3

NUREG-1577, Rev. 1

ABSTRACT

The NRC is issuing this final Standard Review

Plan to describe the process it uses to review the

financial qualifications and methods of providing

decommissioning funding assurance required of

power reactor licenses. A separate SRP was

issued for the NRC's antitrust review

responsibilities in 1997. This Standard Review

Plan is being used as the basis for reviews as the

electric utility industry moves from an

environment of rate regulation toward greater

competition. Although this final Standard Review

Plan reflects current regulations and policy, and

has been updated to reflect changes to the

regulations resulting from responses to the

Advance Notice of Proposed Rulemaking and the

Draft Statement, it will be updated for any future

initiatives. The NRC is concerned that rate

deregulation and disaggregation resulting from

various restructuring actions involving power

reactor licensees could have adverse effects on the

protection of public health and safety.

The NRC is publishing Revision 1 to

NUREG-1577 to include footnote information

omitted in the original version published February

1999.
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NUREG-1577, Rev. 1

STANDARD REVIEW PLAN ON

POWER REACTOR LICENSEE FINANCIAL QUALIFICATIONS AND

DECOMMISSIONING FUNDING ASSURANCE

Review Responsibilities

Primary— Generic Issues and Environmental

Projects Branch (PGEB)

Secondary— None

I. AREAS OF REVIEW

The NRC is issuing this Standard Review Plan

(SRP) to describe the process it uses to review

the financial qualifications and methods of

providing decommissioning funding assurance

required of power reactor license applicants and

licensees. A separate Standard Review Plan on

Antitrust Reviews was issued in December, 1997

(NUREG-1574). Also, a draft SRP Regarding

Foreign Ownership, Control, or Domination of

Applicants for Reactor License will be issued

shortly. The issue of foreign ownership, control,

or domination is a policy matter that is under

active consideration by the Commission. Each of

these SRPs will be used as a basis for reviews as

the electric utility industry moves from an

environment of rate regulation toward greater

competition and the attendant corporate

restructuring that competitive forces will likely

engender. The NRC issued a draft of this SRP in

January, 1997 (NUREG-1577), and received 6

public comment letters as a result. This SRP, like

the draft, reflects current NRC regulations and

policy. Thus, some of the public comments

received that suggested changes to current

requirements for financial qualifications could not

be considered. However, the NRC has adopted

comments on existing processes and procedures in

this SRP, where appropriate. Since the NRC

issued the draft SRP, a final rule on

decommissioning funding assurance was issued on

September 22, 1998 (63 FR 50465). This SRP reflects

the changes to the NRC's decommissioning

funding assurance requirements that the final rule

implemented. Additionally, on October 24, 1997,

the NRC staff issued SECY-97-253, “Policy

Options for Nuclear Power Reactor Financial

Qualifications in Response to Restructuring of the

Electric Utility Industry.” On January 15, 1998,

the Commission responded to the staff's proposals

in a staff requirements memorandum and indicated

that the NRC should continue its current

approach to evaluating the financial qualifications

of license applicants and licensees of operating

nuclear power plants. The Commission

reconfirmed this view in a staff requirements

memorandum dated December 9, 1998 on

SECY-98-153— “Update of Issues Related to

Nuclear Power Reactor Financial Qualifications in

Response to Restructuring of the Electric Utility
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NUREG-1577, Rev. 1

Industry.” If the NRC decides to change its

financial qualifications review criteria in the

future, or if other changes to relevant NRC

policies and requirements are adopted, the NRC

will revise this SRP to reflect such changes.

II. ACCEPTANCE CRITERIA

1. Financial Qualifications

Section 182.a. of the Atomic Energy Act of 1954,

as amended, (AEA) provides that “Each

application for a license... shall specifically state

such information as the Commission, by rule or

regulation, may determine to be necessary to

decide such of the technical and financial

qualifications of the applicant ... as the

Commission may deem appropriate for the

license.” The NRC's regulations governing

financial qualifications reviews of applications for

licenses to construct or operate nuclear power

plants are in section 50.33(f) of Title 10 of the

Code of Federal Regulations. Guidance for

Construction Permit (CP) financial qualifications

reviews is provided in Appendix C to 10 CFR

Part 50. Transfers of licenses are governed by 10

CFR 50.80. If a license amendment is required by,

for example, the addition of a new or renamed

entity to the license, the provisions of 10 CFR

50.90, 50.91, and 50.92 would be applicable. The

reviewer will accept applications for licensing

actions that provide required information pursuant

to the relevant sections cited above.

2. Decommissioning Funding Assurance

Decommissioning funding assurance for nuclear

power plants is governed by 10 CFR 50.33(k),

50.75, and 50.82 in a three-stage process. First, as

required in section 50.33(k), on or before July 26,

1990, licensees were required to submit a report,

including a certification, specifying how financial

assurance for decommissioning would be

provided. An applicant for an operating license
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NUREG-1577, Rev. 1

(OL) under 10 CFR Part 50 or a combined license

under 10 CFR Part 52 is required, pursuant to 10

CFR 50.33(k)(1), to submit information in the

form of a report indicating how reasonable

assurance will be provided that funds will be

available to decommission the facility. Second,

licensees are required to adjust annually the

amount of decommissioning funding assurance,

using an amount equal to or greater than that

required under the formula in section 50.75(c)(2),

and report on the status of their decommissioning

funds as provided by 10 CFR 50.75(f). Periodic

adjustments to the funding amount should be

made in coordination with a licensee's rate

regulator, if applicable, or by itself. Third, in

accordance with section 50.75 (f), 5 years before

permanent cessation of operations, a licensee

must submit a preliminary decommissioning cost

estimate that includes plans for adjusting levels of

funds assured for decommissioning to

demonstrate that a reasonable level of assurance

will be provided that funds will be available when

needed to cover the cost of decommissioning. By

the time of submission of the post-shutdown

decommissioning activities report (PSDAR)

required in section 50.82, licensees should have

either (1) funds plus an estimate of expected

earnings on the fund, or (2) a guarantee,

insurance, or other funding assurance method for

the total estimated decommissioning cost, as

provided in 10 CFR 50.75(e). Final funding plans,

and adjustments to them during any safe storage

period, are also required, as necessary. For those

licensees that shut down their power plants

prematurely (that is, before the scheduled end of

their operating license term), section 50.82

provides that the schedule for collecting any

balance of funds estimated to be needed for

decommissioning will be determined on a case-by- case

basis. Section 50.75(e) describes allowable

funding assurance mechanisms and the

circumstances under which licensees may use

them. Section III.2. of this SRP provides

additional discussion of decommissioning funding

assurance. The reviewer will accept the reports,

information, and applications for licensing actions

that conform to the requirements of these sections

of the NRC's regulations.
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NUREG-1577, Rev. 1

3. Foreign Ownership

License applications for new facilities or for

transfers of ownership of existing facilities may

include requests by foreign entities to own all or

part of a reactor facility. Section 103d of the AEA

prohibits the NRC from issuing a license to an

applicant if the NRC knows or has reason to

believe that the applicant is owned, controlled, or

dominated by an alien, foreign corporation, or

foreign government.11 The reviewer will accept

applications having foreign ownership

considerations that address issues and provide

information as described in the draft SRP

Regarding Foreign Ownership, Control, or

Domination of Applicants for Reactor Licenses.

1 The NRC regulation that implements this prohibition in the Atomic Energy

Act is 10 CFR 50.38, which states:

Any person who is a citizen, national, or agent of a foreign country, or any

corporation, or other entity which the Commission knows or has reason to

believe is owned, controlled or dominated by an alien, a foreign corporation,

or a foreign government, shall be ineligible to apply for and obtain a license.
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NUREG-1577, Rev. 1

III. REVIEW PROCEDURES

The reviewer uses the review procedures

described in this section of the SRP as may be

appropriate for a particular case.

1. Financial Qualifications

a. Construction Permit Reviews

The NRC does not currently have any CP

applications for review. All reviews for any new

CP applications will be performed under the

following procedures. Section 50.33(f)(1)

requires CP applicants to submit information that

“demonstrates that the applicant possesses or has

reasonable assurance of obtaining the funds

necessary to cover estimated construction costs

and related fuel cycle costs.” Appendix C to 10

CFR Part 50 provides more specific directions for

evaluating the financial qualifications of CP

applicants. Reviewers should confirm that

applicants have provided at least 3 types of

information: (1) an estimate of construction costs,

including plant costs ascribable to the nuclear

plant itself; general and overhead plant costs,

including any transmission and distribution costs

ascribable to the plant; and nuclear fuel cost for

the first core load; (2) the source(s) of

construction funds, including a financial plan

describing internal and external sources of funds;

and (3) the latest published annual financial

reports, together with any current interim financial

statements that are pertinent, including income,

balance sheet, and cash flow statements. 

In addition, the reviewer should determine

whether applicants are subject to section

50.33(f)(3) and Appendix C to 10 CFR Part 50,

which require newly-formed entities to provide

information showing: (1) the legal and financial

relationships they have or propose to have with

their stockholders, corporate affiliates, and others

(such as financial institutions) upon which they

are relying for financial assistance; (2) information

to support the financial capability of stockholders,

corporate affiliates, and others to meet their

current or intended commitments to the

applicant(s); (3) any other information considered

necessary by the Commission to enable it to

determine applicants' financial qualifications; and

(4) applicants' statements of assets, liabilities, and

capital structure as of the date of the application.

As provided in 10 CFR 50.33(f)(3), additional

information is required of newly-formed entities22

when they are organized for the primary purpose

2 The NRC views the term, “newly-formed entity,” in the context of CP, OL,

or post-OL reviews, as being largely self-explanatory, but is providing the

following working definitions to assist the reviewer in determining whether

an applicant is a “newly-formed entity” or an “established entity:”

A newly-formed entity is a company that has been formed or organized for

the primary purpose of constructing, operating, owning, or decommissioning

a nuclear power plant, and does not have an established five-year financial

record, or demonstrated a financial capability for raising and managing

capital similar to the level required to fund a nuclear power plant's

construction, capital additions, and operating and decommissioning expenses,

as appropriate, or the licensee's stipulated share of those operating expenses.

A nuclear operating company formed from an existing power reactor licensee

or licensees is a newly-formed entity.

An established entity is a company that has an established and proven

financial, construction, operational, or decommissioning record of five years

or more for managing or owning a nuclear power plant, or has an established

record of raising and managing capital similar to the level required to fund a

nuclear power plant's construction, capital additions, and operating and

decommissioning expenses, as appropriate, or the licensee's stipulated share

of those operating expenses. 
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NUREG-1577, Rev. 1

of constructing or operating a nuclear power

plant. Thus, for example, the reviewer should

treat such an operating company as a

newly-formed entity and should review

information that is typically contained in operating

or participation agreements. The reviewer should

also evaluate the ability of the plant owners to

meet their obligations to the operating company.

If, for example, the owners of an operating

company meet the definition of an “electric

utility” as provided in 10 CFR 50.2, less detailed

information will be required. (As described in the

section on OL reviews, a newly-formed entity that

is an “electric utility” will not be subject to further

review.) 

The reviewer should evaluate new companies

formed as the result of mergers to determine their

status as “electric utilities” or, if they do not meet

this definition, evaluate their projected combined

financial statements and other relevant

information as described in this SRP to determine

their financial qualifications. Similarly, the NRC will evaluate formations

of new holding companies over existing licensees

to determine the potential financial impact of the

new company on the existing licensee, but will

perform only a limited review if the licensee is an

“electric utility”. A newly-formed entity that has

been formed to buy and operate a nuclear plant as

its only significant asset (e.g., a “merchant plant”,

a “GENCO,” or an exempt wholesale generator

(EWG)) would normally be expected to submit

more detailed information to support its financial

qualifications, unless it meets the definition of

“electric utility,” than other applicants. Corporate

reorganizations (e.g., functional unbundling of

nuclear plant operations from other corporate

activities) or initiation of contracts with other

parties to provide nuclear plant operational

support would not normally be considered to fall

within the definition of “newly-formed entities,”

although such changes may be subject to review

pursuant to 10 CFR 50.80, as described below.

The reviewer will determine the financial

qualifications of a license applicant for a CP based

on the adequacy of the relevant information

provided and the applicant's ability to meet the

standards stipulated in the NRC's regulations.

The NRC believes that this framework is

sufficient to provide reasonable assurance of the

financial qualifications of both electric utility and

non-electric-utility applicants under the various

ownership arrangements currently contemplated.

These ownership arrangements include: (1)

holding companies; (2) operating, generating, or

service company subsidiaries; (3) merged

companies; (4) independent power producers

(IPPs); (5) exempt wholesale generators; and (6)

“hybrid” companies with characteristics of various

combinations of these organizations. If entities

using unanticipated ownership arrangements apply for new

CPs, the reviewer may use the authority under

section 50.33(f) either to require adequate

information to assure himself or herself that the

applicant has demonstrated reasonable assurance

of obtaining adequate funds for the safe

construction of the facility or to deny issuance of

a CP.
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NUREG-1577, Rev. 1

b. Operating License Reviews

“Electric utilities” as defined in 10 CFR 50.2 are

exempt under 10 CFR 50.33(f) from financial

qualification reviews for OL applications. If the

reviewer determines that OL applicants are

“electric utilities” and that all of their corporate

owners (i.e., parent companies) have been

identified, such applicants will not be subject to

further NRC financial qualifications review. OL

applicants that are not “electric utilities” are

required under section 50.33(f)(2) to submit information that demonstrates that they possess or

have reasonable assurance of obtaining the funds

necessary to cover estimated operating costs for

the period of the license. The reviewer will

confirm that non-electric utility OL applicants

have submitted estimates for total annual

operating costs for each of the first 5 years of

operation of their facilities, and have also

indicated the source(s) of funds to cover

operating costs. Information on the sources of

funds should include projections of the market

price of power in the area in which the plant will

be located, any long-term contracts that the

applicant has for the plant, contracts or other

arrangements with relevant transmission or grid

reliability authorities that designate the plant as a

“must-run” facility, government-required charges

designated for nuclear plant operations (e.g.,

non-bypassable wires charges), corporate

revenues from other sources that may be used at

the nuclear plant, and any other information

relevant to the source of revenues. The reviewer

will evaluate this information for reasonableness

and will compare it to plants of similar size,

design, and location. If applicable, the reviewer

will also use information from Moody's, Standard

and Poors, and Value Line or other widely

accepted rating organizations to assist in his or

her review. If a license applicant has an

“investment-grade” rating or equivalent from at

least two of these sources, or has demonstrated

that it has met the electricity supply and demand

test described above, the reviewer will find such

applicants financially qualified. If an applicant

cannot meet these criteria, the reviewer will also

consider other relevant financial information (i.e.,

information on cash or cash equivalents that would be

sufficient to pay fixed operating costs during an

outage of at least 6 months, the amount of

decommissioning funds collected or guaranteed for the plant in relation to the current

estimated decommissioning cost, and any other

relevant factors). An OL applicant that is a

newly-formed entity organized for the primary

purpose of operating the facility is required to

submit the information described in 10 CFR

50.33(f)(3). On the basis of the information

submitted, the reviewer will issue findings with

respect to the financial qualifications of such OL

applicants. If the reviewer determines that a

license applicant does not meet these financial

qualification standards, he or she will either deny

issuance or transfer of the OL, condition the OL,

or recommend initiation of other regulatory action

to mitigate financial qualifications concerns. 
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NUREG-1577, Rev. 1

c. Combined License Applications

As authorized in 10 CFR Part 52, applicants may

apply for a combined CP and OL license. In

accordance with section 52.77, all such

applications must contain all of the information

required under section 50.33, including

information regarding financial qualifications. The

review procedures as described in Sections III.1.a.

and b. will be used to review any combined

applications that the NRC receives.

d. Post-OL Non-transfer Reviews

The NRC does not systematically review its

power reactor licensees once it has issued an OL,

other than for transfers discussed in Section

III.1.e. However, section 50.33(f)(4) states: “The

Commission may request an established entity or

newly-formed entity to submit additional or more

detailed information respecting its financial arrangements and

status of funds if the Commission considers this

information to be appropriate. This may include

information regarding a licensee's ability to

continue the conduct of the activities authorized

by the license and to decommission the facility.”

The NRC has used this provision only in limited

situations and normally will not require licensees,

including those that are not “electric utilities,” to

report on their financial qualifications at specified

intervals.33 However, reviewers have and will

continue to conduct general follow-up reviews of

all licensees by screening trade and financial press

reports, and other sources of information.

Reviewers will use this information to determine

whether to recommend any additional NRC

action, including requests for additional

information and the assignment of additional

inspection resources to monitor the adequacy of

plant safety performance.

3 All power reactor licensees are required, pursuant to 10 CFR 50.71(b), to

submit annual financial reports.
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NUREG-1577, Rev. 1

e. Reviews of Transfers of Licenses

NRC regulations in 10 CFR 50.80 require

Commission review of and written consent to

direct as well as indirect transfers of operating

licenses, including licenses for nuclear power

plants owned or operated by “electric utilities.”

44

When the transfer involves a change in the

licensee listed on the NRC license, the applicant

must also apply for a license amendment under

section 50.90. The reviewer will determine

whether, in the case of a direct transfer, a

proposed transferee is qualified to hold the

license, or whether, in the case of an indirect

transfer, the holder of the license is qualified to

hold the license. Section 50.80(b) requires license

transfer applicants to include as much of the

information with respect to, among other things,

the financial qualifications of the proposed holder

of the license as required in section 50.33(f).

Thus, the reviewer will use the criteria described

in other sections of III.1. of this SRP, as

appropriate, to conduct his or her license transfer

reviews.

To date, the NRC has evaluated transfers

involving mergers, acquisitions, formations of

holding companies, and sales of portions of

facilities to other parties. The reviewer should

evaluate the financial qualifications associated

with these transfers by: (1) determining whether

the proposed holder of the license will remain an

“electric utility” following the direct or indirect

transfer; (2) for non- “electric-utility” applicants,

reviewing the recent financial performance of the

proposed transferee, or, if the proposed transferee

is a new entity such as an operating, generating,

or service company subsidiary, evaluating the

ownership or participation agreement with its

owners or other responsible party; and (3)

identifying all parent companies that are not

licensed by the NRC or did not undergo an NRC

section 50.80 review.

The reviewer should treat applications involving

changes of ownership, mergers, formation of

holding companies, and other restructuring

proposals that go beyond corporate name changes

or internal reorganizations as potential transfers of

licenses, directly or indirectly, through transfer of

control of the license, as subject to section 50.80

review, and not merely subject to a section 50.90

license amendment review. In some cases, a

reviewer will need to conduct a “threshold”

review to determine whether the proposed action

does, in fact, constitute a transfer subject to

section 50.80.

Approval of a transfer under section 50.80 will be

accomplished by order. When appropriate, a

conforming license amendment will be issued. (A

name change of a licensee that does not involve

license transfer considerations under section 50.80

will be effected by a license amendment issued

administratively under section 50.90.) In addition,

reviewers should review transfers for their

potential impact on the licensee not only to

determine the adequacy of funds for safe

operation and decommissioning, but to ensure

that the licensee maintains adequate technical

qualifications and organizational control and

authority over the facility.55 All orders approving

section 50.80 transfers are signed by the Director,

Office of Nuclear Reactor Regulation (NRR).

Additionally, the Director, NRR, will consult with

the Commission on all applications for transfers of

4 Section 50.80(a) reads, “No license for a production or utilization facility, or

any right thereunder, shall be transferred, assigned, or in any manner

disposed of, either voluntarily or involuntarily, directly or indirectly, through

transfer of control of the license to any person, unless the Commission shall

give its consent in writing.”

5 A separate SRP on technical qualifications of license transfer appli- cants is

being developed.
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NUREG-1577, Rev. 1

licenses that represent new or unusual approaches

or organizations. 

For mergers and restructuring actions involving

the formation of holding companies, the reviewer

determines whether the surviving licensed owner

or operator will remain an “electric utility” as

defined in section 50.2. Because of the concern

that the establishment of a holding (parent)

company over a licensee could eventually result in

the parent depleting assets from the licensee to

such an extent that the ability to fund safe

operations and decommissioning could be

affected, the reviewer should recommend that

transfer approvals be conditioned to require the

licensee to inform the NRC before significant

assets are transferred from the licensee to its

parent or related company. When co-owners have

requested NRC consent to transfer their interests

in power reactors, the reviewer should determine

the financial qualifications of each buyer to own

or operate its proposed percentage share of the

facility by following the same procedure as

described in other sections of III.1. of this SRP.

Generally, the reviewer should not deem as

license transfers under section 50.80 those internal

corporate reorganizations (i.e., that do not entail

mergers, holding company formations,

acquisitions, or divestitures) that do not alter the

licensee's status as an “electric utility,” do not

substantially affect corporate ownership or

identity of the licensee, or do not otherwise

materially affect the licensee's financial

qualifications. However, the reviewer should

determine whether such reorganizations are

subject to NRC review and determine whether the

licensee's technical qualifications are affected by

the reorganization. 

The reviewer should also evaluate financial

qualifications of non-“electric-utility” applicants

on the basis of financial data based on current

information from the financial ratings services

such as Moody's and Value Line. To date, the

NRC has not found any proposed restructuring

actions in which the surviving licensee would not

remain an “electric utility” or that would render

the proposed transferee not financially qualified.66

The reviewer will publish the results of such an

evaluation in a Safety Evaluation Report (SER),

which is used by the Associate Director of

Projects staff to issue an order, with a license

amendment when appropriate. These actions are

noticed in the Federal Register.

NRC regulations in 10 CFR 50.81 govern the

relationships that licensees may have with their

creditors, including trustees under any mortgage,

pledge, or lien and court-appointed trustees under

bankruptcy proceedings. This section permits the

creation of such creditor relationships, provided

that creditors do not take possession of the facility

and are subject to the same restrictions under

NRC regulations and the AEA as the licensee.

The NRC does not typically review creditor

relationships other than sale-leaseback77

transactions. See Arizona Public Service Co.

(Palo Verde Nuclear Generating Station, Unit 1),

CLI-85-17, 22 NRC 875 (1985).

6

In one case, the NRC received information as part of a request for approval

of the formation of a holding company over a licensee that indicated that the

licensee did not meet the NRC's definition of an “electric utility.” However,

the formation of the holding company in this case did not cause the licensee's

status as an “electric utility” to change.

7 Sale-leaseback transactions typically involve the licensed owner of a nuclear

power plant selling all or a portion of its share of the plant to an investor,

who then leases back that portion of the facility to the licensee. The licensee

continues to “possess” and/or operate the plant and is responsible for safe

operation and decommissioning under the terms of the NRC license.
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NUREG-1577, Rev. 1

2. Decommissioning Funding Assurance

a. Verifying the Initial Certification Amount

As part of the reporting requirements in section

50.75(f), a licensee's calculations of both the basic

certification formula amount and the annual

escalation amount are subject to NRC

verification. As described in section III.2.b. of this

SRP, NRC regulations require licensees to report

information on decommissioning funds at least

once every two years following the initial report

filed by March 31, 1999.

(1) Power reactor licensees were required to certify

by July 27, 1990, that they would have adequate

funds to decommission each unit by the time they

plan to shut the unit down. Pursuant to section

50.33(k), a new applicant for an OL is required to

submit information in the form of a report

indicating how reasonable assurance of

decommissioning will be provided. The reviewer

should confirm that this certification is based on

the applicable formulas contained in sections

50.75(c)(1) and (2), or upon a site-specific

estimate, provided that the estimate is not less

than the value derived from section 50.75(c),

using the following criteria: 

(a) Section 50.75(c)(1) contains two formulas to

determine the certification amounts in 1986 dollars for pressurized

water reactors (PWRs) and boiling water reactors

(BWRs). The formulas include scaling factors to

account for size differences in reactors. The

decommissioning cost ranges in 1986 dollars are

from $85.6 million to $105 million for PWRs and

from $114.8 million to $135 million for BWRs.

(b) Section 50.75(c)(2) contains a formula to

determine the annual change (inflation or

escalation, although deflation is also possible) in

the three primary decommissioning cost

components— labor, energy, and low-level waste

(LLW) burial charges. 
15

NUREG-1577, Rev. 1

• The 1990 certifications should have included

escalation calculations from 1986 dollars to 1989

or 1990 dollars.

• Licensees are required to recalculate the formula

amounts annually to account for changes in the

three decommissioning cost factors during the

previous year. Calculations are to be based on

data from the U.S. Bureau of Labor Statistics and

current versions of NUREG-1307 as specified in

section 50.75(c)(2). (Power reactor licensees are

required to change their collection amounts periodically. For licensees that

remain under rate regulation, this period may

coincide with licensees' usual rate cycles.

Licensees that are not rate regulated or do not

have access to non-bypassable charges for

decommission ing should adjust their funding

levels over reasonable periods. In all cases,

however, pursuant to section 50.75(e)(2), the

NRC reserves the right, either in cooperation with

a licensee's rate regulators or independently, to

take action on a case-by-case basis to modify a

licensee's schedule for the accumulation of

decommission ing funds.)

(2) A licensee's calculations of both the basic

certification formula amount and the escalation

amount from 1986 to the current year are subject

to NRC verification. Such verification will be

determined primarily by the reviewer's evaluation

of the biennial reports required in 10 CFR

50.75(f), as described in III.2.b. of this SRP, but

may also be accomplished through the NRC

inspection process. Although data may be over a

year out-of-date, the licensee is required to have

performed an escalation calculation within the

previous 12 months.

• Because escalation in the three decommissioning cost factors, labor, energy, and LLW disposal, are
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NUREG-1577, Rev. 1

given regionally in the reference documents, the

reviewer should check a licensee's methodology

and sources in making the calculations.

• Licensees may use information from several tables

of regional data in the U.S. Department of Labor,

Bureau of Labor Statistics cited in section

50.75(c). Such information is subject to reviewer

or inspector confirmation that the choice of data

is reasonable. That is, site-specific data should not

vary substantially from generic cost data without

demonstrable reason.

(3) The NRC formulas in section 50.75(c) include

only those decommissioning costs incurred by

licensees to remove a facility or site safely from

service and reduce residual radioactivity to a level

that permits: (1) release of the property for

unrestricted use and termination of the license; or

(2) release of the property under restricted

conditions and termination of the license. Thus,

for example, the costs of dismantling or

demolishing non-radiological systems and

structures are not included in the NRC cost

formulas. In addition, the costs of managing and

storing spent fuel on site until transfer to the

Department of Energy for permanent disposal are

not included in NRC cost formulas. Therefore, the

reviewer will ensure that either—

• Such costs are not included in licensee formula

calculations; or

• If such costs are included, they are separately

identified and are not used for NRC-required

decommissioning funding assurance.

b. Evaluating the Biennial Decommissioning Fund

Status Reports

The reviewer should confirm that the following information is contained in the biennial
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decommissioning fund status reports:

(1) As provided in 10 CFR 50.75(f)(1), each power

reactor licensee is required to report to the NRC

on a calendar year basis, beginning on March 31,

1999, and every 2 years thereafter, on the status

of its decommissioning funding for each reactor

or share of a reactor that it owns. The information

in this report must include, at a minimum: the

amount of decommissioning funds estimated to be

required, pursuant to 10 CFR 50.75(b) and (c), or

a site-specific estimate, as appropriate; the

amount accumulated to the end of the calendar

year preceding the date of the report; a schedule

of the annual amounts remaining to be collected;

the assumptions used regarding rates of escalation

in decommissioning costs, rates of earnings on

decommissioning funds, and rates of other factors

used in funding projections; any contracts upon

which the licensee is relying pursuant to 10 CFR

50.75(e)(1)(ii)(C); and any modifications to a

licensee's current method of providing financial

assurance occurring since the last submitted

report. Any licensee for a plant that is within 5

years of the projected end of operation, or where

conditions have changed such that it will close

within 5 years, or has already closed, is required

to submit the report annually.

(2) As long as the information described above is

included in the report, no specific reporting

format is required. However, each licensee should

indicate the assurance mechanism being used as a

source of revenues for the external sinking fund

(e.g., traditional “cost-of-service” ratemaking, a

non-bypassable charge, long-term contracts that

the NRC has found to be acceptable pursuant to

10 CFR 50.75(e)(1)(v)).88 If the assumed real

earnings rate on an external sinking fund exceeds

2 percent, each licensee should indicate the

specific rate ruling or decision by its rate regulator

that documents the earnings rate being used, as

provided in 10 CFR 50.75(e)(1)(I) or (ii). If a

licensee is using an assurance mechanism other

than an external sinking fund, it should include as

part of the report adjustments to the assurance

mechanisms (e.g., a surety bond or letter of

credit) to account for any escalation since the

previous report.

c. Verifying Annual Amortization Amounts for

External Sinking Funds

8 To the extent that power reactor licensees have received rate regulator

approval to use market-based rates for a significant portion of their

nuclear-related revenues (i.e., greater than 20 percent), the NRC will not

consider them to be subject to traditional cost-of-service rate regulation for

that portion of their rates.
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The reviewer should verify the accuracy of the

annual amortization amounts for external sinking

funds using the following procedures: 

(1) Once a licensee has established the

decommissioning cost for each of its reactors in

current-year dollars, the reviewer should confirm

that the licensee will have this amount (less future

estimated earnings as provided in 10 CFR

50.75(e)(1)(I) or (ii)) by the time it plans to shut

down by using one of the financial assurance

mechanisms allowed in section 50.75(e). Virtually

all power reactor licensees so far have chosen to

use an external sinking fund. This assurance

method requires a licensee, or a designated representative of a licensee, to make

payments, at least annually, into an external trust

fund held by a third party, usually a bank licensed

by a State, acting as trustee. The trustee will

invest a licensee's deposits in order to earn

interest and dividends to increase the value of the

fund. If a licensee permanently shuts down its

reactor at the expected end of the reactor's

operating life, it should have sufficient funds (less

future estimated earnings) to complete

decommissioning, either by immediate

dismantlement or by storage over some period

followed by deferred dismantlement. If, on the other hand, a licensee

permanently shuts down its reactor prematurely, it

will need to accumulate any shortfall in

decommissioning funds (less future estimated

earnings). As provided in section 50.82(c), the

collection period for making up any shortfall will

be determined on a case-by-case basis.

(2) In the 1988 decommissioning rule, the NRC

deferred to the ratemaking authority of the PUCs

and FERC to set annual rates for

decommissioning. As rate deregulation proceeds,

some licensees may no longer have rate regulatory

oversight with respect to decommissioning. (To

the extent such oversight continues to be

provided, it may include direct oversight as

provided in traditional cost-of-service or similar

ratemaking, or indirect oversight through

government-mandated non-bypassable charges or

other mechanisms.) The NRC expects that, for

licensees that continue to have direct or indirect

rate regulatory oversight, it will continue to be

able to defer to rate regulators to determine the

appropriate amortization schedule for

decommissioning funds, provided that there is

reasonable assurance that, at the time of

permanent cessation of operations,

decommissioning funds plus estimated earnings

will be available in the amount estimated to be

necessary to complete decommissioning. If the

source of decommissioning trust funds is a

State-mandated non-bypassable charge, the

reviewer should, as appropriate, evaluate the

assumptions used in calculating and collecting the

charge to determine that it, plus estimated future

earnings, will be adequate over the stipulated

collection period, to provide the funds estimated

to be needed for decommissioning. Provisions

should be made in the non-bypassable charge to

cover increases in decommissioning cost

estimates. If the non-bypassable charge does not

have such provisions, the licensee will be required

to use one of the other decommissioning funding

assurance mechanisms allowed in 10 CFR

50.75(e) for the unfunded difference. The

reviewer should exercise greater oversight of

those licensees that no longer have such rate

regulatory oversight. In either case, the NRC

reserves the right to review, as needed, the rate of

accumulation of decommissioning funds, and,

either independently or in coordination with a

licensee's rate regulators, take additional actions

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

modification of a licensee's schedule for the
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accumulation of decommissioning funds. When

the reviewer evaluates licensees' amortization

schedules, he or she should use the following

benchmarks:

(a) Some licensees will base their amortization

schedules on the certification amount adjusted to

current-year dollars. At its simplest, licensees

should have an annual amortization amount that

equals the adjusted certification amount divided

by the remaining years of projected plant

operation. This amount will change as the

certification amount is continually readjusted to

account for inflation and trust fund earnings and

as the remaining operating life decreases.

(b) Other licensees will project decommissioning costs out to the planned time of

permanent shutdown by inflating costs at some

predetermined inflation rate. They will most likely

also discount the fund by the expected earnings

rate on the fund. On the basis of these

calculations, licensees will be able to calculate an

annual amortization amount that, coupled with

projected earnings, will equal the inflated

certification amount. 

• Although projected inflation rates may be

expected to vary, they should be in the 2 percent

to 5 percent range based on recent economic experience. Some licensees may use higher rates for

LLW disposal costs.

• Projected earnings rates on funds may also vary.

A licensee, of course, may take credit for any

earnings already accumulated. However,

projected future earnings are limited to a real rate (i.e., the nominal

earnings rate less inflation) of up to two percent,

unless a licensee's rate regulator authorizes the

use of a higher rate.
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(c) The decommissioning rule is structured to allow for changes in amortization rates over time. Thus, it is not essential that

a licensee achieve prorated annual amortizations

as long as the licensee periodically adjusts the

amortization rate to compensate for changes in

the certification amount and the fund earnings

rate.

• Licensees' adjustments to the amortization rate do

not need to be made annually, but should be coordinated with licensees' rate case schedules with

their PUCs, if applicable. Rate cases are typically

on a three-year cycle, but the licensee should document decommissioning rate filings and their underlying assumptions.

• Licensees that no longer have rate regulatory

oversight or access to non- bypassable charges for

decommissioning should adjust their assurance

mechanisms annually to reflect any changes in

decommissioning cost estimates derived from the

formulas or site-specific estimates in 10 CFR

50.75(c).

(d) Some licensees are part owners of power

reactors. In such cases, the reviewer should

evaluate separately each licensee's amortization

schedule for its share of the facility, unless the

lead licensee has agreed to coordinate funding

documentation and reporting for all co-owners.

d. Evaluating Investments in External Sinking Funds

The reviewer should use the following criteria to

evaluate investments in external sinking funds:

(1) For power reactor licensees that are either subject to cost-of-service rate regulation or have access
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to a non-bypassable charge(s) to recover the

estimated costs of decommissioning, the NRC will

typically defer to State PUCs and FERC to set

standards for the types of investments allowed for

external sinking funds. For other power reactor

licensees, the NRC has specified in Regulatory

Guide 1.159 that external decommissioning trust

fund investments should be “investment- grade.”

99

9 Regulatory Guide 1.159, “Assuring the Availability of Funds for

Decommissioning Nuclear Reactors,” August 1990.
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(a) For example, this means that corporate or

municipal bonds or preferred stocks should be

rated at least “BBB” by Moody's or an equivalent

rating by another bond rating agency. (Standard

and Poors, Duff and Phelps, and Fitch are

examples of other major rating agencies.)

(b) Common stocks are not rated. Although the NRC

does not explicitly prohibit external trusts from

being invested in common stocks, NRC guidance

indicates that speculative issues (e.g., stocks of

companies with limited operating history, or that

have low “safety” rankings from rating agencies)

should be avoided. There is no simple way to

determine whether a stock issue is speculative. A

licensee's own stock, as well as those of other

power reactor licensees are inappropriate.

(c) As long as an external trust is invested in a

diversified portfolio of bonds, stocks, and other

investments, losses on any one issue should not

significantly affect the overall value of the trust fund.

Further, because external trust funds are required

to be adjusted periodically, losses in one year may

be recouped by increased amortizations in

following years. When the reviewer evaluates the

amortization amounts, he or she should ensure

that licensees are revising their amortization rates

based on the current net market value of their

trust investment portfolios.

(2) The reviewer should confirm that power reactor

licensees that are either subject to cost-of-service

rate regulation or have access to a non-bypassable

charge(s) to recover the estimated costs of

decommissioning have documented any rate

regulators' decisions with respect to investments

in external sinking funds and have them available

at a licensee location for possible NRC inspection.

Other licensees should document their investments and have them available for NRC

inspection.

e. Evaluating External Sinking Fund Trust

Documents
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The reviewer should use the following criteria to

evaluate external sinking fund trust documents:

(1) Power reactor licensees were required to submit

executed or conformed copies of their external

sinking fund trusts (or other assurance

mechanisms, if used) by July 27, 1990.

Essentially, all power reactor licensees are

currently using external sinking fund trusts. These

trusts were reviewed by the NRC shortly after

submission in 1990. The NRC notified those few

licensees whose trust provisions were found to be

deficient. In accordance with 10 CFR 50.75(f),1010

licensees are required to submit any material

revisions to trust agreements to ensure that NRC

records are current. Material revisions to trust

agreements include: (1) changes in trustees; (2)

provisions for payment into and out of the trust;

(3) changes in trust investment management; and

(4) any other changes that would have a direct

bearing on the amount, availability, and assurance

of funds for decommissioning. The reviewer

should follow review procedures for these

changes similar to those it used for the 1990

submissions.

(2) The NRC does not require licensees to use

specific trust wording. However, sample wording

is provided in Appendix B.3.1. of Regulatory

Guide 1.159. Trusts are acceptable in this respect

if they contain the following provisions:

10 See also Section 2.1.6. of Regulatory Guide 1.159.
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(a) The trust should be segregated from the licensee's

assets and outside the licensee's administrative

control. The licensee should avoid day-to-day

investment decisions.

(b) The trustee should be licensed to act as trustee by

State or Federal authority.

(c) Disbursements from the trust should be restricted

to decommissioning expenses or for transfer to

another assurance mechanism acceptable under

section 50.75(e). Licensees may make

withdrawals from decommissioning trust funds as long as the purpose of

such withdrawals meets the criteria specified in

section 50.82(a)(8)(I). In addition, licensees are

restricted at various stages of the

decommissioning process by section

50.82(a)(8)(ii) to (iv) in the amounts of funds they

may withdraw for decommissioning expenses until

the NRC has terminated the license. Finally,

licensees may not use decommissioning trust funds for “operational” expenses (e.g., waste disposal costs while

a plant remains in operating status).

f. Evaluating Other Financial Assurance

Mechanisms

The reviewer should evaluate other acceptable

financial assurance mechanisms using the

following criteria:

(1) If a power reactor licensee decides to switch from

an external trust to some other assurance

mechanism, the licensee should submit

information on this new mechanism to the NRC in

accordance with section 50.9 and Regulatory

Guide 1.159, Section 2.6.1. Sample wording of

other mechanisms is provided in Regulatory

Guide 1.159.

(2) Third-party guarantee mechanisms, such as surety

bonds or letters of credit, should guarantee the

total amount of currently estimated

decommissioning costs. If these mechanisms are

used in combination with other assurance

mechanisms, the combined amount should at least

equal current estimated decommissioning costs.
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(3) Licensees or license applicants who use long-term

contracts as a method of demonstrating

decommissioning funding assurance must

demonstrate that the provisions of the contracts

meet the criteria specified in 10 CFR

50.75(e)(1)(v),

(4) As indicated in 10 CFR 50.75(e)(1)(vi), the

reviewer should evaluate other decommissioning

funding assurance mechanisms or combinations of

mechanisms proposed by licensees or license

applicants on a case-by-case basis to determine

that the mechanism or combination of mechanisms

provide assurance of decommissioning funding

equivalent to that provided by the mechanisms

specified in 10 CFR 50.75(e) (1)(I)-(iv). 

C. Foreign Ownership

As indicated in Section II.3. of this SRP, foreign

ownership, control, or domination of a power

reactor licensee is prohibited by the Atomic

Energy Act and the NRC's regulations. Because

the Commission has determined that all co-owners

of reactor facilities are co-licensees, each licensee

of a power reactor must be evaluated to

determine that it is not owned, controlled, or

dominated by an alien, foreign corporation, or

foreign government. In each case, the staff will

evaluate the totality of the facts and circumstances

against Commission precedent (e.g., General Electric Co. and

Southwest Atomic Energy Assoc., 3 AEC 99

(1966)) in order to determine whether foreign

ownership, control or domination exists. The

NRC has not determined whether any percentage

ownership would be sufficiently small as to be

considered de minimis. (The staff notes that,

normally, it does not evaluate power reactor

licensees to determine the degree to which foreign

entities or individuals own their voting stock.) A

comprehensive discussion of NRC review criteria

for evaluating these issues is contained in a draft

SRP Regarding Foreign Ownership, Control, or

Domination of Applicants for Reactor License

that will be issued soon.
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IV. EVALUATION FINDINGS

The reviewer verifies that sufficient information

has been provided to satisfy the requirements of

this Standard Review Plan section and the

underlying regulations, and concludes that his or

her evaluation is sufficiently complete and

adequate to support the conclusion to be included

in the staff's safety evaluation report that the

applicant (1) is financially qualified to conduct the

activities under the license, (2) has satisfied the

NRC's decommissioning funding assurance

requirements, and (3) is not owned, controlled, or

dominated by a foreign individual or entity.

V. IMPLEMENTATION

The following is intended to provide guidance to

applicants and licensees regarding the NRC staff's

plans for using this SRP.

Except in those cases in which the applicant

proposes an acceptable alternative method for

complying with specified portions of the NRC's

regulations, the method described herein will be

used by the staff in its evaluation of conformance

with Commission regulations.

VI. REFERENCES

1. Part 50 “Domestic Licensing of Production and

Utilization Facilities” of Title 10 of the Code of

Federal Regulations (10 CFR Part 50)

— 10 CFR 50.33(f)

— 10 CFR 50.33(k)

— 10 CFR 50.75

— 10 CFR 50.82 

— 10 CFR Part 50, Appendix C

2. Part 30 “Rules of General Applicability to Domestic Licensing of Byproduct Material” of Title 10

of the Code of Federal Regulations (10 CFR Part

30)

— 10 CFR Part 30, Appendices A and C
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CONTENTS

Page

Abstract ................................................................... . iii

I. Areas of Review ......................................................... . 1

II. Acceptance Criteria ...................................................... . 1

1. Financial Qualifications ............................................... .

1

2. Decommissioning Funding Assurance .................................... .

2

3. Foreign Ownership .................................................. .

2

III. Review Procedures ....................................................... . 3

1. Financial Qualifications ............................................... .

3

a. Construction Permits ............................................ .

3

b. Operating License Reviews ........................................ .

4

c. Combined License Applications .................................... .

5

d. Post-OL Non-Transfer Reviews .................................... .

5

e. Reviews of Transfers of Licenses ................................... .

5

2. Decommissioning Funding Assurance .................................... .

7

a. Verifying the Initial Certificate Amount .............................. .

7

b. Evaluating the Biennial Decommissioning Funds Status Reports ............ .

9

c. Verifying Annual Amortization Amounts for External Sinking Funds ........ .
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NUREG-1577, Rev. 1

9

d. Evaluating Investments in External Sinking Funds ....................... .

11

e. Evaluating External Sinking Fund Trust Documents ..................... .

12

f. Evaluating Other Financial Assurance Mechanisms ...................... .

13

IV. Evaluation Findings ...................................................... . 14

V. Implementation .......................................................... . 14

VI. References ............................................................. . 14