POLICY ISSUE

NOTATION VOTE

September 15, 2005 SECY-05-0164

FOR: The Commissioners 

FROM: Jesse L. Funches

Chief Financial Officer

SUBJECT: ANNUAL FEE CALCULATION METHOD

PURPOSE:

This paper requests that the Commission eliminate its requirement that the Office of the Chief

Financial Officer calculate annual fees two ways each year. 

BACKGROUND: 

The Omnibus Budget Reconciliation Act of 1990 (OBRA-90), as amended, requires that the

NRC recover most of its budget authority each year prior to the end of the fiscal year. To meet

the requirements of OBRA-90, each year the NRC publishes a rule that establishes two types of

fees: (1) fees for services under 10 CFR Part 170 to recover special benefits to identifiable

applicants and licensees, and (2) annual fees under 10 CFR Part 171 to recover generic and

other regulatory costs not otherwise recovered under Part 170.

The NRC uses one of two methods to determine the amounts of the annual fees established in

the fee rule. One method is “rebaselining,” for which the NRC’s budget is analyzed in detail and

budgeted resources are allocated to fee classes and subclasses of licensees. The second

method is the “percent change” method, for which fees are revised based on the percent

change in the total budget, taking into account other adjustments, such as the number of 

CONTACT: Tammy Croote

OCFO/DFM/FPCAT

301-415-6041

txc1@nrc.gov 
The Commissioners -2-

licensees and the projected revenue to be received from Part 170 fees.

Until Fiscal Year (FY) 1996, annual fees were determined using the rebaselining method. In an

effort to stabilize fees, the NRC decided to adjust annual fees using the percent change method

beginning in FY 1996, unless there was a substantial change in the NRC budget or in the

magnitude of a specific budget allocation to a class of licensees. Fees were determined using

the percent change method in the FYs 1996 - 1998 fee rules. 

The NRC rebaselined fees in the FY 1999 fee rule, and solicited comment on the use and

frequency of the percent change method. Some commenters, such as NEI, supported

rebaselining every year, believing that this method best supports the accurate alignment of

costs to fee classes and the in-depth review needed to maximize agency efficiency. Other

commenters appreciated the fee stability provided by the percent change method. In response

to these comments, the Commission determined that annual fees should be rebaselined every

three years, or more frequently if there is a substantial change in the total NRC budget or in the

magnitude of the budget allocated to a specific class of licensees. 

In its February 4, 2000, Staff Requirements Memorandum (SRM) for SECY-00-0012, “FY 2000

Proposed Fee Rule” (ML023250305), the Commission directed staff to use the percent change

method to determine FY 2000 fees, and stated that the staff should continue to calculate annual

fees by both the rebaseline and percent change methods, and to provide a summary of the

results when making its recommendation to the Commission regarding the most appropriate

method to use to calculate annual fees (as OCFO had done in FYs 1997 - 1999). 

For the FYs 2001 and 2002 fee rules, OCFO continued to calculate annual fees using two

methods, and provided these results to the Commission when making its recommendation. For

both years, the Commission determined that annual fees should be rebaselined. In the SRM

for SECY-02-0020, “FY 2002 Proposed Fee Rule and Partial Response to the August 9, 2001,

Chairman’s Tasking Memorandum” (ML020580709), the Commission again directed staff to

continue the policy of calculating annual fees using two methods. For the FYs 2003 - 2005 fee

rules, the staff requested each year an exception to the requirement to calculate fees by both

methods, and simply rebaseline fees, because of substantial changes in the budget and the

NRC’s desire to issue the fee rule as early in the year as possible (which was made more

difficult given the often uncertain budget situation). The Commission approved these requests.

DISCUSSION: 

I am requesting that the Commission eliminate the requirement that OCFO calculate annual

fees two ways each year for three reasons: (1) the fee rule could be issued earlier in the fiscal

year, (2) rebaselining is usually appropriate because there is often a substantial change in the

total NRC budget or in the magnitude of the budget allocated to a specific class of licensees,

and (3) delaying rebaselining can result in larger fee changes in the years when fees are

rebaselined. These reasons are explained further below. I expect that in most years, annual

fees would be rebaselined, although the use of the percent change method would remain an 
The Commissioners -3-

1

The license fee rule is considered a major rule under the Small Business Regulatory

Enforcement Fairness Act of 1996, thus, the final rule does not take effect until 60 days after

publication in the Federal Register.

option should there be a year in which there are no significant changes to the total budget or

individual programs for fee classes.

 

1. Issuing the Fee Rule Earlier

To meet the OBRA-90 requirements, the final fee rule must become effective no later than the

end of August each year. This means that the proposed fee rule must be published in the

Federal Register by late March, and that the final fee rule must be published by late June.1

 The

fee calculation process for a given fiscal year begins in July of the previous year and requires

collaboration with all major NRC offices. 

Eliminating the requirement to calculate fees both ways would allow the staff to issue the fee

rule as early as possible each year. The Commission directed staff in its SRM for COMSECY03-0013, “FY 2003 Proposed Fee Rule” (ML030860514), to “. . . continue to develop future fee

rules as early in the fiscal year as possible to ensure that we continue to meet the deadline to

collect our fees by the end of the fiscal year.” 

One factor that affects the timing of the fee calculations is the date of passage of the NRC’s

appropriations bills. To minimize rework, fees are not generally finalized until passage of

NRC’s appropriations bill for that year. For FYs 1998 - 2001, the NRC’s appropriations bills

were passed in September or October. However, in FYs 2002 - 2005, the NRC’s appropriations

bills were passed anywhere from mid-November to February of the following year, and the fee

calculations were required to factor in budgetary rescissions as appropriate. 

In years when Congress approves the budget requested by the NRC without substantial

changes, staff are able to issue the fee rule approximately one month earlier if not required to

calculate fees using both methods and present results to the Commission. In years where

there are changes in the NRC’s budget approved by Congress (which is likely to occur this

year), the time difference is even larger because both types of calculations will need to be

started (and possibly completed) with one budget and then revised for the final approved

budget.

2. Rebaselining Is Usually the Appropriate Fee Calculation Method

The second reason for eliminating the requirement to calculate fees by two methods is that the

regulatory environment is such that rebaselining will likely be warranted in most years. 

Changes occurring in FY 2006 and beyond that warrant a rebaselining of fees include those in

the areas of new reactor licensing, homeland security (including the removal of certain

homeland security costs from the fee base beginning in FY 2007, per the Energy Policy Act),

and new regulatory authority for ‘Naturally Occurring and Accelerator Produced Radioactive

Material’ (NARM). Fees were last recalculated using the percent change method in FY 2000;

each year since the NRC determined that rebaselining was appropriate.
The Commissioners -4-

3. Delaying Rebaselining Can Result in Larger Fee Changes

In its report, “NRC’s License Fee Development Process Needs Improvement,” dated December

14, 1999, the OIG expressed concern about the use of the percent change method over an

extended period, noting that it only postpones the impacts of rebaselining. For example, OIG

noted that in FY 1999, when fees were rebaselined after three years of using the percent

change method, the operating power reactor annual fee decreased by thirteen percent, while

the annual fees for certain uranium recovery licensees increased by more than 200 percent,

“[t]hus, the anticipated stability and predictability of the percent change method was ultimately

negated.” This report also expressed concern that, because the percent change method is not

based on the cost relationship of providing services, fees become inequitable over time

because some licensees are subsidizing others in between rebaselining years. This concern,

arising out of our experiences with use of these two calculation methods, is another reason

I believe the percent change method should be used infrequently and that the requirement to

calculate fees two ways every year is therefore no longer necessary.

RECOMMENDATION:

Based on the foregoing discussion, I recommend that the Commission eliminate its requirement

that OCFO calculate annual fees two ways each year. 

If this recommendation is approved, I expect that in most years annual fees would be

rebaselined. The use of the percent change method would remain an option should there be a

year in which there are no significant changes to the total budget or individual programs for fee

classes, in which case I will notify the Commission. The FY 2006 fee rule would note the

presumption in favor of rebaselining when determining annual fees for FY 2006 and beyond.

SCHEDULE:

Because staff would need to allow extra time to calculate fees two ways and present those

results to the Commission, I request a Commission decision on the above recommendation by

October 7, 2005.

Note I plan to send to you, in early November 2005, a Commission paper regarding FY 2006

fee policy issues, along with the FY 2006 fee rule schedule. (This is the usual process

followed, which allows Commission input into fee policy decisions prior to the completion of the

proposed rule each year.)
The Commissioners -5-

COORDINATION:

The Office of the General Counsel has reviewed this paper and has no legal objections. 

/RA/ P. Rabideau (for)

Jesse L. Funches

Chief Financial Officer
The Commissioners -5-

COORDINATION:

The Office of the General Counsel has reviewed this paper and has no legal objections. 

/RA/ P. Rabideau (for)

 

 Jesse L. Funches

Chief Financial Officer

Distribution:

OCFO/DFM SF LF-1.12 E. Heumann. NMSS R. Hoskins, OIP

OCFO/DFM/FPCAT RF G. Deegan, NMSS G. Thompson, RES

OCFO/DFM RF C. Seelig, NMSS EDO R/F

OCFO R/F K. Stout, NMSS L. Solander, NSIR

R. Suri, OCFO/DFM/FPCAT B. Stehlin, NMSS E. Suarez, NSIR

J. Dorfman, OCFO/DPBA E. Jacobs-Baynard, NMSS C. Holzle, OGC

G. Peterson, OCFO/DFM/LFT NMSS R/F J. Gallo, ACRS/ACNW

SMHudson, OCFO T. Dietz, NRR D.Nelson, OE

R. Hesselink, OCFO/DPBA NRR R/F J. Whetstine, ASLBP

K. Ferrell, OCFO/DPBA F. Tobler, NRR J. Dambly, ADM

B. Ficks, OCFO/DPBA M. Fahey, OI M. Schroll, SECY

D. Sollenberger, STP B. Usilton, STP STP R/F

ADAMS X Yes __ No Initials TXC1_ 

 __Publicly Available X Non-Publicly Available Sensitive _X_ Non-Sensitive 

DOCUMENT NAME: E:\Filenet\ML052580332.wpd

*See attached concurrence

“C” = Copy without attachment/enclosure “E” = Copy with attachment/enclosure “N” = No copy

OFFICE OCFO/DFM/FPCAT C OGC C OCFO/DFM C DCFO C CFO C

NAME TCroote* TRothschild* MGivvines* PJRabideau /RA/ JLFunches /RA/ 

DATE 8 /18/05 8/23/05 08/25/05 09/15/05 09/15/05