Testimony 

Before the Subcommittee on Clean Air, 

Climate Change, and Nuclear Safety, 

Committee on Environment and Public 

Works, U.S. Senate

United States Government Accountability Office

GAO

For Release on Delivery 

Expected at 10:00 a.m. EDT 

Thursday, May 26, 2005 NUCLEAR REGULATORY 

COMMISSION 

Challenges Facing NRC in 

Effectively Carrying Out Its 

Mission 

Statement of Jim Wells, Director 

Natural Resources and Environment 

GAO-05-754T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-754T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Jim Wells at 

(202) 512-3841 or wellsj@gao.gov. 

Highlights of GAO-05-754T, a testimony 

before the Subcommittee on Clean Air, 

Climate Change, and Nuclear Safety, 

Committee on Environment and Public 

Works, U.S. Senate 

May 26, 2005

NUCLEAR REGULATORY COMMISSION

Challenges Facing NRC in Effectively 

Carrying Out Its Mission 

GAO has documented many positive steps taken by NRC to advance the 

security and safety of the nation’s nuclear power plants. It has also 

identified various actions that NRC needs to take to better carry out its 

mission. First, with respect to its security mission, GAO found that NRC 

needs to improve security measures for sealed sources of radioactive 

materials --- radioactive material encapsulated in stainless steel or other 

metal used in medicine, industry, and research--which could be used to make 

a “dirty bomb.” GAO also found that, although NRC was taking numerous 

actions to require nuclear power plants to enhance security, NRC needed to 

strengthen its oversight of security at the plants. Second, with respect to its 

public health and safety, and environmental missions, GAO found that NRC 

needs to conduct more effective analyses of plant owners’ funding for 

decommissioning to ensure that the significant volume of radioactive waste 

remaining after the permanent closure of a plant are properly disposed. 

Further, NRC needs to more aggressively and comprehensively resolve 

issues that led to the shutdown of the Davis-Besse nuclear power plant by 

improving its oversight of plant safety conditions. Finally, NRC needs to do 

more to ensure that power plants are effectively controlling spent nuclear 

fuel, including developing and implementing appropriate inspection 

procedures. 

GAO has identified several cross-cutting challenges affecting NRC’s ability to 

effectively and credibly regulate the nuclear power industry. Recently, NRC 

has taken two overarching approaches to its regulatory and oversight 

responsibilities. These approaches are to (1) develop and implement a riskinformed regulatory strategy that targets the most important safety-related 

activities and (2) strike a balance between verifying plants’ compliance with 

requirements through inspections and affording licensees the opportunity to 

demonstrate that they are operating their plants safety. NRC must overcome 

significant obstacles to fully implement its risk-informed regulatory strategy 

across agency operations, especially with regards to developing the ability to 

identify emerging technical issues and adjust regulatory requirements before 

safety problems develop. NRC also faces inherent challenges in achieving 

the appropriate balance between more direct oversight and industry selfcompliance. Incidents such as the 2002 shutdown of the Davis-Besse plant 

and the unaccounted for spent nuclear fuel at several plants raise questions 

about whether NRC has the risk information that it needs and whether it is 

appropriately balancing agency involvement and licensee self-monitoring. 

Finally, GAO believes that NRC will face challenges managing its resources 

while meeting increasing regulatory and oversight demands. NRC’s 

resources have already been stretched by the extensive effort to enhance 

security at plants in the wake of the September 11, 2001, terrorist attacks. 

Pressure on NRC’s resources will continue as the nation’s fleet of plants age 

and the industry’s interest in expansion grows, both in licensing and 

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

existing ones. 

The Nuclear Regulatory 

Commission (NRC) has the 

regulatory responsibility to, among 

other things, ensure that the 

nation’s 103 commercial nuclear 

power plants are operated in a safe 

and secure manner. While the 

nuclear power industry’s overall 

safety record has been good, safety 

issues periodically arise that 

threaten the credibility of NRC’s 

regulation and oversight of the 

industry. 

Recent events make the 

importance of NRC’s regulatory 

and oversight responsibilities 

readily apparent. The terrorist 

attacks on September 11, 2001, 

focused attention on the security of 

facilities such as commercial 

nuclear power plants, while safety 

concerns were heightened by 

shutdown of the Davis-Besse 

nuclear power plant in Ohio in 

2002, and the discovery of missing 

or unaccounted for spent nuclear 

fuel at three nuclear power plants. 

GAO has issued a total of 15 recent 

reports and testimonies on a wide 

range of NRC activities. This 

testimony (1) summarizes GAO’s 

findings and associated 

recommendations for improving 

NRC mission-related activities and 

(2) presents several cross-cutting 

challenges NRC faces in being an 

effective and credible regulator of 

the nuclear power industry. 

 
Page 1 GAO-05-754T 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to participate in the Subcommittee’s 

oversight hearing on the Nuclear Regulatory Commission (NRC). NRC has 

the regulatory responsibility to ensure that the nation’s 103 operating 

commercial nuclear power plants are operated in a safe and secure 

manner. These plants provide about 20 percent of the country’s electricity, 

but safety of their operations is paramount, given the potentially 

devastating effects of a nuclear accident. While the nuclear power 

industry’s overall safety record has been good, safety issues periodically 

arise that raise questions about NRC’s regulation and oversight of the 

industry and challenge its credibility for guaranteeing the safety of the 

nation’s aging fleet of nuclear power plants. NRC plays an important role 

in protecting public health and the environment through its regulation of 

the nuclear power industry and other civilian use of nuclear material, and 

we commend the Subcommittee for holding this hearing. 

NRC was formed in 1975, to regulate the various commercial and 

institutional uses of nuclear energy, including nuclear power plants. NRC’s 

mission is to regulate the nation’s civilian use of nuclear material to ensure 

adequate protection of public health and safety, to promote the common 

defense and security, and to protect the environment. NRC’s activities 

include, among other things, licensing nuclear reactors (including license 

transfers and operating experience evaluation), reviewing plant safety 

procedures, imposing enforcement sanctions for violations of NRC 

requirements, and participating in homeland security efforts (including 

threat assessment, emergency response, mitigating strategies, security 

inspections, and force-on-force exercises). NRC also has regulatory 

oversight for the decommissioning of nuclear reactors, including 

accumulating sufficient funds to carry out decommissioning, and for the 

interim storage of spent nuclear fuel — the used fuel periodically removed 

from reactors in nuclear power plants. 

The importance of NRC’s regulatory and oversight responsibilities is made 

readily apparent by recent events. The terrorist attacks on September 11, 

2001, and the subsequent discovery of nuclear power plants on a list of 

possible terrorist targets have focused attention on the security of the 

nation’s commercial nuclear power plants. Safety concerns were 

heightened by the discovery of a pineapple-sized cavity in the carbon steel 

reactor vessel head, and subsequent 2-year shutdown, of the Davis-Besse 

nuclear power plant in Ohio in 2002. Additional safety concerns were 

raised by the discovery of missing or unaccounted for spent nuclear fuel at 

three nuclear power plants. Further, the decommissioning of some of the 
Page 2 GAO-05-754T 

nations’ aging nuclear power plants raises the issue of whether NRC is 

ensuring that plant owners are accumulating sufficient funds for 

decommissioning plants in a way that best protects public health, safety, 

and the environment. 

Over the past 2 years, we have issued a total of 15 reports and testimonies 

on a wide range of NRC activities. (These reports are listed in Appendix I). 

While our work has primarily focused on identifying ways that NRC can 

strengthen its regulation and oversight of the nuclear power industry, we 

have documented a number of productive steps NRC has taken to improve 

its mission-related activities. One example is the substantial effort that 

NRC has made in working with the industry to enhance security at nuclear 

power plants since the September 11, 2001, terrorist attacks. Another 

example is NRC’s considerable effort to analyze what went wrong at the 

Davis-Besse plant in 2002, and to incorporate the lessons learned into its 

processes. Today, my testimony will briefly summarize our recently 

completed NRC work. Specifically, this testimony (1) summarizes GAO’s 

findings and associated recommendations for improving NRC missionrelated activities and (2) provides some observations on cross-cutting 

challenges that NRC faces in being an effective and credible regulator of 

the nuclear power industry. 

This testimony is based on seven of our recently issued reports. The other 

eight reports either address issues for which NRC is not the primary 

federal agency – such as radioactive waste disposal and nuclear 

nonproliferation — or concern internal NRC administrative matters — 

such as fee recovery and information technology management. We did not 

perform additional audit work in preparing this testimony. The work for 

our previously issued reports was conducted in accordance with generally 

accepted government auditing standards. 

While NRC has improved its operations in a number of ways in recent 

years, GAO believes that the agency needs to take a number of additional 

actions to better fulfill its mission of ensuring that the nation’s nuclear 

power plants and other civilian users of nuclear material operate in a safe 

and secure manner. First, operations related to NRC’s security mission 

need to be improved. Specifically, we found that NRC has not developed 

adequate security measures for sealed sources of radioactive materials —- 

radioactive material encapsulated in stainless steel or other metal used in 

medicine, industry, and research —- which could be used to make a “dirty 

bomb.” We also found that despite taking numerous actions to respond to 

the heightened risks of a terrorist attack, NRC’s oversight of physical 

Summary 
Page 3 GAO-05-754T 

security at the nation’s commercial nuclear power plants could be 

strengthened. Second, operations related to NRC’s public health and 

safety, and environmental missions need to be improved. Specifically, we 

found that NRC’s analyses of plant owners’ contributions of funds for the 

decommissioning of nuclear power plants, and its processes for acting on 

reports that show insufficient funds, do not ensure that the significant 

radioactive waste hazards that exist following the permanent closure of a 

nuclear power plant will be properly addressed. Further, we found that the 

issues surrounding the shutdown of the Davis-Besse power plant reveal 

important weaknesses in NRC’s oversight of the safety of nuclear power 

plant operations. Finally, we found that NRC has not taken adequate steps 

to ensure that power plants are effectively controlling spent nuclear fuel, 

including developing and implementing appropriate inspection procedures 

to verify plants’ compliance with NRC requirements. 

NRC faces several cross-cutting challenges in being an effective and 

credible regulator of the nuclear power industry. In response to the 

agency’s limited resources and its desire to reduce the regulatory burden 

and cost on plants, NRC is taking two overarching approaches to meeting 

its regulatory and oversight responsibilities: (1) developing and 

implementing a risk-informed regulatory strategy that targets industry’s 

most important safety-related or safety-significant activities, and (2) 

striking a balance between verifying plants’ compliance with requirements 

through inspections and affording licensees the opportunity to 

demonstrate that they are operating their plants safely. We believe that 

NRC must overcome significant obstacles in implementing its riskinformed regulatory strategy across the agency, especially with regards to 

developing the ability to identify emerging technical issues and adjust 

regulatory requirements before safety problems develop. We also believe 

that NRC faces inherent challenges in balancing oversight and industry 

self-compliance, especially with regards to positioning the agency so it is 

able to identify diminishing performance at individual plants before they 

become a problem. Incidents such as the 2002 shutdown of the DavisBesse plant and the unaccounted for spent nuclear fuel at several plants 

raise questions about whether NRC has the risk information that it needs 

and whether it is appropriately balancing agency involvement and licensee 

self-monitoring. Finally, we believe that NRC will face challenges 

managing its resources while meeting increasing regulatory and oversight 

demands. NRC’s resources have already been stretched by the extensive 

effort to enhance security at plants in the wake of the September 11, 2001, 

terrorist attacks. Pressure on NRC’s resources will continue as the nation’s 

fleet of plants age and the industry’s interest in expansion grows, both in 
Page 4 GAO-05-754T 

licensing and constructing new plants, and re-licensing and increasing the 

power output of existing ones. 

Our recent analyses of NRC programs identified several areas where NRC 

needs to take action to better fulfill its mission and made associated 

recommendations for improvement. With respect to NRC’s security 

mission, we found that the security of sealed radioactive sources and the 

physical security at nuclear power plants need to be strengthened. With 

respect to its public health and safety, and environmental missions, we 

found several shortcomings that need to be addressed. NRC’s analyses of 

plant owners’ contributions could be improved to better ensure that 

adequate funds are accumulating for the decommissioning of nuclear 

power plants. By contrast, we found that NRC is ensuring that 

requirements for liability insurance for nuclear power plants owned by 

limited liability companies are being met. Further, to ensure the safety of 

nuclear power plants NRC must more aggressively and comprehensively 

resolve oversight issues related to the shutdown of the Davis-Besse plant. 

Finally, NRC’s methods of ensuring that power plants are effectively 

controlling spent nuclear fuel need to be improved. 

In August 2003, we reported on federal and state actions needed to 

improve security of sealed radioactive sources.1

 Sealed radioactive 

sources, radioactive material encapsulated in stainless steel or other 

metal, are used worldwide in medicine, industry, and research. These 

sealed sources could be a threat to national security because terrorists 

could use them to make “dirty bombs.” We were asked among other things 

to determine the number of sealed sources in the United States. We found 

that the number of sealed sources in use today in the United States is 

unknown primarily because no state or federal agency tracks individual 

sealed sources. Instead, NRC and the agreement states2

 track numbers of 

specific licensees. NRC and the Department of Energy (DOE) have begun 

to examine options for developing a national tracking system, but to date, 

 1

GAO: Nuclear Security Federal and State Action Needed to Improve Security of Sealed 

Radioactive Sources, GAO-03-804 Washington, D.C.: Aug. 6, 2003. 

2

Agreement states are the 33 states that have entered into an agreement with the NRC 

under subsection 274(b) of the Atomic Energy Act (AEA) under which NRC relinquishes to 

the states portions of its regulatory authority to license and regulate source, byproduct, and 

certain quantities of special nuclear material. 

Regulatory and 

Oversight Functions 

Vital to NRC’s Mission 

Need to be Improved 

Operations Related to 

NRC’s Security Mission 

Could Be Improved 
Page 5 GAO-05-754T 

this effort has had limited involvement by the agreement states. NRC had 

difficulty locating owners of certain generally licensed devices it began 

tracking in April 2001, and has hired a private investigation firm to help 

locate them. Twenty-five of the 31 agreement states that responded to our 

survey indicated that they track some or all general licensees or generally 

licensed devices, and 17 were able to provide data on the number of 

generally licensed devices in their jurisdictions, totaling approximately 

17,000 devices. GAO recommended that NRC (1) collaborate with states to 

determine the availability of the highest risk sealed sources, (2) determine 

if owners of certain devices should apply for licenses, (3) modify NRC’s 

licensing process so sealed sources cannot be purchased until NRC 

verifies their intended use, (4) ensure that NRC’s evaluation of federal and 

state programs assesses the security of sealed sources, and (5) determine 

how states can participate in implementing additional security measures. 

NRC disagreed with some of our findings. 

In September 2003, we reported that NRC’s oversight of security at 

commercial nuclear power plants needed to be strengthened.3

 The 

September 11, 2001, terrorist attacks intensified the nation’s focus on 

national preparedness and homeland security. Among possible terrorist 

targets are the nation’s nuclear power plants which contain radioactive 

fuel and waste. NRC oversees plant security through an inspection 

program designed to verify the plants’ compliance with security 

requirements. As part of that program, NRC conducted annual security 

inspections of plants and force-on-force exercises to test plant security 

against a simulated terrorist attack. GAO was asked to review (1) the 

effectiveness of NRC’s security inspection program and (2) legal 

challenges affecting power plant security. At the time of our review, NRC 

was reevaluating its inspection program. We did not assess the adequacy 

of security at the individual plants; rather, our focus was on NRC’s 

oversight and regulation of plant security. 

We found that NRC had taken numerous actions to respond to the 

heightened risk of terrorist attack, including interacting with the 

Department of Homeland Security and issuing orders designed to increase 

security and improve defensive barriers at plants. However, three aspects 

of NRC’s security inspection program reduced the agency’s effectiveness 

in overseeing security at commercial nuclear power plants. First, NRC 

 3

GAO: Nuclear Regulatory Commission: Oversight of Security at Commercial Nuclear 

Power Plants Needs to Be Strengthened, GAO-03-752 (Washington, D.C.: Sept. 4, 2003). 
Page 6 GAO-05-754T 

inspectors often used a process that minimized the significance of security 

problems found in annual inspections by classifying them as “non-cited 

violations” if the problem had not been identified frequently in the past or 

if the problem had no direct, immediate, adverse consequences at the time 

it was identified. Non-cited violations do not require a written response 

from the licensee and do not require NRC inspectors to verify that the 

problem has been corrected. For example, guards at one plant failed to 

physically search several individuals for metal objects after a walk-through 

detector and a hand-held scanner detected metal objects in their clothing. 

These individuals were then allowed unescorted access throughout the 

plant’s protected area. By extensively using non-cited violations for 

serious problems, NRC may overstate the level of security at a power plant 

and reduce the likelihood that needed improvements are made. Second, 

NRC did not have a routine, centralized process for collecting, analyzing, 

and disseminating security inspections data to identify problems that may 

be common to plants or to provide lessons learned in resolving security 

problems. Such a mechanism may help plants improve their security. 

Third, although NRC’s force-on-force exercises can demonstrate how well 

a nuclear plant might defend against a real-life threat, several weaknesses 

in how NRC conducted these exercises limited their usefulness. 

Weaknesses included (1) using more personnel to defend the plant during 

these exercises than during normal operations, (2) using attacking forces 

that are not trained in terrorist tactics, and (3) using unrealistic weapons 

(rubber guns) that do not simulate actual gunfire. Furthermore, at the 

time, NRC has made only limited use of some available improvements that 

would make force-on-force exercises more realistic and provide a more 

useful learning experience. 

Finally, we also found that even if NRC strengthens its inspection 

program, commercial nuclear power plants face legal challenges in 

ensuring plant security. First, federal law generally prohibits guards at 

these plants from using automatic weapons, although terrorists are likely 

to have them. As a result, guards at commercial nuclear power plants 

could be at a disadvantage in firepower, if attacked. Second, state laws 

regarding the permissible use of deadly force and the authority to arrest 

and detain intruders vary, and guards were unsure about the extent of 

their authorities and may hesitate or fail to act if the plant is attacked. 

GAO made recommendations to promptly restore annual security 

inspections and revise force-on-force exercises. NRC disagreed with many 

of GAO’s findings, but did not comment on GAO’s recommendations. 
Page 7 GAO-05-754T 

In September 2004, we testified on our preliminary observations regarding 

NRC’s efforts to improve security at nuclear power plants.4

 The events of 

September 11, 2001, and the subsequent discovery of commercial nuclear 

power plants on a list of possible terrorist targets have focused 

considerable attention on plants’ capabilities to defend against a terrorist 

attack. NRC is responsible for regulating and overseeing security at 

commercial nuclear power plants. We were asked to review (1) NRC’s 

efforts since September 11, 2001, to improve security at nuclear power 

plants, including actions NRC had taken to implement some of GAO’s 

September 2003 recommendations to improve security oversight, and (2) 

the extent to which NRC is in a position to assure itself and the public that 

the plants are protected against terrorist attacks. The testimony reflected 

the preliminary results of GAO’s review. We are currently performing a 

more comprehensive review in which we are examining (1) NRC’s 

development of its 2003 design basis threat (DBT), which establishes the 

maximum terrorist threat that commercial nuclear power plants must 

defend against, and (2) the security enhancements that plants have put in 

place in response to the design basis threat and related NRC requirements. 

We expect to issue a report on our findings later this year. 

In the earlier work, we found that NRC responded quickly and decisively 

to the September 11, 2001, terrorist attacks with multiple steps to enhance 

security at commercial nuclear power plants. NRC immediately advised 

plants to go to the highest level of security using the system in place at the 

time, and issued advisories and orders for plants to make certain 

enhancements, such as installing more physical barriers and augmenting 

security forces, which could be quickly completed to shore up security. 

According to NRC officials, their inspections found that plants complied 

with these advisories and orders. Later, in April 2003, NRC issued a new 

DBT and required the plants to develop and implement new security plans 

to address the new threat by October 2004. NRC is also improving its 

force-on-force exercises, as GAO recommended in its September 2003 

report. While its efforts had enhanced security, NRC was not yet in a 

position to provide an independent determination that each plant has 

taken reasonable and appropriate steps to protect against the new DBT. 

According to NRC officials, the facilities’ new security plans were on 

schedule to be implemented by October 2004. However, NRC’s review of 

the plans, which are not available to the general public for security 

 4

GAO, Nuclear Regulatory Commission: Preliminary Observations on Efforts to Improve 

Security at Nuclear Power Plants, GAO-04-1064T (Washington, D.C.: Sept. 14, 2004). 
Page 8 GAO-05-754T 

reasons, had primarily been a paper review and was not detailed enough 

for NRC to determine if the plans would protect the facility against the 

threat presented in the DBT. In addition, NRC officials generally were not 

visiting the facilities to obtain site-specific information and assess the 

plans in terms of each facility’s design. NRC is largely relying on the forceon-force exercises it conducts to test the plans, but these exercises will 

not be conducted at all facilities for 3 years. We also found that NRC did 

not plan to make some improvements in its inspection program that GAO 

previously recommended. For example, NRC was not following up to 

verify that all violations of security requirements had been corrected, nor 

was the agency taking steps to make “lessons learned” from inspections 

available to other NRC regional offices and nuclear power plants. 

In October 2003, we reported that NRC needs to more effectively analyze 

whether nuclear power plant owners are adequately accumulating funds 

for decommissioning plants.5

 Following the closure of a nuclear power 

plant, a significant radioactive waste hazard remains until the waste is 

removed and the plant site is decommissioned. In 1988, NRC began 

requiring owners to (1) certify that sufficient financial resources would be 

available when needed to decommission their nuclear power plants and 

(2) require them to make specific financial provisions for 

decommissioning. In 1999, GAO reported that the combined value of the 

owners’ decommissioning funds was insufficient to ensure enough funds 

would be available for decommissioning. GAO was asked to update its 

1999 report, and to evaluate NRC’s analysis of the owners’ funds and the 

agency’s process for acting on reports that show insufficient funds. 

We found that although the collective status of the owners’ 

decommissioning fund accounts has improved considerably since GAO’s 

last report, some individual owners were not on track to accumulate 

sufficient funds for decommissioning. Based on our analysis and using the 

most likely economic assumptions, we concluded that the combined value 

of nuclear power plant owners’ decommissioning fund accounts in 2000—

about $26.9 billion—was about 47 percent greater than needed at that 

point to ensure that sufficient funds would be available to cover the 

approximately $33 billion in estimated decommissioning costs when the 

 5

GAO: Nuclear Regulation: NRC Needs More Effective Analysis to Ensure Accumulation 

of Funds to Decommission Nuclear Power Plants, GAO-04-32 (Washington, D.C.: Oct. 30, 

2003). 

Operations Related to 

NRC’s Public Health and 

Safety and Environmental 

Missions Can Be Improved 
Page 9 GAO-05-754T 

plants are permanently closed. This value contrasts with GAO’s prior 

finding that 1997 account balances were collectively 3 percent below what 

was needed. However, overall industry results can be misleading. Because 

funds are generally not transferable from funds that have more than 

sufficient reserves to those with insufficient reserves, each individual 

owner must ensure that enough funds are available for decommissioning 

their particular plants. We found that 33 owners with ownership interests 

in a total of 42 plants had accumulated fewer funds than needed through 

2000, to be on track to pay for eventual decommissioning. In addition, 20 

owners with ownership interests in a total of 31 plants recently 

contributed less to their trust funds than we estimated they needed in 

order to put them on track to meet their decommissioning obligations. 

NRC’s analysis of the owners’ 2001 biennial reports was not effective in 

identifying owners that might not be accumulating sufficient funds to 

cover their eventual decommissioning costs. In reviewing the 2001 reports, 

NRC reported that all owners appeared to be on track to have sufficient 

funds for decommissioning. In reaching this conclusion, NRC relied on the 

owners’ future plans for fully funding their decommissioning obligations. 

However, based on the owners’ actual recent contributions, and using a 

different method, GAO found that several owners could be at risk of not 

meeting their financial obligations for decommissioning when these plants 

stop operating. In addition, for plants with more than one owner, NRC did 

not separately assess the status of each co-owner’s trust funds against 

each co-owner’s contractual obligation to fund decommissioning. Instead, 

NRC assessed whether the combined value of the trust funds for the plant 

as a whole were reasonable. Such an assessment for determining whether 

owners are accumulating sufficient funds can produce misleading results 

because owners with more than sufficient funds can appear to balance out 

owners with less than sufficient funds, even though funds are generally 

not transferable among owners. Furthermore, we found that NRC had not 

established criteria for taking action when it determines that an owner is 

not accumulating sufficient decommissioning funds. 

We recommended that NRC (1) develop an effective method for 

determining whether owners are accumulating decommissioning funds at 

sufficient rates and (2) establish criteria for taking action when it is 

determined that an owner is not accumulating sufficient funds. NRC 

disagreed with these recommendations, suggesting that its method is 

effective and that it is better to deal with unacceptable levels of financial 

assurance on a case-by-case basis. GAO continues to believe that 

limitations in NRC’s method reduce its effectiveness and that, without 
Page 10 GAO-05-754T 

criteria, NRC might not be able to ensure owners are accumulating 

decommissioning funds at sufficient rates. 

In May 2004, we issued a report on NRC’s liability insurance requirements 

for nuclear power plants owned by limited liability companies.6

 An 

accident at one the nation’s commercial nuclear power plants could result 

in personal injury and property damage. To ensure that funds would be 

available to settle liability claims in such cases, the Price-Anderson Act 

requires licensees of these plants to have primary insurance—currently 

$300 million per site. The act also requires secondary coverage in the form 

of retrospective premiums to be contributed by all licensees of nuclear 

power plants to cover claims that exceed primary insurance. If these 

premiums are needed, each licensee’s payments are limited to $10 million 

per year and $95.8 million in total for each of its plants. In recent years, 

limited liability companies have increasingly become licensees of nuclear 

power plants, raising concerns about whether these companies—which 

shield their parent corporations’ assets—will have the financial resources 

to pay their retrospective premiums. We were asked to determine (1) the 

extent to which limited liability companies are the licensees for U.S. 

commercial nuclear power plants, (2) NRC’s requirements and procedures 

for ensuring that licensees of nuclear power plants comply with the PriceAnderson Act’s liability requirements, and (3) whether and how these 

procedures differ for licensees that are limited liability companies. 

We found that of the 103 operating nuclear power plants, 31 were owned 

by 11 limited liability companies. Three energy corporations—Exelon, 

Entergy, and the Constellation Energy Group—were the parent companies 

for eight of these limited liability companies. These 8 subsidiaries were the 

licensees or co-licensees for 27 of the 31 plants. We also found that NRC 

requires all licensees for nuclear power plants to show proof that they 

have the primary and secondary insurance coverage mandated by the 

Price-Anderson Act. Licensees sign an agreement with NRC that requires 

the licensee to keep the insurance in effect. American Nuclear Insurers 

also has a contractual agreement with each of the licensees that obligates 

the licensee to pay the retrospective premiums to American Nuclear 

Insurers if these payments become necessary. A certified copy of this 

agreement, which is called a bond for payment of retrospective premiums, 

 6

GAO, Nuclear Regulation: NRC’s Liability Insurance Requirements for Nuclear Power 

Plants Owned by Limited Liability Companies, GAO-04-654 (Washington, D.C.: May 28, 

2004). 
Page 11 GAO-05-754T 

is provided to NRC as proof of secondary insurance. Finally, we found that 

NRC does not treat limited liability companies differently than other 

licensees with respect to the Price-Anderson Act’s insurance requirements. 

Like other licensees, limited liability companies must show proof of both 

primary and secondary insurance coverage. American Nuclear Insurers 

also requires limited liability companies to provide a letter of guarantee 

from their parent or other affiliated companies with sufficient assets to 

pay the retrospective premiums. These letters state that the parent or 

affiliated companies are responsible for paying the retrospective 

premiums if the limited liability company does not. American Nuclear 

Insurers informs NRC that it has received these letters. 

In May 2004, we also issued a report documenting the need for NRC to 

more aggressively and comprehensively resolve issues related to the 

shutdown of the Davis-Besse nuclear power plant.7

 The most serious 

safety issue confronting the nation’s commercial nuclear power industry 

since Three Mile Island in 1979, was identified at the Davis-Besse plant in 

Ohio in March of 2002. After NRC allowed Davis-Besse to delay shutting 

down to inspect its reactor vessel for cracked tubing, the plant found that 

leakage from these tubes had caused extensive corrosion on the vessel 

head—a vital barrier in preventing a radioactive release. GAO determined 

(1) why NRC did not identify and prevent the corrosion, (2) whether the 

process NRC used in deciding to delay the shutdown was credible, and (3) 

whether NRC is taking sufficient action in the wake of the incident to 

prevent similar problems from developing at other plants. 

We found that NRC should have, but did not identify or prevent the 

corrosion at Davis- Besse because agency oversight did not produce 

accurate information on plant conditions. NRC inspectors were aware of 

indications of leaking tubes and corrosion; however, the inspectors did not 

recognize the importance of the indications and did not fully communicate 

information about them to other NRC staff. NRC also considered 

FirstEnergy—Davis-Besse’s owner—a good performer, which resulted in 

fewer NRC inspections and questions about plant conditions. NRC was 

aware of the potential for cracked tubes and corrosion at plants like DavisBesse but did not view them as an immediate concern. Thus, despite being 

aware of the development of potential problems, NRC did not modify its 

 7

GAO, Nuclear Regulation: NRC Needs to More Aggressively and Comprehensively 

Resolve Issues Related to the Davis-Besse Nuclear Power Plant’s Shutdown, GAO-04-415

(Washington, D.C.: May 17,2004). 
Page 12 GAO-05-754T 

inspection activities to identify such conditions. Additionally, NRC’s 

process for deciding to allow Davis-Besse to delay its shutdown lacked 

credibility. Because NRC had no guidance for making the specific decision 

of whether a plant should shut down, it instead used guidance for deciding 

whether a plant should be allowed to modify its operating license. 

However, NRC did not always follow this guidance and generally did not 

document how it applied the guidance. Furthermore, the risk estimate 

NRC used to help decide whether the plant should shut down was also 

flawed and underestimated the risk that Davis-Besse posed. Finally, even 

though it underestimated the risk posed by Davis-Besse, the risk estimate 

applied to the plant still exceeded levels generally accepted by the agency. 

Nevertheless, Davis-Besse was allowed to delay the plant’s shutdown. 

After this incident, NRC took several significant actions to help prevent 

reactor vessel corrosion from recurring at nuclear power plants. For 

example, NRC has required more extensive vessel examinations and 

augmented inspector training. I would also like to note that, in April 2005, 

NRC proposed a $5.45 million fine against the licensee of the Davis-Besse 

plant. The principal violation was that the utility restarted and operated 

the plant in May 2000, without fully characterizing and eliminating leakage 

from the reactor vessel head. Additional violations included providing 

incomplete and inaccurate information to NRC on the extent of cleaning 

and inspecting the reactor vessel head in 2000. 

While NRC has not yet completed all of its planned actions, we remain 

concerned that NRC has no plans to address three systemic weaknesses 

underscored by the incident at Davis-Besse. Specifically, NRC has 

proposed no actions to help it better (1) identify early indications of 

deteriorating safety conditions at plants, (2) decide whether to shut down 

a plant, or (3) monitor actions taken in response to incidents at plants. 

Both NRC and GAO had previously identified problems in NRC programs 

that contributed to the Davis-Besse incident, yet these problems continued 

to persist. Because the nation’s nuclear power plants are aging, GAO 

recommended that NRC take more aggressive actions to mitigate the risk 

of serious safety problems occurring at Davis-Besse and other nuclear 

power plants. 
Page 13 GAO-05-754T 

In April 2005, we issued a report outlining the need for NRC to do more to 

ensure that power plants are effectively controlling spent nuclear fuel.8

Spent nuclear fuel—the used fuel periodically removed from reactors in 

nuclear power plants—is too inefficient to power a nuclear reaction, but is 

intensely radioactive and continues to generate heat for thousands of 

years. Potential health and safety implications make the control of spent 

nuclear fuel of great importance. The discovery, in 2004, that spent fuel 

rods were missing at the Vermont Yankee plant in Vermont generated 

public concern and questions about NRC’s regulation and oversight of this 

material. GAO reviewed (1) plants’ performance in controlling and 

accounting for their spent nuclear fuel, (2) the effectiveness of NRC’s 

regulations and oversight of plants’ performance, and (3) NRC’s actions to 

respond to plants’ problems controlling their spent fuel. 

We found that nuclear power plants’ performance in controlling and 

accounting for their spent fuel has been uneven. Most recently, three 

plants—Vermont Yankee and Humboldt Bay (California) in 2004, and 

Millstone (Connecticut) in 2000—have reported missing spent fuel. 

Earlier, several other plants also had missing or unaccounted for spent 

fuel rods or rod fragments. NRC regulations require plants to maintain 

accurate records of their spent nuclear fuel and to conduct a physical 

inventory of the material at least once a year. The regulations, however, do 

not specify how physical inventories are to be conducted. As a result, 

plants differ in the regulations’ implementation. For example, physical 

inventories at plants varied from a comprehensive verification of the spent 

fuel to an office review of the records and paperwork for consistency. 

Additionally, NRC regulations do not specify how individual fuel rods or 

segments are to be tracked. As a result, plants employ various methods for 

storing and accounting for this material. Further, NRC stopped inspecting 

plants’ material control and accounting programs in 1988. According to 

NRC officials, there was no indication that inspections of these programs 

were needed until the event at Millstone. At the time of our review, NRC 

was collecting information on plants’ spent fuel programs to decide if it 

needs to revise its regulations and/or oversight. It had its inspectors collect 

basic information on all facilities’ programs. It also contracted with the 

Department of Energy’s Oak Ridge National Laboratory in Tennessee to 

review NRC’s material control and accounting programs for nuclear 

 8

GAO, Nuclear Regulatory Commission: NRC Needs to Do More to Ensure that Power 

Plants Are Effectively Controlling Spent Nuclear Fuel, GAO-05-339 (Washington, D.C.: 

Apr. 8, 2005). 
Page 14 GAO-05-754T 

material. NRC is planning to request information from plants and plans to 

visit over a dozen plants for more detailed inspection. The results of these 

efforts may not be completed until late 2005, over 5 years after the incident 

at Millstone that initiated NRC’s efforts. However, we believed NRC has 

already collected considerable information indicating problems or 

weaknesses in plants’ material control and accounting programs for spent 

fuel. 

GAO recommended that NRC (1) establish specific requirements for the 

way plants control and account for loose rods and fragments as well as 

conduct their physical inventories, and (2) develop and implement 

appropriate inspection procedures to verify plants’ compliance with the 

requirements. 

Based on our recent work at NRC, we have identified several cross-cutting 

challenges that NRC faces as it works to effectively regulate and oversee 

the nuclear power industry. First, NRC must manage the implementation 

of its risk-informed regulatory strategy across the agency’s operations. 

Second, and relatedly, NRC must strive to achieve the appropriate balance 

between more direct involvement in the operations of nuclear power 

plants and self-reliance and self-reporting on the part of plant operators to 

do the right things to ensure safety. Third, and finally, NRC must ensure 

that the agency effectively manages resources to implement its riskinformed strategy and achieve the appropriate regulatory balance in the 

current context of increasing regulatory and oversight demands as the 

industry’s interest in expansion grows. 

Nuclear power plants have many physical structures, systems, and 

components, and licensees have numerous activities under way, 24-hours 

a day, to ensure that plants operate safely. NRC relies on, among other 

things, the agency’s on-site resident inspectors to assess plant conditions 

and oversee quality assurance programs, such as maintenance and 

operations, established by operators to ensure safety at the plants. 

Monitoring, maintenance, and inspection programs are used to ensure 

quality assurance and safe operations. To carry out these programs, 

licensees typically prepare numerous reports describing conditions at 

plants that need to be addressed to ensure continued safe operations. 

Because of the significant number of activities and physical structures, 

systems, and components, NRC adopted a risk-informed strategy to focus 

inspections on those activities and pieces of equipment that are 

considered to be the most significant for protecting public health and 

NRC Faces Several 

Broad Challenges in 

Effectively Regulating 

and Overseeing 

Nuclear Power Plants 

NRC Must Manage the 

Implementation of Its RiskInformed Regulatory 

Strategy 
Page 15 GAO-05-754T 

safety. Under the risk-informed approach, some systems and activities that 

NRC considers to have relatively less safety significance receive little 

agency oversight. With its current resources, NRC can inspect only a 

relatively small sample of the numerous activities going on during 

complex plant operations. NRC has adopted a risk-informed approach 

because it believes that it can focus its regulatory resources on those areas 

of the plant that the agency considers the most important to safety. NRC 

has stated the adoption of this approach was made possible by the fact 

that safety performance at plants has improved as a result of more than 25 

years of operating experience. 

Nevertheless, we believe that NRC faces a significant challenge in 

effectively implementing its risk-informed strategy, especially with regards 

to improving the quality of its risk information and identifying emerging 

technical issues and adjusting regulatory requirements before safety 

problems develop. The 2002 shutdown of the Davis-Besse plant illustrates 

this challenge, notably the shortcomings in NRC’s risk estimate and failure 

to sufficiently address the boric acid corrosion and nozzle cracking issues. 

We also note that NRC’s Inspector General considers the development and 

implementation of a risk-informed regulatory oversight strategy to be one 

of the most serious management challenges facing NRC. 

Under the Atomic Energy Act of 1954, as amended, and the Energy 

Reorganization Act of 1974, as amended, NRC and the operators of nuclear 

power plants share the responsibility for ensuring that nuclear reactors 

are operated safely. NRC is responsible for issuing regulations, licensing 

and inspecting plants, and requiring action, as necessary, to protect public 

health and safety. Plant operators have the primary responsibility for 

safely operating their plants in accordance with their licenses. NRC has 

the authority to take actions, up to and including shutting down a plant, if 

licensing conditions are not being met and the plant poses an undue risk to 

public health and safety. 

NRC has sought to strike a balance between verifying plants’ compliance 

with requirements through inspections and affording licensees the 

opportunity to demonstrate that they are operating their plants safely. 

While NRC oversees processes, such as the use of performance measures 

and indicators, and requirements that licensees maintain their own quality 

assurance programs, NRC, in effect, relies on licensees and trusts them to 

a large extent to make sure their plants are operated safely. While this 

approach has generally worked, we believe that NRC still has work to do 

to effectively position itself so that it can identify problems with 

NRC Must Balance 

Oversight and Industry 

Self-Compliance 
Page 16 GAO-05-754T 

diminishing performance at individual plants before they become serious. 

For example, incidents such as the 2002 discovery of the extensive reactor 

vessel head corrosion at the Davis-Besse plant and the unaccounted for 

spent nuclear fuel at several plants across the country, raise questions 

about whether NRC is appropriately balancing agency involvement and 

self-monitoring by licensees. An important aspect of NRC’s ability to rely 

on licensees to maintain their own quality assurance programs is a 

mechanism to identify deteriorating performance at a plant before the 

plant becomes a problem. At Davis-Besse, NRC inspectors viewed the 

licensee as a good performer based on its past performance and did not 

ask the questions that should have been asked about plant conditions. 

Consequently, the inspectors did not make sure that the licensee 

adequately investigated the indications of the problem and did not fully 

communicate the indications to the regional office and NRC headquarters. 

Finally, Mr. Chairman, I would also like to comment briefly on NRC’s 

resources. While we have not assessed the adequacy of NRC’s resources, 

we have noted instances, such the shutdown of the Davis-Besse plant, 

where resource constraints affected the agency’s oversight or delayed 

certain activities. NRC’s resources have been challenged by the need to 

enhance security at nuclear power plants after the September 11, 2001, 

terrorist attacks, and they will continue to be challenged as the nation’s 

fleet of nuclear power plants age and the industry’s interest grows in both 

licensing and constructing new plants, and re-licensing and increasing the 

output of existing plants. Resource demands will also increase when the 

Department of Energy submits for NRC review, an application to construct 

and operate a national depository for high-level radioactive waste 

currently planned for Yucca Mountain, Nevada. We believe that it is 

important for NRC and the Congress to monitor agency resources as these 

demands arise in order to ensure that NRC can meet all of its regulatory 

and oversight responsibilities and fulfill its mission to ensure adequate 

protection of public health, safety, and the environment. 

In closing, we recognize and appreciate the complexities of NRC’s 

regulatory and oversight efforts required to ensure the safe and secure 

operation of the nation’s commercial nuclear power plants. As GAO’s 

recent work has demonstrated, NRC does a lot right but it still has 

important work to do. Whether NRC carries out its regulatory and 

oversight responsibilities in an effective and credible manner will have a 

significant impact on the future direction of our nation’s use of nuclear 

power. 

NRC Must Manage Agency 

Resources to Meet 

Increasing Regulatory and 

Oversight Demands 

Conclusion 
Page 17 GAO-05-754T 

Finally, we note that NRC has generally been responsive to our report 

findings. Although the agency does not always agree with our specific 

recommendations, it has continued to work to improve in the areas we 

have identified. It has implemented many of our recommendations and is 

working on others. For example, with respect to nuclear power plant 

security, NRC has restored its security inspection program and resumed 

its force-on-force exercises with a much higher level of intensity. It is also 

strengthening these exercises by conducting them at individual plants 

every 3 years rather than every 8 years, and is using laser equipment to 

reduce the exercises’ artificiality. Another example involves sealed 

radioactive sources. NRC is working with agreement states to develop a 

process for ensuring that high-risk radioactive sources cannot be obtained 

before verification that the materials will be used as intended. NRC 

anticipates that an NRC-agreement state working group will deliver a 

recommended approach to NRC senior management later this year. In 

addition, NRC continues to work on its broader challenges. For example, 

the agency intends to develop additional regulatory guidance to expand 

the application of risk-informed decision making, including addressing the 

need to establish quality requirements for risk information and specific 

instructions for documenting the decision making process and its 

conclusions. 

We will continue to track NRC’s progress in implementing our 

recommendations. In addition, as members of this subcommittee are 

aware, GAO has been asked to review the effectiveness of NRC’s activities 

for overseeing nuclear power plants, that is, its reactor oversight process. 

An important part of that work would be to review the agency’s riskinformed regulatory strategy and its effectiveness in identifying 

deteriorating plant performance as well as whether NRC is making 

progress toward effectively balancing agency inspections and selfmonitoring by licensees. 

Mr. Chairman, this completes my prepared statement. I would be pleased 

to respond to any questions that you or other Members of the 

subcommittee may have. 

For further information about this testimony, please contact me at (202) 

512-3841 (or at wellsj@gao.gov). John W. Delicath, Ilene Pollack, and 

Raymond H. Smith, Jr. made key contributions to this testimony. 

GAO Contacts and 

Staff 

Acknowledgements 
Page 18 GAO-05-754T 

Nuclear Waste: Preliminary Observations on the Quality Assurance 

Program at the Yucca Mountain Repository. GAO-03-826T. Washington, 

D.C.: May 28, 2003. 

Nuclear Regulatory Commission: Revision of Fee Schedules; Fee 

Recovery for FY 2003. GAO-03-934R. Washington, D.C.: June 30, 2003. 

Spent Nuclear Fuel: Options Exist to Further Enhance Security. GAO-03-

426. Washington, D.C.: July 15, 2003. 

Nuclear Security: Federal and State Action Needed to Improve Security 

of Sealed Radioactive Sources. GAO-03-804. Washington, D.C.: August 6, 

2003. 

Nuclear Regulatory Commission: Oversight of Security at Commercial 

Nuclear Power Plants Needs to Be Strengthened. GAO-03-752. 

Washington, D.C.: September 4, 2003. 

Nuclear Regulation: NRC Needs More Effective Analysis to Ensure 

Accumulation of Funds to Decommission Nuclear Power Plants. GAO-04-

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

Information Technology Management: Governmentwide Strategic 

Planning, Performance Measurement, and Investment Management Can 

Be Further Improved. GAO-04-49. Washington, D.C.: January 12, 2004. 

Yucca Mountain: Persistent Quality Assurance Problems Could Delay 

Repository Licensing and Operation. GAO-04-460. Washington, D.C.: 

April 30, 2004. 

Nuclear Regulation: NRC Needs to More Aggressively and 

Comprehensively Resolve Issues Related to the Davis-Besse Nuclear 

Power Plant’s Shutdown. GAO-04-415. Washington, D.C.: May 17, 2004. 

Nuclear Regulation: NRC’s Liability Insurance Requirements for 

Nuclear Power Plants Owned by Limited Liability Companies. GAO-04-

654. Washington, D.C.: May 28, 2004. 

Low-Level Radioactive Waste: Disposal Availability Adequate in the 

Short Term, but Oversight Needed to Identify Any Future Shortfalls. 

GAO-04-604. Washington, D.C.: June 10, 2004. 

Related GAO Products 
Page 19 GAO-05-754T 

Nuclear Nonproliferation: DOE Needs to Take Action to Further Reduce 

the Use of Weapons-Usable Uranium in Civilian Research Reactors. 

GAO-04-807. Washington, D.C.: July 30, 2004. 

Nuclear Regulatory Commission: Preliminary Observations on Efforts 

to Improve Security at Nuclear Power Plants. GAO-04-1064T. Washington, 

D.C.: September 14, 2004. 

Low-Level Radioactive Waste: Future Waste Volumes and Disposal 

Options Are Uncertain. GAO-04-1097T. Washington, D.C.: September 30, 

2004. 

Nuclear Regulatory Commission: NRC Needs to Do More to Ensure that 

Power Plants Are Effectively Controlling Spent Nuclear Fuel. GAO-05-

339. Washington, D.C.: April 8, 2005. 

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