Nuclear Plant Decommissioning Trust Fund Guidelines; Notice of Proposed Rulemaking

Federal RegisterJun 1, 1994

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM94-14-000]

Nuclear Plant Decommissioning Trust Fund Guidelines; Notice of

Proposed Rulemaking

May 25, 1994.

AGENCY: Federal Energy Regulatory Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is

proposing to adopt rules setting forth the guidelines for the

formation, organization, and purpose of nuclear plant decommissioning

trust funds, and for nuclear plant decommissioning trust fund

investments.

DATES: An original and 14 copies of the written comments on this

proposed rule must be filed with the Commission by August 1, 1994. An

original and 14 copies of reply comments must be filed with the

Commission by August 30, 1994. All comments should reference Docket No.

RM94-14-000.

ADDRESSES: Office of the Secretary, Federal Energy Regulatory

Commission, 825 North Capitol Street, NE., Washington, DC 20426.

FOR FURTHER INFORMATION CONTACT:

Joseph C. Lynch (Legal Information), Federal Energy Regulatory

Commission, 825 North Capitol Street, NE., Washington, DC 20426, (202)

208-2128.

James K. Guest (Accounting Information), Deputy Chief Accountant,

Office of Chief Accountant, Federal Energy Regulatory Commission, 810

First St. NE., Washington, DC 20426, (202) 219-2602.

SUPPLEMENTARY INFORMATION: In addition to publishing the full text of

this document in the Federal Register, the Commission also provides all

interested persons an opportunity to inspect or copy the contents of

this document during normal business hours in room 3104, at 941 North

Capitol Street, NE., Washington, DC 20426.

The Commission Issuance Posting System (CIPS), an electronic

bulletin board service, provides access to the texts of formal

documents issued by the Commission. CIPS is available at no charge to

the user and may be accessed using a personal computer with a modem by

dialing (202) 208-1397. To access CIPS, set your communications

software to use 300, 1200, or 2400 bps, full duplex, no parity, 8 data

bits and 1 stop bit. CIPS can also be accessed at 9600 bps by dialing

(202) 208-1781. The full text of the document will be available on CIPS

for 30 days from the date of issuance. The complete text on diskette in

WordPerfect format may also be purchased from the Commission's copy

contractor, La Dorn Systems Corporation, also located in room 3104, 941

North Capitol Street, NE., Washington, DC 20426.

Before Commissioners: Elizabeth Anne Moler, Chair; Vicky A.

Bailey, James J. Hoecker, William L. Massey, and Donald F. Santa,

Jr.

I. Introduction

The Federal Energy Regulatory Commission is proposing to amend 18

CFR part 35 by adding a new subpart E, which would set forth the

guidelines for the formation, organization, and purpose of nuclear

plant decommissioning trust funds (Fund) by public utilities and for

the investment of Fund assets.

II. Public Reporting Burden

The proposed rule, if adopted, would codify and clarify the

Commission's guidelines regarding the organization and operation of

Funds. The public reporting requirements for the information collection

requirements contained in this rule are estimated to average 4 hours

per response. The information will be submitted to the Commission on an

annual basis. The number of respondents is estimated to be 72. The

burden estimate includes the time required to implement the standards,

search existing data sources, gather and maintain the data needed, and

complete and review the information. The annual burden associated with

this information requirement will be 288 hours.

Comments regarding these burden estimates or any other aspect of

this information collection requirement, including suggestions for

reducing this burden, should be filed at the Federal Energy Regulatory

Commission, 941 North Capitol Street, NE., Washington, DC 20426

[Attention: Michael Miller, Information Services Division, (202) 208-

1415, FAX (202) 208-2425], and sent to the Office of Information and

Regulatory Affairs of OMB (Attention: Desk Officer for Federal Energy

Regulatory Commission).

III. Background

In System Energy Resources, Inc. (System Energy I),1 the

Commission set forth the guidelines for public utilities to use when

creating nuclear plant decommissioning funds and investing Fund assets.

These guidelines, inter alia, were based on the then applicable

Internal Revenue Service (IRS) standards for Fund investments, which

imposed on Fund investments the same investment restrictions that the

Internal Revenue Code (IRC) imposed on Black Lung Disability

Trusts.2 These investment restrictions limit investments to

relatively conservative investments.

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\1\37 FERC Sec. 61,261 (1986).

\2\36 FERC at 61,726-728. IRC section 486A(e)(4) imposed

investment restrictions on Fund investments by cross-referencing IRC

section 501(c)21, which allows a deduction for a contribution only

to those Black Lung Disability Trusts that meet certain investment

restrictions.

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However, Section 1917 of the Energy Policy Act of 1992,3 among

other things, repealed the portion of section 468A(e)(4) of the IRC

that restricted the types of assets in which a Fund could invest and

still qualify for tax benefits. On December 30, 1992, the IRS amended

its regulations to reflect the statutory change.

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\3\Pub. L. No. 102-486, 106 Stat. 2776, 3024-25 (1992); see 26

U.S.C. Sec. 468A(e) (1988).

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In response to section 1917 of the Energy Policy Act and the IRS's

revised regulations, the Commission, in System Energy Resources, Inc.

(System Energy II),4 clarified its policy regarding permissible

Fund investments. In that order, the Commission announced its policy to

continue to restrict Fund investments to Black Lung assets. The

Commission's order provided that:

\4\65 FERC 61,083 (1993).

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Except to the extent that a public utility can demonstrate in

advance that a proposal [to deviate from the guidelines] offers

equal or greater assurance of the availability of funds at the time

of decommissioning and is at least as beneficial to consumers as the

guidelines specified below, public utilities shall limit the

investments in Nuclear Decommissioning Reserve Funds to: (1) public

debt securities of the United States; (2) obligations of a State or

local government which are not in default as to principal or

interest; and (3) time or demand deposits in a bank, as defined in

26 U.S.C. 581 [5] or an insured credit union, within the

meaning of 12 U.S.C. 1752(7), [6] located in the United States.

[7]

\5\26 U.S.C. 581 provides that the term ``bank'' means a bank or

trust company incorporated and doing business under the laws of the

United States (including laws relating to the District of Columbia)

or of any State, a substantial part of the business of which

consists of receiving deposits and making loans and discounts, or

exercising fiduciary powers similar to those permitted to national

banks under authority of the Comptroller of the Currency, and which

is subject by law to supervision and examination by State or Federal

authority having supervision over banking institutions. Such term

also means a domestic building and loan association.

\6\12 U.S.C. 1752(7) provides that the term ``insured credit

union'' means any credit union the member accounts of which are

insured in accordance with the provisions of subchapter II of this

chapter.

\7\65 FERC at 61,514.

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Subsequently, Commonwealth Edison Company (Edison), the Arkansas

Public Service Commission, the Louisiana Public Service Commission, and

the Mississippi Public Service Commission (jointly, State Commissions),

the City of New Orleans, Louisiana (New Orleans), Duke Power Company

(Duke) (on its own behalf and with TU Electric Company, jointly, Duke/

TU), the Edison Electric Institute (EEI), a group of investment

advisory and trust companies (Investment/Trust Companies),8 Maine

Yankee Atomic Power Company (Maine Yankee), the National Association of

Regulatory Utility Commissioners (NARUC), Oglethorpe Power Corporation,

Old Dominion Electric Cooperative, the National Rural Electric

Cooperative Association, and North Carolina Electric Membership

Corporation (collectively, Cooperatives), System Energy Resources

(System Energy), a group of electric utility companies (Utility

Companies),9 the Pennsylvania Public Utility Commission

(Pennsylvania Commission) and the Department of Energy filed requests

for rehearing of System Energy II.10

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\8\A list of the investment advisory and trust companies appears

in Appendix A. Note: This Appendix will not appear in the Code of

Federal Regulations.

\9\A list of the Utility Companies appears in Appendix B. Note:

This Appendix will not appear in the Code of Federal Regulations.

\1\0We will treat the requests for rehearing of System Energy II

as comments in this proceeding. However, these parties may still

file initial and reply comments, as provided below, if they wish to

do so.

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Companies, Cooperatives, the Department of Energy, Duke, Edison,

Edison Electric, Investment/Trust Companies, NARUC, New Orleans,

Pennsylvania Commission, State Commissions and the Utility Companies

(collectively, Commenters) argue, among other things, that the

Commission should vacate its order in System Energy II and adopt

alternative standards for Fund investments. While the Department of

Energy does not assert that the Black Lung guidelines for Fund

investments are necessarily incorrect, it suggests that the Commission

should have the benefit of a more extensive examination of this matter

before it adopts a policy that may guide Fund investments for many

years.\11\

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\11\Contemporaneously with this order we are issuing an order

denying rehearing in System Energy II. However, we are commencing

this Notice of Proposed Rulemaking to accord those guidelines

further consideration. Utilities must continue to abide by the Black

Lung guidelines pending completion of this rulemaking.

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IV. Criticisms of Black Lung Guidelines

Commenters recognize that the Commission's goal in System Energy II

was to provide the greatest assurance possible that the necessary funds

will be available at the time of decommissioning. But Commenters submit

that the investment standards that the Commission set forth in System

Energy II are inappropriate to this end. Their criticisms of the System

Energy II guidelines have several principal themes with numerous

variations. They argue that the guidelines: (a) Are not a guarantee

against loss; (b) will result in increased risk that the returns will

be insufficient to meet the decommissioning obligation; (c) will

increase costs to customers to make up for what Commenters see as an

unnecessary shortfall; (d) are inconsistent with the intention of

Congress in removing the Black Lung restrictions on nuclear

decommissioning trust funds from the IRC; and (e) will result in

increased litigation and administrative costs.

Commenters maintain that restricting Fund investments to Black Lung

assets will not necessarily minimize the risk that those funds will be

lost. They state that many state and local obligations that are not in

default (and so qualify as Black Lung assets) are, nevertheless,

extremely risky.\12\

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\12\Cooperatives Comments at 12; Duke Comments at 4, n.2; EEI

Comments at 11; Investment/Trust Companies Comments at 14; Utility

Companies Comments at 14.

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Commenters state that decommissioning is inflation-sensitive

because it is a long-term obligation, and the decommissioning process

is labor and energy intensive.\13\ Commenters argue that Black Lung

restrictions do not allow Funds to adjust for inflation and that

imposition of these guidelines results in greater collections from

ratepayers than would otherwise occur if Funds could acquire prudent

investments providing greater yields.\14\ Commenters urge the

Commission to allow Funds to diversify beyond Black Lung assets; they

argue that broader investment options will ensure that adequate funds

will be available for decommissioning, while at the same time reducing

the amount that public utilities must collect from their wholesale

customers to meet the decommissioning liability.\15\

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\13\See, e.g. Cooperatives Comments at 11; Investment/Trust

Companies Comments at 12; Utility Companies Comments at 12.

\14\See, e.g. Cooperatives Comments at 12.

\15\Cooperatives Comments at 13-14; Duke Comments at 4, n.2; EEI

Comments at 7-9; Investment/Trust Companies Comments at 14-17; New

Orleans Comments at 3-4; Utility Companies Comments at 14-17.

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Commenters contend that the Commission's order restricting Fund

investments to Black Lung assets is inconsistent with Congress' intent

in removing Black Lung restrictions on Fund investments from the

IRC.\16\ Commenters also note that the Commission's Black Lung

restrictions on Fund investments may be incompatible with state

guidelines for that portion of Fund investments that is state-

jurisdictional.\17\ They fear that a discrepancy between Commission and

state guidelines may result both in increased administrative costs (and

reduced efficiency) and in increased litigation.\18\

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\16\Investment/Trust Companies Comments at 13; Utility Companies

Comments at 13.

\17\EEI is aware of only one state that limits Fund investments

to Black Lung assets. EEI Comments at 14.

\18\Investment/Trust Companies Comments at 7; Utility Companies

Comments at 17.

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V. Commenters' Recommendations

Commenters propose that the Commission withdraw the Black Lung

guidelines and adopt one of several investment standards that would

permit investment in a broader range of assets. Commenters suggest, for

example, that the Commission adopt the prudent person standard that

Congress has imposed for the investment of pension plan assets.\19\

They argue that this standard is well-established and that investment

advisors and other fiduciaries thoroughly understand its requirements.

Most importantly, they submit, the prudent person standard permits an

investment advisor or other fiduciary to tailor investments to general

economic conditions, taking into account the remaining life of the

plant before decommissioning.\20\

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\19\29 U.S.C. 1104.

\20\Cooperatives Comments at 16-17; Investment/Trust Companies

Comments at 18-19; Utility Companies Comments at 18-19.

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Commenters also suggest that, as an alternative to the prudent

person standard, the Commission could either adopt the prudent investor

standard,\21\ or prescribe investment-grade limitations on investments

in equities and corporate bonds and limit the portion of the Fund

assets that a trustee may invest in particular classes of assets.\22\

Duke/TU suggests that it may be appropriate for Funds to take

additional risks in the early years in order to achieve higher returns,

while investing more cautiously in the later years to ensure protection

of principal.\23\ New Orleans suggests that the Commission might apply

to Funds the investment standards that it is adopting for Post-

Employment Benefits Other Than Pensions.\24\

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\21\Cooperatives suggest this standard, which appears at section

227 Restatement (Third) of Trusts. See Restatement (Third) of Trusts

section 227 (1992). Cooperatives state that the prudent investor

standard highlights diversification as fundamental to risk

management and would allow Fund trustees the flexibility to obtain

the maximum return on ratepayer-contributed funds. Cooperatives

Comments at 14-16.

\22\Cooperatives Comments at 17; Investment/Trust Companies

Comments at 19-20; Utility Companies Comments at 19-20.

\23\Duke/TU Comments at 13; see EEI Comments at 10.

\24\New Orleans Comments at 5-6; see Post Employment Benefits

Other Than Pensions, 61 FERC 61,330 (1992), rehearing denied, 65

FERC 61,035 (1993).

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Commenters also suggest that, where the Commission-jurisdictional

portion of a decommissioning trust fund is relatively small, the

Commission could consider using state-imposed investment restrictions

for the Commission-jurisdictional portion of the decommissioning trust

fund.\25\

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\25\Investment/Trust Companies Comments at 20; Utility Companies

Comments at 20. Cooperatives state that the Commission ``defers'' to

state regulation of securities issuances under section 204 of the

Federal Power Act (FPA), and suggest that the Commission could also

``defer'' to state standards of fiduciary care governing Fund

investments. However, we note that the Commission does not ``defer''

to state regulation of securities issuances under section 204 of the

FPA. Rather, the Commission does not have jurisdiction over

issuances of securities or assumptions of liability of a public

utility organized and operating in a state that regulates the public

utility's issuances of securities or assumptions of liability. 16

U.S.C. 824c(f).

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VI. Alternative Proposed Guidelines

Based on the comments that it has accepted into this proceeding,

and on the Commission's evaluation of this issue, the Commission is

reconsidering its guidelines for Funds and for Fund investments. The

Commission proposes to adopt, in proposed Sec. 35.32, certain general

guidelines for Funds\26\ and, in proposed Sec. 35.33, one of three

alternative specific guidelines for Fund investments that appear in the

proposed regulatory text.

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\26\These have long been established, although not codified in

the Commission's regulations, and were not at issue in System Energy

II. Compare 37 FERC at 61,726-28 with 65 FERC at 61,513-14.

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The general guidelines will be in Sec. 35.32. They will govern the

organization and operation of the Fund. The general guidelines provide

that the Fund must be an external trust fund and that the Trustee must

be independent of the utility, have a net worth of at least $100

million, and exercise the care that a reasonable person would use in

the same circumstances.\27\ The general guidelines further provide that

the Trustee must keep accurate and detailed records, and open the Fund

to inspection and audit. The Trustee also must limit Fund investments

to those that the Commission allows and must not invest in any

securities of the utility that owns the plant, or in the utility's

affiliates, associates, successors or assigns.

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\27\We note that we invite comments below on the meaning of the

reasonable person standard under Alternatives 2 and 3; we likewise

invite comments on its meaning in this more general context.

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The Trustee may only use the Fund to decommission the nuclear power

plant to which the Fund relates, and to pay any administrative or other

expenses of the Fund. If Fund balances exceed the amount necessary for

plant decommissioning, the utility will refund the excess to its

customers in a manner that the Commission will determine. The utility

must deposit in the Fund at least quarterly all monies that it collects

in Commission-jurisdictional rates to fund decommissioning.

The general guidelines also provide that establishing a Fund does

not relieve a utility of any obligation that it may have to

decommission a nuclear power plant.

The specific guidelines will be in Sec. 35.33. They will control

what investments a Trustee may make. The Commission is considering

three alternative specific guidelines for Fund investments: Alternative

1: No change (i.e., continue using the Black Lung guidelines);\28\

Alternative 2: The use of a reasonable person standard with no express

limitations; or Alternative 3: The use of the reasonable person

standard, but with express limitations on the quality of investments

and the proportion of Fund assets that the trustee may invest in

particular classes of assets over the life of the Fund.\29\

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\28\Several parties have challenged the Commission's

jurisdiction to continue to impose Black Lung guidelines for Fund

investments. The Commission requests comments on this issue.

\29\In Alternative 3, the Commission proposes particular express

limitations on Fund investments. The Commission invites comments not

only on the concept of express limitations generally, but also on

the particular express limitations proposed.

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In deciding how Fund assets should be invested, the competing

concerns are security on the one hand and maximizing return on the

other hand. Alternative 1 is a continuation of the Black Lung

guidelines. The Commission explained in both System Energy I and System

Energy II that its overriding concern was that funds be available at

the time decommissioning takes place. This concern prompted the

Commission previously to rely upon the Black Lung guidelines as

defining the limits of what were permissible investments. This concern

is equally present today. Consequently, one of the options under

consideration is the continuation of the Black Lung guidelines.

Alternative 2 envisions the use of a ``reasonable person''

standard--a standard that encompasses greater flexibility. In the

context of a review of the prudence of a utility's decisionmaking, the

Commission has explained this standard as follows:

In performing our duty to determine the prudence of specific

costs, the appropriate test to be used is whether they are costs

which a reasonable utility management * * * would have made, in good

faith, under the same circumstances, and at the relevant point in

time * * *. [O]ur task is to review the prudence of the utility's

actions and the costs resulting therefrom based on the particular

circumstances existing either at the time the challenged costs were

actually incurred, or the time the utility became committed to incur

those expenses.[\30\]

\30\New England Power Company, Opinion No. 231, 31 FERC 61,047

at 61,084 (1985).

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However, we recognize that what we are concerned with here is a

different factual setting. Accordingly, in addition to requesting

comments on Alternative 2 generally, the Commission also solicits

comments on what should be the precise definition and content of this

standard in this circumstance. Should the standard encompass the

``prudent person'' standard, which has long governed trust

investment,\31\ or should it, for example, embody the ``prudent

investor'' standard, which Cooperatives have proposed?\32\ The two

standards are different. The prudent person standard focuses on each

investment individually and also proscribes certain investments as too

risky.\33\ The prudent investor standard, in contrast, does not focus

on any single investment but rather insists on an evaluation of the

entire portfolio (and thus allows more risk).\34\ The Commission also

requests comments on the use of other standards to govern Fund

investments.

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\31\See Restatements (Second) of Trusts Sec. 227 (1959).

\32\See Cooperatives Comments at 14-16.

\33\See Restatement (Second) of Trusts section 227 & comments a

through o (1959).

\34\See Restatement (Third) of Trusts Sec. 227 (1992).

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Alternative 3 provides for a reasonable person standard, and also

provides express guidelines on what Fund investments are and are not

permissible. In this regard, the Commission solicits comments on

Alternative 3 generally, and also both on the definition and content of

the reasonable person standard in this circumstance\35\ and, as noted

supra note 29, on the particular express limitations on Fund

investments.

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\35\Because Alternative 3 contains express limitations on Fund

investments while Alternative 2 does not, we invite comments on

whether the definition and content of a reasonable person standard

would be the same no matter which alternative is selected, or would

they be different.

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Finally, the Commission also requests comments on two additional

issues: (1) The treatment of monies collected in rates for

decommissioning prior to the effective date of a final rule in this

proceeding (and earnings on such contributions); and (2) whether, and

under what circumstances, the Commission should allow state trust funds

and standards to be employed for that portion of contributions and

earnings that are related to Commission-jurisdictional service.

VII. Environmental Statement

Commission regulations require that an environmental assessment or

an environmental impact statement be prepared for any Commission action

that may have a significant adverse effect on the human

environment.\36\ The Commission has categorically excluded certain

actions from this requirement as not having a significant effect on the

human environment--such as electric rate filings under sections 205 and

206 of the FPA and the establishment of just and reasonable rates.\37\

The proposed rule, regarding the collection and subsequent investment

of monies to fund nuclear plant decommissioning, involves such matters.

Accordingly, no environmental consideration is necessary.

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\36\Regulations Implementing the National Environmental Policy

Act, Order No. 486, 52 FR 47987 (Dec. 17, 1987); FERC Stats. &

Regs., Regulations Preambles 1986-90 30,783 (1987)(codified at 18

CFR Part 380).

\37\18 CFR 380.4(a)(15).

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VIII. Regulatory Flexibility Act Certification

The Regulatory Flexibility Act\38\ requires rulemakings to either

contain a description and analysis of the impact the proposed rule will

have on small entities or a certification that the rule will not have a

substantial economic impact on a substantial number of small entities.

Most public utilities to which the proposed rule would apply do not

fall within the definition of small entity.\39\ Consequently, the

Commission certifies that this proposed rule will not have ``a

significant economic impact on a substantial number of small

entities.''

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\38\5 U.S.C. 601-612.

\39\See 5 U.S.C. 601(3), citing to section 3 of the Small

Business Act, 15 U.S.C. 632, which defines ``small business

concern'' as a business that is independently owned and operated and

that is not dominant in its field of operation.

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IX. Information Collection Statement

The Office of Management and Budget's (OMB) regulations\40\ require

that OMB approve certain information collection requirements imposed by

an agency. The information collection requirements in this proposed

rule are contained in FERC-516 ``Electric Rate Filings'' (1902-0096).

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\40\5 CFR 1320.13.

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The Commission uses the data collected in these information

requirements to carry out its regulatory responsibilities pursuant to

the Federal Power Act and the Energy Policy Act of 1992. The

Commission's Office of Electric Power Regulation uses the data for

determination of electric rate filings submitted by industry. The

Office of the Chief Accountant uses the data to ensure that industry

has followed the appropriate procedures for assumptions of obligation

and also to ensure that jurisdictional companies comply with the

Uniform System of Accounts.

Interested persons may send comments regarding collection of

information to the Federal Energy Regulatory Commission, 825 North

Capitol Street, NE., Washington, DC 20426 [Attention: Michael Miller,

(202) 208-1415]; and to the Office of Management and Budget,

Washington, DC 20503 [Attention: Desk Officer for the Federal Energy

Regulatory Commission].

X. Public Comment Procedures

The Commission invites interested persons to submit written

comments on the proposed guidelines. Parties must file with the

Commission an original and 14 copies of their comments no later than

August 1, 1994. Parties must file an original and 14 copies of reply

comments with the Commission no later than August 30, 1994. Parties

should submit their comments and reply comments to the Office of the

Secretary, Federal Energy Regulatory Commission, 825 North Capitol

Street, NE., Washington, DC 20426, and should refer to Docket No. RM94-

14-000.

All written comments will be placed in the Commission's public

files and will be available for inspection in the Commission's Public

Reference Section, Room 3408, at 941 North Capitol Street, NE.,

Washington, DC 20426, during regular business hours.

List of Subjects in 18 CFR Part 35

Electric power rates, Electric utilities, Reporting and

recordkeeping requirements.

By direction of the Commission.

Lois D. Cashell,

Secretary.

In consideration of the foregoing, the Commission proposes to amend

part 35, chapter I, title 18, Code of Federal Regulations, as set forth

below.

PART 35--FILING OF RATE SCHEDULES

1. The authority citation for Part 35 continues to read as follows:

Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42

U.S.C. 7101-7352.

2. 18 CFR Part 35 is amended by adding Subpart E--Regulations

Governing Nuclear Plant Decommissioning Trust Funds, consisting of

Sec. 35.32 and one of three alternative proposed Sec. 35.33, to read as

follows:

Subpart E--Regulations Governing Nuclear Plant Decommissioning Trust

Funds

Sec.

35.32 General provisions.

35.33 Specific provisions.

Sec. 35.32 General provisions.

(a) In order to provide funds for the decommissioning of a nuclear

power plant, a public utility must establish, organize and maintain a

nuclear plant decommissioning trust fund (Fund). The Fund must meet the

following criteria:

(1) The Fund must be an external trust fund in the United States

under the control of a Trustee (Trustee) that is independent of the

utility, its subsidiaries, affiliates or associates.

(2) The Trustee must exercise the standard of care, whether in

investing or otherwise, that a reasonable person would use in the same

circumstances.

(3) The Trustee shall have a net worth of at least $100 million.

(4) The Trustee shall keep accurate and detailed accounts of all

investments, receipts, disbursements and transactions of the Fund. All

accounts, books and records relating to the Fund shall be open to

inspection and audit at reasonable times by the utility or its designee

or by the Commission or its designee. The utility or its designee must

notify the Commission prior to performing any such inspection or audit.

The Commission may direct the utility to conduct an audit or

inspection.

(5) Absent the express authorization of the Commission, no part of

the assets of the Fund may be used for, or diverted to, any purpose

other than to fund the costs of decommissioning the nuclear power plant

to which the Fund relates, and to pay administrative costs and other

incidental expenses, including taxes, of the Fund.

(6) If the Fund balances exceed the amount actually expended for

decommissioning after decommissioning has been completed, the utility

shall refund the excess jurisdictional amount to jurisdictional

ratepayers, in a manner to be determined by the Commission.

(7) The Trustee shall limit Fund investments to those investments

that the Commission allows in the specific provisions of Sec. 35.33.

The Trustee shall not in any circumstance invest in any securities of

the utility, its subsidiaries, affiliates, or associates or their

successors or assigns.

(8) The Trustee shall maximize the after-tax earnings over the life

of the Fund, giving consideration to liquidity, risk, diversification

and other prudent investment objectives, consistent with sound business

practices and subject to the specific provisions of Sec. 35.33.

(9) Each utility shall seek to minimize the payment of taxes with

respect to amounts collected for nuclear power plant decommissioning.

In this regard, the utility shall develop, organize and maintain the

Fund, when it is consistent with sound business practices to do so, to

take maximum advantage of any tax deductions and credits.

(10) Each utility shall deposit in the Fund at least quarterly (or

more often if the utility wishes to make deposits more often) all

monies collected in Commission-jurisdictional rates to fund nuclear

power plant decommissioning.

(b) The establishment, organization, and maintenance of the Fund

shall not relieve the utility or its subsidiaries, affiliates or

associates of any obligations they may have as to the decommissioning

of the nuclear power plant.

Sec. 35.33 Specific provisions.

Alternative 1:

(a) In addition to the general provisions of Sec. 35.32, the

Trustee must observe the following specific provisions of

Sec. 35.33(b).

(b) The Trustee may only use Fund assets to:

(1) Satisfy the liability of a utility for decommissioning costs of

the nuclear power plant to which the Fund relates as provided by

Sec. 35.32; and

(2) Pay administrative costs and other incidental expenses,

including taxes of the Fund as provided by Sec. 35.32; and

(3) To the extent that the Trustee does not currently require the

assets of the Fund for the purposes described in paragraphs (b)(1) and

(b)(2), the Trustee may only invest those assets in:

(i) Public debt securities of the United States;

(ii) Obligations of state or local governments that are not in

default as to principal or interest; or

(iii) Time or demand deposits in a bank, as defined in 26 U.S.C.

581 or in an insured credit union, within the meaning of 12 U.S.C.

1752(7), located in the United States.

year a copy of the financial report furnished to the utility by the

Fund trustee that shows for the most recent 12-month period: (1) Fund

assets and liabilities at the beginning of the period; (2) Activity of

the Fund during the period, including contributions received, purchases

and sales of investments, gains and losses from investment activity,

disbursements from the Fund for decommissioning activity and payment of

Fund expenses, including income taxes; and (3) Fund assets and

liabilities at the end of the period. If an independent public

accountant has expressed an opinion on the report or on any portion of

the report, then that opinion must accompany the report.

Alternative 2:

(a) In addition to the general provisions of Sec. 35.32, the

Trustee must observe the following specific provisions of

Sec. 35.33(b).

(b) The Trustee may only use Fund assets to:

(1) Satisfy the liability of a utility for decommissioning costs of

the nuclear power plant to which the Fund relates as provided by

Sec. 35.32; and

(2) Pay administrative costs and other incidental expenses,

including taxes of the Fund as provided by Sec. 35.32; and

(3) To the extent that the Trustee does not currently require the

assets of the Fund for the purposes described in paragraphs (b)(1) and

(b)(2), the Trustee, when investing Fund assets, must exercise the same

standard of care that a reasonable person would exercise in the same