_____________

POLICY ISSUE

(Information) 

February 6, 2015 SECY-15-0022

FOR: The Commissioners 

FROM: William M. Dean, Director 

 Office of Nuclear Reactor Regulation 

SUBJECT: CONSIDERATION OF GOVERNMENT ACCOUNTABILITY OFFICE 

RECOMMENDATION TO REVIEW SAMPLES OF LICENSEES’ 

DECOMMISSIONING TRUST FUNDS FOR COMPLIANCE WITH 

INVESTMENT FUND RULES 

PURPOSE: 

To discuss the staff’s consideration of alternative methods for verifying licensee 

decommissioning trust fund compliance with the U.S. Nuclear Regulatory Commission’s 

(NRC’s) regulations relating to investment restrictions. This review was undertaken in response 

to a U.S. Government Accountability Office (GAO) report on NRC oversight of decommissioning 

funds and correspondence between the Commission and Congress related to the strengths and 

weaknesses of the NRC’s regulations related to investment restrictions. This paper does not 

address any new commitments or resource implications. 

BACKGROUND: 

The regulation under Title 10 of the Code of Federal Regulations (10 CFR) 

Section 50.75(h)(1)(i)(A) provides investment terms and standards for trustees of non-electric 

utility licensees.1

 The regulation states that the trustee:2

CONTACT: Michael D. Purdie, NRR/DIRS 

 301-415-0244 

 

1

 An electric utility as defined in 10 CFR 50.2, “Definitions,” means 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. Approximately two-thirds of licensees are electric 

utilities. 

2

 Per 10 CFR 50.75(e)(1), investments into a decommissioning trust fund must be managed by a third-party 

outside the control of the licensee. A trustee is the manager, investment advisor, or other person directing 

investment of the trust funds.
The Commissioners 2 

Is prohibited from investing the funds in securities or other obligations of the 

licensee or any other owner or operator of any nuclear power reactor or their 

affiliates, subsidiaries, successors or assigns, or in a mutual fund in which at 

least 50 percent of the fund is invested in the securities of a licensee or parent 

company whose subsidiary is an owner or operator of a foreign or domestic 

nuclear power plant. However, the funds may be invested in securities tied to 

market indices or other non-nuclear sector collective, commingled, or mutual 

funds, provided that this subsection shall not operate in such a way as to require 

the sale or transfer either in whole or in part, or other disposition of any such 

prohibited investment was made before the publication date of this rule, and 

provided further that no more than 10 percent of trust assets may be indirectly 

invested in securities of any entity owning or operating one or more nuclear 

power plants. 

Trustees, as required in 10 CFR 50.75(h)(1)(i)(B), are: 

...obligated at all times to adhere to a standard of care set forth in the trust, 

which either shall be the standard of care, whether in investing or otherwise, 

required by State or Federal law or one or more State or Federal regulatory 

agencies with jurisdiction over the trust funds, or, in the absence of any such 

standard of care, whether in investing or otherwise, that a prudent investor would 

use in the same circumstances. The term “prudent investor,” shall have the 

same meaning as set forth in the Federal Energy Regulatory Commission's 

[FERC] “Regulations Governing Nuclear Plant Decommissioning Trust Funds” at 

18 CFR 35.32(a)(3), or any successor regulation. 

These investment restrictions are incorporated as part of the trust agreement between the 

licensee and the trustee. The restrictions in 10 CFR 50.75(h)(1)(i)(A)-(B) do not apply to electric 

utility licensees because State regulatory authorities or the Federal Energy Regulatory 

Commission (FERC) oversee such licensees’ decommissioning trust funds. 

The GAO, in its April 5, 2012, report, GAO-12-258, “Nuclear Regulation: NRC’s Oversight of 

Nuclear Power Reactors’ Decommissioning Funds Could Be Further Strengthened,” 

(Agencywide Documents Access and Management System (ADAMS) Accession 

No. ML12129A204) identified a potential weakness related to NRC oversight of licensees’ 

compliance with investment standards. The GAO stated that the NRC had not reviewed 

licensees’ compliance with investment standards, cannot confirm licensees are avoiding 

conditions in the investment standards, and as a result, NRC cannot determine whether 

enforcement action is needed. 

The GAO recommended that the staff sample licensees’ trust fund investments to determine if 

licensees are complying with the standards. The NRC responded to GAO’s recommendations 

on July 11, 2012 (ADAMS Accession No. ML12164A192), in accordance with statutory 

requirements.3

 Specifically, with respect to investment restrictions, the NRC stated: 

NRC regulations restrict investments in the nuclear sector, specify the standard 

of care for investments, and restrict the licensee’s involvement in day-to-day 

 

3

 31 U.S.C. Sec. 720. 
The Commissioners 3 

management of investments. The NRC will consider whether additional 

information is needed to better understand the current methods used by 

licensees, investment managers, and trustees to assure compliance with the 

NRC’s regulations. Based on that determination, the NRC will consider as 

appropriate alternative methods for reviewing licensee compliance with the 

regulations. 

In two letters to then U.S. Representative Edward Markey, the Commission agreed with GAO’s 

recommendations and informed Congress that alternative methods of verifying the financial 

instruments, and their compliance with the NRC’s regulations, may be necessary.4

 The 

Commission stated that it would make a determination of alternative methods to reviewing 

licensee compliance with the regulations after the 2013 decommissioning funding status 

reports.5

 Following GAO’s report, NRC response dated July 11, 2014, and correspondence with 

then U.S. Representative Edward Markey, the NRC staff undertook a thorough review of its 

methods of overseeing investment restrictions and found them to be sound. 

DISCUSSION: 

Over the past decade, the staff and the Office of the Inspector General (OIG) have reviewed the 

NRC’s process for overseeing investment restrictions for decommissioning trust funds. 

Following the 2012 GAO audit, the staff once again reviewed the assumptions made previously 

to determine if they are still applicable and appropriate. 

On February 6, 2006, OIG issued an audit report entitled, “Follow-up Audit of the Nuclear 

Regulatory Commission’s Decommissioning Trust Fund Program” (OIG-06-A-07; ADAMS 

Accession No. ML060370376). The audit identified, among other items, opportunities for 

improvement in the NRC’s decommissioning funding assurance program for operating power 

reactors. The OIG’s audit recommended that the NRC should “require specific prudent investor 

restrictions for decommissioning trust funds.” OIG argued that, without such restrictions, all of 

the accumulated trust funds were at risk. 

In SECY-06-0065, “Office of the Inspector General Recommendations on Decommissioning 

Funding Assurance,” dated March 23, 2006 (ADAMS Accession No. ML060590524), the staff 

disagreed with OIG’s assertion for two reasons. First, the NRC historically declined to insert 

itself into the financial management details of decommissioning funding assurance. Second, all 

States (including the District of Columbia) except one have adopted the Uniform Prudent 

Investor Act (UPIA) or a similar requirement. The UPIA provides for the duties and 

responsibilities of trustees, including those responsibilities related to investment portfolios. On 

May 17, 2006, in a staff requirements memorandum to SECY-06-0065 (ADAMS Accession 

No. ML061370418), the Commission agreed with the staff’s recommendation. However, the 

Commission also directed the staff to perform outreach to FERC, State Public Utility 

Commissions, and other organizations, and provide back to the Commission “[A] discussion of 

oversight activities along with recommendations for further Commission action, if appropriate.” 

 

4

 Letter to Representative Edward Markey from Chairman Macfarlane re: GAO Report-NRC’s Oversight of 

Nuclear Power Reactors’ Decommissioning Funds. ADAMS Accession No. ML12172A068. 

5

 Letter to Representative Edward Markey from Chairman Macfarlane re: Reforms to the Methodology and 

Reporting Process by which it determines Licensees’ Financial Wherewithal to Meet Future 

Decommissioning Obligations. ADAMS Accession No. ML13135A198.
The Commissioners 4 

In response, on November 7, 2007, the staff issued SECY-07-0197, “Reactor Decommissioning 

Trust Fund Oversight by Other Agencies and Recommendations Regarding Further Action.” 

The staff noted that Federal banking regulatory agencies examine trust departments every two 

to three years.6

 During these examinations, these Federal banking regulatory agencies analyze 

the trustee’s compliance with its fiduciary obligations and principles by ensuring that the trustee 

is meeting the requirements established in the trust agreement. The trustee’s adherence to 

investment restrictions and applicable laws are within scope of the fiduciary obligations of the 

trustee, and can be examined by a Federal banking regulator. The staff, therefore, concluded 

this process provides reasonable assurance that the risk of fraud is minimized. 

In the drafting of this paper, the NRC staff confirmed the assumptions that were made in both 

SECY-06-0065 and SECY-07-0197. The UPIA, or similar requirements, has now expanded to 

all States, including the District of Columbia. Also, the discussion in SECY-07-0197 related to 

Federal banking regulatory agencies auditing practices is still applicable today. Because 

decommissioning trust fund investments are managed by third parties who are regulated by 

Federal banking regulators with the statutory obligation and expertise to audit such investments, 

the staff does not believe there would be additional value added in conducting an additional 

independent review of decommissioning trust fund investments. 

CONCLUSION: 

The staff does not intend to change to the NRC’s process for overseeing investment restrictions, 

as the staff believes the current oversight discussed above provides reasonable assurance that 

the risk of fraud is minimized. 

RESOURCES: 

Continued oversight of investment restrictions requires no change in NRC procedures; 

therefore, there will be no impact on resources. 

COORDINATION: 

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

/RA/ 

William M. Dean, Director 

Office of Nuclear Reactor Regulation

 

6

 The three agencies performing these examinations are the Federal Deposit Insurance Corporation, Office of 

the Comptroller of the Currency, and the Federal Reserve Board. 
The Commissioners 4 

In response, on November 7, 2007, the staff issued SECY-07-0197, “Reactor Decommissioning 

Trust Fund Oversight by Other Agencies and Recommendations Regarding Further Action.” 

The staff noted that Federal banking regulatory agencies examine trust departments every two 

to three years.7

 During these examinations, these Federal banking regulatory agencies analyze 

the trustee’s compliance with its fiduciary obligations and principles by ensuring that the trustee 

is meeting the requirements established in the trust agreement. The trustee’s adherence to 

investment restrictions and applicable laws are within scope of the fiduciary obligations of the 

trustee, and can be examined by a Federal banking regulator. The staff, therefore, concluded 

this process provides reasonable assurance that the risk of fraud is minimized. 

In the drafting of this paper, the NRC staff confirmed the assumptions that were made in both 

SECY-06-0065 and SECY-07-0197. The UPIA, or similar requirements, has now expanded to 

all States, including the District of Columbia. Also, the discussion in SECY-07-0197 related to 

Federal banking regulatory agencies auditing practices is still applicable today. Because 

decommissioning trust fund investments are managed by third parties who are regulated by 

Federal banking regulators with the statutory obligation and expertise to audit such investments, 

the staff does not believe there would be additional value added in conducting an additional 

independent review of decommissioning trust fund investments. 

CONCLUSION: 

The staff does not intend to change to the NRC’s process for overseeing investment restrictions, 

as the staff believes the current oversight discussed above provides reasonable assurance that 

the risk of fraud is minimized. 

RESOURCES: 

Continued oversight of investment restrictions requires no change in NRC procedures; 

therefore, there will be no impact on resources. 

COORDINATION: 

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

William M. Dean, Director 

Office of Nuclear Reactor Regulation 

ADAMS Accession No: ML14310A458; * - Concurrence via e-mail 

OFFICE NRR/DIRS/IFIB Tech Ed*. NRR/DIRS/IFIB NRR/DIRS OGC* NRR 

NAME MPurdie JDougherty MDusaniwskyj SMorris SUttal WDean 

DATE 11/06/2014 11/12/2014 11/14/2014 01/12/2015 01/23/2015 02/06/2015 

OFFICIAL RECORD COPY 

 

7

 The three agencies performing these examinations are the Federal Deposit Insurance Corporation, Office of 

the Comptroller of the Currency, and the Federal Reserve Board.