Nuclear Regulation: NRC Needs More Effective Analysis to Ensure
Accumulation of Funds to Decommission Nuclear Power Plants
(30-OCT-03, GAO-04-32).
Following the shutdown of a nuclear power plant a significant
radioactive waste hazard remains until the waste is removed and
the plant site decommissioned. In 1999, GAO reported that the
combined value of the owners' decommissioning funds was
insufficient to ensure enough funds would be available for
decommissioning. GAO was asked to update its 1999 report and to
evaluate the Nuclear Regulatory Commission's (NRC) analysis of
the owners' funds and its process for acting on reports that show
insufficient funds.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-04-32
ACCNO: A08783
TITLE: Nuclear Regulation: NRC Needs More Effective Analysis to
Ensure Accumulation of Funds to Decommission Nuclear Power Plants
DATE: 10/30/2003
SUBJECT: Nuclear facilities
Nuclear powerplants
Nuclear waste disposal
Nuclear waste management
Strategic planning
Radioactive waste disposal
Radioactive wastes
Financial analysis
Federal funds
Funds management
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GAO-04-32
United States General Accounting Office
GAO
Report to the Honorable Edward J.
Markey, House of Representatives
October 2003
NUCLEAR REGULATION
NRC Needs More Effective Analysis to Ensure Accumulation of Funds to
Decommission Nuclear Power Plants
a
GAO-04-32
Highlights of GAO-04-32, a report to the Honorable Edward J. Markey, House
of Representatives
Following the shutdown of a nuclear power plant a significant radioactive
waste hazard remains until the waste is removed and the plant site
decommissioned. In 1999, GAO reported that the combined value of the
owners' decommissioning funds was insufficient to ensure enough funds
would be available for decommissioning. GAO was asked to update its 1999
report and to evaluate the Nuclear Regulatory Commission's (NRC) analysis
of the owners' funds and its process for acting on reports that show
insufficient funds.
NRC should (1) develop an effective method for determining whether owners
are accumulating decommissioning funds at sufficient rates and (2)
establish criteria for taking action when it is determined that an owner
is not accumulating sufficient funds. NRC disagreed with these
recommendations suggesting that its method is effective and that it is
better to deal with unacceptable levels of financial assurance on a
case-by-case basis. GAO continues to believe that limitations in NRC's
method reduce its effectiveness and without criteria, NRC might not be
able to ensure owners are accumulating decommissioning funds at sufficient
rates.
October 2003
NUCLEAR REGULATION
NRC Needs More Effective Analysis to Ensure Accumulation of Funds to
Decommission Nuclear Power Plants
Although the collective status of the owners' decommissioning fund
accounts has improved considerably since GAO's last report, some
individual owners are not on track to accumulate sufficient funds for
decommissioning. Based on our analysis and most likely economic
assumptions, the combined value of the nuclear power plant owners'
decommissioning fund accounts in 2000-about $26.9 billion-was about 47
percent greater than needed at that point to ensure that sufficient funds
will be available to cover the approximately $33 billion in estimated
decommissioning costs when the plants are permanently shutdown. This value
contrasts with GAO's prior finding that 1997 account balances were
collectively 3 percent below what was needed. However, overall industry
results can be misleading. Because funds are generally not transferable
from funds that have more than sufficient reserves to those with
insufficient reserves, each individual owner must ensure that enough funds
are available for decommissioning its particular plants. We found that 33
owners with ownership interests in a total of 42 plants had accumulated
fewer funds than needed through 2000 to be on track to pay for eventual
decommissioning. In addition, 20 owners with ownership interests in a
total of 31 plants recently contributed less to their trust funds than we
estimate they needed to put them on track to meet their decommissioning
obligations.
NRC's analysis of the owners' 2001 biennial reports was not effective in
identifying owners that might not be accumulating sufficient funds to
cover their eventual decommissioning costs. In reviewing the 2001 reports,
NRC reported that all owners appeared to be on track to have sufficient
funds for decommissioning. In reaching this conclusion, NRC relied on the
owners' future plans for fully funding their decommissioning obligations.
However, based on the owners' recent actual contributions, and using a
different method, GAO found that several owners could be at risk of not
meeting their financial obligations for decommissioning when these plants
stop operating. In addition, for plants with more than one owner, NRC did
not separately assess the status of each co-owner's trust funds against
each co-owner's contractual obligation to fund decommissioning. Instead,
NRC assessed whether the combined value of the trust funds for the plant
as a whole was reasonable. Such an assessment for determining whether
owners are accumulating sufficient funds can produce misleading results
because owners with more than sufficient funds can appear to balance out
owners with less than sufficient funds even, though funds are generally
not transferable among owners. Moreover, NRC has not established criteria
for taking action if it determines that an owner is not accumulating
sufficient funds.
www.gao.gov/cgi-bin/getrpt?GAO-04-32.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Jim Wells, at (202) 512-6877
or [email protected].
Contents
Letter
Results in Brief
Background
Despite Industry-wide Improvement, Some Owners of Nuclear
Power Plants Are Not Accumulating Sufficient Decommissioning Funds NRC's
Analysis Did Not Effectively Determine Whether Each Owner
Was Accumulating Sufficient Decommissioning Funds Conclusions
Recommendations for Executive Action Agency Comments and Our Evaluation
1 2 4
6
11 15 16 16
Appendixes
Appendix I:
Appendix II: Appendix III: Appendix IV:
Scope and Methodology of Our Analysis of the Decommissioning Trust Funds
Detailed Results of Our Analysis of the Decommissioning Trust Funds
Comments from the Nuclear Regulatory Commission
GAO Comments
GAO Contact and Staff Acknowledgments
GAO Contact Acknowledgments
19
28
42 47
52 52 52
Tables Table 1: Table 2: Table 3: Table 4:
Status of Individual Owners' Trust Fund Balances through
2000, Compared with Benchmark Trust Fund Balances,
under Most Likely Assumptions 9
Status of Individual Owners' Recent Trust Fund
Contributions, Compared with Benchmark Trust Fund
Contributions, under Most Likely Assumptions 10
Status of Combined Trust Funds Compared with
Benchmarks for Balances and Contributions (by
Percentage above or below Benchmarks) 28
Owners with More, or Less, Than Benchmark Trust Fund
Balances and Contributions, under Most Likely
Assumptions (by Percentage above or below
Benchmarks) 29
Contents
Table 5: Selected Owners with More, or Less, Than Benchmark Trust Fund
Balances and Contributions, under Optimistic Assumptions (by Percentage
above or below Benchmarks) 37
Table 6: Selected Owners with More, or Less, Than Benchmark Trust Fund
Balances and Contributions, under Pessimistic Assumptions (by Percentage
above or below Benchmarks) 39
Abbreviations
FERC Federal Energy Regulatory Commission
GDP Gross Domestic Product
NRC Nuclear Regulatory Commission
SAFSTOR Safe Storage
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A
United States General Accounting Office Washington, D.C. 20548
October 30, 2003
The Honorable Edward J. Markey House of Representatives
Dear Mr. Markey:
Following the retirement of a nuclear power plant and removal of the
plant's spent or used fuel, a significant radioactive waste hazard remains
until the waste is removed and disposed of, and the plant site
decommissioned.1 Decommissioning of existing plants is expected to cost
nuclear power plant owners about $33 billion dollars.2 The Nuclear
Regulatory Commission (NRC), which licenses nuclear power plants, requires
plant owners to submit biennial reports on decommissioning funding that,
among other things, provide financial assurance that enough funding will
be available when the power plants are retired.
In 1999, we reported that the combined value of the owners'
decommissioning trust fund accounts (as of the end of 1997) was 3 percent
less than needed to ensure that enough funds would be available when the
plants are retired.3 In addition, we found that NRC had not established
criteria for responding to unacceptable levels of financial assurance. In
December 2001, we reported that transfers of plant licenses among
companies stemming from economic deregulation and the restructuring of the
electricity industry had, in many cases, increased assurances that new
plant owners would have sufficient decommissioning funds when their plants
are retired.4 Nevertheless, in some instances, NRC's evaluation of the
adequacy of funding arrangements was not rigorous enough to ensure that
decommissioning funds would be adequate.
1Retirement means the permanent cessation of a plant's operation.
2Costs in 2000 present value dollars and are for decommissioning the plant
site only and exclude costs for cleaning up nonradiological hazards and
storing spent fuel.
3U.S. General Accounting Office, Nuclear Regulation: Better Oversight
Needed to Ensure Accumulation of Funds to Decommission Nuclear Power
Plants, GAO/RCED-99-75 (Washington, D.C.: May 3, 1999).
4U.S. General Accounting Office, Nuclear Regulation: NRC's Assurances of
Decommissioning Funding during Utility Restructuring Could Be Improved,
GAO-02-48 (Washington, D.C.: Dec. 3, 2001).
In this context, you asked us to update our earlier findings on the
adequacy of owners' decommissioning funds. Specifically, this report (1)
assesses the extent to which nuclear plant owners are accumulating funds
at sufficient rates to pay decommissioning costs when their plants'
licenses expire and (2) evaluates NRC's analysis of the owners' 2001
biennial reports and its process for acting on reports that show
unacceptable levels of financial assurance.
As part of our review, we collected data from the 2001 biennial reports on
estimated decommissioning costs and actual decommissioning trust fund
balances, generally as of December 31, 2000, for 122 nuclear power plants
licensed by NRC. In addition, we surveyed the owners of the plants to
determine how the trust fund balances were invested in 2000 and to
identify the annual amounts that the owners had contributed to the trust
funds in recent years. Eighty-two percent of the owners responded to our
survey.5 Using an approach similar to that used for our 1999 report,6 we
analyzed both the combined efforts of all owners to accumulate funds to
decommission all of the nuclear plants and each individual owner's efforts
to accumulate funds for decommissioning each of its plants. For our
analysis, we estimated the most likely future values of key assumptions,
such as decommissioning costs, earnings on the decommissioning funds'
assets, and the operating life of each plant. To address the inherent
uncertainty associated with forecasting outcomes many years into the
future, we also analyzed the effect of using pessimistic and optimistic
values for these key assumptions. To evaluate NRC's analysis of the
biennial reports and its process for acting on reports that have not
satisfied decommissioning funding assurance requirements, we reviewed
NRC's guidelines and policies for analyzing these reports and interviewed
NRC's officials about how they conducted their analysis. Appendix I
provides more detail on the scope and methodology of our review.
Results in Brief Although the collective status of the owners'
decommissioning fund accounts has improved since our last report, some
individual owners are not on track to accumulate sufficient funds for
decommissioning. Using
5We administered the survey to 110 owners. Since then, the ownership of
some plants has changed and as a result, the total number of owners has
declined. Our analysis assesses 222 trust funds held by 99 owners.
6GAO/RCED-99-75.
our most likely economic assumptions, the combined value of the nuclear
plant owners' trust funds in 2000-about $26.9 billion-was about 47 percent
greater than needed at that point to ensure that sufficient funds will be
available to cover the approximately $33 billion in estimated
decommissioning costs when the plants are retired. This value contrasts
with account balances that collectively were 3 percent below what was
needed by the end of 1997. Overall industry results can be misleading,
however. Because NRC does not allow owners to transfer funds from a trust
fund with sufficient reserves to one without sufficient reserves, each
individual owner must ensure that enough funds are available for
decommissioning its particular plants. We found that 33 owners of all or
parts of 42 different plants had accumulated less funds than we estimated
they needed to have through 2000 to be on track to pay for eventual
decommissioning. Under our most likely assumptions, these owners will have
to increase the rates at which they accumulate funds to meet their future
decommissioning obligations. Of the 33 owners, 26 provided contributions
information for our survey. Of these 26 owners, only 8 appeared to be
making up their shortfalls with recent increases in contributions to their
trust funds.
NRC's analysis of the owners' 2001 biennial reports was not effective in
identifying owners that might not be accumulating sufficient funds to
cover their eventual decommissioning costs. In reviewing the 2001 reports,
NRC reported that all owners appeared to be on track to have sufficient
funds for decommissioning. In reaching this conclusion, NRC relied on the
owners' future plans for fully funding their decommissioning obligations.
However, based on the actual contributions the owners recently made to
their trust funds, we found that several owners could risk not meeting
their financial obligations for decommissioning when these plants are
retired. In addition, for the plants with more than one owner, NRC did not
separately assess the status of each co-owner's trust funds against the
co-owner's contractual obligation to fund decommissioning. Instead, NRC
assessed whether the combined value of the trust funds for each plant as a
whole was reasonable. Such an assessment for determining whether owners
are accumulating sufficient funds can produce misleading results because
owners with more than sufficient funds can appear to balance out owners
with less than sufficient funds, even though funds are generally not
transferable among owners. Furthermore, NRC has not established criteria
for responding to any unacceptable levels of financial assurance.
Accordingly, we are recommending that NRC develop and use an effective
method for determining whether owners are accumulating funds at
sufficient rates and establish criteria for responding to unacceptable
levels of financial assurance.
Background NRC's primary mission is to protect the public health and
safety, and the environment, from the effects of radiation from nuclear
plants, materials, and waste facilities. Because decommissioning a nuclear
power plant is a safety issue, NRC has authority to ensure that owners are
financially qualified to decommission these plants.
Of the 125 nuclear power plants that have been licensed to operate in the
United States since 1959, 3 have been completely decommissioned. Of the
remaining 122 plants, 104 currently have operating licenses (although 1
has not operated since 1985), 11 plants are in safe storage (SAFSTOR)
awaiting active decommissioning,7 and 7 plants are being decommissioned.
At the time of our analysis, 43 plants were co-owned by different owners.
NRC regulations limit commercial nuclear power plant licenses to an
initial 40 years of operation but also permit such licenses to be renewed
for additional 20 years if NRC determines that the plant can be operated
safely over the extended period. NRC has approved license renewals for 16
plants (as of August 20, 2003).
In 1988, NRC began requiring owners to (1) certify that sufficient
financial resources would be available when needed to decommission their
nuclear power plants and (2) require them to make specific financial
provisions for decommissioning.8 In 1998, NRC revised its rules to require
plant owners to report to the NRC by March 31, 1999, and at least once
every 2 years thereafter on the status of decommissioning funding for each
plant or proportional share of a plant they own.9 Under NRC requirements,
the
7SAFSTOR involves placing the stabilized and defueled facility in storage
for a time followed by final decontamination and dismantlement, and
license termination.
8NRC licenses include all co-owners as co-licensees; in general, one owner
is authorized to operate the facility while the others are authorized only
to have an ownership interest. Coowners generally divide costs and output
from their power plants by using a contractually defined pro rata share
standard.
9U.S. Nuclear Regulatory Commission, Financial Assurance Requirements
(Sept. 22, 1998), 63 Fed. Reg. 50465.
owners can choose from one or more methods, including the following, to
provide decommissioning financial assurance:
o prepayment of cash or liquid assets into an account segregated from the
owner's assets and outside the owner's administrative control;
o establishment of an external sinking fund maintained through periodic
deposit of funds into an account segregated from the owner's assets and
outside the owner's administrative control;
o use of a surety method (i.e., surety bond, letter of credit, or line of
credit payable to a decommissioning trust account), insurance, or other
method that guarantees that decommissioning costs will be paid; and
o for federal licensees, a statement of intent that decommissioning funds
will be supplied when necessary.
In September 1998, NRC amended its regulations to restrict the use of the
external sinking fund method in deregulated electricity markets. Prior to
this time, essentially all nuclear plant owners chose this method for
accumulating decommissioning funds. However, 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 with its amended regulations, NRC issued internal guidance,
describing the process for reviewing the adequacy of a prospective owner's
financial qualifications to safely operate and maintain its plant(s) and
the owner's proposed method(s) for ensuring the availability of funds to
eventually decommission the plant(s).10 The guidance outlines a method for
evaluating the owner's financial plans for fully funding decommissioning
costs. In addition, the guidance states that, except under certain
conditions, the NRC reviewer should, when plants have multiple owners,
separately evaluate each co-owner's funding schedule for meeting its share
of the plant's decommissioning costs.11
10U.S. Nuclear Regulatory Commission, Standard Review Plan on Power
Reactor Licensee Financial Qualifications and Decommissioning Funding
Assurance, NUREG 1577, Rev. 1, March 1999.
11Under NRC's guidance, co-owners trust funds can be collectively
evaluated when the lead licensee agrees to coordinate funding
documentation and reporting for all the co-owners.
Despite Industry-wide Improvement, Some Owners of Nuclear Power Plants Are
Not Accumulating Sufficient Decommissioning Funds
Using our most likely economic assumptions, the combined value of the
nuclear power plant owners' decommissioning trust funds was about 47
percent higher at the end of 2000 than necessary to ensure accumulation of
sufficient funds by the time the plants' licenses expire. This situation
contrasts favorably with the findings in our 1999 report, which indicated
that the industry was about 3 percent below where it needed to be at the
end of 1997 to ensure that enough funds would be available. However,
because owners are not allowed to transfer funds from a trust fund with
sufficient reserves to one without sufficient reserves, overall industry
sufficiency can be misleading. When we individually analyzed the owners'
trust funds, we found that 33 owners for several different plants had not
accumulated funds at a rate that would be sufficient for eventual
decommissioning.
Collectively the Nuclear Power Industry Is on Pace to Accumulate More Than
Sufficient Funds for Decommissioning
Through 2000, the owners of 122 operating and retired nuclear power plants
collectively had accumulated about 47 percent more funds than would have
been sufficient for eventually decommissioning, using our most likely
economic assumptions. Specifically, the owners had accumulated about $26.9
billion-about $8.6 billion more than we estimate they needed at that point
to ensure sufficient funds. This situation contrasts with the findings in
our 1999 report, which indicated that the industry had accumulated about 3
percent less than the amount we estimated it should have accumulated by
the end of 1997.
Using alternative economic assumptions changes these results. For example,
under higher decommissioning costs and other more pessimistic assumptions,
the analysis shows that the combined value of the owners' accounts would
be only about 0.2 percent above the amount we estimate the industry should
have collected by the end of 2000. (See app. II for our results using more
optimistic assumptions.)
The collective improvement in the status of the owners' trust funds (under
most likely assumptions) since our last report is due to three main
factors. First, all or parts of the estimated decommissioning costs were
prepaid for 15 plants when they were sold to new owners. For example, the
seller prepaid $396 million when the Pilgrim 1 nuclear plant was sold in
1998 for the plant's scheduled decommissioning in 2012. Second, for 16
other plants, NRC approved 20-year license renewals, which will provide
additional time for the owners to make contributions and for the earnings
to accumulate on the decommissioning fund balances. Third, owners earned a
higher rate of return on their trust fund accounts than we projected in
our 1999 report. For example, the average return on the trust funds of
owners who responded to our survey was about 8.5 percent12 (after-tax
nominal return) per year, from 1998 through 2000, instead of the
approximately 6.25 percent per year we had assumed. The higher return was
a result of the stronger than expected performance of financial markets in
the late 1990s.13 Since that time, however, the economy has slowed and
financial markets-equities in particular-have generally performed poorly.
Several Owners Are Not Accumulating Sufficient Funds for Decommissioning
Their Plants
In contrast to the encouraging industry-wide results, when we analyzed the
owners' trust fund accounts individually, we found that several owners
were not accumulating funds at rates that would be sufficient to pay for
decommissioning if continued until their plants are retired. Each owner
has a trust fund for each plant that it owns in whole or in part. For
example, the Exelon Generation Company owns all or part of 20 different
plants. For this analysis, we assessed the status of 222 trust funds for
122 plants owned in whole or part by 99 owners. As shown in table 1, using
our most likely assumptions, 33 owners of all or parts of 42 different
plants (50 trust funds) had accumulated less funds than needed through
2000 to be on track to pay for eventual decommissioning (see app. II for
details).14 Thirteen of these
12Based on 72 owners who provided after-tax rates of return for 1998,
1999, and 2000. These owners' trust funds accounted for about 71 percent
of the total trust funds in 2000.
13For 2000 (the only year for which we have data on fund allocations), on
average, owners allocated their funds rather evenly between equities and
fixed income assets (see app. I for details). Investment plans such as
pension funds that invested more heavily in equities may have earned a
greater overall return during this period.
14Some owners whom we estimate are below the benchmark have a parent
company guarantee or other method to support financial assurance
obligations. However, we did not evaluate the adequacy of these
provisions. See app. II, table 4.
plants were shut down before sufficient funds had been accumulated for
decommissioning. Although the remaining 78 owners of all or parts of 93
plants (172 trust funds) had accumulated more funds than we estimate they
needed to have at the end of 2000, funds are generally not transferable
from owners who have more than sufficient reserves to other owners who
have insufficient reserves. Under our most likely assumptions, the owners
whom we estimate to be behind will have to increase the rates at which
they accumulate funds to meet their eventual decommissioning financial
obligations.
For our analysis, we compared the trust fund balance that individual
owners had accumulated for each plant by the end of 2000 with a
"benchmark" amount of funds that we estimate they should have accumulated
by that date. In setting the benchmark, we assumed that the owners would
contribute increasing (but constant present-value) amounts annually to
cover eventual decommissioning costs.15 For example, at the end of 2000,
an owner's decommissioning fund for a plant that had operated one-half of
a 40-year license period (begun in 1980) should contain one-half of the
present value of the estimated cost to decommission the owner's share of
that plant in 2020. Although this benchmark is not the only way an owner
could accrue enough funds to pay future decommissioning costs, it provides
both a common standard for comparisons among owners and, from an equity
perspective among ratepayers in different years, a financially reasonable
growing currentdollar funding stream over time. Appendix I describes our
methodology in more detail.
15Our analysis simulates that the owners will increase their yearly future
funding at the assumed after-tax rate of return on the investments of the
funds, and that once in the fund, these yearly contributions will grow at
this same rate. See appendix I for a discussion of our methodology.
Table 1: Status of Individual Owners' Trust Fund Balances through 2000,
Compared with Benchmark Trust Fund Balances, under Most Likely
Assumptionsa
Plants currently Plants shut
Status Trust funds Owners operating down
Above benchmark
balance 172 78 88
Below benchmark
balance 50 33 29
Total 222 b b b
Source: GAO analysis.
aMost likely assumptions include 20-year license renewals that have been
approved by NRC for 16 plants as of August 20, 2003.
bNot applicable.
The status of each owner's fund balance at the end of 2000 is not, by
itself, the only indicator of whether an owner will have enough funds for
decommissioning. Whether the owner will accumulate the necessary funds
also depends on the rate at which the owner contributes funds over the
remaining operating life of the plant; by increasing their contribution
rates, owners whose trust fund balances were below the benchmark level
could still accumulate the needed funds. Consequently, for the owners who
provided contributions information to us, we also analyzed whether their
recent contribution rates would put them on track to meet their
decommissioning obligations. For this second analysis, we compared the
average of the amounts contributed in 1999 and 2000 (cost-adjusted to
2000) with a benchmark amount equivalent to the average yearly present
value of the amounts the owners would have to accumulate each year over
the remaining life of their share of the plants to have enough
decommissioning funds.
As table 2 shows, 28 owners with ownership shares in 44 different plants
(50 trust funds) contributed less than the amounts we estimate they will
need to meet their decommissioning obligations, under our most likely
assumptions.
Table 2: Status of Individual Owners' Recent Trust Fund Contributions,
Compared with Benchmark Trust Fund Contributions, under Most Likely
Assumptionsa
Trust Plants currently Plants shut
Status funds Owners operating down
Above benchmark
contributions 122 58 76
Below benchmark
contributions 50 28 34
cc
Total 172b
Source: GAO analysis.
aMost likely assumptions include 20-year license renewals that have been
approved by NRC for 16 plants as of August 20, 2003.
bContributions not available for 50 other trust funds.
cNot applicable.
We compared the owners in table 1 with those in table 2 to see whether
owners who are behind in balances were making up their shortfalls with
recent increases in contributions. Of the 33 owners who we estimate had
less than the benchmark balances through 2000, 26 owners of all or parts
of 38 plants provided contributions information. Of these owners, only 8
owners of all or parts of 9 plants appeared to be making up their
shortfalls with recent increases in contributions. By contrast, 20 owners
with ownership interests in 31 plants recently contributed less to their
trust funds than we estimate they needed to put them on track to meet
their decommissioning obligations.16
These results would change under alternative economic assumptions. For
example, if economic conditions improve to those assumed in our optimistic
scenario, of the 20 owners who were below the benchmark under most likely
assumptions on both balances and contributions, 12 owners would still be
below the benchmark in both categories, even under optimistic assumptions.
However, if economic conditions worsen to those in our pessimistic
scenario, 34 owners who were above the benchmark under most likely
assumptions on either balances or contributions would be below either of
16Some of these owners were also making up their shortfalls on other
plants.
these benchmarks under pessimistic assumptions. (See app. II for detailed
results.)
NRC's Analysis Did Not Effectively Determine Whether Each Owner Was
Accumulating Sufficient Decommissioning Funds
NRC's analysis of the 2001 biennial decommissioning status reports was not
effective in identifying owners that might not be accumulating funds at
sufficient rates to pay for decommissioning costs when their plants are
permanently shut down. Although the NRC reported in 2001 that all owners
appeared to be on track to have sufficient funds for decommissioning,17
our analysis indicated that several owners might not be able to meet
financial obligations for decommissioning. NRC's analysis was not
effective for two reasons. First, NRC overly relied on the owners' future
funding plans, or on rate-setting authority decisions, in concluding that
the owners were on track to fully fund decommissioning. However, as
discussed earlier, based on actual contributions the owners had recently
made to their trust funds, several owners are at risk of not accumulating
enough funds to pay for decommissioning. Second, for the plants with more
than one owner, NRC did not separately assess the status of each
co-owner's trust funds relative to the co-owner's contractual obligation
to fund a certain portion of decommissioning. Instead, NRC combined funds
on a plant-wide basis and assessed whether the combined trust funds would
be sufficient for decommissioning. Such an assessment method can produce
misleading results because the owners with more than sufficient trust
funds can appear to balance out those with insufficient trust funds.
Furthermore, if NRC had identified an owner with unacceptable levels of
financial assurance, it would not have had an explicit basis for acting to
remedy potential funding deficiencies because it has not established
criteria for responding to unacceptable levels of financial assurances.
NRC officials said that their oversight of the owners' decommissioning
funds is an evolving process and that they intend to learn from their
review of prior biennial reports and make changes to improve their
evaluation of the 2003 biennial reports. However, they also said that any
specific changes they are considering are predecisional, and final
decisions have not yet been made.
17Summary of Decommissioning Trust Funding Status Reports For Power
Reactors, SECY-01-0197, Nuclear Regulatory Commission, November 5, 2001.
NRC's Review Relied on Owners' Future Plans for Making Contributions
According to NRC officials, in reviewing the 2001 biennial reports, they
used a "straight-line" method to establish a screening criterion for
assessing whether owners were accumulating decommissioning funds at
sufficient rates. Specifically, NRC compared the amount of funds
accumulated through 2000 (expressed as a percentage of the total estimated
cost as of 2000 to decommission the plant) to the expended plant life
(expressed as a percentage of the total number of years the plant will
operate). Under this method, the owner of a plant that has operated for
one-half of its operating life would be expected to have accumulated at
least one-half of the plant's estimated decommissioning costs (that is, it
would be collecting at or above the straight-line rate). NRC found that
the owners of 64 out of 104 plants currently licensed to operate were
collecting at the above a straight-line rate, and that the owners of the
remaining 40 plants were collecting at the less than a straight-line
rate.18
On a plant-wide basis, NRC then reviewed the owners' "amortization"
schedules for making future payments to fully fund decommissioning. The
schedules, required as part of the biennial reports, consist of the
remaining funds that the owners expect to collect each year over the
remaining operating life of the plants. In estimating the funds to be
collected, the owners may factor in the earnings expected from their trust
fund investments. To account for such earnings, NRC regulations allow an
owner to increase its trust fund balance by up to 2 percent per year (net
of estimated cost escalation), or higher, if approved by its regulatory
ratesetting authority, such as a state public utility commission. Because
these owners' amortization schedules identified sufficient future funds to
enable them to reach the target funding levels, NRC concluded that all
licensees appear to be on track to fund decommissioning when their plants
are retired.
However, relying on amortization schedules is problematic, in part because
the actual amounts the owners contribute to their funds in the future
could differ (that is, worsen) from their planned amounts if economic
conditions or other factors change. NRC officials said that owners are not
required by regulation to report their recent actual contributions to the
trust funds, and NRC does not directly monitor whether the owners' actual
contributions match their planned contributions. Consequently, NRC relies
on the owners' amortization schedules as reported in the biennial reports.
18One plant-Browns Ferry 1-has a license but is currently not operating.
Such reliance is also problematic because in developing their amortization
schedules, the owners could use widely varying rates of return to project
the earnings on their trust fund investments. For example, each of the
three co-owners of the Duane Arnold Energy Center nuclear plant assumed a
different rate, ranging from 2 to 7 percent (net of estimated cost
escalation). Other factors being equal, the owners using the higher rates
would need to collect fewer funds than the owner using the lower rate of
return. While the return that each owner actually earns on its investments
may be higher or lower than these rates, by relying on the owners'
amortization schedules, NRC effectively used a different set of
assumptions to evaluate the reasonableness of the trust funds accumulated
by each owner. Consequently, NRC did not use a consistent "benchmark" in
assessing the owners' trust funds. By contrast, we used historical trends
and economic forecasts to develop assumptions about rates of earnings and
other economic variables, applied the same assumptions in evaluating the
adequacy of each owner's trust fund, and based expected future
contributions on actual amounts contributed in recent years.
NRC's Analysis Focused on the Adequacy of Trust Funds on a Plant-by-Plant
Basis
NRC's internal guidance for evaluating the biennial reports states that
for plants having more than one owner, except in certain circumstances,
each owner's amortization schedule should be separately assessed for its
share of the plant's decommissioning costs.19 For those plants that have
coowners, NRC used the total amount of funds accumulated for the plant as
a whole in its analysis. However, as we demonstrated with our
industry-wide analysis, such an assessment for determining whether owners
are accumulating sufficient funds can produce misleading results because
owners with more than sufficient funds can appear to balance out owners
with less than sufficient funds, even though funds are generally not
transferable among owners.
19Requirement is waived if lead owner has agreed to coordinate funding
documentation and reporting for all co-owners. In such cases, the guidance
does not require a separate evaluation of each co-owner's amortization
schedule.
In explaining their approach, NRC officials said that the section of the
guidance that calls for a separate evaluation of each owner's amortization
schedule for its share of the plant is not compulsory. In addition, they
said that they consider each owner's schedule to determine the total funds
for the plant as a whole, but they believe that the same level of effort
is not required for each individual trust fund balance unless there is a
manifest reason to do so. They also stated that NRC's regulations do not
prohibit each co-owner from being held responsible for decommissioning
costs, even if these costs are more than the co-owner's individual
ownership share. However, assessing the adequacy of decommissioning costs
on a plant-wide basis is not consistent with the industry view, held by
most plant owners, that each co-owner's responsibility should be limited
to its pro rata share of decommissioning expenses and that NRC should not
look to one owner to "bail out" another owner by imposing joint and
several liability on all co-owners.20 NRC has implicitly accepted this
view and has incorporated it into policy to continue it. In a policy
statement on deregulation,21 NRC stated that it will not impose
decommissioning costs on co-owners in a manner inconsistent with their
agreed-upon shares,22 except in highly unusual circumstances when required
by public health and safety considerations and that it would not seek more
than the pro rata shares from co-owners with de minimis ownership.
Nevertheless, unless NRC separately evaluates each co-owner's trust fund,
NRC might eventually need to look to require some owners to pay more than
their share.
NRC Has Not Established Criteria for Responding to Unacceptable Levels of
Financial Assurance
While the NRC has conducted two reviews of the owners' biennial reports to
date, it has not established specific criteria for responding to any
unacceptable levels of financial assurances that it finds in its reviews
of the owners' biennial reports. As we noted in our 1999 report, without
such criteria, NRC will not have a logical, coherent, and predictable plan
of action if and when it encounters owners whose plants have inadequate
financial assurance. NRC officials said that their oversight of the
owners'
20Joint and several liability refers to the legal doctrine, which would
allow holding all or any one of the co-owners financially responsible for
the default of any co-owner.
21Final Policy Statement on the Restructuring and Economic Deregulation of
the Electric Utility Industry, 62 Fed. Reg. 44071 (Aug. 19, 1997).
22Co-owners generally divide costs from their facilities using a
contractually defined pro rata share.
decommissioning funds is an evolving process, and they are learning from
their prior reviews. However, they also said that any specific changes
they are considering are predecisional and final decisions have not yet
been made.
The absence of any specific criteria for acting on owners' decommissioning
financial reports contrasts with the agency's practices for overseeing
safety activities at nuclear power plants. According to NRC, its safety
assessment process allows it to integrate information relevant to licensee
safety performance, make objective conclusions regarding the information,
take actions based on these conclusions in a predictable manner, and
effectively communicate these actions to the licensees and to the public.
Its oversight approach uses criteria for identifying and responding to
levels of concern for nuclear plant performance. In determining its
regulatory response, NRC uses an "Action Matrix" that provides for a range
of actions commensurate with the significance of inspection findings and
performance indicators. If the findings indicate that a plant is operating
in a way that has little or no impact on safety, then NRC implements only
its baseline inspection program. However, if the findings indicate that a
plant is operating in a way that implies a greater degree of safety
significance, NRC performs additional inspections and initiates other
actions commensurate with the significance of the safety issues. A similar
approach in the area of financial assurance for decommissioning would
appear to offer the same benefits of objectivity and predictability that
NRC has established in its safety oversight.
Conclusions Ensuring that nuclear power plant owners will have sufficient
funds to clean up the radioactive waste hazard left behind when these
plants are retired is essential for public health and safety. As our
analysis identified, some owners may be at risk of not accumulating
sufficient trust funds to pay for their share of decommissioning. NRC's
analysis was not effective in identifying such owners because it relied
too heavily on the owners' future funding plans without confirming that
the plans were consistent with recent contributions. Moreover, it
aggregated the owners' trust funds plantwide instead of assessing whether
each individual owner was on track to accumulate sufficient funds to pay
for its share of decommissioning costs. In addition, NRC has not explained
to the owners and the public what it intends to do if and when it
determines an owner is not accumulating sufficient trust funds. Without a
more effective method for evaluating owners' decommissioning trust funds,
and without criteria for responding
to any unacceptable levels of financial assurance, NRC will not be able to
effectively ensure that sufficient funds will be available when needed.
Recommendations for Executive Action
To ensure that owners are accumulating sufficient funds to decommission
their nuclear power plants, we recommend that the Chairman, NRC, develop
an effective method for determining whether owners are accumulating funds
at sufficient rates to pay for decommissioning. For plants having more
than one owner, this method should include separately evaluating whether
each owner is accumulating funds at sufficient rates to pay for its share
of decommissioning. We further recommend that the Chairman, NRC, establish
criteria for taking action when NRC determines that an owner or co-owner
is not accumulating decommissioning funds at a sufficient rate to pay for
its share of the cost of decommissioning.
Agency Comments and Our Evaluation
We provided a draft of this report to NRC for its review and comment.
NRC's written comments, which are reproduced in appendix III, expressed
three main concerns regarding our report. First, NRC disagreed with our
observation that its analyses of funding levels of the co-owners of a
nuclear plant are inconsistent with its internal guidance. We revised the
report to remove any inferences that NRC was not complying with its own
guidance. While clarifying this point, we remained convinced that NRC
needs to do more to develop an effective method for assessing the adequacy
of nuclear power plant owner's trust funds for decommissioning. NRC's
current practice is to combine the trust funds for all co-owners of a
nuclear plant, then assess whether the combined value of the trust funds
is sufficient. However, as our analysis indicates, NRC's practice of
combining the trust funds of several owners for its assessment can produce
misleading results because co-owners with more than sufficient funds can
appear to balance out those with less than sufficient funds. As a
practical matter, owners have a contractual agreement to pay their share
of decommissioning costs, and owners generally cannot transfer funds from
a trust fund with sufficient reserves to one without sufficient reserves.
While NRC recognizes that private contractual arrangements among co-owners
exist, the agency stated that it reserves the right, in highly unusual
situations where adequate protection of public health and safety would be
compromised if such action were not taken, to consider imposing joint and
several liability on co-owners for decommissioning funding when one or
more co-owners have defaulted. Nonetheless, we believe that NRC should
take a proactive approach, rather than simply wait until one or more co-
owners default on their decommissioning payment expenses, to ensure that
sufficient funds will be available for decommissioning and that the
adequate protection of public health and safety is not compromised. Such
an approach, we believe, would involve developing an effective method
that, among other things, separately evaluates the adequacy of each
coowner's trust fund.
Second, NRC disagreed with our view that some owners are not on track to
accumulate sufficient funds for decommissioning. NRC's position is that it
has a method for assessing the reasonableness of the owners' trust funds
and that our method has not been reviewed and accepted by NRC. While we
recognize that NRC has neither reviewed nor accepted our method, our
report identifies several limitations in NRC's method that raise doubts
about whether the agency's method can effectively identify owners who
might be at risk of not having sufficient funds for decommissioning. A
particularly problematic aspect of this method is NRC's reliance on the
owners' future funding plans to make up any shortfalls without verifying
whether those plans are consistent with the owners' recent contributions.
We found some owners' actual contributions in 2001 were much less than
what they stated in their 2001 biennial reports to NRC that they planned
to contribute. For example, one owner contributed about $1.5 million (or
39 percent) less than the amount they told NRC that they planned to
contribute. In addition, based on our analysis using actual contributions
the owners had recently made to their trust funds, we found that 28 owners
with ownership shares in 44 different plants contributed less than the
amounts we estimate they will need to make over the remaining operating
life of their plants to meet their decommissioning obligations. Therefore,
we continue to believe that some owners are not on track to accumulate
sufficient funds to pay for decommissioning.
Finally, NRC disagreed with our view that it should establish criteria for
responding to owners with unacceptable levels of financial assurance. NRC
stated that its practice is to review the owners' plans on a case-by-case
basis, engage in discussions with state regulators, and issue orders as
necessary and appropriate. Since NRC has never identified an owner with
unacceptable levels of financial assurance, it has never implemented this
practice. We believe that NRC should take a more proactive approach to
providing owners and the public with a more complete understanding of
NRC's expectations of how it will hold owners who are not accumulating
sufficient funds accountable. As stated in our draft report, this lack of
criteria is in contrast to NRC's practices in overseeing safety issues at
nuclear plants, where the NRC uses an "Action Matrix" that provides for a
range of actions commensurate with the significance of safety inspection
findings and performance indicators. In the area of financial assurance, a
similar approach could involve monitoring the trust fund deposits of those
owners who NRC determines are accumulating insufficient funds to verify
that the deposits are consistent with the owners' funding plans.
We conducted our review from June 2001 to September 2003 in accordance
with generally accepted government auditing standards. Unless you
publicly announce the contents of this report earlier, we plan no further
distribution until 30 days from the report date. At that time, we will
send
copies of this report to the appropriate congressional committees; the
Chairman, NRC; Director, Office of Management and Budget; and other
interested parties. We will also make copies available to others upon
request. In addition, this report will be available at no charge on the
GAO
Web site at http://www.gao.gov. If you or your staff have any questions,
please call me at (202) 512-6877. Key contributors to this report are
listed in
appendix IV.
Sincerely yours,
Jim Wells
Director, Natural Resources
and Environment
Appendix I
Scope and Methodology of Our Analysis of the Decommissioning Trust Funds
This appendix describes the scope and methodology of our review for our
first objective: the extent to which nuclear power plant owners are
accumulating funds at sufficient rates to pay decommissioning costs when
their plants' licenses expire.
In addressing this objective, we analyzed the status of the
decommissioning trust funds from two perspectives. First, we analyzed
whether the industry as a whole is accumulating funds at rates that would
be sufficient for decommissioning. For this analysis, we combined the
trust funds of the owners of 122 nuclear plants. We then compared our
results with those of our 1999 report to see whether the industry's status
had changed.
Second, because owners generally cannot transfer funds from a trust fund
with sufficient reserves to one without sufficient reserves, we also
analyzed the status of each owner's trust fund for each plant in which the
owner had an ownership share. For this analysis, we analyzed the status of
222 individual trust funds, representing 99 owners of all or parts of 122
plants.
For both the combined industry-wide trust funds and the individual owners'
trust funds, we conducted two separate analyses (hereafter described in
terms of our analysis of the individual owners' trust funds). This method
is the same as that used in our earlier report on the adequacy of
decommissioning funding.1 First, we looked backward from a base
year-2000-and assessed whether, when taking into account key economic
factors such as decommissioning cost-escalation rates and aftertax rates
of return on the funds (the discount rate), each owner's decommissioning
fund balance for its ownership share of each of its plants was consistent
with the expended portion of the licensed operating life of that plant. In
other words, we assessed whether the monies the owner had contributed to
its fund as of the end of 2000, together with the past earnings on these
monies, equaled a benchmark or expected balance the owner should have
accumulated by that time.
1GAO/RCED-99-75.
Appendix I
Scope and Methodology of Our Analysis of
the Decommissioning Trust Funds
To determine the benchmark balance for 2000 for each plant (owner's
share), we multiplied the present value of the plant's estimated future
decommissioning costs (owner's share) by the fraction of the plant's
operating life used up by 2000. For example, a plant that began operating
in 1980 would have used up one-half of its 40-year operating life by the
end of 2000. Therefore, by the end of 2000, the owner for this plant
should be expected to have accumulated in its trust fund one-half of the
present value (in constant 2000 dollars) of the estimated decommissioning
costs. Over the life of a plant, our benchmark measure presumes that an
owner would contribute an annual amount that increases (but constant in
present-value terms) at the trust fund's after-tax rate of return. The sum
of these annual amounts plus the income earned on the investment of the
funds would equal the total estimated (present value of) the
decommissioning costs when the plant's operating license expires.2
Although recent deregulation and restructuring of the electricity industry
have led some owners to prepay decommissioning costs, many owners continue
to fund the trust funds by collecting fees from electricity users. Thus,
under our benchmark measure, by paying decommissioning "fees" that are
deposited into the trust funds, electricity users pay for the present
value of each year's accrued decommissioning costs. As a result, the
benchmark embodies the principle of economic efficiency in that the price
of a product (i.e., electricity) should, if possible, equal all of its
costs- current and accrued. In addition, by assuming that current and
future users pay the same decommissioning fees, in constant present-value
terms, our benchmark ensures that decommissioning costs are accrued
transparently over time.
In addition to the looking-backward analysis, we conducted a second
analysis, a "looking forward" from a base year-end of 2000-and assessed
2We assume that decommissioning will most likely occur within 5 years of a
plant being retired. For simplicity, our model therefore decommissions a
plant "instantaneously" at 2.5 years after the 40-year lifespan. Thus, the
present value of decommissioning costs after the first year of operation
is computed by discounting the estimated future costs by 41.5 years
(39+2.5). Under our benchmark, the first contribution to the fund at the
end of the first year should equal 1/40th of the present value of the
costs, discounted over 41.5 years. At the end of the second year of the
plant's operation, the trust fund (including earnings) would equal 2/40th
of the present value of the future costs, discounted back by 40.5 years.
Finally, at the end of the 40th and final year of operation, the fund
would contain 40/40th of the present value of the future costs, discounted
back by 2.5 years. At "instantaneous" decommissioning, 2.5 years hence,
the trust fund balance would equal the entire currentdollar
decommissioning costs.
Appendix I
Scope and Methodology of Our Analysis of
the Decommissioning Trust Funds
whether each owner's recent contributions to its decommissioning funds for
respective shares of each of its nuclear power plants were at a level
consistent with the remaining portions of the licensed operating lives of
each plant. In other words, we assessed whether the owner recently added
monies to its decommissioning trust fund for each plant at the benchmark
contribution necessary to have enough funds to decommission the plant when
its operating license expires. For example, an owner who is behind in
terms of trust fund balance through the end of 2000 could have recently
contributed to its fund at much higher rates than it had in the past to
make up for its shortfall over the remaining operating life of the plant.
To determine an owner's benchmark annual contribution, for each of its
plants, we computed the annual-average present value of the required
future contributions that are summed over the remaining life of the plant.
The total present value contribution must equal the present value of the
total future decommissioning costs minus the value of the current trust
fund balance. We then compared this annual amount with the average
contribution to the trust fund that the owner made in 1999 and 2000 (cost
adjusted to 2000). We assume that an owner will annually increase its most
recent contribution (2-year average, cost adjusted to 2000) over the
remaining life of its plant by the assumed after-tax rate of return on its
decommissioning fund. Owners whose recent average contributions exceeded
the benchmark amount would be adding funds at a rate that would be more
than sufficient, while owners whose recent average contributions were
below the benchmark rate would be adding funds at an insufficient rate to
pay for future decommissioning costs (under our specific economic
assumptions).
For our assessment of the status of the industry as a whole (and for both
the looking-backward and looking-forward analyses), we developed three
different scenarios: baseline (i.e., most likely), pessimistic, and
optimistic. For the baseline analysis, we used our most likely economic
assumptions. For the pessimistic and optimistic scenarios, we used
different values for several key assumptions, as described later in this
appendix.
For our assessment of the status of each individual owner's trust funds,
we looked at the status of each owner's trust funds under baseline (most
likely) assumptions (for both the looking-backward and looking-forward
analyses). In addition, for owners who were below the benchmark on both
balances and contributions under the baseline assumptions, we reviewed the
2003 and 2001 biennial reports to ascertain whether the owner has and/or
had an additional method (e.g., parent company guarantee) to
Appendix I
Scope and Methodology of Our Analysis of
the Decommissioning Trust Funds
support financial assurance obligations. We indicate in our detailed
results when an owner reported having an additional method (see app. II,
table 4). However, we did not evaluate the adequacy of these methods.
In addition, for selected owners depending upon our baseline results, we
analyzed how these results might change under alternative conditions-
optimistic or pessimistic assumptions. For example, for owners who were
below the benchmark on both balances and contributions under the baseline
(see app. II, table 5), we assessed the status of their trust funds under
optimistic conditions to determine which of these owner's funds would
still remain below benchmark on both our looking-backward and
looking-forward measures. In addition, for owners who were from zero to
100 percent above the benchmark, under baseline assumptions for either
balances or contributions, we assessed the status of their funds under
pessimistic assumptions to determine whether their funds would fall below
benchmarks for both balances and contributions (see app. II, table 6).3
Key Data Used in Analysis To conduct our analysis we used a spreadsheet
simulation model that uses a base year of 2000. In addition, for the key
data in our analysis, we used the owner's 2001 biennial reports and
responses from a mail survey that we administered to nuclear power plant
owners.
More specifically, the key data used in the model are the following:
(1) Owner's name, percentage of each plant in which the owner has a share,
year the plant was licensed to operate (or commenced operation, if
earlier), and year the plant's license will expire. We obtained these data
using the owners' 2001 biennial reports to Nuclear Regulatory Commission
(NRC) and other NRC publications.
(2) A decommissioning cost estimate for each plant (that is, a current
dollar amount for the year that the estimate was made). When available, we
used a site-specific estimate of NRC-related costs (that is,
radiation-related costs). If a site-specific estimate was not available,
we used cost estimates derived from NRC's generic formula for these
NRC-related costs. We obtained these data using the owners' 2001 biennial
reports to NRC.
3Table 6 includes some trust funds for which we did not have contributions
data but whose balance adequacy percentage for the baseline fell below
zero under the pessimistic assumptions.
Appendix I
Scope and Methodology of Our Analysis of
the Decommissioning Trust Funds
(3) Decommissioning fund balances as of December 31, 2000 for each owner
and its plant share. When indicated, we used that portion of the fund
balance that the owner designated for NRC-type costs (that is, excluding
the costs relating to nonradiation or spent-fuel activities). Otherwise we
used the entire fund balance. We obtained these data from the owners'
responses to our survey or from their 2001 biennial reports.
(4) Decommissioning fund contributions for 1999 and 2000 for each owner
and its plant share. We assumed these contributions were for NRC-related
costs only. We obtained these data from the responses to our survey, and
for owners who did not respond to our survey, we do not report on the
adequacy of their contributions.
In some cases, the ownership shares of plants have changed hands since our
survey and the 2001 biennial reports. In these cases, to make our analysis
as current as possible, we assess the adequacy of the funds that were
accumulated by the previous owner but report the results under the name of
the new owner of the trust fund (see app. II, table 4). Nonetheless, the
new owner might accumulate trust funds at a different rate than the former
owner.
Key Assumptions Used in the Analysis
The analysis of the industry-wide trust funds and the individual owners'
trust funds depends on the following six key assumptions. The values for
these six assumptions vary based upon the scenario: baseline (most
likely), pessimistic, or optimistic. For each scenario, we used the same
assumption values for each owner and each plant in order to apply an
"even-handed" standard.
(1) Future after-tax rate of return on decommissioning fund assets
(discount rate): An after-tax rate of return was used to discount future
trust fund contributions and plant decommissioning costs. In our survey,
we asked owners for information on the financial assets contained in their
respective decommissioning funds. We grouped these assets into five basic
financial categories and calculated estimated, industry-wide, average
weights for each type, these asset weights themselves reflecting the
weights of the varying fund sizes. These categories, and calculated
weighted-averages were: equities (e.g., common stocks), 47.1 percent; U.S.
securities (e.g., federal government bonds), 26.7 percent; corporate
bonds, 9.8 percent; municipal bonds, 10.4 percent; and cash and short-term
instruments, 6.0 percent. Therefore, on average, these decommissioning
funds contained roughly a 50-50 split between equities and bonds. We used
Appendix I
Scope and Methodology of Our Analysis of
the Decommissioning Trust Funds
these results for all of the decommissioning funds, for all three
scenarios, but recognize three qualifications: (1) the variation in these
asset weights among individual funds for 2000 was quite large, (2) our
asset composition data represent only a time "snapshot" of such
allocation-for year 2000 only, and (3) these same (baseline) asset weights
are also assumed for our other two scenarios, because appropriate data
were lacking to do otherwise.
Using a long-term forecast from Global Insight (an economic forecasting
company),4 we developed a forecast for each asset category under a
baseline, pessimistic, and optimistic forecast scenario. For the baseline
scenario, we used Global Insight's trend forecast; for the pessimistic
scenario, we used their pessimistic forecast (representing slower real
gross domestic product (GDP) growth); and for the optimistic scenario, we
used their optimistic forecast (representing faster real GDP growth).
For the baseline scenario, we calculated a forecast (current-dollar)
growth rate of 6.26 percent for equities, 6.83 percent for U.S.
securities, 7.83 percent for corporate bonds, 6.27 percent for municipal
bonds, and 5.02 percent for cash and short-term instruments.5 Multiplying
these forecast rates with their respective asset weights in the owners'
portfolios yielded a baseline "portfolio average" forecast pretax
annual-average rate of return of 6.49 percent. Similarly, we calculated
pretax rates of return for the pessimistic and optimistic forecasts of
7.27 percent and 6.45 percent, respectively. The rate under the
pessimistic forecast is higher than the rate under the baseline or
optimistic forecasts because of higher inflation in the Global Insight
pessimistic forecast and because of the owners' relatively high average
allocation of trust fund investments in bonds. (In Global Insight's
pessimistic forecast, the nominal-rate return on bonds is greater than on
equities.)
4Forecast as of January 30, 2003.
5To forecast the growth in equities, we used Global Insight's forecast for
the S&P 500. We assumed that dividends would be reinvested. For example,
for our baseline scenario, we combined the compound annual-average growth
rate for the S&P 500 Index with its corresponding annual-average dividend
yield rate to obtain a total growth rate. For U.S. securities, we used the
forecast for 30-year federal government bonds. For corporate bonds and
municipal bonds, we used the forecast for Aaa-rated corporate and
municipal bonds, respectively. For cash, we used the forecast for 6-month
U.S. Treasury Bills.
Appendix I
Scope and Methodology of Our Analysis of
the Decommissioning Trust Funds
To convert the "portfolio average" forecast pretax rate of return to an
aftertax rate of return, we used the pre-and post-tax rates of return data
that owners provided in our survey. Based on these data we determined that
the pretax rate should be reduced by 0.87 percentage points to derive a
baseline after-tax rate of return of 5.62 (6.49 - 0.87) percent.6
Similarly, we calculated an after-tax rate of return of 6.40 (7.27 - 0.87)
percent for the pessimistic scenario and an after-tax rate of return of
5.58 (6.45 - 0.87) percent for the optimistic scenario.
(2) Future decommissioning cost escalation rate: For our baseline
scenario, we assumed that decommissioning costs would increase annually at
a nominal rate of 4.60 percent.7 Combining the after-tax rate of return
and the cost escalation rate gave us an implied real (cost-adjusted)
after-tax rate of return of 1.02 (5.62 - 4.60) percent for the baseline
scenario.
To calculate real after-tax rates of return for the pessimistic and
optimistic scenarios, we first adjusted the nominal after-tax rates of
return using Global Insight's inflation forecasts. Its annual-average
inflation forecast was about 2.47 percent for trend, or baseline, 3.04
percent for pessimistic, and 2.15 percent for optimistic. Using these
forecasts, the real forecast rates of return are 3.15 (5.62 - 2.47)
percent for baseline, 3.36 (6.40 - 3.04) percent for pessimistic, and 3.43
(5.58 - 2.15) percent for optimistic. We then used proportionality ratios
to obtain real cost adjusted after-tax rates of return of 1.09 percent for
the pessimistic scenario and 1.11 percent for the optimistic scenario.8
From these real after-tax rates of return, we
6Using rate of return data provided by 84 owners, we calculated a
weighted-average difference between their pretax and after-tax rates of
return for each fund and year over 1997-2001, weighted by the relative
size of their funds. We then calculated the simple mean of the weighted
average differences for each year to obtain an overall weighted average
difference of about 0.87 of a percentage point.
7The 4.60 percent cost-escalation rate is fund-weighted average based on
the owners' assumptions about future nominal-dollar cost-escalation, as
reported in their 2001 biennial reports.
8To calculate a cost-adjusted real rate-of-return for the pessimistic and
optimistic scenarios, we formed proportionality ratios. For pessimistic,
3.36% / 3.15% = x% / 1.02%; therefore, x = 1.09%. For optimistic, 3.43% /
3.15% = y% /1.02%; therefore, y = 1.11%.
Appendix I
Scope and Methodology of Our Analysis of
the Decommissioning Trust Funds
computed implied cost-escalation rates of 5.31 percent and 4.47 percent
for the pessimistic and optimistic scenarios, respectively. 9
Note that the real (cost-adjusted) after-tax rates of return are quite
similar in value among our scenarios; therefore, any differing effect on
model results caused by the combination of the fund rate of return and
decommissioning cost-escalation assumptions will be fairly minimal.
Nonetheless, all other things being equal, for these two assumptions only,
the balance and contribution adequacy results for the pessimistic scenario
will be slightly above those of the baseline scenario, and only slightly
below those of the optimistic scenario.
(3) Alternative initial decommissioning cost estimates: In our baseline
scenario, for the "initial" decommissioning (NRC-related) costs, we used
the site-specific estimates when available. Otherwise, we used the cost
estimates derived from NRC's generic formula. For the pessimistic and
optimistic scenarios, we used professional judgment to adjust the estimate
used in the baseline. For example, to reflect a general concern among
industry observers that future decommissioning costs could be much higher
than expected, we increased the initial cost estimate by 40 percent for
the pessimistic scenario, and reduced the initial decommissioning cost
estimate by only 5 percent for the optimistic scenario.
(4) Alternative start of decommissioning--years after shutdown: For the
baseline scenario, we assumed that decommissioning would occur within the
immediate 5 years after license termination; for simplification, we
assumed "instantaneous" decommissioning at 2.5 years after shutdown.10 For
the pessimistic assumption, decommissioning is assumed to occur within the
first 4 years-at 2 years after shutdown. For the optimistic assumption, we
assumed a 5-year delayed start of decommissioning- within 5-10 years after
license termination-at 7.5 years after shutdown. Under certain
circumstances (e.g., co-located plants), NRC may permit a decommissioning
delay. As long as the assumed after-tax rate of return exceeds the assumed
cost-escalation rate (i.e., a positive, real, cost
9For pessimistic, 6.40% - x% = 1.09%; therefore, x = 5.31%. For
optimistic, 5.58% -y% = 1.11%; therefore, y = 4.47%.
10To test this simplifying assumption in the looking-backward analysis, we
assessed the impact of assuming that one-fifth of decommissioning occurred
over each of the 5 years. The result was virtually identical to that
obtained when we assumed that all decommissioning occurred at 2.5 years
after shutdown.
Appendix I
Scope and Methodology of Our Analysis of
the Decommissioning Trust Funds
adjusted rate of return), a delay in decommissioning will improve the
outlook for an owner's trust fund in both the looking-backward (trust fund
balance) and looking-forward (trust fund contributions) analysis, all else
the same.
(5) Alternative operating license expiration year: The year of plant
operating-license expiration is assumed to vary among our three scenarios
to reflect that NRC has approved license renewals for some plants, and it
may approve 20-year license renewals for other plants in the future. For
the baseline and pessimistic scenarios, we include the renewals that have
been approved for 16 plants, as of August 20, 2003.11 In addition, because
NRC has received renewal applications from owners of 14 plants, and it
anticipates applications from owners of another 8 plants by the end of
2003 (as of August 20, 2003), we assume in the optimistic scenario that
license renewals will be approved for an additional 22 plants.12 In
general, these plant license renewals suggest that the electricity market
today is robust and owners expect higher electricity prices in the
future.13
(6) Alternative market values for decommissioning funds: For the baseline
and optimistic scenarios, we use the actual market value of the trust fund
balances as of the end of 2000. In contrast, for the pessimistic scenario,
we reduced the actual market value of the funds by 5 percent for 2000 to
simulate the effect of a slowing economy on investment returns from 2000
through 2002. The simulated decline is modest, and over the period, the
overall increase in bond prices would have offset to some degree the
overall decline in the value of common stocks.
11The 16 plants are: Arkansas Nuclear Unit 1; Calvert Cliffs Units 1 and
2; Hatch Units 1 and 2; North Anna Units 1 and 2; Oconee Units 1, 2, and
3; Peach Bottom Units 2 and 3; Surry Units 1 and 2; and Turkey Point Units
3 and 4.
12The 14 plants are: Catawba Units 1 and 2; Dresden Units 2 and 3; Fort
Calhoun; Ginna; McGuire Units 1 and 2; Quad Cities Units 1 and 2; Robinson
2; St. Lucie Units 1 and 2; and Summer. The other 8 plants are: Arkansas
Nuclear Unit 2; Browns Ferry Units 1, 2, and 3; Cook, D.C. Units 1 and 2;
and Farley Units 1 and 2.
13This expectation is in contrast to conditions reported in our 1999
report, when the market for electricity appeared much weaker. In that
report, we assumed in the baseline scenario that 6 plants would be
prematurely retired during 1998 to 2002.
Appendix II
Detailed Results of Our Analysis of the Decommissioning Trust Funds
This appendix presents the detailed results of our analysis of the
decommissioning trust funds. Specifically, table 3 shows industry-wide,
weighted-average results under three scenarios-baseline (most likely)
assumptions, pessimistic assumptions, and optimistic assumptions. Table 4
presents the results for individual owners under baseline, or most likely
assumptions. Table 5 shows the results of our analysis under optimistic
assumptions for individual owners whose trust funds were below the
benchmarks for both balances and recent contributions under the baseline
scenario. Table 6 presents the results under pessimistic assumptions for
individual owners whose trust funds were zero to 100 percent above the
benchmark balances and/or contributions under the baseline scenario. See
appendix I for a description of our methodology.
Table 3: Status of Combined Trust Funds Compared with Benchmarks for
Balances and Contributions (by Percentage above or below Benchmarks)
Scenario Analysis category
Number of owners
Number of plants
Baselinea (percent)
Pessimistica (percent)
Optimisticb (percent)
Balances
through 2000 99 122 46.9 0.2
Recent
Contributionsc 75 109 106.5 -18.0 224.4
Source: GAO analysis.
Note: Percentages are weighted averages, measured relative to the
benchmark balances or benchmark contributions.
aThe baseline and pessimistic scenarios include the 20-year license
renewals already granted for 16 plants, as of August 20, 2003.
bThe optimistic scenario includes 20-year license renewals for 38 plants,
including renewals: (1) already granted for 16 plants, (2) for another 14
plants whose owners have applied for but not yet received renewals, and
(3) for another 8 plants whose owners are expected to apply by December
2003 (all as of August 20, 2003).
cAdequacy of recent contributions is based on responses to our survey. The
percentages are more, or less, than the benchmark contribution, meaning
the owner has contributed more, or less, on average for 1999 and 2000
(cost adjusted to 2000) than the annual average of the present value of
the amounts required in each subsequent year until the plant's license
expires.
Appendix II
Detailed Results of Our Analysis of the
Decommissioning Trust Funds
Table 4: Owners with More, or Less, Than Benchmark Trust Fund Balances and
Contributions, under Most Likely Assumptions (by Percentage above or below
Benchmarks)
Baseline (most likely) scenario Plant name Owner
Ownership share of plant (percent)
Adequacy of trust fund balances as of end of 2000 Adequacy of recent trust
fund contributionsa
Page 29 GAO-04-32 Decommissioning Nuclear Power Plants
Entergy + + Beaver Ohio Beaver _ Beaver Cleveland Beaver Ohio Beaver + _ Beaver Toledo Big Consumers + Exelon + _ Exelon + + Browns Tennessee _ Browns Tennessee _ Browns Tennessee _ North Progress North Progress Exelon + _ Exelon + + Calvert Calvert Duke + North Piedmont Saluda + _ +
Arkansas Arkansas, 100 + + Nuclear Arkansas Entergy 100 + Nuclear Valley Edison 35 + + Valley Pennsylvania 65 _ Valley Electric 24.47 + + Valley Edison 41.88 + Valley Pennsylvania 13.74 + _ Valley Edison 19.91 + + Rock Energy 100 + + Braidwood Generation 100 + _ Braidwood Generation 100 + + Ferry Valley 100 _ _ Ferry Valley 100 _ _ Ferry Valley 100 _ _ Brunswick Carolina 18.33 + Brunswick Energy 81.67 _ Brunswick Carolina 18.33 + Brunswick Energy 81.67 _ + Byron Generation 100 + _ Byron Generation 100 + + Callaway AmerenUE 100 + _ Cliffs Constellation 100 + g Cliffs Constellation 100 + g Catawba Power 12.50 + + Catawba North _ Membership Catawba Carolina 37.50 + + Catawba Municipal 12.50 + + Catawba River 9.38 + _ Duke +
Inc. + + 1b Arkansas, 2c 1 Co. 1 Power Co. _ 2 Illuminating + 2 Co. + 2 Power Co. + _ 2 Co. + + Pointd Co. + 1 Co., LLC + _ 2 Co., LLC + + 1c Authority _ _ 2c Authority _ _ 3c Authority _ _ 1 Eastern 1f Carolinas, _ 2 Eastern 2 f Carolinas, _ 1 Co., LLC + _ 2 Co., LLC + + _ 1b Energy Group 2b Energy Group 1h Co. + 1h Carolina _ 1h Municipal + 1h Power + 1h Electric + _ Catawba Power + +
+ + Inc. _ _ Co. _ + +e + + Municipal _ Inc. _ Municipal _ Inc. Electric 28.1 + _ Power Agency Cooperative + 2h Co. 12.5 + +
Appendix II
Detailed Results of Our Analysis of the
Decommissioning Trust Funds
(Continued From Previous Page)
Baseline (most likely) scenario
Ownership share of plant (percent)
Adequacy of trust fund balances as of end of 2000 Adequacy of recent trust
fund contributionsa
Plant name Owner
Page 30 GAO-04-32 Decommissioning Nuclear Power Plants
North Piedmont Saluda + AmerGen + Texas + + Texas + + Indiana + Indiana + Nebraska + City of City of + City of City of + + Seminole Cleveland + + Pacific + + Pacific + + + +
Catawba North Catawba Carolina + Catawba Municipal + + Catawba River + _ Energy + + Comanche Utility + + Comanche Utility + + Cook, Michigan + + Cook, Michigan + + Public + Crystal Alachua Crystal Bushnell + + Crystal City of Crystal Leesburg Crystal Ocala New + + Crystal Orlando + Crystal Progress + + Crystal Electric + + Electric + Toledo + Diablo Gas & + + Diablo Gas & + + Dresden Exelon _ _ Dresden Exelon + Dresden Exelon + Duane Central _ _ Duane Corn Belt _ _ Duane _ _ Alabama +
2h Carolina 28.1 + _ Membership 2h Municipal 37.5 + + 2h Power 12.5 + + 2h Electric 9.38 + _ Clinton Co., 100 + + 100 Station Peak 1 Electric 100 + + Peak 2 Electric 100 + + D.C. Power 100 + + D.C. Power 100 + + Cooper Power 100 + + River 3 Electric 0.08 + g River 3 Utility 0.04 + g City of 1.41 + + Utilities River 3 Kissimmee 0.68 + g River 3 Municipal 0.82 + g River 3 Utilities 1.33 + g Smyrna 0.56 + + Comm. River 3 Utilities 1.60 + g River 3 Energy 91.8 + + River 3 Cooperative, 1.7 + + Davis-Besse Illuminating 51.38 + + Davis-Besse Edison 48.62 + + Canyon Electric 100 + + Canyon Electric 100 + + 1d Generation 100 _ _ 2h Generation 100 + + 3h Generation 100 + + Arnold Iowa Power 20 _ _ Arnold Power 10 _ _ Arnold IPL 70 _ _ Power 100 +
Electric _ Power + Agency + Cooperative + _ Inc. + + Columbia Energy _ Co. + + Co. + + 1c Co. + +e 2c Co. + + District + Dept. Dept. Crystal Gainesville + Utilities Electric Division Crystal Beach + + Comm. + Florida + + Inc. + Co. + Co. + 1 Co. + +e 2 Co. + +e Co., LLC _ _ Co., LLC + Co., LLC + Cooperative _ _ Cooperative Farley Co. +
_ Generating Northwest _ _ River 3 Regional River 3 Utilities e e 1c + +
Appendix II
Detailed Results of Our Analysis of the
Decommissioning Trust Funds
(Continued From Previous Page)
Baseline (most likely) scenario
Ownership share of plant (percent)
Adequacy of trust fund balances as of end of 2000 Adequacy of recent trust
fund contributionsa
Plant name Owner
Page 31 GAO-04-32 Decommissioning Nuclear Power Plants
+ + Entergy + Omaha + Rochester South System + Connecticut + North Progress + + + + + + + + + + Pacific + Entergy _ Entergy + Entergy + + + + + + Maine
Farley Alabama + + Fermi Detroit _ Fermi Detroit + + Nuclear + + Fort Public + Gas & Grand Mississippi _ _ Grand Energy + Haddam Yankee + Harris Carolina Harris Energy Hatch City of + e, Hatch Georgia + + Hatch Municipal + + Hatch Oglethorpe + + Hatch City of + e, Hatch Georgia + + Hatch Municipal + + Hatch Oglethorpe + + Hope PSEG + Humboldt Gas & + Indian Nuclear _ _ Indian Nuclear + Indian Nuclear + + Wisconsin + + Wisconsin + + LaCrossed, Dairyland _ LaSalle Exelon + LaSalle Exelon + + Limerick Exelon _ Limerick Exelon Yankee
2c Power 100 + + 1d Edison 100 _ 2 Edison 100 + + FitzPatrick Operations, 100 + + Calhounh Power 100 + + Ginnah Electric 100 g Gulf Electric 10 _ _ Gulf Resources, 90 + + Neckd Atomic 100 + Co. 1 Eastern 16.17 + 1 Carolinas, 83.83 + + 1b Dalton 2.2 + g 1b Power 50.1 + + 1b Electric 17.7 + + Georgia 1b Power Co. 30 + + 2b Dalton 2.2 + g 2b Power 50.1 + + 2b Electric 17.7 + + Georgia 2b Power Co. 30 + + Creek Nuclear, 100 + g Bay 3d Electric 100 + + Point Operations, 100 _ _ Point Operations, 100 + + Point Operations, 100 + + Kewaunee Power & 41 + + Kewaunee Public 59 + +e, Corporation f Power 100 _ County Generation 100 + County Generation 100 + + 1j Generation 100 _ 2j Generation 100 Atomic
Co. + Co. _ Co. + + Inc. + +e District + Corp. 1 Power _ 1 Inc. + Power + Municipal Inc. (Georgia) + Co. + + Authority + + + + (Georgia) + Co. + + Authority + + + 1 LLC + Co. +e 1d, f Inc. i _i 2 Inc. + 3 Inc. + +e Light + +e Service +i i Cooperative _ 1 Co., LLC + 2 Co., LLC + + Co., LLC _ Co., LLC Maine Power _ _
_ _ + e _ of of i _ _ _ _ _ Yankeed Co. 100 _ _
Appendix II
Detailed Results of Our Analysis of the
Decommissioning Trust Funds
(Continued From Previous Page)
Baseline (most likely) scenario
Ownership share of plant (percent)
Adequacy of trust fund balances as of end of 2000 Adequacy of recent trust
fund contributionsa
Plant name Owner
Page 32 GAO-04-32 Decommissioning Nuclear Power Plants
+ + Nine Nine + Nine Long + + Virginia + + + Virginia + + + + + AmerGen + + + Arizona + Los + + + + Southern + + Arizona +
McGuire Duke + McGuire Duke + Millstone Nuclear Nuclear Central + Millstone + e, Nuclear Millstone + Wholesale Xcel + Mile Constellation Mile Constellation + Mile Island + + North Old + e, North Electric + + North Old + e, North Electric + + Oconee Duke + + Oconee Duke + + Oconee Duke + + Oyster Energy + + Consumers + + Palo Public + + Palo El Paso Palo Angeles + + Palo Public + + Palo + Improvement Palo Southern + e, Palo California + + Palo Public + +
1h Power 100 + + 2h Power 100 + + 1d, f, j g Connecticut g Connecticut Vermont + g Corp. 3 Dominion 93.47 + g Connecticut 3 4.80 + g Electric Monticello Energy 100 + Point Energy Group 100 Point Energy Group 82 + g Point Power 18 + + Anna Dominion 10.4 + g Anna & Power 89.6 + + Anna Dominion 10.4 + g Anna & Power 89.6 + + 1b Power 100 + + 2b Power 100 + + 3b Power 100 + + Creek Co., 100 + + Palisades Energy 100 + + Verde Service 29.1 + + Verde Electric 15.8 + Verde Dept. 5.7 + + Power Verde Service 10.2 + + Mexico Verde Salt River 17.49 + g & Power Verde California 15.8 + g Verde Public 5.91 + + Verde Service 29.1 + + Palo El Paso
Co. + Co. + Millstone + Millstone Public + + Massachusetts + Co. 1f 2 i 2 Authority + + 1b, k Cooperative + 1b, k Co. + + 2b, k Cooperative + 2b, k Co. + + Co. + Co. + Co. + + Inc. + +e Co. + +e 1 Co. + + 1 Co. 1 of + +e 1 Company + 1 Project + District 1 Edison Co. + 1 Power + +e 2 Co. + + Verde Electric
Dominion 100 _ 2 Dominion 100 + 3 Service 1.73 + + Municipal _ _ _ Water & of New Agricultural 2 Co. 15.8 _ _
ig
Appendix II
Detailed Results of Our Analysis of the
Decommissioning Trust Funds
(Continued From Previous Page)
Baseline (most likely) scenario
Ownership share of plant (percent)
Adequacy of trust fund balances as of end of 2000 Adequacy of recent trust
fund contributionsa
Plant name Owner
Page 33 GAO-04-32 Decommissioning Nuclear Power Plants
Los + + + Southern + + Arizona Los + + + Southern + + + + + + Cleveland + + Entergy + + + + MidAmerican + +
Palo Angeles + + Palo Public + + Palo + Improvement Palo Southern + e, Palo California + + Palo Public + + Palo El Paso Palo Angeles + + Palo Public + Palo + Improvement Palo Southern + e, Palo California + + Peach Exelon _ _ Peach Exelon + + Peach PSEG + Peach Exelon + + Peach PSEG + Perry Electric + + Perry Ohio + + Perry Pennsylvania + Perry Toledo + + Pilgrim Nuclear + _ Point Wisconsin + + Point Wisconsin + + Prairie Xcel + Prairie Xcel + Quad Exelon + Quad Energy + + Quad Exelon + MidAmerican
Verde Dept. 5.70 + + Power Verde Service 10.2 + + Mexico Verde Salt River 17.49 + g & Power Verde California 15.8 + g Verde Public 5.91 + + Verde Service 29.1 + + Verde Electric 15.80 + Verde Dept. 5.7 + + Power Verde Service 10.2 + _ Mexico Verde Salt River 17.49 + g & Power Verde California 15.8 + g Verde Public 5.91 + + Bottom Generation 100 _ _ Bottom Generation 50 +i + Bottom Nuclear, 50 + g Bottom Generation 50 + + Bottom Nuclear, 50 + g 1 Illuminating 44.85 + + 1 Edison 30 + + 1 Power Co. 5.24 + + 1 Edison 19.91 + + 1 Operations, 100 + _ Beach Electric 100 + + Beach Electric 100 + + Island Energy 100 + + Island Energy 100 + + Cities Generation 75 + + Cities Holdings 25 + + Cities Generation 75 + + Quad Energy 25
2 of + +e 2 Company + 2 Project + District 2 Edison Co. + 2 Power + +e 3 Co. + + 3 Co. 3 of + +e 3 Company _ 3 Project + District 3 Edison Co. + 3 Power + +e 1d, j Co., LLC _ _ 2b, j Co., LLC + 2b LLC i 3b, j Co., LLC i + 3b LLC + Co. + + Co. + + Co. + Inc. _ 1 Power Co. + +e 2 Power Co. + +e 1 + 2 + 1h Co., LLC 1h Co. + 2h Co., LLC + Cities Holdings
Water & of New Agricultural _ Water & of New _ Agricultural i 2h Co. _ +
Appendix II
Detailed Results of Our Analysis of the
Decommissioning Trust Funds
(Continued From Previous Page)
Baseline (most likely) scenario
Ownership share of plant (percent)
Adequacy of trust fund balances as of end of 2000 Adequacy of recent trust
fund contributionsa
Plant name Owner
Page 34 GAO-04-32 Decommissioning Nuclear Power Plants
Entergy + + Progress + + San + Anaheim + + San + + Anaheim + + San + + + + + Hudson + Taunton + South AEP + + + + City + South + + South AEP + + South + + City + +
Rancho Sacramento _ _ River Gulf + + Robinson Energy _ _ Salem Exelon _ Salem PSEG + e, Salem Exelon Salem PSEG + San Diego + e, San Southern + e, San Public + e, San Riverside + e, San Diego + e, San Southern + e, San Public + e, San Riverside + e, San Diego + e, San Southern + e, GPU + e, Seabrook FPL + + Seabrook Light + + Seabrook + + Wholesale Seabrook Municipal + + Sequoyah Tennessee _ Sequoyah Tennessee _ Texas (Texas + + South + + South Public + + Texas Texas + + Texas (Texas + + Texas City of + + South Public + +
Secod Municipal 100 _ _ District Bend States, 100 + + 2f, h Carolinas, 100 _ _ 1 Generation 42.59 _ 1 Nuclear, 57.41 + g 2 Generation 42.59 2 Nuclear, 57.41 + g Onofre Gas & 20 + g Onofre California 80 + g Onofre Utilities 3.16 + g Onofre Utilities 1.79 + g Onofre Gas & 20 + g Onofre California 75.05 + g Onofre Utilities 3.16 + g Onofre Utilities 1.79 + g Onofre Gas & 20 + g Onofre California 75.05 + g Saxtond Nuclear 100 + g 1 Energy 88.2 + + 1 & 0.08 + + 1 11.6 + + Electric 1 Lighting 0.1 + + 1 Valley 100 _ 2 Valley 100 _ Project Central 25.20 + + Texas 16 + + Energy Texas Service 28 + + Antonio Project Genco 30.80 + + Project Central 25.20 + + Project Austin-Austin 16 + + Texas Service 28 + +
Utility _ 1 Inc. + + Inc. Co., LLC LLC i Co., LLC LLC i 1d Electric + 1d Edison Co. + 2 Dept. + 2 Dept. + 2 Electric + 2 Edison Co. + 3 Dept. + 3 Dept. + 3 Electric + 3 Edison Co. + + i +i Power + Massachusetts + Co. Plant + Authority _ Authority _ 1 Co.) + + Project City of + + Project Board + + 1 + +i 2 Co.) + + 2 Energy + + Project Board + +
_ _ _ Co. Co. Co. Dept. Municipal _ _ i i 1 Austin-Austin 1 of San i i i 2 of San
Antonio
Appendix II
Detailed Results of Our Analysis of the
Decommissioning Trust Funds
(Continued From Previous Page)
Baseline (most likely) scenario
Ownership share of plant (percent)
Adequacy of trust fund balances as of end of 2000 Adequacy of recent trust
fund contributionsa
Plant name Owner
Page 35 GAO-04-32 Decommissioning Nuclear Power Plants
South + + + Florida + + Florida Florida + + + South Virginia + Virginia + + Three AmerGen + Eugene Pacific + Portland Florida + + Florida + + Entergy + + + + + + + + + +
Texas Texas + + St Power & + + St Municipal + St Power & + + St Orlando + e, Carolina South + Surry Electric + + Surry Electric + + Susquehanna Allegheny _ Susquehanna PPL Susquehanna Allegheny _ Susquehanna PPL + Mile Energy + + Three Jersey _ Three Three Trojand, Water & _ Trojand, Power & + Trojand, General _ _ Turkey Power & + + Turkey Power & + + Vermont Nuclear + + Vogtle City of + e, Vogtle Georgia + + Municipal + + Vogtle Oglethorpe _ Vogtle City of + e, Vogtle Georgia + + Municipal + +
Project Genco 30.80 + +e, Lucie Light 100 + + Lucie Power 8.7 + g Lucie Light 85.2 + + Lucie Utilities 6.05 + g Summerh Electric 66.67 _ Summerh Carolina + Authority 1b & Power 100 + + 2b & Power 100 + + 1 Electric 10 _ 1 Susquehanna, 90 + + 2 Electric 10 _ 2 Susquehanna, 90 + + Island Co., 100 + + Mile Central 25 i g 2d Mile 50 g 2d Mile 25 g 2d f, j Electric 30 _ g f, j Light 2.50 + f, j Electric 67.50 _ _ Point Light 100 + + Point Light 100 + + Yankee Operations, 100 i + 1 Dalton 1.60 + g 1 Power 45.70 + + Electric 22.70 + + Georgia 1 Power Co. 30 + _ 2 Dalton 1.60 + g 2 Power 45.70 + + Electric 22.70 + +
2 + i 1h Co. + +e 2h Agency + 2h Co. + +e 2h Comm. + & Gas _ _ Public + Co. + + Co. + + Cooperative LLC Cooperative LLC + 1 Inc. + +e Island Power & Island Metropolitan _ Island Pennsylvania _ Board _ Co. + Co. _ _ 3b Co. + +e 4b Co. + +e Inc. +i (Georgia) + Co. + + Vogtle Authority + + _ (Georgia) + Co. + + Vogtle Authority + +
i Co. _ _ Service 33.33 + + _ _ Light Edison Co. i Electric Co. i _ 1 of 2 of
Georgia
Appendix II
Detailed Results of Our Analysis of the
Decommissioning Trust Funds
(Continued From Previous Page)
Baseline (most likely) scenario
Ownership share of plant (percent)
Adequacy of trust fund balances as of end of 2000 Adequacy of recent trust
fund contributionsa
Plant name Owner
Vogtle 2 Oglethorpe Power Co. 30 _ _ _ _
Waterford 3 Entergy Louisiana, Inc. 100 _ +
Watts Bar 1 Tennessee Valley Authority 100 + + + + _ _ _
Wolf Creek 1 Kansas City Power & Light Co. 47 + _
Wolf Creek 1 Kansas Electric Power 6 _ _ _ _ _
Cooperative
Wolf Creek 1 Kansas Gas & Electric Co. 47 + +
Yankee Rowed Yankee Atomic Electric Co. 100 _ + + + +
Zion 1d Exelon Generation Co., LLC 100 _ _ _ _ _
Zion 2d Exelon Generation Co., LLC 100 _ _ _ _ _ _
Legend
+ means that fund balance/recent contributions were 0 to 25 percent more
than benchmark.
++ means that fund balance/recent contributions were 26 to 50 percent more
than benchmark.
+++ means that fund balance/recent contributions were 51 to 100 percent
more than benchmark.
++++ means that fund balance/recent contributions were 101 percent or more
than benchmark.
_ means that fund balance/recent contributions were 0.1 to 25 percent less
than benchmark.
_ _ means that fund balance/recent contributions were 26 to 50 percent
less than benchmark.
_ _ _ means that fund balance/recent contributions were 51 to 100 percent
less than benchmark. Source: GAO analysis.
aAdequacy of recent contributions is based on responses to our survey. The
percentages are more, or less, than the benchmark, meaning the owner has
contributed more, or less, on average for 1999 and 2000 (cost adjusted to
2000) than the annual average of the present value amounts required in
each subsequent year until its plant is retired.
bPlant's operating license extended for 20 years.
cPlants whose owners are expected to apply for 20-year license renewals by
December 2003.
dPlant has permanently shut down.
eTrust fund balance exceeds present value of estimated decommissioning
costs.
fOwner has, as of March 31, 2003, an additional method to support
financial assurance obligations (e.g., parent company guarantee, statement
of intent).
gContributions data are not available.
hPlants whose owners have applied for 20-year license renewals, as of
August 20, 2003.
iIncludes balances and/or contributions from a previous owner's biennial
report and/or responses to our survey.
jOwner had, as of March 31, 2001, an additional method to support
financial assurance obligations (e.g., parent company guarantee, statement
of intent).
kLiability is for decommissioning share and not ownership share.
Appendix II
Detailed Results of Our Analysis of the
Decommissioning Trust Funds
Table 5: Selected Owners with More, or Less, Than Benchmark Trust Fund
Balances and Contributions, under Optimistic Assumptions (by Percentage
above or below Benchmarks)
Optimistic scenariob Plant name Ownera
Ownership share of plant (percent)
Adequacy of trust fund balances as of end of 2000 Adequacy of recent trust
fund contributionsc
Page 37 GAO-04-32 Decommissioning Nuclear Power Plants
_ + + +
Beaver Pennsylvania _ Browns Tennessee + _ Browns Tennessee + _ Browns Tennessee + _ Brunswick Dresden Exelon _ _ Duane Central Duane Corn Belt _ _ Duane Fermi Detroit + Grand Indian _ Dairyland + Limerick Exelon _ Limerick Exelon Maine Maine Atomic Palo El Paso Peach Exelon _ _ Rancho Robinson + Salem Exelon Salem Exelon Sequoyah Tennessee _ Sequoyah Tennessee _ South
Valley Power Co. 65 + _ Ferry Valley 100 + _ Ferry Valley 100 + _ Ferry Valley 100 + _ 1 Progress 81.67 + Inc. 100 Station 1e Generation 100 _ _ Arnold Iowa 20 _ _ Cooperative Arnold Power 10 _ _ Arnold IPL 70 1e Edison 100 + + Gulf South 10 _ Power Point Entergy 100 _ _ Inc. LaCrossee Power 100 + + 1 Generation 100 _ 2 Generation 100 + Yankeee Yankee 100 Power Verde Electric 15.80 + + Bottom Generation 100 _ _ Secoe Sacramento 100 _ District 2d Progress 100 + + Inc. 1 Generation 42.59 2 Generation 42.59 + + 1 Valley 100 _ 2 Valley 100 + _ Carolina
1 _ 1d Authority _ 2d Authority _ 3d Authority _ Energy Columbia Energy _ Co., LLC _ g Power _ _ Cooperative Co. +f 1 Mississippi _ 1e Nuclear _ _ Cooperative + Co., LLC Co., LLC Co. 2 Co. 1e Co., LLC _ _ Municipal _ _ Energy + Co., LLC Co., LLC Authority _ Authority _ Electric + +
Carolinas, _ Generating Northwest _ _ _ _ _ _ Electric _ _ Operations, g _g f _ _ _ _ Utility _ _ Carolinas, _ _ _ Summerd & Gas 66.67 + +
Co.
Appendix II
Detailed Results of Our Analysis of the
Decommissioning Trust Funds
(Continued From Previous Page)
Optimistic scenariob
Ownership share of plant (percent)
Adequacy of trust fund balances as of end of 2000 Adequacy of recent trust
fund contributionsc
Plant name Ownera
Susquehanna 1 Allegheny Electric Cooperative 10 _ _ +
Susquehanna 2 Allegheny Electric Cooperative 10 _ _ +
Trojane Portland General Electric Co. 67.50 _ _ _ _
Vogtle 2 Oglethorpe Power Co. 30 + _ _ _
Wolf Creek 1 Kansas Electric 6 _ _ _ _
Power Cooperative
Zion 1e Exelon Generation Co., LLC 100 _ _ _ _ _
Zion 2e Exelon Generation Co., LLC 100 _ _ _ _ _
Legend
+ means that fund balance/recent contributions were 0 to 25 percent more
than benchmark.
++ means that fund balance/recent contributions were 26 to 50 percent more
than benchmark.
+++ means that fund balance/recent contributions were 51 to 100 percent
more than benchmark.
++++ means that fund balance/recent contributions were 101 percent or more
than benchmark.
_ means that fund balance/recent contributions were 0.1 to 25 percent less
than benchmark.
_ _ means that fund balance/recent contributions were 26 to 50 percent
less than benchmark.
_ _ _ means that fund balance/recent contributions were 51 to 100 percent
less than benchmark. Source: GAO analysis.
aOwners' funds were selected to be screened under optimistic assumptions
based on our baseline results; namely, that the status of their trust
funds was below baseline benchmarks on both balances and contributions.
bSee appendix I for description of optimistic assumptions.
cAdequacy of recent contributions is based on responses to our survey. The
percentages are more, or less, than the benchmark, meaning the owner has
contributed more, or less, on average for 1999 and 2000 (cost adjusted to
2000) than the annual average of the present value amounts required in
each subsequent year until its plant is retired.
dPlant whose owners have applied for 20-year license renewals or are
expected to apply by December 2003, as of August 20, 2003.
ePlant has permanently shut down.
fTrust fund balance exceeds present value of estimated decommissioning
cost.
gIncludes balances and/or contributions from a previous owner's biennial
report and/or responses to our survey.
Appendix II
Detailed Results of Our Analysis of the
Decommissioning Trust Funds
Table 6: Selected Owners with More, or Less, Than Benchmark Trust Fund
Balances and Contributions, under Pessimistic Assumptions (by Percentage
above or below Benchmarks)
Pessimistic assumptions scenariob Plant name Ownera
Ownership share of plant (percent)
Adequacy of trust fund balances as of end of 2000 Adequacy of recent trust
fund contributionsc
Page 39 GAO-04-32 Decommissioning Nuclear Power Plants
Arkansas Entergy _ Beaver Ohio _ Beaver Ohio Beaver Toledo Big Consumers _ North North _ Calvert Calvert Duke North North City of City of City of City of Exelon Exelon Alabama
Nuclear Arkansas, 100 _ _ Valley Edison 35 _ _ Beaver Cleveland 24.47 Co. Valley Edison 41.88 _ Valley Edison 19.91 Rock Energy 100 _ _ Brunswick Carolina 18.33 Municipal Brunswick Carolina 18.33 Municipal Brunswick Progress 81.67 Inc. Callaway AmerenUE 100 _ _ Cliffs Constellation 100 g Cliffs Constellation 100 g Catawba Power 12.50 Catawba Carolina 28.1 _ Membership Catawba Piedmont 12.5 Agency Catawba Carolina 28.1 _ Membership Crystal Alachua 0.08 g Crystal Bushnell 0.04 g Crystal Kissimmee 0.68 _ g City of 0.82 g Electric Crystal Ocala 1.33 _ g Seminole 1.70 Cooperative, Dresden Generation 100 Dresden Generation 100 Power 100
2d Inc. _ 1 Co. _ _ Valley Electric _ 2 Co. _ 2 Co. Pointe Co. _ _ 1 Eastern _ _ 2 Eastern _ _ 2 Energy _ _ _ _ 1f Energy Group 2f Energy Group 1d Co. 1d Electric _ _ 1d Municipal 2d Electric _ River 3 Electric River 3 Utility River 3 Utilities _ Crystal Leesburg _ River 3 Utilities _ Crystal Electric _ Inc. 2d Co., LLC 3d Co., LLC Farley Co.
2 Illuminating _ _ _ _ _ _ _ _ _ Carolinas, _ _ _ _ _ _ _ _ Power _ _ _ _ Dept. _ Dept. _ River 3 Municipal _ Division River 3 _ _ _ _ _ _ 1d _ _
Appendix II
Detailed Results of Our Analysis of the
Decommissioning Trust Funds
(Continued From Previous Page)
Pessimistic assumptions scenariob
Ownership share of plant (percent)
Adequacy of trust fund balances as of end of 2000 Adequacy of recent trust
fund contributionsc
Plant name Ownera
Haddam Necke Connecticut Yankee Atomic 100 _ _ _ _
Power Co.
Harris 1 North Carolina Eastern 16.17 _ _ _
Municipal
Harris 1 Progress Energy Carolinas, 83.83 _ _ _
Inc.
Humboldt Bay 3e Pacific Gas & Electric Co. 100 _ _ _ _ _
Indian Point 2 Entergy Nuclear Operations, 100 _ _
Inc.
Millstone 2 Dominion Nuclear Connecticut 100 _ g
Monticello Xcel Energy 100 _ _ _ _
Palo Verde 1 El Paso Electric Co. 15.8 _ _ _ _
Palo Verde 3 El Paso Electric Co. 15.8 _ _ _ _
Palo Verde 3 Public Service Co. of New 10.20 _ _ _ _
Mexico
Peach Bottom 2f Exelon Generation Co., LLC 50 _
h
_
Pilgrim 1 Entergy Nuclear Operations, 100 _ _ _ _
Inc.
Prairie Island 1 Xcel Energy 100 _ _
Quad Cities 1d Exelon Generation Co., LLC 75 _ _ _ _
Quad Cities 2d Exelon Generation Co., LLC 75 _ _ _
Quad Cities 2d MidAmerica Energy Holdings 25 _ _ _ _
Susquehanna 1 PPL Susquehanna, LLC 90 _ _ _ _
Vermont Yankee Entergy Nuclear Operations, 100 _ _h _ _h
Inc.
Vogtle 1 Oglethorpe Power Co. 30 _ _ _ _ _
Waterford 3 Entergy Louisiana, Inc. 100 _ _ _ _
Wolf Creek 1 Kansas City Power & Light Co. 47 _ _ _ _
Wolf Creek 1 Kansas Gas & Electric Co. 47 _ _ _
Yankee Rowee Yankee Atomic Electric Co. 100 _ _ _ _ _
Legend
+ means that fund balance/recent contributions were 0 to 25 percent more
than benchmark. ++ means that fund balance/recent contributions were 26 to
50 percent more than benchmark. +++ means that fund balance/recent
contributions were 51 to 100 percent more than benchmark. ++++ means that
fund balance/recent contributions were 101 percent or more than benchmark.
_ means that fund balance/recent contributions were 0.1 to 25 percent less
than benchmark. _ _ means that fund balance/recent contributions were 26
to 50 percent less than benchmark.
Appendix II
Detailed Results of Our Analysis of the
Decommissioning Trust Funds
_ _ _ means that fund balance/recent contributions were 51 to 100 percent
less than benchmark. Source: GAO analysis.
aOwners' funds were selected to be screened under pessimistic assumptions
based on our baseline results; namely, that the status of their trust
funds was 0 to 100 percent above baseline benchmark on balances and/or
contributions.
bSee app. I for description of pessimistic assumptions.
cAdequacy of recent contributions is based on responses to our survey. The
percentages are more, or less, than the benchmark, meaning the owner has
contributed more, or less, on average for 1999 and 2000 (cost adjusted to
2000) than the annual average of the present value amounts required in
each subsequent year until its plant is retired.
dPlant whose owners have applied for 20-year license renewals or are
expected to apply by December 2003, as of August 20, 2003.
ePlant has permanently shut down.
fPlant's operating license extended for 20 years.
gContributions data are not available.
hIncludes balances and/or contributions from a previous owner's biennial
report and/or responses to our survey.
Appendix III
Comments from the Nuclear Regulatory Commission
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
See comment 1.
See comment 2.
See comment 3.
See comment 4.
Appendix III
Comments from the Nuclear Regulatory
Commission
See comment 5.
See comment 6.
Appendix III
Comments from the Nuclear Regulatory
Commission
See comment 7.
See comment 8.
Now on p. 3.
See comment 9.
Appendix III
Comments from the Nuclear Regulatory
Commission
Now on p. 3.
See comment 10.
Now on p. 7.
See comment 11.
See comment 12.
Appendix III
Comments from the Nuclear Regulatory
Commission
Now on p. 14.
See comment 13.
Appendix III
Comments from the Nuclear Regulatory
Commission
The following are GAO's comments on NRC's letter dated October 3, 2003.
GAO Comments 1.
2.
3.
4.
5.
Rather than concluding that NRC does not have a method, we stated that the
agency's analysis was not effective in identifying owners who might be at
risk of accumulating insufficient funds to pay for decommissioning. For
example, NRC relied on the owners' future funding plans to make up any
shortfalls without verifying whether the plans are consistent with the
owners' recent contributions. See also our response in the Agency Comments
and Our Evaluation section on page
16.
We agree that NRC should be primarily concerned with ensuring that owners
of nuclear power plants will have sufficient funds for decommissioning.
However, we believe that NRC should take a proactive, rather than
reactive, approach to providing owners and the public with a more complete
understanding of NRC's expectations as to how they will hold owners who
are not accumulating sufficient funds accountable. As discussed in the
report, the lack of any specific criteria for acting on owners'
decommissioning financial reports contrasts with NRC's practices in
overseeing safety issues at nuclear plants, where the agency uses an
"Action Matrix" that provides for a range of actions commensurate with the
significance of safety inspection findings and performance indicators.
Without similar criteria in its oversight of decommissioning funding
assurance, NRC will not have a logical, coherent, consistent, and
predictable plan of action if and when it encounters owners whose plants
have inadequate financial assurance. See also our response in the Agency
Comments and Our Evaluation section on page 16.
See our responses to comments 5, 6, and 9 in this appendix.
See our responses to comment 9.
We agree that current NRC regulations do not establish intermediate
benchmarking levels, but rather establish the minimum balance that must be
obtained when plants are retired. We also agree that the state regulatory
authorities and Federal Energy Regulatory Commission play a role. However,
we believe that NRC should take a more proactive approach in developing an
effective method for ensuring that sufficient funds will be available for
decommissioning. For example, a common expected rate of return could be
used to project the earnings of each
Appendix III
Comments from the Nuclear Regulatory
Commission
owner's trust fund. NRC's current method allows the owners to use up to 2
percent (real) or another rate if approved by its state regulator. As we
stated in our report, one state regulator approved owners of the same
plant to use widely varying rates of return to project earnings on their
trust fund investments. Other factors being equal, the owner using the
higher rate would need to collect fewer funds than the owner using a lower
rate of return. While the actual rate the owners will earn on their funds
could be higher or lower, NRC accepted the state regulator
approved rates without assessing whether they were consistent with market
expectations.
In another example, in its 2001 biennial report, one owner using NRC's 2
percent rate of return estimated that the amount of funds needed for
decommissioning under NRC's regulations would be insufficient at five of
its nuclear power plants. Therefore, the owner provided additional
assurance in the form of a parent guarantee. However, the owner sought and
subsequently received approval from its state regulator to use a higher
real rate of return. After receiving the approval, the owner withdrew its
parent guarantee since under the higher rate, the projected trust funds
were sufficient to cover estimated decommissioning costs. We believe that
by being more proactive, and not simply deferring to others, the NRC can
develop a more effective and consistent method and better achieve its
primary concern of ensuring that owners are accumulating funds at
sufficient rates.
6. We found no evidence during our review that NRC has ever determined
that an owner is not accumulating sufficient funds. Therefore, without any
experience that its "practice" has been applied, we believe that without
clear criteria, NRC will not have a logical, coherent, consistent, and
predictable plan of action if and when it encounters owners whose plants
have inadequate financial assurance. Accordingly, we are recommending that
NRC establish criteria for responding to unacceptable levels of financial
assurance.
7. We agree that our method is different from that used by NRC. Our draft
discussed and reviewed NRC's analysis. Based on our review, we concluded
that NRC's analysis was not effective in identifying owners who might be
at risk of accumulating insufficient funds to pay for eventual
decommissioning. For example, NRC relied on the owners' future funding
plans, or on rate-setting authority decisions, in concluding that the
owners were on track to fully fund decommissioning. However, we found some
owners' actual
Appendix III
Comments from the Nuclear Regulatory
Commission
contributions in 2001 were much less than what they stated in their 2001
biennial reports to NRC that they planned to contribute. For example, one
owner contributed about $1.5 million (or 39 percent) less than the amount
it told NRC that it planned to contribute. Moreover, using actual
contributions the owners had recently made to their trust funds, we
identified several owners that are at risk of accumulating insufficient
funds to pay for eventual decommissioning.
8. We do not believe any changes are needed.
9. We agree, and the our draft report stated, that NRC does not separately
assess the status of each co-owner's decommissioning funding against the
co-owner's private contractual obligation to fund decommissioning. The NRC
guidance states: "Some licensees are part owners of power reactors. In
such cases, the [NRC] reviewer should evaluate separately each licensee's
[co-owner's] amortization schedule [i.e., decommissioning funding] for its
share of the facility, unless the lead licensee has agreed to coordinate
funding documentation and reporting for all co-owners." Nonetheless, we
revised the report to remove any inferences that NRC's practice is
inconsistent with its internal guidance. Notwithstanding NRC's
characterization of its practice, we believe that both the guidance and
NRC's actions do not go far enough. For example, the guidance allows for
an exception when the lead licensee agrees to coordinate documentation and
reporting. More importantly, the critical issue is that NRC should do more
to develop an effective method for assessing the adequacy of nuclear power
plant owner's trust funds for decommissioning. Under NRC's current method,
it combines the trust funds for all co-owners of a nuclear plant and then
assesses the adequacy of decommissioning funds on a plant-wide basis.
However, as our analysis indicates, combining the trust funds of several
owners can produce misleading results because those co-owners with more
than sufficient funds can appear to balance out those with less than
sufficient funds. In addition, as a practical matter, owners have
contractual agreements to pay for their share of decommissioning, and the
trust funds are generally not transferable among owners. Unless NRC
separately evaluates the adequacy of each co-owners' decommissioning trust
fund, the agency's existing process would appear to require some co-owners
to pay more than their fair share of decommissioning costs. We believe
this would be inconsistent with NRC's stated policy of generally not
looking to one co-owner to bail out another.
Appendix III
Comments from the Nuclear Regulatory
Commission
10. Rather than state that NRC has not developed and used a method, we
found that the agency's method was not effective in identifying owners who
might be at risk of accumulating insufficient funds to pay for
decommissioning. For example, we identified several limitations in NRC's
method, including the agency's practice of combining the trust funds for
all the co-owners of a nuclear plant and then assessing whether the
combined value of the trust funds is sufficient. We believe that this
practice can produce misleading results because those co
owners with more than sufficient funds can appear to balance out those
with less than sufficient funds.
In addition, we agree that NRC has not established criteria for taking
action when it finds cases of unacceptable levels of financial assurance.
According to NRC officials we spoke to, NRC has never identified an owner
with unacceptable levels of financial assurance. Moreover, the general
activities that NRC stated above are not included in its internal guidance
for reviewing the owners' biennial reports. We believe that NRC should
take a more proactive approach to providing owners and the public with a
more complete understanding of NRC's expectations as to how they will hold
owners who are not accumulating sufficient funds accountable. We believe
having established criteria for taking action when it is determined that
unacceptable levels of financial assurance exist will better prepare NRC
to make this determination. Furthermore, having such criteria would not
only increase public confidence that NRC has a plan to take action to
ensure sufficient funds will be available for decommissioning but also
would make its determination of inadequacy more transparent to owners.
11. As indicated in our draft report, we reviewed NRC's analysis of the
owners' 2001 biennial reports. Our review clearly points out that the
agency's method has limitations that reduce its effectiveness. For
example, NRC relied on the owners' future funding plans to make up any
shortfalls without verifying whether those plans are consistent with the
owners' recent contributions. We found that some owners' actual
contributions in 2001 were much less than what they stated in their 2001
biennial reports to NRC that they planned to contribute. For example, one
owner contributed about $1.5 million (or 39 percent) less than the amount
they told NRC that they planned to contribute. In addition, based on our
analysis using the actual contributions the owners recently made to their
trust funds, we found that 28 owners with ownership shares in 44 plants
contributed less than the amounts we estimate they will need to contribute
over the remaining life of their
Appendix III
Comments from the Nuclear Regulatory
Commission
plants to meet their decommissioning obligations. Accordingly, we believe
that our recommendation to NRC to develop an effective method is clearly
warranted to ensure that all owners are accumulating funds at sufficient
rates. See also our response to comment 12.
12. As stated in our draft, our conclusions are based on a method that
uses a benchmark to assess the adequacy of each nuclear plant owner's
decommissioning trust fund. In addition, our draft stated that this
benchmark is not the only way an owner could accrue enough funds to pay
future decommissioning costs. Still, we believe that our benchmark is
useful for assessing the status of the owners' decommissioning trust funds
because it (1) provides a common standard for comparisons among owners,
(2) embodies the principle of economic efficiency in that the price of a
product (i.e., electricity) should, if possible, equal all of its
costs-current and accrued, and (3) provides for transparency in that it
assumes that current and future users pay the same decommissioning fees,
in constant present-value terms.
13. As we stated in our draft, NRC stated that it will not impose
decommissioning costs on co-owners in a manner inconsistent with their
agreed-upon shares, except in highly unusual circumstances when required
by public health and safety considerations and that it would not seek more
than the pro rata shares from co-owners with de minimis ownership.
Nevertheless, unless NRC separately evaluates the adequacy of each
co-owners' decommissioning trust fund, the agency's existing process would
appear to require some co-owners to pay more than their fair share of
decommissioning costs. We believe this would be inconsistent with NRC's
stated policy of generally not looking to one co-owner to bail out another
one.
Appendix IV
GAO Contact and Staff Acknowledgments
GAO Contact Tim Guinane (202) 512-4939
Acknowledgments In addition, Ronald La Due Lake, Carolyn McGowan, Cynthia
Norris, Michael Sagalow, Barbara Timmerman, Daniel G. Williams, and Dwayne
Weigel made key contributions to this report.
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