Nuclear Regulatory Commission: Challenges Facing NRC in 	 
Effectively Carrying Out Its Mission (26-MAY-05, GAO-05-754T).	 
                                                                 
The Nuclear Regulatory Commission (NRC) has the regulatory	 
responsibility to, among other things, ensure that the nation's  
103 commercial nuclear power plants are operated in a safe and	 
secure manner. While the nuclear power industry's overall safety 
record has been good, safety issues periodically arise that	 
threaten the credibility of NRC's regulation and oversight of the
industry. Recent events make the importance of NRC's regulatory  
and oversight responsibilities readily apparent. The terrorist	 
attacks on September 11, 2001, focused attention on the security 
of facilities such as commercial nuclear power plants, while	 
safety concerns were heightened by shutdown of the Davis-Besse	 
nuclear power plant in Ohio in 2002, and the discovery of missing
or unaccounted for spent nuclear fuel at three nuclear power	 
plants. GAO has issued a total of 15 recent reports and 	 
testimonies on a wide range of NRC activities. This testimony (1)
summarizes GAO's findings and associated recommendations for	 
improving NRC mission-related activities and (2) presents several
cross-cutting challenges NRC faces in being an effective and	 
credible regulator of the nuclear power industry.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-754T					        
    ACCNO:   A25327						        
  TITLE:     Nuclear Regulatory Commission: Challenges Facing NRC in  
Effectively Carrying Out Its Mission				 
     DATE:   05/26/2005 
  SUBJECT:   Agency missions					 
	     Counterterrorism					 
	     Homeland security					 
	     Nuclear powerplant safety				 
	     Nuclear powerplant security			 
	     Nuclear powerplants				 
	     Performance measures				 
	     Regulatory agencies				 
	     Safety regulation					 
	     Safety standards					 
	     Security policies					 
	     Security policy violations 			 
	     Standards and standardization			 
	     Standards evaluation				 
	     Terrorism						 

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GAO-05-754T

United States Government Accountability Office

GAO Testimony

Before the Subcommittee on Clean Air, Climate Change, and Nuclear Safety,
Committee on Environment and Public Works, U.S. Senate

For Release on Delivery

Expected at 10:00 a.m. EDT NUCLEAR REGULATORY

Thursday, May 26, 2005

COMMISSION

         Challenges Facing NRC in Effectively Carrying Out Its Mission

Statement of Jim Wells, Director Natural Resources and Environment

GAO-05-754T

[IMG]

May 26, 2005

NUCLEAR REGULATORY COMMISSION

Challenges Facing NRC in Effectively Carrying Out Its Mission

  What GAO Found

GAO has documented many positive steps taken by NRC to advance the
security and safety of the nation's nuclear power plants. It has also
identified various actions that NRC needs to take to better carry out its
mission. First, with respect to its security mission, GAO found that NRC
needs to improve security measures for sealed sources of radioactive
materials --- radioactive material encapsulated in stainless steel or
other metal used in medicine, industry, and research--which could be used
to make a "dirty bomb." GAO also found that, although NRC was taking
numerous actions to require nuclear power plants to enhance security, NRC
needed to strengthen its oversight of security at the plants. Second, with
respect to its public health and safety, and environmental missions, GAO
found that NRC needs to conduct more effective analyses of plant owners'
funding for decommissioning to ensure that the significant volume of
radioactive waste remaining after the permanent closure of a plant are
properly disposed. Further, NRC needs to more aggressively and
comprehensively resolve issues that led to the shutdown of the Davis-Besse
nuclear power plant by improving its oversight of plant safety conditions.
Finally, NRC needs to do more to ensure that power plants are effectively
controlling spent nuclear fuel, including developing and implementing
appropriate inspection procedures.

GAO has identified several cross-cutting challenges affecting NRC's
ability to effectively and credibly regulate the nuclear power industry.
Recently, NRC has taken two overarching approaches to its regulatory and
oversight responsibilities. These approaches are to (1) develop and
implement a riskinformed regulatory strategy that targets the most
important safety-related activities and (2) strike a balance between
verifying plants' compliance with requirements through inspections and
affording licensees the opportunity to demonstrate that they are operating
their plants safety. NRC must overcome significant obstacles to fully
implement its risk-informed regulatory strategy across agency operations,
especially with regards to developing the ability to identify emerging
technical issues and adjust regulatory requirements before safety problems
develop. NRC also faces inherent challenges in achieving the appropriate
balance between more direct oversight and industry selfcompliance.
Incidents such as the 2002 shutdown of the Davis-Besse plant and the
unaccounted for spent nuclear fuel at several plants raise questions about
whether NRC has the risk information that it needs and whether it is
appropriately balancing agency involvement and licensee self-monitoring.
Finally, GAO believes that NRC will face challenges managing its resources
while meeting increasing regulatory and oversight demands. NRC's resources
have already been stretched by the extensive effort to enhance security at
plants in the wake of the September 11, 2001, terrorist attacks. Pressure
on NRC's resources will continue as the nation's fleet of plants age and
the industry's interest in expansion grows, both in licensing and
constructing new plants, and re-licensing and increasing the power output
of existing ones.

                 United States Government Accountability Office

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to participate in the Subcommittee's
oversight hearing on the Nuclear Regulatory Commission (NRC). NRC has the
regulatory responsibility to ensure that the nation's 103 operating
commercial nuclear power plants are operated in a safe and secure manner.
These plants provide about 20 percent of the country's electricity, but
safety of their operations is paramount, given the potentially devastating
effects of a nuclear accident. While the nuclear power industry's overall
safety record has been good, safety issues periodically arise that raise
questions about NRC's regulation and oversight of the industry and
challenge its credibility for guaranteeing the safety of the nation's
aging fleet of nuclear power plants. NRC plays an important role in
protecting public health and the environment through its regulation of the
nuclear power industry and other civilian use of nuclear material, and we
commend the Subcommittee for holding this hearing.

NRC was formed in 1975, to regulate the various commercial and
institutional uses of nuclear energy, including nuclear power plants.
NRC's mission is to regulate the nation's civilian use of nuclear material
to ensure adequate protection of public health and safety, to promote the
common defense and security, and to protect the environment. NRC's
activities include, among other things, licensing nuclear reactors
(including license transfers and operating experience evaluation),
reviewing plant safety procedures, imposing enforcement sanctions for
violations of NRC requirements, and participating in homeland security
efforts (including threat assessment, emergency response, mitigating
strategies, security inspections, and force-on-force exercises). NRC also
has regulatory oversight for the decommissioning of nuclear reactors,
including accumulating sufficient funds to carry out decommissioning, and
for the interim storage of spent nuclear fuel - the used fuel periodically
removed from reactors in nuclear power plants.

The importance of NRC's regulatory and oversight responsibilities is made
readily apparent by recent events. The terrorist attacks on September 11,
2001, and the subsequent discovery of nuclear power plants on a list of
possible terrorist targets have focused attention on the security of the
nation's commercial nuclear power plants. Safety concerns were heightened
by the discovery of a pineapple-sized cavity in the carbon steel reactor
vessel head, and subsequent 2-year shutdown, of the Davis-Besse nuclear
power plant in Ohio in 2002. Additional safety concerns were raised by the
discovery of missing or unaccounted for spent nuclear fuel at three
nuclear power plants. Further, the decommissioning of some of the

nations' aging nuclear power plants raises the issue of whether NRC is
ensuring that plant owners are accumulating sufficient funds for
decommissioning plants in a way that best protects public health, safety,
and the environment.

Over the past 2 years, we have issued a total of 15 reports and
testimonies on a wide range of NRC activities. (These reports are listed
in Appendix I). While our work has primarily focused on identifying ways
that NRC can strengthen its regulation and oversight of the nuclear power
industry, we have documented a number of productive steps NRC has taken to
improve its mission-related activities. One example is the substantial
effort that NRC has made in working with the industry to enhance security
at nuclear power plants since the September 11, 2001, terrorist attacks.
Another example is NRC's considerable effort to analyze what went wrong at
the Davis-Besse plant in 2002, and to incorporate the lessons learned into
its processes. Today, my testimony will briefly summarize our recently
completed NRC work. Specifically, this testimony (1) summarizes GAO's
findings and associated recommendations for improving NRC missionrelated
activities and (2) provides some observations on cross-cutting challenges
that NRC faces in being an effective and credible regulator of the nuclear
power industry.

This testimony is based on seven of our recently issued reports. The other
eight reports either address issues for which NRC is not the primary
federal agency - such as radioactive waste disposal and nuclear
nonproliferation - or concern internal NRC administrative matters - such
as fee recovery and information technology management. We did not perform
additional audit work in preparing this testimony. The work for our
previously issued reports was conducted in accordance with generally
accepted government auditing standards.

While NRC has improved its operations in a number of ways in recent years,
GAO believes that the agency needs to take a number of additional actions
to better fulfill its mission of ensuring that the nation's nuclear power
plants and other civilian users of nuclear material operate in a safe and
secure manner. First, operations related to NRC's security mission need to
be improved. Specifically, we found that NRC has not developed adequate
security measures for sealed sources of radioactive materials -radioactive
material encapsulated in stainless steel or other metal used in medicine,
industry, and research --which could be used to make a "dirty bomb." We
also found that despite taking numerous actions to respond to the
heightened risks of a terrorist attack, NRC's oversight of physical

  Summary

security at the nation's commercial nuclear power plants could be
strengthened. Second, operations related to NRC's public health and
safety, and environmental missions need to be improved. Specifically, we
found that NRC's analyses of plant owners' contributions of funds for the
decommissioning of nuclear power plants, and its processes for acting on
reports that show insufficient funds, do not ensure that the significant
radioactive waste hazards that exist following the permanent closure of a
nuclear power plant will be properly addressed. Further, we found that the
issues surrounding the shutdown of the Davis-Besse power plant reveal
important weaknesses in NRC's oversight of the safety of nuclear power
plant operations. Finally, we found that NRC has not taken adequate steps
to ensure that power plants are effectively controlling spent nuclear
fuel, including developing and implementing appropriate inspection
procedures to verify plants' compliance with NRC requirements.

NRC faces several cross-cutting challenges in being an effective and
credible regulator of the nuclear power industry. In response to the
agency's limited resources and its desire to reduce the regulatory burden
and cost on plants, NRC is taking two overarching approaches to meeting
its regulatory and oversight responsibilities: (1) developing and
implementing a risk-informed regulatory strategy that targets industry's
most important safety-related or safety-significant activities, and (2)
striking a balance between verifying plants' compliance with requirements
through inspections and affording licensees the opportunity to demonstrate
that they are operating their plants safely. We believe that NRC must
overcome significant obstacles in implementing its riskinformed regulatory
strategy across the agency, especially with regards to developing the
ability to identify emerging technical issues and adjust regulatory
requirements before safety problems develop. We also believe that NRC
faces inherent challenges in balancing oversight and industry
self-compliance, especially with regards to positioning the agency so it
is able to identify diminishing performance at individual plants before
they become a problem. Incidents such as the 2002 shutdown of the
Davis-Besse plant and the unaccounted for spent nuclear fuel at several
plants raise questions about whether NRC has the risk information that it
needs and whether it is appropriately balancing agency involvement and
licensee self-monitoring. Finally, we believe that NRC will face
challenges managing its resources while meeting increasing regulatory and
oversight demands. NRC's resources have already been stretched by the
extensive effort to enhance security at plants in the wake of the
September 11, 2001, terrorist attacks. Pressure on NRC's resources will
continue as the nation's fleet of plants age and the industry's interest
in expansion grows, both in

  Regulatory and Oversight Functions Vital to NRC's Mission Need to be Improved

licensing and constructing new plants, and re-licensing and increasing the
power output of existing ones.

Our recent analyses of NRC programs identified several areas where NRC
needs to take action to better fulfill its mission and made associated
recommendations for improvement. With respect to NRC's security mission,
we found that the security of sealed radioactive sources and the physical
security at nuclear power plants need to be strengthened. With respect to
its public health and safety, and environmental missions, we found several
shortcomings that need to be addressed. NRC's analyses of plant owners'
contributions could be improved to better ensure that adequate funds are
accumulating for the decommissioning of nuclear power plants. By contrast,
we found that NRC is ensuring that requirements for liability insurance
for nuclear power plants owned by limited liability companies are being
met. Further, to ensure the safety of nuclear power plants NRC must more
aggressively and comprehensively resolve oversight issues related to the
shutdown of the Davis-Besse plant. Finally, NRC's methods of ensuring that
power plants are effectively controlling spent nuclear fuel need to be
improved.

Operations Related to NRC's Security Mission Could Be Improved

In August 2003, we reported on federal and state actions needed to improve
security of sealed radioactive sources.1 Sealed radioactive sources,
radioactive material encapsulated in stainless steel or other metal, are
used worldwide in medicine, industry, and research. These sealed sources
could be a threat to national security because terrorists could use them
to make "dirty bombs." We were asked among other things to determine the
number of sealed sources in the United States. We found that the number of
sealed sources in use today in the United States is unknown primarily
because no state or federal agency tracks individual sealed sources.
Instead, NRC and the agreement states2 track numbers of specific
licensees. NRC and the Department of Energy (DOE) have begun to examine
options for developing a national tracking system, but to date,

1GAO: Nuclear Security Federal and State Action Needed to Improve Security
of Sealed Radioactive Sources, GAO-03-804 Washington, D.C.: Aug. 6, 2003.

2Agreement states are the 33 states that have entered into an agreement
with the NRC under subsection 274(b) of the Atomic Energy Act (AEA) under
which NRC relinquishes to the states portions of its regulatory authority
to license and regulate source, byproduct, and certain quantities of
special nuclear material.

this effort has had limited involvement by the agreement states. NRC had
difficulty locating owners of certain generally licensed devices it began
tracking in April 2001, and has hired a private investigation firm to help
locate them. Twenty-five of the 31 agreement states that responded to our
survey indicated that they track some or all general licensees or
generally licensed devices, and 17 were able to provide data on the number
of generally licensed devices in their jurisdictions, totaling
approximately 17,000 devices. GAO recommended that NRC (1) collaborate
with states to determine the availability of the highest risk sealed
sources, (2) determine if owners of certain devices should apply for
licenses, (3) modify NRC's licensing process so sealed sources cannot be
purchased until NRC verifies their intended use, (4) ensure that NRC's
evaluation of federal and state programs assesses the security of sealed
sources, and (5) determine how states can participate in implementing
additional security measures. NRC disagreed with some of our findings.

In September 2003, we reported that NRC's oversight of security at
commercial nuclear power plants needed to be strengthened.3 The September
11, 2001, terrorist attacks intensified the nation's focus on national
preparedness and homeland security. Among possible terrorist targets are
the nation's nuclear power plants which contain radioactive fuel and
waste. NRC oversees plant security through an inspection program designed
to verify the plants' compliance with security requirements. As part of
that program, NRC conducted annual security inspections of plants and
force-on-force exercises to test plant security against a simulated
terrorist attack. GAO was asked to review (1) the effectiveness of NRC's
security inspection program and (2) legal challenges affecting power plant
security. At the time of our review, NRC was reevaluating its inspection
program. We did not assess the adequacy of security at the individual
plants; rather, our focus was on NRC's oversight and regulation of plant
security.

We found that NRC had taken numerous actions to respond to the heightened
risk of terrorist attack, including interacting with the Department of
Homeland Security and issuing orders designed to increase security and
improve defensive barriers at plants. However, three aspects of NRC's
security inspection program reduced the agency's effectiveness in
overseeing security at commercial nuclear power plants. First, NRC

3GAO: Nuclear Regulatory Commission: Oversight of Security at Commercial
Nuclear Power Plants Needs to Be Strengthened, GAO-03-752 (Washington,
D.C.: Sept. 4, 2003).

inspectors often used a process that minimized the significance of
security problems found in annual inspections by classifying them as
"non-cited violations" if the problem had not been identified frequently
in the past or if the problem had no direct, immediate, adverse
consequences at the time it was identified. Non-cited violations do not
require a written response from the licensee and do not require NRC
inspectors to verify that the problem has been corrected. For example,
guards at one plant failed to physically search several individuals for
metal objects after a walk-through detector and a hand-held scanner
detected metal objects in their clothing. These individuals were then
allowed unescorted access throughout the plant's protected area. By
extensively using non-cited violations for serious problems, NRC may
overstate the level of security at a power plant and reduce the likelihood
that needed improvements are made. Second, NRC did not have a routine,
centralized process for collecting, analyzing, and disseminating security
inspections data to identify problems that may be common to plants or to
provide lessons learned in resolving security problems. Such a mechanism
may help plants improve their security. Third, although NRC's
force-on-force exercises can demonstrate how well a nuclear plant might
defend against a real-life threat, several weaknesses in how NRC conducted
these exercises limited their usefulness. Weaknesses included (1) using
more personnel to defend the plant during these exercises than during
normal operations, (2) using attacking forces that are not trained in
terrorist tactics, and (3) using unrealistic weapons (rubber guns) that do
not simulate actual gunfire. Furthermore, at the time, NRC has made only
limited use of some available improvements that would make force-on-force
exercises more realistic and provide a more useful learning experience.

Finally, we also found that even if NRC strengthens its inspection
program, commercial nuclear power plants face legal challenges in ensuring
plant security. First, federal law generally prohibits guards at these
plants from using automatic weapons, although terrorists are likely to
have them. As a result, guards at commercial nuclear power plants could be
at a disadvantage in firepower, if attacked. Second, state laws regarding
the permissible use of deadly force and the authority to arrest and detain
intruders vary, and guards were unsure about the extent of their
authorities and may hesitate or fail to act if the plant is attacked. GAO
made recommendations to promptly restore annual security inspections and
revise force-on-force exercises. NRC disagreed with many of GAO's
findings, but did not comment on GAO's recommendations.

In September 2004, we testified on our preliminary observations regarding
NRC's efforts to improve security at nuclear power plants.4 The events of
September 11, 2001, and the subsequent discovery of commercial nuclear
power plants on a list of possible terrorist targets have focused
considerable attention on plants' capabilities to defend against a
terrorist attack. NRC is responsible for regulating and overseeing
security at commercial nuclear power plants. We were asked to review (1)
NRC's efforts since September 11, 2001, to improve security at nuclear
power plants, including actions NRC had taken to implement some of GAO's
September 2003 recommendations to improve security oversight, and (2) the
extent to which NRC is in a position to assure itself and the public that
the plants are protected against terrorist attacks. The testimony
reflected the preliminary results of GAO's review. We are currently
performing a more comprehensive review in which we are examining (1) NRC's
development of its 2003 design basis threat (DBT), which establishes the
maximum terrorist threat that commercial nuclear power plants must defend
against, and (2) the security enhancements that plants have put in place
in response to the design basis threat and related NRC requirements. We
expect to issue a report on our findings later this year.

In the earlier work, we found that NRC responded quickly and decisively to
the September 11, 2001, terrorist attacks with multiple steps to enhance
security at commercial nuclear power plants. NRC immediately advised
plants to go to the highest level of security using the system in place at
the time, and issued advisories and orders for plants to make certain
enhancements, such as installing more physical barriers and augmenting
security forces, which could be quickly completed to shore up security.
According to NRC officials, their inspections found that plants complied
with these advisories and orders. Later, in April 2003, NRC issued a new
DBT and required the plants to develop and implement new security plans to
address the new threat by October 2004. NRC is also improving its
force-on-force exercises, as GAO recommended in its September 2003 report.
While its efforts had enhanced security, NRC was not yet in a position to
provide an independent determination that each plant has taken reasonable
and appropriate steps to protect against the new DBT. According to NRC
officials, the facilities' new security plans were on schedule to be
implemented by October 2004. However, NRC's review of the plans, which are
not available to the general public for security

4GAO, Nuclear Regulatory Commission: Preliminary Observations on Efforts
to Improve Security at Nuclear Power Plants, GAO-04-1064T (Washington,
D.C.: Sept. 14, 2004).

reasons, had primarily been a paper review and was not detailed enough for
NRC to determine if the plans would protect the facility against the
threat presented in the DBT. In addition, NRC officials generally were not
visiting the facilities to obtain site-specific information and assess the
plans in terms of each facility's design. NRC is largely relying on the
forceon-force exercises it conducts to test the plans, but these exercises
will not be conducted at all facilities for 3 years. We also found that
NRC did not plan to make some improvements in its inspection program that
GAO previously recommended. For example, NRC was not following up to
verify that all violations of security requirements had been corrected,
nor was the agency taking steps to make "lessons learned" from inspections
available to other NRC regional offices and nuclear power plants.

Operations Related to NRC's Public Health and Safety and Environmental
Missions Can Be Improved

In October 2003, we reported that NRC needs to more effectively analyze
whether nuclear power plant owners are adequately accumulating funds for
decommissioning plants.5 Following the closure of a nuclear power plant, a
significant radioactive waste hazard remains until the waste is removed
and the plant site is decommissioned. 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. 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
NRC's analysis of the owners' funds and the agency's process for acting on
reports that show insufficient funds.

We found that although the collective status of the owners'
decommissioning fund accounts has improved considerably since GAO's last
report, some individual owners were not on track to accumulate sufficient
funds for decommissioning. Based on our analysis and using the most likely
economic assumptions, we concluded that the combined value of 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 would be available to cover the approximately $33
billion in estimated decommissioning costs when the

5GAO: Nuclear Regulation: NRC Needs More Effective Analysis to Ensure
Accumulation of Funds to Decommission Nuclear Power Plants, GAO-04-32
(Washington, D.C.: Oct. 30, 2003).

plants are permanently closed. 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
their 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 estimated they needed in
order 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' actual recent 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 were 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, we found that NRC had not
established criteria for taking action when it determines that an owner is
not accumulating sufficient decommissioning funds.

We recommended that NRC (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 that, without

criteria, NRC might not be able to ensure owners are accumulating
decommissioning funds at sufficient rates.

In May 2004, we issued a report on NRC's liability insurance requirements
for nuclear power plants owned by limited liability companies.6 An
accident at one the nation's commercial nuclear power plants could result
in personal injury and property damage. To ensure that funds would be
available to settle liability claims in such cases, the Price-Anderson Act
requires licensees of these plants to have primary insurance-currently
$300 million per site. The act also requires secondary coverage in the
form of retrospective premiums to be contributed by all licensees of
nuclear power plants to cover claims that exceed primary insurance. If
these premiums are needed, each licensee's payments are limited to $10
million per year and $95.8 million in total for each of its plants. In
recent years, limited liability companies have increasingly become
licensees of nuclear power plants, raising concerns about whether these
companies-which shield their parent corporations' assets-will have the
financial resources to pay their retrospective premiums. We were asked to
determine (1) the extent to which limited liability companies are the
licensees for U.S. commercial nuclear power plants, (2) NRC's requirements
and procedures for ensuring that licensees of nuclear power plants comply
with the Price-Anderson Act's liability requirements, and (3) whether and
how these procedures differ for licensees that are limited liability
companies.

We found that of the 103 operating nuclear power plants, 31 were owned by
11 limited liability companies. Three energy corporations-Exelon, Entergy,
and the Constellation Energy Group-were the parent companies for eight of
these limited liability companies. These 8 subsidiaries were the licensees
or co-licensees for 27 of the 31 plants. We also found that NRC requires
all licensees for nuclear power plants to show proof that they have the
primary and secondary insurance coverage mandated by the Price-Anderson
Act. Licensees sign an agreement with NRC that requires the licensee to
keep the insurance in effect. American Nuclear Insurers also has a
contractual agreement with each of the licensees that obligates the
licensee to pay the retrospective premiums to American Nuclear Insurers if
these payments become necessary. A certified copy of this agreement, which
is called a bond for payment of retrospective premiums,

6GAO, Nuclear Regulation: NRC's Liability Insurance Requirements for
Nuclear Power Plants Owned by Limited Liability Companies, GAO-04-654
(Washington, D.C.: May 28, 2004).

is provided to NRC as proof of secondary insurance. Finally, we found that
NRC does not treat limited liability companies differently than other
licensees with respect to the Price-Anderson Act's insurance requirements.
Like other licensees, limited liability companies must show proof of both
primary and secondary insurance coverage. American Nuclear Insurers also
requires limited liability companies to provide a letter of guarantee from
their parent or other affiliated companies with sufficient assets to pay
the retrospective premiums. These letters state that the parent or
affiliated companies are responsible for paying the retrospective premiums
if the limited liability company does not. American Nuclear Insurers
informs NRC that it has received these letters.

In May 2004, we also issued a report documenting the need for NRC to more
aggressively and comprehensively resolve issues related to the shutdown of
the Davis-Besse nuclear power plant.7 The most serious safety issue
confronting the nation's commercial nuclear power industry since Three
Mile Island in 1979, was identified at the Davis-Besse plant in Ohio in
March of 2002. After NRC allowed Davis-Besse to delay shutting down to
inspect its reactor vessel for cracked tubing, the plant found that
leakage from these tubes had caused extensive corrosion on the vessel
head-a vital barrier in preventing a radioactive release. GAO determined
(1) why NRC did not identify and prevent the corrosion, (2) whether the
process NRC used in deciding to delay the shutdown was credible, and (3)
whether NRC is taking sufficient action in the wake of the incident to
prevent similar problems from developing at other plants.

We found that NRC should have, but did not identify or prevent the
corrosion at Davis-Besse because agency oversight did not produce accurate
information on plant conditions. NRC inspectors were aware of indications
of leaking tubes and corrosion; however, the inspectors did not recognize
the importance of the indications and did not fully communicate
information about them to other NRC staff. NRC also considered
FirstEnergy-Davis-Besse's owner-a good performer, which resulted in fewer
NRC inspections and questions about plant conditions. NRC was aware of the
potential for cracked tubes and corrosion at plants like Davis-Besse but
did not view them as an immediate concern. Thus, despite being aware of
the development of potential problems, NRC did not modify its

7GAO, Nuclear Regulation: NRC Needs to More Aggressively and
Comprehensively Resolve Issues Related to the Davis-Besse Nuclear Power
Plant's Shutdown, GAO-04-415 (Washington, D.C.: May 17,2004).

inspection activities to identify such conditions. Additionally, NRC's
process for deciding to allow Davis-Besse to delay its shutdown lacked
credibility. Because NRC had no guidance for making the specific decision
of whether a plant should shut down, it instead used guidance for deciding
whether a plant should be allowed to modify its operating license.
However, NRC did not always follow this guidance and generally did not
document how it applied the guidance. Furthermore, the risk estimate NRC
used to help decide whether the plant should shut down was also flawed and
underestimated the risk that Davis-Besse posed. Finally, even though it
underestimated the risk posed by Davis-Besse, the risk estimate applied to
the plant still exceeded levels generally accepted by the agency.
Nevertheless, Davis-Besse was allowed to delay the plant's shutdown.

After this incident, NRC took several significant actions to help prevent
reactor vessel corrosion from recurring at nuclear power plants. For
example, NRC has required more extensive vessel examinations and augmented
inspector training. I would also like to note that, in April 2005, NRC
proposed a $5.45 million fine against the licensee of the Davis-Besse
plant. The principal violation was that the utility restarted and operated
the plant in May 2000, without fully characterizing and eliminating
leakage from the reactor vessel head. Additional violations included
providing incomplete and inaccurate information to NRC on the extent of
cleaning and inspecting the reactor vessel head in 2000.

While NRC has not yet completed all of its planned actions, we remain
concerned that NRC has no plans to address three systemic weaknesses
underscored by the incident at Davis-Besse. Specifically, NRC has proposed
no actions to help it better (1) identify early indications of
deteriorating safety conditions at plants, (2) decide whether to shut down
a plant, or (3) monitor actions taken in response to incidents at plants.
Both NRC and GAO had previously identified problems in NRC programs that
contributed to the Davis-Besse incident, yet these problems continued to
persist. Because the nation's nuclear power plants are aging, GAO
recommended that NRC take more aggressive actions to mitigate the risk of
serious safety problems occurring at Davis-Besse and other nuclear power
plants.

In April 2005, we issued a report outlining the need for NRC to do more to
ensure that power plants are effectively controlling spent nuclear fuel.8
Spent nuclear fuel-the used fuel periodically removed from reactors in
nuclear power plants-is too inefficient to power a nuclear reaction, but
is intensely radioactive and continues to generate heat for thousands of
years. Potential health and safety implications make the control of spent
nuclear fuel of great importance. The discovery, in 2004, that spent fuel
rods were missing at the Vermont Yankee plant in Vermont generated public
concern and questions about NRC's regulation and oversight of this
material. GAO reviewed (1) plants' performance in controlling and
accounting for their spent nuclear fuel, (2) the effectiveness of NRC's
regulations and oversight of plants' performance, and (3) NRC's actions to
respond to plants' problems controlling their spent fuel.

We found that nuclear power plants' performance in controlling and
accounting for their spent fuel has been uneven. Most recently, three
plants-Vermont Yankee and Humboldt Bay (California) in 2004, and Millstone
(Connecticut) in 2000-have reported missing spent fuel. Earlier, several
other plants also had missing or unaccounted for spent fuel rods or rod
fragments. NRC regulations require plants to maintain accurate records of
their spent nuclear fuel and to conduct a physical inventory of the
material at least once a year. The regulations, however, do not specify
how physical inventories are to be conducted. As a result, plants differ
in the regulations' implementation. For example, physical inventories at
plants varied from a comprehensive verification of the spent fuel to an
office review of the records and paperwork for consistency. Additionally,
NRC regulations do not specify how individual fuel rods or segments are to
be tracked. As a result, plants employ various methods for storing and
accounting for this material. Further, NRC stopped inspecting plants'
material control and accounting programs in 1988. According to NRC
officials, there was no indication that inspections of these programs were
needed until the event at Millstone. At the time of our review, NRC was
collecting information on plants' spent fuel programs to decide if it
needs to revise its regulations and/or oversight. It had its inspectors
collect basic information on all facilities' programs. It also contracted
with the Department of Energy's Oak Ridge National Laboratory in Tennessee
to review NRC's material control and accounting programs for nuclear

8GAO, Nuclear Regulatory Commission: NRC Needs to Do More to Ensure that
Power Plants Are Effectively Controlling Spent Nuclear Fuel, GAO-05-339
(Washington, D.C.: Apr. 8, 2005).

material. NRC is planning to request information from plants and plans to
visit over a dozen plants for more detailed inspection. The results of
these efforts may not be completed until late 2005, over 5 years after the
incident at Millstone that initiated NRC's efforts. However, we believed
NRC has already collected considerable information indicating problems or
weaknesses in plants' material control and accounting programs for spent
fuel.

GAO recommended that NRC (1) establish specific requirements for the way
plants control and account for loose rods and fragments as well as conduct
their physical inventories, and (2) develop and implement appropriate
inspection procedures to verify plants' compliance with the requirements.

Based on our recent work at NRC, we have identified several cross-cutting
challenges that NRC faces as it works to effectively regulate and oversee
the nuclear power industry. First, NRC must manage the implementation of
its risk-informed regulatory strategy across the agency's operations.
Second, and relatedly, NRC must strive to achieve the appropriate balance
between more direct involvement in the operations of nuclear power plants
and self-reliance and self-reporting on the part of plant operators to do
the right things to ensure safety. Third, and finally, NRC must ensure
that the agency effectively manages resources to implement its
riskinformed strategy and achieve the appropriate regulatory balance in
the current context of increasing regulatory and oversight demands as the
industry's interest in expansion grows.

  NRC Faces Several Broad Challenges in Effectively Regulating and Overseeing
  Nuclear Power Plants

NRC Must Manage the Implementation of Its Risk-Informed Regulatory
Strategy

Nuclear power plants have many physical structures, systems, and
components, and licensees have numerous activities under way, 24-hours a
day, to ensure that plants operate safely. NRC relies on, among other
things, the agency's on-site resident inspectors to assess plant
conditions and oversee quality assurance programs, such as maintenance and
operations, established by operators to ensure safety at the plants.
Monitoring, maintenance, and inspection programs are used to ensure
quality assurance and safe operations. To carry out these programs,
licensees typically prepare numerous reports describing conditions at
plants that need to be addressed to ensure continued safe operations.
Because of the significant number of activities and physical structures,
systems, and components, NRC adopted a risk-informed strategy to focus
inspections on those activities and pieces of equipment that are
considered to be the most significant for protecting public health and

safety. Under the risk-informed approach, some systems and activities that
NRC considers to have relatively less safety significance receive little
agency oversight. With its current resources, NRC can inspect only a
relatively small sample of the numerous activities going on during complex
plant operations. NRC has adopted a risk-informed approach because it
believes that it can focus its regulatory resources on those areas of the
plant that the agency considers the most important to safety. NRC has
stated the adoption of this approach was made possible by the fact that
safety performance at plants has improved as a result of more than 25
years of operating experience.

Nevertheless, we believe that NRC faces a significant challenge in
effectively implementing its risk-informed strategy, especially with
regards to improving the quality of its risk information and identifying
emerging technical issues and adjusting regulatory requirements before
safety problems develop. The 2002 shutdown of the Davis-Besse plant
illustrates this challenge, notably the shortcomings in NRC's risk
estimate and failure to sufficiently address the boric acid corrosion and
nozzle cracking issues. We also note that NRC's Inspector General
considers the development and implementation of a risk-informed regulatory
oversight strategy to be one of the most serious management challenges
facing NRC.

NRC Must Balance Oversight and Industry Self-Compliance

Under the Atomic Energy Act of 1954, as amended, and the Energy
Reorganization Act of 1974, as amended, NRC and the operators of nuclear
power plants share the responsibility for ensuring that nuclear reactors
are operated safely. NRC is responsible for issuing regulations, licensing
and inspecting plants, and requiring action, as necessary, to protect
public health and safety. Plant operators have the primary responsibility
for safely operating their plants in accordance with their licenses. NRC
has the authority to take actions, up to and including shutting down a
plant, if licensing conditions are not being met and the plant poses an
undue risk to public health and safety.

NRC has sought to strike a balance between verifying plants' compliance
with requirements through inspections and affording licensees the
opportunity to demonstrate that they are operating their plants safely.
While NRC oversees processes, such as the use of performance measures and
indicators, and requirements that licensees maintain their own quality
assurance programs, NRC, in effect, relies on licensees and trusts them to
a large extent to make sure their plants are operated safely. While this
approach has generally worked, we believe that NRC still has work to do to
effectively position itself so that it can identify problems with

diminishing performance at individual plants before they become serious.
For example, incidents such as the 2002 discovery of the extensive reactor
vessel head corrosion at the Davis-Besse plant and the unaccounted for
spent nuclear fuel at several plants across the country, raise questions
about whether NRC is appropriately balancing agency involvement and
self-monitoring by licensees. An important aspect of NRC's ability to rely
on licensees to maintain their own quality assurance programs is a
mechanism to identify deteriorating performance at a plant before the
plant becomes a problem. At Davis-Besse, NRC inspectors viewed the
licensee as a good performer based on its past performance and did not ask
the questions that should have been asked about plant conditions.
Consequently, the inspectors did not make sure that the licensee
adequately investigated the indications of the problem and did not fully
communicate the indications to the regional office and NRC headquarters.

NRC Must Manage Agency Resources to Meet Increasing Regulatory and
Oversight Demands

Finally, Mr. Chairman, I would also like to comment briefly on NRC's
resources. While we have not assessed the adequacy of NRC's resources, we
have noted instances, such the shutdown of the Davis-Besse plant, where
resource constraints affected the agency's oversight or delayed certain
activities. NRC's resources have been challenged by the need to enhance
security at nuclear power plants after the September 11, 2001, terrorist
attacks, and they will continue to be challenged as the nation's fleet of
nuclear power plants age and the industry's interest grows in both
licensing and constructing new plants, and re-licensing and increasing the
output of existing plants. Resource demands will also increase when the
Department of Energy submits for NRC review, an application to construct
and operate a national depository for high-level radioactive waste
currently planned for Yucca Mountain, Nevada. We believe that it is
important for NRC and the Congress to monitor agency resources as these
demands arise in order to ensure that NRC can meet all of its regulatory
and oversight responsibilities and fulfill its mission to ensure adequate
protection of public health, safety, and the environment.

Conclusion 	In closing, we recognize and appreciate the complexities of
NRC's regulatory and oversight efforts required to ensure the safe and
secure operation of the nation's commercial nuclear power plants. As GAO's
recent work has demonstrated, NRC does a lot right but it still has
important work to do. Whether NRC carries out its regulatory and oversight
responsibilities in an effective and credible manner will have a
significant impact on the future direction of our nation's use of nuclear
power.

Finally, we note that NRC has generally been responsive to our report
findings. Although the agency does not always agree with our specific
recommendations, it has continued to work to improve in the areas we have
identified. It has implemented many of our recommendations and is working
on others. For example, with respect to nuclear power plant security, NRC
has restored its security inspection program and resumed its
force-on-force exercises with a much higher level of intensity. It is also
strengthening these exercises by conducting them at individual plants
every 3 years rather than every 8 years, and is using laser equipment to
reduce the exercises' artificiality. Another example involves sealed
radioactive sources. NRC is working with agreement states to develop a
process for ensuring that high-risk radioactive sources cannot be obtained
before verification that the materials will be used as intended. NRC
anticipates that an NRC-agreement state working group will deliver a
recommended approach to NRC senior management later this year. In
addition, NRC continues to work on its broader challenges. For example,
the agency intends to develop additional regulatory guidance to expand the
application of risk-informed decision making, including addressing the
need to establish quality requirements for risk information and specific
instructions for documenting the decision making process and its
conclusions.

We will continue to track NRC's progress in implementing our
recommendations. In addition, as members of this subcommittee are aware,
GAO has been asked to review the effectiveness of NRC's activities for
overseeing nuclear power plants, that is, its reactor oversight process.
An important part of that work would be to review the agency's
riskinformed regulatory strategy and its effectiveness in identifying
deteriorating plant performance as well as whether NRC is making progress
toward effectively balancing agency inspections and selfmonitoring by
licensees.

Mr. Chairman, this completes my prepared statement. I would be pleased to
respond to any questions that you or other Members of the subcommittee may
have.

GAO Contacts and For further information about this testimony, please
contact me at (202) 512-3841 (or at [email protected]). John W. Delicath,
Ilene Pollack, andStaff Raymond H. Smith, Jr. made key contributions to
this testimony.

  Acknowledgements

Related GAO Products

Nuclear Waste: Preliminary Observations on the Quality Assurance Program
at the Yucca Mountain Repository. GAO-03-826T. Washington, D.C.: May 28,
2003.

Nuclear Regulatory Commission: Revision of Fee Schedules; Fee Recovery for
FY 2003. GAO-03-934R. Washington, D.C.: June 30, 2003.

Spent Nuclear Fuel: Options Exist to Further Enhance Security. GAO-03426.
Washington, D.C.: July 15, 2003.

Nuclear Security: Federal and State Action Needed to Improve Security of
Sealed Radioactive Sources. GAO-03-804. Washington, D.C.: August 6, 2003.

Nuclear Regulatory Commission: Oversight of Security at Commercial Nuclear
Power Plants Needs to Be Strengthened. GAO-03-752. Washington, D.C.:
September 4, 2003.

Nuclear Regulation: NRC Needs More Effective Analysis to Ensure
Accumulation of Funds to Decommission Nuclear Power Plants. GAO-04

32. Washington, D.C.: October 30, 2003.

Information Technology Management: Governmentwide Strategic Planning,
Performance Measurement, and Investment Management Can Be Further
Improved. GAO-04-49. Washington, D.C.: January 12, 2004.

Yucca Mountain: Persistent Quality Assurance Problems Could Delay
Repository Licensing and Operation. GAO-04-460. Washington, D.C.: April
30, 2004.

Nuclear Regulation: NRC Needs to More Aggressively and Comprehensively
Resolve Issues Related to the Davis-Besse Nuclear Power Plant's Shutdown.
GAO-04-415. Washington, D.C.: May 17, 2004.

Nuclear Regulation: NRC's Liability Insurance Requirements for Nuclear
Power Plants Owned by Limited Liability Companies. GAO-04654. Washington,
D.C.: May 28, 2004.

Low-Level Radioactive Waste: Disposal Availability Adequate in the Short
Term, but Oversight Needed to Identify Any Future Shortfalls. GAO-04-604.
Washington, D.C.: June 10, 2004.

Nuclear Nonproliferation: DOE Needs to Take Action to Further Reduce the
Use of Weapons-Usable Uranium in Civilian Research Reactors. GAO-04-807.
Washington, D.C.: July 30, 2004.

Nuclear Regulatory Commission: Preliminary Observations on Efforts to
Improve Security at Nuclear Power Plants. GAO-04-1064T. Washington, D.C.:
September 14, 2004.

Low-Level Radioactive Waste: Future Waste Volumes and Disposal Options Are
Uncertain. GAO-04-1097T. Washington, D.C.: September 30, 2004.

Nuclear Regulatory Commission: NRC Needs to Do More to Ensure that Power
Plants Are Effectively Controlling Spent Nuclear Fuel. GAO-05339.
Washington, D.C.: April 8, 2005.

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