Financial Assurance Requirements for Decommissioning Nuclear Power Reactors

NUCLEAR REGULATORY COMMISSION

10 CFR Part 50

RIN 3150-AF41

Financial Assurance Requirements for Decommissioning Nuclear

Power Reactors

AGENCY: Nuclear Regulatory Commission.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Nuclear Regulatory Commission (NRC) is proposing to amend

its regulations on financial assurance requirements for the

decommissioning of nuclear power plants. The proposed amendments are in

response to the potential deregulation of the power generating industry

and respond to questions on whether current NRC regulations concerning

decommissioning funds and their financial mechanisms will need to be

modified. The proposed action would require power reactor licensees to

report periodically on the status of their decommissioning funds and on

the changes in their external trust agreements. Also, the proposed

amendment would allow licensees to take credit for the earning on

decommissioning trust funds.

DATES: Submit comments by November 24, 1997. Comments received after

this date will be considered if it is practical to do so, but the

Commission is able to assure consideration only for comments received

on or before this date.

ADDRESSES: Mail comments to: The Secretary of the Commission, U.S.

Nuclear Regulatory Commission, Washington, DC 20555-0001, Attention:

Rulemakings and Adjudications Staff.

Deliver comments to: 11555 Rockville Pike, Rockville, Maryland,

between 7:30 am and 4:15 pm, Federal workdays.

Examine copies of comments received at: The NRC Public Document

Room, 2120 L Street NW. (Lower Level), Washington, DC.

FOR FURTHER INFORMATION CONTACT: Brian J. Richter, Office of Nuclear

Regulatory Research, U.S. Nuclear Regulatory Commission, Washington, DC

20555-0001, telephone (301) 415-6221, e-mail [email protected].

SUPPLEMENTARY INFORMATION:

Background

The NRC published an advance notice of proposed rulemaking (ANPR)

for ``Financial Assurance Requirements for Decommissioning Nuclear

Power Reactors'' on April 8, 1996 (61 FR 15427). The NRC was seeking

comments on its proposal to amend 10 CFR 50.2, 50.75, and 50.82 to

require that electric utility reactor licensees provide assurance that

the full estimated cost of decommissioning their reactors will be

available through an acceptable guarantee mechanism if the licensees

are no longer subject to rate regulation by State public utility

commissions (PUCs) or the Federal Energy Regulatory Commission (FERC)

and do not have a guaranteed source of income. The proposed amendments

would also allow licensees to assume a positive real rate of return on

decommissioning funds during the safe storage period. Lastly, a

periodic reporting requirement would be established.

The ANPR specifically requested comments on the above amendments

and on six areas of consideration for decommissioning:

1. The timing and extent of deregulation of the electric utility

industry;

2. Stranded costs;

3. Financial qualifications and decommissioning funding assurance

for nuclear power plants;

4. Decommissioning funding assurance for a Federal Government

licensee;

5. The status of decommissioning trust funds during the safe

storage period; and

6. Reporting on the status of decommissioning funds.

In response, the NRC received 650 comments from 42 commenters, and

the commenters have been classified into 4 groups. The largest group of

respondents was utilities and utility groups (28 commenters), followed

by public utility commissions and related organizations (9 commenters).

Two public interest groups submitted comments, as did a group of 3

commenters referred to as ``other.''

The discussion of the comments received is presented by general

comment area and specific questions posed within each area. The

questions appear in the order as presented in the ANPR, followed by the

Commission's responses.

Discussion of Comments

A. Timing and Extent of Electric Utility Industry Deregulation

A.1 Likely Timetable

On the issue of the timing and extent of deregulation, most

commenters addressed only the timing question. If commenters also

discussed the question of extent, they generally only distinguished

between deregulation of the wholesale market and deregulation of retail

power sales, although timing estimates usually referred to retail

deregulation. Almost half of the commenters did not take a position on

the timing issue. Seven commenters stated that the timing of

deregulation could not be predicted.

Several commenters stated only that they took the same position as

the Nuclear Energy Institute (NEI), an organization that represents

many nuclear utilities. NEI estimated that about ten years would be

necessary to bring about restructuring and deregulation. A few

commenters suggested that from five to ten years would be sufficient.

Two commenters pointed to events in States that were scheduled to occur

as early as 1998 and others predicted significant deregulation within

five years or less or ``rapidly.'' Two commenters suggested that

deregulation would take place slowly and require a considerable time to

complete.

A.2 Restructuring or Deregulation Scenario

Phases of Deregulation. Several commenters stated that an initial

phase of deregulation of the generation or wholesale electricity market

has already begun and is likely to continue. Utilities are now

preparing for deregulation by undertaking cost reductions (e.g.,

workforce reductions, contract renegotiations, regulatory asset

reductions, operating cost reductions), strategic alliances and

mergers, and expansion into unregulated venues. Five commenters

expressed their belief that a

[[Page 47589]]

second deregulatory phase would follow and lead to the restructuring of

the transmission sector and to retail competition. However, many

commenters noted that significant uncertainty exists regarding the

breadth, timing, and implementation of the new competitive electricity

business.

The pace of deregulation, according to one commenter, will be set

by Federal and State regulation. One commenter stated that competition

would be phased in slowly with existing generation assets being ``kept

whole'' through standard regulated rates.

Ultimate Extent of Rate Regulation or Deregulation. Four commenters

expect that electricity prices from generators will ultimately be

largely deregulated or unregulated. One commenter stated that

generation of electricity will become partially deregulated, but may

not be fully deregulated if reliance on market forces does not

adequately ensure safe and reliable generation supplies.

Nine commenters expect that transmission rates will remain subject

to Federal Energy Regulatory Commission jurisdiction. Regional power

markets (RPM) and independent system operators (ISO) (discussed below)

would also fall under FERC jurisdiction, according to one commenter.

Ten commenters anticipate that distribution (retail) rates are likely

to remain subject to State jurisdiction. One of these commenters stated

that distribution rates may be regulated under a price cap or

incentive-based regulation.

Retail wheeling and pool-based pricing 1 will provide

market pricing at all levels, including the retail level, according to

one commenter. Three commenters believe that retail wheeling will

become widespread.

---------------------------------------------------------------------------

\1\ Retail wheeling refers to the selling of bulk power to a

retail customer by way of a third party's transmission system. Pool-

based pricing is a pooling of electricity produced by various

generators for resale to consumers.

---------------------------------------------------------------------------

One commenter indicated that nuclear power plants and non-utility

generators, even if released from rate regulation by States or FERC,

may remain under some forms of regulation, including State and Federal

siting and environmental regulation.

Resulting Business and Industry Structure. Although one commenter

stated that NRC should abandon any attempt to anticipate market

structure, other commenters suggested that the following features might

characterize the industry subsequent to deregulation and restructuring:

Functional unbundling which is the divestiture of

generation, transmission, or distribution systems.

Many, and perhaps all, transmission systems operated on a

State-wide or region-wide basis. An ISO will operate the system,

coordinating energy production and delivery with demand and provide a

pool-based spot market price for energy. RPMs or power market exchanges

(PMEs) for competitive generation will accept bids from all generators

that want to participate in the market, establish the clearing price,

and determine the sequence of generator dispatch. Bilateral contracts

for the direct purchase of power will also be allowed.

Different treatment for nuclear generation than for other

types of utility-owned generation. Even if nuclear generation is

permitted to compete in an open market, some regulatory mechanisms may

remain in place to ensure that nuclear-related costs (safety, security,

waste disposal, decommissioning) are recovered by some means other than

the market price of power. One of these commenters stated that

regulated local distribution companies would end up owning nuclear

generating plants.

Continued economic viability for nuclear generation for

many years as a result of marginal costs that are quite low. Another

commenter argued, however, that there is no obvious deregulated market

for many or most existing nuclear power plants because of the

uncertainty of the costs of decommissioning and the disposal of high-

level nuclear wastes. This commenter stated that neither NRC

rulemakings nor short-term passage of time will resolve these issues. A

third commenter asserted that competitive pressures will lead to the

early retirement of some nuclear plants.

One commenter argued that, given the changes under consideration

and already under way, it is no longer credible to assume that

utilities can always raise rates or otherwise recover whatever costs

are needed to safely operate and decommission nuclear plants. Another

commenter suggested that if the NRC chooses to proceed with a

rulemaking, the rule should accommodate both nuclear units subject to

traditional regulation and nuclear units in the competitive markets.

A.3 Differences in State Policies and Implications

Commenters expressed viewpoints on the likely differences in State

deregulatory efforts and policies. One commenter declared that all

States will ultimately undergo restructuring and deregulation in some

form. Nine commenters, however, suggested that some States may reject

restructuring entirely, regardless of what other States do.

Four commenters feel that States will possibly or probably be

compelled by competitive forces to deregulate, particularly if

neighboring States do so. One of these commenters added that States

within a geographic region (where there are no physical barriers to

electric transmission) are likely to migrate to a similar industry

structure, either as a result of Federal legislation or market

pressures. Two other commenters provided examples of market or

political pressures that could affect neighboring States' decisions to

deregulate.

One commenter stated that some regulators in States that already

enjoy low-cost electric service appear reluctant to endorse competition

because of concerns that indigenous utilities will seek to sell power

to the external market where profit margins could be greater. Should

market factors provide an advantage to States that foster competition

(by allowing indigenous utilities to gain strength by acquiring market

share), States that resist competition could put their utilities at a

disadvantage. While State regulators may elect to defer the decision on

competition, economic or social pressures could influence that

decision.

Another commenter indicated that States implementing retail

competition may face the risk that a utility in a neighboring State

could obtain open access without reciprocal access being provided to

in-State utilities seeking to enter the State that does not provide

competition.

Three commenters remarked that reform may proceed at different

speeds in different States because of local market and political

pressures. One of these commenters recommended that NRC accommodate the

varied pace to avoid hindering or forcing transitions.

In response to the ANPR's query regarding ``hybrid'' systems, one

commenter believes that a hybrid system of regulation is likely to

emerge as States deal with economic issues in a variety of ways.

Another commenter stated that a hybrid system could exist for some

time. A third commenter reported that, while a hybrid system could

probably exist, it may not result in the least expensive electricity.

Under a hybrid system, industry structure may vary from region to

region. Other commenters, however, felt that a hybrid system is

unlikely to prevail. They stated that a hybrid may be operationally

cumbersome or even unworkable because the markets are not defined by

State boundaries and

[[Page 47590]]

because the grid is highly integrated and interdependent. One of these

commenters also stated that a patchwork or hybrid system may reduce the

opportunities to market some nuclear generation. Three commenters said

they could not predict whether a hybrid system can exist or how one

State's policies will affect its neighbors.

One commenter expressed concern that deregulation and reduced

oversight at the State level may reduce the certainty that out-of-State

partial owners of nuclear-facilities will collect and expend

decommissioning funds.

Response. The above questions were posed for comment so the NRC

could obtain estimates on the timing of deregulation, phases, and

possible different approaches that may be used in how States would

address deregulation. These comments are being grouped under one

response as they all contribute to whether the Commission should

proceed with a proposed rule now. While the responses to this set of

questions ran the gamut of opinion on this issue, the comments have not

caused the Commission to change its position that it must act now to be

in a position to respond to the upcoming changes in the electric

utility environment that could affect protection of public health and

safety. Increased competition could result in economic pressures that

affect how licensees address maintenance and safety in nuclear power

plant operations, as well as the availability of adequate funds for

decommissioning. The comments received and the NRC staff's independent

review of deregulation activities also indicate that NRC power reactor

licensees are likely to have sufficient notice of changes in their

regulatory regimes so as to be able to secure necessary financial

assurance for decommissioning should they no longer qualify, in whole

or in part, as electric utilities. (The staff notes that most, if not

all, PUCs and FERC are addressing decommissioning funding assurance in

their deregulatory initiatives.) Hence, these comments reinforce the

Commission's position that a rule is necessary and timely, given

electric utility restructuring and the deregulation legislation being

proposed or enacted in several States and by Congress.

B. Stranded Costs

Many commenters expressed the view that regulators are likely to

allow prudently incurred stranded costs to be recovered in some manner.

Many of these commenters felt this was particularly true for prudently

incurred decommissioning costs. Following are viewpoints typical of

these comments.

The probability is high that regulatory mechanisms will be

developed to replace cost recovery procedures established through

``traditional'' regulatory procedures. These mechanisms (e.g., wire

charges, non-bypassable customer fees, including securitization, exit

fees) may be different from current mechanisms, but the probability of

recoverability under these mechanisms is no less than it would have

been under conventional regulation. The mechanism chosen, and its

associated equitable allocation of cost responsibility between

customers and shareholders, will be determined through the inevitable

give and take of the restructuring process, if one is implemented.

FERC, in Order 888, April 24, 1996, effectively established a

precedent that, for electric sales under FERC jurisdiction, there will

be full recovery of all costs that were prudently incurred, based on an

expectation of serving customers in the future, but have or may become

stranded as a result of moving to a competitive market. Although the

FERC order pertains to wholesale markets, most believe the precedent

has been set and the same standard will apply to stranded costs that

result from retail competition. It is reasonable to assume that

legislators and generators will take distinct precautions in relation

to nuclear generation. Even if nuclear plants are permitted to compete

on the same basis as other baseload generation, regulatory mechanisms

must be in place to ensure that certain costs (safety, security, waste

disposal, and plant decommissioning) are recovered by some means other

than the market price of power. Plausible mechanisms that regulators

could use to recover costs include competition transition charges and

non-bypassable charges. One utility fully expects that there would be

100 percent recovery of nuclear stranded costs in a restructured

electric industry.

However, other commenters expressed some uncertainty. Some

commenters thought cost recovery was appropriate, but did not address

its likelihood. In some cases, commenters advocated specific NRC action

to address the situation.

One commenter stated it is premature to speculate as to who will

ultimately bear the responsibility for stranded costs (estimated

between $7 and $17 billion in New Jersey alone). While FERC Order 888

addresses this issue for the wholesale market, that decision remains

open to legal challenges that may affect its final outcome. Moreover,

because potential retail stranded costs are orders of magnitude larger

than wholesale stranded costs, a different solution to this issue for

retail competition may ultimately be deemed appropriate. Where stranded

costs may be determined to be recoverable, it is conceivable that those

costs will be recovered through some form of non-bypassable ``wire''

charge.

The commenter further stated that it is not clear how construction

costs will be treated as State PUCs define policy for restructuring.

FERC and some State PUCs already have proceedings under way to

determine the amount and means of stranded cost recovery. There is also

the possibility of Congressional action. NRC should take a proactive

position with FERC and State regulators that potential stranded costs,

including those that may be related to specific decommissioning cost

obligations, should be recovered by the electric utility as part of

their rates. (Several other commenters also suggested that NRC should

aggressively lobby FERC and/or PUCs to allow utilities to recover

stranded decommissioning costs.)

One PUC does not accept that any source of electrical generation is

``non-competitive'' per se, and thus does not accept that nuclear

plants are non-competitive because of high construction costs. It is

premature, an oversimplification of a complex issue, and a potential

disincentive to mitigate costs to label any type of generation non-

competitive at this early stage in restructuring. Even if nuclear

generation is sold at less than current combined fixed and variable

costs, the market price will probably exceed the variable component, so

there will be some recovery of fixed costs. Costs that are not

recoverable could be the subject of Federal or State stranded cost

proceedings. Federal and State authorities must inquire whether the

unit is necessary to the continued safe and reliable operation of the

interconnected grid, and if the answer is yes, a proration of the costs

may be necessary among all customer classes that benefit from the

continued operation of the unit. If the unit is not necessary, it

should be removed from service. The individual State commissions will

have to decide who should bear the cost to prematurely shut down, as

opposed to decommission, an uneconomic plant.

A commenter stated that the treatment accorded stranded investment

or costs may vary from jurisdiction to jurisdiction and few

generalizations are possible. The NRC should not become embroiled in

individual rate proceedings or debates about particular

[[Page 47591]]

cost recovery mechanisms, but should instead define a clear policy

that, from a public health and safety perspective, licensees must be

allowed to maintain an adequate financial posture to support ongoing

safe operation and decommissioning. The NRC's policy statement

2 should be a strong statement of its expectations. NRC

should participate in the NARUC subcommittee addressing restructuring.

---------------------------------------------------------------------------

\2\ See Draft Policy Statement on the Restructuring and Economic

Deregulation of the Electric Utility Industry, (61 FR 49711;

September 23, 1996).

---------------------------------------------------------------------------

Some commenters stated that decommissioning obligations are

qualitatively different from other stranded costs. FERC has not yet

adopted a mechanism that provides for recovery of decommissioning

costs. Order 888 provides for recovery of wholesale stranded costs

through the ``revenues lost'' approach. However, this approach only

accounts for and allows recovery of fixed costs already incurred by

utilities and does not address costs that must be collected in the

future. A better solution is for the Federal Government to assure the

continuing recovery of decommissioning costs in utility rates, through

non-bypassable fees to be paid by utility customers leaving the system,

or through other surcharges tied to the use of transmission facilities.

The NRC should support cost recovery initiatives and help educate State

commissions on the importance of ensuring continued full collection of

decommissioning costs.

Another commenter noted that the best ultimate assurance of the

collection of the cost of decommissioning is the ability of the plant

to operate at sufficiently low marginal costs to collect

decommissioning costs in gross margins. The NRC could improve the

likelihood of this outcome by (1) encouraging the IRS to allow payments

for decommissioning costs to be generally deductible rather than

deductible only if they are ordered by a regulatory agency and (2)

strengthening utilities' efforts to recover stranded costs. As plants

are further depreciated and the cost of nonnuclear generation

escalates, existing plants will become more competitive.

Some commenters asserted that in the process of identifying well-

run plants and seeking the sale or closing of the not-well-run plants,

the problem of who should pay for unrecovered costs must be addressed.

To the extent that the nonsalability is caused by problems created by

poor management, the seller is responsible. If the NRC or another

agency would undertake a program to address the problem of poorly

performing nuclear plants and encourage continued maintenance of

efficiently operated plants, many of the questions asked by the ANPR

might find answers. Timeliness in identifying poorly performing plants

is critical because while the industry is reforming itself, the ability

to affect the inventory of nuclear plants is at its highest level. Once

plants have been evaluated, the NRC should be prepared with a task

force to recommend an orderly plan for the disposition of those few

plants and operators who will not be recommended for further

operations.

A few commenters believed that the full burden of covering the

costs, including decommissioning costs, of uneconomic nuclear plants

should fall on utility shareholders rather than customers unless there

is a compelling case otherwise.

Response. The Commission does not see a need to modify its position

that its regulations need to be modified at this time to address the

changing regulatory situation for power reactor licensees because of

the comments received. Specifically, the Commission agrees with the

commenters who hold the view that regulators are likely to allow

prudently incurred stranded costs to be recovered in some manner and do

not see a need to interfere in the financial regulation of nuclear

power plants with respect to the question of stranded costs. Some of

the comments, in which actions were proposed for the NRC's involvement

with respect to stranded costs, were beyond the NRC's sphere of

regulation. Examples include having the NRC identify poorly run plants,

requiring the plants to be sold and for the Federal Government to be

the purchaser of last resort and even run the plants if necessary.

The NRC has addressed the issue of stranded decommissioning costs

elsewhere in this notice. However, the NRC is aware that stranded

costs, insofar as their recovery affects a licensee's ability to obtain

sufficient funds to protect public health and safety, must be addressed

to ensure that they are being adequately handled. Further, States are

considering a number of options for assessing non-bypassable charges to

recover decommissioning costs, as well as other stranded costs. One

such option is ``securitization,'' which entails financing the recovery

of stranded costs through issuance of bonds whose principal and

interest would be repaid by an irrevocable, non-bypassable charge set

by State statute on an electric utility's distribution customers.

Because the income stream to repay the bonds would be securitized by

the irrevocable, non-bypassable charge, the bonds would be highly rated

and would thus require a lower interest rate than riskier debt. Also,

these securitized bonds would not be part of the utility's capital

structure, and so would not reflect the higher cost of equity capital.

The spread in interest cost between highly rated securitized debt and

lower rated utility capital that includes both debt and equity makes

securitization attractive to many states. The NRC believes that

securitization has the potential to provide an acceptable method of

decommissioning funding assurance, although other mechanisms that

involve non-bypassable charges provide comparable levels of assurance

and should not be excluded from consideration by State authorities.

As stated in the NRC's ``Draft Policy Statement on the

Restructuring and Economic Deregulation of the Electric Utility

Industry'' September 23, 1996 (61 FR 49711): ``Notwithstanding the

primary role of economic regulators in rate matters, the NRC has

authority under the Atomic Energy Act of 1954, as amended, (AEA) to

take actions that may affect a licensee's financial situation when

these actions are warranted to protect public health and safety.'' The

policy also goes on to explain that the NRC will work and consult more

closely in the future with the National Association of Regulatory

Utility Commissioners (NARUC), FERC, and the Securities and Exchange

Commission (SEC) so that the NRC may express its positions on safety

and encourage the various regulatory bodies to continue their

allowances of adequate expenditures for plant safety. Lastly, the

proposed reporting requirements of this rulemaking are seen by the NRC

as a vehicle for the Commission to monitor this potential concern.

C. Nuclear Financial Qualifications and Decommissioning Funding

Assurance

C.1 Funding Assurance if Plants Shut Down Prematurely

Most commenters accepted the premise of the question, whether costs

of a shortfall in decommissioning funding of a prematurely shut down

plant could be passed along to ratepayers. This conclusion was based in

part on past experience and in part on a belief that State PUCs will

develop methods to ensure that decommissioning costs are covered.

Several commenters said that recovery from ratepayers or shareholders

would depend on the plant management's responsibility for the premature

shutdown. If management were deemed responsible, efforts would be made

to have the shareholders pay for

[[Page 47592]]

decommissioning; but if the management were not deemed responsible,

State PUCs would find methods to have the ratepayers provide the funds.

Commenters noted that, in the past, decommissioning costs had been

recovered for prematurely closed reactors (e.g., Dresden 1, Fort St.

Vrain, San Onofre Unit 1, Trojan, Yankee Rowe). In a transition from

full regulation to full competition, one commenter suggested a window

to allow continued or possibly accelerated recovery. Another commenter

said that a surcharge might be placed on customers. Under competition,

recovery could be made through other revenue streams of the licensee, a

non-bypassable fee, or debt or equity of the licensee. Two other

commenters suggested that transmission charges would be the most likely

source of funding. Retained earnings of the utility were suggested as a

source of funds. Two commenters expected shareholders to be responsible

for providing decommissioning funds in cases of premature shutdown.

Two commenters, including one PUC, conceded that PUCs might not

have jurisdiction to require funding from ratepayers. Under such

circumstances, one PUC stated, funding of decommissioning would be

greatly dependent on the financial viability of the regulated firm. The

risk of recovery would rest squarely on its shareholders. If the

shareholders could not pay, the liability would then transfer to

taxpayers. For this reason, the commenter suggested, decommissioning

might be accorded special treatment.

One commenter argued that the solution to premature shutdown was

for NRC to require assurance for decommissioning costs prior to

approving reorganizations or license transfers. Potential funding

shortfalls should be addressed, another argued, on a case-by-case

basis, and might be avoided by sale of the nuclear plant to an entity

better able to manage it effectively. Two others suggested that a

proper funding mechanism would have to be identified and put into place

at shutdown, without further specifying what that mechanism could be.

In the opinion of one of these commenters, such funding could be a

difficult problem because currently, on an aggregate basis, utilities'

decommissioning costs are only about 25 percent funded (about $9

billion out of $35 billion), although plants are at about 43 percent of

their aggregate service lives. Early underfunding could force high

back-end funding, making the plants uncompetitive.

A commenter stated that, contrary to the planned 40-year operating

life of nuclear power plants, material and operating evidence suggests

plants' operating lives are closer to 15-25 years. Hence, the plan to

recoup decommissioning costs of over a 40-year operating life may be

unrealistic.

NEI took the position that the source of funds to shut down a plant

prematurely would be different from company to company and would have

to come from other ongoing revenue streams of the company or from

alternative sources such as transmission or distribution charges, exit

fees charged customers leaving the system, or other regulatory charges.

NEI also supported NRC requirements for financial assurance, such as

those currently found in 10 CFR 50.75. Five commenters stated that they

explicitly adopted the NEI position.

Response. The Commission recognizes the importance of

decommissioning funding assurance for prematurely shutdown plants and

believes that its current case-specific approach, outlined in

Sec. 50.82, strikes the best balance between level of assurance and

cost. The alternative of requiring accelerated funding for all plants

over a defined period, to cover the possibility of premature shutdown

at some plants, would be too arbitrary and would lead to wide

variations in impacts on licensees. Accelerated funding results in the

inequitable inter-generational problem of the present generation paying

for the decommissioning costs, while the future generation may receive

the benefits of future electricity generation without incurring the

costs of decommissioning. Although the Commission is not proposing to

expressly require accelerated funding to address premature shutdowns,

to the extent that licensees no longer qualify, in whole or in part, as

electric utilities, they will, in effect, have to ``accelerate''

funding by getting ``up-front'' forms of financial assurance. The staff

expects, however, that PUCs and FERC will address decommissioning

funding through cost recovery mechanisms. The Commission is aware that

some plants have not operated for the full 40 years. However, it is

likely that some plants will continue operating for the full 40 years

and beyond. Therefore, the Commission does not believe any change is

required for the planned 40-year life.

C.2 When Does an Operator Cease To Be a Utility

On the question of when an operator of a nuclear power plant ceases

to be a ``utility'' as defined in 10 CFR 50.2, seven commenters

interpreted the definition strictly and concluded that, if an operator

ceases to satisfy the terms of the definition, the operator is no

longer a ``utility.'' Several commenters used almost the same formula:

an operator would cease to be a ``utility'' when it ceases to provide

service to retail or wholesale customers at rates set by a separate

regulatory authority. One commenter supported a clarification of NRC's

regulations that would establish its continued ability to require the

proper accumulation of decommissioning funds, while two argued that the

NRC should relax its definition to cover entities that purchase

electricity and recover the costs from rates charged customers or from

other revenue guarantees. Another commenter argued that NRC should seek

additional assurance in advance of deregulation.

NEI stated the contrary argument, noting that it is not apparent

that any licensee will fall outside the definition of ``utility'' in

the near future, even after restructuring. NEI argued that as long as a

licensee has adequate cost-recovery mechanisms under the authority of

State or Federal regulations, it should continue to be considered a

utility.

Other commenters argued that even after deregulation the price

charged for electricity will be established by the regulatory process

or in other ways that will mean a nuclear plant will continue to be an

``electric utility.'' One stated that the term ``electric utility''

should be construed to include all entities that have been authorized

by a State PUC, FERC, or other governing entity to recover

decommissioning costs from customers. Two commenters expected plants to

remain subject to State PUC jurisdiction, and therefore to satisfy the

regulatory definition. Another argued that if a portion of a vertically

integrated company is subject to cost recovery pricing, the definition

is satisfied. Two said that if a plant sets its own rates for

electricity, the definition is satisfied.

One commenter rejected the NRC's emphasis on an operator's

satisfying the definition of utility, and argued that the emphasis

should be on the financial viability of the entity responsible for

decommissioning the unit.

Response. Consistent with the position taken in the ANPR, the NRC

is proposing to revise its definition of ``electric utility'' to

introduce additional flexibility to address potential impacts of

electric industry deregulation. The Commission notes that the key

component of the revised definition is a licensee's rates being

established either through cost-of-service mechanisms or through other

non-bypassable charge mechanisms, such as wire charges, non-

[[Page 47593]]

bypassable customer fees, including securitization or exit fees, by a

rate-regulating authority. Several States are considering deregulation

of future operations of nuclear power plants so that revenues will not

be determined by cost-of-service but by market-set prices. Should a

licensee be under the jurisdiction of a rate-regulating authority for

only a portion of the licensee's cost of operation, covering only a

corresponding portion of the decommissioning costs that are recoverable

by rates set by a rate-regulating authority, the licensee will be

considered to be an ``electric utility'' only for that part of the

Commission's regulations to which those portions of costs pertain. For

example, if a licensee were able to collect 40 percent of its

decommissioning costs through rate-regulated activities, such as

traditional cost of service regulation or use of non-bypassable

charges, the remaining 60 percent of the costs would need to be

accounted for in a manner consistent with methods acceptable for a

licensee other than an electric utility. In this proposed rule, the

definitions of several relevant terms are also provided for the first

time in Sec. 50.2. It is noted that some commenters misinterpreted the

intent of the existing definition of ``electric utility'' with respect

to entities that establish rates themselves. As stated in the proposed

definition, those entities include only public utility districts,

municipalities, rural electric cooperatives, and State and Federal

agencies. Therefore, the proposed definition is being proffered as

clarification and to show the continued importance the NRC places on

the role of regulatory authorities in the setting of electric

utilities' rates with respect to the collection of funds for

decommissioning and other costs. This is consistent with the NRC's

draft policy statement.

C.3 Assurance Options

The following topics were discussed by commenters in response to

the ANPR's questions relating to the options to be considered if an

electric utility found itself operating a reactor that was no longer

regulated by a rate-setting State or Federal body.

Full Up-Front Assurance. Most commenters opposed requiring all

nuclear plants to provide full up-front assurance, often arguing that

it is unnecessary or that it is overly burdensome to nuclear plant

owners. Many commenters reminded NRC that deregulation does not

inherently mean a total lack of regulation or a lack of cost recovery.

One commenter believed NRC should, at the time of restructuring,

require only an assurance level commensurate with the completed

percentage of the operating life of the plant. One commenter opposes

advance funding on the grounds that doing so would incorrectly view all

properly executed reorganizations as resulting in successor operators

being unqualified to ensure decommissioning compliance.

One commenter believes that assurance should be provided before

licensees are exposed to the full pressures of competition (3-5 years).

Two commenters supported the idea of requiring assurance prior to NRC's

approval of reorganizations that transfer control of a nuclear plant.

Many commenters favor requiring reasonable financial assurance for

entities that cease to be rate-regulated utilities. Many of these

commenters, and others, view NRC's current regulations as basically

adequate to address these situations, although the regulations might

expand upon the allowable methods of assurance.

Additional Financial Assurance Methods. Additional financial

assurance methods suggested include continued rate-regulating entity

determinations, an appropriate charge for decommissioning in contracts

for the plant's output or in the transmission or distribution charges

of the licensee or its affiliate if the charges are assigned to the

licensee or its decommissioning fund, and exit fees charged against

customers leaving the system. A few commenters would include any

insurance for premature decommissioning caused by an accident. One

commenter would allow utilities to establish any method that may be

developed, including methods requiring approval of PUCs or FERC. Two

others would allow assurance through a plan for gradually recovering

decommissioning funds via rates and prices, even for deregulated

entities. Others argued that NRC should offer the utilities flexibility

and that each situation should be assessed on a case-by-case basis if

and when it occurs.

Timing of Rulemaking. With regard to the timing of the rulemaking,

a few commenters support prompt NRC regulatory action to ensure that

adequate financial assurance is in place prior to restructuring, before

waiting further to learn exactly how the industry will develop. Several

other commenters, however, believe that rulemaking is premature until

more is known about restructuring. Several commenters suggested that

NRC already has the authority to approve or disapprove any transfer of

license related to a merger or reorganization. Two commenters stated

that NRC should evaluate the regulations only after further studies

that (1) identify those nuclear plants that are not likely to survive

the imposition of competitive forces (i.e., those plants that are not

run efficiently or that cannot be made to run well), or (2) develop

quantitative measures for assessing the adequacy of decommissioning

funds and rates of accrual. New rules, according to one commenter,

should be timed to enable utilities to take advantage of stranded cost

recovery.

Added Assurances for Safe Operation and Decommissioning. Many

commenters voiced opposition to the ANPR's query regarding whether the

NRC should require additional assurance for adequate funds for safe

operation and decommissioning in anticipation of deregulation. One

commenter argued that additional assurances in this area may not add to

or strengthen the obligation already imposed by the terms and

conditions of the license. Others reasoned it unnecessary, given other

existing NRC requirements and FERC's framework for recovery of stranded

costs, including decommissioning.

Only one commenter supported additional assurance for safe

operation and decommissioning in anticipation of deregulation.

Joint Liability. 3 In response to the ANPR's query

regarding newly created organizations or holding companies being held

jointly liable for decommissioning costs, four commenters supported the

idea because of the added assurance it would provide. Three commenters

would consider requiring joint liability on a pro rata basis, possibly

taking into account the remaining years of licensed life. One commenter

cautioned that jointly liable parties may disagree on decommissioning

methods (e.g., prompt vs. deferred) because of the cash flow

implications.

---------------------------------------------------------------------------

\3\ The concept of joint liability is defined in Black's Law

Dictionary (4th Ed.) as:

One wherein joint obligor has right to insist that co-obligor be

joined as a codefendant with him, that is, that they be sued

jointly.

---------------------------------------------------------------------------

Numerous other commenters opposed the idea of joint liability,

arguing that it was unnecessary, would inhibit flexibility, would

weaken competitive position, or would undermine the separate corporate

identity or the responsibility of the individual entities. Some of

these commenters suggested that joint liability could be acceptable if

it were an optional method of financial assurance.

One commenter stated that new owners and operators should have to

assume the responsibilities and

[[Page 47594]]

liabilities of the previous owners and operators. Another stated that

the financial assurance obligation should follow the owners and

operators, whether regulated or unregulated, who have incentives to

properly manage and operate the units.

Impacts. Many commenters claimed that requiring full up-front

assurance would be overly burdensome to nuclear plant owners. Others

argued that additional assurances could inhibit competitiveness

relative to nonnuclear facilities, impede reorganization, aggravate

potential stranded investment, or create additional problems for

utilities, ratepayers, or taxpayers at a time when competitive forces

are already causing economic concerns. Examples of such problems would

include the difficulty for affiliated businesses to raise capital, or

the need for affiliated entities to charge more for its services

reducing its competitive position in the industry. Some commenters

argued these effects could reduce the likelihood that decommissioning

will be fully funded or could increase the likelihood of premature

shutdown.

Response. The Commission is addressing most of these comments by

revising the definition of ``electric utility'' and by instituting a

reporting requirement. As to the issue of requiring full up-front

funding in advance of deregulation, the Commission agrees with the

commenters that such a requirement would be overly burdensome if

applied to all licensees. However, given the proposed change to the

definition of ``electric utility'' in this action, any licensee no

longer overseen by a rate-setting regulatory authority, i.e., a

licensee other than an electric utility, would need to comply with the

decommissioning funding assurance requirements of Sec. 50.75(e)(2)

unless that licensee can otherwise conclusively demonstrate a

government-mandated, guaranteed revenue stream for all unfunded

decommissioning obligations. The options contained in that section

include prepayment; an external sinking fund coupled with a surety

method or insurance for any unfunded balance; or a surety method,

insurance, or other guarantee method.

The Commission emphasizes that the changes to the definition of

``electric utility'' introduce additional flexibility to address

deregulatory developments. Thus, the NRC would expect licensees to be

more likely to continue to qualify, in whole or in part, as electric

utilities under the revised definition. Although licensees who no

longer qualify, in whole or in part, as electric utilities could

encounter difficulties in securing alternative decommissioning funding,

experience to date indicates that PUCs and FERC are addressing

decommissioning costs through various recovery mechanisms.

The timing of the rulemaking was addressed in the response to

comments in section A of this notice. Any additional rulemaking in this

area would result from experience gained from industry and regulatory

actions. As several of the commenters stated, the NRC has the authority

to approve or disapprove any transfer of license related to a merger or

reorganization. Section 184 of the Atomic Energy Act of 1954, as

amended, and 10 CFR 50.80 provide that control over a license may not

be transferred, directly or indirectly, unless the Commission consents

to such transfer in writing.

The regulations do not explicitly impose joint liability on co-

owners and co-licensees. As stated by some commenters, joint liability

may create problems with respect to potential disagreement on

decommissioning methods, the inhibition of flexibility, the weakening

of competitive position, and the difficulty in implementation. Also, as

some noted, joint liability may not be needed. The new owners and

operators should assume the obligation to safely operate the facility

and assure adequate funding for decommissioning, as they have the

incentives to properly manage and operate the units. More importantly,

however, is the fact that with the proposed modified definition of

``electric utility,'' restructured entities would either have to have

adequate coverage of decommissioning funding obligations through some

non-bypassable cost recovery mechanism or would be required to provide

the types of up-front assurance described in Sec. 50.75(e)(2). Those

licensees who remain utilities would have the funding assurance

provided through being rate-regulated under Sec. 50.75(e)(3). The

Commission considers this level of assurance to be adequate and

therefore sees no need to impose an additional regulatory obligation of

joint liability on co-owners or co-licensees.

Lastly, with respect to the question of impacts, the Commission has

considered the comments relating to potential impacts in arriving at

the positions taken. The Commission understands that financial

assurance would place a burden on licensees that may affect their

competitiveness in a deregulated environment. The Commission has chosen

to take an approach that would create no additional financial impact

over present regulations for electric utilities and has also expanded

the definition of electric utility to accommodate types of rate

regulation not previously anticipated. There are also sufficient

existing options to demonstrate financial assurance for non-electric

utilities. Entities without adequate financial capital may find it

difficult to both finance up-front decommissioning funding and operate

a nuclear power plant safely. These newly formed companies may not be

good candidates for nuclear power plant ownership.

C.4 Financial Test Qualifications

About half the commenters flatly opposed requiring licensees to

demonstrate financial assurance by satisfying minimum standards of net

worth, cash flow, or other financial measures.

Many of the commenters, including NEI and four commenters who

adopted the NEI position, argued that such a test was not necessary or

appropriate. If NRC is concerned about the financial condition of a

particular licensee, three commenters said, an individualized case-by-

case review would be more appropriate. Some commenters said that

financial measures appropriate for investor-owned utilities would not

be useful for cooperatives, or for utilities that do not have parent

companies. Because generation and transmission companies typically are

highly leveraged, with many of their assets in the nuclear generating

facility, they cannot meet a test with a tangible net worth requirement

of ten times the current decommissioning costs, but this does not mean

that they cannot satisfy their financial obligations. A non-bypassable

charge was suggested as an alternative.

Some commenters suggested that NRC should adopt more than one

alternative test, none of which would be mandatory. Any alternative

adopted should be consistent among owners, and should not discriminate

against one class of owners, and should not be applied as a static one-

time requirement. Other suggestions included a requirement that a firm

demonstrate that it had ``ample margins, subsequent to restructuring''

to cover funding contributions or to cover decommissioning costs in the

event of a premature shutdown. Another suggested disclosure standards,

developed through the Financial Accounting Standards Board, for use in

annual reports and 10-K filings, that would be reviewed by Federal

regulators. Still another argued that measures of market value and cash

flow, rather than net worth, were appropriate in a competitive

environment, and that the ratio of available cash and cash equivalents

to

[[Page 47595]]

unfunded decommissioning requirements would be the best measure of

ability to support decommissioning, along with an assessment of the

utility's competitive situation. Determining whether a utility had

minimum cash flow sufficient to maintain its plants in a non-operating,

interim stage prior to decommissioning, and the period of time the

utility could sustain such cash flows, was suggested by one commenter.

One commenter suggested using a financial test as an indicator,

from which a Federal agency could determine that the utility needed

assurance of continued rate recovery of the decommissioning obligation.

Only two commenters endorsed a test of financial stability as a

financial test qualification. One pointed to assets sufficient to fund

an immediate decommissioning, or a minimum level of financial stability

(measured through investment grade securities) or insurance, or a

surety to cover decommissioning costs as three potentially acceptable

mechanisms. The other approved of parent or self-guarantees, but noted

that generators with nuclear facilities might have difficulty meeting

the financial test criteria, including the investment grade bond rating

requirement.

Response. With the proposed revision of the definition of

``electric utility,'' licensees who no longer meet the new definition

will need to comply with the requirements of Sec. 50.75(e)(2), which

describes the acceptable methods of financial assurance for

decommissioning for a licensee other than an electric utility. These

methods are flexible and contain at least four major categories of

acceptable methods to ensure funding for decommissioning as identified

in the previous response. Few commenters offered insights on other

potential test qualifications, although several stated that the

financial structure of utilities means that meeting the criteria in 10

CFR Part 30 could be problematic. The NRC would need to conduct

additional research and analysis to determine which additional

financial measures would be most useful and appropriate if a financial

test requirement for parent or self-guarantee were pursued. Criteria

could be identified and thresholds developed, but evolution of the

industry might mean that the criteria would become outdated and

misleading relatively quickly. Hence, the Commission will continue to

evaluate this issue, but is not presently offering any changes to its

financial test criteria.

C.5 PUC/FERC Certification

Only two commenters gave unequivocal support to the idea of

requiring PUC/FERC certification. One encouraged NRC to undertake

direct dialogue on certifications with the appropriate PUCs and FERC;

the other stated that PUCs and FERC must undertake such certifications

and that NRC should impress upon them the importance of doing so. A few

PUCs, in the opinion of this commenter, such as California and New

York, had already recognized the need to provide this assurance during

restructuring. Two other commenters expressed optimism that State

regulators would resolve the decommissioning funding problem in the

transition to competition, with or without certification, but one went

on to say that certification would probably be unnecessary. Of these,

six adopted the NEI position, which was that without new Federal

legislation it would be difficult to require legally binding

certification from PUCs or FERC. Requiring a licensee to obtain such

certification would place it in noncompliance, with no way of achieving

compliance. If a licensee did obtain certification, however, NEI

suggested that it be allowed to satisfy the financial assurance

requirements using that mechanism.

Two commenters opposed to certification argued that it would be

counter-productive because the utility would have no incentive to

maintain adequate decommissioning funds. NARUC and several PUCs either

opposed the idea or expressed strong reservations about it. NARUC noted

first that no current commission can bind a future commission at either

the Federal or State level. However, NARUC was confident that State

PUCs would examine the causes of underfunding, if it occurred, and seek

remedies. A PUC stated that it might not have the authority to certify

that nuclear plant licensees under its jurisdiction would be allowed to

collect decommissioning funds through rates after restructuring, and

another PUC similarly stated that it could not give a blanket guarantee

that all licensees would be allowed to collect revenues to complete

decommissioning funding. A third PUC stated that no current commission

could legally bind a future commission, so it could not identify an

effective form of certification. Another PUC also expressed doubt about

how certification would change current procedures, in which PUCs can

adjust rates based on the cause for and the prudence of the

underfunding. A different PUC noted that, in the past, ratemaking

authorities had allowed recovery and expected them to act in the future

in the same way, but could not be certain that they would issue

certifications. Another PUC stated that it already has and would

maintain authority to ensure that utilities collect sufficient funds

for decommissioning. One commenter pointed out that FERC has

jurisdiction only over rates for wholesale sales of power. Over 80

percent of decommissioning costs are recovered through rates for retail

power sales, over which PUCs have jurisdiction. Relying on State

regulators would be particularly problematic for multi-State utilities.

Another commenter stated that within five years the issue would become

moot and certification would become impractical because of competition

and evolving antitrust law. A public interest group had questions about

whether PUCs and FERC could certify, but in any case thought NRC should

concentrate instead on the licensees. Another commenter noted that

since a significant portion of nuclear licensees' business are not

FERC-regulated, FERC certification would have no relevance to them.

One commenter suggested procedures through which NRC could interact

with State PUCs and FERC; the NRC could determine that a utility's rate

of recovery for decommissioning was insufficient, and that

determination could be the basis of an action by a PUC to modify the

rates.

The final set of commenters argued that the question of

certification was one that the PUCs and FERC should determine.

Response. The Commission does not plan to implement certification

by the State PUC's or FERC because of the reasons given in many of the

comments outlined above. Although ``certification'' initially appeared

to the NRC to be an option meriting further consideration, since

experience to date has indicated that PUCs and FERC are addressing

decommissioning funding assurance through more viable mechanisms, the

NRC is not pursuing this option further.

C.6 Impact of Accelerated Funding

Only a small number of commenters supported the idea of

accelerating funding of decommissioning costs. Two expressed general

support. Two provided quantitative analyses that suggested that the

impact of accelerated funding would not create a large financial burden

on either licensees or ratepayers. The Public Utility Commission of

Texas reported analysis for three Texas plants that suggested that, for

a ten-year recovery period, electric base rates would need to be

[[Page 47596]]

increased by about 0.5 percent and the fund earnings would be increased

by about 50 percent. For a five-year recovery period, rates would

increase by about 1 percent; total life-of-facility contributions by

customers would be decreased by about 55 percent. In addition to

arguments that the burden would not be great, another argument made in

support of accelerated funding was that, after funding was completed,

the licensees who had paid up their decommissioning funds would be in a

better competitive position. Commenters also argued that earnings from

the accelerated funding, because they would have a longer time to earn

interest, would grow substantially and provide a gain to the licensees

that they would not otherwise obtain.

Licensees both supporting and opposing accelerated funding noted

that unless the Internal Revenue Service changed its rule on the

deductibility of payments into the decommissioning trust fund, the

accelerated payments would not be deductible. The NRC was urged to

encourage the IRS to change the rule.

Almost three-quarters of the commenters opposed accelerated funding

of decommissioning. Their arguments against the idea stressed (1) that

it would adversely impact the competitive situation of nuclear

licensees and (2) that it would be inequitable because the amount that

each plant would have to supply in an accelerated payment would depend

on the age of the plant and the amount it had previously paid in the

its decommissioning fund. The financial marketplace, rather than

regulation, should determine the speed with which funding is provided.

Accelerated funding, in the view of some commenters, could not be

accomplished through rate increases and would have to be paid by

licensees' stockholders. One commenter argued that utility shareholders

should bear the burden of decommissioning costs, but would not do so

under accelerated funding. Other commenters argued that accelerated

funding would shift the costs of decommissioning onto current

ratepayers from future ratepayers. Commenters believed accelerated

funding would lead to cash flow problems for licensees and could result

in increased borrowing to cover cash outlays. Accelerated funding could

lead to the shutdown of marginal facilities, which would be contrary to

the intent of the policy and lead to additional shortfalls of

decommissioning funding. One commenter argued that the amount of

decommissioning funding that will ultimately be required is too

uncertain to be collected through accelerated funding.

Response. The Commission continues to be concerned with the

availability and efficacy of financial assurance mechanisms for

decommissioning for those licensees whose rate regulatory oversight by

FERC or the State PUC's is substantially reduced or eliminated. Under

the NRC's current regulations (and as proposed to be modified in this

rule), licensees who no longer meet the definition of ``electric

utility'' may use financial assurance mechanisms for decommissioning as

defined in 10 CFR 50.75(e)(2), including (i) prepayment; (ii) an

external sinking fund coupled with a surety method or insurance; (iii)

a surety method, insurance, or other guarantee method, including parent

company guarantees and self guarantees coupled with financial tests;

and (iv), in the case of Federal, State, or local licensees, a

statement of intent.

The Commission is concerned that these financial assurance

mechanisms may not be available to some licensees and is thus asking

for additional comment on alternative methods of financial assurance

that would provide assurance equivalent to that already provided under

the Commission's regulations. For example, in the advance notice of

proposed rulemaking, the Commission raised the issue of whether

requiring the acceleration of decommissioning funding over a shorter

period of time (e.g., 10 years) than the period of the operating

license would provide an equivalent level of assurance to current

allowed mechanisms. As discussed above, most commenters stated their

opposition to accelerated decommissioning funding. However, this

opposition appeared to be predicated on the assumption that the NRC

would require accelerated funding for all power reactor licensees, and

not only those who no longer met the definition of ``electric

utility.'' Thus, the Commission is asking for additional comments on

whether this, or some other equivalent assurance mechanism, should

receive additional consideration in this rulemaking for those entities

which would not be classified as ``electric utilities.''

C.7 Potential Shortfalls From Underestimates of Costs

Commenters suggested a range of responses to decommissioning

shortfalls occurring as many as 50 years into the future, after a

period of safe storage. None, however, clearly identified a source of

funding to make up the shortfall.

NEI and eight additional commenters argued that there is a

reasonable probability that future cost estimates could decrease rather

than increase because of several factors, including accumulated

industry experience, application of new technologies, and reductions in

the ultimate disposal volumes of decommissioning wastes. They also

suggested that periodic re-estimates of decommissioning costs and

adjustments to the rate of collection to reflect these re-estimates,

both during operation and in the post-operation phase, could resolve

the problem.

Several other commenters emphasized solutions that involved cost

estimates. One PUC suggested that the NRC should allow utilities to use

State-required facility-specific cost estimates if they were higher

than NRC estimates. Two others suggested that NRC should review cost

estimates every five years, with more frequent reviews as license

termination approaches. The Utility Decommissioning Group predicted

that shortfalls would be unlikely to arise suddenly or to be drastic.

Two utilities also suggested that periodic reviews of cost estimates,

coupled with increased collections as necessary, would remedy

underfunding. Two other commenters made only the general statement that

current procedures would be adequate, and any shortfalls should be

handled through appropriate funding mechanisms.

Some commenters recognized that the problem of underfunding arising

after the safe storage period could be serious. One public interest

group did not suggest any remedy, stating only that NRC could be

virtually certain that the funds accumulated for decommissioning would

be insufficient. A utility suggested that the only solution would be to

delay decommissioning activities to allow the decommissioning fund to

accumulate additional earnings and to modify the decommissioning plans

to reduce cash flow needs. Another suggestion was that NRC could

require every licensee to adopt an investment strategy that would

ensure that the decommissioning fund earned at least the rate of

inflation measured by the consumer price index (CPI), and that NRC

could require the utility to place additional money into the fund if

necessary.

Several commenters recommended approaches to the problem that

involved PUCs. Two suggested that underfunding would be remedied by

application to the PUC. One suggested such PUC involvement would occur

after the shortfall was identified, the other suggested that PUCs would

take potential shortfalls into account prior to utility restructuring

and that the shortfall would not occur until after

[[Page 47597]]

several years of competition. This commenter suggested that a wires

charge could be used to ensure that such shortfalls did not occur.

Three commenters said that NRC should intervene with State PUCs to

ensure that shortfalls do not occur, either immediately or when the

underfunding was recognized. A few commenters argued that the causes of

the shortfall should be identified. If the plant's management was

responsible, the additional decommissioning costs should be recovered

from stockholders. NRC could require additional contributions if the

invested decommissioning funds are insufficient. Alternatively, if the

utility management is not responsible, customers should bear the

additional cost. However, as one PUC noted, underestimates that are not

identified until far into the future could become a social problem. If

the underestimate is not identified until after the plant is removed

from service, no ratepayers will be required to provide additional

funding. If the company still exists and is solvent, shareholders may

be held accountable, but only to the point of insolvency. Gross

underestimates could very well bankrupt the company and place a

significant burden on regulators and legislators to step in to fund

completion of the decommissioning.

None of the commenters recommended increasing contingency factors

to provide for potential shortfalls far in the future. Several argued

that contingency factors are intended to address ``unforeseeable cost

elements'' or that contingencies are inappropriate for some other

reason. The size of such contingencies would be too arbitrary. In

addition, some State PUCs would not apply larger contingencies,

particularly since the current cost estimates already contain a

significant contingency factor. Finally, one commenter argued that

larger contingencies would lead to over-collection and distortion of

prices for electricity. Seven commenters joined NEI in taking a

position against the use of contingencies to address the problem of

potential shortfalls occurring far in the future.

Response. The Commission sees its proposed reporting requirement as

a way to keep informed of licensees' decommissioning funding status and

potential underestimates of cost. However, the Commission has

undertaken a study to analyze the actual costs incurred by the power

reactor licensees that are in the process of decommissioning, and the

Commission will act accordingly after studying those results. Further,

the Commission has the authority to require power reactor licensees to

submit their current financial assurance mechanisms for NRC review,

revision as necessary, and approval. The Commission reserves the right

to take the following steps in order to assure a licensee's adequate

accumulation of decommissioning funds: review, as needed, the rate of

accumulation of decommissioning funds; and either independently or in

cooperation with either the FERC and the State PUC's, take additional

actions as appropriate on a case-by-case basis, including modification

of a licensee's schedule for accumulation of decommissioning funds.

C.8 Captive Insurance Pool

The idea of setting up a captive insurance pool to pay unfunded

decommissioning costs did not obtain strong support. A few commenters

endorsed it, with qualifications. One said that, in fact, the mechanism

would more nearly resemble a mutual insurance pool, and listed a number

of factors, including the size of premiums, when deregulation occurred,

Federal mandates, the ability to recover costs, and the attitude of

participants, that would determine success. Several commenters

responded that if such a pool could be developed, it would be a useful

or constructive mechanism.

NEI and six commenters taking the same position expressed doubts

about the usefulness of such a pool, but suggested that the industry

should examine it. They argued that in addition to an insurance pool,

NRC should also consider approving self-insurance as an option.

Almost half the commenters expressed strong doubts about the

insurance concept. No such product currently exists, and insuring

against shortfalls in funding a known and planned event would be a

novel concept, open to problems of adverse selection and moral

hazard.4 Some commenters said it would be difficult to

underwrite, and wondered whether in a competitive environment one

company would be interested in supporting the financial obligations of

its competitors. A cross-subsidy of this sort, one said, was what

deregulation was being undertaken to eliminate. Participation also

might be affected by the policies of individual State PUCs. Premium

setting would be difficult because of the possibility that utilities

that had been prepared to pay their decommissioning costs would be

reluctant to subsidize utilities that had not, and because premiums, to

provide sufficient coverage, might need to be large. The pool could

face the problem of motivating utilities to close plants when it would

otherwise not be economic to do so, or motivating State PUCs to

disallow the recovery of decommissioning costs through rates in

reliance on the pool. Some utilities might underestimate their

decommissioning costs, to keep their premiums low. A pool would

increase costs of electricity because, in addition to decommissioning

costs, insurance premiums would need to be recovered. Finally, one

serious decommissioning shortfall might deplete the pool.

---------------------------------------------------------------------------

\4\ ``If the risk of the insurable event varies between

potential buyers, if the buyers know their risk level better than

the insurer, and if the coverage is not mandatory, then the worst

risks will tend to buy the most insurance. As a result, the loss

experience will tend to be higher than expected, premiums will

increase, the best risks will leave the programs, and the process

can cycle on itself until only the worst risks are left.'' This

phenomenon is known as adverse selection. Moral hazard is defined as

a general laxity in loss prevention, laxity in cost control, once a

loss has occurred, and the intentional destruction of property. U.S.

Nuclear Regulatory Commission, ``Design, Costs, and Acceptability of

an Electric Utility Self-Insurance Pool for Assuring the Adequacy of

Funds for Nuclear Power Plant Decommissioning Expense,'' NUREG/CR-

2370, December 1981.

---------------------------------------------------------------------------

Other commenters stated flatly that they opposed the concept.

Several said that it raised the problem of insuring against an event

that a facility could choose to create (the moral hazard problem). An

insurance pool would create, at the least, an incentive for less

responsible utilities to underfund their decommissioning assurance,

burdening responsible utilities with high insurance premiums. Some

commenters argued that licensees demonstrating strong financial

capability should not be required to participate. Reinsurance and

diversification to larger pools would make better policy, in the view

of one commenter.

Response. The Commission recognizes the problems associated with

the concept of a captive insurance pool as identified by the above

commenters, and believes that they are serious enough to eliminate this

option from further consideration. The Commission is also of the

opinion that those in favor of this option do not offer sufficient

evidence that the identified problems can be overcome.

C.9 Other Options for NRC in Case of Limited Role for PUC or FERC

Commenters suggested a wide variety of financial assurance options

for NRC to consider if PUC or FERC oversight is limited or eliminated.

One utility suggested that financial assurance requirements should be

focused on the financial viability of the responsible entity. Other

utilities suggested, as nonregulatory showings, self-guarantees

[[Page 47598]]

or other tests of financial strength such as ownership of other

revenue-producing assets (e.g., electricity transmission and/or

distribution and/or natural gas operations). Another relevant factor

could be whether the licensee has insurance for premature

decommissioning caused by an accident. One commenter stated its

opposition to the use of surety bonds and insurance because of cost and

limited availability.

Two utility commenters suggested that regulatory approaches include

mandated or allowed stranded cost recovery through a charge on

distribution or transmission or some other charge on all electric power

or energy sales, regulatory certification that such costs will be

recovered, and other arrangements involving regulatory control such as

priority dispatch for nuclear units. Another commenter suggested that

NRC could request FERC to clarify Order No. 888 to make certain that

competitive access or other transmission charges intended to recover

stranded costs also include a load-proportionate contribution to fund

decommissioning costs. Another commenter stated that NRC and FERC

should urge Congress to adopt stranded cost legislation that will

ensure recovery of decommissioning costs as the most prudent solution.

The commenter specifically advocates a wires charge that would include

decommissioning costs.

One commenter asked NRC to consider its actions in the event that a

licensee enters into bankruptcy. In such a case, the NRC could enter

the proceeding and argue that full funding for decommissioning must be

fulfilled as the first priority. The commenter also asked NRC to

consider proposing legislation that would amend the Bankruptcy Code to

give first priority to nuclear decommissioning costs, as the Supreme

Court has already held for hazardous waste cleanup costs.

NEI and several other commenters raised the possibility that NRC

could rely on the Financial Accounting Standards Board's 5

(FASB) financial disclosures for information in assessing the nature,

timing, and extent of the company's commitment of its future resources.

---------------------------------------------------------------------------

\5\ The Financial Accounting Standards Board is a private body

that establishes authoritative financial accounting and reporting

standards in the United States.

---------------------------------------------------------------------------

According to one commenter, NRC should evaluate each utility's

particular situation on a case-by-case basis to determine the degree of

assurance needed depending on the financial strength of the utility,

the size of the remaining unfunded obligation, the age of the plant,

and other factors as may be appropriate to the specific situation.

Another believes NRC could retain control through licensing constraints

and financial evaluations made when NRC approves transfers of assets

and licenses.

A number of utilities commented that NRC need not identify all

options immediately, but could ultimately authorize a number of

alternative approaches, either based on 10 CFR 50.75 or on options that

have not yet been recognized. A PUC commenter asked NRC to work

collaboratively with States to explore, as necessary, alternative

financial assurance mechanisms in the event that privately owned

nuclear generators are no longer regulated.

One commenter suggested that NRC's support for existing Federal

obligations to provide a national nuclear fuel repository would also

contribute to the financial assurance of responsible nuclear

decommissioning. Another called for financial assurance to be mandated

at the Federal level, and a third said NRC should consider whether DOE

responsibility can be developed for providing solutions to

decommissioning.

Four commenters said no other options were necessary. They reasoned

that current options are sufficient irrespective of PUC or FERC

oversight, regulatory oversight is unlikely to be curtailed, and FASB

standards and competitive pressures will provide sufficient assurance.

Response. The Commission believes that additional consideration of

accelerated decommissioning funding or other alternative financial

assurance mechanisms may be warranted, as discussed in its response at

C.6. In addition, it should be pointed out that the Commission enters

bankruptcy proceedings to protect the integrity of the decommissioning

funding, as suggested by a commenter. Also, the Commission is proposing

use of the FASB standard as a means for the reporting decommissioning

obligations. Further, the Commission believes that the proposed change

to the definition of ``electric utility'' will be adequate to address

all contingencies with respect to financial assurance for

decommissioning under deregulation. Further, the proposed reporting

requirement will provide the NRC with the opportunity to be informed on

the status of licensees' financial assurance for decommissioning.

D. Federal Government Licensee Use of Statement of Intent

Slightly fewer than half of the commenters (20 commenters)

expressed an opinion on this question. Almost all commenters took the

position that Federal licensees should be treated in the same way as

non-Federal licensees. NEI argued that regardless of who owns the

plant, a number of options for financial assurance should be allowed,

and the current options should continue to be permitted. One commenter

stated clearly that because Federal licensees were expected to face the

same problems as other licensees, they should be required to set aside

funds rather than rely on statements of intent. Several commenters

pointed out that different treatment for Federal licensees could create

competitive advantages for the Federal licensees. NRC should ensure

that the playing field remained level. One licensee argued that if a

financial assurance option, such as a statement of intent, meets NRC's

criteria, it should be available for use by all licensees. Others took

the position that the statement of intent should not be allowed,

because it does not provide any assurance. Its use by Federal licensees

means that the taxpayers are providing the assurance. One licensee

questioned the long-term financial condition of the Tennessee Valley

Authority (TVA). One commenter argued that use of tax exempt bonds

provides a similar competitive advantage to those licensees who can

issue them.

Only TVA took the position that ample reasons exist for continuing

the use of statements of intent as provided under the current

regulations. However, TVA also provided an extended description of the

steps it has taken to use an external trust, ``all requirements''

contracts, and its power to issue indebtedness to ensure its

decommissioning costs.

Response. The NRC's Office of the Inspector General published an

Audit Report, ``NRC's Decommissioning Financial Assurance Requirements

for Federal Licensees May Not be Sufficient,'' OIG/95A-20, dated April

3, 1996. The report found that ``* * * NRC's decision to allow Federal

licensees to use a statement of intent * * * was based primarily on the

assumption that the Federal Government would pay the financial

obligations of the lone Federal licensee, * * * should it be unable to

do so. However, based on our review of the U.S. Code and discussions

with officials from the Department of the Treasury, the Office of

Management and

[[Page 47599]]

Budget and TVA, we believe NRC's assumption is questionable.'' The

report also found ``* * * that, although not required, TVA has

established a fund dedicated to meet its decommissioning obligations.

However, because this is an internal fund it can be used for other

purposes. In fact, TVA had at one time temporarily depleted its

decommissioning fund.''

The majority of those who commented were opposed to allowing the

TVA's use of a statement of intent, their reason basically being that

all licensees should have the same ``level playing field.'' The

Commission, however, does not believe that the elimination of the

statement of intent option for a Federal licensee can be justified on a

public health and safety basis. The Commission believes that the risk

of a Federal licensee not being able to fund its decommissioning

expenses is remote, as the Commission is proposing to define a

``Federal licensee'' as having the full faith and credit backing of the

Federal Government. The Commission considers the issue of whether TVA

qualifies for the use of a statement of intent to be distinguishable

from the question of whether other ``Federal licensees'' should have

this option. Further, the Commission does not believe it to be in the

public interest to foreclose the possibility of a future licensee with

the full faith and credit backing of the Federal Government using a

statement of intent. Hence, the Commission does not propose to

eliminate the statement of intent as an option for Federal licensees,

but realizes that this proposed definition may result in the TVA no

longer being able to meet NRC's definition of ``Federal licensee.''

E. Trust Fund Earnings Credit for Extended Safe Storage Period

Two commenters opposed credits for earnings during extended safe

storage, arguing that earnings assumptions could be manipulated and

that earnings could otherwise act as a hedge against increases in the

cost of decommissioning. Seventeen commenters, however, supported

allowing credit for earnings on funds during extended storage periods.

Some of these commenters argued that if credits for earnings are not

allowed, more funds than necessary would be collected, thereby

generating unwarranted expense for licensees and customers and possibly

intergenerational inequities.

An additional eight commenters supported allowing earnings credits,

not only for the extended safe storage period, but also for other

periods:

The period before safe storage, when funds are

accumulated;

The decommissioning period, when funds flow out of the

trusts; and

Both the accumulation and outflow periods.

Three commenters expressed the opinion that States should decide

whether or not to allow credit for projected earnings.

One group of commenters understood that NRC's ANPR considered a net

positive rate of return when assessing the status of decommissioning

funding during a SAFSTOR period, and not that a licensee would be

allowed to consider prospectively during the license term the

possibility of a net positive rate of return over some extended period

following shutdown and prior to actual decommissioning. These

commenters felt that it would be largely irrelevant to start

considering positive earnings during a SAFSTOR period because, by the

time of termination of operations, licensees should have already

accumulated sufficient funds to pay for decommissioning.

Another commenter disagreed with the position that excludes the

benefit of future tax deductions (i.e., in ``non-qualified'' trust

accounts) in determining the adequacy of a licensee's decommissioning

funding program because the deductions will have value for those who

assume the responsibility for decommissioning.

Response. The Commission is proposing to allow credit for earnings

and believes that its existing implicit assumption of a zero rate of

return is too conservative and not borne out by the data. The

Commission is proposing licensees may take credit using a 2 percent

real rate of return from the time of the funds' collection through the

decommissioning period. As stated below, this proposed action provides

licensees relief from current requirements with no adverse impact on

public health and safety, licensees, or NRC resources, and the proposed

reporting requirements would allow the licensees' decommissioning funds

to be monitored by the Commission.

E.1 Real Rate of Return

Five commenters took the position that NRC should not specify a

single allowable rate of return, but should allow licensees to take

credit for any rate they can justify given their specific situation.

Some of these commenters supported their positions by stating that

licensees employ different investment strategies depending on factors

such as the number of plants, when they expect to begin

decommissioning, applicable State taxes, and whether the funds are in a

qualified or nonqualified trust. Another commenter suggested that

plant-specific annualized rates could be justified based on historical

data. Considerable judgment will be needed to develop the rate, argued

one utility group, but no more judgment than is needed in developing

decommissioning cost estimates.

Three commenters suggested that NRC use long-term, historical rates

for the asset allocation employed, adjusted by the long-term,

historical inflation rate.

Six commenters stated that NRC should not specify a single

allowable rate of return, but should define the basis on which

licensees may select an appropriate positive real rate.

Four commenters expressed the view that States should decide the

rate, and a fifth commenter thought either States or FERC should decide

the rate. Another commenter thought the rate should be determined by an

(unidentified) ``acceptable third party.''

One commenter suggested an after-tax rate of 3 percent as

reasonable and achievable with acceptable levels of investment risk

(e.g., 50 percent equity, 50 percent fixed income). Another commenter

proposed a rate of 3 percent because that rate is the historical real

return on Treasury bonds. One commenter felt NRC should float the

values based on contemporary 30-year Treasuries.

Two commenters opposed the use of a positive rate assumption for

earnings during extended safe storage, arguing that earnings

assumptions could be manipulated and that earnings could otherwise act

as a hedge against increases in the cost of decommissioning.

Response. Based on the NRC review of historical data, real (i.e.,

inflation adjusted, after tax) rates of return using U.S. Treasury

issues have been on the order of 2 percent. Therefore, the Commission

proposes to use a 2 percent real rate of return throughout the

decommissioning collection period as a default earnings amount and in

the safe storage period as a specified amount. The NRC acknowledges

that the historical data is subject to some degree of interpretation,

and that a 3 percent real rate may be viewed by some as a

``reasonable'' measure for this parameter. While some may propose use

of higher values based on other types of investments, the Commission

believes the proposed value represents as close to a ``risk free''

return as possible and has increased confidence that the 2 percent

value can be consistently achieved. Higher earnings amounts will be

allowed during the period of reactor

[[Page 47600]]

operation if specifically approved by a rate-setting authority. To the

extent that earnings in a given year prove to be greater than 2

percent, the balance of the fund will be greater than anticipated.

Licensees may take this higher balance into account in calculating

subsequent contributions to their sinking funds. This means the size of

subsequent contributions will decrease, even though these subsequent

contributions will still be based on a 2 percent earnings assumption.

If rates turn out to be lower than this, 10 CFR 50.82 already provides

that licensees are to adjust decommissioning funds during safe storage

to reflect changes in cost estimates. Thus, there is little risk that

there will be major shortfalls in decommissioning funds. Further, the

proposed reporting requirements will allow the licensees'

decommissioning funds to be monitored by the Commission.

E.2 Appropriate Time Period

Twelve commenters expressed the view that credit for projected

earnings should be allowed over the full length of the extended safe

storage period. An additional eight commenters also thought credit

should be allowed for earnings projected over additional periods:

The period before safe storage, when funds are

accumulated.

The decommissioning period, when funds flow out of the

trusts.

Both the accumulation and outflow periods.

Two more would allow commensurate credit for a period with site-

specific schedules for funding and decommissioning. Another commenter

noted that considerable judgment would be needed to determine the

appropriate time period, but no more than would be needed to develop

the decommissioning cost estimate. Four commenters, all PUCs or PUC

groups, felt NRC should leave the issue of the length of the period to

the States.

Only two commenters suggested that credit be limited to a fixed

number of years. One of these suggested 10 years. The other proposed a

maximum of 20 years, and a minimum of 5 years.

Two commenters opposed the use of positive earnings assumptions

during any period, arguing that earnings assumptions could be

manipulated and that earnings could otherwise act as a hedge against

increases in the cost of decommissioning.

Response. The Commission proposes to allow licensees to take credit

for earnings on external sinking funds from the time of the funds'

collection through the decommissioning period. Because the NRC is

requiring the funding, it is reasonable for the NRC to provide for a

positive rate of return on the collected funds, where justified.

Further, the NRC is proposing a longer period in which credit should be

allowed for earnings because the justification for allowing a positive

rate of return over the safe storage period also holds for allowing

credit from the time of fund collection through the decommissioning

period. Again, the proposed reporting requirement provides the NRC with

the ability to monitor licensees' decommissioning funds. Lastly, this

proposed action provides licensees relief from current requirements

with no adverse impact on public health and safety, licensees, or NRC

resources.

F. Reporting on the Status of Decommissioning Funds

Many commenters supported a reporting requirement in light of

concerns about decommissioning funding. Some of these felt that NRC

should require relatively comprehensive reports because NRC's authority

extends beyond that of FERC and the States, and because FERC and the

States do not always require uniform information to be submitted at

regular intervals. One commenter stated that an NRC regulatory

amendment is needed even in the absence of deregulation to correct the

flawed assumption that PUCs and FERC actively monitor decommissioning

funds. The commenter stated that PUC and FERC monitoring efforts are,

in most cases, limited in scope and may take place infrequently (i.e.,

when a rate case is filed). Each PUC is generally concerned only about

its jurisdictional portion of the decommissioning funds, and FERC's

jurisdiction is limited to only the wholesale portion of a company's

sales. Moreover, many States do not have jurisdiction over municipal

and cooperative agencies, some of which are owners or partial owners of

nuclear plants. Therefore, the NRC may be the only regulating agency

that can provide an effective and timely monitoring function for all

the funds required for decommissioning.

Three commenters opposed a reporting requirement as unnecessary,

while two others believed such a requirement was premature and could

conflict with or be duplicative of information that may be required by

forthcoming FASB standards. Two commenters stated that NRC requirements

should not duplicate requirements of States or FASB. Lastly, a

commenter stated that if PUC oversight is limited or eliminated, NRC

should assume oversight of decommissioning funds.

Response. The Commission is proposing that a periodic reporting

requirement be implemented so that the Commission has appropriate

assurance that licensees are collecting their required decommissioning

funds. The benefits of obtaining this information through a reporting

requirement, in terms of both determining licensee compliance with NRC

decommissioning funding regulations and responding to Congressional and

other requests, outweigh the minimal impact of the requirement and

would be less burdensome to licensees and the NRC than relying on the

existing NRC inspection process.

F.1 Contents

Three commenters stated that reporting requirements would be

unobjectionable if they were minimal and limited to material of the

nature historically provided to State regulators or in other financial

reports. Similarly, others stated that NRC should rely on the same

information as will be required by the proposed FASB statement

regarding accounting for certain liabilities related to closure or

removal of long-lived assets. Five commenters agreed with the NEI that

reports should be kept as simple as possible. One commenter stated that

comprehensive reports should be prepared for each facility, integrating

information for all owners. Thus, if a facility has multiple owners,

one consolidated report would be prepared with separate data for each

owner attached. On the other hand, one commenter argued that reports

should be based on the licensee's interest in the nuclear unit and not

on a total unit basis.

One group of commenters stated that NRC could make the annual

reports from plant operators available to the public, which would be

consistent with the availability of information required under proposed

FASB standards.

A PUC stated that New Jersey's reporting rules may be adequate for

NRC's purposes.

Suggested contents for the reports included 50 items under the

following general headings: Decommissioning Costs and Activities,

Contributions, Trust Status and Activity, Other Financial Information,

and several Miscellaneous Items.

Response. The Commission is in the process of issuing a draft

regulatory guide on this proposed requirement which would endorse FASB

draft standard No. 158-B, ``Accounting for Certain Liabilities Related

to Closure or Removal of Long-Lived Assets.'' The

[[Page 47601]]

NRC is endorsing this draft FASB standard as a means of providing

guidance for licensees to comply with those portions of the NRC's

regulations regarding a licensee's reporting on the status of its

decommissioning funding. Licensees would comply with the FASB standard

once it becomes final in order to remain consistent with generally

accepted accounting principles. The NRC believes that the FASB standard

would, if adopted, provide the required information. However, because

of the ambiguity in the FASB standard with respect to whether the

required information will be reported on a per-unit basis, the NRC has

defined its reporting requirement to include such per-unit information.

The NRC has reviewed the proposed contents of the reports on

decommissioning funds to ensure that the needs of the agency are

balanced versus the time constraints of the licensees in assembling the

reports. The Commission is also proposing to require that any

modifications to a licensee's external trust agreement also be

reported.

F.2 Frequency

Several commenters stated that licensees should report on the

status of decommissioning funds on an annual basis. Others believed

reports should be required no more frequently than annually. NEI stated

that NRC should not require licensees to report on the status of their

decommissioning funds any more frequently than every 3 to 5 years. NEI

noted that SEC rules and proposed FASB standards require utilities to

disclose the decommissioning costs in financial statements.

Two commenters suggested reporting at 5-year intervals. One of

these suggested that interim status reports could be required on an

annual basis.

One commenter stated that NRC should require no more frequent

reporting beyond FASB requirements. Another commenter stated that

reports should be no less frequent than specified by the Securities and

Exchange Act of 1934.

One commenter suggested that NRC consider more frequent reporting

for plants approaching the end of commercial operation and for plants

experiencing operating problems. One commenter stated that the timing

of required reports should parallel that of other reports such as FERC

Form 1, SEC 10-K, and annual financial reports. Similarly, two

commenters felt that annual reports should be caused by NRC by

September 30 of the following year. Two commenters stated that interim

reports could be required for significant events (e.g., merger,

acquisition, financial deterioration). This commenter also suggested

that limited or negative growth of the fund in a given year due to

overall market conditions should not automatically trigger adjustments

to funding levels but rather that a 3- to 5-year time frame should be

used.

Response. The Commission is proposing that every licensee submit

its initial report on the status of decommissioning funds to the NRC

within 9 months after the effective date of this rule, and at least

once every 2 years thereafter. Annual submission is not being proposed

as an option because the NRC believes it can adequately review licensee

financial assurance status for decommissioning biennially while

reducing licensee reporting burden. However, the licensee(s) of any

plant that is within 5 years of its planned end of operation would be

required to submit its report annually.

G. Comments on Topics Not Specifically Raised in the ANPR

Commenters suggested several actions that NRC had not asked about

specifically in the ANPR. First, a commenter stated that NRC should

require sites to be decommissioned to ``green field'' status,

consistent with FERC guidelines.

Response. The Commission's position is that once radioactive

contamination of the reactor facility is removed to a level acceptable

to the NRC, there is no longer a health and safety concern preventing

the NRC license from being terminated.

A commenter suggested the imposition of a mandatory insurance

requirement for licensees to cover fund shortfalls at the time of

premature decommissioning in States where accelerated collection from

ratepayers and intergenerational subsidies are not allowed.

Response. The Commission does not agree with the commenter on the

need for mandatory insurance. As stated in the response to comments on

Stranded Costs, Section B, the previously referenced ``Draft Policy

Statement on the Restructuring and Economic Deregulation of the

Electric Utility Industry'' stated that the NRC has the authority ``to

take actions that may affect a licensee's financial situation when

these actions are warranted to protect public health and safety.'' The

Commission believes that there are enough alternatives available to

address the potential problems caused by premature decommissioning so

that mandatory insurance would not be required.

One commenter stated that the requirements for subaccounts should

be waived. Their position is that licensees that have contributed

monies to a single trust fund for multiple decommissioning-related

purposes be required simply to demonstrate to the NRC that there are or

will be sufficient assets in the trust fund, in the aggregate, to pay

for the NRC-defined decommissioning cost of the nuclear unit and for

any other decommissioning-related purposes identified in the trust

agreement.

Response. The Commission is not concerned with the details of how a

licensee keeps accounts for decommissioning as long as a licensee is

able to demonstrate, on a per-unit basis, the amount of funds

identified and available for the required decommissioning purposes.

Thus, the Commission accepts the commenter's position in general,

although it notes that there is no current requirement, only guidance,

relating to the use of subaccounts.

A commenter stated that NRC should undertake as a priority task the

identification of nuclear plants that do not perform well. For plants

with performance problems, NRC should take aggressive steps to persuade

the operator to sell the plant to another operator at a price that

recognizes its market value or to terminate the license. In some cases,

particularly when plants were financed with bond indentures or other

instruments that limit the owner's ability to sell the plant or impose

conditions on such sales, these restrictions would need to be

identified in the process of identifying well-run plants. Further, the

commenter states that if the plant does not produce a price acceptable

to the operator, the Federal Government will offer a price that will

provide the operator with some fraction of the purchase price and take

over control and ownership, including any decommissioning fees that

have been collected. The Federal Government would restart any plant it

believes can continue as a source of power and will decommission the

others from public funds.

Response. The Commission does not see its position as one to force

a licensee to sell its plant. While the NRC does aggressively attempt

to identify poorly performing plants through such processes as the

``Watch List,'' the decision as to whether another entity should become

the operator of a facility is for the owners of that facility to make.

Although the NRC would have to approve any transfer of control over any

power plant license under Section 184 of the Atomic Energy Act and 10

CFR

[[Page 47602]]

50.80, the NRC is reluctant to become involved in the business

decision-making processes of the licensees on such matters. As to the

NRC taking over poorly performing plants, the Atomic Energy Act confers

``takeover'' authority on the NRC only in extremely limited

circumstances. See Section 108 of the Atomic Energy Act (42 U.S.C.

2138) limiting such authority to circumstances where ``* * * the

Congress declares that a state of war or national emergency exists* *

*.''

A commenter stated that the NRC should develop a reliable, sound

estimate (or method of estimating) decommissioning costs, and should

update the estimates on a regular basis to incorporate technological

and other changes.

Response. The Commission is planning to revise its estimates of

decommissioning costs after it obtains actual plant-specific data from

ongoing decommissioning projects.

Another commenter stated that NRC should sponsor technical

conferences on decommissioning so the pace of technological resolutions

for cleaning up and decommissioning plants could be increased.

Response. While the proposed action is not a suggested rulemaking,

the Commission is taking the suggestion under consideration. However,

the Commission is aware of a number of deregulation and decommissioning

conferences that have been held or are being planned.

A commenter stated that the NRC should ask separately about other

financial issues because changes to the definition of ``electric

utility'' could have implications in contexts other than

decommissioning, such as general financial qualifications reviews for

initial licensing and related license amendments, from which utilities

are now exempted.

Response. While the Commission is not presently asking questions on

other financial issues, it is attempting to address the concerns by

proposing revisions to Part 50 to be consistent with the proposed

change in the definition of ``electric utility.''

A commenter stated that NRC should delay action as the Texas PUC

has initiated three regulatory investigation projects focusing on the

restructuring and partial deregulation of the electric industry in that

State. Further, the State has not developed a formal policy on many of

the issues set forth in the ANPR.

Response. It is because of the number and variety of State actions

being proposed in the areas of deregulation and restructuring that the

Commission is proposing this rulemaking now. The Commission wishes to

prepare for any new types of nuclear power generating licensees

resulting from the States' actions. However, the Commission is well

aware that this proposed rulemaking may not be the last action for it

to undertake in this area.

One commenter stated that the Commission should support revisions

to Internal Revenue Code Section 468A regarding deductibility for

contributions to an external fund.

Response. The commenter does not make a suggestion as to what

should be done in this rulemaking. Rather, the suggestion goes to

questions regarding consideration of whether any changes to the U.S.

Code are needed to address decommissioning financial assurance, in

particular any changes to the Bank-ruptcy Code. This matter will be

addressed separately by the NRC as part of its input to an inter-agency

review process for the development of proposed legislation.

Lastly, a commenter stated that the NRC should hold all licensees

to the same high standard for assurance of decommissioning funds.

Previously, the NRC had one standard for non-utility licensees and a

much more lenient standard for rate-regulated utilities. NRC must

establish strict and thorough standards for the collection, investment,

segregation, and reporting of decommissioning funds and those standards

must apply to all licensees, including those that have traditionally

been considered regulated utilities.

Response. The Commission position is that it is not necessary to

impose any additional decommissioning funding requirements on those

entities that meet the proposed definition of ``electric utility.''

However, as explained above, the Commission believes that those

entities that no longer meet the proposed definition should be required

to meet the more ``strict'' standards. The Commission also believes

that most power reactor licensees would be allowed to fund

decommissioning costs through non-bypassable charges.

To summarize, the Commission's underlying philosophy of financial

assurance for decommissioning is unchanged. Basically, those licensees

that remain ``electric utilities'' by the Commission's revised

definition should follow the same financial assurance regulations as

before. However, the Commission believes that this proposed rulemaking

provides for adequate protection in the face of a changing environment

that was not envisioned when the existing rule was originally written.

Further, with deregulation, the Commission does not believe that it

would be able to identify all the potential types of licensees to which

it will be exposed. Therefore, new and unique restructuring proposals

will necessarily involve ad hoc reviews by the NRC. Further, the

Commission will exercise direct oversight of such reviews to maintain

consistent NRC policy toward new entities. In addition to the proposed

definition revisions, the Commission is proposing two other

modifications. The first is to require power reactor licensees to

periodically report on the status of their decommissioning funds and

changes to their external trust agreements. Second, the Commission is

proposing to allow licensees to take credit for the earnings on

decommissioning trust funds. The Commission does not see the need to

take actions proposed by some commenters that would, in its view,

strain licensees unnecessarily, because of licensees' competing needs.

Section-By-Section Description of Changes

10 CFR Part 50

Section 50.2 is amended to revise the definition of ``electric

utility'' in response to deregulation of the electric generating

industry. The section also is amended by the insertion of definitions

of previously undefined terms that aid in the understanding of the

NRC's rulemaking position. Further, ``Federal licensee'' is defined, so

that the characteristics of a licensee that may make use of a statement

of intent as a mechanism to satisfy financial assurance requirements

for decommissioning is clarified. Sections 50.43, 50.54, 50.63, 50.73,

and 50.75 are amended to replace the term ``licensees'' or a similar

term depending on the context for the term ``electric utility'' to be

consistent with the proposed changes to 10 CFR 50.2.

Section 50.43 is amended so States are added to regulatory agencies

as those entities to which the Commission will give notice of

application for a class 103 license for a commercial power generation

facility.

Section 50.54(w) is amended by requiring that power reactors, as

opposed to electric utilities, obtain insurance in the manner

prescribed.

Section 50.63 is amended so that licensees, as opposed to the

originally used term utilities, are required to provide specific

material for NRC review relating to reactor core and associated

systems.

Section 50.73 is amended to refer to ``licensee'' rather than

``utility'' personnel in stating the information required to be

reported regarding

[[Page 47603]]

personnel errors related to matters requiring a Licensee Event Report.

Section 50.75 is amended in three paragraphs to include the

definitional change in the reporting and recordkeeping for

decommissioning planning.

Section 50.75 also is amended to allow licensees to take 2 percent

credit on earnings for prepaid trust funds and external sinking funds,

to institute a reporting requirement for licensees on the status of

their decommissioning funding and on changes to licensees' external

trust agreements.

Electronic Access

Comments may be submitted electronically, in either ASCII text or

WordPerfect format (version 5.1 or later), by calling the NRC

Electronic Bulletin Board (BBS) on FedWorld. The bulletin board may be

accessed using a personal computer, a modem, and one of the commonly

available communications software packages, or directly via Internet.

Background documents on the advance notice of proposed rulemaking are

also available, as practical, for downloading and viewing on the

bulletin board.

If using a personal computer and modem, the NRC rulemaking

subsystem on FedWorld can be accessed directly by dialing the toll free

number 1-(800) 303-9672. Communication software parameters should be

set as follows: parity to none, data bits to 8, and stop bits to 1

(N,8,1). Using ANSI or VT-100 terminal emulation, the NRC rulemaking

subsystem can then be accessed by selecting the ``Rules Menu'' option

from the ``NRC Main Menu.'' Users will find the ``FedWorld Online

User's Guides'' particularly helpful. Many NRC subsystems and data

bases also have a ``Help/Information Center'' option that is tailored

to the particular subsystem.

The NRC subsystem on FedWorld can also be accessed by a direct dial

phone number for the main FedWorld BBS, (703) 321-3339, or by using

Telnet via Internet: fedworld.gov. If using (703) 321-3339 to contact

FedWorld, the NRC subsystem will be accessed from the main FedWorld

menu by selecting the ``Regulatory, Government Administration and State

Systems,'' then selecting ``Regulatory Information Mall.'' At that

point, a menu will be displayed that has an option ``U.S. Nuclear

Regulatory Commission'' that will take you to the NRC Online main menu.

The NRC Online area also can be accessed directly by typing ``/go nrc''

at a FedWorld command line. If you access NRC from FedWorld's main

menu, you may return to FedWorld by selecting the ``Return to

FedWorld'' option from the NRC Online Main Menu. However, if you access

NRC at FedWorld by using NRC's toll-free number, you will have full

access to all NRC systems, but you will not have access to the main

FedWorld system.

If you contact FedWorld using Telnet, you will see the NRC area and

menus, including the Rules Menu. Although you will be able to download

documents and leave messages, you will not be able to write comments or

upload files (comments). If you contact FedWorld using FTP, all files

can be accessed and downloaded but uploads are not allowed; all you

will see is a list of files without descriptions (normal Gopher look).

An index file listing all files within a subdirectory, with

descriptions, is available. There is a 15-minute time limit for FTP

access.

Although FedWorld also can be accessed through the World Wide Web,

like FTP that mode only provides access for downloading files and does

not display the NRC Rules Menu.

You may also access the NRC's interactive rulemaking web site

through the NRC home page (http://www.nrc.gov). This site provides the

same access as the FedWorld bulletin board, including the facility to

upload comments as files (any format) if your web browser supports that

function.

For more information on NRC bulletin boards call Mr. Arthur Davis,

Systems Integration and Development Branch, NRC, Washington, DC 20555,

telephone (301) 415-5780; e-mail AXD[email protected]. For information about

the interactive rulemaking site, contact Ms. Carol Gallagher, (301)

415-6215; e-mail [email protected]

Finding of No Significant Environmental Impact: Availability

The NRC is proposing to amend its regulations on financial

assurance requirements for the decommissioning of nuclear power plants.

The proposed amendments are in response to the likelihood of

deregulation of the power generating industry and resulting questions

on whether current NRC regulations concerning decommissioning funds and

their financial mechanisms will need to be modified. The proposed

action would revise the definition of ``electric utility'' contained in

10 CFR 50.2, would add a definition of ``Federal licensee'' to address

the issue of which licensees may use statements of intent, and would

require power reactor licensees to report periodically on the status of

their decommissioning funds and on the changes in their external trust

agreements. Also, the proposed amendments would allow licensees to take

credit for the earning on decommissioning trust funds.

These proposed changes could have the following effects on nuclear

power reactor licensees: (1) Potentially requiring licensees who have

been ``deregulated'' to secure decommissioning financial assurance

instruments that provide full current coverage of projected

decommissioning costs, (2) limiting the types of licensees that can

qualify for the use of Statements of Intent to satisfy decommissioning

financial assurance requirements, (3) requiring periodic reporting on

the status of their accumulation of decommissioning funds, thus leading

to the potential for the NRC to require some remedial action if the

licensee's actions are inadequate, and (4) permitting licensees to

assume a real rate of return of two percent per annum, or such other

rate as is permitted by a Public Utility Commission or the Federal

Energy Regulatory Commission, on their accumulated funds. These actions

are of the type focused upon financial assurances and mechanisms to

assure funding for decommissioning and are not actions that would have

any effect upon the human environment. Neither this action nor the

alternatives considered in the Regulatory Analysis supporting the

proposed rule would lead to any increase in the effect on the

environment of the decommissioning activities considered in the final

rule published on June 27, 1988 (53 FR 24018), as analyzed in the Final

Generic Environmental Impact Statement on Decommissioning of Nuclear

Facilities (NUREG-0586, August 1988).6

---------------------------------------------------------------------------

\6\ Copies of NUREG-0586 are available for inspection or copying

for a fee from the NRC Public Document Room at 2120 L Street NW.

(Lower Level) Washington, DC 20555-0001; telephone (202) 634-3273;

fax (202) 634-3343. Copies may be purchased at current rates from

the U.S. Government Printing Office, P.O. Box 370892, Washington, DC

20402-9328; telephone (202) 512-2249; or from the National Technical

Information Service by writing NTIS at 5285 Port Royal Road,

Springfield, VA 22161.

---------------------------------------------------------------------------

Promulgation of these rule changes would not introduce any impacts

on the environment not previously considered by the NRC. Therefore, the

Commission has determined, under the National Environmental Policy Act

of 1969, as amended, and the Commission's regulations in subpart A of

10 CFR Part 51, that this rule, if adopted, would not be a major

Federal action significantly affecting the quality of the human

environment and, therefore, an environmental impact statement is not

required. No other agencies or persons were contacted in reaching this

[[Page 47604]]

determination, and the NRC staff is not aware of any other documents

related to consideration of whether there would be any environmental

impacts of the proposed action. The foregoing constitutes the

environmental assessment and finding of no significant impact for this

proposed rule.

Paperwork Reduction Act Statement

This proposed rule amends information collection requirements that

are subject to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et

seq.). This rule has been submitted to the Office of Management and

Budget for review and approval of the information collection

requirements.

The public reporting burden for this information collection is

estimated to average 8 hours per response, including the time for

reviewing instructions, searching existing data sources, gathering and

maintaining the data needed, and completing and reviewing the

information collection. The U.S. Nuclear Regulatory Commission is

seeking public comment on the potential impact of the information

collections contained in the proposed rule and on the following issues:

1. Is the proposed information collection necessary for the

proper performance of the functions of the NRC, including whether

the information will have practical utility?

2. Is the estimate of burden accurate?

3. Is there a way to enhance the quality, utility, and clarity

of the information to be collected?

4. How can the burden of the information collection be

minimized, including the use of automated collection techniques?

Send comments on any aspect of this proposed information

collection, including suggestions for reducing the burden, to the

Information and Records Management Branch (T-6 F33), U.S. Nuclear

Regulatory Commission, Washington, DC 20555-0001, or by Internet

electronic mail at [email protected]; and to the Desk Officer, Office of

Information and Regulatory Affairs, NEOB-10202, (3150-0011), Office of

Management and Budget, Washington, DC 20503.

Comments to OMB on the information collections or on the above

issues should be submitted by October 10, 1997. Comments received after

this date will be considered if it is practical to do so, but assurance

of consideration cannot be given to comments received after this date.

Public Protection Notification

The NRC may not conduct or sponsor, and a person is not required to

respond to, an information collection unless it displays a currently

valid OMB control number.

Regulatory Analysis

The Commission has prepared a draft regulatory analysis on this

proposed regulation. The analysis examines the costs and benefits of

the alternatives considered by the Commission. The draft analysis is

available for inspection in the NRC Public Document Room, 2120 L Street

NW. (Lower Level), Washington, DC. Single copies of the analysis may be

obtained from Brian J. Richter, Office of Nuclear Regulatory Research,

U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001,

telephone (301) 415-6221, e-mail [email protected].

The Commission requests public comment on the draft analysis.

Comments on the draft analysis may be submitted to the NRC as indicated

under the ADDRESSES heading.

Regulatory Flexibility Certification

In accordance with the Regulatory Flexibility Act of 1980 (5 U.S.C.

605(b)) as amended by the Small Business Regulatory Enforcement

Fairness Act of 1996, Public Law 104-121 (March 29, 1996), the

Commission certifies that this rule will not, if promulgated, have a

significant economic impact on a substantial number of small entities.

This proposed rule affects only the licensing, operation, and

decommissioning of nuclear power plants. The companies that own these

plants do not fall in the scope of the definition of ``small entities''

set forth in the NRC's size standards (10 CFR 2.810).

Backfit Analysis

The regulatory analysis for the proposed rule also constitutes the

documentation for the evaluation of backfit requirements, and no

separate backfit analysis has been prepared. As defined in 10 CFR

50.109, the backfit rule applies to

* * * modification of or addition to systems, structures,

components, or design of a facility; or the design approval of

manufacturing license for a facility; or the procedures or

organization required to design, construct, or operate a facility;

any of which may result from a new or amended provision in the

Commission rules or the imposition of a regulatory staff position

interpreting the Commission rules that is either new or different

from a previously applicable staff position * * *.

The proposed amendments to NRC's requirements for the financial

assurance of decommissioning of nuclear power plants would revise the

definition of ``electric utility,'' define ``Federal licensee,'' and

add several associated definitions; add new reporting requirements

pertaining to the use of prepayment and external sinking funds; impose

new reporting requirements for power reactor licensees on the status of

decommissioning funding that specify the timing and contents of such

reports; and permit power reactor licensees to take credit for a 2

percent annual real rate of return on funds set aside for

decommissioning from the time the funds are set aside through the end

of the decommissioning period. These proposed actions are necessary to

ensure that nuclear power reactors provide for adequate protection of

the health and safety of the public in the face of a changing

environment not envisioned when the reactor decommissioning funding

regulations were promulgated.

Although some of the changes proposed to the regulations are

reporting requirements, which are not covered by the backfit rule,

other elements in the proposed changes could be considered backfits

because they would modify or clarify procedures with respect to (1)

acceptable decommissioning funding options under various scenarios, (2)

what licensees may use statements of intent, and (3) permitted credit

for real rates of return on funds set aside for decommissioning. The

NRC has determined to treat this action as an adequate protection

backfit, because the action is necessary for the NRC to maintain

assurance of adequate funding for power plant decommissioning,

particularly in the face of the uncertainties associated with electric

utility restructuring and deregulation. Accordingly, these proposed

changes to the regulations are required to satisfy 10 CFR 50.109(a)(5)

and a full backfit analysis is not required pursuant to 10 CFR

50.109(a)(4)(ii).

List of Subjects in 10 CFR Part 50

Antitrust, Classified information, Criminal penalties, Fire

protection, Intergovernmental relations, Nuclear power plants and

reactors, Radiation protection, Reactor siting criteria, Reporting and

recordkeeping requirements.

For the reasons set out in the preamble and under the authority of

the Atomic Energy Act of 1954, as amended, the Energy Reorganization

Act of 1974, as amended, and 5 U.S.C. 553, the NRC is proposing to

adopt the following amendments to 10 CFR Part 50.

[[Page 47605]]

PART 50--DOMESTIC LICENSING OF PRODUCTION AND UTILIZATION

FACILITIES

1. The authority citation for part 50 continues to read as follows:

Authority: Secs. 102, 103, 104, 105, 161, 182, 183, 186, 189, 68

Stat. 936, 937, 938, 948, 953, 954, 955, 956, as amended, sec. 234,

83 Stat. 1244, as amended (42 U.S.C. 2132, 2133, 2134, 2135, 2201,

2232, 2233, 2236, 2239, 2282); secs. 201, as amended, 202, 206, 88

Stat. 1242, as amended, 1244, 1246 (42 U.S.C. 5841, 5842, 5846).

Section 50.7 also issued under Pub. L. 95-601, sec. 10, 92 Stat.

2951 (42 U.S.C. 5851). Section 50.10 also issued under secs. 101,

185, 68 Stat. 955 as amended (42 U.S.C. 2131, 2235), sec. 102, Pub.

L. 91-190, 83 Stat. 853 (42 U.S.C. 4332). Sections 50.13, and

50.54(dd), and 50.103 also issued under sec. 108, 68 Stat. 939, as

amended (42 U.S.C. 2138). Sections 50.23, 50.35, 50.55, and 50.56

also issued under sec. 185, 68 Stat. 955 (42 U.S.C. 2235). Sections

50.33a, 50.55a and Appendix Q also issued under sec. 102, Pub. L.

91-190, 83 Stat. 853 (42 U.S.C. 4332). Sections 50.34 and 50.54 also

issued under sec. 204, 88 Stat. 1245 (42 U.S.C. 5844). Sections

50.58, 50.91, and 50.92 also issued under Pub. L. 97-415, 96 Stat.

2073 (42 U.S.C. 2239). Section 50.78 also issued under sec. 122, 68

Stat. 939 (42 U.S.C. 2152). Sections 50.80--50.81 also issued under

sec. 184, 68 Stat. 954, as amended (42 U.S.C. 2234). Appendix F also

issued under sec. 187, 68 Stat. 955 (42 U.S.C. 2237).

2. In Sec. 50.2 the definition of Electric Utility, is revised and

the definitions of Cost of service regulation, Federal licensee, and

Non-bypassable charges are added in alphabetical order to read as

follows:

Sec. 50.2 Definitions.

* * * * *

Cost of service regulation means the traditional system of rate

regulation in which a rate regulatory authority allows an electric

utility to charge its customers all reasonable and prudent costs of

providing electricity services, including a return on the investment

required to provide such services.

* * * * *

Electric utility means any entity that generates, transmits, or

distributes electricity and that recovers the cost of this electricity

through rates established by a regulatory authority, such that the

rates are sufficient for the licensee to operate, maintain, and

decommission its nuclear plant safely. Rates must be established by a

regulatory authority either directly through traditional cost of

service regulation or indirectly through another non-bypassable charge

mechanism. An entity whose rates are established by a regulatory

authority by mechanisms that cover only a portion of its costs will be

considered to be an ``electric utility'' only for that portion of the

costs that are collected in this manner. Public utility districts,

municipalities, rural electric cooperatives, and State and Federal

agencies, including associations of any of the foregoing, that

establish their own rates are included within the meaning of ``electric

utility.''

* * * * *

Federal licensee means any NRC licensee that has the full faith and

credit backing of the United States Government.

* * * * *

Non-bypassable charges means those charges imposed by a

governmental authority which affected persons or entities are required

to pay to cover costs associated with operation, maintenance, and

decommissioning of a nuclear power plant. Affected individuals and

entities would be required to pay those charges over an established

time period.

* * * * *

3. In Sec. 50.43, paragraph (a) is revised to read as follows:

Sec. 50.43 Additional standards and provisions affecting class 103

licenses for commercial power.

* * * * *

(a) The Commission will give notice in writing of each application

to such regulatory agency or State as may have jurisdiction over the

rates and services incident to the proposed activity; will publish

notice of the application in such trade or news publications as it

deems appropriate to give reasonable notice to municipalities, private

utilities, public bodies, and cooperatives which might have a potential

interest in such utilization or production facility; and will publish

notice of the application once each week for 4 consecutive weeks in the

Federal Register. No license will be issued by the Commission prior to

the giving of such notices and until 4 weeks after the last publication

in the Federal Register.

* * * * *

4. In Sec. 50.54, the introductory text of paragraph (w) is revised

to read as follows:

Sec. 50.54 Conditions of licenses.

* * * * *

(w) Each power reactor licensee under this part for a production or

utilization facility of the type described in Secs. 50.21(b) or 50.22

shall take reasonable steps to obtain insurance available at reasonable

costs and on reasonable terms from private sources or to demonstrate to

the satisfaction of the Commission that it possesses an equivalent

amount of protection covering the licensee's obligation, in the event

of an accident at the licensee's reactor, to stabilize and

decontaminate the reactor and the reactor station site at which the

reactor experiencing the accident is located, provided that:

* * * * *

5. In Sec. 50.63, paragraph (a)(2) is revised to read as follows:

Sec. 50.63 Loss of alternating current power.

(a) * * *

(2) The reactor core and associated coolant, control, and

protection systems, including station batteries and any other necessary

support systems, must provide sufficient capacity and capability to

ensure that the core is cooled and appropriate containment integrity is

maintained in the event of a station blackout for the specified

duration. The capability for coping with a station blackout of

specified duration shall be determined by an appropriate coping

analysis. Licensees are expected to have the baseline assumptions,

analyses, and related information used in their coping evaluations

available for NRC review.

* * * * *

6. In Sec. 50.73, paragraph (b)(2)(ii)(J)(2)(iv) is revised to read

as follows:

Sec. 50.73 Licensee event report system.

* * * * *

(b) * * *

(2) * * *

(ii) * * *

(J) * * *

(2) * * *

(iv) The type of personnel involved (i.e., contractor personnel,

licensed operator, nonlicensed operator, other licensee personnel.)

* * * * *

7. In Sec. 50.75, paragraphs (a), (b), (d), (e)(1)(i), (e)(1)(ii),

and (e)(3) introductory text are revised and paragraphs (f)(1), (2),

and (3) are redesignated as paragraph (f)(2), (3), and (4) and a new

paragraph (f)(1) is added to read as follows:

Sec. 50.75 Reporting and recordkeeping for decommissioning planning.

(a) This section establishes requirements for indicating to NRC how

reasonable assurance will be provided that funds will be available for

decommissioning. For power reactor licensees it consists of a step-wise

procedure as provided in paragraphs (b), (c), (e), and (f) of this

section. Funding for decommissioning of electric utilities is also

subject to the regulation of agencies (e.g., Federal Energy Regulatory

Commission (FERC) and

[[Page 47606]]

State Public Utility Commissions) having jurisdiction over rate

regulation. The requirements of this section, in particular paragraph

(c), are in addition to, and not substitution for, other requirements,

and are not intended to be used, by themselves, by other agencies to

establish rates.

(b) Each power reactor applicant for or holder of an operating

license for a production or utilization facility of the type and power

level specified in paragraph (c) of this section shall submit a

decommissioning report, as required by 10 CFR 50.33(k) of this part

containing a certification that financial assurance for decommissioning

will be provided in an amount which may be more but not less than the

amount stated in the table in paragraph (c)(1) of this section,

adjusted annually using a rate at least equal to that stated in

paragraph (c)(2) of this section, by one or more of the methods

described in paragraph (e) of this section as acceptable to the

Commission. The amount stated in the applicant's or licensee's

certification may be based on a cost estimate for decommissioning the

facility. As part of the certification, a copy of the financial

instrument obtained to satisfy the requirements of paragraph (e) of

this section is to be submitted to NRC.

* * * * *

(d) Each non-power reactor applicant for or holder of an operating

license for a production or utilization facility shall submit a

decommissioning report as required by 10 CFR 50.33(k) of this part

containing a cost estimate for decommissioning the facility, an

indication of which method or methods described in paragraph (e) of

this section as acceptable to the Commission will be used to provide

funds for decommissioning, and a description of the means of adjusting

the cost estimate and associated funding level periodically over the

life of the facility.

(e)(1) * * *

(i) Prepayment. Prepayment is the deposit prior to the start of

operation into an account segregated from licensee assets and outside

the licensee's administrative control of cash or liquid assets such

that the amount of funds would be sufficient to pay decommissioning

costs. Prepayment may be in the form of a trust, escrow account,

government fund, certificate of deposit, or deposit of government

securities. A licensee may take credit on earnings on the prepaid

decommissioning trust funds using a 2 percent annual real rate of

return from the time of the funds' collection through the

decommissioning period, if the licensee's rate-setting authority does

not authorize the use of another rate.

(ii) External sinking fund. An external sinking fund is a fund

established and maintained by setting funds aside periodically in an

account segregated from licensee assets and outside the licensee's

administrative control in which the total amount of funds would be

sufficient to pay decommissioning costs at the time termination of

operation is expected. An external sinking fund may be in the form of a

trust, escrow account, government fund, certificate of deposit, or

deposit of government securities. A licensee may take credit for

earnings on the external sinking funds using a 2 percent annual real

rate of return from the time of the funds' collection through the

decommissioning period, if the licensee's rate-setting authority does

not authorize the use of another rate.

* * * * *

(3) For an electric utility, its rates must be sufficient to

recover the cost of the electricity it generates, transmits, or

distributes. These rates must be established by a regulatory authority

such that they are sufficient for the licensee to operate, maintain,

and decommission its plant safely. The Commission reserves the right to

take the following steps in order to assure a licensee's adequate

accumulation of decommissioning funds: review, as needed, the rate of

accumulation of decommissioning funds; and either independently or in

cooperation with either the FERC and the State PUC's, take additional

actions as appropriate on a case-by-case basis, including modification

of a licensee's schedule for accumulation of decommissioning funds.

Acceptable methods of providing financial assurance for decommissioning

for an electric utility are--

* * * * *

(f)(1) Each power reactor licensee shall report to the NRC within 9

months after [the effective date of the final rule], and at least once

every 2 years thereafter on the status of its decommissioning funding

for each reactor facility or part of a reactor facility that it owns.

The information in this report must include, at a minimum: the amount

of decommissioning funds estimated to be required pursuant to 10 CFR

50.75(b) and (c); the amount accumulated to the date of the report; a

schedule of the annual amounts remaining to be collected; the

assumptions used regarding rates of escalation in decommissioning

costs, rates of earnings in decommissioning trust funds, and rates of

other factors (e.g., discount rates) used in funding projections; and

any modifications occurring to a licensee's current trust agreement

since the last submitted report. Any licensee for a plant that is

within 5 years of the projected end of its operation shall submit such

a report annually.

* * * * *

Dated at Rockville, Maryland, this 4th day of September, 1997.

For the Nuclear Regulatory Commission.

John C. Hoyle,

Secretary of the Commission.

[FR Doc. 97-23962 Filed 9-9-97; 8:45 am]

BILLING CODE 7590-01-P