Report to the Honorable

Edward J. Markey,

House of Representatives

United States General Accounting Office

GAO

December 2001 NUCLEAR

REGULATION

NRC’s Assurances of

Decommissioning

Funding During Utility

Restructuring Could

Be Improved

GAO-02-48
Page i GAO-02-48 Nuclear Regulation

Letter 1

Executive Summary 2

Background 3

Results in Brief 4

Principal Findings 5

Recommendations for Executive Action 8

Agency Comments and GAO’s Evaluation 8

Chapter 1 Introduction 10

Decommissioning Regulations Outline Technical Procedures 11

Decommissioning Regulations Outline Financial Procedures 14

Deregulation of Electric Utilities and Resultant Industry

Restructuring 16

Objectives, Scope, and Methodology 18

Chapter 2 Most Restructuring License Transfers Have

Maintained or Enhanced Assurance of

Decommissioning Funding 21

Funding Assurance Is Maintained for License Transfers Related to

Contracting Out Operations 22

Prepayment and Company Guarantee Methods Have Enhanced

Funding Assurances When Licenses Are Transferred 23

Funding Assurance Was Not Always Maintained in License

Transfers That Continued to Rely on the External Sinking Fund

Method 25

NRC’s Reviews of New Owners’ Financial Qualifications Have

Been Complete, With One Significant Exception 30

Conclusions 34

Recommendation for Executive Action 34

Agency Comments and Our Response 34

Chapter 3 Regulatory Policies Under Consideration May

Affect Decommissioning Costs and Nuclear Waste

Policies 37

Varying Cleanup Standards Create Cost Uncertainties 37

Alternative Decommissioning Methods May Marginally Decrease

Costs but Raise Significant Technical and Policy Issues 40

Contents
Page ii GAO-02-48 Nuclear Regulation

Site Contamination Can Go Undetected Until Late in Cleanup

Process 50

Conclusions 51

Recommendations for Executive Action 52

Agency Comments and Our Response 53

Chapter 4 New Accounting Standard Improves Financial Reporting

but Cannot Ensure Adequate Decommissioning Funding

54

New Accounting Standard Will Improve Consistency of Reporting 55

New Accounting Standard Does Not Ensure Adequate Funding for

Decommissioning Costs 57

Agency Comments 57

Appendix I Comments From the Nuclear Regulatory Commission 58

Appendix II GAO Contact and Staff Acknowledgments 64

Related GAO Products 65

Tables

Table 1: Nuclear Power Plants With Non-owner Operating

Arrangements 22

Table 2: Decommissioning Funds Needed, Transferred, and

Assurance Methods Used for Nuclear Power Plants

Approved for Sale 24

Table 3: Comparison of Methods to Report Decommissioning

Liability 56

Figures

Figure 1: Ongoing Decommissioning Work Within the Containment

Building at the Connecticut Yankee Atomic Power

Company Haddam Neck Plant 12
Page iii GAO-02-48 Nuclear Regulation

Figure 2: Map of Nuclear Power Plants in the United States and

Status of Deregulation by State 17

Figure 3: The Decommissioning Connecticut Yankee Haddam Neck

Plant 40

Figure 4: Methods Currently Used to Account for Decommissioning

Costs 55

Abbreviations

ALARA as-low-as-reasonably-achievable

CERCLA Comprehensive Environmental Response, Compensation

and Liability Act

DOE Department of Energy

EPA Environmental Protection Agency

FASB Financial Accounting Standards Board

FERC Federal Energy Regulatory Commission

GAO General Accounting Office

GTCC Greater Than Class C (waste)

NRC Nuclear Regulatory Commission

PECO PECO Energy Company (formerly, Philadelphia Electric

Company)

PSEG Public Service Electric and Gas Company

PUC Public Utility Commission
Page 1 GAO-02-48 Nuclear Regulation

December 3, 2001

The Honorable Edward J. Markey

House of Representatives

Dear Mr. Markey:

This report responds to your request that we review how the Nuclear

Regulatory Commission ensures, in a period of economic deregulation and

restructuring of the electricity industry, that sufficient funds will be

available to decommission nuclear power plants after the plants are

permanently shut down.

Unless you publicly announce its contents earlier, we plan no further

distribution of this report until 30 days after the date of this letter. At that

time, we will send copies to the appropriate congressional committees; the

Chairman, Nuclear Regulatory Commission; and the Director, Office of

Management and Budget. We will also make copies available to others

upon request.

Please contact me at (202) 512-3841 if you or your staff have any questions

about this report. Key contributors to this report are listed in appendix II.

Sincerely yours,

(Ms.) Gary L. Jones

Director, Natural Resources

 and Environment

United States General Accounting Office

Washington, DC 20548
Executive Summary

Page 2 GAO-02-48 Nuclear Regulation

The Nuclear Regulatory Commission (NRC) has licensed 125 commercial

nuclear power plants to operate in the United States, each for a finite

number of years. For safety reasons, after a licensee retires a plant, the

licensee must eventually dismantle it. The spent (used) fuel is removed

from the nuclear reactor and usually stored at the plant site until the fuel

can be removed for disposal. The other radioactive wastes from

dismantling the plant are shipped to one or more off-site disposal facilities.

Upon completion of this process, called “decommissioning,” the plant site

can be reused for other purposes.

The costs of decommissioning, which vary according to the size of the

plant and the level of contamination, generally fall within the range of

$300 million to $400 million per plant. To ensure the availability of

adequate funds to pay for this process, NRC requires its licensees to select

a method or combination of methods for financing future

decommissioning activities from among the acceptable methods specified

in its regulations.

Traditionally, plant owners amass decommissioning funds through

charges imbedded in predetermined electricity rates, which state utility

commissions and/or the Federal Energy Regulatory Commission regulate.

However, with the deregulation of the electric utility industry in many

states, a competitive market instead of regulated rates now determines the

price that some plant owners can charge for producing electricity.

Consequently, these plant owners can no longer collect decommissioning

funds through the traditional method.

Deregulation has led many states and their electric utilities to restructure

much of their electricity industry to separate the producers of electricity

from those who transmit and distribute (sell) electricity to customers. As

part of this restructuring, the ownership and/or operation of plants has

changed for more than half of the nuclear power plants in the United

States. Since 1998, for example, utilities that own all or part of eight

nuclear plants have contracted the operation of these plants to other

companies. And other utilities have sold or are in the process of selling all

or part of 15 plants. Finally, the reorganizations and mergers of electric

utilities have resulted in the transfer of licenses for more than 30 plants to

companies formed specifically to produce electricity. The number of these

transfers highlights the importance of NRC’s regulatory role in ensuring

that new licensees are financially qualified to operate, maintain, and

eventually decommission these plants. The transfers also underscore the

need for consistent financial disclosure of decommissioning liabilities to

Executive Summary
Executive Summary

Page 3 GAO-02-48 Nuclear Regulation

the potential investors in new companies formed, at least in part, to

produce electricity from nuclear power plants.

Concerned about the adequacy of decommissioning funds, particularly in

deregulated markets, Representative Edward Markey asked GAO to

determine how (1) transfers of licenses to operate or own nuclear power

plants have affected assurances that adequate funds will be available to

operate and decommission these plants, (2) various site cleanup standards

and proposed new decommissioning methods affect projected

decommissioning costs, and (3) changes in financial reporting standards

affect the disclosure and funding of decommissioning liabilities.

Before transferring a license to a new plant owner, NRC requires the

prospective owner to demonstrate that it has both the technical ability and

financial backing to safely own and operate the plant. NRC also requires

owners to demonstrate that they will accumulate a prescribed minimum

amount of funds to pay for the eventual decommissioning of their plants.

Owners must ensure that these funds will be available by choosing one or

a combination of the following options:

• periodic deposits (at least annually) into a trust fund outside of the

owner’s control;

• prepayment of the entire estimated decommissioning liability into a trust

fund outside of the owner’s control;

• obtaining a surety bond, insurance, letter of credit, or line of credit

payable to a trust established for decommissioning costs; or

• guaranteeing the payment of decommissioning costs, provided that the

guarantor (usually an affiliate or parent company to the owner) passes

specific financial tests.

Until recently, essentially all plant owners chose to accumulate

decommissioning funds through periodic deposits. However, in September

1998, NRC amended its regulations to restrict the use of this option in

deregulated markets. Under the amended regulations, owners may rely on

periodic deposits only to the extent that those deposits are guaranteed

through regulated rates charged to consumers. In conjunction, NRC has

issued written procedures, called a “standard review plan”, describing how

its staff should determine the adequacy of a prospective owner’s financial

qualifications to operate its plant(s) and its proposed method(s) for

assuring the availability of funds to eventually decommission the plant(s).

Background
Executive Summary

Page 4 GAO-02-48 Nuclear Regulation

To estimate future decommissioning costs, plant owners may use a

mathematical formula that is provided in NRC’s regulations or a sitespecific estimate, if the costs developed from it are higher. The formula

assumes that plant sites will be cleaned up in compliance with NRC’s

standards. By the time that a plant is decommissioned, however, other

cleanup standards could apply. For example, the Environmental

Protection Agency (EPA) has more restrictive cleanup standards that

could, in some circumstances, be applied to a nuclear power plant site,

and some states are establishing cleanup standards for decommissioning

nuclear power plants and/or other nuclear facilities.

In most of the requests to transfer licenses to own or operate nuclear

power plants that NRC has approved, the financial arrangements have

either maintained or enhanced the assurance that adequate funds will be

available to decommission those plants. Owners relying on outside

companies to operate their plants have retained the responsibility for

financing the future decommissioning of these plants and continue to

collect funds for this purpose through their economically regulated sales

of electricity. When new owners purchased all or parts of 15 plants from

utility companies, the level of assurance was enhanced through the

prepayment of the decommissioning trust funds and guarantees from

affiliate or parent companies to pay any remaining decommissioning costs.

However, when new owners proposed to continue relying on periodic

deposits to external sinking funds, NRC’s reviews were not always

rigorous enough to ensure that decommissioning funds would be

adequate. Moreover, NRC did not always adequately verify the new

owners’ financial qualifications to safely own and operate the plants.

Accordingly, GAO is making a recommendation to ensure a more

consistent review process for license transfer requests.

Varying cleanup standards and proposed new decommissioning methods

introduce additional uncertainty about the costs of decommissioning

nuclear power plants in the future. Plants decommissioned in compliance

with NRC’s requirements may, under certain conditions, also have to meet,

at higher cost, more stringent EPA or state standards. New

decommissioning methods being considered by NRC, which involve

leaving more radioactive waste on-site, could reduce short-term

decommissioning costs yet increase costs over the longer term. Moreover,

they would raise significant technical and policy issues concerning the

disposal of low-level radioactive waste at plant sites instead of in regulated

disposal facilities. Adding to cost uncertainty, NRC allows plant owners to

wait until 2 years before their license is terminated—relatively late in the

Results in Brief
Executive Summary

Page 5 GAO-02-48 Nuclear Regulation

decommissioning process—to perform overall radiological assessments to

determine whether any residual radiation anywhere at the site will need

further clean-up in order to meet NRC’s site release standards.

Accordingly, GAO is recommending that NRC reconcile its proposed

decommissioning methods with existing waste disposal regulations and

policies and require licensees to assess their plant sites for contamination

earlier in the decommissioning process.

Changes to the Financial Accounting Standards Board’s financial reporting

standard will require, for the first time, owners of facilities that require

significant end-of-life cleanup expenditures—such as nuclear power

plants—to consistently report estimated decommissioning costs as

liabilities in their financial statements. When this standard takes effect in

mid-2002, many companies that are licensed by NRC to own nuclear

power plants will have to change their current financial-reporting

practices, and the reporting of estimated decommissioning costs will

become more uniform. However, the new accounting standard is not

intended to, and will not, establish a legal requirement that these licensees

set aside adequate funding for decommissioning costs.

The level of assurance that adequate decommissioning funds will be

available when licensees retire nuclear power plants has remained the

same or increased for most of the license transfers that NRC has reviewed

and approved. When plant owners contracted out the operation of their

plants, NRC required the owners to continue collecting decommissioning

funds through their regulated electricity rates, thus maintaining the

previous level of assurance. When NRC reviewed and approved the sale of

all or parts of 15 plants to new generating companies, the level of

assurance was enhanced because the selling utilities generally prepaid the

projected decommissioning funds. To the extent that a few

decommissioning trust funds were not fully prepaid, either the selling

utility or the new owners’ affiliated or parent companies provided

additional guarantees consistent with NRC’s requirements.

In instances when new owners continued to rely on periodic deposits to

the transferred trust funds, however, NRC’s review process did not

consistently result in the same level of assurance that decommissioning

funds would be adequate when the owners’ plants shut down. For

Principal Findings

Effect of License Transfers

on Decommissioning

Funding
Executive Summary

Page 6 GAO-02-48 Nuclear Regulation

example, when a new company formed through a merger applied to

transfer the licenses for the ownership of all or parts of 20 plants,

including 4 retired plants, NRC did not verify whether there were

contractual arrangements to transfer the decommissioning funds collected

for the plants into the trust funds for those plants. Also, for the four plants

that had permanently shut down, NRC did not request that the new owner

(1) provide any more information on the status or plans for these

prematurely shut down plants than it had for the 16 plants that were

operating or (2) demonstrate how the owner planned to acquire the

additional decommissioning funds as it had for another retired plant.

For the most part, NRC’s reviews of new owners’ financial qualifications

have enhanced the level of assurance that they will safely own and operate

their plants in a deregulated environment and not need to shut them down

prematurely. However, NRC did not obtain the same degree of financial

assurance in the case of one merger that created a new generating

company that is now responsible for owning, operating, and

decommissioning the largest fleet of nuclear plants in the United States.

This new owner did not provide, and NRC did not request, guaranteed

additional sources of revenue above the market sale of its electricity, as

other new owners had. Moreover, NRC did not document its review of the

financial information—including revenue projections, which were

inaccurate—that the new owner submitted to justify its qualifications to

safely own and operate 16 plants.

Varying radiation cleanup standards and the possibility that NRC will

approve alternative decommissioning methods are two of the most

significant factors that add uncertainty to estimates of future

decommissioning costs. Depending on future circumstances, for example,

plants decommissioned according to NRC’s radiation cleanup standards

could also have to meet more stringent EPA or state standards, potentially

increasing the cost of decommissioning. EPA has indicated that if NRC

does not tighten its standards, EPA could reconsider its policy of

exempting decommissioned nuclear plant sites from the stricter cleanup

standards that EPA enforces under the Comprehensive Environmental

Response, Compensation and Liability Act of 1980, as amended (also

known as CERCLA or Superfund). In addition, the states of Maine,

Massachusetts, New York, and New Jersey have already adopted radiation

cleanup standards stricter than NRC’s, and more states may do so. These

stricter standards will require plant owners to incur significant additional

decommissioning costs; for example, officials from one plant estimate that

Effect of Regulatory

Policies on

Decommissioning Costs
Executive Summary

Page 7 GAO-02-48 Nuclear Regulation

Maine’s standard will add $25 million to $30 million to the

decommissioning costs for that plant.

Alternative decommissioning methods under consideration for NRC’s

approval would have an unknown affect on overall decommissioning

costs. Because the methods involve leaving more radioactive waste onsite—either buried as rubble or encased within the reactor containment

structure—they would reduce the waste-disposal component of

decommissioning costs. However, they could add considerably to longterm costs because of the need for extended institutional control of the

sites. Moreover, these methods appear to conflict with NRC’s technical

requirements for licensing low-level radioactive waste disposal facilities.

In addition, the proposed methods may run counter to the policy

expressed in the Low-Level Radioactive Waste Policy Amendments Act,

which encourages states to manage low-level radioactive wastes on a

regional basis and to provide centralized disposal facilities.

Another potentially significant factor contributing to the uncertainty about

decommissioning cost is the lack of information on the degree of

contamination at some plant sites. NRC’s decommissioning requirements

allow plant owners to wait until 2 years before the proposed license

termination date to perform an overall survey of their plant sites for

radiation contamination. Postponing the survey until this late in the

decommissioning process increases the risk that owners will incur

unplanned cleanup expenses after significant portions of the available

decommissioning funds have already been expended.

The Financial Accounting Standards Board has adopted a new financial

reporting standard that, beginning in mid-2002, should result in more

uniform reporting of decommissioning costs. Currently, companies

disclose their liability for decommissioning costs using a number of

different methods, making comparisons by investors difficult. Under the

new standard, companies must report estimated decommissioning costs as

liabilities in their financial statements, using a specified method to

calculate the amount of the liability. However, the new standard applies

not just to nuclear power plants but to other industries as well, and the

method specified differs from the method that NRC requires for nuclear

power plant licensees. The new standard will have no legal or regulatory

affect on the actual accumulation of decommissioning funds and is not

intended to do so.

Disclosure of Liability for

Decommissioning Costs
Executive Summary

Page 8 GAO-02-48 Nuclear Regulation

To ensure that the decommissioning assurance methods and financial

qualifications of all new plant owners are consistently verified, validated,

and documented, GAO recommends that the Chairman, NRC, revise the

Commission’s standard review plan and related management controls for

reviewing license transfers to include a checklist or step-by-step process

for its staff, management, and prospective plant owners to follow.

GAO also recommends that the Chairman, NRC, amend the Commission’s

ongoing consideration of modifications to radiological criteria for

terminating licenses and alternative decommissioning approaches to

address

• how the burial or entombment of low-level radioactive waste at nuclear

plant sites, leading to a potentially large number of contaminated sites

scattered around the country, may affect the federal policy under the LowLevel Radioactive Waste Policy Act to manage radioactive waste on a

regional basis, and

• concerns about whether these decommissioning approaches are

technically compatible with provisions of the Low-Level Radioactive

Waste Policy Act, the interstate compact agreements that implement the

act, and NRC’s technical regulations on licensing disposal facilities for

low-level radioactive waste.

To reduce the likelihood that site contamination will go undetected until

late in the cleanup process, GAO recommends that the Chairman, NRC,

require licensees to survey their plant sites for radiation as soon as

possible after the announcement of their intentions to permanently cease

operations, rather than allowing them to wait until 2 years before

decommissioning is supposed to be complete.

GAO provided NRC with a draft of this report for review and comment.

NRC said that GAO has provided constructive comments regarding

documentation of the financial considerations associated with requests to

transfer licenses for nuclear power plants. NRC also said it is concerned

that GAO has not fully represented certain aspects of its review process

for license transfers, nor entirely considered the various processes

associated with the decommissioning of a nuclear plant. NRC provided

specific comments on these matters, including reasons why, in some

cases, it does not agree with GAO’s recommendations. NRC’s comments

also, it said, supplied a more comprehensive perspective on our

conclusions and recommendations. (NRC’s comments are contained in

app. I.)

Recommendations for

Executive Action

Agency Comments

and GAO’s Evaluation
Executive Summary

Page 9 GAO-02-48 Nuclear Regulation

Specifically, NRC disagreed that it should modify its review guidance to

include a checklist or step-by-step process to be followed because many of

the proposed license transfers are unique. GAO disagrees. Licensees have

consistently used a few basic methods of providing decommissioning

funding assurance. Revising the review guidance to ensure, on the basis of

NRC’s experiences to date, that each license transfer review is based on

information that is consistent with other transfers that used similar

methods of assurance could help NRC meet its goal of increasing its

efficiency and effectiveness.

NRC also disagreed that it should address technical and policy issues

associated with the potential on-site burial of radioactive waste from

decommissioning nuclear plant sites because this waste would not be

classified as low-level radioactive waste. GAO disagrees because it is

difficult to discern why radioactive material buried on-site—material that

has traditionally been shipped to disposal facilities designed and regulated

for such purpose--does not merit the same protection as material sent to a

low-level waste disposal site.

Finally, NRC disagreed that it should require licensees to make radiation

surveys of their plant sites earlier because this proposed step would not

add significant value to the decommissioning process. GAO disagrees,

because plant employees most knowledgeable about historical plant

operations and site conditions would more likely be available when a plant

has been permanently shut down rather than later when decommissioning

has been almost completed.
Chapter 1: Introduction

Page 10 GAO-02-48 Nuclear Regulation

Nuclear power plants generate about 20 percent of electricity in the United

States. At the time of this review, there were 103 of these plants in

operation.1

 No new nuclear power plants have been ordered since 1978,

however, and 22 plants that previously operated under licenses issued by

the Nuclear Regulatory Commission (NRC) have been permanently shut

down. The licenses for 45 additional plants will expire within the next

15 years. The owners of these plants, therefore, will have to choose

whether to retire their plants or to seek license extensions from NRC for

up to an additional 20 years.

Radioactive contamination lingers long after power plants are closed. To

protect public health and safety, the amount of residual radioactivity

present at the site of a retired nuclear power plant must be reduced

through a process known as decommissioning. After the spent (used) fuel

has been removed from the plant’s reactor vessel, the plant must be

dismantled and the radioactive wastes shipped to one or more disposal

facilities for radioactive wastes.2

 The decommissioning process is still

relatively new—3 of the 22 retired commercial nuclear power plants have

been decommissioned, 6 other plants are being decommissioned, and 13

plants are awaiting decommissioning. The process is also costly.

Experience to date shows that decommissioning costs anywhere from

$300 million to $400 million or more, depending on factors, such as plant

size, the extent of contamination, and waste disposal costs.

NRC and plant owners must balance public health and safety with the cost

and technical logistics of the decommissioning process. Moreover, the

relatively high cost of decommissioning a nuclear power plant makes the

process an issue for economic regulators, such as the Federal Energy

Regulatory Commission (FERC) and state public utility commissions

(PUC’s), and the electricity industry in the relatively new environment of

deregulating and restructuring the electricity industry.

 1

 These numbers do not include one plant—the Tennessee Valley Authority’s Brown’s Ferry

Unit 1 plant—that is licensed to operate. That plant, however, has not operated since

March 1985, has no fuel loaded, and cannot load fuel and restart without NRC’s approval.

2

 The Department of Energy (DOE) is responsible for disposing of the spent fuel from

commercial nuclear power plants in a geologic repository. Pending the approval and

completion of the proposed Yucca Mountain repository project, owners of nuclear plants

are storing their spent fuel at plant sites. NRC does not consider spent fuel storage and

disposal costs as decommissioning costs.

Chapter 1: Introduction
Chapter 1: Introduction

Page 11 GAO-02-48 Nuclear Regulation

Before obtaining a license to operate a nuclear power plant, the licensee

must agree with NRC to decommission the plant after the plant has been

permanently shut down. NRC established its decommissioning

requirements in regulations issued in 1988. Under these regulations, NRC

expected that decommissioned sites, with rare exceptions, would reduce

levels of radiation to allow the plant site to be released for unrestricted

use once the license was terminated. Licensees had two decommissioning

alternatives.3 They could either begin major site decontamination and

dismantling activities shortly after the termination of operations or

maintain the plant and site in a safe condition up to several decades before

dismantling the plant. Delaying full-scale decontamination and dismantling

activities could be advantageous if (1) more time was needed to accrue

decommissioning funds by continuing to collect funds from ratepayers

after the plant has closed; (2) other units operating at the site would be

disrupted unless all were decommissioned simultaneously at a future time;

(3) a reduction in waste disposal volume, cost, or radiation exposure was

possible because of a reduction in residual radiation over time; or (4) a

licensed disposal facility for radioactive waste was unavailable. (Figure 1

shows ongoing decontamination and dismantling activities at one plant.)

 3

 A third alternative—encasing radioactive wastes within the reactor building—was used by

the DOE to decommission three of its small reactors. NRC, in promulgating its

decommissioning regulations in 1988, opposed use of this decommissioning method for its

licensees unless warranted to protect public health and safety. Since then, no licensee has

proposed using this decommissioning method.

Decommissioning

Regulations Outline

Technical Procedures
Chapter 1: Introduction

Page 12 GAO-02-48 Nuclear Regulation

Figure 1: Ongoing Decommissioning Work Within the Containment Building at the

Connecticut Yankee Atomic Power Company Haddam Neck Plant

Source: GAO.
Chapter 1: Introduction

Page 13 GAO-02-48 Nuclear Regulation

When power operations at a nuclear power plant cease, the licensee must

notify NRC, permanently remove the fuel from the reactor vessel, and

confirm this action to NRC. Within 2 years, the licensee must provide a

report to NRC addressing, among other things, decommissioning plans and

the estimated costs of these activities. NRC then publishes a notice of

receipt, makes the document available for public comment, and holds a

public meeting in the vicinity of the plant to discuss decommissioning

plans. The licensee may not perform any major decommissioning activities

until 90 days after NRC receives the post-shutdown decommissioning

activities report and the certifications of permanent cessation of

operations and fuel removal. NRC currently requires that

decommissioning be completed within 60 years unless public health and

safety reasons require that an extension be granted.

Concurrent with plant decommissioning, a licensee must supply NRC a

plan for terminating its license at least 2 years before the planned

termination date. At the end of the license termination process, the

licensee must conduct a final radiation survey to prove that the site meets

radiological criteria for release and must include the survey with the plan.

The licensee remains accountable to NRC until decommissioning has been

completed and the license is terminated.

NRC’s 1988 decommissioning regulations outlined several acceptable

approaches for decommissioning nuclear power plants, but regulations did

not establish acceptable residual radioactivity levels for the unrestricted

release of decommissioned sites. In 1996, NRC published its final rule on

the decommissioning of nuclear power plants. This final rule (1) redefined

the decommissioning process; (2) defined terminology related to

decommissioning; (3) required licensees to provide the NRC with early

notification of planned decommissioning activities at their facilities; and

(4) explicitly stated the applicability of certain NRC requirements that are

specific for reactors that are permanently shut down. However, NRC did

not amend its regulations to include radiological criteria for license

termination until 1997. The final rule included radiological criteria for

releasing decommissioned sites for both unrestricted and restricted future

uses. For restricted future uses, licensees must provide safeguards to

ensure that access to the site will be restricted until dose levels decay to

the radiation level set for unrestricted site releases. The safeguards

include requirements for physical barriers, security, monitoring,

maintenance, financial assurance provisions, and other institutional

controls to ensure that access to the site remains restricted for the entire

internment period.
Chapter 1: Introduction

Page 14 GAO-02-48 Nuclear Regulation

On the basis of its regulations restricting the dosages to members of the

public under both the unrestricted and restricted release scenarios, NRC is

also now considering two alternative decommissioning approaches. One

approach, called rubblization, would permit licensees to demolish plant

concrete that is contaminated with radioactivity into rubble and bury the

rubble in the underground portion of the dismantled plant. The other

approach, called entombment, would involve the permanent encasement

of the radioactive contaminants from a partially dismantled plant within

the remaining structure of the plant. NRC is also considering extending the

timeframe for completing decommissioning from 60 to 100 years or more.

As with other decommissioning alternatives, licensees selecting

rubblization or entombment would be required to demonstrate compliance

with NRC’s regulations for license termination, including a demonstration

that residual radiation doses at the site are as low as is reasonably

achievable.

NRC has primary regulatory authority over nuclear power plant operations

and decommissioning, but it is not the only entity that promulgates

radiation protection standards. The Environmental Protection Agency

(EPA) also issues radiation standards and administers the Comprehensive

Environmental Response, Compensation, and Liability Act of 1980

(CERCLA), which governs cleanups of federal and non-federal facilities.

EPA has authority to evaluate NRC-regulated sites once the sites are

decommissioned. NRC and EPA have historically disagreed over radiation

protection standards. Differences in legislative mandates, agency missions,

and regulatory strategies contribute to this disagreement, which remains

essentially unchanged today despite resolution efforts spanning a number

of years. States also have authority to issue their own standards, which

may be more stringent than either NRC’s or EPA’s. Consequently, whereas

NRC may approve decommissioning plans and terminate the NRC

operating license based on its standards, plant owners may still be subject

to other federal and state standards once the NRC license is terminated.

NRC has authority under the Atomic Energy Act of 1954, as amended, to

require licensees to accumulate the funds necessary to decommission

their nuclear power plants. Prior to 1988, NRC only required licensees to

certify that sufficient funding would be available to decommission their

plants when needed and did not require any specific financial provisions.

On July 26, 1988, NRC strengthened its technical and financial

requirements for decommissioning and offered several options for

providing financial assurance. The options included:

Decommissioning

Regulations Outline

Financial Procedures
Chapter 1: Introduction

Page 15 GAO-02-48 Nuclear Regulation

• prepayment of the entire estimated decommissioning liability in cash or

liquid assets into a separate, segregated account outside the licensee’s

control;

• external sinking funds segregated from other licensee assets and outside

licensee control that are established and maintained by periodic funding;

• surety methods or insurance; or

• for federal licensees only, a statement of intent that decommissioning

funds will be obtained when necessary.

Essentially, most if not all utilities eventually elected the option to

establish external sinking funds (trust funds) to finance future

decommissioning costs. Under this option, decommissioning funds are

accumulated over the operational life of a nuclear power plant as part of

the cost charged to customers for the electricity they use.

In establishing its regulations, NRC recognized that the external sinking

fund option allowed the rate-setting authority of FERC and state public

utility commissions to control the rate at which decommissioning funds

could be accumulated. Given the additional uncertainty involved in

estimating future decommissioning costs, NRC required only that

licensees provide “reasonable assurance” that sufficient funds would be

available to decommission their nuclear power plants when they are shut

down. In 1998 , NRC also began requiring licensees to provide financial

reports every 2 years on the status of their decommissioning funds. NRC

provided licensees with a mathematical formula to initially determine and

periodically adjust the estimated amounts required in the funds for

radiological decontamination of their plant sites. Licensees may also base

their decommissioning trust funds on site-specific estimates of

decommissioning costs if these estimates exceed the amounts calculated

using NRC’s formula.

The length of time that a nuclear power plant remains in operation

depends on several factors. NRC typically issues operating licenses for

40 years. Licensees with economically viable plants that still meet NRC’s

operational requirements may opt to extend operations rather than close

their doors. On the other hand, licensees with financially marginal plants

may decide to cease operations rather than shoulder large cost

requirements for equipment upgrades or repairs, or to address NRC’s

concerns. An operational accident could also bring a premature end to

operations, as could local public and political sentiment or NRC closure

for safety reasons. As decommissioning funds are typically accumulated

over the expected operational lifetime of the plant, plants that close

prematurely may not have accumulated sufficient funds and may have to
Chapter 1: Introduction

Page 16 GAO-02-48 Nuclear Regulation

defer the decommissioning process. Furthermore, where several units are

situated at the same site, licensees may delay decommissioning work until

all plants can be decommissioned at the same time.

Historically, nuclear power plants were constructed and operated

primarily by investor-owned utilities.4

 Beginning in the mid-1990s,

however, many states began to deregulate the electricity industry and to

mandate or encourage industry restructuring. Under deregulation, subject

to federal oversight, the ownership and control of electricity generation

was separated from the transmission and distribution functions to

facilitate competition. Traditional utilities continue to serve the

transmission and distribution functions, while new business entities—

formed through operating arrangements, plant sales, corporate

realignments, and mergers—often handle the electricity production

function. In recent years, NRC has reviewed more than 60 license transfer

requests. These transfer requests have affected about half the nuclear

plants in the United States, and some licenses were transferred several

times for multiple reasons.

 4

 In addition, smaller investor-owned utilities, publicly-owned utilities, or cooperatives own

or have owned a few entire plants or shares of some plants.

Deregulation of

Electric Utilities and

Resultant Industry

Restructuring
Chapter 1: Introduction

Page 17 GAO-02-48 Nuclear Regulation

Figure 2: Map of Nuclear Power Plants in the United States and Status of

Deregulation by State

Note: Includes Browns Ferry Unit 1, which has no fuel loaded and requires Commission approval to

restart.

Source: Nuclear Regulatory Commission and Energy Information Administration Illustrations, as

modified by GAO.

While the move to deregulate the electric industry has resulted in changes

that affect the status of licensees in some states, many licensees today still

remain investor-owned utilities that operate as state-regulated monopolies.

NRC has provided its staff, managers, and licensees with guidance on how

it will review requests to transfer licenses, including determining whether

the new license holders would continue to operate under economic

regulation or in an economically deregulated environment. This guidance
Chapter 1: Introduction

Page 18 GAO-02-48 Nuclear Regulation

is in the form of a standard review plan on nuclear power plant licensees’

financial qualifications to operate their plants and assurances that the

licensees will provide adequate funds to decommission the plants. The

review plan discusses each of the review procedures that the NRC staff

should use, as appropriate, to determine the adequacy of a prospective

licensee’s financial qualifications and decommissioning funding

method(s). For example, the review plan discusses how NRC’s staff should

evaluate external sinking fund trust documents and other

decommissioning financial assurance mechanisms.

Concerned about the adequacy of decommissioning funds, particularly in

deregulated markets, Representative Edward Markey asked us to

determine how (1) transfers of licenses to operate or own nuclear power

plants affected the level of assurance that adequate funds will be available

to operate and decommission these plants, (2) various site cleanup

standards and proposed alternative decommissioning approaches affect

projected decommissioning costs, and (3) proposed changes in financial

reporting standards affect disclosure and funding of decommissioning

liabilities.

To determine how license transfers for nuclear power plants affected

NRC’s level of assurance that adequate funds will be available to

decommission these plants, we reviewed NRC’s Standard Review Plan on

Power Reactor Licensee Financial Qualifications and Decommissioning

Funding Assurance, as well as related memoranda, regulations, policy

statements, regulatory analyses, and regulatory guidance. We contacted

NRC’s Office of Inspector General to discuss the weaknesses it had

reported in licensee’s biennial reports to NRC regarding decommissioning

fund balances. At NRC’s headquarters in Rockville, Maryland, we met with

officials from NRC’s offices of Nuclear Reactor Regulation and Nuclear

Material Safety and Safeguards to discuss decommissioning financial

assurance issues regarding non-owner operating arrangements, nuclear

plant sales, corporate reorganizations, and mergers. We also reviewed

licensee information provided to NRC regarding these license transfers,

and analyzed NRC’s review and approval documents related to license

transfer requests submitted for 9 non-owner operating arrangements, 19

sales, 3 corporate reorganizations, and one merger.

To determine how site cleanup standards and proposed alternative

decommissioning approaches affect projected decommissioning costs, we

obtained, from EPA and NRC, and reviewed memoranda, regulations and

other documentation addressing decommissioning and radiation

Objectives, Scope,

and Methodology
Chapter 1: Introduction

Page 19 GAO-02-48 Nuclear Regulation

protection standards. We reviewed published GAO reports that dealt with

decommissioning financial assurance, nuclear waste disposal, radiation

protection standards, and other related issues. We also reviewed a recent

National Research Council report that questioned the reliability of longterm institutional management controls at nuclear waste sites. We also

contacted EPA and NRC staff regarding efforts to resolve interagency

disagreement over radiation protection standards and related issues, and

met with staff from NRC’s offices of Nuclear Reactor Regulation and

Nuclear Material Safety and Safeguards to discuss issues regarding

radiation protection standards, past decommissioning methods and

experience, and proposed decommissioning alternatives and their

potential impact on decommissioning cost. In addition, we reviewed the

minutes from an August 1999 NRC public workshop dealing with

decommissioning and proposed waste disposal options.

To acquire a first-hand perspective on decommissioning, we obtained and

reviewed the license termination plans from and made visits to the

Connecticut Yankee Atomic Power Company plant at Haddam,

Connecticut, and the Maine Yankee Atomic Power Company plant at

Wiscasset, Maine. At the Haddam plant, we met and discussed

decommissioning issues with officials from the Connecticut Yankee

Atomic Power Company, Bechtel Power Corporation (the

decommissioning contractor), and the Connecticut Department of

Environmental Protection. We also toured the Haddam Plant and observed

ongoing decommissioning work within the reactor building (containment).

In addition, we met with local members of the Citizens Awareness

Network, a non-profit volunteer organization, to discuss issues and

concerns regarding the decommissioning of the Haddam Plant. In Maine,

we met with two state senators knowledgeable about the controversy over

original decommissioning plans to rubblize the Maine Yankee site and the

involvement of the state legislature in the Maine Yankee decommissioning.

We also met with a member of Friends of the Coast—a local citizens’

environmental organization. We contacted officials from the Maine

Department of Environmental Protection and Department of Human

Services by telephone and discussed Maine Yankee decommissioning

issues. In Washington, D.C., we met with members of the Nuclear Energy

Institute, Union of Concerned Scientists, Nuclear Information and

Resource Service, and Public Citizen to discuss decommissioning issues.

In addition, we attended the Fifth Biennial Industry Conference on

Decommissioning held in October 2000 and a NRC public

decommissioning workshop held in November 2000.
Chapter 1: Introduction

Page 20 GAO-02-48 Nuclear Regulation

To determine how a recently adopted financial reporting standard will

affect the disclosure and funding of decommissioning liabilities, we

reviewed the annual reports and/or annual filings with the Securities and

Exchange Commission (Forms 10 K) for 55 utility companies that own

nuclear power plants. From those, we determined the methods currently

used to account for decommissioning costs. We also reviewed FASB

Exposure Draft No. 206-B entitled “Accounting for Obligations Associated

with the Retirement of Long-Lived Assets,” (adopted in June 2001 as FASB

Statement No. 143) as well as selected responses of public accounting

firms and utility companies to the Exposure Draft. From our review, we

determined how the new standard would affect the financial statements of

utility companies with nuclear power plants.

We performed our review between June 2000 and August 2001 in

accordance with generally accepted government auditing standards.
Chapter 2: Most Restructuring License

Transfers Have Maintained or Enhanced

Assurance of Decommissioning Funding

Page 21 GAO-02-48 Nuclear Regulation

As a result of restructuring in the electricity industry, NRC has approved

requests to transfer the licenses to own or operate more than one-half of

the nuclear power plants in the United States. Some license transfer

requests involved a single owner of one or more plants transferring

licenses to own or operate the plant(s) to one or more new owners or

operators. Other requests involved transfers of licenses to own or operate

one or more plants from multiple owners of these plants. For most of the

requests that NRC reviewed to transfer licenses for one or more plants, the

level of assurance that the plants’ decommissioning funds will be adequate

has been maintained or enhanced. For example, when plant owners

requested that their operating licenses for eight plants be transferred to a

contractor, NRC maintained the existing level of assurance by continuing

to hold the plant owners responsible for collecting decommissioning

funds. In addition, when NRC approved requests to transfer licenses

related to the sale of 15 plants, decommissioning funding assurances were

increased because the selling utilities prepaid all or most of the projected

decommissioning costs, and either the sellers or the new owners provided

additional financial guarantees for those projected costs that were not

prepaid. However, when NRC approved requests to transfer licenses in

which the new licensee intended to rely on periodic deposits into external

sinking funds for decommissioning, it did not always obtain the same level

of financial assurance as when plants were sold or their operations

contracted out. Among other things, NRC approved two requests to

transfer ownership of 25 plants without verifying that the new owners

would have guaranteed access to the decommissioning charges that their

affiliated utilities would collect.

NRC also requires prospective new owners of plants that will not be

selling their electricity at regulated rates to demonstrate their financial

qualifications to safely own and operate the nuclear power plants that they

are acquiring. In almost all of its reviews of new owners’ financial

qualifications, NRC has required additional guarantees from parent or

affiliated companies that the new owners would have sufficient revenue to

cover the plants’ operating costs. However, when reviewing one

prospective owner’s financial qualifications, NRC did not require

additional guarantees and did not validate the information submitted by

the new owner to demonstrate that the company was financially qualified

to safely own and operate the largest fleet of nuclear plants in the United

States.

Chapter 2: Most Restructuring License

Transfers Have Maintained or Enhanced

Assurance of Decommissioning Funding
Chapter 2: Most Restructuring License

Transfers Have Maintained or Enhanced

Assurance of Decommissioning Funding

Page 22 GAO-02-48 Nuclear Regulation

The level of assurance that decommissioning funds will be adequate has

been maintained in all license transfer approvals that allowed plant

owners to contract out plant operations. For example, traditional electric

utilities that own 17 nuclear power plants have used companies that

specialize in the operation, maintenance, and decommissioning of nuclear

power plants to help them operate or decommission their plants. The

owners of fifteen of these plants had to get NRC’s approval to transfer

their operating licenses. For the other two plants, NRC decided that the

proposed arrangements did not require transfers of operating licenses.

(See table 1.) For all 15 operating license transfers, NRC continues to hold

the owners responsible for accumulating decommissioning funds, and the

owners continue to collect these funds through regulated electricity rates.

Accordingly, these operating license transfers have not changed the level

of decommissioning funding assurance for these plants.

Table 1: Nuclear Power Plants With Non-owner Operating Arrangements

Nuclear power plant

Operator’s business arrangement with

owner(s)

NRC operating license transfer

required?

Duane Arnold Energy Center Operating services agreementa Yes

Kewaunee Nuclear Power Plant Operating services agreementaYes

Monticello Nuclear Generating Plant Operating services agreementaYes

Palisades Plant Operating services agreementaYes

Point Beach Nuclear Plant, Unit 1 Operating services agreementa Yes

Point Beach Nuclear Plant, Unit 2 Operating services agreementaYes

Prairie Island Nuclear Generating Plant, Unit 1 Operating services agreementaYes

Prairie Island Nuclear Generating Plant, Unit 2 Operating services agreementaYes

John M. Farley, Unit 1 Affiliated companyb Yes

John M. Farley, Unit 2 Affiliated companybYes

Edwin I Hatch, Unit 1 Affiliated companybYes

Edwin I Hatch, Unit 2 Affiliated companyb Yes

River Bend, Unit 1 Affiliated companybYes

Vogtle, Unit 1 Affiliated companyb Yes

Vogtle, Unit 2 Affiliated companyb Yes

Clinton Power Station Management services agreementc No

Maine Yankee Atomic Power Plant Management services agreementcNo

a

Operating licenses for eight plants were transferred to one company, Nuclear Management

Company, which was formed by the plants’ electric utility owners to provide operating and eventual

decommissioning services for the plants. NRC approved the operating license transfers but continues

to hold the utility-owners responsible for collecting decommissioning funds for the plants through their

regulated electricity rates.

b

Seven transfers of operating licenses resulted from corporate reorganizations or mergers in which an

existing operations organization split off from an electric utility and formed a new affiliated company

specializing in nuclear plant operations. The utility owners continue to collect decommissioning funds

for the plants through their regulated electricity rates.

Funding Assurance Is

Maintained for

License Transfers

Related to

Contracting Out

Operations
Chapter 2: Most Restructuring License

Transfers Have Maintained or Enhanced

Assurance of Decommissioning Funding

Page 23 GAO-02-48 Nuclear Regulation

c

In two cases, in which utility owners entered into management services agreements with outside

companies to assist them with operating and decommissioning their plants, NRC did not require

operating license transfers. In both cases, NRC determined that because the management services

provided by the operating companies did not involve activities that would require a license, such as

maintenance of safety-related equipment or the emergency preparedness program, and because the

utility owners retained final decision-making authority, no transfer of operating authority had taken

place that required NRC’s approval. The utility owners continued to collect decommissioning funds

through their regulated electricity rates.

Source: GAO’s analysis of NRC data.

When NRC has approved license transfers for plants that chose the

prepayment and guarantee methods, assurance of adequate

decommissioning funding has been enhanced. To date, all the transfers

that NRC has reviewed as a result of plant sales have chosen either total

prepayment or a combination of these methods. For example, as a direct

response to deregulation legislation in many Northeast, Mid-Atlantic, and

Midwest states, NRC has approved the transfer of the ownership interests

in 15 nuclear power plants from traditional electric utilities to newly

formed generating companies. The utilities selling 13 of these plants

proposed to transfer prepaid decommissioning trust funds to the

generating companies. NRC concurred with these proposals and also

imposed conditions on how the new owners must manage these funds to

ensure that they are preserved and accumulate as projected in a market

environment. For the other two plants, the selling utility—the Power

Authority of the State of New York—chose to retain control of the prepaid

decommissioning trust funds for its two plants and not transfer them to

the new owners (Entergy Nuclear Indian Point 3 and Entergy Nuclear

Fitzpatrick). Because the Power Authority would no longer be a licensed

owner or operator of the two plants, NRC imposed additional conditions

upon these license transfers, allowing NRC intercession to release funds

for decommissioning if the Power Authority does not comply with its

responsibility to do so.

In three transfers the accumulated trust funds did not cover small

portions—less than 8 percent—of the projected decommissioning costs. In

these cases, either the buyer’s or the seller’s parent or affiliated companies

passed NRC’s financial test and provided contractual guarantees that they

would provide additional funds as needed. Consequently, NRC has

assurances that all approved new plant owners will have adequate funds

available to decommission their plants in a deregulated environment.

Table 2 lists the 15 plant sales that NRC has approved, along with the

projected amount of decommissioning funding needed and the amount

available in the trust funds at the time of the sales.

Prepayment and

Company Guarantee

Methods Have

Enhanced Funding

Assurances When

Licenses Are

Transferred
Chapter 2: Most Restructuring License

Transfers Have Maintained or Enhanced

Assurance of Decommissioning Funding

Page 24 GAO-02-48 Nuclear Regulation

Table 2: Decommissioning Funds Needed, Transferred, and Assurance Methods Used for Nuclear Power Plants Approved for

Sale

Dollars in millions

Nuclear power plant Percent sold

Projected funds

needed

Funds approved to

transfer Decommissioning assurance method

Clinton Power Station 100.00 $347.880 $210.000 Prepayment + 2% interesta

James A Fitzpatrick 100.00 $358.000 $343.968 bPrepayment + 2% interesta+ guarantee

Hope Creek 5.00 $18.014 $9.681 Prepayment + 2% interesta

Indian Point, Unit 3 100.00 $292.000 $315.225 b Prepayment + guarantee

Millstone, Unit 1c100.00 $504.481 $293.712 Prepayment + guarantee + 2% interesta

Millstone, Unit 2 100.00 $298.630 $252.944 Prepayment + 2% interesta

Millstone, Unit 3 93.47 $316.728 $246.838 Prepayment + 2% interesta

Oyster Creek 100.00 $333.462 $400.000 Prepayment

Peach Bottom, Unit 2 15.02 $56.401 $44.775d Prepayment + 2% interesta + guarantee

Peach Bottom, Unit 3 15.02 $56.401 $46.202dPrepayment + 2% interesta + guarantee

Pilgrim 100.00 $327.000e $396.000 Prepayment

Salem, Unit 1 14.82 $44.000 $36.837 Prepayment + 2% interesta

Salem, Unit 2 14.82 $44.000 $35.635 Prepayment + 2% interesta

Three Mile Island, Unit 1 100.00 $268.870 $303.000 Prepayment

Vermont Yankee 100.00 $328.300f$280.000fPrepayment + 2% interesta

a

NRC requirements in 10 CFR 50.75(E)(1)(i) and (ii) for the prepayment and external sinking fund

assurance methods, respectively, allow licensees to take credit for future earnings on their trust funds

at a real rate of return (i.e., adjusted for inflation) of up to 2 percent per year. Licensees may claim

higher rates if specifically authorized by their rate regulator.

b

The seller does not plan to transfer these funds to the new owner and will instead retain the trusts

after the plants are sold. The seller has provided a guarantee that the funds will remain available for

decommissioning. In addition, the seller has agreed, as a condition of the trust agreements that, since

it will no longer be licensed, NRC may intercede to release the funds, if needed.

c

This plant, permanently shut down in July 1998, has been defueled and placed in a “Cold and Dark”

state by the seller. These funds are based on a site-specific estimate and include the buyer’s parent

company guarantee of $25,423,666. The funds are intended to support annual monitoring costs of

$2,947,285 during SAFSTOR and to accumulate until 2054, when final decommissioning is

anticipated.

d

These funds are the cumulative funds collected by 2 utilities with equal selling shares; however, one

utility has collected less than half of this amount. Originally both utilities, as subsidiaries of a single

holding company, were to complete their sales at the same time and their combined funds were

sufficient for prepayment assurance. However, the utility with the larger accumulation of funds

delayed its transfer awaiting approval from its state public utility commission. Because the utility with

less accumulated funds consummated its sale first, the other affiliated utility has guaranteed to make

up the difference up to 50 percent of their cumulative amount until it completes its divestiture.

e

This amount is the NRC generic formula estimate. A site-specific site cost estimate placed costs

between $396 million and $466 million. The seller agreed to transfer $396 million to the buyer’s

decommissioning trust account and to create a provisional trust account of $70 million to cover the

potential taxes that might be due. Any funds left in the provisional trust account after taxes, as of

December 31, 2002, will be deposited in the decommissioning trust account.

f

These are the amounts NRC approved in 2000; however in January 2001, the Vermont Public

Service Board nullified this sale and, in the hope of receiving a better offer, ordered that the plant be

sold at auction. These amounts will most likely change when the sale is consummated.
Chapter 2: Most Restructuring License

Transfers Have Maintained or Enhanced

Assurance of Decommissioning Funding

Page 25 GAO-02-48 Nuclear Regulation

Source: GAO’s analysis of NRC data.

In approving license transfer requests that continued to rely on the

external sinking fund method of decommissioning financial assurance,

NRC’s reviews did not consistently maintain the level of assurance that

decommissioning funds would be adequate, as it had for license transfers

that relied on prepayment or company guarantees. In most cases, the new

owners, as a result of corporate reorganizations or mergers, are no longer

considered traditional electric utilities that will collect decommissioning

funds through predetermined rates, but instead are affiliated with electric

utilities authorized by their state regulators to collect non-bypassable

charges for decommissioning.1

 These affiliated utilities will not be licensed

by NRC. While NRC’s review plan does not explicitly describe procedures

for its staff to follow in these situations, it does imply that the new owners

should provide NRC with additional information regarding the calculation

and collection of these charges and ways they will be deposited into their

trust funds. NRC, however, did not consistently request this additional

information, when owners did not provide it. Consequently, NRC was

unable to consistently maintain assurance that these funds would

accumulate adequately when new owners rely on the traditional external

sinking fund assurance method in a deregulated environment.

Our review of NRC’s approval of license transfers for 28 plants from 3

corporate reorganizations and one merger revealed that the new plant

owners had varying degrees of access to the future decommissioning

charges collected for their plants. Even though NRC’s regulations allow

non-bypassable charges as an acceptable accumulation mechanism for

external sinking funds, it assumes that NRC licensees will either collect

these charges or have direct access to them. NRC did not consistently

assure that when unlicensed affiliated utilities collect the charges, they

would deposit them into the new owners’ decommissioning trust funds.

For 3 of the 28 plants—units 1, 2, and 3 of the Palo Verde nuclear power

facility in Arizona—NRC placed conditions on its approval of the license

 1

 Non-bypassable charges are charges imposed over an established period of time by a

government authority (such as a public utility commission) that affected entities are

required to pay to cover the costs associated with the decommissioning of a nuclear power

plant. Such charges include, but are not limited to, wire charges, stranded cost charges,

transition charges, exit fees, or other similar charges.

Funding Assurance

Was Not Always

Maintained in License

Transfers That

Continued to Rely on

the External Sinking

Fund Method

NRC Did Not Always

Verify That New Plant

Owners Would Have

Access to Collected

Decommissioning Charges
Chapter 2: Most Restructuring License

Transfers Have Maintained or Enhanced

Assurance of Decommissioning Funding

Page 26 GAO-02-48 Nuclear Regulation

transfers that contractual arrangements for collection and deposit of

earmarked funds into the new licensees’ decommissioning trust funds be

completed. The three units are jointly owned by several traditional electric

utilities, including the Public Service Company of New Mexico and El Paso

Electric Company of Texas. These two companies are reorganizing their

corporate structures to comply with new requirements to supply energy in

New Mexico under deregulation. In accordance with these deregulation

efforts, the two companies requested that NRC transfer their respective

ownership licenses in the Palo Verde plants to new generating companies

formed out of their corporate reorganizations—Manzano Energy

Corporation in New Mexico and MiraSol Generating Company in Texas. In

effect, these new generating companies also will inherit the external

sinking funds intended to cover their respective shares of responsibility to

eventually decommission the Palo Verde units. However, these external

sinking funds were not sufficient to qualify as prepayment of estimated

decommissioning costs. Therefore, each company provided NRC with

copies of contractual agreements requiring their affiliated utilities to:

• collect decommissioning funds through their charges for distributing

electricity in their service areas (also known as non-bypassable wires

charges) imposed by their respective state public utility commissions or

other regulatory entities, and

• deposit the collected money into the new generating companies’

decommissioning trust funds periodically.

NRC approved the license transfers subject to obtaining final copies of the

agreements between the affiliated utilities and the new generating

companies and schedules showing how the decommissioning charges

approved by the New Mexico and Texas state public utility commissions

would fund the total decommissioning costs.2

 In both cases, NRC assured

that the decommissioning charges collected by their affiliated utilities

would be deposited into the new companies’ external sinking funds and

that the states’ public utility commissions were assuring that the charges

collected would be sufficient to cover the total decommissioning costs.

However, NRC approved applications to transfer the licenses for the other

25 plants without verifying that the new owners would have the same

degree of access to the decommissioning charges or that the states’ public

 2

 The New Mexico legislature has extended the implementation of deregulation in its state

for 5 years, and as a result, these corporate reorganizations have been postponed.
Chapter 2: Most Restructuring License

Transfers Have Maintained or Enhanced

Assurance of Decommissioning Funding

Page 27 GAO-02-48 Nuclear Regulation

utility commissions would ensure the collection of the total

decommissioning costs. For example, the Public Service Electric and Gas

Company’s (PSEG) corporate reorganization involved decommissioning

trust funds for 5 plants. The New Jersey Board of Public Utilities

authorized PSEG to continue collecting decommissioning funds through

its distribution rates, yet NRC approved the trust funds to be transferred to

PSEG Nuclear, the newly-formed generating company. NRC did not

question the access PSEG Nuclear had to the funds collected by PSEG, its

affiliate utility. In addition, NRC did not require a copy of a contractual

agreement between the affiliates that guaranteed periodic deposits to the

new owner’s decommissioning trust funds as it did for Manzano Energy

and MiraSol Generating Company. In support of its approval for these

transfers, NRC staff told us that they also used publicly available sources

of information, such as state restructuring laws or public utility

commission web sites, when new owners did not provide information with

their applications. Unfortunately, the staff did not document the content

or use of such information in the records of these license transfer

approvals so we could not verify the adequacy of NRC’s review. Also, in

the case of the five plants, the New Jersey restructuring legislation had

authorized these charges. After 4 years, the Board of Public Utilities

planned annual reevaluations to determine whether the decommissioning

funds were overfunded or underfunded and then to authorize further

charges accordingly. NRC’s records do not show that its staff evaluated

how New Jersey’s proposed charges would affect the accumulation of the

total costs needed to decommission each individual plant, despite

guidance in its review plan and previous instances when the prepayment

and company guarantee methods had been used. Yet, NRC approved the

transfers after assuring itself that, in the aggregate, the 5 plants would

achieve the full funding of their required decommissioning costs by the

time they cease operations.

More significantly, in the merger of two companies that involved 20

nuclear plants in Illinois, New Jersey and Pennsylvania, the existing and

new companies involved in the merger did not provide, nor did NRC

request, copies of contractual agreements documenting that monies to be

collected from utility customers in the states would be deposited in the

respective decommissioning trust funds for each of the 20 plants. In this

restructuring transaction, Unicom (the parent company of the electric

utility known as Commonwealth Edison Company) and PECO Energy

Company merged to form a parent entity—Exelon Corporation—and

several wholly-owned subsidiary companies, including Exelon Generation

Company, Commonwealth Edison, and PECO. The generating subsidiary

company became the legal owner of Exelon Corporation’s electricity
Chapter 2: Most Restructuring License

Transfers Have Maintained or Enhanced

Assurance of Decommissioning Funding

Page 28 GAO-02-48 Nuclear Regulation

generating assets. These assets included Commonwealth Edison’s 10

operating nuclear power plants and 3 retired nuclear plants that have not

yet been decommissioned. In addition, the assets included six operating

and one retired nuclear power plant owned by PECO. The latter two

subsidiary companies transmitted and distributed the electricity supplied

by the generating subsidiary to electricity customers. As a part of this

electricity restructuring, both Commonwealth Edison and PECO retained

their responsibilities to collect charges from their customers for the future

decommissioning of the 20 nuclear power plants now owned by Exelon

Generation Company.

When Commonwealth Edison and PECO requested that NRC approve their

proposed merger, the two utilities submitted similar, if not identical,

statements that they would continue to collect decommissioning funds for

their 20 nuclear power plants through their electricity distribution rates.

The utilities added that they would also, as a matter of contract, transfer

the funds collected to Exelon Generation Company—which would hold

the operating licenses for the 20 plants—for deposit in each plant’s

respective decommissioning trust fund. However, unlike the license

transfer cases involving the restructuring of Public Service Company of

New Mexico and El Paso Electric, discussed above, Commonwealth

Edison and PECO did not enclose copies of any intercompany agreements

or rulings from their respective public utility commissions documenting

these fund transfer arrangements. Furthermore, NRC neither requested

either of the two utilities to submit such documentation nor, in the orders

transferring the licenses for the 20 plants, did the NRC place any

conditions that guaranteed that the utilities would collect and deposit

decommissioning funds into the plants’ trust funds held by Exelon

Generation Company. Nevertheless, NRC’s documents approving the

Exelon merger state that Commonwealth Edison and PECO will collect

the decommissioning costs through their distribution rates and then, as a

matter of contract, pay these amounts to their affiliate, Exelon Generation

Company, for deposit in the trust funds for each plant.

NRC’s staff told us that they did not request documentation regarding

Exelon Generation Company’s access to the collected charges because

this issue was covered by the deregulation legislation enacted in Illinois

and Pennsylvania, copies of which they had obtained from publicly

available sources. Conversely, because the implementation of the

deregulation legislation in New Mexico and Texas had been delayed, the

NRC staff needed to be sure that it received final copies of any agreements

in the Palo Verde plants’ transfers in order to assess their viability against

any new legislative changes. However, neither Illinois’ nor Pennsylvania’s
Chapter 2: Most Restructuring License

Transfers Have Maintained or Enhanced

Assurance of Decommissioning Funding

Page 29 GAO-02-48 Nuclear Regulation

deregulation legislation refers to an unregulated newly-formed company’s

access to the charges collected by regulated affiliated utilities. We did

locate an inter-company agreement attached to Commonwealth Edison’s

public-utility commission submission for approval of the merger, providing

evidence that such an agreement exists and that the Illinois public utility

commission is overseeing this access issue. However, NRC had no record

of this agreement or the Commonwealth Edison and PECO submissions to

their respective state public utility commissions. Also, while NRC staff told

us that they accepted the companies’ application as sworn statements that

contractual arrangements existed, they did not document the basis for this

opinion in their evaluation of the license transfer.

Concerns have also surfaced over whether the collection of utility

surcharges is sufficient to cover total decommissioning costs when plants

are prematurely shut down. NRC’s review plan provides procedures for

verifying the accuracy of annual deposits to such funds when plants are

operating. However, when plants are prematurely shutdown, the plan does

not provide staff procedures to follow, leaving them instead to determine

how to review the funds on a case-by-case basis. NRC’s approval

documents state that the decommissioning funding mechanism for all 20

of Exelon Generation Company’s plants—16 operating and 4 retired—is

the regulated charge collected by its distributing utility affiliates and that

the collecting utility will make deposits into the decommissioning trust

funds over the generating life of each plant. If the plants no longer

generate electricity, it is not clear from the information the utilities

submitted or NRC’s review plan just how the funds would be collected,

much less (as discussed above) how the deposits would be made to the

trust accounts of the closed plants. NRC staff subsequently told us that

their review of the Illinois and Pennsylvania restructuring laws showed

that they allow for the collection of non-bypassable charges for plants that

are shutdown and that their evaluation report was in error on this point.

However, the staff evaluation of this publicly available information is not

documented in NRC’s license transfer records for this merger.

In addition, NRC did not apply the same review standards when it

approved the transfers for these four retired plants as it did for another

retired plant,3

 Millstone 1, which was recently sold along with its sister

 3

 The four retired plants are Dresden, Unit 1 and Zion, Units 1 and 2 in Illinois and Peach

Bottom, Unit 1 in Pennsylvania.

Accumulation of

Decommissioning Funds

for Retired Plants Is Also a

Concern
Chapter 2: Most Restructuring License

Transfers Have Maintained or Enhanced

Assurance of Decommissioning Funding

Page 30 GAO-02-48 Nuclear Regulation

plants that are currently operating. Dominion Resources, Inc., the new

owners’ parent company, showed NRC the expected annual accumulation

of funds, forecast an expected shortfall of $26 million resulting from

additional annual monitoring costs incurred while the plant awaits the

retirement of its sister plants, and provided a company guarantee for this

expected shortfall. In contrast, neither Commonwealth Edison nor PECO

provided more detailed information for the 4 retired plants than they did

for the 16 operating plants. The application documents that

Commonwealth Edison and PECO provided and NRC’s approval

documents make it difficult to discern

• which phase of dismantlement these 4 plants are in;

• how much, if any, of the trust funds has been spent so far shutting down

the plants;

• whether Exelon Generation Company will incur unanticipated long-term

stewardship expenses as a result of having to monitor these plants (as was

the case of the Millstone retired plant); or

• which costs in the site specific estimates of these retired plants might

impact Exelon Generation Company’s ability to effectively decommission

the facilities or safely operate their collocated plants.

NRC staff told us that their regulations do not require this level of detail to

review the status of decommissioning funds for retired plants; however,

they could not document that these plants had been evaluated on a caseby-case basis as their review plan recommends. Despite these ambiguities,

NRC concluded that Exelon Generation Company had provided adequate

assurance, even though it continued to rely on the external sinking funds

transferred from Commonwealth Edison and PECO, that it would, in a

deregulated environment, accumulate sufficient funds to decommission

almost one-fifth of the nuclear plant fleet of the United States.

Although NRC generally followed the guidance contained in its review

plan when reviewing the financial qualifications of prospective licensees,

it did not follow this guidance when it reviewed the financial qualifications

of Exelon Generation Company to own and operate the 20 nuclear power

plants formerly owned by Commonwealth Edison and PECO.

NRC requires prospective new owners of plants that do not qualify for

“electric utility” status—licensees that will not be selling their electricity at

regulated rates—to demonstrate that they are financially qualified to safely

own and operate the nuclear power plants that they are acquiring. To

review this aspect of proposed license transfers, NRC’s review plan

NRC’s Reviews of

New Owners’

Financial

Qualifications Have

Been Complete, With

One Significant

Exception
Chapter 2: Most Restructuring License

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Page 31 GAO-02-48 Nuclear Regulation

recommends that prospective new licensees demonstrate their financial

qualifications to safely own and operate their nuclear power plants for the

next 5-years by means of (1) contractual agreements with utilities that will

purchase electric power from the licensee; (2) the sale of power from the

licensee’s non-nuclear generating capacity; (3) projections of market

prices for the sale of power not covered by agreements; or (4) parent or

affiliate company guarantees or lines of credit for contingency operating

funds. NRC also compares a licensee’s expected annual electricity

production from its plants with past performance to determine the

reasonableness of these projections. NRC uses this information to

determine whether the prospective owners have demonstrated that they

possess, or have reasonable assurance of obtaining, sufficient revenue to

safely own and operate each plant.

For 19 sales, 2 reorganizations, and 1 merger—collectively involving

transfers of licenses for almost 50 nuclear power plants—that we

reviewed,4

 NRC found that the new licensees did not qualify for electric

utility status.5

 Except for the merger, NRC received additional guarantees

from parent or affiliated companies that the new owners would have

sufficient revenue to cover the plants’ operating costs. For example, the

prospective new owners provided NRC additional assurance that they

would produce enough revenue to cover the expected operating expenses

of their plants through power purchase agreements, contingency funds,

and lines of credit from affiliated or parent companies. In addition, one

new generating company cited anticipated revenue from the sale of nonnuclear power that amounted to almost 75 percent of its total electricity

production to supplement its ability to support its minority interest in 3

plants.

For each of the sales and reorganizations, the new owners provided some

form of financial assurance for their ability to safely own and operate the

plants they proposed to own in addition to the market sale of the

electricity produced by the plants. NRC staff evaluated this information

according to the guidance in its review plan. For the merger, however, the

new owner did not submit and NRC did not request additional guarantees.

 4

 The number of license transfers or transactions reviewed and plants affected are not

equivalent. In many cases plant owners have reorganized, merged or sold their interests in

the same plants and many plants have multiple owners.

5

 In one other reorganization, NRC found that the new licensee qualified as an electric

utility.
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Page 32 GAO-02-48 Nuclear Regulation

In addition, NRC did not validate the information submitted by the new

owner to demonstrate that the company was financially qualified to safely

own and operate the largest fleet of nuclear plants in the United States.

When Unicom (Commonwealth Edison) and PECO merged into Exelon

Corporation, the subsidiary Exelon Generation Company, which would

hold the NRC operating licenses for the two companies’ 16 operational and

4 retired nuclear power plants, did not meet NRC’s definition of an electric

utility. However, in their applications to NRC, Commonwealth Edison and

PECO asked NRC to transfer their plants’ licenses to Exelon Generation

Company on essentially the same terms and conditions contained in their

existing licenses—licenses which reflected that, as economically regulated

utilities, Commonwealth Edison and PECO had guaranteed access to

revenues to own and operate their nuclear plants. Commonwealth Edison

and PECO addressed the issue of assurance that Exelon Generation

Company would be financially qualified to own and operate their nuclear

power plants by providing NRC with 5-year projections of expenses from

the production and purchase of electricity and revenues from the market

sale of this electric power. Among other things, this information included

the estimated costs of:

• operating the new company’s 16 operational nuclear power plants;6

• purchasing excess electric power from six nuclear power plants owned, or

to be owned, by AmerGen Corporation. AmerGen, which was half-owned

by PECO, was created to market electricity generated from power plants

purchased and operated for that purpose. At that time, AmerGen owned

three nuclear power plants and was attempting to purchase three other

nuclear plants; and

• purchasing electricity from other suppliers for resale to Exelon customers,

fuel costs, asset depreciation, and other administrative costs.

In addressing its potential revenue, Commonwealth Edison and PECO

provided NRC with projections of revenues from, primarily, the sale of

electricity produced by the 16 nuclear plants and the resale of the

electricity purchased from AmerGen and other suppliers. Additional

income, amounting to 6 percent of the total electric power to be sold, was

 6

 Of these 16 plants, Commonwealth Edison and PECO owned majority interest and

operated 14 plants. At two plants, Salem-Units 1 and 2, PECO owned a 42.59 percent

interest and PSEG Nuclear operates the plants. Neither Commonwealth Edison nor PECO

estimated annual electricity generation costs and revenue for individual plants.
Chapter 2: Most Restructuring License

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Page 33 GAO-02-48 Nuclear Regulation

derived from the market sale of 5,000 megawatts of power from nonnuclear plants.

Although Commonwealth Edison and PECO provided a financial

projection to NRC in their license transfer applications, neither company

provided, nor did NRC request, any additional support—power purchase

agreements, contingency fund guarantees, or lines of credit—that would

enable NRC to validate the Exelon Generation Company’s financial

qualifications to own and operate the largest fleet of nuclear plants in the

United States. Also, Exelon did not provide, and NRC did not request, the

5-year projections of operating costs and estimated annual electricity

generation for individual plants. For this reason, NRC could not, as its

review plan recommends, compare plant-specific costs and production

estimates to plants of similar size and type to confirm the reasonableness

of the projections. Nonetheless, NRC concluded that Exelon’s projected

revenues, based solely on the market sale of electricity, would be

sufficient to cover the costs associated with owning and operating 16

plants, even if it experienced simultaneous 6-month shutdowns of several

of these nuclear plants.

Furthermore, NRC eventually transferred the licenses to Exelon

Generation Company on the basis of projected financial information that

both the affected companies and NRC knew to be inaccurate. When

Commonwealth Edison and PECO updated their projected income

statements for NRC in March 2000, they included income from three

nuclear plants that AmerGen was attempting to purchase. However, there

were no notes on this income statement to clarify that the statements

included projected revenue from sales of electricity to be produced at

nuclear plants that AmerGen did not yet own. (In contrast, Exelon

Corporation did disclose this contingency in merger-related filings

submitted to the Securities and Exchange Commission.) In June 2000, the

merging utilities notified NRC that their March 2000 income statement was

the most accurate. A month earlier, however, AmerGen had notified NRC

that it had withdrawn its bid to purchase the two Nine Mile Point plants in

New York. By December 2000 it was also apparent that AmerGen’s bid to

purchase the Vermont Yankee plant would not succeed. Therefore,

AmerGen owned just 3 of the 6 plants Exelon Generation Company had

included in its financial qualification statement. In January 2001—over

1 year after receiving the initial merger applications—NRC transferred

Commonwealth Edison’s and PECO’s licenses to own and/or operate 20

nuclear power plants to Exelon Generation Company on the basis in part

of projected financial information known to be inaccurate by the

companies and NRC.
Chapter 2: Most Restructuring License

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Page 34 GAO-02-48 Nuclear Regulation

In defense of their review of the merger, NRC staff told us that their

regulations only require that licensees demonstrate financial assurance

through credible projections of 5 years of expenses and revenues. Also,

because Exelon Generation Company was to be the licensee for all 16

operating plants, there was no compelling need to require plant specific

information. The NRC staff maintain that they did perform an analysis of

the impact of AmerGen’s lost bids for the Nine Mile Point and Vermont

Yankee plants and determined that there was no material impact on

Exelon Generation Company’s financial qualifications. Unfortunately, NRC

did not document this evaluation in its review file and did not update the

financial projections in their evaluation report to accommodate this

analysis.

NRC’s inconsistent review and documentation of license transfer requests

creates the appearance of different requirements for different owners or

different types of transfers. Good business practices suggest that NRC

follow one review process with all of its licensees. While its standard

review plan offers a sound basis for obtaining consistency, NRC is clearly

not consistently achieving the desired results. One modification that could

help NRC’s staff and management maintain consistency in their reviews of

license transfers is the use of detailed checklists or step-by-step processes

delineated more precisely within its standard review plan.

To ensure that the decommissioning assurance methods and financial

qualifications of all new nuclear plant owners are consistently verified,

validated, and documented, we recommend that the Chairman, NRC,

revise the Commission’s standard review plan and related management

controls for reviewing license transfers to include a checklist or step-bystep process for its staff, its management, and prospective owners to

follow.

We provided NRC with a draft of this report for its review and comment.

(See app. I for NRC’s comments.) NRC disagreed with our

recommendation. According to NRC, revising its review plan will not

greatly enhance the effectiveness of its license transfer reviews because

many of these transfers have been complex and unique. We disagree.

When NRC drafted its review plan, it had no experience in regulating

licensees that generate electricity in competitive markets. Since then,

NRC has processed over 60 requests to transfer licenses. Although the

details of each transfer request may have been unique, the affected

Conclusions

Recommendation for

Executive Action

Agency Comments

and Our Response
Chapter 2: Most Restructuring License

Transfers Have Maintained or Enhanced

Assurance of Decommissioning Funding

Page 35 GAO-02-48 Nuclear Regulation

licensees have consistently used the same few basic methods permitted by

NRC’s regulations, such as prepayment and/or parent company

guarantees, to provide NRC with assurance that decommissioning funding

and financial qualifications are being met. However, NRC’s reviews of

these license transfer requests have been inconsistent. Therefore, revising

the review plan to ensure, on the basis of NRC’s experiences to date, that

each decision to approve a license transfer is based on consistent

supporting information could increase NRC’s efficiency and effectiveness,

thereby helping NRC to achieve one of its primary performance goals.7

NRC raised several issues regarding its reviews of the adequacy of

decommissioning funding and the financial qualifications of new owners

of plants. NRC said its reviews of the PSEG and Exelon license transfers

were adequate and complete, led to the conclusion that there was

reasonable assurance of decommissioning funding and, in the Exelon case,

that the new owners were financially qualified. NRC acknowledged that it

did not appropriately document some of these evaluations. However, NRC

asserted that, by reviewing other, unspecified, sources of financial

information and information on the appropriate state’s non-bypassable

charges requirements, it was able to obtain reasonable assurance of

decommissioning funding and financial qualifications. We disagree, for

reasons that go beyond the lack of review documentation. Specifically,

NRC’s staff could not, in response to our requests, identify the specific

sources upon which they relied, but did not document, for other

information. Furthermore, we independently reviewed the state laws on

non-bypassable charges for decommissioning funding that NRC’s staff had

referred us to and found that, while these laws provided for utilities to

collect these charges, the statutes were silent on the procedures for

depositing the charges collected into the plants’ decommissioning funds.

These collection and transfer procedures were left to appropriate state

public utility commissions and, in many cases, had not been determined

 7

 NRC’s four performance goals are to maintain safety, increase public confidence, reduce

unnecessary regulatory burden, and enhance the effectiveness and efficiency of its

activities and decisions.
Chapter 2: Most Restructuring License

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Page 36 GAO-02-48 Nuclear Regulation

when NRC conducted its license transfer reviews. Nevertheless, NRC did

not require the prospective new plant owners to make binding

commitments with affiliated utilities or other enforceable statements of

assurance that the non-bypassable charges collected by these utilities from

their electricity customers would be transferred to the appropriate

decommissioning fund for the new owners’ plants.
Chapter 3: Regulatory Policies Under

Consideration May Affect Decommissioning

Costs and Nuclear Waste Policies

Page 37 GAO-02-48 Nuclear Regulation

Varying radiation cleanup standards, the possibility that NRC will approve

alternative decommissioning methods, and incomplete historical plant

contamination data confound a licensee’s ability to estimate future

decommissioning costs. Varying radiation cleanup standards create

uncertainty because plants decommissioned to NRC’s radiation cleanup

standards may also have to meet more stringent EPA or state standards,

thus increasing the costs of decommissioning. Alternative

decommissioning methods under consideration for approval would add

uncertainty because no reliable data exist on their overall costs; they

could reduce short-term decommissioning costs but add considerably to

long-term costs. Moreover, implementing these methods would raise

significant technical and policy issues pertaining to the management and

disposal of radioactive wastes. Furthermore, the lack of complete

historical information regarding plant contamination can translate into an

unexpected increase in site cleanup costs late in the decommissioning

process.

To terminate an operating license and to release a site for unrestricted use,

an NRC licensee must decommission its plant so that the residual

radiation remaining at the site after decommissioning has been reduced to

levels that meet NRC’s standard.1

 However, meeting NRC’s radiation

cleanup standard may not signal the end of the decommissioning costs,

because either EPA or the host state could require additional cleanup

activity to meet more stringent standards.

While NRC regulates the decommissioning of commercial nuclear

facilities, EPA issues general standards for radiation protection and

administers CERCLA, which governs the cleanup of contaminated

facilities.2

 NRC and EPA have historically disagreed on how restrictive

U.S. radiation protection standards should be, and in 1997, EPA’s

Administrator told NRC’s Chairman that NRC’s radiation cleanup standard

should be tightened to 15 millirems per year. The Administrator also called

for adding a separate standard limiting the concentration of radiation in

 1

 Under regulations issued by NRC in 1997, decommissioned sites that are decontaminated

to residual radiation levels of 25-millirems or less may be released for unrestricted future

uses. Decommissioned sites with elevated residual radiation levels of up to 500-millirems

may only be released for restricted use, with safeguards and institutional controls to

prevent public exposure.

2

 NRC’s regulatory authority derives from the Atomic Energy Act, while EPA’s derives from

Presidential Reorganization Plan No. 3 of 1970 and CERCLA.

Chapter 3: Regulatory Policies Under

Consideration May Affect Decommissioning

Costs and Nuclear Waste Policies

Varying Cleanup

Standards Create Cost

Uncertainties
Chapter 3: Regulatory Policies Under

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Costs and Nuclear Waste Policies

Page 38 GAO-02-48 Nuclear Regulation

groundwater to 4-millirems per year. 3 These limits would be consistent

with EPA’s standards for cleanup at Superfund sites. If NRC did not agree,

the Administrator said, EPA would have to reconsider its policy of

exempting the sites of facilities regulated by NRC from EPA’s National

Priorities List of Superfund sites. Such action could subject NRCdecommissioned and released sites to a second evaluation under EPA’s

Superfund standards. EPA could conduct these subsequent evaluations

under its own authority or when asked to do so by other stakeholders. It

has provided guidance to its regional offices on how to proceed in such

instances. However, the agency believes that the vast majority of

decommissioned nuclear power plants will meet Superfund protection

standards and is not actively looking for NRC sites to evaluate.

Nevertheless, failure to pass a Superfund evaluation could mean

significant additional cleanup costs.

NRC, however, shows no sign of changing its standards. NRC disagrees

with EPA’s preferences and questions EPA’s technical basis for proposing

the extra groundwater protection. Differences in agency missions,

legislative mandates, and regulatory strategies contribute to this

disagreement, which, despite resolution efforts spanning a number of

years, remains essentially unresolved.4

According to the NRC Chairman, the disagreement over acceptable

radiation standards is eroding public confidence and is negatively affecting

efforts to assure the public that decommissioning can be accomplished in

a manner that protects public health, safety, and the environment. In fact,

in part because of the uncertainty over the scientific basis supporting

radiation protection standards and the dispute between EPA and NRC,

several states have established, or are in the process of establishing, their

own radiation protection standards. Because most of these proposed or

 3

 EPA does not actually express radiation protection standards in millirems but uses a

system of “slope factors” to assign risk limits to individual chemical and radioactive

contaminant types alike. These limits equate to a risk threshold of 1 in 1,000,000 that an

individual will develop cancer in a lifetime or, with regard to radiation, roughly to a

15-millirem–a-year all-pathway radiation dose limit and a separate four-millirem-a-year

dose limit for groundwater.

4

 Radiation Standards: Scientific Basis Inconclusive, and EPA and NRC Disagreement

Continues (GAO/RCED-00-152, June 30, 2000); Nuclear Regulation: Better Oversight

Needed to Ensure Accumulation of Funds to Decommission Nuclear Power Plants

(GAO/RCED-99-75, May 3, 1999); and Aging Nuclear Power Plants: Managing Plant Life

and Decommissioning (U.S. Congress, Office of Technology Assessment, OTA-E-575,

Sept. 1993).
Chapter 3: Regulatory Policies Under

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Page 39 GAO-02-48 Nuclear Regulation

existing state standards are more stringent than either EPA’s or NRC’s

standards, implementation of the states’ standards could increase

decommissioning costs.

For example, in April 2000, the state of Maine imposed a standard limiting

the total effective annual dose from residual contamination at the Maine

Yankee nuclear plant site to 10 millirems, with a separate 4-millirem dose

standard for groundwater—which is below the dose allowed under either

NRC’s standard or EPA’s preferred standard. Maine Yankee officials

estimated that it would cost between $25 million and $30 million to ship

and dispose of the waste materials that must be disposed of to meet the

state’s more restrictive standard.

Similarly, Massachusetts has set its own total effective annual dose

equivalent standard of 10-millirem for decommissioned sites and New

York has set a soil cleanup standard of 10-millirem for radioactive

materials. New Jersey has set a 15-millirem residual radiation exposure

standard, and the state of Connecticut is presently developing its own

cleanup standards for commercial nuclear facilities. According to a state

environmental department official, the new standard has not yet been

officially approved, but will be the approximate equivalent of a 19-millirem

dose limit, with a requirement to further reduce dose if it proves

economically and environmentally feasible to do so. According to officials

of the state and the Connecticut Yankee Power Company, the utility and

the state are working together to ensure that the company will comply

with the state’s new standard, when issued, as well as NRC’s and EPA’s

standards, in the decommissioning of the company’s Haddam Neck

nuclear power plant.
Chapter 3: Regulatory Policies Under

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Page 40 GAO-02-48 Nuclear Regulation

Figure 3: The Decommissioning Connecticut Yankee Haddam Neck Plant

Source: GAO.

NRC is considering whether to authorize licensees to leave more

radioactively-contaminated material at their plant sites when

decommissioning nuclear power plants by either (1) reducing

contaminated concrete to rubble and then burying the rubble on site or

(2) removing the most radioactive plant wastes and entombing the residual

radioactive materials inside the thick, reinforced concrete containment

structure of retired plants. The rubblization and entombment methods

could, if approved and implemented, decrease off-site waste disposal costs

during the decommissioning of plants. However, short-term cost savings

for some sites could be more than offset over the long-term because

institutional control measures will be needed to prevent public access.

According to the NRC Chairman, the low-level radioactive waste program

in the United States is not working and the potential exists for the

decommissioning process to be hampered at many sites unless alternative

disposal options are pursued. States, the nuclear industry, and others have

Alternative

Decommissioning

Methods May

Marginally Decrease

Costs but Raise

Significant Technical

and Policy Issues

Short-Term Cost Savings

Could Be Offset Over Time
Chapter 3: Regulatory Policies Under

Consideration May Affect Decommissioning

Costs and Nuclear Waste Policies

Page 41 GAO-02-48 Nuclear Regulation

voiced similar concerns. Therefore, within the limits of its regulatory

authority, NRC is considering decommissioning methods such as

rubblization and entombment that would allow the permanent burial or

encasement of radioactive waste at nuclear plant sites.

NRC believes that it is technically possible to approve a license

termination plan that includes rubblization, as long as the total effective

annual dose of radiation that a person living at the site would receive did

not exceed the Commission’s standards. Rubblization will be technically

possible, NRC believes, as long as licensees are able to successfully

address related issues, such as access to, and digging at, the sites where

rubblization has occurred and the potential for reuse of extracted

materials that are contaminated with radioactive elements.

Rubblization represents a departure from NRC’s past licensing practice,

which emphasized shipping low-level radioactive wastes from

decommissioning sites to disposal facilities. Although NRC has estimated

that rubblization could save a licensee from $10 million to $16 million in

waste disposal costs during decommissioning, its Advisory Committee on

Nuclear Waste has concluded that technical factors, such as the depth of

radioactive contamination and the volume of rubblized waste, could

significantly diminish the potential cost savings. The Advisory Committee

also believes that evaluating radioactive material content and doses from

rubblization, both at the site and in local groundwater, may prove difficult

and expensive. The Committee has cautioned that estimates of cost

savings from rubblization could be offset if extensive decontamination,

sampling, and analyses are needed. Therefore, the Committee has

recommended that NRC establish a test case for study to identify possible

problems and solutions related to rubblization.

In April 1997, NRC’s commissioners also requested NRC staff to revisit the

entombment method of decommissioning, the use of which the

commission had discouraged a decade earlier, to determine whether that

method serves as a viable alternative to completely dismantling nuclear

plants. The Commission added that, if the staff concluded that

entombment is not a viable decommissioning method, the staff should

describe the technical requirements and regulatory actions necessary for

entombment to become viable, including the resources involved, potential

decommissioning cost savings, and vulnerabilities.

NRC had considered entombment as a decommissioning method in 1988

but generally opposed its use because, among other things, (1) the method

would require expenditures for maintenance, security, and other long-term
Chapter 3: Regulatory Policies Under

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Page 42 GAO-02-48 Nuclear Regulation

institutional controls for at least 100 years that would about equal

dismantlement costs and (2) regulatory changes occurring during the long

entombment period might require additional costly decommissioning

activity before entombed sites could be released for unrestricted use in the

future. NRC determined that entombment would be acceptable only on a

case-by-case basis when a licensee could demonstrate that (1) immediate

or delayed dismantlement of its nuclear facility was infeasible,

(2) radioactive decay would allow unrestricted release of a site in about

100 years, and (3) access to waste disposal facilities was not available. No

licensee at any additional power reactors undergoing decommissioning

has since proposed the entombment option.

On May 4, 1998, NRC’s staff notified the Commission that, on the basis of

its preliminary assessment of work performed for NRC by the Department

of Energy’s Pacific Northwest National Laboratory, consideration of

entombment as a viable decommissioning method had merit. The

Laboratory had estimated and compared decommissioning costs,

radioactive waste disposal requirements, estimated radiation doses to

persons, and institutional control requirements for the two

decommissioning methods approved in 1988—immediate dismantlement

and dismantlement after storage of 50 years or more—with two

entombment variations. These entombment methods are immediate

entombment of radioactive plant materials in the containment building

and the storage of radioactive plant materials in the containment structure

for over 100 years, followed by entombment.

Subsequently, on July 19, 1999, NRC’s staff affirmed that entombment

could be safe and viable, depending on specific site situations. NRC’s staff

said that entombment, when properly performed, should have little effect

on health, safety, and the environment. In addition, the staff noted that the

entombment of radioactive wastes within the containment building of a

retired nuclear power plant could significantly reduce off-site waste

disposal requirements and related costs—although cost reductions would

be offset, to some degree, by the cost of maintaining and monitoring the

entombed facility for 100 to 300 years.

The NRC staff’s decision that entombment might reduce decommissioning

costs is questionable. For instance, both plants that have already been

decommissioned and plants in the process of decommissioning using the

immediate decontamination and dismantlement option report higher costs

than the figure used for this option in the Pacific Northwest National

Laboratory analysis on which NRC’s staff based its views. Furthermore,

the minimum amounts required for this option (as determined by NRC’s
Chapter 3: Regulatory Policies Under

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Page 43 GAO-02-48 Nuclear Regulation

own generic formula) are significantly greater than the figure used in the

laboratory’s analysis. The laboratory’s analysis also showed that neither

immediate nor delayed entombment offer significant projected cost

savings unless one assumed that entombment would lead to a reduction in

long-term site security and insurance costs. Moreover, the laboratory’s

analysis showed that, even when reduced security and insurance costs are

assumed, placing a retired plant in storage for approximately 50 years and

then dismantling the plant is the least costly decommissioning method.

The laboratory also used a 130-year institutional control period in its

analysis of the entombment method of decommissioning. NRC, however,

has stated that if radioactive wastes entombed in a former nuclear plant

include long-lived waste varieties, then the necessary period of

institutional control could be extended to 300 years. In such a case, the

cost for the additional 170 years of monitoring and surveillance needed

could make both entombment options significantly more costly than the

immediate dismantling of a plant and off-site disposal of its radioactive

wastes.

Also, although the laboratory’s analysis did not include entombment of

Greater-Than-Class-C (GTCC) waste, NRC is considering the possibility of

authorizing licensees to entomb GTCC waste rather than disposing of it in

a geologic repository. Current regulations specify that GTCC waste is not

generally acceptable for near-surface disposal without special processing

and design and the case-by-case approval of NRC. GTCC waste from

decommissioning a nuclear power plant is essentially comprised of

radioactive internal reactor parts, which, while less radioactive than highlevel waste such as spent fuel, remain radioactive for many thousands of

years. However, including GTCC within the entombment structure would

extend the required period of institutional control and its associated

expense to thousands of years. Furthermore, regardless of the time period

in which institutional controls would be required, a licensee would need to

establish a funding mechanism to provide sufficient financial assurance

that essential institutional controls would be carried out for the required

time period. In contrast to immediately dismantling a plant and removing

essentially all radioactive materials from the plant site, entombment would

essentially make a former plant site a restricted storage or disposal facility

for low-level radioactive waste for more than 100 years, which could

hamper commercial reuse or resale of the site for the entombment period.

Finally, questions remain regarding the financial provisions for

remediation in the event of a failure at an entombed site. According to

NRC’s staff, “very expensive remedies” could be required if an
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entombment configuration proved unable to adequately isolate radioactive

contaminants over the 100-year or longer time period needed for

radioactive decay. Given the length of time involved, states are concerned

that they will have to pay remediation costs should an entombment fail.

Aside from questionable cost benefits, rubblization and entombment raise

a number of technical issues. For instance, NRC does not intend to require

that sites where rubblized radioactive materials would be buried have

protection equivalent to off-site disposal facilities for low-level radioactive

waste. Disposal facilities for commercial low-level radioactive waste,

which are licensed and regulated by NRC or by a state (under agreement

with NRC), must be designed, constructed, and operated according to

NRC’s regulations (or compatible regulations issued by the host state). In

addition, to obtain a license to build and operate a disposal facility, the

prospective licensee must characterize the facility site and analyze how

the facility will perform for thousands of years. However, according to

NRC, a rubblized site is not comparable to a low-level radioactive waste

disposal facility because

• the quantity, forms, and range of radioactive waste types buried at a

nuclear plant site would be less,

• rubblization is a decommissioning action subject to the license

termination rule rather than a radioactive waste disposal action subject to

the licensing provisions of 10 CFR Part 61, and

• NRC’s regulations for disposing of low-level radioactive waste apply only

to facilities that dispose of waste from other sites and sources and not to

sites where contaminated materials are to be rubblized and buried on-site.

Nevertheless, 10 CFR Part 61 does not differentiate between what does or

does not qualify as a low-level waste disposal action or facility on the basis

of the quantity, forms, or range of the low-level radioactive waste to be

buried. Furthermore, NRC’s view that rubblization does not constitute the

creation of a low-level radioactive waste disposal site is not shared by EPA

and at least three agreement states. When the Maine Yankee Power

Company was considering rubblization as the decommissioning method

for the Maine Yankee nuclear power plant, the state of Maine and EPA

expressed concern that burying low-level radioactive waste at the plant

site would be tantamount to creating an unlicensed low-level radioactive

waste disposal facility. In fact, Maine’s attorney general found that a strict

application of Maine state law would have classified rubblization of the

plant as such. Such classification would have, in turn, required state

legislature and voter approval, licensing by NRC or the state, and eventual

Technical Issues Surround

Alternative

Decommissioning Methods
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state ownership of the plant site. Furthermore, when NRC sent a draft

entombment rulemaking plan, an Advance Notice of Proposed Rulemaking

(ANPR), and the PNNL entombment assessment to agreement states for

comment on March 7, 2001, two out of the three agreement states that

commented responded negatively.

New York, for example, opposed any new rulemaking that would allow

low-level or GTCC waste to be entombed at reactor sites in the state. The

state also contended that such an action would be contrary to the intent of

the Nuclear Waste Policy Act and would adversely impact the financial

viability of existing or planned low-level radioactive waste disposal

facilities and state compacts. The state pointed out that data presented in

the PNNL assessment (as discussed above) indicated that long term

storage followed by dismantlement was preferable to entombment.

The state of Illinois also found entombment to be problematic as a

decommissioning method, urged that NRC prohibit that approach, and

said it would resist its implementation. The state found entombment to be

inconsistent with the waste management policy established by Congress

through the Low-Level Radioactive Waste Policy Act as amended.

Regarding NRC’s position that entombment is a decommissioning rather

than a disposal action, the state said:

“It is beneath the NRC to engage in the semantical charade of denominating long-term

isolation of reactor waste as anything other than disposal. The Agreement States’ authority

to license disposal of LLRW at reactor sites includes authority over entombment of LLRW.

Any attempt by the NRC to repeal Agreement State authority under the pretext of merely

licensing the decommissioning of commercial nuclear power reactors is virtually

guaranteed to be vehemently [opposed] by Agreement States. If it is the NRC’s objective to

assert permanent federal control and responsibility over reactor sites, using those sites as a

multitude of sacrifice areas throughout the United States, IDNS submits that NRC should

make its proposal to Congress for a full and vigorous national debate.”

Water intrusion is also a major concern for rubblized or entombed sites,

and the fact that most nuclear power plants are situated in shallow water

table or flood plain locations may limit the viability of these options.

Furthermore, should NRC decide to allow GTCC waste in an entombment,

integrity of the concrete configuration would have to be assured for many

thousands of years. However, experts cannot guarantee or predict the

integrity of concrete after 500 years.

Other technical concerns about rubblization include the potential for

buried concrete to leach from rubblized sites, adversely affecting local
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water quality; the propriety of diluting contaminated material by mixing

the material with non-contaminated materials; and, how to demonstrate

that the estimated radiation dose at a rubblized site has been reduced to a

level “as low as reasonably achievable,” as required by NRC.5

 As with any

proposed decommissioning method, the licensee would have to address

any relevant issues in the License Termination Plan, as well as

demonstrate compliance with the License Termination Rule and

requirements for the reduction of resulting residual radiation to levels that

are as low as reasonably achievable. NRC is in the process of updating its

generic environmental impact statement on radiological criteria for

terminating nuclear facility licenses. The update will address, among other

things, rubblization as a decommissioning method and may include issues

such as the acceptability of mixing or diluting contaminated material, the

environmental effects of leaving contaminated concrete at

decommissioned sites, and the potential effects of widespread use of the

rubblization method because of economic considerations. NRC intends to

require an environmental review for each site that proposes rubblization.

The new generic statement should be useful to NRC in reviewing the

environmental effects of license termination plans based on rubblization.

NRC staff recognized in reaching their favorable conclusions on the

viability of entombment in 1999, that statutory, regulatory, technical, and

implementation issues, such as the appropriateness of relying on intruder

barriers over a 1,000-year period, required further development. For

example, the usefulness of the entombment decommissioning method

could be limited by concerns over the reliability of long-term institutional

controls. Such concerns are indirectly addressed in a recent National

Academy of Sciences report on the long-term management of DOE’s

nuclear sites.6

 Many of the weaknesses addressed in the Academy’s report

may apply to the restricted release of NRC-licensed sites as well. For

example, according to the Academy:

The viability over time of land use restrictions is likely to be especially questionable in

cases where contamination levels are not high enough to prohibit all public access but not

 5

 NRC’s “As-Low-As-Reasonably-Achievable (ALARA)” policy essentially requires licensees

to reduce residual radiation at decommissioning below the level required for unrestricted

release as long as it is economically and environmentally feasible to do so.

6

 Long-Term Institutional Management of U.S. Department of Energy Legacy Waste Sites

(National Research Council, Committee on the Remediation of Buried and Tank Wastes,

International Standard Book Number 0-309-07186-0, Copyright 2000, National Academy

Press).
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low enough to permit unrestricted use. Often the real issue is not whether use restrictions

will eventually fail, but when and what the consequences will be when they do. [Emphasis

in original.]

EPA has also questioned the reliability of long-term institutional controls,

stating that among other things, long-term governmental controls may not

be enforced effectively because of political and fiscal constraints on a

state or local government’s exercise of its police power.

NRC’s Chairman has acknowledged that the need for long-term

institutional controls is a significant weakness in decommissioning

methods, such as entombment, in that states or other governmental

agencies may not be willing to accept the responsibility for such controls.

And, according to NRC’s staff, the viability of entombment as a

decommissioning method hinges, in part, on the Commission’s decision on

whether barriers to intrusion in the absence of institutional controls would

effectively keep exposure to affected persons beneath the Commission’s

dose limits.

The reliability of institutional controls over entombments that include

GTCC waste would be even more questionable because of the extremely

long post-closure monitoring and surveillance timeframes that would be

required. In fact, in its August 1988 generic environmental impact

statement on decommissioning nuclear facilities, NRC’s staff concluded

that the entombment method with GTCC waste included in the

encasement was not viable because the security of the site could not be

assured for thousands of years. In 1998, NRC also said that analyses would

be required to demonstrate that a proposed entombment was unlikely to

fail over the proposed entombment period. Such a requirement would be

difficult to meet if GTCC waste were stored in the entombment because,

experts say, projections on the integrity of concrete after 500 years are

speculative. Finally, NRC’s staff has determined that the Low-Level

Radioactive Waste Policy Amendments Act of 1985 and NRC’s regulations

essentially require that the disposal of GTCC waste be licensed and that

GTCC waste be placed in a geologic repository.7

 7

 During a NRC entombment workshop held in December 1999, DOE panel members stated

that entombing GTCC waste in a reactor containment building is possible under existing

legislation and that such an alternative was preferable to disposing of this type of waste in

a geologic repository. The Low-Level Radioactive Waste Policy Act makes DOE responsible

for disposing of commercially generated GTCC wastes.
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Over the 100 to 300 year entombment period, early license termination and

potential property ownership changes could also complicate the issue of

financial responsibility for the entombment failure and subsequent

responses. States are concerned that they may be obligated to pay the

potential remediation costs if they have to assume oversight responsibility

for an entombment after NRC has terminated a plant’s operating license.

For this reason, state representatives have said that, at least until

experience with entombment has been acquired, NRC should continue to

maintain some type of licensing responsibility at entombment sites. Such a

step, however, would be contrary to NRC’s goal of terminating licenses

upon plant entombment.

On-site burial of rubblized low-level radioactive waste or the entombment

of these wastes on-site may conflict with national policy on management

and disposal of these wastes. The Low-Level Radioactive Waste Policy Act

of 1980, as amended in 1985, established as federal policy that commercial

low-level radioactive waste—except for GTCC waste—can be most safely

and effectively managed by states on a regional basis. Through the act, the

Congress encouraged states to form regional compacts to meet their

collective disposal needs, minimize the number of new disposal sites, and

more equitably distribute the responsibility for the management of lowlevel radioactive wastes among the states.

To encourage the formation of such regional compacts, congressionally

approved compacts are allowed to prohibit the disposal of wastes

generated outside their respective regions. To date, 44 states have entered

into 10 compacts. However, despite some 20 years of effort and the

expenditure of about $600 million, no new regional disposal facilities have

been provided as a result of the act, and no state or compact is currently

trying to identify a site for a disposal facility. 8

Commercial generators of low-level radioactive waste, including licensees

that are, or soon will be, decommissioning their nuclear power plants,

currently have access to off-site disposal facilities for this waste. Of the

three currently operating disposal facilities for commercial low-level

radioactive waste, the Barnwell, South Carolina facility is both available to

 8

 For a fuller discussion of states’ implementation of the Low-Level Radioactive Waste

Policy Act, see Low-Level Radioactive Wastes: States Are Not Developing Disposal

Facilities (GAO/RCED-99-238, Sept. 17, 1999).

Alternative

Decommissioning Methods

Potentially Conflict With

National Policy
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generators in all states and licensed to accept all classes of waste for

which states must provide disposal. However, whether such access will

continue, and at what cost, is uncertain. Access to the Barnwell facility is

to be phased out for most generators by mid-2008. Another facility—

Envirocare of Utah—which is located west of Salt Lake City, Utah, is

available to generators in all states outside the Northwest Interstate

Compact region but is licensed to accept only the least radioactive class of

such wastes. In July 2001, the operator of this facility obtained a license

amendment from the state of Utah to dispose of the more radioactive

classes of low-level radioactive waste. However, the facility must also

obtain the approval of the state’s governor and legislature for such

disposal. The company has announced that, at this time, it will not pursue

such approvals because of controversy over an unrelated proposal to

develop a storage facility for spent fuel from commercial nuclear power

plants.

Unless Envirocare obtains the required governmental approvals in Utah

and expands its existing disposal facility, and absent any new initiative by

a compact of states to develop other disposal capacity, by mid-2008 waste

generators in 36 states, Puerto Rico and the District of Columbia, will have

no access to a disposal facility for wastes that are not already approved for

disposal at the Envirocare facility.

The potential lack of access to disposal facilities prompted NRC and the

nuclear industry to explore the rubblization and entombment

decommissioning methods. Concerns have been voiced, however, that

rubblization and/or entombment could adversely affect disposal costs

and/or the profitability and economic well-being of the existing disposal

facilities, while making it economically infeasible for a compact to develop

new disposal facilities. Thus, the two decommissioning methods appear to

run counter to the existing national policy of encouraging states to manage

disposal of low-level radioactive wastes on a regional basis.

Moreover, the rubblization and/or entombment decommissioning methods

may also contravene some state-compact agreement provisions. As

discussed earlier, for example, if rubblization of the Maine Yankee plant

had occurred, the state could have determined that the rubblized site was

a disposal facility for low-level radioactive waste. In such a case,

according to Maine’s attorney general, the state could have been in

violation of the Texas Low-Level Radioactive Waste Disposal Compact, of

which Maine is a member, because the compact terms make Texas—not

Maine—responsible for developing the compact’s disposal capacity for

low-level radioactive waste generated within Maine, Texas, and Vermont.
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Site characterization is an essential step in the decommissioning process,9

but NRC does not stipulate when site characterization must be done. The

sole time constraint is that a site-characterization must accompany NRC

licensee’s license termination plan and that the license termination plan

must be submitted to NRC at least 2 years before the requested

termination date of the license. If site characterization work does not

begin until the latter stages of decommissioning and survey work uncovers

unexpected contamination, instances can occur where the balance

remaining in the decommissioning trust fund may not be enough to cover

the unplanned additional cleanup work required.

NRC requires licensees to document occurrences and locations of spills,

leaks, and other events that may occur at the plant and result in site

contamination. This documentation, combined with the institutional

knowledge of plant employees, provides the basis for a plant’s historical

site assessment and characterization plans. Historical site assessment and

characterization are essential to ensure and demonstrate that all impacted

areas at the site have been identified and cleaned up to meet the

appropriate dose level required for license termination.

In cases where nuclear power plants were operating before NRC imposed

record keeping requirements for burials, spills, and so forth, or if required

record-keeping was less than meticulous, the institutional knowledge of

plant employees becomes an invaluable tool for disclosing incidents and

locating where contamination might be present. However, once a plant

announces its plans to decommission, employees are often let go or leave

to take other jobs, diminishing the institutional knowledge. In situations

where plants close and are placed in safe storage for a number of years

before final decommissioning work begins, institutional knowledge may

be all but lost. As a result, although surveys take place throughout the

decommissioning process, some instances of contamination may not be

discovered until comprehensive site characterization work begins.

For instance, one small nuclear plant—Saxton in Pennsylvania—was built

on the site of an old steam generating plant. The nuclear reactor was

purposely built on this site to utilize an existing turbine and associated

equipment from the steam plant. The nuclear reactor was shut down in

 9

 Site characterization entails radiological surveys of site grounds and facilities to insure

that residual radiation at the site is in compliance with the appropriate NRC-prescribed

dose limits for license termination and site release.

Site Contamination

Can Go Undetected

Until Late in Cleanup

Process
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1972. In 1975 the steam plant was demolished and the basement was

backfilled with demolition debris. The nuclear facility was maintained in a

monitored condition, and full-scale decommissioning work did not begin

until May 1998, 26 years after the plant was permanently shut down.

After initial site characterization and submission of the License

Termination Plan in early 1999, unexpected additional contamination was

discovered that required complete removal of all concrete in the

containment structure and excavation, characterization, and remediation

of the old steam plant basement. The estimated cost for this work

exceeded the balance remaining in the decommissioning trust fund,

forcing the owners to pay for it out of their general operating funds.

An NRC official told us that the plant owners are committed to doing a

quality decommissioning job and that many of the problems found have

been identified as a result of their diligence in approaching the

decommissioning task. Nevertheless, historical site assessment efforts

might have been easier to perform and more input from plant employees

might have been obtained had initial site characterization work begun

closer to plant shutdown and unexpected contamination problems been

discovered sooner. Because the licensee was initially able to collect

decommissioning costs from the ratepayers after the plant shut down,

ratepayer contributions to the decommissioning fund might have been

increased, or decontamination and dismantlement could have been

delayed to allow for decommissioning fund investment income to grow to

meet additional decommissioning costs before the principal was spent.

The actual cost incurred to decommission a nuclear power plant site is

affected by many factors, some of which lie beyond a licensee’s control.

One of these factors is uncertainty over the application of radiation

protection standards. Though NRC’s licensees accumulate funds to

decommission their plants to NRC’s standard, once the time to

decommission a plant arrives, a licensee may find that it must also meet a

more stringent EPA or state standard at higher than anticipated cost.

Another factor is whether, in the future, licensees will have access to

affordable disposal capacity for the low-level radioactive waste generated

in the decommissioning process. Licensees’ and NRC’s interest in

rubblization and entombment, as alternative approaches for

decommissioning, attempts to address this uncertainty, but in turn raises

equally important technical and policy issues pertaining to on- and off-site

disposal of low-level radioactive wastes and the proliferation of

radioactive waste disposal sites around the country. Also, the potential

Conclusions
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short-term cost savings from these methods may be more than offset if

safeguards and institutional controls are required to ensure the safety of

rubblized or entombed sites over the longer term. And the principal

advantage of rubblization and entombment appears to be the disposal of

radioactive waste at nuclear plant sites, which may not comport with

current federal policy encouraging states, by means of congressionallyapproved compacts, to be responsible for this function. Leaving low-level

radioactive wastes buried or entombed at nuclear plant sites would make

it more difficult for the existing low-level radioactive waste disposal

program to succeed economically, thereby undermining the objectives of

the Low-Level Radioactive Waste Policy Act, as amended.

There is, however, a way to alleviate some cost uncertainty in the

decommissioning process without major technical and policy

ramifications. Licensees could conduct historical site

assessments/characterization surveys soon after the decision is made to

permanently cease operations. Such early characterization would

minimize the chances of the discovery of contamination problems late in

the decommissioning process, when most or all of the funds have been

spent. It would also provide licensees more time to adjust the

accumulation of decommissioning funds accordingly.

We recommend that the Chairman, NRC, in the Commission’s ongoing

consideration of modifications to radiological criteria for terminating

licenses and alternative decommissioning approaches, address

• how the burial or entombment of low-level radioactive waste at nuclear

plant sites, leading to a potentially large number of contaminated sites

scattered around the country, affects the federal policy under the

Low-Level Radioactive Waste Policy Act to manage radioactive waste on a

regional basis; and

• concerns about whether these decommissioning approaches are

technically compatible with provisions of the Low-Level Radioactive

Waste Policy Act, the interstate compact agreements that implement the

act, and NRC’s technical regulations on licensing disposal facilities for

low-level radioactive waste.

To reduce the likelihood that site contamination will go undetected until

late in the cleanup process, we recommend that the Chairman, NRC,

require licensees to survey their plant sites for radiation immediately

following the announcement of intentions to permanently cease

Recommendations for

Executive Action
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operations, rather than allowing them to wait until 2 years before

decommissioning is supposed to be complete.

NRC stated that it intends to consider our recommendations, as they

pertain to the entombment alternative, during its ongoing rulemaking

proceeding on that option. NRC added that it will obtain input from

stakeholders on addressing the technical and policy concerns associated

with the entombment decommissioning approach.

NRC disagreed with our recommendations as they pertain to rubblization.

The burial of radioactive rubble at the site of a former nuclear plant, NRC

said, would be subject to its license termination rules and not its

regulations governing the development and operation of facilities for

disposing of low-level radioactive wastes. We, however, like EPA and the

State of Maine, find it difficult to discern why radioactive material buried

on-site—material that has traditionally been shipped to disposal facilities

designed and regulated for such purpose--does not merit the same

protection as material sent to a low-level waste disposal site.

NRC also disagreed with our recommendation to require earlier

characterization of sites where plants are to be decommissioned because

earlier characterization, in its view, will not add significant value to the

decommissioning process. We disagree. There is always the chance that

contamination exists at a plant site that has not been documented.

Although there is no guarantee that early historical site assessment and

characterization work would identify all such instances, the chances of

doing so would be enhanced by the availability of plant employees

knowledgeable about past plant operations and site conditions. Delaying

this work until essentially the end of the decommissioning process—after

many employees who are familiar with a plant’s operational history are

gone—decreases the available institutional knowledge. Such delay also

limits the ability of the licensee to acquire more decommissioning funds if

necessary to cover increased decontamination expenses.

Agency Comments

and Our Response
Chapter 4: New Accounting Standard

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Recent changes to financial reporting standards for asset retirement

obligations, established by the Financial Accounting Standards Board in

June 2001, will require owners of nuclear power plants, among other

affected industries, to report estimated decommissioning costs as

liabilities in their financial statements. When implemented, the new

standard will improve consistency in plant owners’ reporting of these

costs, which previous accounting practices allowed to be reported in a

variety of ways. However, as an accounting standard it cannot guarantee

that licensees have the funds available for decommissioning.

The estimation of decommissioning costs for nuclear regulatory purposes

is an uncertain process, influenced by such matters as applicable cleanup

standards and the selection of a decommissioning method. Moreover,

liability amounts that companies owning nuclear power plants disclose in

their financial statements may differ from the amounts determined under

NRC’s regulatory requirements. The new accounting standard, for

example, will require public utilities and electricity generating companies

to measure the liability of decommissioning costs using the “fair value”

method.1

 In contrast, NRC requires licensees to estimate the cost of

decommissioning their plants using a generic formula that takes into

account the electrical output of the plants and derives from technical

analysis of previous decommissioning activities. Alternatively, NRC allows

licensees to base decommissioning costs on site-specific cost estimates if

these estimates exceed the amounts calculated under the minimum

funding requirements prescribed by NRC.

Finally, the new accounting standard cannot ensure that funds will be

available at the time of decommissioning. Accounting standards are

concerned with how financial events and obligations are reported; they do

not ensure that resources will be available to pay for future needs,

including decommissioning costs.

 1

 Fair value is the amount that an entity would be required to pay in an active market to

settle the asset retirement obligation in a current transaction in circumstances other than a

forced or liquidation settlement.

Chapter 4: New Accounting Standard

Improves Financial Reporting but Cannot

Ensure Adequate Decommissioning Funding
Chapter 4: New Accounting Standard

Improves Financial Reporting but Cannot

Ensure Adequate Decommissioning Funding

Page 55 GAO-02-48 Nuclear Regulation

Utility companies have used a variety of methods to report estimated costs

of decommissioning nuclear power plants. Implementation of the new

standard in mid-2002 will improve consistency in plant owners’ reporting

of these costs.

On the basis of our review of the 1999 annual financial reports of 55 utility

companies, we determined that about 75 percent of the companies have

used one of two methods—the depreciation method or the liability

method—to account for their decommissioning costs. The remaining

companies used either a hybrid method (16 percent); or the method

included in the new accounting standard (2 percent). (See fig. 4.) We were

unable to determine the method used by 7 percent of the utility companies

because of insufficient disclosures in the financial statements.

Figure 4: Methods Currently Used to Account for Decommissioning Costs

Source: GAO analysis.

Utility companies most frequently accounted for nuclear decommissioning

costs as a component of depreciation expense. Using this method, an

expense is reported each year for a portion of the amounts collected from

customers in utility rates; however, instead of recording a liability, the

reported amount for the plant asset is reduced by the amount of the

New Accounting

Standard Will Improve

Consistency of

Reporting
Chapter 4: New Accounting Standard

Improves Financial Reporting but Cannot

Ensure Adequate Decommissioning Funding

Page 56 GAO-02-48 Nuclear Regulation

expense. This method could ultimately result in a negative book value for

the plant asset.

Using the liability method, an expense is reported each year for a portion

of the amounts collected from customers in utility rates, with an equal

amount added to a liability. The “bottom-line” (net income), as well as net

assets, remains the same under both methods.

A comparison of the depreciation and liability methods to the new

accounting standard shows that only the new standard requires the total

estimated liability to be reported at plant startup, as well as a

corresponding plant asset. (See table 3.)

Table 3: Comparison of Methods to Report Decommissioning Liability

Reporting approach

Depreciation

method

Liability

method New standard

Full liability reported at inception No No Yes

Liability gradually reported in an

increasing amount

No Yes No

Plant asset cost amount includes

the estimated decommissioning

liability

No No Yes

Source: GAO analysis.

In February 2000, the Financial Accounting Standards Board (FASB)

issued for comment an exposure draft entitled Accounting for Obligations

Associated with the Retirement of Long-Lived Assets, which discussed

nuclear plant decommissioning, among other types of asset retirement

obligations. After obtaining and considering public comments, in June

2001 the Board unanimously voted to issue the standard in final form,

effective for fiscal years beginning after June 15, 2002. Under this new

standard (Statement of Financial Accounting Standards No. 143,

Accounting for Asset Retirement Obligations), the fair value of the

decommissioning costs is capitalized as part of the cost of the nuclear

plant and an equal amount is recorded as a liability on the balance sheet.

In addition to requiring utility companies to recognize the full estimated

cost of decommissioning at plant start-up, the new accounting standard

also requires additional disclosures to investors, including:

• a general description of the plant retirement obligation (the liability);

• the fair value of assets, if any, dedicated to satisfy the liability; and

• an explanation of any significant changes in the liability.
Chapter 4: New Accounting Standard

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Page 57 GAO-02-48 Nuclear Regulation

The new accounting standard will not ensure that owners of nuclear

power plants accumulate adequate funding for decommissioning costs.

The Financial Accounting Standards Board is responsible for establishing

standards of financial reporting, but not for ensuring that funding for

liabilities reported under those standards will be available. The latter

responsibility remains with NRC as a part of its regulation of nuclear

power under the Atomic Energy Act of 1954, as amended, and other

legislation.

NRC stated that it neither supports nor opposes the new accounting

standard. NRC added that the accounting standard and NRC’s biennial

financial reporting requirements were developed by distinct organizations

for different purposes. Finally, NRC said it understands that the purpose

of the Financial Accounting Standards Board’s standard is to ensure the

consistency of financial reporting. The standard is not, NRC added, meant

to duplicate NRC’s responsibility of assuring the availability of adequate

decommissioning funds.

New Accounting

Standard Does Not

Ensure Adequate

Funding for

Decommissioning

Costs

Agency Comments
Appendix I: Comments From the Nuclear Regulatory Commission

Page 58 GAO-02-48 Nuclear Regulation

Appendix I: Comments From the Nuclear

Regulatory Commission
Appendix I: Comments From the Nuclear Regulatory Commission

Page 59 GAO-02-48 Nuclear Regulation
Appendix I: Comments From the Nuclear Regulatory Commission

Page 60 GAO-02-48 Nuclear Regulation
Appendix I: Comments From the Nuclear Regulatory Commission

Page 61 GAO-02-48 Nuclear Regulation
Appendix I: Comments From the Nuclear Regulatory Commission

Page 62 GAO-02-48 Nuclear Regulation
Appendix I: Comments From the Nuclear Regulatory Commission

Page 63 GAO-02-48 Nuclear Regulation
Appendix II: GAO Contact and Staff Acknowledgments

Page 64 GAO-02-48 Nuclear Regulation

Dwayne E. Weigel (202) 512-6876

In addition, Michael J. Rahl, Carolyn K. McGowan, John Fretwell,

Peggy Smith, Cynthia Norris, Doreen S. Feldman, and Barbara Timmerman

made key contributions to this report.

Appendix II: GAO Contact and Staff

Acknowledgments

GAO Contact

Acknowledgments
Related GAO Products

Page 65 GAO-02-48 Nuclear Regulation

Radiation Standards: Scientific Basis Inconclusive, and EPA and NRC

Disagreement Continues (GAO/RCED-00-152, June 30, 2000).

Low-Level Radioactive Wastes: States Are Not Developing Disposal

Facilities (GAO/RCED-99-238, Sept. 17, 1999).

Nuclear Regulation: Better Oversight Needed to Ensure Accumulation of

Funds to Decommission Nuclear Power Plants (GAO/RCED-99-75,

May 3, 1999).

Related GAO Products

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