[Federal Register Volume 62, Number 160 (Tuesday, August 19, 1997)]
[Rules and Regulations]
[Pages 44071-44078]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-21879]


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NUCLEAR REGULATORY COMMISSION

10 CFR Part 50


Final Policy Statement on the Restructuring and Economic 
Deregulation of the Electric Utility Industry

AGENCY: Nuclear Regulatory Commission.

ACTION: Final Policy Statement.

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SUMMARY: The U.S. Nuclear Regulatory Commission (NRC) is issuing this 
final statement of policy regarding its expectations for, and intended 
approach to, its power reactor licensees as the electric utility 
industry moves from an environment of rate regulation toward greater 
competition. The NRC has concerns about the possible effects that rate 
deregulation and disaggregation resulting from various restructuring 
actions involving power reactor licensees could have on the protection 
of public health and safety.

EFFECTIVE DATE: This policy statement becomes effective on October 20, 
1997.

FOR FURTHER INFORMATION CONTACT: Robert S. Wood, Office of Nuclear 
Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC 
20555-0001, telephone (301) 415-1255, e-mail RSW<a href="/cdn-cgi/l/email-protection#f1c0b19f8392df969e87"><span class="__cf_email__" data-cfemail="57661739253479303821">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

I. Background

    On September 23, 1996, the NRC issued a draft policy statement for 
public comment (61 FR 49711). The purpose of the draft policy statement 
was to provide a discussion of the NRC's concerns regarding the 
potential safety impacts on NRC power reactor licensees which could 
result from the economic deregulation and restructuring of the electric 
utility industry and the means by which NRC intends to address those 
concerns. Because of the interest expressed by several commenters, the 
NRC extended the public comment period to February 9, 1997.

II. Summary of and Response to Comments

    The NRC received 32 public comments on the draft policy statement: 
14 from electric utility licensees or their representatives, 8 from 
State public utility commissions (PUCs) or other State agencies, 5 from 
public interest groups, 4 from private consultants and individuals, and 
1 from a labor union. The following list provides the names and comment 
numbers referenced in this notice:

1. Nuclear Information and Resource Service--comment extension 
request only
2. Public Service Commission of Wisconsin
3. Engineering Applied Sciences, Inc.
4. TU Electric
5. Public Service Electric & Gas Company
6. Minnesota Department of Public Service
7. Spiegel & McDiarmid on behalf of 5 publicly-owned systems
8. IPALCO Enterprises, Inc., Citizens Action Coalition of Indiana, 
Inc., and Public Citizen, Inc.
9. Wisconsin Emergency Management, Bureau of Technological Hazards
10. Illinois Department of Nuclear Safety
11. International Brotherhood of Electrical Workers
12. Consolidated Edison Company of New York, Inc.
13. Centerior Energy
14. GPU Nuclear
15. Commonwealth Edison Company
16. Vermont Department of Public Service
17. Marilyn Elie
18. GE Stockholders' Alliance for a Sustainable Nuclear-Free Future
19. Women Speak Out for Peace and Justice
20. New England Power Company
21. Nuclear Information and Resource Service
22. New Jersey Division of the Ratepayer Advocate
23. Southern California Edison Company
24. Entergy Operations, Inc.
25. Nuclear Energy Institute
26. Arizona Public Service Company
27. Massachusetts Office of the Attorney General
28. Winston and Strawn on behalf of the Utility Decommissioning 
Group
29. Dave Crawford and Diane Peterson
30. National Rural Electric Cooperative Association
31. Schlissel Technical Consulting, Inc.
32. National Association of Regulatory Utility Commissioners

General Comments

    Most commenters viewed the issuance of the draft policy statement 
as timely and appeared to understand the reasons for the NRC's 
concerns. Some directly supported the NRC's overall approach, 
particularly the five actions listed in Section III. Commenter 14, for 
example, stated that these five actions should provide sufficient focus 
for NRC actions. Commenter 5 believes that the NRC's current authority 
is sufficient to cope with any safety issues raised by rate 
deregulation. Commenter 31 shares the NRC's concerns but indicated that 
the draft policy statement did not address the key issue, namely, 
whether economic deregulation of nuclear power is compatible with the 
protection of public health and safety.
    Other comments, particularly from electric utility licensees and 
their representatives, suggested that some NRC concerns are overstated. 
For example, Commenter 4 recommended elimination of language in the 
policy statement that implies that deregulation is inevitable. Other 
commenters suggested that the policy statement should recognize that 
change will occur at different rates and, therefore, the NRC should 
individually evaluate restructuring as it affects each nuclear plant. 
In any case, restructuring will not occur so rapidly or secretly that 
the NRC will not know about it. Others stated that many services will 
remain regulated and that the PUCs will act responsibly. Further, there 
is no basis for the NRC to conclude that licensees will be unable to 
provide adequate financial assurance for safe operations and 
decommissioning. The National Association of Regulatory Utility 
Commissioners (NARUC) stated that in view of the experimental nature of 
many State actions, the NRC should approach deregulation cautiously. 
Finally, several commenters asked the NRC to avoid actions that would 
serve as impediments to deregulation.
    Commenters representing public interest groups generally thought 
that the draft policy statement did not go far enough in addressing 
safety concerns related to deregulation. These commenters stated that 
the NRC should take immediate action with respect to on-line 
maintenance practices, extended refueling cycles and downtime during 
refueling, and up-front funding of decommissioning, among other issues. 
Some suggested that the policy statement specifically include 
discussion of possible negative safety risks from economic 
deregulation, such as cutting corners and deferring capital 
investments. These commenters also urged the NRC to expand its 
inspection and compliance resources to counter the adverse safety 
impacts that these commenters believe will result from deregulation.

[[Page 44072]]

NRC's Response to General Comments

    Regarding the issue of whether the policy statement should address 
the compatibility between economic deregulation and the protection of 
public health and safety, the NRC believes that economic deregulation 
does not preclude adequate protection of public health and safety. 
However, due to the increased uncertainty engendered by state-by-state 
deregulation of the electric power industry, the NRC is concerned about 
the possible impact on the protection of public health and safety. 
Thus, in the draft policy statement, the NRC expressed its general 
concerns about the possible effects of deregulation, realizing that 
such concerns can be either vitiated or exacerbated depending on 
specific deregulation approaches that are implemented. In this respect, 
the NRC recognizes that deregulation will occur at different times, in 
different degrees, and in some jurisdictions, perhaps not at all, and 
the final policy statement more explicitly recognizes these facts. With 
respect to the concerns expressed by public interest groups about the 
impact of certain potential safety practices, such as on-line 
maintenance and outage duration, the NRC has addressed, and will 
continue to address, these issues as safety issues. This policy 
statement is not meant to be a substitute for regulatory remedies to 
specific safety problems.

Sufficiency of Current Regulatory Framework and Incentives for Safe 
Operation

    Although most commenters indicated that the NRC's current 
regulatory framework is adequate to protect public health and safety, 
others disagreed. Commenter 21, for example, cited the experience with 
the Millstone facility and indicated that it is ``of increasing concern 
that NRC cannot accurately determine the extent and scope that 
economics plays in the reductions of reactor safety margins and the 
deferral of safety significant issues.'' This commenter concluded that 
the policy statement has not adequately addressed safety hazards 
brought about by managerial malpractice in response to economic 
pressures. Other commenters stated that the NRC must continue to ensure 
that its own inspection and oversight programs identify when a licensee 
is failing to devote sufficient resources to ensuring safe operations, 
specifically as a result of deficiencies resulting from economic 
pressure. When necessary, the NRC should seek additional inspection and 
compliance resources from Congress. Commenter 9 stated that the 
emphasis and focus on emergency planning may lessen. Commenter 10 
suggested that the NRC's shift to performance-based and risk-informed 
regulations may potentially threaten established safety margins. This 
commenter urged the NRC to establish current, vigorous probabilistic 
risk assessments (PRAs) to identify the risks, which would be used in 
all appropriate areas of plant operation as a cornerstone to 
maintaining cost-effective safety margins in a changing environment.
    Many commenters did not view deregulation as necessarily a 
disincentive to safe operation. They cited the incentive to operate 
safely and use preventive maintenance due to the premium placed on unit 
availability. Another commenter expressed the belief that near-term 
economic incentives exist for expenditures to maintain reliable 
operation. However, this incentive decreases as a plant ages and thus 
is of greater concern later in a plant's life. Commenter 23 suggested 
that the policy statement be modified to support a licensee's use of 
the 10 CFR 50.59 review process to determine that establishment of an 
Independent System Operator (ISO) does not involve an unreviewed safety 
question.
    Other commenters indicated that disincentives to safe operation 
should be dealt with by limiting reactor operating cycles to 18 months 
and requiring at least 250 hours for refueling outages. These 
commenters also opposed on-line maintenance.
    Another commenter expressed concern that deregulation would be a 
disincentive to continuing cooperation among nuclear generators, such 
as early reporting of safety and operationally significant events and 
continuation of the Institute of Nuclear Power Operations (INPO). 
Additionally, the pressure on the NRC to reduce costs to licensees will 
increase, as will pressure to reduce use of the ``watch list.'' This 
commenter cited the analogy of the resultant events at the Federal 
Aviation Administration (FAA) when the airlines were deregulated and 
urged the NRC to avoid the FAA's mistakes. This commenter also 
suggested that incentive regulation of nuclear plants may become an 
alternative to full deregulation and that the NRC should study 
incentive programs used at Diablo Canyon and Pilgrim.

NRC's Response to Comments on Sufficiency of Current Regulatory 
Framework and Incentives for Safe Operation

    The NRC shares many of the concerns expressed by commenters about 
the potential impact of economic deregulation on specific safety 
programs and practices. As discussed in the NRC's response to general 
comments, the NRC will continue to evaluate specific safety concerns or 
10 CFR 50.59 review processes as part of its safety oversight programs. 
For example, on-line maintenance and increased fuel burnup are being 
considered through the NRC's safety review and inspection oversight 
programs. Reductions in manpower and training costs, and other 
reductions in operation and maintenance (O&M) and capital additions 
budgets are of continuing concern to the NRC. The NRC is considering 
changes to the Senior Management Meeting process that would include 
consideration of economic trends. However, because the safety concerns 
that commenters expressed exist, in many cases, independently of 
economic deregulation, the NRC believes that these issues have been and 
are more appropriately considered in other NRC programs. Also 
independently of economic deregulation, the NRC is striving to make its 
regulatory program as efficient and effective as possible--through use 
of risk analysis and other techniques--so that the resources of the 
agency and of licensees are devoted to the most safety-significant 
matters.
    The NRC has extensively reviewed State performance incentive 
programs and does not believe significant additional review is 
warranted at this time. (See footnote 2 in the Policy Statement below.)

Financial Qualifications

    Commenters expressed varied opinions. Although some viewed the 
NRC's current financial qualifications regulatory framework as 
sufficient, others believed that additional measures may be necessary. 
Commenter 20 indicated that the critical question for the NRC is 
whether, in the absence of independent financial assurances to the NRC 
from its licensees, rate regulators have committed to provide licensees 
with sufficient financial resources. Commenter 2 stated that if 
recovery of stranded costs is not allowed or is severely restricted, a 
large number of premature shutdowns may occur, further straining 
licensees' financial qualifications and diminishing their ability to 
decommission safely. In this vein, Commenter 15 urged that the NRC 
aggressively affirm that stranded capital costs must be recovered by 
utilities. Commenter 16 indicated that those nuclear plant licensees 
that are no longer rate regulated should have sufficient buffering 
funds to proceed

[[Page 44073]]

safely from operations to decommissioning. Commenter 8 stated that the 
NRC should shut down the plants of licensees with questionable 
financial ability to sustain safe operations in a competitive 
environment and should require them to decommission their facilities. 
Operating costs that cannot be recovered competitively should be borne 
by the licensee, not the ratepayer or the taxpayer. Commenter 22 
believes that the NRC should institute ongoing financial qualifications 
reviews every 2 to 5 years for all power reactor licensees, including 
those that still meet the NRC's definition of ``electric utility.'' 
Commenter 31 recommends that the NRC examine whether mergers and joint 
operating agreements would dilute or weaken units and utilities that 
are performing well by spreading or diverting existing management 
attention, personnel, and other resources over a larger number of 
units.
    Other commenters appeared quite optimistic that additional 
financial qualifications reviews would be unnecessary. Commenter 15 
suggested that the NRC should avoid conflicts with other agencies 
having jurisdiction over financial qualifications and should not 
condition license transfers. Commenter 25 and others indicated that 
holding companies should not be subject to 10 CFR 50.80 license 
transfer reviews. At most, the NRC should use a ``negative consent'' 
approach to formation of holding companies. This commenter also 
recommended that the NRC provide more explicit guidance on the ``no 
significant hazards'' criteria that are used with license amendments.
    Commenter 23 asked that the NRC adopt clear criteria for approval 
of license transfer requests and use clear, unambiguous standards for 
license transfers to non-utility licensees such as those offered in the 
Draft Standard Review Plan (SRP) on Financial Qualifications and 
Decommissioning Funding Assurance (61 FR 68309, December 27, 1996). The 
regulations in 10 CFR 50.33(f) for non-utility licensees should be 
modified and should include standards for extended, unplanned outages, 
such as minimum amounts for retained earnings, insurance, and 
contractual arrangements.
    Commenter 22 suggested that ``securitization'' may be an 
advantageous method of reducing stranded cost charges to customers. 
Consequently, the NRC should endorse securitization as permissible from 
a regulatory, legal, and public policy perspective.
    Finally, two commenters urged the NRC to factor in Price-Anderson 
obligations in its deliberations on financial qualifications.

NRC's Response to Comments on Financial Qualifications

    The NRC remains concerned about the impacts of deregulation on its 
power reactor licensees' financial qualifications. The NRC's existing 
regulatory framework under 10 CFR 50.33(f) requires financial 
qualifications reviews for those licensees that no longer meet the 
definition of ``electric utility'' at the operating license (OL) stage. 
Paragraph 4 of 10 CFR 50.33(f) also provides that the NRC may seek 
additional or more detailed information respecting an applicant's or a 
licensee's financial arrangements and status of funds if the Commission 
considers this information appropriate. The NRC will evaluate 
additional rulemaking, separate from the proposed rulemaking on 
financial assurance requirements for decommissioning, to determine 
whether enhancements to its financial qualifications requirements are 
necessary in anticipation that some power reactor licensees will no 
longer be ``electric utilities.'' However, the NRC continues to believe 
that its primary tool for evaluating and ensuring safe operations at 
its licensed facilities is through its inspection and enforcement 
programs. In its previous experience, the NRC has found that there is 
only an indirect relationship between financial qualifications and 
operational safety, but it is continuing to study this issue. Although 
enhanced financial qualifications reviews may provide the NRC with 
valuable additional insights on a licensee's general qualifications to 
operate its facilities safely, it is not clear that enhanced financial 
qualifications programs by themselves would prove to be a sufficient 
indicator of general ability to operate a facility safely.
    With respect to the issue of decommissioning and stranded costs, 
many states are considering securitization as a non-bypassable charge 
mechanism to fund the recovery of decommissioning, and other stranded 
costs. The NRC believes that securitization has the potential to 
provide an acceptable method of decommissioning funding assurance, 
although other mechanisms that involve non-bypassable charges may 
provide comparable levels of assurance and should not be excluded from 
consideration by State authorities.
    With respect to transfers of a license under 10 CFR 50.80, the NRC 
must review and approve in writing all such transfers, if such 
transfers meet the appropriate NRC standards. The NRC does not believe 
that Section 184 of the Atomic Energy Act of 1954, as amended, allows 
the NRC to approve transfers by ``negative consent.''
    The NRC will continue to use its current method of evaluating a 
licensee's cash flow under 10 CFR 140.21 to determine a licensee's 
ability to pay deferred premiums under the Price-Anderson Act.

Decommissioning Funding Assurance

    The consensus appeared to be that the NRC should work closely with 
State regulators to provide for assurance of decommissioning funding. 
Commenter 13 recommended that the policy statement include a call for 
the continued recovery of decommissioning costs through regulated rates 
and tariffs in all jurisdictions. Similarly, Commenter 16 suggested 
that the NRC maintain awareness of State decommissioning proceedings, 
monitor funding adequacy based on the estimates produced in State 
proceedings, and work with the host State to ensure that adequate 
amounts are provided in decommissioning trust funds. Another commenter 
stated that additional decommissioning funding assurance should be 
required on an ad hoc basis and that the NRC should not require 
accelerated decommissioning funding.
    Many State and licensee commenters asked the NRC to accept non-
bypassable charges or other mechanisms, such as dedicated revenue 
streams, as proof of decommissioning funding assurance. Similarly, 
those licensees whose States require such mechanisms should be 
considered ``electric utilities'' under the NRC's regulations. Many 
commenters also suggested that the NRC take a more proactive role with 
the Congress, the Executive Branch, and others in order to increase 
assurance of decommissioning funds.
    Most public interest group commenters advocated that the NRC end 
``fund-as-you-go'' decommissioning by requiring full, up-front 
decommissioning for unfunded balances. These commenters also asked that 
any stranded cost recovery be applied to external decommissioning 
trusts and that investors bear the greater share in funding any 
decommissioning shortfall. Other comments sought the elimination of 
internal decommissioning funding and asked that decommissioning be 
funded at a level that would permit a third party to complete 
decommissioning.
    Other specific comments in the decommissioning area included (1) a 
recommendation that the NRC add an explicit statement to the policy

[[Page 44074]]

statement that would inform licensees of the NRC's right to assess the 
timing and liquidity of decommissioning funds (Commenter 3); (2) a 
recommendation for an increase in decommissioning reporting 
requirements and assurance that funds are not diverted to non-
decommissioning uses; (3) recognition that if charges are placed on 
current electricity customers while competition increases, consumers 
will avoid nuclear power and will, therefore, avoid contributing to 
decommissioning funding; and (4) recognition that decommissioning is 
not a stranded cost, because stranded costs are known and measurable 
costs that have already been incurred, whereas decommissioning costs 
are not fully known and have yet to be incurred.

NRC's Response to Comments on Decommissioning Funding Assurance

    Many of these comments parallel comments received on the Advance 
Notice of Proposed Rulemaking (ANPR) (61 FR 15427, April 8, 1996) that 
sought comment on restructuring issues as they may relate to 
decommissioning funding assurance. The NRC is developing a proposed 
rule that considers most of these comments. With respect to the 
specific comment that the policy statement should indicate that NRC 
retains the right to assess the timing and liquidity of decommissioning 
funds, the NRC agrees and will add such a statement. Because of the 
long history of effective rate regulatory oversight and recovery of 
safety-related expenses through rates, in the 1988 decommissioning rule 
(53 FR 24018, June 27, 1988), the NRC deferred to the PUCs and the 
Federal Energy Regulatory Commission (FERC) on the timing and liquidity 
of decommissioning trust fund deposits. However, the NRC has the 
authority to assess the timing and liquidity of such deposits by its 
licensees, and intends to exercise this authority with those licensees 
who lose rate regulatory oversight. Similarly, 10 CFR 50.82 specifies a 
schedule for decommissioning trust fund withdrawals and the NRC will 
thus continue to assess the timing of such withdrawals.

Regulatory Interface

    Most commenters support NRC's working closely with State and 
Federal rate regulators, although some public interest groups stated 
that such an effort would offer scant protection to the public 
(Commenter 17). Many thought that the focus of this cooperation should 
be on the assurance of recovery of decommissioning costs. Some 
commenters believe that the NRC should take a more proactive role and 
that the NRC can play a special role in educating rate regulators. 
Commenter 22 proposed that the NRC maintain a dialogue with all classes 
of ratepayers, perhaps through the National Association of State 
Utility Consumer Advocates. Other suggested venues for NRC-State 
regulatory interface included the National Governors Association, the 
National Conference of State Legislatures, the American Legislative 
Exchange, and similar groups (Commenter 25). Commenter 15 suggested 
that the NRC and NARUC convene a joint conference on stranded capital 
cost recovery. As previously mentioned, several commenters indicated 
that the NRC should act to educate Congress and seek legislation in 
areas relevant to plant safety and restructuring, for example, a 
national excise tax to fund decommissioning. Finally, Commenter 22 
suggested that the NRC review the States' plans for cost recovery to 
ensure that, once recovered through rates, these revenues are employed 
for the purpose for which they were collected.

NRC's Response to Comments on Regulatory Interface

    The NRC believes that the policy statement adequately covered the 
NRC's intent to work closely with rate regulators and others as 
deregulation proceeds. The NRC will consider expanding contacts to 
include the other groups identified. Although the NRC will testify 
before Congress when asked to speak on its views on deregulation as 
related to protecting public health and safety, the NRC is evaluating 
whether it should make specific recommendations on mechanisms to handle 
decommissioning costs and operational costs. The NRC recognizes that 
Federal legislation might be of benefit in resolving these issues. 
However, the NRC also recognizes the vital role that States have played 
and will continue to play in resolving these issues and is fully 
prepared to work with the States through either State or federally 
sponsored initiatives.

Joint Ownership

    Virtually all who commented in this area believe that the NRC 
should not impose joint and several liability on co-owners of nuclear 
plants. Rather, each co-owner should be limited to its pro rata share 
of operating and decommissioning expenses. The NRC should not look to 
one owner to ``bail out'' another owner. Commenter 28 suggested that 
any effort to alter the current legal and financial relationship among 
co-owners would retroactively alter, and likely jeopardize, the 
business arrangements that underpin co-ownership. Several of those who 
commented on this issue also pointed to the bankruptcy laws as one way 
of ensuring that co-owners pay their pro rata share, although Commenter 
22 suggested that recent NRC experience with bankrupt licensees may not 
hold true in the future. No one directly commented on the issue of non-
owner operators, although 3 comments addressed this issue peripherally.

NRC's Response to Comments on Joint Ownership

    The NRC recognizes that co-owners and co-licensees generally divide 
costs and output from their facilities by using a contractually-
defined, pro rata share standard. The NRC has implicitly accepted this 
practice in the past and believes that it should continue to be the 
operative practice, but reserves the right, in highly unusual 
situations where adequate protection of public health and safety would 
be compromised if such action were not taken, to consider imposing 
joint and several liability on co-owners of more than de minimis shares 
when one or more co-owners have defaulted. The NRC is addressing the 
issue of non-owner operators separately.

Antitrust

    Most commenters viewed NRC antitrust reviews as redundant to those 
performed by other agencies, especially in view of FERC Order 888, and 
recommended that the NRC act to eliminate this redundancy. Commenter 22 
suggested that the NRC develop a memorandum of understanding with FERC 
and the Securities and Exchange Commission (SEC) that would allow the 
NRC to rely on the judgments of these agencies about market power that 
do not raise issues unique to the NRC's mandate. Another commenter 
recommended working with the Department of Justice to develop a list of 
guidelines and criteria to evaluate requests for ownership changes.

NRC's Response to Comments on Antitrust

    The NRC is statutorily required under the Atomic Energy Act of 
1954, as amended (AEA), in connection with an application for a license 
to construct or operate a facility under section 103, to evaluate an 
applicant's or a licensee's activities under the NRC license to 
determine that these activities do not create or maintain a situation 
inconsistent with the antitrust laws of the United States. However, the 
NRC has begun to work with FERC, SEC, and

[[Page 44075]]

the Department of Justice to develop methods by which the NRC can 
minimize duplication of effort on antitrust issues, while carrying out 
its statutory responsibilities. The NRC will also consider seeking 
legislation to eliminate its review to the extent that its review 
duplicates the efforts of other federal agencies.

Other Issues

    Several commenters made observations not directly addressed in the 
draft policy statement. Commenter 5 stated that nuclear plant operators 
in the Northeast United States are subsidizing dirtier coal generation 
from Western U.S. generators. Accordingly, the NRC should articulate 
its views on the need for nuclear power and its value for fuel 
diversity and environmental protection. Commenter 16 recommended that 
the NRC urge the Department of Energy to proceed with interim spent 
fuel storage to reduce uncertainty and costs facing nuclear plant 
operators.

NRC's Response to Comments on Other Issues

    The NRC does not have a role in advocating the positions stated in 
these comments.

Policy Statement

I. Basis

    This policy statement recognizes the changes that are occurring in 
the electric utility industry and the importance these changes may have 
for the NRC and its licensees. The NRC's principal mission is to 
regulate the nation's civilian use of byproduct, source, and special 
nuclear materials to ensure adequate protection of public health and 
safety, to promote the common defense and security, and to protect the 
environment. As part of carrying out this mission, the NRC must monitor 
licensee activities and any changes in licensee activities, as well as 
external factors that may affect the ability of individual licensees to 
safely operate and decommission licensed power production facilities.

II. Background

    The electric utility industry is entering a period of economic 
deregulation and restructuring that is intended to lead to increased 
competition in the industry. Increasing competition may force 
integrated power systems to separate (or ``disaggregate'') their 
systems into functional areas. Thus, some licensees may divest 
electrical generation assets from transmission and distribution assets 
by forming separate subsidiaries or even separate companies for 
generation. Disaggregation may involve utility restructuring, mergers, 
and corporate spinoffs that lead to changes in owners or operators of 
licensed power reactors and may cause some licensees, including owners, 
to cease being an ``electric utility'' as defined in 10 CFR 
50.2.<SUP>1</SUP> Such changes may affect the licensing basis under 
which the NRC originally found a licensee to be financially qualified, 
either as an ``electric utility'' or otherwise, to construct, operate, 
or own its power plant, as well as to accumulate adequate funds to 
ensure decommissioning at the end of reactor life. (See discussion 
below.)
---------------------------------------------------------------------------

    \1\ Section 50.2 defines ``electric utility'' as ``any entity 
that generates or distributes electricity and which recovers the 
cost of this electricity, either directly or indirectly, through 
rates established by the entity itself or by a separate regulatory 
authority. Investor-owned utilities, including generation and 
distribution subsidiaries, public utility districts, municipalities, 
rural electric cooperatives, and State and Federal agencies, 
including associations of any of the foregoing, are included within 
the meaning of `electric utility.' ''
---------------------------------------------------------------------------

    Rate regulators have typically allowed an electric utility to 
recover prudently incurred costs of generating, transmitting, and 
distributing electric services. Consequently, in 1984, the NRC 
eliminated financial qualifications reviews at the OL stage for those 
licensees that met the definition of ``electric utility'' in 10 CFR 
50.2 (49 FR 35747, September 12, 1984). The NRC based this decision on 
the assumption that ``the rate process assures that funds needed for 
safe operation will be made available to regulated electric utilities'' 
(49 FR 35747, at 35750). However, the NRC recognized that financial 
qualifications reviews for OL applicants might be appropriate in 
particular cases in which, for example, ``the local public utility 
commission will not allow the total cost of operating the facility to 
be recovered through rates'' (49 FR 35747, at 35751). The Commission 
also has expressed concern about various State proposals to implement 
economic performance incentive programs.<SUP>2</SUP>
---------------------------------------------------------------------------

    \2\ See Possible Safety Impacts of Economic Performance 
Incentives: Final Policy Statement, (56 FR 33945, July 24, 1991), 
for the NRC's concerns relating to State economic performance 
incentive standards and programs. The NRC understands that States 
instituted many of these programs as a means of encouraging electric 
utilities to lower electric rates to consumers. As States deregulate 
electric utilities under their jurisdictions, these economic 
performance incentive programs ultimately may be replaced by full 
market competition.
---------------------------------------------------------------------------

    In its 1988 decommissioning rule, the NRC again distinguished 
between electric utilities and other licensees by allowing ``electric 
utilities'' to accumulate funds for decommissioning over the remaining 
terms of their operating licenses. NRC regulations require its other 
licensees (with the added exception of State and Federal government 
licensees of certain facilities) to provide funding assurance for the 
full estimated cost of decommissioning, either through full up-front 
funding or by some allowable guarantee or surety mechanism.
    A discussion of the NRC review process is contained in two draft 
Standard Review Plans (SRPs) that the NRC issued for comment: NUREG-
1577, ``Standard Review Plan on Power Reactor Licensee Financial 
Qualifications and Decommissioning Funding Assurance'' (January 1997); 
and NUREG-1574, ``Standard Review Plan on Antitrust'' (January 1997). 
In addition, the NRC issued an Administrative Letter on June 21, 1996, 
that informed power reactor licensees of their ongoing responsibility 
to inform and obtain advance approval from the NRC for any changes that 
would constitute a transfer of the license, directly or indirectly, 
through transfer of control of the NRC license to any person pursuant 
to 10 CFR 50.80. This administrative letter also reminded addressees of 
their responsibility to ensure that information regarding a licensee's 
financial qualifications and decommissioning funding assurance that may 
have a significant implication for public health and safety is promptly 
reported to the NRC.

III. Specific Policies

    The NRC is concerned about the potential impact of utility 
restructuring on public health and safety. The NRC has not found a 
consistent relationship between a licensee's financial health and 
general indicators of safety such as the NRC's Systematic Assessment of 
Licensee Performance. The NRC has traditionally relied on its 
inspection process to indicate when safety performance has begun to 
show adverse trends. On the basis of inspection program results, the 
NRC can take appropriate action, including, ultimately, plant shutdown, 
to protect public health and safety. However, if a plant is permanently 
shut down, that plant's licensee(s) may no longer have access to 
adequate revenues or other sources of funds for decommissioning the 
facility. If rate deregulation and organizational divestiture occur 
concurrently with the shutdown of a nuclear plant either by NRC action 
or by a licensee's economic decision, that licensee may not be able to 
provide adequate assurance of decommissioning funds. Thus, the NRC 
believes that its concerns about deregulation and restructuring lie in 
the areas of adequacy of decommissioning funds

[[Page 44076]]

and the potential effect that economic deregulation may have on 
operational safety.
    As the electric utility industry moves from an environment of 
substantial economic regulation to one of increased competition, the 
NRC is concerned about the pace of restructuring and rate deregulation. 
Approval of organizational and rate deregulation changes may occur 
rapidly. The pace and degree of such changes could affect the factual 
underpinnings of the NRC's previous conclusions that power reactor 
licensees have access to adequate funds for operations and can reliably 
accumulate adequate funds for decommissioning over the operating lives 
of their facilities. For example, rate deregulation could create 
situations in which a licensee that previously met the NRC's definition 
of an ``electric utility'' under 10 CFR 50.2 may, at some point, no 
longer qualify for such status. At that point, the NRC will require 
licensees to submit proof pursuant to 10 CFR 50.33(f)(4) that they 
remain financially qualified and will require them to meet the more 
stringent decommissioning funding assurance requirements of 10 CFR 
50.75 that are applicable to non-electric utilities.
    Although new and unique restructuring proposals will necessarily 
involve case-by-case reviews by the NRC, the NRC staff will advise the 
Commission of such proposals so that the Commission will have the 
option of exercising direct oversight of such reviews to maintain 
consistent NRC policy toward new entities. As patterns of restructuring 
begin to emerge, the NRC will consider standardizing its framework 
further to streamline, where possible, its case-by-case review process. 
The NRC has considered, and will continue to consider mergers and the 
outright sales of facilities, or portions of facilities, to require NRC 
notification and prior approval in accordance with 10 CFR 50.80 in 
order to ensure that the transferee or licensee is appropriately 
qualified. For example, in certain merger situations, the NRC 
determines whether the surviving organization will remain an ``electric 
utility'' as defined in 10 CFR 50.2. If a license applicant or a 
licensee fails to meet this definition, the NRC will seek additional 
assurance of financial qualifications to operate and decommission the 
facility pursuant to 10 CFR 50.33(f) and 50.75 and as discussed in more 
detail in its SRP on these subjects. The NRC has also advised licensees 
that the formation of holding companies requires notification and 
approval pursuant to 10 CFR 50.80.
    In consideration of these concerns, the NRC will evaluate 
deregulation and restructuring activities as they evolve. Recognizing 
that the electric utility industry is likely to undergo great change, 
as restructuring progresses, the NRC will continue to evaluate the need 
for regulatory or policy changes to meet the effects of deregulation. 
The NRC will take all appropriate actions to carry out its mission to 
protect the health and safety of the public and, to the extent of its 
statutory mandate, to ensure consistency with Federal antitrust laws.
    The NRC intends to implement policies and take action as described 
in this policy statement to ensure that its power reactor licensees 
remain financially qualified to ensure continued safe operations and 
decommissioning. In summary, the NRC will--
    <bullet> Continue to conduct its financial qualifications, 
decommissioning funding and antitrust reviews as described in the SRPs 
developed in concert with this policy statement;
    <bullet> Identify all owners, indirect as well as direct, of 
nuclear power plants;
    <bullet> Establish and maintain working relationships with State 
and Federal rate regulators; and
    <bullet> Reevaluate its regulations for their adequacy to address 
changes resulting from rate deregulation.
A. Adequacy of Current Regulatory Framework
    The NRC believes that its regulatory framework is generally 
sufficient, at this time, to address the restructurings and 
reorganizations that will likely arise as a result of electric utility 
deregulation. Absent changes to the NRC's regulatory scheme, the NRC's 
review process will follow the current framework. The NRC believes that 
its financial qualifications requirements are sufficiently broad as to 
provide an adequate framework to adequately review new or unique 
situations that are not explicitly covered in 10 CFR 50.33(f) and 
appendix C to part 50, for financial qualifications, and in 10 CFR 
50.75 for decommissioning funding assurance. However, in order to 
remove any ambiguities in its regulations and to address those 
situations that may not be adequately covered under current 
regulations, the NRC is considering rulemaking to revise its 
decommissioning funding assurance requirements, as described in Section 
III.E. The NRC is evaluating whether modification to its financial 
qualifications regulations are warranted.
B. NRC Responsibilities Vis-a-Vis State and Federal Economic Regulators
    The NRC has recognized the primary role that State and Federal 
economic regulators have served, and in many cases will continue to 
serve, in setting rates that include appropriate levels of funding for 
safe operation and decommissioning. For example, the preamble to the 
1988 decommissioning rule contained the following statement: ``The 
rule, and the NRC's implementation of it, does not deal with financial 
ratemaking issues such as rate of fund collection, procedures for fund 
collection, cost to ratepayers, taxation effects, equitability between 
early and late ratepayers, accounting procedures, ratepayer versus 
stockholder considerations, responsiveness to change and other similar 
concerns * * *. These matters are outside NRC's jurisdiction and are 
the responsibility of the State PUCs and (the Federal Energy Regulatory 
Commission) FERC'' (53 FR 24018, June 27, 1988, at 24038).
    Notwithstanding the primary role of economic regulators in rate 
matters, the NRC has authority under the AEA to take actions that may 
affect a licensee's financial situation when these actions are 
warranted to protect public health and safety. To date, the NRC has 
found no significant instances in which State or Federal rate 
regulation has led to disallowance of funds for safety-related 
operational and decommissioning expenses. Some rate regulators may have 
chosen to reduce allowable profit margins through rate disallowances, 
or licensees have for other reasons encountered financial difficulty.
    In order for the NRC to make its safety views known and to 
encourage rate regulators to continue their practice of allowing 
adequate expenditures for nuclear plant safety as electric utilities 
face deregulation, the NRC has taken a number of actions to increase 
cooperation with State and Federal rate and financial regulators to 
promote dialogue and minimize the possibility of rate deregulation or 
other actions that would have an adverse effect on safety. The NRC 
intends to continue to work and consult with the State PUCs, 
individually or through NARUC, and with FERC and other Federal agencies 
to coordinate activities and exchange information. However, the 
Commission also reserves the flexibility to take appropriate steps in 
order to assure a licensee's adequate accumulation of decommissioning 
funds.
C. Co-Owner Division of Responsibility
    Many of the NRC's power reactor licensees own their plants jointly 
with

[[Page 44077]]

other, unrelated organizations. Although some co-owners may only be 
authorized to have an ownership interest in the nuclear facility and 
its nuclear material, and not to operate it, the NRC views all co-
owners as co-licensees who are responsible for complying with the terms 
of their licenses. See Public Service Company of Indiana, Inc. (Marble 
Hill Nuclear Generating Station, Units 1 and 2), ALAB-459, 7 NRC 179, 
200-201 (1978). The NRC is concerned about the effects on the 
availability of operating and decommissioning funds, and about the 
division of responsibility for operating and decommissioning funds, 
when co-owners file for bankruptcy or otherwise encounter financial 
difficulty.<SUP>3</SUP> The NRC recognizes that co-owners and co-
licensees generally divide costs and output from their facilities using 
a contractually defined, pro rata share standard. The NRC has 
implicitly accepted this practice in the past and believes that it 
should continue to be the operative practice, but reserves the right, 
in highly unusual situations where adequate protection of public health 
and safety would be compromised if such action were not taken, to 
consider imposing joint and several liability on co-owners of more than 
de minimis shares when one or more co-owners have defaulted.
---------------------------------------------------------------------------

    \3\ The NRC has had experience with three licensees who have had 
much greater than de minimis shares of nuclear power plants and who 
filed under Chapter 11 of the U.S. Bankruptcy Code: Public Service 
Company of New Hampshire (PSNH), a co-owner and operator of the 
Seabrook plant; El Paso Electric Company (EPEC), a co-owner of the 
Palo Verde plant; and Cajun Electric Power Cooperative (Cajun), a 
co-owner of the River Bend plant. Both PSNH and EPEC continued their 
pro rata contributions for the operating and decommissioning 
expenses for their plants and successfully emerged from bankruptcy. 
Cajun remains in bankruptcy.
---------------------------------------------------------------------------

D. Financial Qualifications Reviews
    The NRC believes that the existing regulatory framework contained 
in 10 CFR 50.33(f) and in the guidance in 10 CFR Part 50, Appendix C, 
is generally sufficient at this time to provide reasonable assurance of 
the financial qualifications of both electric utility and non-electric 
utility applicants and licensees under the various ownership 
arrangements of which the staff is currently aware. Licensees that 
remain ``electric utilities'' will not be subject to NRC financial 
qualifications review, other than to determine that such licensees, in 
fact, remain ``electric utilities.'' However, the NRC is evaluating the 
need to develop additional requirements to ensure against potential 
dilution of the capability for safe operation and decommissioning that 
could arise from rate deregulation and restructuring.
    Section 184 of the AEA and 10 CFR 50.80 provide that no license 
shall be transferred, directly or indirectly, through transfer of 
control of the license, unless the Commission consents in writing. The 
NRC will continue to review transfers to determine their potential 
impact on the licensee's ability both to maintain adequate technical 
qualifications and organizational control and authority over the 
facility and to provide adequate funds for safe operation and 
decommissioning. Such consent is clearly required when a corporate 
entity seeks to transfer a license it holds to a different corporate 
entity. See Long Island Lighting Co. (Shoreham Nuclear Power Station, 
Unit 1) CLI-92-4, 35 NRC 69 (1992). The NRC staff has advised licensees 
that agency consent must be sought and obtained under 10 CFR 50.80 for 
the formation of a new holding company over an existing licensee. Other 
types of transactions, including where non-licensee organizations are 
proposed to have some degree of involvement in the management or 
operation of the plant, have been considered by the staff on a case-by-
case basis to determine whether 10 CFR 50.80 consent is required. The 
NRC is evaluating what types of transfers or restructurings should be 
subject to 10 CFR 50.80 review. The NRC staff will inform the 
Commission of unique or unusual licensee restructuring actions.
E. Decommissioning Funding Assurance Reviews
    The NRC believes that the existing decommissioning funding 
assurance provisions in 10 CFR 50.75 generally provide an adequate 
regulatory basis for existing and possible new licensees to provide 
reasonable assurance of decommissioning funds. However, to examine this 
and other issues related to decommissioning funding assurance in 
anticipation of rate deregulation, the NRC published an ANPR (61 FR 
15427, April 8, 1996). The NRC is considering a proposed rulemaking 
developed in response to the comments received on the ANPR. In 
addition, the NRC wishes to emphasize that it retains the right to 
assess the timing of decommissioning trust fund deposits and 
withdrawals and the liquidity of decommissioning funds for those 
licensees that no longer have rate regulatory oversight and insofar as 
such timing would potentially impact the protection of public health 
and safety.
F. Antitrust Reviews
    The NRC is statutorily required under the AEA, in connection with 
an application for a license to construct or operate a facility under 
section 103, to evaluate an applicant's or a licensee's activities 
under the NRC license to determine whether these activities create or 
maintain a situation inconsistent with the antitrust laws of the United 
States. However, the NRC will explore with FERC, SEC, and the 
Department of Justice methods by which the NRC can minimize duplication 
of effort on antitrust issues, while maintaining its statutory 
responsibilities. The NRC will consider seeking legislation eliminating 
its review mandate to the extent that NRC reviews are duplicated by 
other agencies.
    The NRC anticipates that competitive reviews over the next 5 to 10 
years will arise primarily from changes in control of licensed 
facilities. The regulatory review addressing transfer of control of 
licenses under 10 CFR 50.80 will be used to determine whether new 
owners or operators will be subject to an NRC review with respect to 
antitrust matters.

Small Business Regulatory Enforcement Fairness Act

    In accordance with the Small Business Regulatory Enforcement Act of 
1996, the NRC has determined that this action is not a ``major rule'' 
and has verified this determination with the Office of Information and 
Regulatory Affairs, Office of Management and Budget.

Electronic Access

    The NRC electronic Bulletin Board System (BBS) on FedWorld may be 
accessed by using a personal computer, a modem, and one of the commonly 
available communications software packages, or directly by way of 
Internet. Background documents on the final policy statement are also 
available, as practical, for downloading and viewing on the bulletin 
board.
    If using a personal computer and modem, the NRC subsystem on 
FedWorld can be accessed directly by dialing the toll-free number (800) 
303-9672. Communication software parameters should be set as follows: 
Parity to none, data bits to 8, and stop bits to 1 (N,8,1). Using ANSI 
or VT-100 terminal emulation, the NRC subsystem can then be accessed by 
selecting the ``Rules Menu'' option from the ``NRC Main Menu.'' Many 
NRC subsystems and databases also have a ``Help/Information Center'' 
option that is tailored to the particular subsystem.

[[Page 44078]]

    The NRC subsystem on FedWorld can also be accessed by a direct-dial 
telephone number for the main FedWorld BBS, (703) 321-3339, or by using 
Telnet via Internet: fedworld.gov. If using (703) 321-3339 to contact 
FedWorld, the NRC subsystem will be accessed from the main FedWorld 
menu by selecting the ``Regulatory, Government Administration and State 
Systems,'' then selecting ``Regulatory Information Mail.'' At that 
point, a menu will be displayed that has an option ``U.S. Nuclear 
Regulatory Commission,'' which will take you to the NRC on-line main 
menu. The NRC On-line area also can be accessed directly by typing ``/
go nrc'' at a FedWorld command line. If you access NRC from FedWorld's 
main menu, you may return to FedWorld by selecting the ``Return to 
FedWorld'' option from the NRC on-line main menu. However, if you 
access NRC at FedWorld by using NRC's toll-free number, you will have 
full access to all NRC systems, but you will not have access to the 
main FedWorld system.
    If you contact FedWorld using Telnet, you will see the NRC area and 
menus, including the Rules menu. Although you will be able to download 
documents and leave messages, you will not be able to write comments or 
upload files (comments). If you contact FedWorld using FTP, all files 
can be accessed and downloaded but uploads are not allowed; all you 
will see is a list of files without descriptions (normal Gopher look). 
An index file listing all files within a subdirectory, with 
descriptions, is available. There is a 15-minute time limit for FTP 
access.
    Although FedWorld can also be accessed through the World Wide Web, 
like FTP, that mode only provides access for downloading files and does 
not display the NRC Rules menu.
    For more information on NRC bulletin boards call Mr. Arthur Davis, 
Systems Integration and Development Branch, NRC, Washington, DC 20555-
0001, telephone (301) 415-5780; e-mail AXD<a href="/cdn-cgi/l/email-protection#93a0d3fde1f0bdf4fce5"><span class="__cf_email__" data-cfemail="96a5d6f8e4f5b8f1f9e0">[email protected]</span></a>.

    Dated at Rockville, Maryland, this 13th day of August, 1997.

    For the Nuclear Regulatory Commission.
John C. Hoyle,
Secretary of the Commission.
[FR Doc. 97-21879 Filed 8-18-97; 8:45 am]
BILLING CODE 7590-01-U


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