

Costs 55

Abbreviations

ALARA as- low- as- reasonably- achievable CERCLA Comprehensive Environmental
Response, Compensation

and Liability Act DOE Department of Energy EPA Environmental Protection
Agency FASB Financial Accounting Standards Board FERC Federal Energy
Regulatory Commission GAO General Accounting Office GTCC Greater Than Class
C (waste) NRC Nuclear Regulatory Commission PECO PECO Energy Company
(formerly, Philadelphia Electric

Company) PSEG Public Service Electric and Gas Company PUC Public Utility
Commission

Page 1 GAO- 02- 48 Nuclear Regulation

December 3, 2001 The Honorable Edward J. Markey House of Representatives

Dear Mr. Markey: This report responds to your request that we review how the
Nuclear Regulatory Commission ensures, in a period of economic deregulation
and restructuring of the electricity industry, that sufficient funds will be
available to decommission nuclear power plants after the plants are
permanently shut down.

Unless you publicly announce its contents earlier, we plan no further
distribution of this report until 30 days after the date of this letter. At
that time, we will send copies to the appropriate congressional committees;
the Chairman, Nuclear Regulatory Commission; and the Director, Office of
Management and Budget. We will also make copies available to others upon
request.

Please contact me at (202) 512- 3841 if you or your staff have any questions
about this report. Key contributors to this report are listed in appendix
II.

Sincerely yours, (Ms.) Gary L. Jones Director, Natural Resources

and Environment

United States General Accounting Office Washington, DC 20548

Executive Summary Page 2 GAO- 02- 48 Nuclear Regulation

The Nuclear Regulatory Commission (NRC) has licensed 125 commercial nuclear
power plants to operate in the United States, each for a finite number of
years. For safety reasons, after a licensee retires a plant, the licensee
must eventually dismantle it. The spent (used) fuel is removed from the
nuclear reactor and usually stored at the plant site until the fuel can be
removed for disposal. The other radioactive wastes from dismantling the
plant are shipped to one or more off- site disposal facilities. Upon
completion of this process, called ?decommissioning,? the plant site can be
reused for other purposes.

The costs of decommissioning, which vary according to the size of the plant
and the level of contamination, generally fall within the range of $300
million to $400 million per plant. To ensure the availability of adequate
funds to pay for this process, NRC requires its licensees to select a method
or combination of methods for financing future decommissioning activities
from among the acceptable methods specified in its regulations.

Traditionally, plant owners amass decommissioning funds through charges
imbedded in predetermined electricity rates, which state utility commissions
and/ or the Federal Energy Regulatory Commission regulate. However, with the
deregulation of the electric utility industry in many states, a competitive
market instead of regulated rates now determines the price that some plant
owners can charge for producing electricity. Consequently, these plant
owners can no longer collect decommissioning funds through the traditional
method.

Deregulation has led many states and their electric utilities to restructure
much of their electricity industry to separate the producers of electricity
from those who transmit and distribute (sell) electricity to customers. As
part of this restructuring, the ownership and/ or operation of plants has
changed for more than half of the nuclear power plants in the United States.
Since 1998, for example, utilities that own all or part of eight nuclear
plants have contracted the operation of these plants to other companies. And
other utilities have sold or are in the process of selling all or part of 15
plants. Finally, the reorganizations and mergers of electric utilities have
resulted in the transfer of licenses for more than 30 plants to companies
formed specifically to produce electricity. The number of these transfers
highlights the importance of NRC?s regulatory role in ensuring that new
licensees are financially qualified to operate, maintain, and eventually
decommission these plants. The transfers also underscore the need for
consistent financial disclosure of decommissioning liabilities to Executive
Summary

Executive Summary Page 3 GAO- 02- 48 Nuclear Regulation

the potential investors in new companies formed, at least in part, to
produce electricity from nuclear power plants.

Concerned about the adequacy of decommissioning funds, particularly in
deregulated markets, Representative Edward Markey asked GAO to determine how
(1) transfers of licenses to operate or own nuclear power plants have
affected assurances that adequate funds will be available to operate and
decommission these plants, (2) various site cleanup standards and proposed
new decommissioning methods affect projected decommissioning costs, and (3)
changes in financial reporting standards affect the disclosure and funding
of decommissioning liabilities.

Before transferring a license to a new plant owner, NRC requires the
prospective owner to demonstrate that it has both the technical ability and
financial backing to safely own and operate the plant. NRC also requires
owners to demonstrate that they will accumulate a prescribed minimum amount
of funds to pay for the eventual decommissioning of their plants. Owners
must ensure that these funds will be available by choosing one or a
combination of the following options:

 periodic deposits (at least annually) into a trust fund outside of the
owner?s control;  prepayment of the entire estimated decommissioning
liability into a trust

fund outside of the owner?s control;  obtaining a surety bond, insurance,
letter of credit, or line of credit

payable to a trust established for decommissioning costs; or  guaranteeing
the payment of decommissioning costs, provided that the

guarantor (usually an affiliate or parent company to the owner) passes
specific financial tests.

Until recently, essentially all plant owners chose to accumulate
decommissioning funds through periodic deposits. However, in September 1998,
NRC amended its regulations to restrict the use of this option in
deregulated markets. Under the amended regulations, owners may rely on
periodic deposits only to the extent that those deposits are guaranteed
through regulated rates charged to consumers. In conjunction, NRC has issued
written procedures, called a ?standard review plan?, describing how its
staff should determine the adequacy of a prospective owner?s financial
qualifications to operate its plant( s) and its proposed method( s) for
assuring the availability of funds to eventually decommission the plant( s).
Background

Executive Summary Page 4 GAO- 02- 48 Nuclear Regulation

To estimate future decommissioning costs, plant owners may use a
mathematical formula that is provided in NRC?s regulations or a sitespecific
estimate, if the costs developed from it are higher. The formula assumes
that plant sites will be cleaned up in compliance with NRC?s standards. By
the time that a plant is decommissioned, however, other cleanup standards
could apply. For example, the Environmental Protection Agency (EPA) has more
restrictive cleanup standards that could, in some circumstances, be applied
to a nuclear power plant site, and some states are establishing cleanup
standards for decommissioning nuclear power plants and/ or other nuclear
facilities.

In most of the requests to transfer licenses to own or operate nuclear power
plants that NRC has approved, the financial arrangements have either
maintained or enhanced the assurance that adequate funds will be available
to decommission those plants. Owners relying on outside companies to operate
their plants have retained the responsibility for financing the future
decommissioning of these plants and continue to collect funds for this
purpose through their economically regulated sales of electricity. When new
owners purchased all or parts of 15 plants from utility companies, the level
of assurance was enhanced through the prepayment of the decommissioning
trust funds and guarantees from affiliate or parent companies to pay any
remaining decommissioning costs. However, when new owners proposed to
continue relying on periodic deposits to external sinking funds, NRC?s
reviews were not always rigorous enough to ensure that decommissioning funds
would be adequate. Moreover, NRC did not always adequately verify the new
owners? financial qualifications to safely own and operate the plants.
Accordingly, GAO is making a recommendation to ensure a more consistent
review process for license transfer requests.

Varying cleanup standards and proposed new decommissioning methods introduce
additional uncertainty about the costs of decommissioning nuclear power
plants in the future. Plants decommissioned in compliance with NRC?s
requirements may, under certain conditions, also have to meet, at higher
cost, more stringent EPA or state standards. New decommissioning methods
being considered by NRC, which involve leaving more radioactive waste on-
site, could reduce short- term decommissioning costs yet increase costs over
the longer term. Moreover, they would raise significant technical and policy
issues concerning the disposal of low- level radioactive waste at plant
sites instead of in regulated disposal facilities. Adding to cost
uncertainty, NRC allows plant owners to wait until 2 years before their
license is terminated- relatively late in the Results in Brief

Executive Summary Page 5 GAO- 02- 48 Nuclear Regulation

decommissioning process- to perform overall radiological assessments to
determine whether any residual radiation anywhere at the site will need
further clean- up in order to meet NRC?s site release standards.
Accordingly, GAO is recommending that NRC reconcile its proposed
decommissioning methods with existing waste disposal regulations and
policies and require licensees to assess their plant sites for contamination
earlier in the decommissioning process.

Changes to the Financial Accounting Standards Board?s financial reporting
standard will require, for the first time, owners of facilities that require
significant end- of- life cleanup expenditures- such as nuclear power
plants- to consistently report estimated decommissioning costs as
liabilities in their financial statements. When this standard takes effect
in mid- 2002, many companies that are licensed by NRC to own nuclear power
plants will have to change their current financial- reporting practices, and
the reporting of estimated decommissioning costs will become more uniform.
However, the new accounting standard is not intended to, and will not,
establish a legal requirement that these licensees set aside adequate
funding for decommissioning costs.

The level of assurance that adequate decommissioning funds will be available
when licensees retire nuclear power plants has remained the same or
increased for most of the license transfers that NRC has reviewed and
approved. When plant owners contracted out the operation of their plants,
NRC required the owners to continue collecting decommissioning funds through
their regulated electricity rates, thus maintaining the previous level of
assurance. When NRC reviewed and approved the sale of all or parts of 15
plants to new generating companies, the level of assurance was enhanced
because the selling utilities generally prepaid the projected
decommissioning funds. To the extent that a few decommissioning trust funds
were not fully prepaid, either the selling utility or the new owners?
affiliated or parent companies provided additional guarantees consistent
with NRC?s requirements.

In instances when new owners continued to rely on periodic deposits to the
transferred trust funds, however, NRC?s review process did not consistently
result in the same level of assurance that decommissioning funds would be
adequate when the owners? plants shut down. For Principal Findings

Effect of License Transfers on Decommissioning Funding

Executive Summary Page 6 GAO- 02- 48 Nuclear Regulation

example, when a new company formed through a merger applied to transfer the
licenses for the ownership of all or parts of 20 plants, including 4 retired
plants, NRC did not verify whether there were contractual arrangements to
transfer the decommissioning funds collected for the plants into the trust
funds for those plants. Also, for the four plants that had permanently shut
down, NRC did not request that the new owner (1) provide any more
information on the status or plans for these prematurely shut down plants
than it had for the 16 plants that were operating or (2) demonstrate how the
owner planned to acquire the additional decommissioning funds as it had for
another retired plant.

For the most part, NRC?s reviews of new owners? financial qualifications
have enhanced the level of assurance that they will safely own and operate
their plants in a deregulated environment and not need to shut them down
prematurely. However, NRC did not obtain the same degree of financial
assurance in the case of one merger that created a new generating company
that is now responsible for owning, operating, and decommissioning the
largest fleet of nuclear plants in the United States. This new owner did not
provide, and NRC did not request, guaranteed additional sources of revenue
above the market sale of its electricity, as other new owners had. Moreover,
NRC did not document its review of the financial information- including
revenue projections, which were inaccurate- that the new owner submitted to
justify its qualifications to safely own and operate 16 plants.

Varying radiation cleanup standards and the possibility that NRC will
approve alternative decommissioning methods are two of the most significant
factors that add uncertainty to estimates of future decommissioning costs.
Depending on future circumstances, for example, plants decommissioned
according to NRC?s radiation cleanup standards could also have to meet more
stringent EPA or state standards, potentially increasing the cost of
decommissioning. EPA has indicated that if NRC does not tighten its
standards, EPA could reconsider its policy of exempting decommissioned
nuclear plant sites from the stricter cleanup standards that EPA enforces
under the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended (also known as CERCLA or Superfund). In addition,
the states of Maine, Massachusetts, New York, and New Jersey have already
adopted radiation cleanup standards stricter than NRC?s, and more states may
do so. These stricter standards will require plant owners to incur
significant additional decommissioning costs; for example, officials from
one plant estimate that Effect of Regulatory

Policies on Decommissioning Costs

Executive Summary Page 7 GAO- 02- 48 Nuclear Regulation

Maine?s standard will add $25 million to $30 million to the decommissioning
costs for that plant.

Alternative decommissioning methods under consideration for NRC?s approval
would have an unknown affect on overall decommissioning costs. Because the
methods involve leaving more radioactive waste onsite- either buried as
rubble or encased within the reactor containment structure- they would
reduce the waste- disposal component of decommissioning costs. However, they
could add considerably to longterm costs because of the need for extended
institutional control of the sites. Moreover, these methods appear to
conflict with NRC?s technical requirements for licensing low- level
radioactive waste disposal facilities. In addition, the proposed methods may
run counter to the policy expressed in the Low- Level Radioactive Waste
Policy Amendments Act, which encourages states to manage low- level
radioactive wastes on a regional basis and to provide centralized disposal
facilities.

Another potentially significant factor contributing to the uncertainty about
decommissioning cost is the lack of information on the degree of
contamination at some plant sites. NRC?s decommissioning requirements allow
plant owners to wait until 2 years before the proposed license termination
date to perform an overall survey of their plant sites for radiation
contamination. Postponing the survey until this late in the decommissioning
process increases the risk that owners will incur unplanned cleanup expenses
after significant portions of the available decommissioning funds have
already been expended.

The Financial Accounting Standards Board has adopted a new financial
reporting standard that, beginning in mid- 2002, should result in more
uniform reporting of decommissioning costs. Currently, companies disclose
their liability for decommissioning costs using a number of different
methods, making comparisons by investors difficult. Under the new standard,
companies must report estimated decommissioning costs as liabilities in
their financial statements, using a specified method to calculate the amount
of the liability. However, the new standard applies not just to nuclear
power plants but to other industries as well, and the method specified
differs from the method that NRC requires for nuclear power plant licensees.
The new standard will have no legal or regulatory affect on the actual
accumulation of decommissioning funds and is not intended to do so.
Disclosure of Liability for

Decommissioning Costs

Executive Summary Page 8 GAO- 02- 48 Nuclear Regulation

To ensure that the decommissioning assurance methods and financial
qualifications of all new plant owners are consistently verified, validated,
and documented, GAO recommends that the Chairman, NRC, revise the
Commission?s standard review plan and related management controls for
reviewing license transfers to include a checklist or step- by- step process
for its staff, management, and prospective plant owners to follow.

GAO also recommends that the Chairman, NRC, amend the Commission?s ongoing
consideration of modifications to radiological criteria for terminating
licenses and alternative decommissioning approaches to address

 how the burial or entombment of low- level radioactive waste at nuclear
plant sites, leading to a potentially large number of contaminated sites
scattered around the country, may affect the federal policy under the
LowLevel Radioactive Waste Policy Act to manage radioactive waste on a
regional basis, and  concerns about whether these decommissioning
approaches are

technically compatible with provisions of the Low- Level Radioactive Waste
Policy Act, the interstate compact agreements that implement the act, and
NRC?s technical regulations on licensing disposal facilities for low- level
radioactive waste.

To reduce the likelihood that site contamination will go undetected until
late in the cleanup process, GAO recommends that the Chairman, NRC, require
licensees to survey their plant sites for radiation as soon as possible
after the announcement of their intentions to permanently cease operations,
rather than allowing them to wait until 2 years before decommissioning is
supposed to be complete.

GAO provided NRC with a draft of this report for review and comment. NRC
said that GAO has provided constructive comments regarding documentation of
the financial considerations associated with requests to transfer licenses
for nuclear power plants. NRC also said it is concerned that GAO has not
fully represented certain aspects of its review process for license
transfers, nor entirely considered the various processes associated with the
decommissioning of a nuclear plant. NRC provided specific comments on these
matters, including reasons why, in some cases, it does not agree with GAO?s
recommendations. NRC?s comments also, it said, supplied a more comprehensive
perspective on our conclusions and recommendations. (NRC?s comments are
contained in app. I.) Recommendations for

Executive Action Agency Comments and GAO?s Evaluation

Executive Summary Page 9 GAO- 02- 48 Nuclear Regulation

Specifically, NRC disagreed that it should modify its review guidance to
include a checklist or step- by- step process to be followed because many of
the proposed license transfers are unique. GAO disagrees. Licensees have
consistently used a few basic methods of providing decommissioning funding
assurance. Revising the review guidance to ensure, on the basis of NRC?s
experiences to date, that each license transfer review is based on
information that is consistent with other transfers that used similar
methods of assurance could help NRC meet its goal of increasing its
efficiency and effectiveness.

NRC also disagreed that it should address technical and policy issues
associated with the potential on- site burial of radioactive waste from
decommissioning nuclear plant sites because this waste would not be
classified as low- level radioactive waste. GAO disagrees because it is
difficult to discern why radioactive material buried on- site- material that
has traditionally been shipped to disposal facilities designed and regulated
for such purpose-- does not merit the same protection as material sent to a
low- level waste disposal site.

Finally, NRC disagreed that it should require licensees to make radiation
surveys of their plant sites earlier because this proposed step would not
add significant value to the decommissioning process. GAO disagrees, because
plant employees most knowledgeable about historical plant operations and
site conditions would more likely be available when a plant has been
permanently shut down rather than later when decommissioning has been almost
completed.

Chapter 1: Introduction Page 10 GAO- 02- 48 Nuclear Regulation

Nuclear power plants generate about 20 percent of electricity in the United
States. At the time of this review, there were 103 of these plants in
operation. 1 No new nuclear power plants have been ordered since 1978,
however, and 22 plants that previously operated under licenses issued by the
Nuclear Regulatory Commission (NRC) have been permanently shut down. The
licenses for 45 additional plants will expire within the next 15 years. The
owners of these plants, therefore, will have to choose whether to retire
their plants or to seek license extensions from NRC for up to an additional
20 years.

Radioactive contamination lingers long after power plants are closed. To
protect public health and safety, the amount of residual radioactivity
present at the site of a retired nuclear power plant must be reduced through
a process known as decommissioning. After the spent (used) fuel has been
removed from the plant?s reactor vessel, the plant must be dismantled and
the radioactive wastes shipped to one or more disposal facilities for
radioactive wastes. 2 The decommissioning process is still relatively new- 3
of the 22 retired commercial nuclear power plants have been decommissioned,
6 other plants are being decommissioned, and 13 plants are awaiting
decommissioning. The process is also costly. Experience to date shows that
decommissioning costs anywhere from $300 million to $400 million or more,
depending on factors, such as plant size, the extent of contamination, and
waste disposal costs.

NRC and plant owners must balance public health and safety with the cost and
technical logistics of the decommissioning process. Moreover, the relatively
high cost of decommissioning a nuclear power plant makes the process an
issue for economic regulators, such as the Federal Energy Regulatory
Commission (FERC) and state public utility commissions (PUC?s), and the
electricity industry in the relatively new environment of deregulating and
restructuring the electricity industry.

1 These numbers do not include one plant- the Tennessee Valley Authority?s
Brown?s Ferry Unit 1 plant- that is licensed to operate. That plant,
however, has not operated since March 1985, has no fuel loaded, and cannot
load fuel and restart without NRC?s approval.

2 The Department of Energy (DOE) is responsible for disposing of the spent
fuel from commercial nuclear power plants in a geologic repository. Pending
the approval and completion of the proposed Yucca Mountain repository
project, owners of nuclear plants are storing their spent fuel at plant
sites. NRC does not consider spent fuel storage and disposal costs as
decommissioning costs. Chapter 1: Introduction

Chapter 1: Introduction Page 11 GAO- 02- 48 Nuclear Regulation

Before obtaining a license to operate a nuclear power plant, the licensee
must agree with NRC to decommission the plant after the plant has been
permanently shut down. NRC established its decommissioning requirements in
regulations issued in 1988. Under these regulations, NRC expected that
decommissioned sites, with rare exceptions, would reduce levels of radiation
to allow the plant site to be released for unrestricted use once the license
was terminated. Licensees had two decommissioning alternatives. 3 They could
either begin major site decontamination and dismantling activities shortly
after the termination of operations or maintain the plant and site in a safe
condition up to several decades before dismantling the plant. Delaying full-
scale decontamination and dismantling activities could be advantageous if
(1) more time was needed to accrue decommissioning funds by continuing to
collect funds from ratepayers after the plant has closed; (2) other units
operating at the site would be disrupted unless all were decommissioned
simultaneously at a future time; (3) a reduction in waste disposal volume,
cost, or radiation exposure was possible because of a reduction in residual
radiation over time; or (4) a licensed disposal facility for radioactive
waste was unavailable. (Figure 1 shows ongoing decontamination and
dismantling activities at one plant.)

3 A third alternative- encasing radioactive wastes within the reactor
building- was used by the DOE to decommission three of its small reactors.
NRC, in promulgating its decommissioning regulations in 1988, opposed use of
this decommissioning method for its licensees unless warranted to protect
public health and safety. Since then, no licensee has proposed using this
decommissioning method. Decommissioning

Regulations Outline Technical Procedures

Chapter 1: Introduction Page 12 GAO- 02- 48 Nuclear Regulation

Figure 1: Ongoing Decommissioning Work Within the Containment Building at
the Connecticut Yankee Atomic Power Company Haddam Neck Plant

Source: GAO.

Chapter 1: Introduction Page 13 GAO- 02- 48 Nuclear Regulation

When power operations at a nuclear power plant cease, the licensee must
notify NRC, permanently remove the fuel from the reactor vessel, and confirm
this action to NRC. Within 2 years, the licensee must provide a report to
NRC addressing, among other things, decommissioning plans and the estimated
costs of these activities. NRC then publishes a notice of receipt, makes the
document available for public comment, and holds a public meeting in the
vicinity of the plant to discuss decommissioning plans. The licensee may not
perform any major decommissioning activities until 90 days after NRC
receives the post- shutdown decommissioning activities report and the
certifications of permanent cessation of operations and fuel removal. NRC
currently requires that decommissioning be completed within 60 years unless
public health and safety reasons require that an extension be granted.

Concurrent with plant decommissioning, a licensee must supply NRC a plan for
terminating its license at least 2 years before the planned termination
date. At the end of the license termination process, the licensee must
conduct a final radiation survey to prove that the site meets radiological
criteria for release and must include the survey with the plan. The licensee
remains accountable to NRC until decommissioning has been completed and the
license is terminated.

NRC?s 1988 decommissioning regulations outlined several acceptable
approaches for decommissioning nuclear power plants, but regulations did not
establish acceptable residual radioactivity levels for the unrestricted
release of decommissioned sites. In 1996, NRC published its final rule on
the decommissioning of nuclear power plants. This final rule (1) redefined
the decommissioning process; (2) defined terminology related to
decommissioning; (3) required licensees to provide the NRC with early
notification of planned decommissioning activities at their facilities; and
(4) explicitly stated the applicability of certain NRC requirements that are
specific for reactors that are permanently shut down. However, NRC did not
amend its regulations to include radiological criteria for license
termination until 1997. The final rule included radiological criteria for
releasing decommissioned sites for both unrestricted and restricted future
uses. For restricted future uses, licensees must provide safeguards to
ensure that access to the site will be restricted until dose levels decay to
the radiation level set for unrestricted site releases. The safeguards
include requirements for physical barriers, security, monitoring,
maintenance, financial assurance provisions, and other institutional
controls to ensure that access to the site remains restricted for the entire
internment period.

Chapter 1: Introduction Page 14 GAO- 02- 48 Nuclear Regulation

On the basis of its regulations restricting the dosages to members of the
public under both the unrestricted and restricted release scenarios, NRC is
also now considering two alternative decommissioning approaches. One
approach, called rubblization, would permit licensees to demolish plant
concrete that is contaminated with radioactivity into rubble and bury the
rubble in the underground portion of the dismantled plant. The other
approach, called entombment, would involve the permanent encasement of the
radioactive contaminants from a partially dismantled plant within the
remaining structure of the plant. NRC is also considering extending the
timeframe for completing decommissioning from 60 to 100 years or more. As
with other decommissioning alternatives, licensees selecting rubblization or
entombment would be required to demonstrate compliance with NRC?s
regulations for license termination, including a demonstration that residual
radiation doses at the site are as low as is reasonably achievable.

NRC has primary regulatory authority over nuclear power plant operations and
decommissioning, but it is not the only entity that promulgates radiation
protection standards. The Environmental Protection Agency (EPA) also issues
radiation standards and administers the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 (CERCLA), which governs
cleanups of federal and non- federal facilities. EPA has authority to
evaluate NRC- regulated sites once the sites are decommissioned. NRC and EPA
have historically disagreed over radiation protection standards. Differences
in legislative mandates, agency missions, and regulatory strategies
contribute to this disagreement, which remains essentially unchanged today
despite resolution efforts spanning a number of years. States also have
authority to issue their own standards, which may be more stringent than
either NRC?s or EPA?s. Consequently, whereas NRC may approve decommissioning
plans and terminate the NRC operating license based on its standards, plant
owners may still be subject to other federal and state standards once the
NRC license is terminated.

NRC has authority under the Atomic Energy Act of 1954, as amended, to
require licensees to accumulate the funds necessary to decommission their
nuclear power plants. Prior to 1988, NRC only required licensees to certify
that sufficient funding would be available to decommission their plants when
needed and did not require any specific financial provisions. On July 26,
1988, NRC strengthened its technical and financial requirements for
decommissioning and offered several options for providing financial
assurance. The options included: Decommissioning

Regulations Outline Financial Procedures

Chapter 1: Introduction Page 15 GAO- 02- 48 Nuclear Regulation

 prepayment of the entire estimated decommissioning liability in cash or
liquid assets into a separate, segregated account outside the licensee?s
control;  external sinking funds segregated from other licensee assets and
outside

licensee control that are established and maintained by periodic funding; 
surety methods or insurance; or  for federal licensees only, a statement of
intent that decommissioning

funds will be obtained when necessary. Essentially, most if not all
utilities eventually elected the option to establish external sinking funds
(trust funds) to finance future decommissioning costs. Under this option,
decommissioning funds are accumulated over the operational life of a nuclear
power plant as part of the cost charged to customers for the electricity
they use.

In establishing its regulations, NRC recognized that the external sinking
fund option allowed the rate- setting authority of FERC and state public
utility commissions to control the rate at which decommissioning funds could
be accumulated. Given the additional uncertainty involved in estimating
future decommissioning costs, NRC required only that licensees provide
?reasonable assurance? that sufficient funds would be available to
decommission their nuclear power plants when they are shut down. In 1998 ,
NRC also began requiring licensees to provide financial reports every 2
years on the status of their decommissioning funds. NRC provided licensees
with a mathematical formula to initially determine and periodically adjust
the estimated amounts required in the funds for radiological decontamination
of their plant sites. Licensees may also base their decommissioning trust
funds on site- specific estimates of decommissioning costs if these
estimates exceed the amounts calculated using NRC?s formula.

The length of time that a nuclear power plant remains in operation depends
on several factors. NRC typically issues operating licenses for 40 years.
Licensees with economically viable plants that still meet NRC?s operational
requirements may opt to extend operations rather than close their doors. On
the other hand, licensees with financially marginal plants may decide to
cease operations rather than shoulder large cost requirements for equipment
upgrades or repairs, or to address NRC?s concerns. An operational accident
could also bring a premature end to operations, as could local public and
political sentiment or NRC closure for safety reasons. As decommissioning
funds are typically accumulated over the expected operational lifetime of
the plant, plants that close prematurely may not have accumulated sufficient
funds and may have to

Chapter 1: Introduction Page 16 GAO- 02- 48 Nuclear Regulation

defer the decommissioning process. Furthermore, where several units are
situated at the same site, licensees may delay decommissioning work until
all plants can be decommissioned at the same time.

Historically, nuclear power plants were constructed and operated primarily
by investor- owned utilities. 4 Beginning in the mid- 1990s, however, many
states began to deregulate the electricity industry and to mandate or
encourage industry restructuring. Under deregulation, subject to federal
oversight, the ownership and control of electricity generation was separated
from the transmission and distribution functions to facilitate competition.
Traditional utilities continue to serve the transmission and distribution
functions, while new business entities- formed through operating
arrangements, plant sales, corporate realignments, and mergers- often handle
the electricity production function. In recent years, NRC has reviewed more
than 60 license transfer requests. These transfer requests have affected
about half the nuclear plants in the United States, and some licenses were
transferred several times for multiple reasons.

4 In addition, smaller investor- owned utilities, publicly- owned utilities,
or cooperatives own or have owned a few entire plants or shares of some
plants. Deregulation of

Electric Utilities and Resultant Industry Restructuring

Chapter 1: Introduction Page 17 GAO- 02- 48 Nuclear Regulation

Figure 2: Map of Nuclear Power Plants in the United States and Status of
Deregulation by State

Note: Includes Browns Ferry Unit 1, which has no fuel loaded and requires
Commission approval to restart.

Source: Nuclear Regulatory Commission and Energy Information Administration
Illustrations, as modified by GAO.

While the move to deregulate the electric industry has resulted in changes
that affect the status of licensees in some states, many licensees today
still remain investor- owned utilities that operate as state- regulated
monopolies. NRC has provided its staff, managers, and licensees with
guidance on how it will review requests to transfer licenses, including
determining whether the new license holders would continue to operate under
economic regulation or in an economically deregulated environment. This
guidance

Chapter 1: Introduction Page 18 GAO- 02- 48 Nuclear Regulation

is in the form of a standard review plan on nuclear power plant licensees?
financial qualifications to operate their plants and assurances that the
licensees will provide adequate funds to decommission the plants. The review
plan discusses each of the review procedures that the NRC staff should use,
as appropriate, to determine the adequacy of a prospective licensee?s
financial qualifications and decommissioning funding method( s). For
example, the review plan discusses how NRC?s staff should evaluate external
sinking fund trust documents and other decommissioning financial assurance
mechanisms.

Concerned about the adequacy of decommissioning funds, particularly in
deregulated markets, Representative Edward Markey asked us to determine how
(1) transfers of licenses to operate or own nuclear power plants affected
the level of assurance that adequate funds will be available to operate and
decommission these plants, (2) various site cleanup standards and proposed
alternative decommissioning approaches affect projected decommissioning
costs, and (3) proposed changes in financial reporting standards affect
disclosure and funding of decommissioning liabilities.

To determine how license transfers for nuclear power plants affected NRC?s
level of assurance that adequate funds will be available to decommission
these plants, we reviewed NRC?s Standard Review Plan on Power Reactor
Licensee Financial Qualifications and Decommissioning Funding Assurance, as
well as related memoranda, regulations, policy statements, regulatory
analyses, and regulatory guidance. We contacted NRC?s Office of Inspector
General to discuss the weaknesses it had reported in licensee?s biennial
reports to NRC regarding decommissioning fund balances. At NRC?s
headquarters in Rockville, Maryland, we met with officials from NRC?s
offices of Nuclear Reactor Regulation and Nuclear Material Safety and
Safeguards to discuss decommissioning financial assurance issues regarding
non- owner operating arrangements, nuclear plant sales, corporate
reorganizations, and mergers. We also reviewed licensee information provided
to NRC regarding these license transfers, and analyzed NRC?s review and
approval documents related to license transfer requests submitted for 9 non-
owner operating arrangements, 19 sales, 3 corporate reorganizations, and one
merger.

To determine how site cleanup standards and proposed alternative
decommissioning approaches affect projected decommissioning costs, we
obtained, from EPA and NRC, and reviewed memoranda, regulations and other
documentation addressing decommissioning and radiation Objectives, Scope,

and Methodology

Chapter 1: Introduction Page 19 GAO- 02- 48 Nuclear Regulation

protection standards. We reviewed published GAO reports that dealt with
decommissioning financial assurance, nuclear waste disposal, radiation
protection standards, and other related issues. We also reviewed a recent
National Research Council report that questioned the reliability of longterm
institutional management controls at nuclear waste sites. We also contacted
EPA and NRC staff regarding efforts to resolve interagency disagreement over
radiation protection standards and related issues, and met with staff from
NRC?s offices of Nuclear Reactor Regulation and Nuclear Material Safety and
Safeguards to discuss issues regarding radiation protection standards, past
decommissioning methods and experience, and proposed decommissioning
alternatives and their potential impact on decommissioning cost. In
addition, we reviewed the minutes from an August 1999 NRC public workshop
dealing with decommissioning and proposed waste disposal options.

To acquire a first- hand perspective on decommissioning, we obtained and
reviewed the license termination plans from and made visits to the
Connecticut Yankee Atomic Power Company plant at Haddam, Connecticut, and
the Maine Yankee Atomic Power Company plant at Wiscasset, Maine. At the
Haddam plant, we met and discussed decommissioning issues with officials
from the Connecticut Yankee Atomic Power Company, Bechtel Power Corporation
(the decommissioning contractor), and the Connecticut Department of
Environmental Protection. We also toured the Haddam Plant and observed
ongoing decommissioning work within the reactor building (containment). In
addition, we met with local members of the Citizens Awareness Network, a
non- profit volunteer organization, to discuss issues and concerns regarding
the decommissioning of the Haddam Plant. In Maine, we met with two state
senators knowledgeable about the controversy over original decommissioning
plans to rubblize the Maine Yankee site and the involvement of the state
legislature in the Maine Yankee decommissioning. We also met with a member
of Friends of the Coast- a local citizens? environmental organization. We
contacted officials from the Maine Department of Environmental Protection
and Department of Human Services by telephone and discussed Maine Yankee
decommissioning issues. In Washington, D. C., we met with members of the
Nuclear Energy Institute, Union of Concerned Scientists, Nuclear Information
and Resource Service, and Public Citizen to discuss decommissioning issues.
In addition, we attended the Fifth Biennial Industry Conference on
Decommissioning held in October 2000 and a NRC public decommissioning
workshop held in November 2000.

Chapter 1: Introduction Page 20 GAO- 02- 48 Nuclear Regulation

To determine how a recently adopted financial reporting standard will affect
the disclosure and funding of decommissioning liabilities, we reviewed the
annual reports and/ or annual filings with the Securities and Exchange
Commission (Forms 10 K) for 55 utility companies that own nuclear power
plants. From those, we determined the methods currently used to account for
decommissioning costs. We also reviewed FASB Exposure Draft No. 206- B
entitled ?Accounting for Obligations Associated with the Retirement of Long-
Lived Assets,? (adopted in June 2001 as FASB Statement No. 143) as well as
selected responses of public accounting firms and utility companies to the
Exposure Draft. From our review, we determined how the new standard would
affect the financial statements of utility companies with nuclear power
plants.

We performed our review between June 2000 and August 2001 in accordance with
generally accepted government auditing standards.

Chapter 2: Most Restructuring License Transfers Have Maintained or Enhanced
Assurance of Decommissioning Funding

Page 21 GAO- 02- 48 Nuclear Regulation

As a result of restructuring in the electricity industry, NRC has approved
requests to transfer the licenses to own or operate more than one- half of
the nuclear power plants in the United States. Some license transfer
requests involved a single owner of one or more plants transferring licenses
to own or operate the plant( s) to one or more new owners or operators.
Other requests involved transfers of licenses to own or operate one or more
plants from multiple owners of these plants. For most of the requests that
NRC reviewed to transfer licenses for one or more plants, the level of
assurance that the plants? decommissioning funds will be adequate has been
maintained or enhanced. For example, when plant owners requested that their
operating licenses for eight plants be transferred to a contractor, NRC
maintained the existing level of assurance by continuing to hold the plant
owners responsible for collecting decommissioning funds. In addition, when
NRC approved requests to transfer licenses related to the sale of 15 plants,
decommissioning funding assurances were increased because the selling
utilities prepaid all or most of the projected decommissioning costs, and
either the sellers or the new owners provided additional financial
guarantees for those projected costs that were not prepaid. However, when
NRC approved requests to transfer licenses in which the new licensee
intended to rely on periodic deposits into external sinking funds for
decommissioning, it did not always obtain the same level of financial
assurance as when plants were sold or their operations contracted out. Among
other things, NRC approved two requests to transfer ownership of 25 plants
without verifying that the new owners would have guaranteed access to the
decommissioning charges that their affiliated utilities would collect.

NRC also requires prospective new owners of plants that will not be selling
their electricity at regulated rates to demonstrate their financial
qualifications to safely own and operate the nuclear power plants that they
are acquiring. In almost all of its reviews of new owners? financial
qualifications, NRC has required additional guarantees from parent or
affiliated companies that the new owners would have sufficient revenue to
cover the plants? operating costs. However, when reviewing one prospective
owner?s financial qualifications, NRC did not require additional guarantees
and did not validate the information submitted by the new owner to
demonstrate that the company was financially qualified to safely own and
operate the largest fleet of nuclear plants in the United States. Chapter 2:
Most Restructuring License

Transfers Have Maintained or Enhanced Assurance of Decommissioning Funding

Chapter 2: Most Restructuring License Transfers Have Maintained or Enhanced
Assurance of Decommissioning Funding

Page 22 GAO- 02- 48 Nuclear Regulation

The level of assurance that decommissioning funds will be adequate has been
maintained in all license transfer approvals that allowed plant owners to
contract out plant operations. For example, traditional electric utilities
that own 17 nuclear power plants have used companies that specialize in the
operation, maintenance, and decommissioning of nuclear power plants to help
them operate or decommission their plants. The owners of fifteen of these
plants had to get NRC?s approval to transfer their operating licenses. For
the other two plants, NRC decided that the proposed arrangements did not
require transfers of operating licenses. (See table 1.) For all 15 operating
license transfers, NRC continues to hold the owners responsible for
accumulating decommissioning funds, and the owners continue to collect these
funds through regulated electricity rates. Accordingly, these operating
license transfers have not changed the level of decommissioning funding
assurance for these plants.

Table 1: Nuclear Power Plants With Non- owner Operating Arrangements Nuclear
power plant Operator?s business arrangement with

owner( s) NRC operating license transfer required?

Duane Arnold Energy Center Operating services agreement a Yes Kewaunee
Nuclear Power Plant Operating services agreement a Yes Monticello Nuclear
Generating Plant Operating services agreement a Yes Palisades Plant
Operating services agreement a Yes Point Beach Nuclear Plant, Unit 1
Operating services agreement a Yes Point Beach Nuclear Plant, Unit 2
Operating services agreement a Yes Prairie Island Nuclear Generating Plant,
Unit 1 Operating services agreement a Yes Prairie Island Nuclear Generating
Plant, Unit 2 Operating services agreement a Yes John M. Farley, Unit 1
Affiliated company b Yes John M. Farley, Unit 2 Affiliated company b Yes
Edwin I Hatch, Unit 1 Affiliated company b Yes Edwin I Hatch, Unit 2
Affiliated company b Yes River Bend, Unit 1 Affiliated company b Yes Vogtle,
Unit 1 Affiliated company b Yes Vogtle, Unit 2 Affiliated company b Yes
Clinton Power Station Management services agreement c No Maine Yankee Atomic
Power Plant Management services agreement c No

a Operating licenses for eight plants were transferred to one company,
Nuclear Management Company, which was formed by the plants? electric utility
owners to provide operating and eventual decommissioning services for the
plants. NRC approved the operating license transfers but continues to hold
the utility- owners responsible for collecting decommissioning funds for the
plants through their regulated electricity rates. b Seven transfers of
operating licenses resulted from corporate reorganizations or mergers in
which an

existing operations organization split off from an electric utility and
formed a new affiliated company specializing in nuclear plant operations.
The utility owners continue to collect decommissioning funds for the plants
through their regulated electricity rates.

Funding Assurance Is Maintained for License Transfers Related to Contracting
Out Operations

Chapter 2: Most Restructuring License Transfers Have Maintained or Enhanced
Assurance of Decommissioning Funding

Page 23 GAO- 02- 48 Nuclear Regulation

c In two cases, in which utility owners entered into management services
agreements with outside companies to assist them with operating and
decommissioning their plants, NRC did not require operating license
transfers. In both cases, NRC determined that because the management
services provided by the operating companies did not involve activities that
would require a license, such as maintenance of safety- related equipment or
the emergency preparedness program, and because the utility owners retained
final decision- making authority, no transfer of operating authority had
taken place that required NRC?s approval. The utility owners continued to
collect decommissioning funds through their regulated electricity rates.

Source: GAO?s analysis of NRC data.

When NRC has approved license transfers for plants that chose the prepayment
and guarantee methods, assurance of adequate decommissioning funding has
been enhanced. To date, all the transfers that NRC has reviewed as a result
of plant sales have chosen either total prepayment or a combination of these
methods. For example, as a direct response to deregulation legislation in
many Northeast, Mid- Atlantic, and Midwest states, NRC has approved the
transfer of the ownership interests in 15 nuclear power plants from
traditional electric utilities to newly formed generating companies. The
utilities selling 13 of these plants proposed to transfer prepaid
decommissioning trust funds to the generating companies. NRC concurred with
these proposals and also imposed conditions on how the new owners must
manage these funds to ensure that they are preserved and accumulate as
projected in a market environment. For the other two plants, the selling
utility- the Power Authority of the State of New York- chose to retain
control of the prepaid decommissioning trust funds for its two plants and
not transfer them to the new owners (Entergy Nuclear Indian Point 3 and
Entergy Nuclear Fitzpatrick). Because the Power Authority would no longer be
a licensed owner or operator of the two plants, NRC imposed additional
conditions upon these license transfers, allowing NRC intercession to
release funds for decommissioning if the Power Authority does not comply
with its responsibility to do so.

In three transfers the accumulated trust funds did not cover small portions-
less than 8 percent- of the projected decommissioning costs. In these cases,
either the buyer?s or the seller?s parent or affiliated companies passed
NRC?s financial test and provided contractual guarantees that they would
provide additional funds as needed. Consequently, NRC has assurances that
all approved new plant owners will have adequate funds available to
decommission their plants in a deregulated environment. Table 2 lists the 15
plant sales that NRC has approved, along with the projected amount of
decommissioning funding needed and the amount available in the trust funds
at the time of the sales. Prepayment and

Company Guarantee Methods Have Enhanced Funding Assurances When Licenses Are
Transferred

Chapter 2: Most Restructuring License Transfers Have Maintained or Enhanced
Assurance of Decommissioning Funding

Page 24 GAO- 02- 48 Nuclear Regulation

Table 2: Decommissioning Funds Needed, Transferred, and Assurance Methods
Used for Nuclear Power Plants Approved for Sale

Dollars in millions Nuclear power plant Percent sold Projected funds

needed Funds approved to transfer Decommissioning assurance method Clinton
Power Station 100.00 $347.880 $210.000 Prepayment + 2% interest a James A
Fitzpatrick 100.00 $358.000 $343.968 b Prepayment + 2% interest a +
guarantee Hope Creek 5. 00 $18.014 $9.681 Prepayment + 2% interest a Indian
Point, Unit 3 100.00 $292.000 $315.225 b Prepayment + guarantee Millstone,
Unit 1 c 100.00 $504.481 $293.712 Prepayment + guarantee + 2% interest a
Millstone, Unit 2 100.00 $298.630 $252.944 Prepayment + 2% interest a
Millstone, Unit 3 93.47 $316.728 $246.838 Prepayment + 2% interest a Oyster
Creek 100.00 $333.462 $400.000 Prepayment Peach Bottom, Unit 2 15.02 $56.401
$44.775 d Prepayment + 2% interest a + guarantee Peach Bottom, Unit 3 15.02
$56.401 $46.202 d Prepayment + 2% interest a + guarantee Pilgrim 100.00
$327.000 e $396.000 Prepayment Salem, Unit 1 14.82 $44.000 $36.837
Prepayment + 2% interest a Salem, Unit 2 14.82 $44.000 $35.635 Prepayment +
2% interest a Three Mile Island, Unit 1 100.00 $268.870 $303.000 Prepayment
Vermont Yankee 100.00 $328.300 f $280.000 f Prepayment + 2% interest a

a NRC requirements in 10 CFR 50. 75( E)( 1)( i) and (ii) for the prepayment
and external sinking fund assurance methods, respectively, allow licensees
to take credit for future earnings on their trust funds at a real rate of
return (i. e., adjusted for inflation) of up to 2 percent per year.
Licensees may claim higher rates if specifically authorized by their rate
regulator. b The seller does not plan to transfer these funds to the new
owner and will instead retain the trusts after the plants are sold. The
seller has provided a guarantee that the funds will remain available for
decommissioning. In addition, the seller has agreed, as a condition of the
trust agreements that, since it will no longer be licensed, NRC may
intercede to release the funds, if needed. c This plant, permanently shut
down in July 1998, has been defueled and placed in a ?Cold and Dark?

state by the seller. These funds are based on a site- specific estimate and
include the buyer?s parent company guarantee of $25,423, 666. The funds are
intended to support annual monitoring costs of $2,947,285 during SAFSTOR and
to accumulate until 2054, when final decommissioning is anticipated. d These
funds are the cumulative funds collected by 2 utilities with equal selling
shares; however, one

utility has collected less than half of this amount. Originally both
utilities, as subsidiaries of a single holding company, were to complete
their sales at the same time and their combined funds were sufficient for
prepayment assurance. However, the utility with the larger accumulation of
funds delayed its transfer awaiting approval from its state public utility
commission. Because the utility with less accumulated funds consummated its
sale first, the other affiliated utility has guaranteed to make up the
difference up to 50 percent of their cumulative amount until it completes
its divestiture. e This amount is the NRC generic formula estimate. A site-
specific site cost estimate placed costs between $396 million and $466
million. The seller agreed to transfer $396 million to the buyer?s
decommissioning trust account and to create a provisional trust account of
$70 million to cover the potential taxes that might be due. Any funds left
in the provisional trust account after taxes, as of December 31, 2002, will
be deposited in the decommissioning trust account. f These are the amounts
NRC approved in 2000; however in January 2001, the Vermont Public

Service Board nullified this sale and, in the hope of receiving a better
offer, ordered that the plant be sold at auction. These amounts will most
likely change when the sale is consummated.

Chapter 2: Most Restructuring License Transfers Have Maintained or Enhanced
Assurance of Decommissioning Funding

Page 25 GAO- 02- 48 Nuclear Regulation

Source: GAO?s analysis of NRC data.

In approving license transfer requests that continued to rely on the
external sinking fund method of decommissioning financial assurance, NRC?s
reviews did not consistently maintain the level of assurance that
decommissioning funds would be adequate, as it had for license transfers
that relied on prepayment or company guarantees. In most cases, the new
owners, as a result of corporate reorganizations or mergers, are no longer
considered traditional electric utilities that will collect decommissioning
funds through predetermined rates, but instead are affiliated with electric
utilities authorized by their state regulators to collect non- bypassable
charges for decommissioning. 1 These affiliated utilities will not be
licensed by NRC. While NRC?s review plan does not explicitly describe
procedures for its staff to follow in these situations, it does imply that
the new owners should provide NRC with additional information regarding the
calculation and collection of these charges and ways they will be deposited
into their trust funds. NRC, however, did not consistently request this
additional information, when owners did not provide it. Consequently, NRC
was unable to consistently maintain assurance that these funds would
accumulate adequately when new owners rely on the traditional external
sinking fund assurance method in a deregulated environment.

Our review of NRC?s approval of license transfers for 28 plants from 3
corporate reorganizations and one merger revealed that the new plant owners
had varying degrees of access to the future decommissioning charges
collected for their plants. Even though NRC?s regulations allow non-
bypassable charges as an acceptable accumulation mechanism for external
sinking funds, it assumes that NRC licensees will either collect these
charges or have direct access to them. NRC did not consistently assure that
when unlicensed affiliated utilities collect the charges, they would deposit
them into the new owners? decommissioning trust funds.

For 3 of the 28 plants- units 1, 2, and 3 of the Palo Verde nuclear power
facility in Arizona- NRC placed conditions on its approval of the license

1 Non- bypassable charges are charges imposed over an established period of
time by a government authority (such as a public utility commission) that
affected entities are required to pay to cover the 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, or other similar charges. Funding Assurance

Was Not Always Maintained in License Transfers That Continued to Rely on the
External Sinking Fund Method

NRC Did Not Always Verify That New Plant Owners Would Have Access to
Collected Decommissioning Charges

Chapter 2: Most Restructuring License Transfers Have Maintained or Enhanced
Assurance of Decommissioning Funding

Page 26 GAO- 02- 48 Nuclear Regulation

transfers that contractual arrangements for collection and deposit of
earmarked funds into the new licensees? decommissioning trust funds be
completed. The three units are jointly owned by several traditional electric
utilities, including the Public Service Company of New Mexico and El Paso
Electric Company of Texas. These two companies are reorganizing their
corporate structures to comply with new requirements to supply energy in New
Mexico under deregulation. In accordance with these deregulation efforts,
the two companies requested that NRC transfer their respective ownership
licenses in the Palo Verde plants to new generating companies formed out of
their corporate reorganizations- Manzano Energy Corporation in New Mexico
and MiraSol Generating Company in Texas. In effect, these new generating
companies also will inherit the external sinking funds intended to cover
their respective shares of responsibility to eventually decommission the
Palo Verde units. However, these external sinking funds were not sufficient
to qualify as prepayment of estimated decommissioning costs. Therefore, each
company provided NRC with copies of contractual agreements requiring their
affiliated utilities to:

 collect decommissioning funds through their charges for distributing
electricity in their service areas (also known as non- bypassable wires
charges) imposed by their respective state public utility commissions or
other regulatory entities, and  deposit the collected money into the new
generating companies?

decommissioning trust funds periodically. NRC approved the license transfers
subject to obtaining final copies of the agreements between the affiliated
utilities and the new generating companies and schedules showing how the
decommissioning charges approved by the New Mexico and Texas state public
utility commissions would fund the total decommissioning costs. 2 In both
cases, NRC assured that the decommissioning charges collected by their
affiliated utilities would be deposited into the new companies? external
sinking funds and that the states? public utility commissions were assuring
that the charges collected would be sufficient to cover the total
decommissioning costs.

However, NRC approved applications to transfer the licenses for the other 25
plants without verifying that the new owners would have the same degree of
access to the decommissioning charges or that the states? public

2 The New Mexico legislature has extended the implementation of deregulation
in its state for 5 years, and as a result, these corporate reorganizations
have been postponed.

Chapter 2: Most Restructuring License Transfers Have Maintained or Enhanced
Assurance of Decommissioning Funding

Page 27 GAO- 02- 48 Nuclear Regulation

utility commissions would ensure the collection of the total decommissioning
costs. For example, the Public Service Electric and Gas Company?s (PSEG)
corporate reorganization involved decommissioning trust funds for 5 plants.
The New Jersey Board of Public Utilities authorized PSEG to continue
collecting decommissioning funds through its distribution rates, yet NRC
approved the trust funds to be transferred to PSEG Nuclear, the newly-
formed generating company. NRC did not question the access PSEG Nuclear had
to the funds collected by PSEG, its affiliate utility. In addition, NRC did
not require a copy of a contractual agreement between the affiliates that
guaranteed periodic deposits to the new owner?s decommissioning trust funds
as it did for Manzano Energy and MiraSol Generating Company. In support of
its approval for these transfers, NRC staff told us that they also used
publicly available sources of information, such as state restructuring laws
or public utility commission web sites, when new owners did not provide
information with their applications. Unfortunately, the staff did not
document the content or use of such information in the records of these
license transfer approvals so we could not verify the adequacy of NRC?s
review. Also, in the case of the five plants, the New Jersey restructuring
legislation had authorized these charges. After 4 years, the Board of Public
Utilities planned annual reevaluations to determine whether the
decommissioning funds were overfunded or underfunded and then to authorize
further charges accordingly. NRC?s records do not show that its staff
evaluated how New Jersey?s proposed charges would affect the accumulation of
the total costs needed to decommission each individual plant, despite
guidance in its review plan and previous instances when the prepayment and
company guarantee methods had been used. Yet, NRC approved the transfers
after assuring itself that, in the aggregate, the 5 plants would achieve the
full funding of their required decommissioning costs by the time they cease
operations.

More significantly, in the merger of two companies that involved 20 nuclear
plants in Illinois, New Jersey and Pennsylvania, the existing and new
companies involved in the merger did not provide, nor did NRC request,
copies of contractual agreements documenting that monies to be collected
from utility customers in the states would be deposited in the respective
decommissioning trust funds for each of the 20 plants. In this restructuring
transaction, Unicom (the parent company of the electric utility known as
Commonwealth Edison Company) and PECO Energy Company merged to form a parent
entity- Exelon Corporation- and several wholly- owned subsidiary companies,
including Exelon Generation Company, Commonwealth Edison, and PECO. The
generating subsidiary company became the legal owner of Exelon Corporation?s
electricity

Chapter 2: Most Restructuring License Transfers Have Maintained or Enhanced
Assurance of Decommissioning Funding

Page 28 GAO- 02- 48 Nuclear Regulation

generating assets. These assets included Commonwealth Edison?s 10 operating
nuclear power plants and 3 retired nuclear plants that have not yet been
decommissioned. In addition, the assets included six operating and one
retired nuclear power plant owned by PECO. The latter two subsidiary
companies transmitted and distributed the electricity supplied by the
generating subsidiary to electricity customers. As a part of this
electricity restructuring, both Commonwealth Edison and PECO retained their
responsibilities to collect charges from their customers for the future
decommissioning of the 20 nuclear power plants now owned by Exelon
Generation Company.

When Commonwealth Edison and PECO requested that NRC approve their proposed
merger, the two utilities submitted similar, if not identical, statements
that they would continue to collect decommissioning funds for their 20
nuclear power plants through their electricity distribution rates. The
utilities added that they would also, as a matter of contract, transfer the
funds collected to Exelon Generation Company- which would hold the operating
licenses for the 20 plants- for deposit in each plant?s respective
decommissioning trust fund. However, unlike the license transfer cases
involving the restructuring of Public Service Company of New Mexico and El
Paso Electric, discussed above, Commonwealth Edison and PECO did not enclose
copies of any intercompany agreements or rulings from their respective
public utility commissions documenting these fund transfer arrangements.
Furthermore, NRC neither requested either of the two utilities to submit
such documentation nor, in the orders transferring the licenses for the 20
plants, did the NRC place any conditions that guaranteed that the utilities
would collect and deposit decommissioning funds into the plants? trust funds
held by Exelon Generation Company. Nevertheless, NRC?s documents approving
the Exelon merger state that Commonwealth Edison and PECO will collect the
decommissioning costs through their distribution rates and then, as a matter
of contract, pay these amounts to their affiliate, Exelon Generation
Company, for deposit in the trust funds for each plant.

NRC?s staff told us that they did not request documentation regarding Exelon
Generation Company?s access to the collected charges because this issue was
covered by the deregulation legislation enacted in Illinois and
Pennsylvania, copies of which they had obtained from publicly available
sources. Conversely, because the implementation of the deregulation
legislation in New Mexico and Texas had been delayed, the NRC staff needed
to be sure that it received final copies of any agreements in the Palo Verde
plants? transfers in order to assess their viability against any new
legislative changes. However, neither Illinois? nor Pennsylvania?s

Chapter 2: Most Restructuring License Transfers Have Maintained or Enhanced
Assurance of Decommissioning Funding

Page 29 GAO- 02- 48 Nuclear Regulation

deregulation legislation refers to an unregulated newly- formed company?s
access to the charges collected by regulated affiliated utilities. We did
locate an inter- company agreement attached to Commonwealth Edison?s public-
utility commission submission for approval of the merger, providing evidence
that such an agreement exists and that the Illinois public utility
commission is overseeing this access issue. However, NRC had no record of
this agreement or the Commonwealth Edison and PECO submissions to their
respective state public utility commissions. Also, while NRC staff told us
that they accepted the companies? application as sworn statements that
contractual arrangements existed, they did not document the basis for this
opinion in their evaluation of the license transfer.

Concerns have also surfaced over whether the collection of utility
surcharges is sufficient to cover total decommissioning costs when plants
are prematurely shut down. NRC?s review plan provides procedures for
verifying the accuracy of annual deposits to such funds when plants are
operating. However, when plants are prematurely shutdown, the plan does not
provide staff procedures to follow, leaving them instead to determine how to
review the funds on a case- by- case basis. NRC?s approval documents state
that the decommissioning funding mechanism for all 20 of Exelon Generation
Company?s plants- 16 operating and 4 retired- is the regulated charge
collected by its distributing utility affiliates and that the collecting
utility will make deposits into the decommissioning trust funds over the
generating life of each plant. If the plants no longer generate electricity,
it is not clear from the information the utilities submitted or NRC?s review
plan just how the funds would be collected, much less (as discussed above)
how the deposits would be made to the trust accounts of the closed plants.
NRC staff subsequently told us that their review of the Illinois and
Pennsylvania restructuring laws showed that they allow for the collection of
non- bypassable charges for plants that are shutdown and that their
evaluation report was in error on this point. However, the staff evaluation
of this publicly available information is not documented in NRC?s license
transfer records for this merger.

In addition, NRC did not apply the same review standards when it approved
the transfers for these four retired plants as it did for another retired
plant, 3 Millstone 1, which was recently sold along with its sister

3 The four retired plants are Dresden, Unit 1 and Zion, Units 1 and 2 in
Illinois and Peach Bottom, Unit 1 in Pennsylvania. Accumulation of

Decommissioning Funds for Retired Plants Is Also a Concern

Chapter 2: Most Restructuring License Transfers Have Maintained or Enhanced
Assurance of Decommissioning Funding

Page 30 GAO- 02- 48 Nuclear Regulation

plants that are currently operating. Dominion Resources, Inc., the new
owners? parent company, showed NRC the expected annual accumulation of
funds, forecast an expected shortfall of $26 million resulting from
additional annual monitoring costs incurred while the plant awaits the
retirement of its sister plants, and provided a company guarantee for this
expected shortfall. In contrast, neither Commonwealth Edison nor PECO
provided more detailed information for the 4 retired plants than they did
for the 16 operating plants. The application documents that Commonwealth
Edison and PECO provided and NRC?s approval documents make it difficult to
discern

 which phase of dismantlement these 4 plants are in;  how much, if any, of
the trust funds has been spent so far shutting down

the plants;  whether Exelon Generation Company will incur unanticipated
long- term

stewardship expenses as a result of having to monitor these plants (as was
the case of the Millstone retired plant); or  which costs in the site
specific estimates of these retired plants might

impact Exelon Generation Company?s ability to effectively decommission the
facilities or safely operate their collocated plants.

NRC staff told us that their regulations do not require this level of detail
to review the status of decommissioning funds for retired plants; however,
they could not document that these plants had been evaluated on a caseby-
case basis as their review plan recommends. Despite these ambiguities, NRC
concluded that Exelon Generation Company had provided adequate assurance,
even though it continued to rely on the external sinking funds transferred
from Commonwealth Edison and PECO, that it would, in a deregulated
environment, accumulate sufficient funds to decommission almost one- fifth
of the nuclear plant fleet of the United States.

Although NRC generally followed the guidance contained in its review plan
when reviewing the financial qualifications of prospective licensees, it did
not follow this guidance when it reviewed the financial qualifications of
Exelon Generation Company to own and operate the 20 nuclear power plants
formerly owned by Commonwealth Edison and PECO.

NRC requires prospective new owners of plants that do not qualify for
?electric utility? status- licensees that will not be selling their
electricity at regulated rates- to demonstrate that they are financially
qualified to safely own and operate the nuclear power plants that they are
acquiring. To review this aspect of proposed license transfers, NRC?s review
plan NRC?s Reviews of

New Owners? Financial Qualifications Have Been Complete, With One
Significant Exception

Chapter 2: Most Restructuring License Transfers Have Maintained or Enhanced
Assurance of Decommissioning Funding

Page 31 GAO- 02- 48 Nuclear Regulation

recommends that prospective new licensees demonstrate their financial
qualifications to safely own and operate their nuclear power plants for the
next 5- years by means of (1) contractual agreements with utilities that
will purchase electric power from the licensee; (2) the sale of power from
the licensee?s non- nuclear generating capacity; (3) projections of market
prices for the sale of power not covered by agreements; or (4) parent or
affiliate company guarantees or lines of credit for contingency operating
funds. NRC also compares a licensee?s expected annual electricity production
from its plants with past performance to determine the reasonableness of
these projections. NRC uses this information to determine whether the
prospective owners have demonstrated that they possess, or have reasonable
assurance of obtaining, sufficient revenue to safely own and operate each
plant.

For 19 sales, 2 reorganizations, and 1 merger- collectively involving
transfers of licenses for almost 50 nuclear power plants- that we reviewed,
4 NRC found that the new licensees did not qualify for electric utility
status. 5 Except for the merger, NRC received additional guarantees from
parent or affiliated companies that the new owners would have sufficient
revenue to cover the plants? operating costs. For example, the prospective
new owners provided NRC additional assurance that they would produce enough
revenue to cover the expected operating expenses of their plants through
power purchase agreements, contingency funds, and lines of credit from
affiliated or parent companies. In addition, one new generating company
cited anticipated revenue from the sale of nonnuclear power that amounted to
almost 75 percent of its total electricity production to supplement its
ability to support its minority interest in 3 plants.

For each of the sales and reorganizations, the new owners provided some form
of financial assurance for their ability to safely own and operate the
plants they proposed to own in addition to the market sale of the
electricity produced by the plants. NRC staff evaluated this information
according to the guidance in its review plan. For the merger, however, the
new owner did not submit and NRC did not request additional guarantees.

4 The number of license transfers or transactions reviewed and plants
affected are not equivalent. In many cases plant owners have reorganized,
merged or sold their interests in the same plants and many plants have
multiple owners.

5 In one other reorganization, NRC found that the new licensee qualified as
an electric utility.

Chapter 2: Most Restructuring License Transfers Have Maintained or Enhanced
Assurance of Decommissioning Funding

Page 32 GAO- 02- 48 Nuclear Regulation

In addition, NRC did not validate the information submitted by the new owner
to demonstrate that the company was financially qualified to safely own and
operate the largest fleet of nuclear plants in the United States.

When Unicom (Commonwealth Edison) and PECO merged into Exelon Corporation,
the subsidiary Exelon Generation Company, which would hold the NRC operating
licenses for the two companies? 16 operational and 4 retired nuclear power
plants, did not meet NRC?s definition of an electric utility. However, in
their applications to NRC, Commonwealth Edison and PECO asked NRC to
transfer their plants? licenses to Exelon Generation Company on essentially
the same terms and conditions contained in their existing licenses- licenses
which reflected that, as economically regulated utilities, Commonwealth
Edison and PECO had guaranteed access to revenues to own and operate their
nuclear plants. Commonwealth Edison and PECO addressed the issue of
assurance that Exelon Generation Company would be financially qualified to
own and operate their nuclear power plants by providing NRC with 5- year
projections of expenses from the production and purchase of electricity and
revenues from the market sale of this electric power. Among other things,
this information included the estimated costs of:

 operating the new company?s 16 operational nuclear power plants; 6 
purchasing excess electric power from six nuclear power plants owned, or

to be owned, by AmerGen Corporation. AmerGen, which was half- owned by PECO,
was created to market electricity generated from power plants purchased and
operated for that purpose. At that time, AmerGen owned three nuclear power
plants and was attempting to purchase three other nuclear plants; and 
purchasing electricity from other suppliers for resale to Exelon customers,

fuel costs, asset depreciation, and other administrative costs. In
addressing its potential revenue, Commonwealth Edison and PECO provided NRC
with projections of revenues from, primarily, the sale of electricity
produced by the 16 nuclear plants and the resale of the electricity
purchased from AmerGen and other suppliers. Additional income, amounting to
6 percent of the total electric power to be sold, was

6 Of these 16 plants, Commonwealth Edison and PECO owned majority interest
and operated 14 plants. At two plants, Salem- Units 1 and 2, PECO owned a
42. 59 percent interest and PSEG Nuclear operates the plants. Neither
Commonwealth Edison nor PECO estimated annual electricity generation costs
and revenue for individual plants.

Chapter 2: Most Restructuring License Transfers Have Maintained or Enhanced
Assurance of Decommissioning Funding

Page 33 GAO- 02- 48 Nuclear Regulation

derived from the market sale of 5,000 megawatts of power from nonnuclear
plants.

Although Commonwealth Edison and PECO provided a financial projection to NRC
in their license transfer applications, neither company provided, nor did
NRC request, any additional support- power purchase agreements, contingency
fund guarantees, or lines of credit- that would enable NRC to validate the
Exelon Generation Company?s financial qualifications to own and operate the
largest fleet of nuclear plants in the United States. Also, Exelon did not
provide, and NRC did not request, the 5- year projections of operating costs
and estimated annual electricity generation for individual plants. For this
reason, NRC could not, as its review plan recommends, compare plant-
specific costs and production estimates to plants of similar size and type
to confirm the reasonableness of the projections. Nonetheless, NRC concluded
that Exelon?s projected revenues, based solely on the market sale of
electricity, would be sufficient to cover the costs associated with owning
and operating 16 plants, even if it experienced simultaneous 6- month
shutdowns of several of these nuclear plants.

Furthermore, NRC eventually transferred the licenses to Exelon Generation
Company on the basis of projected financial information that both the
affected companies and NRC knew to be inaccurate. When Commonwealth Edison
and PECO updated their projected income statements for NRC in March 2000,
they included income from three nuclear plants that AmerGen was attempting
to purchase. However, there were no notes on this income statement to
clarify that the statements included projected revenue from sales of
electricity to be produced at nuclear plants that AmerGen did not yet own.
(In contrast, Exelon Corporation did disclose this contingency in merger-
related filings submitted to the Securities and Exchange Commission.) In
June 2000, the merging utilities notified NRC that their March 2000 income
statement was the most accurate. A month earlier, however, AmerGen had
notified NRC that it had withdrawn its bid to purchase the two Nine Mile
Point plants in New York. By December 2000 it was also apparent that
AmerGen?s bid to purchase the Vermont Yankee plant would not succeed.
Therefore, AmerGen owned just 3 of the 6 plants Exelon Generation Company
had included in its financial qualification statement. In January 2001- over
1 year after receiving the initial merger applications- NRC transferred
Commonwealth Edison?s and PECO?s licenses to own and/ or operate 20 nuclear
power plants to Exelon Generation Company on the basis in part of projected
financial information known to be inaccurate by the companies and NRC.

Chapter 2: Most Restructuring License Transfers Have Maintained or Enhanced
Assurance of Decommissioning Funding

Page 34 GAO- 02- 48 Nuclear Regulation

In defense of their review of the merger, NRC staff told us that their
regulations only require that licensees demonstrate financial assurance
through credible projections of 5 years of expenses and revenues. Also,
because Exelon Generation Company was to be the licensee for all 16
operating plants, there was no compelling need to require plant specific
information. The NRC staff maintain that they did perform an analysis of the
impact of AmerGen?s lost bids for the Nine Mile Point and Vermont Yankee
plants and determined that there was no material impact on Exelon Generation
Company?s financial qualifications. Unfortunately, NRC did not document this
evaluation in its review file and did not update the financial projections
in their evaluation report to accommodate this analysis.

NRC?s inconsistent review and documentation of license transfer requests
creates the appearance of different requirements for different owners or
different types of transfers. Good business practices suggest that NRC
follow one review process with all of its licensees. While its standard
review plan offers a sound basis for obtaining consistency, NRC is clearly
not consistently achieving the desired results. One modification that could
help NRC?s staff and management maintain consistency in their reviews of
license transfers is the use of detailed checklists or step- by- step
processes delineated more precisely within its standard review plan.

To ensure that the decommissioning assurance methods and financial
qualifications of all new nuclear plant owners are consistently verified,
validated, and documented, we recommend that the Chairman, NRC, revise the
Commission?s standard review plan and related management controls for
reviewing license transfers to include a checklist or step- bystep process
for its staff, its management, and prospective owners to follow.

We provided NRC with a draft of this report for its review and comment. (See
app. I for NRC?s comments.) NRC disagreed with our recommendation. According
to NRC, revising its review plan will not greatly enhance the effectiveness
of its license transfer reviews because many of these transfers have been
complex and unique. We disagree. When NRC drafted its review plan, it had no
experience in regulating licensees that generate electricity in competitive
markets. Since then, NRC has processed over 60 requests to transfer
licenses. Although the details of each transfer request may have been
unique, the affected Conclusions

Recommendation for Executive Action

Agency Comments and Our Response

Chapter 2: Most Restructuring License Transfers Have Maintained or Enhanced
Assurance of Decommissioning Funding

Page 35 GAO- 02- 48 Nuclear Regulation

licensees have consistently used the same few basic methods permitted by
NRC?s regulations, such as prepayment and/ or parent company guarantees, to
provide NRC with assurance that decommissioning funding and financial
qualifications are being met. However, NRC?s reviews of these license
transfer requests have been inconsistent. Therefore, revising the review
plan to ensure, on the basis of NRC?s experiences to date, that each
decision to approve a license transfer is based on consistent supporting
information could increase NRC?s efficiency and effectiveness, thereby
helping NRC to achieve one of its primary performance goals. 7

NRC raised several issues regarding its reviews of the adequacy of
decommissioning funding and the financial qualifications of new owners of
plants. NRC said its reviews of the PSEG and Exelon license transfers were
adequate and complete, led to the conclusion that there was reasonable
assurance of decommissioning funding and, in the Exelon case, that the new
owners were financially qualified. NRC acknowledged that it did not
appropriately document some of these evaluations. However, NRC asserted
that, by reviewing other, unspecified, sources of financial information and
information on the appropriate state?s non- bypassable charges requirements,
it was able to obtain reasonable assurance of decommissioning funding and
financial qualifications. We disagree, for reasons that go beyond the lack
of review documentation. Specifically, NRC?s staff could not, in response to
our requests, identify the specific sources upon which they relied, but did
not document, for other information. Furthermore, we independently reviewed
the state laws on non- bypassable charges for decommissioning funding that
NRC?s staff had referred us to and found that, while these laws provided for
utilities to collect these charges, the statutes were silent on the
procedures for depositing the charges collected into the plants?
decommissioning funds. These collection and transfer procedures were left to
appropriate state public utility commissions and, in many cases, had not
been determined

7 NRC?s four performance goals are to maintain safety, increase public
confidence, reduce unnecessary regulatory burden, and enhance the
effectiveness and efficiency of its activities and decisions.

Chapter 2: Most Restructuring License Transfers Have Maintained or Enhanced
Assurance of Decommissioning Funding

Page 36 GAO- 02- 48 Nuclear Regulation

when NRC conducted its license transfer reviews. Nevertheless, NRC did not
require the prospective new plant owners to make binding commitments with
affiliated utilities or other enforceable statements of assurance that the
non- bypassable charges collected by these utilities from their electricity
customers would be transferred to the appropriate decommissioning fund for
the new owners? plants.

Chapter 3: Regulatory Policies Under Consideration May Affect
Decommissioning Costs and Nuclear Waste Policies

Page 37 GAO- 02- 48 Nuclear Regulation

Varying radiation cleanup standards, the possibility that NRC will approve
alternative decommissioning methods, and incomplete historical plant
contamination data confound a licensee?s ability to estimate future
decommissioning costs. Varying radiation cleanup standards create
uncertainty because plants decommissioned to NRC?s radiation cleanup
standards may also have to meet more stringent EPA or state standards, thus
increasing the costs of decommissioning. Alternative decommissioning methods
under consideration for approval would add uncertainty because no reliable
data exist on their overall costs; they could reduce short- term
decommissioning costs but add considerably to long- term costs. Moreover,
implementing these methods would raise significant technical and policy
issues pertaining to the management and disposal of radioactive wastes.
Furthermore, the lack of complete historical information regarding plant
contamination can translate into an unexpected increase in site cleanup
costs late in the decommissioning process.

To terminate an operating license and to release a site for unrestricted
use, an NRC licensee must decommission its plant so that the residual
radiation remaining at the site after decommissioning has been reduced to
levels that meet NRC?s standard. 1 However, meeting NRC?s radiation cleanup
standard may not signal the end of the decommissioning costs, because either
EPA or the host state could require additional cleanup activity to meet more
stringent standards.

While NRC regulates the decommissioning of commercial nuclear facilities,
EPA issues general standards for radiation protection and administers
CERCLA, which governs the cleanup of contaminated facilities. 2 NRC and EPA
have historically disagreed on how restrictive U. S. radiation protection
standards should be, and in 1997, EPA?s Administrator told NRC?s Chairman
that NRC?s radiation cleanup standard should be tightened to 15 millirems
per year. The Administrator also called for adding a separate standard
limiting the concentration of radiation in

1 Under regulations issued by NRC in 1997, decommissioned sites that are
decontaminated to residual radiation levels of 25- millirems or less may be
released for unrestricted future uses. Decommissioned sites with elevated
residual radiation levels of up to 500- millirems may only be released for
restricted use, with safeguards and institutional controls to prevent public
exposure.

2 NRC?s regulatory authority derives from the Atomic Energy Act, while EPA?s
derives from Presidential Reorganization Plan No. 3 of 1970 and CERCLA.
Chapter 3: Regulatory Policies Under

Consideration May Affect Decommissioning Costs and Nuclear Waste Policies

Varying Cleanup Standards Create Cost Uncertainties

Chapter 3: Regulatory Policies Under Consideration May Affect
Decommissioning Costs and Nuclear Waste Policies

Page 38 GAO- 02- 48 Nuclear Regulation

groundwater to 4- millirems per year. 3 These limits would be consistent
with EPA?s standards for cleanup at Superfund sites. If NRC did not agree,
the Administrator said, EPA would have to reconsider its policy of exempting
the sites of facilities regulated by NRC from EPA?s National Priorities List
of Superfund sites. Such action could subject NRCdecommissioned and released
sites to a second evaluation under EPA?s Superfund standards. EPA could
conduct these subsequent evaluations under its own authority or when asked
to do so by other stakeholders. It has provided guidance to its regional
offices on how to proceed in such instances. However, the agency believes
that the vast majority of decommissioned nuclear power plants will meet
Superfund protection standards and is not actively looking for NRC sites to
evaluate. Nevertheless, failure to pass a Superfund evaluation could mean
significant additional cleanup costs.

NRC, however, shows no sign of changing its standards. NRC disagrees with
EPA?s preferences and questions EPA?s technical basis for proposing the
extra groundwater protection. Differences in agency missions, legislative
mandates, and regulatory strategies contribute to this disagreement, which,
despite resolution efforts spanning a number of years, remains essentially
unresolved. 4

According to the NRC Chairman, the disagreement over acceptable radiation
standards is eroding public confidence and is negatively affecting efforts
to assure the public that decommissioning can be accomplished in a manner
that protects public health, safety, and the environment. In fact, in part
because of the uncertainty over the scientific basis supporting radiation
protection standards and the dispute between EPA and NRC, several states
have established, or are in the process of establishing, their own radiation
protection standards. Because most of these proposed or

3 EPA does not actually express radiation protection standards in millirems
but uses a system of ?slope factors? to assign risk limits to individual
chemical and radioactive contaminant types alike. These limits equate to a
risk threshold of 1 in 1,000, 000 that an individual will develop cancer in
a lifetime or, with regard to radiation, roughly to a 15- millirem- a- year
all- pathway radiation dose limit and a separate four- millirem- a- year
dose limit for groundwater.

4 Radiation Standards: Scientific Basis Inconclusive, and EPA and NRC
Disagreement Continues (GAO/ RCED- 00- 152, June 30, 2000); Nuclear
Regulation: Better Oversight Needed to Ensure Accumulation of Funds to
Decommission Nuclear Power Plants

(GAO/ RCED- 99- 75, May 3, 1999); and Aging Nuclear Power Plants: Managing
Plant Life and Decommissioning (U. S. Congress, Office of Technology
Assessment, OTA- E- 575, Sept. 1993).

Chapter 3: Regulatory Policies Under Consideration May Affect
Decommissioning Costs and Nuclear Waste Policies

Page 39 GAO- 02- 48 Nuclear Regulation

existing state standards are more stringent than either EPA?s or NRC?s
standards, implementation of the states? standards could increase
decommissioning costs.

For example, in April 2000, the state of Maine imposed a standard limiting
the total effective annual dose from residual contamination at the Maine
Yankee nuclear plant site to 10 millirems, with a separate 4- millirem dose
standard for groundwater- which is below the dose allowed under either NRC?s
standard or EPA?s preferred standard. Maine Yankee officials estimated that
it would cost between $25 million and $30 million to ship and dispose of the
waste materials that must be disposed of to meet the state?s more
restrictive standard.

Similarly, Massachusetts has set its own total effective annual dose
equivalent standard of 10- millirem for decommissioned sites and New York
has set a soil cleanup standard of 10- millirem for radioactive materials.
New Jersey has set a 15- millirem residual radiation exposure standard, and
the state of Connecticut is presently developing its own cleanup standards
for commercial nuclear facilities. According to a state environmental
department official, the new standard has not yet been officially approved,
but will be the approximate equivalent of a 19- millirem dose limit, with a
requirement to further reduce dose if it proves economically and
environmentally feasible to do so. According to officials of the state and
the Connecticut Yankee Power Company, the utility and the state are working
together to ensure that the company will comply with the state?s new
standard, when issued, as well as NRC?s and EPA?s standards, in the
decommissioning of the company?s Haddam Neck nuclear power plant.

Chapter 3: Regulatory Policies Under Consideration May Affect
Decommissioning Costs and Nuclear Waste Policies

Page 40 GAO- 02- 48 Nuclear Regulation

Figure 3: The Decommissioning Connecticut Yankee Haddam Neck Plant

Source: GAO.

NRC is considering whether to authorize licensees to leave more
radioactively- contaminated material at their plant sites when
decommissioning nuclear power plants by either (1) reducing contaminated
concrete to rubble and then burying the rubble on site or (2) removing the
most radioactive plant wastes and entombing the residual radioactive
materials inside the thick, reinforced concrete containment structure of
retired plants. The rubblization and entombment methods could, if approved
and implemented, decrease off- site waste disposal costs during the
decommissioning of plants. However, short- term cost savings for some sites
could be more than offset over the long- term because institutional control
measures will be needed to prevent public access.

According to the NRC Chairman, the low- level radioactive waste program in
the United States is not working and the potential exists for the
decommissioning process to be hampered at many sites unless alternative
disposal options are pursued. States, the nuclear industry, and others have
Alternative

Decommissioning Methods May Marginally Decrease Costs but Raise Significant
Technical and Policy Issues

Short- Term Cost Savings Could Be Offset Over Time

Chapter 3: Regulatory Policies Under Consideration May Affect
Decommissioning Costs and Nuclear Waste Policies

Page 41 GAO- 02- 48 Nuclear Regulation

voiced similar concerns. Therefore, within the limits of its regulatory
authority, NRC is considering decommissioning methods such as rubblization
and entombment that would allow the permanent burial or encasement of
radioactive waste at nuclear plant sites.

NRC believes that it is technically possible to approve a license
termination plan that includes rubblization, as long as the total effective
annual dose of radiation that a person living at the site would receive did
not exceed the Commission?s standards. Rubblization will be technically
possible, NRC believes, as long as licensees are able to successfully
address related issues, such as access to, and digging at, the sites where
rubblization has occurred and the potential for reuse of extracted materials
that are contaminated with radioactive elements.

Rubblization represents a departure from NRC?s past licensing practice,
which emphasized shipping low- level radioactive wastes from decommissioning
sites to disposal facilities. Although NRC has estimated that rubblization
could save a licensee from $10 million to $16 million in waste disposal
costs during decommissioning, its Advisory Committee on Nuclear Waste has
concluded that technical factors, such as the depth of radioactive
contamination and the volume of rubblized waste, could significantly
diminish the potential cost savings. The Advisory Committee also believes
that evaluating radioactive material content and doses from rubblization,
both at the site and in local groundwater, may prove difficult and
expensive. The Committee has cautioned that estimates of cost savings from
rubblization could be offset if extensive decontamination, sampling, and
analyses are needed. Therefore, the Committee has recommended that NRC
establish a test case for study to identify possible problems and solutions
related to rubblization.

In April 1997, NRC?s commissioners also requested NRC staff to revisit the
entombment method of decommissioning, the use of which the commission had
discouraged a decade earlier, to determine whether that method serves as a
viable alternative to completely dismantling nuclear plants. The Commission
added that, if the staff concluded that entombment is not a viable
decommissioning method, the staff should describe the technical requirements
and regulatory actions necessary for entombment to become viable, including
the resources involved, potential decommissioning cost savings, and
vulnerabilities.

NRC had considered entombment as a decommissioning method in 1988 but
generally opposed its use because, among other things, (1) the method would
require expenditures for maintenance, security, and other long- term

Chapter 3: Regulatory Policies Under Consideration May Affect
Decommissioning Costs and Nuclear Waste Policies

Page 42 GAO- 02- 48 Nuclear Regulation

institutional controls for at least 100 years that would about equal
dismantlement costs and (2) regulatory changes occurring during the long
entombment period might require additional costly decommissioning activity
before entombed sites could be released for unrestricted use in the future.
NRC determined that entombment would be acceptable only on a case- by- case
basis when a licensee could demonstrate that (1) immediate or delayed
dismantlement of its nuclear facility was infeasible, (2) radioactive decay
would allow unrestricted release of a site in about 100 years, and (3)
access to waste disposal facilities was not available. No licensee at any
additional power reactors undergoing decommissioning has since proposed the
entombment option.

On May 4, 1998, NRC?s staff notified the Commission that, on the basis of
its preliminary assessment of work performed for NRC by the Department of
Energy?s Pacific Northwest National Laboratory, consideration of entombment
as a viable decommissioning method had merit. The Laboratory had estimated
and compared decommissioning costs, radioactive waste disposal requirements,
estimated radiation doses to persons, and institutional control requirements
for the two decommissioning methods approved in 1988- immediate
dismantlement and dismantlement after storage of 50 years or more- with two
entombment variations. These entombment methods are immediate entombment of
radioactive plant materials in the containment building and the storage of
radioactive plant materials in the containment structure for over 100 years,
followed by entombment.

Subsequently, on July 19, 1999, NRC?s staff affirmed that entombment could
be safe and viable, depending on specific site situations. NRC?s staff said
that entombment, when properly performed, should have little effect on
health, safety, and the environment. In addition, the staff noted that the
entombment of radioactive wastes within the containment building of a
retired nuclear power plant could significantly reduce off- site waste
disposal requirements and related costs- although cost reductions would be
offset, to some degree, by the cost of maintaining and monitoring the
entombed facility for 100 to 300 years.

The NRC staff?s decision that entombment might reduce decommissioning costs
is questionable. For instance, both plants that have already been
decommissioned and plants in the process of decommissioning using the
immediate decontamination and dismantlement option report higher costs than
the figure used for this option in the Pacific Northwest National Laboratory
analysis on which NRC?s staff based its views. Furthermore, the minimum
amounts required for this option (as determined by NRC?s

Chapter 3: Regulatory Policies Under Consideration May Affect
Decommissioning Costs and Nuclear Waste Policies

Page 43 GAO- 02- 48 Nuclear Regulation

own generic formula) are significantly greater than the figure used in the
laboratory?s analysis. The laboratory?s analysis also showed that neither
immediate nor delayed entombment offer significant projected cost savings
unless one assumed that entombment would lead to a reduction in long- term
site security and insurance costs. Moreover, the laboratory?s analysis
showed that, even when reduced security and insurance costs are assumed,
placing a retired plant in storage for approximately 50 years and then
dismantling the plant is the least costly decommissioning method.

The laboratory also used a 130- year institutional control period in its
analysis of the entombment method of decommissioning. NRC, however, has
stated that if radioactive wastes entombed in a former nuclear plant include
long- lived waste varieties, then the necessary period of institutional
control could be extended to 300 years. In such a case, the cost for the
additional 170 years of monitoring and surveillance needed could make both
entombment options significantly more costly than the immediate dismantling
of a plant and off- site disposal of its radioactive wastes.

Also, although the laboratory?s analysis did not include entombment of
Greater- Than- Class- C (GTCC) waste, NRC is considering the possibility of
authorizing licensees to entomb GTCC waste rather than disposing of it in a
geologic repository. Current regulations specify that GTCC waste is not
generally acceptable for near- surface disposal without special processing
and design and the case- by- case approval of NRC. GTCC waste from
decommissioning a nuclear power plant is essentially comprised of
radioactive internal reactor parts, which, while less radioactive than
highlevel waste such as spent fuel, remain radioactive for many thousands of
years. However, including GTCC within the entombment structure would extend
the required period of institutional control and its associated expense to
thousands of years. Furthermore, regardless of the time period in which
institutional controls would be required, a licensee would need to establish
a funding mechanism to provide sufficient financial assurance that essential
institutional controls would be carried out for the required time period. In
contrast to immediately dismantling a plant and removing essentially all
radioactive materials from the plant site, entombment would essentially make
a former plant site a restricted storage or disposal facility for low- level
radioactive waste for more than 100 years, which could hamper commercial
reuse or resale of the site for the entombment period.

Finally, questions remain regarding the financial provisions for remediation
in the event of a failure at an entombed site. According to NRC?s staff,
?very expensive remedies? could be required if an

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entombment configuration proved unable to adequately isolate radioactive
contaminants over the 100- year or longer time period needed for radioactive
decay. Given the length of time involved, states are concerned that they
will have to pay remediation costs should an entombment fail.

Aside from questionable cost benefits, rubblization and entombment raise a
number of technical issues. For instance, NRC does not intend to require
that sites where rubblized radioactive materials would be buried have
protection equivalent to off- site disposal facilities for low- level
radioactive waste. Disposal facilities for commercial low- level radioactive
waste, which are licensed and regulated by NRC or by a state (under
agreement with NRC), must be designed, constructed, and operated according
to NRC?s regulations (or compatible regulations issued by the host state).
In addition, to obtain a license to build and operate a disposal facility,
the prospective licensee must characterize the facility site and analyze how
the facility will perform for thousands of years. However, according to NRC,
a rubblized site is not comparable to a low- level radioactive waste
disposal facility because

 the quantity, forms, and range of radioactive waste types buried at a
nuclear plant site would be less,  rubblization is a decommissioning action
subject to the license

termination rule rather than a radioactive waste disposal action subject to
the licensing provisions of 10 CFR Part 61, and  NRC?s regulations for
disposing of low- level radioactive waste apply only

to facilities that dispose of waste from other sites and sources and not to
sites where contaminated materials are to be rubblized and buried on- site.

Nevertheless, 10 CFR Part 61 does not differentiate between what does or
does not qualify as a low- level waste disposal action or facility on the
basis of the quantity, forms, or range of the low- level radioactive waste
to be buried. Furthermore, NRC?s view that rubblization does not constitute
the creation of a low- level radioactive waste disposal site is not shared
by EPA and at least three agreement states. When the Maine Yankee Power
Company was considering rubblization as the decommissioning method for the
Maine Yankee nuclear power plant, the state of Maine and EPA expressed
concern that burying low- level radioactive waste at the plant site would be
tantamount to creating an unlicensed low- level radioactive waste disposal
facility. In fact, Maine?s attorney general found that a strict application
of Maine state law would have classified rubblization of the plant as such.
Such classification would have, in turn, required state legislature and
voter approval, licensing by NRC or the state, and eventual Technical Issues
Surround

Alternative Decommissioning Methods

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state ownership of the plant site. Furthermore, when NRC sent a draft
entombment rulemaking plan, an Advance Notice of Proposed Rulemaking (ANPR),
and the PNNL entombment assessment to agreement states for comment on March
7, 2001, two out of the three agreement states that commented responded
negatively.

New York, for example, opposed any new rulemaking that would allow low-
level or GTCC waste to be entombed at reactor sites in the state. The state
also contended that such an action would be contrary to the intent of the
Nuclear Waste Policy Act and would adversely impact the financial viability
of existing or planned low- level radioactive waste disposal facilities and
state compacts. The state pointed out that data presented in the PNNL
assessment (as discussed above) indicated that long term storage followed by
dismantlement was preferable to entombment.

The state of Illinois also found entombment to be problematic as a
decommissioning method, urged that NRC prohibit that approach, and said it
would resist its implementation. The state found entombment to be
inconsistent with the waste management policy established by Congress
through the Low- Level Radioactive Waste Policy Act as amended. Regarding
NRC?s position that entombment is a decommissioning rather than a disposal
action, the state said:

?It is beneath the NRC to engage in the semantical charade of denominating
long- term isolation of reactor waste as anything other than disposal. The
Agreement States? authority to license disposal of LLRW at reactor sites
includes authority over entombment of LLRW. Any attempt by the NRC to repeal
Agreement State authority under the pretext of merely licensing the
decommissioning of commercial nuclear power reactors is virtually guaranteed
to be vehemently [opposed] by Agreement States. If it is the NRC?s objective
to assert permanent federal control and responsibility over reactor sites,
using those sites as a multitude of sacrifice areas throughout the United
States, IDNS submits that NRC should make its proposal to Congress for a
full and vigorous national debate.?

Water intrusion is also a major concern for rubblized or entombed sites, and
the fact that most nuclear power plants are situated in shallow water table
or flood plain locations may limit the viability of these options.
Furthermore, should NRC decide to allow GTCC waste in an entombment,
integrity of the concrete configuration would have to be assured for many
thousands of years. However, experts cannot guarantee or predict the
integrity of concrete after 500 years.

Other technical concerns about rubblization include the potential for buried
concrete to leach from rubblized sites, adversely affecting local

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water quality; the propriety of diluting contaminated material by mixing the
material with non- contaminated materials; and, how to demonstrate that the
estimated radiation dose at a rubblized site has been reduced to a level ?as
low as reasonably achievable,? as required by NRC. 5 As with any proposed
decommissioning method, the licensee would have to address any relevant
issues in the License Termination Plan, as well as demonstrate compliance
with the License Termination Rule and requirements for the reduction of
resulting residual radiation to levels that are as low as reasonably
achievable. NRC is in the process of updating its generic environmental
impact statement on radiological criteria for terminating nuclear facility
licenses. The update will address, among other things, rubblization as a
decommissioning method and may include issues such as the acceptability of
mixing or diluting contaminated material, the environmental effects of
leaving contaminated concrete at decommissioned sites, and the potential
effects of widespread use of the rubblization method because of economic
considerations. NRC intends to require an environmental review for each site
that proposes rubblization. The new generic statement should be useful to
NRC in reviewing the environmental effects of license termination plans
based on rubblization.

NRC staff recognized in reaching their favorable conclusions on the
viability of entombment in 1999, that statutory, regulatory, technical, and
implementation issues, such as the appropriateness of relying on intruder
barriers over a 1, 000- year period, required further development. For
example, the usefulness of the entombment decommissioning method could be
limited by concerns over the reliability of long- term institutional
controls. Such concerns are indirectly addressed in a recent National
Academy of Sciences report on the long- term management of DOE?s nuclear
sites. 6 Many of the weaknesses addressed in the Academy?s report may apply
to the restricted release of NRC- licensed sites as well. For example,
according to the Academy:

The viability over time of land use restrictions is likely to be especially
questionable in cases where contamination levels are not high enough to
prohibit all public access but not

5 NRC?s ?As- Low- As- Reasonably- Achievable (ALARA)? policy essentially
requires licensees to reduce residual radiation at decommissioning below the
level required for unrestricted release as long as it is economically and
environmentally feasible to do so.

6 Long- Term Institutional Management of U. S. Department of Energy Legacy
Waste Sites

(National Research Council, Committee on the Remediation of Buried and Tank
Wastes, International Standard Book Number 0- 309- 07186- 0, Copyright 2000,
National Academy Press).

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Page 47 GAO- 02- 48 Nuclear Regulation

low enough to permit unrestricted use. Often the real issue is not whether
use restrictions will eventually fail, but when and what the consequences
will be when they do. [Emphasis in original.]

EPA has also questioned the reliability of long- term institutional
controls, stating that among other things, long- term governmental controls
may not be enforced effectively because of political and fiscal constraints
on a state or local government?s exercise of its police power.

NRC?s Chairman has acknowledged that the need for long- term institutional
controls is a significant weakness in decommissioning methods, such as
entombment, in that states or other governmental agencies may not be willing
to accept the responsibility for such controls. And, according to NRC?s
staff, the viability of entombment as a decommissioning method hinges, in
part, on the Commission?s decision on whether barriers to intrusion in the
absence of institutional controls would effectively keep exposure to
affected persons beneath the Commission?s dose limits.

The reliability of institutional controls over entombments that include GTCC
waste would be even more questionable because of the extremely long post-
closure monitoring and surveillance timeframes that would be required. In
fact, in its August 1988 generic environmental impact statement on
decommissioning nuclear facilities, NRC?s staff concluded that the
entombment method with GTCC waste included in the encasement was not viable
because the security of the site could not be assured for thousands of
years. In 1998, NRC also said that analyses would be required to demonstrate
that a proposed entombment was unlikely to fail over the proposed entombment
period. Such a requirement would be difficult to meet if GTCC waste were
stored in the entombment because, experts say, projections on the integrity
of concrete after 500 years are speculative. Finally, NRC?s staff has
determined that the Low- Level Radioactive Waste Policy Amendments Act of
1985 and NRC?s regulations essentially require that the disposal of GTCC
waste be licensed and that GTCC waste be placed in a geologic repository. 7

7 During a NRC entombment workshop held in December 1999, DOE panel members
stated that entombing GTCC waste in a reactor containment building is
possible under existing legislation and that such an alternative was
preferable to disposing of this type of waste in a geologic repository. The
Low- Level Radioactive Waste Policy Act makes DOE responsible for disposing
of commercially generated GTCC wastes.

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Over the 100 to 300 year entombment period, early license termination and
potential property ownership changes could also complicate the issue of
financial responsibility for the entombment failure and subsequent
responses. States are concerned that they may be obligated to pay the
potential remediation costs if they have to assume oversight responsibility
for an entombment after NRC has terminated a plant?s operating license. For
this reason, state representatives have said that, at least until experience
with entombment has been acquired, NRC should continue to maintain some type
of licensing responsibility at entombment sites. Such a step, however, would
be contrary to NRC?s goal of terminating licenses upon plant entombment.

On- site burial of rubblized low- level radioactive waste or the entombment
of these wastes on- site may conflict with national policy on management and
disposal of these wastes. The Low- Level Radioactive Waste Policy Act of
1980, as amended in 1985, established as federal policy that commercial low-
level radioactive waste- except for GTCC waste- can be most safely and
effectively managed by states on a regional basis. Through the act, the
Congress encouraged states to form regional compacts to meet their
collective disposal needs, minimize the number of new disposal sites, and
more equitably distribute the responsibility for the management of lowlevel
radioactive wastes among the states.

To encourage the formation of such regional compacts, congressionally
approved compacts are allowed to prohibit the disposal of wastes generated
outside their respective regions. To date, 44 states have entered into 10
compacts. However, despite some 20 years of effort and the expenditure of
about $600 million, no new regional disposal facilities have been provided
as a result of the act, and no state or compact is currently trying to
identify a site for a disposal facility. 8

Commercial generators of low- level radioactive waste, including licensees
that are, or soon will be, decommissioning their nuclear power plants,
currently have access to off- site disposal facilities for this waste. Of
the three currently operating disposal facilities for commercial low- level
radioactive waste, the Barnwell, South Carolina facility is both available
to

8 For a fuller discussion of states? implementation of the Low- Level
Radioactive Waste Policy Act, see Low- Level Radioactive Wastes: States Are
Not Developing Disposal Facilities (GAO/ RCED- 99- 238, Sept. 17, 1999).
Alternative

Decommissioning Methods Potentially Conflict With National Policy

Chapter 3: Regulatory Policies Under Consideration May Affect
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Page 49 GAO- 02- 48 Nuclear Regulation

generators in all states and licensed to accept all classes of waste for
which states must provide disposal. However, whether such access will
continue, and at what cost, is uncertain. Access to the Barnwell facility is
to be phased out for most generators by mid- 2008. Another facility-
Envirocare of Utah- which is located west of Salt Lake City, Utah, is
available to generators in all states outside the Northwest Interstate
Compact region but is licensed to accept only the least radioactive class of
such wastes. In July 2001, the operator of this facility obtained a license
amendment from the state of Utah to dispose of the more radioactive classes
of low- level radioactive waste. However, the facility must also obtain the
approval of the state?s governor and legislature for such disposal. The
company has announced that, at this time, it will not pursue such approvals
because of controversy over an unrelated proposal to develop a storage
facility for spent fuel from commercial nuclear power plants.

Unless Envirocare obtains the required governmental approvals in Utah and
expands its existing disposal facility, and absent any new initiative by a
compact of states to develop other disposal capacity, by mid- 2008 waste
generators in 36 states, Puerto Rico and the District of Columbia, will have
no access to a disposal facility for wastes that are not already approved
for disposal at the Envirocare facility.

The potential lack of access to disposal facilities prompted NRC and the
nuclear industry to explore the rubblization and entombment decommissioning
methods. Concerns have been voiced, however, that rubblization and/ or
entombment could adversely affect disposal costs and/ or the profitability
and economic well- being of the existing disposal facilities, while making
it economically infeasible for a compact to develop new disposal facilities.
Thus, the two decommissioning methods appear to run counter to the existing
national policy of encouraging states to manage disposal of low- level
radioactive wastes on a regional basis.

Moreover, the rubblization and/ or entombment decommissioning methods may
also contravene some state- compact agreement provisions. As discussed
earlier, for example, if rubblization of the Maine Yankee plant had
occurred, the state could have determined that the rubblized site was a
disposal facility for low- level radioactive waste. In such a case,
according to Maine?s attorney general, the state could have been in
violation of the Texas Low- Level Radioactive Waste Disposal Compact, of
which Maine is a member, because the compact terms make Texas- not Maine-
responsible for developing the compact?s disposal capacity for low- level
radioactive waste generated within Maine, Texas, and Vermont.

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Site characterization is an essential step in the decommissioning process, 9
but NRC does not stipulate when site characterization must be done. The sole
time constraint is that a site- characterization must accompany NRC
licensee?s license termination plan and that the license termination plan
must be submitted to NRC at least 2 years before the requested termination
date of the license. If site characterization work does not begin until the
latter stages of decommissioning and survey work uncovers unexpected
contamination, instances can occur where the balance remaining in the
decommissioning trust fund may not be enough to cover the unplanned
additional cleanup work required.

NRC requires licensees to document occurrences and locations of spills,
leaks, and other events that may occur at the plant and result in site
contamination. This documentation, combined with the institutional knowledge
of plant employees, provides the basis for a plant?s historical site
assessment and characterization plans. Historical site assessment and
characterization are essential to ensure and demonstrate that all impacted
areas at the site have been identified and cleaned up to meet the
appropriate dose level required for license termination.

In cases where nuclear power plants were operating before NRC imposed record
keeping requirements for burials, spills, and so forth, or if required
record- keeping was less than meticulous, the institutional knowledge of
plant employees becomes an invaluable tool for disclosing incidents and
locating where contamination might be present. However, once a plant
announces its plans to decommission, employees are often let go or leave to
take other jobs, diminishing the institutional knowledge. In situations
where plants close and are placed in safe storage for a number of years
before final decommissioning work begins, institutional knowledge may be all
but lost. As a result, although surveys take place throughout the
decommissioning process, some instances of contamination may not be
discovered until comprehensive site characterization work begins.

For instance, one small nuclear plant- Saxton in Pennsylvania- was built on
the site of an old steam generating plant. The nuclear reactor was purposely
built on this site to utilize an existing turbine and associated equipment
from the steam plant. The nuclear reactor was shut down in

9 Site characterization entails radiological surveys of site grounds and
facilities to insure that residual radiation at the site is in compliance
with the appropriate NRC- prescribed dose limits for license termination and
site release. Site Contamination

Can Go Undetected Until Late in Cleanup Process

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1972. In 1975 the steam plant was demolished and the basement was backfilled
with demolition debris. The nuclear facility was maintained in a monitored
condition, and full- scale decommissioning work did not begin until May
1998, 26 years after the plant was permanently shut down.

After initial site characterization and submission of the License
Termination Plan in early 1999, unexpected additional contamination was
discovered that required complete removal of all concrete in the containment
structure and excavation, characterization, and remediation of the old steam
plant basement. The estimated cost for this work exceeded the balance
remaining in the decommissioning trust fund, forcing the owners to pay for
it out of their general operating funds.

An NRC official told us that the plant owners are committed to doing a
quality decommissioning job and that many of the problems found have been
identified as a result of their diligence in approaching the decommissioning
task. Nevertheless, historical site assessment efforts might have been
easier to perform and more input from plant employees might have been
obtained had initial site characterization work begun closer to plant
shutdown and unexpected contamination problems been discovered sooner.
Because the licensee was initially able to collect decommissioning costs
from the ratepayers after the plant shut down, ratepayer contributions to
the decommissioning fund might have been increased, or decontamination and
dismantlement could have been delayed to allow for decommissioning fund
investment income to grow to meet additional decommissioning costs before
the principal was spent.

The actual cost incurred to decommission a nuclear power plant site is
affected by many factors, some of which lie beyond a licensee?s control. One
of these factors is uncertainty over the application of radiation protection
standards. Though NRC?s licensees accumulate funds to decommission their
plants to NRC?s standard, once the time to decommission a plant arrives, a
licensee may find that it must also meet a more stringent EPA or state
standard at higher than anticipated cost. Another factor is whether, in the
future, licensees will have access to affordable disposal capacity for the
low- level radioactive waste generated in the decommissioning process.
Licensees? and NRC?s interest in rubblization and entombment, as alternative
approaches for decommissioning, attempts to address this uncertainty, but in
turn raises equally important technical and policy issues pertaining to on-
and off- site disposal of low- level radioactive wastes and the
proliferation of radioactive waste disposal sites around the country. Also,
the potential Conclusions

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Page 52 GAO- 02- 48 Nuclear Regulation

short- term cost savings from these methods may be more than offset if
safeguards and institutional controls are required to ensure the safety of
rubblized or entombed sites over the longer term. And the principal
advantage of rubblization and entombment appears to be the disposal of
radioactive waste at nuclear plant sites, which may not comport with current
federal policy encouraging states, by means of congressionallyapproved
compacts, to be responsible for this function. Leaving low- level
radioactive wastes buried or entombed at nuclear plant sites would make it
more difficult for the existing low- level radioactive waste disposal
program to succeed economically, thereby undermining the objectives of the
Low- Level Radioactive Waste Policy Act, as amended.

There is, however, a way to alleviate some cost uncertainty in the
decommissioning process without major technical and policy ramifications.
Licensees could conduct historical site assessments/ characterization
surveys soon after the decision is made to permanently cease operations.
Such early characterization would minimize the chances of the discovery of
contamination problems late in the decommissioning process, when most or all
of the funds have been spent. It would also provide licensees more time to
adjust the accumulation of decommissioning funds accordingly.

We recommend that the Chairman, NRC, in the Commission?s ongoing
consideration of modifications to radiological criteria for terminating
licenses and alternative decommissioning approaches, address

 how the burial or entombment of low- level radioactive waste at nuclear
plant sites, leading to a potentially large number of contaminated sites
scattered around the country, affects the federal policy under the Low-
Level Radioactive Waste Policy Act to manage radioactive waste on a regional
basis; and  concerns about whether these decommissioning approaches are

technically compatible with provisions of the Low- Level Radioactive Waste
Policy Act, the interstate compact agreements that implement the act, and
NRC?s technical regulations on licensing disposal facilities for low- level
radioactive waste.

To reduce the likelihood that site contamination will go undetected until
late in the cleanup process, we recommend that the Chairman, NRC, require
licensees to survey their plant sites for radiation immediately following
the announcement of intentions to permanently cease Recommendations for

Executive Action

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Page 53 GAO- 02- 48 Nuclear Regulation

operations, rather than allowing them to wait until 2 years before
decommissioning is supposed to be complete.

NRC stated that it intends to consider our recommendations, as they pertain
to the entombment alternative, during its ongoing rulemaking proceeding on
that option. NRC added that it will obtain input from stakeholders on
addressing the technical and policy concerns associated with the entombment
decommissioning approach.

NRC disagreed with our recommendations as they pertain to rubblization. The
burial of radioactive rubble at the site of a former nuclear plant, NRC
said, would be subject to its license termination rules and not its
regulations governing the development and operation of facilities for
disposing of low- level radioactive wastes. We, however, like EPA and the
State of Maine, find it difficult to discern why radioactive material buried
on- site- material that has traditionally been shipped to disposal
facilities designed and regulated for such purpose-- does not merit the same
protection as material sent to a low- level waste disposal site.

NRC also disagreed with our recommendation to require earlier
characterization of sites where plants are to be decommissioned because
earlier characterization, in its view, will not add significant value to the
decommissioning process. We disagree. There is always the chance that
contamination exists at a plant site that has not been documented. Although
there is no guarantee that early historical site assessment and
characterization work would identify all such instances, the chances of
doing so would be enhanced by the availability of plant employees
knowledgeable about past plant operations and site conditions. Delaying this
work until essentially the end of the decommissioning process- after many
employees who are familiar with a plant?s operational history are gone-
decreases the available institutional knowledge. Such delay also limits the
ability of the licensee to acquire more decommissioning funds if necessary
to cover increased decontamination expenses. Agency Comments

and Our Response

Chapter 4: New Accounting Standard Improves Financial Reporting but Cannot
Ensure Adequate Decommissioning Funding

Page 54 GAO- 02- 48 Nuclear Regulation

Recent changes to financial reporting standards for asset retirement
obligations, established by the Financial Accounting Standards Board in June
2001, will require owners of nuclear power plants, among other affected
industries, to report estimated decommissioning costs as liabilities in
their financial statements. When implemented, the new standard will improve
consistency in plant owners? reporting of these costs, which previous
accounting practices allowed to be reported in a variety of ways. However,
as an accounting standard it cannot guarantee that licensees have the funds
available for decommissioning.

The estimation of decommissioning costs for nuclear regulatory purposes is
an uncertain process, influenced by such matters as applicable cleanup
standards and the selection of a decommissioning method. Moreover, liability
amounts that companies owning nuclear power plants disclose in their
financial statements may differ from the amounts determined under NRC?s
regulatory requirements. The new accounting standard, for example, will
require public utilities and electricity generating companies to measure the
liability of decommissioning costs using the ?fair value? method. 1 In
contrast, NRC requires licensees to estimate the cost of decommissioning
their plants using a generic formula that takes into account the electrical
output of the plants and derives from technical analysis of previous
decommissioning activities. Alternatively, NRC allows licensees to base
decommissioning costs on site- specific cost estimates if these estimates
exceed the amounts calculated under the minimum funding requirements
prescribed by NRC.

Finally, the new accounting standard cannot ensure that funds will be
available at the time of decommissioning. Accounting standards are concerned
with how financial events and obligations are reported; they do not ensure
that resources will be available to pay for future needs, including
decommissioning costs.

1 Fair value is the amount that an entity would be required to pay in an
active market to settle the asset retirement obligation in a current
transaction in circumstances other than a forced or liquidation settlement.
Chapter 4: New Accounting Standard

Improves Financial Reporting but Cannot Ensure Adequate Decommissioning
Funding

Chapter 4: New Accounting Standard Improves Financial Reporting but Cannot
Ensure Adequate Decommissioning Funding

Page 55 GAO- 02- 48 Nuclear Regulation

Utility companies have used a variety of methods to report estimated costs
of decommissioning nuclear power plants. Implementation of the new standard
in mid- 2002 will improve consistency in plant owners? reporting of these
costs.

On the basis of our review of the 1999 annual financial reports of 55
utility companies, we determined that about 75 percent of the companies have
used one of two methods- the depreciation method or the liability method- to
account for their decommissioning costs. The remaining companies used either
a hybrid method (16 percent); or the method included in the new accounting
standard (2 percent). (See fig. 4.) We were unable to determine the method
used by 7 percent of the utility companies because of insufficient
disclosures in the financial statements.

Figure 4: Methods Currently Used to Account for Decommissioning Costs

Source: GAO analysis.

Utility companies most frequently accounted for nuclear decommissioning
costs as a component of depreciation expense. Using this method, an expense
is reported each year for a portion of the amounts collected from customers
in utility rates; however, instead of recording a liability, the reported
amount for the plant asset is reduced by the amount of the New Accounting

Standard Will Improve Consistency of Reporting

Chapter 4: New Accounting Standard Improves Financial Reporting but Cannot
Ensure Adequate Decommissioning Funding

Page 56 GAO- 02- 48 Nuclear Regulation

expense. This method could ultimately result in a negative book value for
the plant asset.

Using the liability method, an expense is reported each year for a portion
of the amounts collected from customers in utility rates, with an equal
amount added to a liability. The ?bottom- line? (net income), as well as net
assets, remains the same under both methods.

A comparison of the depreciation and liability methods to the new accounting
standard shows that only the new standard requires the total estimated
liability to be reported at plant startup, as well as a corresponding plant
asset. (See table 3.)

Table 3: Comparison of Methods to Report Decommissioning Liability Reporting
approach Depreciation

method Liability method New standard

Full liability reported at inception No No Yes Liability gradually reported
in an increasing amount No Yes No Plant asset cost amount includes the
estimated decommissioning liability

No No Yes Source: GAO analysis.

In February 2000, the Financial Accounting Standards Board (FASB) issued for
comment an exposure draft entitled Accounting for Obligations Associated
with the Retirement of Long- Lived Assets, which discussed nuclear plant
decommissioning, among other types of asset retirement obligations. After
obtaining and considering public comments, in June 2001 the Board
unanimously voted to issue the standard in final form, effective for fiscal
years beginning after June 15, 2002. Under this new standard (Statement of
Financial Accounting Standards No. 143, Accounting for Asset Retirement
Obligations), the fair value of the decommissioning costs is capitalized as
part of the cost of the nuclear plant and an equal amount is recorded as a
liability on the balance sheet.

In addition to requiring utility companies to recognize the full estimated
cost of decommissioning at plant start- up, the new accounting standard also
requires additional disclosures to investors, including:

 a general description of the plant retirement obligation (the liability);
 the fair value of assets, if any, dedicated to satisfy the liability; and
 an explanation of any significant changes in the liability.

Chapter 4: New Accounting Standard Improves Financial Reporting but Cannot
Ensure Adequate Decommissioning Funding

Page 57 GAO- 02- 48 Nuclear Regulation

The new accounting standard will not ensure that owners of nuclear power
plants accumulate adequate funding for decommissioning costs. The Financial
Accounting Standards Board is responsible for establishing standards of
financial reporting, but not for ensuring that funding for liabilities
reported under those standards will be available. The latter responsibility
remains with NRC as a part of its regulation of nuclear power under the
Atomic Energy Act of 1954, as amended, and other legislation.

NRC stated that it neither supports nor opposes the new accounting standard.
NRC added that the accounting standard and NRC?s biennial financial
reporting requirements were developed by distinct organizations for
different purposes. Finally, NRC said it understands that the purpose of the
Financial Accounting Standards Board?s standard is to ensure the consistency
of financial reporting. The standard is not, NRC added, meant to duplicate
NRC?s responsibility of assuring the availability of adequate
decommissioning funds. New Accounting

Standard Does Not Ensure Adequate Funding for Decommissioning Costs

Agency Comments

Appendix I: Comments From the Nuclear Regulatory Commission Page 58 GAO- 02-
48 Nuclear Regulation

Appendix I: Comments From the Nuclear Regulatory Commission

Appendix I: Comments From the Nuclear Regulatory Commission Page 59 GAO- 02-
48 Nuclear Regulation

Appendix I: Comments From the Nuclear Regulatory Commission Page 60 GAO- 02-
48 Nuclear Regulation

Appendix I: Comments From the Nuclear Regulatory Commission Page 61 GAO- 02-
48 Nuclear Regulation

Appendix I: Comments From the Nuclear Regulatory Commission Page 62 GAO- 02-
48 Nuclear Regulation

Appendix I: Comments From the Nuclear Regulatory Commission Page 63 GAO- 02-
48 Nuclear Regulation

Appendix II: GAO Contact and Staff Acknowledgments Page 64 GAO- 02- 48
Nuclear Regulation

Dwayne E. Weigel (202) 512- 6876 In addition, Michael J. Rahl, Carolyn K.
McGowan, John Fretwell, Peggy Smith, Cynthia Norris, Doreen S. Feldman, and
Barbara Timmerman made key contributions to this report. Appendix II: GAO
Contact and Staff

Acknowledgments GAO Contact Acknowledgments

Related GAO Products Page 65 GAO- 02- 48 Nuclear Regulation

Radiation Standards: Scientific Basis Inconclusive, and EPA and NRC
Disagreement Continues (GAO/ RCED- 00- 152, June 30, 2000).

Low- Level Radioactive Wastes: States Are Not Developing Disposal Facilities
(GAO/ RCED- 99- 238, Sept. 17, 1999).

Nuclear Regulation: Better Oversight Needed to Ensure Accumulation of Funds
to Decommission Nuclear Power Plants (GAO/ RCED- 99- 75, May 3, 1999).

Related GAO Products

(141433)

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