Draft Policy Statement on the Restructuring and Economic Deregulation of the Electric Utility Industry

NUCLEAR REGULATORY COMMISSION

10 CFR Part 50

Draft Policy Statement on the Restructuring and Economic

Deregulation of the Electric Utility Industry

AGENCY: Nuclear Regulatory Commission.

ACTION: Draft Policy Statement request for public comment.

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SUMMARY: The NRC is seeking comment on the draft statement of policy

regarding its expectations for, and intended approach to, its power

reactor licensees as the electric utility industry moves from an

environment of rate regulation toward greater competition. The NRC is

concerned that rate deregulation and disaggregation resulting from

various restructurings involving power reactor licensees could have

adverse effects on the protection of public health and safety.

DATES: The public is invited to submit comments on this draft Policy

Statement by December 9, 1996. Comments received after this date will

be considered if it is practical to do so, but assurance of

consideration cannot be given except as to comments received on or

before this date. On the basis of the submitted comments, the

Commission will determine whether to modify the draft Policy Statement

before issuing it in final form.

ADDRESSES: Mail comments to: Secretary, U.S. Nuclear Regulatory

Commission, Washington DC 20555, Attention: Docketing and Service

Branch.

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

between 7:45 a.m. and 4:15 p.m., 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: Robert S. Wood, Office of Nuclear

Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC

20555, telephone (301) 415-1255, e-mail RSW[email protected]; or, for the

antitrust aspects of this policy statement, William Lambe, telephone

ine copies of comments received at: The NRC Public Document

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

FOR FURTHER INFORMATION CONTACT: Robert S. Wood, Office of Nuclear

Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC

20555, telephone (301) 415-1255, e-mail RSW[email protected]; or, for the

antitrust aspects of this policy statement, William Lambe, telephone

(301) 415-1277, e-mail [email protected].

SUPPLEMENTARY INFORMATION:

I. Purpose

The purpose of this draft policy statement is to provide a

discussion of the NRC's concerns regarding the potential safety impacts

on NRC power reactor licensees resulting from the economic deregulation

and restructuring of the electric utility industry and the means by

which NRC intends to address those concerns. This draft policy

statement recognizes the changes that are occurring in the electric

utility industry and the importance these changes may have for the NRC

and its licensees. The NRC's principal mission is to regulate the

Nation's civilian use of byproduct, source, and special nuclear

materials to ensure adequate protection of the public health and

safety, to promote the common defense and security, and to protect the

environment. As part of carrying out this mission, the NRC must monitor

licensee activities and any changes in licensee activities, as well as

external factors that may affect the ability of individual licensees to

safely operate and decommission licensed power production facilities.

II. Background

e being an ``electric utility'' as defined in 10 CFR 50.2.1

Such changes may affect the

licensing basis under which the NRC originally found a licensee to be

financially qualified to construct, operate or own its power plant, as

well as to accumulate adequate funds to ensure decommissioning at the

end of reactor life.

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\1\ Section 50.2 defines ``electric utility'' as ``any entity

that generates or distributes electricity and which recovers the

cost of this electricity, either directly or indirectly, through

rates established by the entity itself or by a separate regulatory

authority. Investor-owned utilities, including generation and

distribution subsidiaries, public utility districts, municipalities,

rural electric cooperatives, and State and Federal agencies,

including associations of any of the foregoing, are included within

the meaning of ``electric utility.'' ''

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Rate regulators have typically allowed an electric utility to

recover prudently incurred costs of generating, transmitting, and

distributing electric services. Consequently, in 1984, the NRC

eliminated financial qualifications reviews at the operating license

stage for those licensees that met the definition of ``electric

utility'' in 10 CFR 50.2 (49 FR 35747; Sept. 12, 1984). The NRC based

this decision on the assumption that ``the rate process assures that

funds needed for safe operation will be made available to regulated

electric utilities'' (49 FR at 35750). However, the NRC recognized that

financial qualifications reviews for operating license applicants might

be appropriate in particular cases where, for example, ``the local

public utility commission will not allow the total cost of operating

the facility to be recovered through rates'' (49 FR at 35751)

or safe operation will be made available to regulated

electric utilities'' (49 FR at 35750). However, the NRC recognized that

financial qualifications reviews for operating license applicants might

be appropriate in particular cases where, for example, ``the local

public utility commission will not allow the total cost of operating

the facility to be recovered through rates'' (49 FR at 35751). The

Commission also has expressed potential concern with various State

proposals to implement economic performance incentive programs.2

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\2\ See Possible Safety Impacts of Economic Performance

Incentives: Final Policy Statement, (56 FR 33945; July 24, 1991),

for the NRC's concerns relating to State economic performance

incentive standards and programs. The NRC understands that States

instituted many of these programs as a means of encouraging electric

utilities to lower electric rates to consumers. As States deregulate

electric utilities under their jurisdictions, these economic

performance incentive programs ultimately may be replaced by full

market competition.

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In its 1988 decommissioning rule, the NRC again distinguished

between electric utilities and other licensees by allowing ``electric

utilities'' to accumulate funds for decommissioning over the remaining

terms of their operating licenses. NRC regulations require its other

licensees (with the added exception of State and Federal government

licensees of certain facilities) to provide funding assurance for the

full estimated cost of decommissioning, either through full up-front

funding or by some allowable guarantee or surety mechanism.

A discussion of the current and future NRC review process will be

contained in two Standard Review Plans that the NRC plans to issue--one

for financial qualifications and decommissioning funding assurance

reviews and the other for antitrust reviews

ssurance for the

full estimated cost of decommissioning, either through full up-front

funding or by some allowable guarantee or surety mechanism.

A discussion of the current and future NRC review process will be

contained in two Standard Review Plans that the NRC plans to issue--one

for financial qualifications and decommissioning funding assurance

reviews and the other for antitrust reviews. In addition, the NRC

issued an Administrative Letter on June 21, 1996, that informed power

reactor licensees of their ongoing responsibility to inform, and obtain

advance approval from the NRC for any changes that would constitute a

transfer of the license, directly or indirectly, through transfer of

control of the NRC license to any person pursuant to 10 CFR 50.80. This

administrative letter also reminded addressees of their responsibility

to assure that information regarding a licensee's financial

qualifications and decommissioning funding assurance which may have a

significant implication for public health and safety is promptly

reported to the NRC.

III. Policy Statement

The NRC is concerned with the potential impact of utility

restructuring on public health and safety. The NRC has not found a

consistent relationship between a licensee's financial health and

general indicators of safety such as the NRC's Systematic Assessment of

Licensee Performance (SALP). Thus, the NRC has traditionally relied on

its inspection process to indicate when safety performance has begun to

show adverse trends. Based on inspection program results, the NRC can

take appropriate action, including, ultimately, plant shutdown, to

protect public health and safety. However, if a plant is permanently

shut down, that plant's licensee(s) may no longer have access to

adequate revenues or other sources of funds for decommissioning the

facility

indicate when safety performance has begun to

show adverse trends. Based on inspection program results, the NRC can

take appropriate action, including, ultimately, plant shutdown, to

protect public health and safety. However, if a plant is permanently

shut down, that plant's licensee(s) may no longer have access to

adequate revenues or other sources of funds for decommissioning the

facility. If rate deregulation and organizational divestiture occur

concurrently with the shutdown of a nuclear plant either by NRC action

or by a licensee's economic decision, that licensee may not be able to

provide adequate assurance of decommissioning funds. Thus, the NRC

believes that its concerns with deregulation and restructuring lie

primarily in the area of adequacy of decommissioning funds, although it

is also concerned with the potential effect that economic deregulation

may have on operational safety.

As the electric utility industry moves from an environment of

substantial economic regulation to one of increased competition, the

NRC is concerned about the pace of restructuring and rate deregulation.

Approval of organizational and rate deregulation changes may occur

rapidly without the NRC's knowledge. The pace and degree of such

changes could affect the factual underpinnings of the NRC's previous

conclusions that power reactor licensees can reliably accumulate

adequate funds for operations and decommissioning over the operating

lives of their facilities. For example, rate deregulation could create

situations where a licensee that previously qualified as an ``electric

utility'' under 10 CFR 50.2 may, at some point, no longer qualify for

such status. At that point, the NRC may require licensees to submit

proof pursuant to 10 CFR 50.33(f)(4) that they remain financially

qualified and will require them to meet the more stringent

decommissioning funding assurance requirements of 10 CFR 50.75 that are

applicable to non-electric utilities

ified as an ``electric

utility'' under 10 CFR 50.2 may, at some point, no longer qualify for

such status. At that point, the NRC may require licensees to submit

proof pursuant to 10 CFR 50.33(f)(4) that they remain financially

qualified and will require them to meet the more stringent

decommissioning funding assurance requirements of 10 CFR 50.75 that are

applicable to non-electric utilities.

Although new and unique restructuring proposals will necessarily

involve ad hoc reviews by the NRC, the Commission will exercise direct

oversight of such reviews to maintain consistent NRC policy toward new

entities. The NRC has considered mergers, the formation of holding

companies, and the outright sales of facilities, or portions of

facilities, to require NRC notification and prior approval in

accordance with 10 CFR 50.80 in order to ensure that the transferee is

appropriately qualified. For example, the NRC determines whether the

surviving organization will remain an ``electric utility'' as defined

in 10 CFR 50.2.

In consideration of these concerns, the NRC will be evaluating

deregulation and restructuring activities as they evolve. The NRC will

take all appropriate actions to carry out its mission to protect the

health and safety of the public and, to the extent of its statutory

mandate, to ensure consistency with Federal antitrust laws.

The NRC intends to implement policies and take action as described

in this policy statement to ensure that its power reactor licensees

remain responsible for safe operations and decommissioning. In summary,

the NRC will:

(1) Continue to conduct its financial qualifications,

decommissioning funding and antitrust reviews as described in the

Standard Review Plans being developed in concert with this policy

statement;

(2) Identify all owners, indirect as well as direct, of nuclear

power plants;

(3) Establish and maintain staff-level working relationships with

State and Federal rate regulators;

,

the NRC will:

(1) Continue to conduct its financial qualifications,

decommissioning funding and antitrust reviews as described in the

Standard Review Plans being developed in concert with this policy

statement;

(2) Identify all owners, indirect as well as direct, of nuclear

power plants;

(3) Establish and maintain staff-level working relationships with

State and Federal rate regulators;

(4) Evaluate the relative responsibilities of power plant co-

owners/co-licensees; and

(5) Reevaluate its regulations for their adequacy to address

changes resulting from rate deregulation.

IV. Issues Related to Restructuring and Economic Deregulation of the

Electric Utility Industry

The NRC believes that its regulatory framework is generally

sufficient to address many of the restructurings and reorganizations

that will likely arise as a result of electric utility deregulation. In

many instances, the NRC's review process will follow the current

framework, or will otherwise follow policies consistent with the NRC's

current regulations. However, the NRC believes that several other

policy issues need to be further evaluated and options developed.

Therefore, this section addresses NRC policies with respect to electric

utility restructuring and economic deregulation both as these policies

can be carried out under current regulations and as matters under

consideration for further resolution.

A. NRC Responsibilities vis-a-vis State and Federal Economic Regulators

ral other

policy issues need to be further evaluated and options developed.

Therefore, this section addresses NRC policies with respect to electric

utility restructuring and economic deregulation both as these policies

can be carried out under current regulations and as matters under

consideration for further resolution.

A. NRC Responsibilities vis-a-vis State and Federal Economic Regulators

The NRC has recognized the primary role that State and Federal

economic regulators serve in setting rates that include appropriate

levels of funding for safe operation and decommissioning. For example,

the preamble to the 1988 decommissioning rule stated: ``The rule, and

the NRC's implementation of it, does not deal with financial ratemaking

issues such as rate of fund collection, procedures for fund collection,

cost to ratepayers, taxation effects, equitability between early and

late ratepayers, accounting procedures, ratepayer versus stockholder

considerations, responsiveness to change and other similar concerns* *

*. These matters are outside NRC's jurisdiction and are the

responsibility of the State PUCs and [the Federal Energy Regulatory

Commission] FERC'' (53 FR at 24038; June 27, 1988).

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. To date, the NRC has found no significant instances where State

or Federal rate regulation has led to disallowance of funds for safety-

related operational and decommissioning expenses. Some rate regulators

may have chosen to reduce allowable profit margins through rate

disallowances, or licensees have for other reasons encountered

financial difficulty

ted to protect public health and

safety. To date, the NRC has found no significant instances where State

or Federal rate regulation has led to disallowance of funds for safety-

related operational and decommissioning expenses. Some rate regulators

may have chosen to reduce allowable profit margins through rate

disallowances, or licensees have for other reasons encountered

financial difficulty.

In order for the NRC to make its safety views known and to

encourage rate regulators to continue their practice of allowing

adequate expenditures for nuclear plant safety as electric utilities

face deregulation, the NRC intends to take a number of actions to

increase cooperation with State and Federal rate and financial

regulators to promote dialogue and minimize the possibility of rate

deregulation or other actions that would have an adverse safety impact.

We intend to work and consult with the State PUCs through the National

Association of Regulatory Utility Commissioners (NARUC), and with FERC

and the Securities and Exchange Commission (SEC) to coordinate

activities and exchange information.

B. Co-owner Division of Responsibility

Many of the NRC's power reactor licensees own their plants jointly

with other, non-related organizations. Although some co-owners may be

only authorized to possess the nuclear facility and its nuclear

material, and not to operate it, the NRC views all co-owners as co-

licensees who are responsible for complying with the terms of their

licenses. Public Service Company of Indiana, Inc. (Marble Hill Nuclear

Generating Station, Units 1 & 2), ALAB-459, 7 NRC 179, 200-201 (1978).

The NRC is concerned about the effects on the availability of operating

and decommissioning funds, and about the division of responsibility for

operating and decommissioning funds, when co-owners file for bankruptcy

or otherwise encounter financial difficulty.3 The NRC is

evaluating courses of action to ensure that operating and

decommissioning costs are paid by owners

C 179, 200-201 (1978).

The NRC is concerned about the effects on the availability of operating

and decommissioning funds, and about the division of responsibility for

operating and decommissioning funds, when co-owners file for bankruptcy

or otherwise encounter financial difficulty.3 The NRC is

evaluating courses of action to ensure that operating and

decommissioning costs are paid by owners.

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\3\ The NRC has had experience with 3 licensees who have had

much greater than de minimis shares of nuclear power plants and who

filed under Chapter 11 of the U.S. Bankruptcy Code: Public Service

Company of New Hampshire (PSNH), a co-owner and operator of the

Seabrook plant; El Paso Electric Company (EPEC), a co-owner of the

Palo Verde plant; and Cajun Electric Power Cooperative (Cajun), a

co-owner of the River Bend plant. Both PSNH and EPEC continued their

pro rata contributions for the operating and decommissioning

expenses for their plants and successfully emerged from bankruptcy.

Cajun remains in bankruptcy.

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C. Financial Qualifications Reviews

The NRC believes that the existing regulatory framework contained

in Sec. 50.33(f) and in the guidance in 10 CFR part 50, appendix C, is

generally sufficient at this time to provide reasonable assurance of

the financial qualifications of both electric utility and non-electric

utility applicants and licensees under the various ownership

arrangements of which the staff is currently aware. Licensees that

remain ``electric utilities'' will not be subject to NRC financial

qualifications review, other than to determine that such licensees, in

fact, remain ``electric utilities.'' However, the NRC is evaluating the

need to develop additional requirements to ensure against potential

dilution of capability for safe operation and decommissioning that

could arise from rate deregulation and restructuring

main ``electric utilities'' will not be subject to NRC financial

qualifications review, other than to determine that such licensees, in

fact, remain ``electric utilities.'' However, the NRC is evaluating the

need to develop additional requirements to ensure against potential

dilution of capability for safe operation and decommissioning that

could arise from rate deregulation and restructuring.

Section 184 of the Atomic Energy Act and 10 CFR 50.80 provide that

no license shall be transferred, directly or indirectly, through

transfer of control of the license, unless the Commission consents in

writing. The NRC intends to review transfers to determine their

potential impact on the licensee's ability both to maintain adequate

technical qualifications and organizational control and authority over

the facility and to provide adequate funds for safe operation and

decommissioning. Such consent is clearly required where a corporate

entity seeks to transfer a license it holds to a different corporate

entity. See Long Island Lighting Co. (Shoreham Nuclear Power Station,

Unit 1) CLI-92-4, 35 NRC 69 (1992). The NRC staff has advised licensees

that agency consent should be sought and obtained under Sec. 50.80 for

the formation of a new holding company over an existing licensee. Other

types of transactions, including those involving transfers of operating

authority or responsibility to non-licensed organizations, have been

considered by the staff on a case by case basis to determine whether

Sec. 50.80 consent is required. The NRC is evaluating what types of

transfers or restructurings should be subject to Sec. 50.80 review.

Effective December 28, 1995, all orders approving Sec. 50.80 transfers

have been signed by the Director, Office of Nuclear Reactor Regulation.

The NRC staff will inform the Commission of unique or unusual licensee

restructuring actions.

D. Decommissioning Funding Assurance Compliance Reviews

e NRC is evaluating what types of

transfers or restructurings should be subject to Sec. 50.80 review.

Effective December 28, 1995, all orders approving Sec. 50.80 transfers

have been signed by the Director, Office of Nuclear Reactor Regulation.

The NRC staff will inform the Commission of unique or unusual licensee

restructuring actions.

D. Decommissioning Funding Assurance Compliance Reviews

The NRC believes that the existing decommissioning funding

assurance provisions in Sec. 50.75 generally provide an adequate

regulatory basis for new licensees to provide reasonable assurance of

decommissioning funds. However, to address this and other issues

related to decommissioning funding assurance in anticipation of rate

deregulation, the NRC published an advance notice of proposed

rulemaking (ANPR) (61 FR 15427; April 8, 1996).

E. Antitrust Reviews

The NRC must be able to accurately identify all owners of its

licensees to meaningfully assess whether there have been ``significant

changes'' since the

licensing reviews. The NRC anticipates that competitive reviews over

the next 5 to 10 years will arise primarily from changes in control of

licensed facilities. The regulatory review addressing transfer of

control of licenses under 10 CFR 50.80 will be used to determine

whether new owners or operators will be subject to an NRC significant

change review with respect to antitrust matters.

Electronic Access

iews. The NRC anticipates that competitive reviews over

the next 5 to 10 years will arise primarily from changes in control of

licensed facilities. The regulatory review addressing transfer of

control of licenses under 10 CFR 50.80 will be used to determine

whether new owners or operators will be subject to an NRC significant

change review with respect to antitrust matters.

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

available communications software packages, or directly via Internet.

Background documents on the draft policy statement 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 (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.'' 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

telephone 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 Mail.'' 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

t: 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 Mail.'' 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 can also 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.

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].

Dated at Rockville, Maryland, this 16th day of September 1996.

For the Nuclear Regulatory Commission.

John C. Hoyle,

Secretary of the Commission.

[FR Doc. 96-24275 Filed 9-20-96; 8:45 am]

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