[Federal Register Volume 62, Number 175 (Wednesday, September 10, 1997)]
[Proposed Rules]
[Pages 47588-47606]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-23962]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / 
Proposed Rules

[[Page 47588]]


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NUCLEAR REGULATORY COMMISSION

10 CFR Part 50

RIN 3150-AF41


Financial Assurance Requirements for Decommissioning Nuclear 
Power Reactors

AGENCY: Nuclear Regulatory Commission.

ACTION: Proposed rule.

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SUMMARY: The Nuclear Regulatory Commission (NRC) is proposing to amend 
its regulations on financial assurance requirements for the 
decommissioning of nuclear power plants. The proposed amendments are in 
response to the potential deregulation of the power generating industry 
and respond to questions on whether current NRC regulations concerning 
decommissioning funds and their financial mechanisms will need to be 
modified. The proposed action would require power reactor licensees to 
report periodically on the status of their decommissioning funds and on 
the changes in their external trust agreements. Also, the proposed 
amendment would allow licensees to take credit for the earning on 
decommissioning trust funds.

DATES: Submit comments by November 24, 1997. Comments received after 
this date will be considered if it is practical to do so, but the 
Commission is able to assure consideration only for comments received 
on or before this date.

ADDRESSES: Mail comments to: The Secretary of the Commission, U.S. 
Nuclear Regulatory Commission, Washington, DC 20555-0001, Attention: 
Rulemakings and Adjudications Staff.
    Deliver comments to: 11555 Rockville Pike, Rockville, Maryland, 
between 7:30 am and 4:15 pm, Federal workdays.
    Examine copies of comments received at: The NRC Public Document 
Room, 2120 L Street NW. (Lower Level), Washington, DC.

FOR FURTHER INFORMATION CONTACT: Brian J. Richter, Office of Nuclear 
Regulatory Research, U.S. Nuclear Regulatory Commission, Washington, DC 
20555-0001, telephone (301) 415-6221, e-mail <a href="/cdn-cgi/l/email-protection#45272f37052b37266b222a33"><span class="__cf_email__" data-cfemail="b4d6dec6f4dac6d79ad3dbc2">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

Background

    The NRC published an advance notice of proposed rulemaking (ANPR) 
for ``Financial Assurance Requirements for Decommissioning Nuclear 
Power Reactors'' on April 8, 1996 (61 FR 15427). The NRC was seeking 
comments on its proposal to amend 10 CFR 50.2, 50.75, and 50.82 to 
require that electric utility reactor licensees provide assurance that 
the full estimated cost of decommissioning their reactors will be 
available through an acceptable guarantee mechanism if the licensees 
are no longer subject to rate regulation by State public utility 
commissions (PUCs) or the Federal Energy Regulatory Commission (FERC) 
and do not have a guaranteed source of income. The proposed amendments 
would also allow licensees to assume a positive real rate of return on 
decommissioning funds during the safe storage period. Lastly, a 
periodic reporting requirement would be established.
    The ANPR specifically requested comments on the above amendments 
and on six areas of consideration for decommissioning:
    1. The timing and extent of deregulation of the electric utility 
industry;
    2. Stranded costs;
    3. Financial qualifications and decommissioning funding assurance 
for nuclear power plants;
    4. Decommissioning funding assurance for a Federal Government 
licensee;
    5. The status of decommissioning trust funds during the safe 
storage period; and
    6. Reporting on the status of decommissioning funds.
    In response, the NRC received 650 comments from 42 commenters, and 
the commenters have been classified into 4 groups. The largest group of 
respondents was utilities and utility groups (28 commenters), followed 
by public utility commissions and related organizations (9 commenters). 
Two public interest groups submitted comments, as did a group of 3 
commenters referred to as ``other.''
    The discussion of the comments received is presented by general 
comment area and specific questions posed within each area. The 
questions appear in the order as presented in the ANPR, followed by the 
Commission's responses.

Discussion of Comments

A. Timing and Extent of Electric Utility Industry Deregulation

A.1  Likely Timetable
    On the issue of the timing and extent of deregulation, most 
commenters addressed only the timing question. If commenters also 
discussed the question of extent, they generally only distinguished 
between deregulation of the wholesale market and deregulation of retail 
power sales, although timing estimates usually referred to retail 
deregulation. Almost half of the commenters did not take a position on 
the timing issue. Seven commenters stated that the timing of 
deregulation could not be predicted.
    Several commenters stated only that they took the same position as 
the Nuclear Energy Institute (NEI), an organization that represents 
many nuclear utilities. NEI estimated that about ten years would be 
necessary to bring about restructuring and deregulation. A few 
commenters suggested that from five to ten years would be sufficient. 
Two commenters pointed to events in States that were scheduled to occur 
as early as 1998 and others predicted significant deregulation within 
five years or less or ``rapidly.'' Two commenters suggested that 
deregulation would take place slowly and require a considerable time to 
complete.
A.2  Restructuring or Deregulation Scenario
    Phases of Deregulation. Several commenters stated that an initial 
phase of deregulation of the generation or wholesale electricity market 
has already begun and is likely to continue. Utilities are now 
preparing for deregulation by undertaking cost reductions (e.g., 
workforce reductions, contract renegotiations, regulatory asset 
reductions, operating cost reductions), strategic alliances and 
mergers, and expansion into unregulated venues. Five commenters 
expressed their belief that a

[[Page 47589]]

second deregulatory phase would follow and lead to the restructuring of 
the transmission sector and to retail competition. However, many 
commenters noted that significant uncertainty exists regarding the 
breadth, timing, and implementation of the new competitive electricity 
business.
    The pace of deregulation, according to one commenter, will be set 
by Federal and State regulation. One commenter stated that competition 
would be phased in slowly with existing generation assets being ``kept 
whole'' through standard regulated rates.
    Ultimate Extent of Rate Regulation or Deregulation. Four commenters 
expect that electricity prices from generators will ultimately be 
largely deregulated or unregulated. One commenter stated that 
generation of electricity will become partially deregulated, but may 
not be fully deregulated if reliance on market forces does not 
adequately ensure safe and reliable generation supplies.
    Nine commenters expect that transmission rates will remain subject 
to Federal Energy Regulatory Commission jurisdiction. Regional power 
markets (RPM) and independent system operators (ISO) (discussed below) 
would also fall under FERC jurisdiction, according to one commenter. 
Ten commenters anticipate that distribution (retail) rates are likely 
to remain subject to State jurisdiction. One of these commenters stated 
that distribution rates may be regulated under a price cap or 
incentive-based regulation.
    Retail wheeling and pool-based pricing <SUP>1</SUP> will provide 
market pricing at all levels, including the retail level, according to 
one commenter. Three commenters believe that retail wheeling will 
become widespread.
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    \1\ Retail wheeling refers to the selling of bulk power to a 
retail customer by way of a third party's transmission system. Pool-
based pricing is a pooling of electricity produced by various 
generators for resale to consumers.
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    One commenter indicated that nuclear power plants and non-utility 
generators, even if released from rate regulation by States or FERC, 
may remain under some forms of regulation, including State and Federal 
siting and environmental regulation.
    Resulting Business and Industry Structure. Although one commenter 
stated that NRC should abandon any attempt to anticipate market 
structure, other commenters suggested that the following features might 
characterize the industry subsequent to deregulation and restructuring:
    <bullet> Functional unbundling which is the divestiture of 
generation, transmission, or distribution systems.
    <bullet> Many, and perhaps all, transmission systems operated on a 
State-wide or region-wide basis. An ISO will operate the system, 
coordinating energy production and delivery with demand and provide a 
pool-based spot market price for energy. RPMs or power market exchanges 
(PMEs) for competitive generation will accept bids from all generators 
that want to participate in the market, establish the clearing price, 
and determine the sequence of generator dispatch. Bilateral contracts 
for the direct purchase of power will also be allowed.
    <bullet> Different treatment for nuclear generation than for other 
types of utility-owned generation. Even if nuclear generation is 
permitted to compete in an open market, some regulatory mechanisms may 
remain in place to ensure that nuclear-related costs (safety, security, 
waste disposal, decommissioning) are recovered by some means other than 
the market price of power. One of these commenters stated that 
regulated local distribution companies would end up owning nuclear 
generating plants.
    <bullet> Continued economic viability for nuclear generation for 
many years as a result of marginal costs that are quite low. Another 
commenter argued, however, that there is no obvious deregulated market 
for many or most existing nuclear power plants because of the 
uncertainty of the costs of decommissioning and the disposal of high-
level nuclear wastes. This commenter stated that neither NRC 
rulemakings nor short-term passage of time will resolve these issues. A 
third commenter asserted that competitive pressures will lead to the 
early retirement of some nuclear plants.
    One commenter argued that, given the changes under consideration 
and already under way, it is no longer credible to assume that 
utilities can always raise rates or otherwise recover whatever costs 
are needed to safely operate and decommission nuclear plants. Another 
commenter suggested that if the NRC chooses to proceed with a 
rulemaking, the rule should accommodate both nuclear units subject to 
traditional regulation and nuclear units in the competitive markets.
A.3  Differences in State Policies and Implications
    Commenters expressed viewpoints on the likely differences in State 
deregulatory efforts and policies. One commenter declared that all 
States will ultimately undergo restructuring and deregulation in some 
form. Nine commenters, however, suggested that some States may reject 
restructuring entirely, regardless of what other States do.
    Four commenters feel that States will possibly or probably be 
compelled by competitive forces to deregulate, particularly if 
neighboring States do so. One of these commenters added that States 
within a geographic region (where there are no physical barriers to 
electric transmission) are likely to migrate to a similar industry 
structure, either as a result of Federal legislation or market 
pressures. Two other commenters provided examples of market or 
political pressures that could affect neighboring States' decisions to 
deregulate.
    One commenter stated that some regulators in States that already 
enjoy low-cost electric service appear reluctant to endorse competition 
because of concerns that indigenous utilities will seek to sell power 
to the external market where profit margins could be greater. Should 
market factors provide an advantage to States that foster competition 
(by allowing indigenous utilities to gain strength by acquiring market 
share), States that resist competition could put their utilities at a 
disadvantage. While State regulators may elect to defer the decision on 
competition, economic or social pressures could influence that 
decision.
    Another commenter indicated that States implementing retail 
competition may face the risk that a utility in a neighboring State 
could obtain open access without reciprocal access being provided to 
in-State utilities seeking to enter the State that does not provide 
competition.
    Three commenters remarked that reform may proceed at different 
speeds in different States because of local market and political 
pressures. One of these commenters recommended that NRC accommodate the 
varied pace to avoid hindering or forcing transitions.
    In response to the ANPR's query regarding ``hybrid'' systems, one 
commenter believes that a hybrid system of regulation is likely to 
emerge as States deal with economic issues in a variety of ways. 
Another commenter stated that a hybrid system could exist for some 
time. A third commenter reported that, while a hybrid system could 
probably exist, it may not result in the least expensive electricity. 
Under a hybrid system, industry structure may vary from region to 
region. Other commenters, however, felt that a hybrid system is 
unlikely to prevail. They stated that a hybrid may be operationally 
cumbersome or even unworkable because the markets are not defined by 
State boundaries and

[[Page 47590]]

because the grid is highly integrated and interdependent. One of these 
commenters also stated that a patchwork or hybrid system may reduce the 
opportunities to market some nuclear generation. Three commenters said 
they could not predict whether a hybrid system can exist or how one 
State's policies will affect its neighbors.
    One commenter expressed concern that deregulation and reduced 
oversight at the State level may reduce the certainty that out-of-State 
partial owners of nuclear-facilities will collect and expend 
decommissioning funds.
    Response. The above questions were posed for comment so the NRC 
could obtain estimates on the timing of deregulation, phases, and 
possible different approaches that may be used in how States would 
address deregulation. These comments are being grouped under one 
response as they all contribute to whether the Commission should 
proceed with a proposed rule now. While the responses to this set of 
questions ran the gamut of opinion on this issue, the comments have not 
caused the Commission to change its position that it must act now to be 
in a position to respond to the upcoming changes in the electric 
utility environment that could affect protection of public health and 
safety. Increased competition could result in economic pressures that 
affect how licensees address maintenance and safety in nuclear power 
plant operations, as well as the availability of adequate funds for 
decommissioning. The comments received and the NRC staff's independent 
review of deregulation activities also indicate that NRC power reactor 
licensees are likely to have sufficient notice of changes in their 
regulatory regimes so as to be able to secure necessary financial 
assurance for decommissioning should they no longer qualify, in whole 
or in part, as electric utilities. (The staff notes that most, if not 
all, PUCs and FERC are addressing decommissioning funding assurance in 
their deregulatory initiatives.) Hence, these comments reinforce the 
Commission's position that a rule is necessary and timely, given 
electric utility restructuring and the deregulation legislation being 
proposed or enacted in several States and by Congress.

B. Stranded Costs

    Many commenters expressed the view that regulators are likely to 
allow prudently incurred stranded costs to be recovered in some manner. 
Many of these commenters felt this was particularly true for prudently 
incurred decommissioning costs. Following are viewpoints typical of 
these comments.
    The probability is high that regulatory mechanisms will be 
developed to replace cost recovery procedures established through 
``traditional'' regulatory procedures. These mechanisms (e.g., wire 
charges, non-bypassable customer fees, including securitization, exit 
fees) may be different from current mechanisms, but the probability of 
recoverability under these mechanisms is no less than it would have 
been under conventional regulation. The mechanism chosen, and its 
associated equitable allocation of cost responsibility between 
customers and shareholders, will be determined through the inevitable 
give and take of the restructuring process, if one is implemented.
    FERC, in Order 888, April 24, 1996, effectively established a 
precedent that, for electric sales under FERC jurisdiction, there will 
be full recovery of all costs that were prudently incurred, based on an 
expectation of serving customers in the future, but have or may become 
stranded as a result of moving to a competitive market. Although the 
FERC order pertains to wholesale markets, most believe the precedent 
has been set and the same standard will apply to stranded costs that 
result from retail competition. It is reasonable to assume that 
legislators and generators will take distinct precautions in relation 
to nuclear generation. Even if nuclear plants are permitted to compete 
on the same basis as other baseload generation, regulatory mechanisms 
must be in place to ensure that certain costs (safety, security, waste 
disposal, and plant decommissioning) are recovered by some means other 
than the market price of power. Plausible mechanisms that regulators 
could use to recover costs include competition transition charges and 
non-bypassable charges. One utility fully expects that there would be 
100 percent recovery of nuclear stranded costs in a restructured 
electric industry.
    However, other commenters expressed some uncertainty. Some 
commenters thought cost recovery was appropriate, but did not address 
its likelihood. In some cases, commenters advocated specific NRC action 
to address the situation.
    One commenter stated it is premature to speculate as to who will 
ultimately bear the responsibility for stranded costs (estimated 
between $7 and $17 billion in New Jersey alone). While FERC Order 888 
addresses this issue for the wholesale market, that decision remains 
open to legal challenges that may affect its final outcome. Moreover, 
because potential retail stranded costs are orders of magnitude larger 
than wholesale stranded costs, a different solution to this issue for 
retail competition may ultimately be deemed appropriate. Where stranded 
costs may be determined to be recoverable, it is conceivable that those 
costs will be recovered through some form of non-bypassable ``wire'' 
charge.
    The commenter further stated that it is not clear how construction 
costs will be treated as State PUCs define policy for restructuring. 
FERC and some State PUCs already have proceedings under way to 
determine the amount and means of stranded cost recovery. There is also 
the possibility of Congressional action. NRC should take a proactive 
position with FERC and State regulators that potential stranded costs, 
including those that may be related to specific decommissioning cost 
obligations, should be recovered by the electric utility as part of 
their rates. (Several other commenters also suggested that NRC should 
aggressively lobby FERC and/or PUCs to allow utilities to recover 
stranded decommissioning costs.)
    One PUC does not accept that any source of electrical generation is 
``non-competitive'' per se, and thus does not accept that nuclear 
plants are non-competitive because of high construction costs. It is 
premature, an oversimplification of a complex issue, and a potential 
disincentive to mitigate costs to label any type of generation non-
competitive at this early stage in restructuring. Even if nuclear 
generation is sold at less than current combined fixed and variable 
costs, the market price will probably exceed the variable component, so 
there will be some recovery of fixed costs. Costs that are not 
recoverable could be the subject of Federal or State stranded cost 
proceedings. Federal and State authorities must inquire whether the 
unit is necessary to the continued safe and reliable operation of the 
interconnected grid, and if the answer is yes, a proration of the costs 
may be necessary among all customer classes that benefit from the 
continued operation of the unit. If the unit is not necessary, it 
should be removed from service. The individual State commissions will 
have to decide who should bear the cost to prematurely shut down, as 
opposed to decommission, an uneconomic plant.
    A commenter stated that the treatment accorded stranded investment 
or costs may vary from jurisdiction to jurisdiction and few 
generalizations are possible. The NRC should not become embroiled in 
individual rate proceedings or debates about particular

[[Page 47591]]

cost recovery mechanisms, but should instead define a clear policy 
that, from a public health and safety perspective, licensees must be 
allowed to maintain an adequate financial posture to support ongoing 
safe operation and decommissioning. The NRC's policy statement 
<SUP>2</SUP> should be a strong statement of its expectations. NRC 
should participate in the NARUC subcommittee addressing restructuring.
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    \2\ See Draft Policy Statement on the Restructuring and Economic 
Deregulation of the Electric Utility Industry, (61 FR 49711; 
September 23, 1996).
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    Some commenters stated that decommissioning obligations are 
qualitatively different from other stranded costs. FERC has not yet 
adopted a mechanism that provides for recovery of decommissioning 
costs. Order 888 provides for recovery of wholesale stranded costs 
through the ``revenues lost'' approach. However, this approach only 
accounts for and allows recovery of fixed costs already incurred by 
utilities and does not address costs that must be collected in the 
future. A better solution is for the Federal Government to assure the 
continuing recovery of decommissioning costs in utility rates, through 
non-bypassable fees to be paid by utility customers leaving the system, 
or through other surcharges tied to the use of transmission facilities. 
The NRC should support cost recovery initiatives and help educate State 
commissions on the importance of ensuring continued full collection of 
decommissioning costs.
    Another commenter noted that the best ultimate assurance of the 
collection of the cost of decommissioning is the ability of the plant 
to operate at sufficiently low marginal costs to collect 
decommissioning costs in gross margins. The NRC could improve the 
likelihood of this outcome by (1) encouraging the IRS to allow payments 
for decommissioning costs to be generally deductible rather than 
deductible only if they are ordered by a regulatory agency and (2) 
strengthening utilities' efforts to recover stranded costs. As plants 
are further depreciated and the cost of nonnuclear generation 
escalates, existing plants will become more competitive.
    Some commenters asserted that in the process of identifying well-
run plants and seeking the sale or closing of the not-well-run plants, 
the problem of who should pay for unrecovered costs must be addressed. 
To the extent that the nonsalability is caused by problems created by 
poor management, the seller is responsible. If the NRC or another 
agency would undertake a program to address the problem of poorly 
performing nuclear plants and encourage continued maintenance of 
efficiently operated plants, many of the questions asked by the ANPR 
might find answers. Timeliness in identifying poorly performing plants 
is critical because while the industry is reforming itself, the ability 
to affect the inventory of nuclear plants is at its highest level. Once 
plants have been evaluated, the NRC should be prepared with a task 
force to recommend an orderly plan for the disposition of those few 
plants and operators who will not be recommended for further 
operations.
    A few commenters believed that the full burden of covering the 
costs, including decommissioning costs, of uneconomic nuclear plants 
should fall on utility shareholders rather than customers unless there 
is a compelling case otherwise.
    Response. The Commission does not see a need to modify its position 
that its regulations need to be modified at this time to address the 
changing regulatory situation for power reactor licensees because of 
the comments received. Specifically, the Commission agrees with the 
commenters who hold the view that regulators are likely to allow 
prudently incurred stranded costs to be recovered in some manner and do 
not see a need to interfere in the financial regulation of nuclear 
power plants with respect to the question of stranded costs. Some of 
the comments, in which actions were proposed for the NRC's involvement 
with respect to stranded costs, were beyond the NRC's sphere of 
regulation. Examples include having the NRC identify poorly run plants, 
requiring the plants to be sold and for the Federal Government to be 
the purchaser of last resort and even run the plants if necessary.
    The NRC has addressed the issue of stranded decommissioning costs 
elsewhere in this notice. However, the NRC is aware that stranded 
costs, insofar as their recovery affects a licensee's ability to obtain 
sufficient funds to protect public health and safety, must be addressed 
to ensure that they are being adequately handled. Further, States are 
considering a number of options for assessing non-bypassable charges to 
recover decommissioning costs, as well as other stranded costs. One 
such option is ``securitization,'' which entails financing the recovery 
of stranded costs through issuance of bonds whose principal and 
interest would be repaid by an irrevocable, non-bypassable charge set 
by State statute on an electric utility's distribution customers. 
Because the income stream to repay the bonds would be securitized by 
the irrevocable, non-bypassable charge, the bonds would be highly rated 
and would thus require a lower interest rate than riskier debt. Also, 
these securitized bonds would not be part of the utility's capital 
structure, and so would not reflect the higher cost of equity capital. 
The spread in interest cost between highly rated securitized debt and 
lower rated utility capital that includes both debt and equity makes 
securitization attractive to many states. 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 provide comparable levels of assurance 
and should not be excluded from consideration by State authorities.
    As stated in the NRC's ``Draft Policy Statement on the 
Restructuring and Economic Deregulation of the Electric Utility 
Industry'' September 23, 1996 (61 FR 49711): ``Notwithstanding the 
primary role of economic regulators in rate matters, the NRC has 
authority under the Atomic Energy Act of 1954, as amended, (AEA) to 
take actions that may affect a licensee's financial situation when 
these actions are warranted to protect public health and safety.'' The 
policy also goes on to explain that the NRC will work and consult more 
closely in the future with the National Association of Regulatory 
Utility Commissioners (NARUC), FERC, and the Securities and Exchange 
Commission (SEC) so that the NRC may express its positions on safety 
and encourage the various regulatory bodies to continue their 
allowances of adequate expenditures for plant safety. Lastly, the 
proposed reporting requirements of this rulemaking are seen by the NRC 
as a vehicle for the Commission to monitor this potential concern.

C. Nuclear Financial Qualifications and Decommissioning Funding 
Assurance

C.1  Funding Assurance if Plants Shut Down Prematurely
    Most commenters accepted the premise of the question, whether costs 
of a shortfall in decommissioning funding of a prematurely shut down 
plant could be passed along to ratepayers. This conclusion was based in 
part on past experience and in part on a belief that State PUCs will 
develop methods to ensure that decommissioning costs are covered. 
Several commenters said that recovery from ratepayers or shareholders 
would depend on the plant management's responsibility for the premature 
shutdown. If management were deemed responsible, efforts would be made 
to have the shareholders pay for

[[Page 47592]]

decommissioning; but if the management were not deemed responsible, 
State PUCs would find methods to have the ratepayers provide the funds. 
Commenters noted that, in the past, decommissioning costs had been 
recovered for prematurely closed reactors (e.g., Dresden 1, Fort St. 
Vrain, San Onofre Unit 1, Trojan, Yankee Rowe). In a transition from 
full regulation to full competition, one commenter suggested a window 
to allow continued or possibly accelerated recovery. Another commenter 
said that a surcharge might be placed on customers. Under competition, 
recovery could be made through other revenue streams of the licensee, a 
non-bypassable fee, or debt or equity of the licensee. Two other 
commenters suggested that transmission charges would be the most likely 
source of funding. Retained earnings of the utility were suggested as a 
source of funds. Two commenters expected shareholders to be responsible 
for providing decommissioning funds in cases of premature shutdown.
    Two commenters, including one PUC, conceded that PUCs might not 
have jurisdiction to require funding from ratepayers. Under such 
circumstances, one PUC stated, funding of decommissioning would be 
greatly dependent on the financial viability of the regulated firm. The 
risk of recovery would rest squarely on its shareholders. If the 
shareholders could not pay, the liability would then transfer to 
taxpayers. For this reason, the commenter suggested, decommissioning 
might be accorded special treatment.
    One commenter argued that the solution to premature shutdown was 
for NRC to require assurance for decommissioning costs prior to 
approving reorganizations or license transfers. Potential funding 
shortfalls should be addressed, another argued, on a case-by-case 
basis, and might be avoided by sale of the nuclear plant to an entity 
better able to manage it effectively. Two others suggested that a 
proper funding mechanism would have to be identified and put into place 
at shutdown, without further specifying what that mechanism could be. 
In the opinion of one of these commenters, such funding could be a 
difficult problem because currently, on an aggregate basis, utilities' 
decommissioning costs are only about 25 percent funded (about $9 
billion out of $35 billion), although plants are at about 43 percent of 
their aggregate service lives. Early underfunding could force high 
back-end funding, making the plants uncompetitive.
    A commenter stated that, contrary to the planned 40-year operating 
life of nuclear power plants, material and operating evidence suggests 
plants' operating lives are closer to 15-25 years. Hence, the plan to 
recoup decommissioning costs of over a 40-year operating life may be 
unrealistic.
    NEI took the position that the source of funds to shut down a plant 
prematurely would be different from company to company and would have 
to come from other ongoing revenue streams of the company or from 
alternative sources such as transmission or distribution charges, exit 
fees charged customers leaving the system, or other regulatory charges. 
NEI also supported NRC requirements for financial assurance, such as 
those currently found in 10 CFR 50.75. Five commenters stated that they 
explicitly adopted the NEI position.
    Response. The Commission recognizes the importance of 
decommissioning funding assurance for prematurely shutdown plants and 
believes that its current case-specific approach, outlined in 
Sec. 50.82, strikes the best balance between level of assurance and 
cost. The alternative of requiring accelerated funding for all plants 
over a defined period, to cover the possibility of premature shutdown 
at some plants, would be too arbitrary and would lead to wide 
variations in impacts on licensees. Accelerated funding results in the 
inequitable inter-generational problem of the present generation paying 
for the decommissioning costs, while the future generation may receive 
the benefits of future electricity generation without incurring the 
costs of decommissioning. Although the Commission is not proposing to 
expressly require accelerated funding to address premature shutdowns, 
to the extent that licensees no longer qualify, in whole or in part, as 
electric utilities, they will, in effect, have to ``accelerate'' 
funding by getting ``up-front'' forms of financial assurance. The staff 
expects, however, that PUCs and FERC will address decommissioning 
funding through cost recovery mechanisms. The Commission is aware that 
some plants have not operated for the full 40 years. However, it is 
likely that some plants will continue operating for the full 40 years 
and beyond. Therefore, the Commission does not believe any change is 
required for the planned 40-year life.
C.2  When Does an Operator Cease To Be a Utility
    On the question of when an operator of a nuclear power plant ceases 
to be a ``utility'' as defined in 10 CFR 50.2, seven commenters 
interpreted the definition strictly and concluded that, if an operator 
ceases to satisfy the terms of the definition, the operator is no 
longer a ``utility.'' Several commenters used almost the same formula: 
an operator would cease to be a ``utility'' when it ceases to provide 
service to retail or wholesale customers at rates set by a separate 
regulatory authority. One commenter supported a clarification of NRC's 
regulations that would establish its continued ability to require the 
proper accumulation of decommissioning funds, while two argued that the 
NRC should relax its definition to cover entities that purchase 
electricity and recover the costs from rates charged customers or from 
other revenue guarantees. Another commenter argued that NRC should seek 
additional assurance in advance of deregulation.
    NEI stated the contrary argument, noting that it is not apparent 
that any licensee will fall outside the definition of ``utility'' in 
the near future, even after restructuring. NEI argued that as long as a 
licensee has adequate cost-recovery mechanisms under the authority of 
State or Federal regulations, it should continue to be considered a 
utility.
    Other commenters argued that even after deregulation the price 
charged for electricity will be established by the regulatory process 
or in other ways that will mean a nuclear plant will continue to be an 
``electric utility.'' One stated that the term ``electric utility'' 
should be construed to include all entities that have been authorized 
by a State PUC, FERC, or other governing entity to recover 
decommissioning costs from customers. Two commenters expected plants to 
remain subject to State PUC jurisdiction, and therefore to satisfy the 
regulatory definition. Another argued that if a portion of a vertically 
integrated company is subject to cost recovery pricing, the definition 
is satisfied. Two said that if a plant sets its own rates for 
electricity, the definition is satisfied.
    One commenter rejected the NRC's emphasis on an operator's 
satisfying the definition of utility, and argued that the emphasis 
should be on the financial viability of the entity responsible for 
decommissioning the unit.
    Response. Consistent with the position taken in the ANPR, the NRC 
is proposing to revise its definition of ``electric utility'' to 
introduce additional flexibility to address potential impacts of 
electric industry deregulation. The Commission notes that the key 
component of the revised definition is a licensee's rates being 
established either through cost-of-service mechanisms or through other 
non-bypassable charge mechanisms, such as wire charges, non-

[[Page 47593]]

bypassable customer fees, including securitization or exit fees, by a 
rate-regulating authority. Several States are considering deregulation 
of future operations of nuclear power plants so that revenues will not 
be determined by cost-of-service but by market-set prices. Should a 
licensee be under the jurisdiction of a rate-regulating authority for 
only a portion of the licensee's cost of operation, covering only a 
corresponding portion of the decommissioning costs that are recoverable 
by rates set by a rate-regulating authority, the licensee will be 
considered to be an ``electric utility'' only for that part of the 
Commission's regulations to which those portions of costs pertain. For 
example, if a licensee were able to collect 40 percent of its 
decommissioning costs through rate-regulated activities, such as 
traditional cost of service regulation or use of non-bypassable 
charges, the remaining 60 percent of the costs would need to be 
accounted for in a manner consistent with methods acceptable for a 
licensee other than an electric utility. In this proposed rule, the 
definitions of several relevant terms are also provided for the first 
time in Sec. 50.2. It is noted that some commenters misinterpreted the 
intent of the existing definition of ``electric utility'' with respect 
to entities that establish rates themselves. As stated in the proposed 
definition, those entities include only public utility districts, 
municipalities, rural electric cooperatives, and State and Federal 
agencies. Therefore, the proposed definition is being proffered as 
clarification and to show the continued importance the NRC places on 
the role of regulatory authorities in the setting of electric 
utilities' rates with respect to the collection of funds for 
decommissioning and other costs. This is consistent with the NRC's 
draft policy statement.
C.3  Assurance Options
    The following topics were discussed by commenters in response to 
the ANPR's questions relating to the options to be considered if an 
electric utility found itself operating a reactor that was no longer 
regulated by a rate-setting State or Federal body.
    Full Up-Front Assurance. Most commenters opposed requiring all 
nuclear plants to provide full up-front assurance, often arguing that 
it is unnecessary or that it is overly burdensome to nuclear plant 
owners. Many commenters reminded NRC that deregulation does not 
inherently mean a total lack of regulation or a lack of cost recovery. 
One commenter believed NRC should, at the time of restructuring, 
require only an assurance level commensurate with the completed 
percentage of the operating life of the plant. One commenter opposes 
advance funding on the grounds that doing so would incorrectly view all 
properly executed reorganizations as resulting in successor operators 
being unqualified to ensure decommissioning compliance.
    One commenter believes that assurance should be provided before 
licensees are exposed to the full pressures of competition (3-5 years). 
Two commenters supported the idea of requiring assurance prior to NRC's 
approval of reorganizations that transfer control of a nuclear plant.
    Many commenters favor requiring reasonable financial assurance for 
entities that cease to be rate-regulated utilities. Many of these 
commenters, and others, view NRC's current regulations as basically 
adequate to address these situations, although the regulations might 
expand upon the allowable methods of assurance.
    Additional Financial Assurance Methods. Additional financial 
assurance methods suggested include continued rate-regulating entity 
determinations, an appropriate charge for decommissioning in contracts 
for the plant's output or in the transmission or distribution charges 
of the licensee or its affiliate if the charges are assigned to the 
licensee or its decommissioning fund, and exit fees charged against 
customers leaving the system. A few commenters would include any 
insurance for premature decommissioning caused by an accident. One 
commenter would allow utilities to establish any method that may be 
developed, including methods requiring approval of PUCs or FERC. Two 
others would allow assurance through a plan for gradually recovering 
decommissioning funds via rates and prices, even for deregulated 
entities. Others argued that NRC should offer the utilities flexibility 
and that each situation should be assessed on a case-by-case basis if 
and when it occurs.
    Timing of Rulemaking. With regard to the timing of the rulemaking, 
a few commenters support prompt NRC regulatory action to ensure that 
adequate financial assurance is in place prior to restructuring, before 
waiting further to learn exactly how the industry will develop. Several 
other commenters, however, believe that rulemaking is premature until 
more is known about restructuring. Several commenters suggested that 
NRC already has the authority to approve or disapprove any transfer of 
license related to a merger or reorganization. Two commenters stated 
that NRC should evaluate the regulations only after further studies 
that (1) identify those nuclear plants that are not likely to survive 
the imposition of competitive forces (i.e., those plants that are not 
run efficiently or that cannot be made to run well), or (2) develop 
quantitative measures for assessing the adequacy of decommissioning 
funds and rates of accrual. New rules, according to one commenter, 
should be timed to enable utilities to take advantage of stranded cost 
recovery.
    Added Assurances for Safe Operation and Decommissioning. Many 
commenters voiced opposition to the ANPR's query regarding whether the 
NRC should require additional assurance for adequate funds for safe 
operation and decommissioning in anticipation of deregulation. One 
commenter argued that additional assurances in this area may not add to 
or strengthen the obligation already imposed by the terms and 
conditions of the license. Others reasoned it unnecessary, given other 
existing NRC requirements and FERC's framework for recovery of stranded 
costs, including decommissioning.
    Only one commenter supported additional assurance for safe 
operation and decommissioning in anticipation of deregulation.
    Joint Liability. <SUP>3</SUP> In response to the ANPR's query 
regarding newly created organizations or holding companies being held 
jointly liable for decommissioning costs, four commenters supported the 
idea because of the added assurance it would provide. Three commenters 
would consider requiring joint liability on a pro rata basis, possibly 
taking into account the remaining years of licensed life. One commenter 
cautioned that jointly liable parties may disagree on decommissioning 
methods (e.g., prompt vs. deferred) because of the cash flow 
implications.
---------------------------------------------------------------------------

    \3\ The concept of joint liability is defined in Black's Law 
Dictionary (4th Ed.) as:
    One wherein joint obligor has right to insist that co-obligor be 
joined as a codefendant with him, that is, that they be sued 
jointly.
---------------------------------------------------------------------------

    Numerous other commenters opposed the idea of joint liability, 
arguing that it was unnecessary, would inhibit flexibility, would 
weaken competitive position, or would undermine the separate corporate 
identity or the responsibility of the individual entities. Some of 
these commenters suggested that joint liability could be acceptable if 
it were an optional method of financial assurance.
    One commenter stated that new owners and operators should have to 
assume the responsibilities and

[[Page 47594]]

liabilities of the previous owners and operators. Another stated that 
the financial assurance obligation should follow the owners and 
operators, whether regulated or unregulated, who have incentives to 
properly manage and operate the units.
    Impacts. Many commenters claimed that requiring full up-front 
assurance would be overly burdensome to nuclear plant owners. Others 
argued that additional assurances could inhibit competitiveness 
relative to nonnuclear facilities, impede reorganization, aggravate 
potential stranded investment, or create additional problems for 
utilities, ratepayers, or taxpayers at a time when competitive forces 
are already causing economic concerns. Examples of such problems would 
include the difficulty for affiliated businesses to raise capital, or 
the need for affiliated entities to charge more for its services 
reducing its competitive position in the industry. Some commenters 
argued these effects could reduce the likelihood that decommissioning 
will be fully funded or could increase the likelihood of premature 
shutdown.
    Response. The Commission is addressing most of these comments by 
revising the definition of ``electric utility'' and by instituting a 
reporting requirement. As to the issue of requiring full up-front 
funding in advance of deregulation, the Commission agrees with the 
commenters that such a requirement would be overly burdensome if 
applied to all licensees. However, given the proposed change to the 
definition of ``electric utility'' in this action, any licensee no 
longer overseen by a rate-setting regulatory authority, i.e., a 
licensee other than an electric utility, would need to comply with the 
decommissioning funding assurance requirements of Sec. 50.75(e)(2) 
unless that licensee can otherwise conclusively demonstrate a 
government-mandated, guaranteed revenue stream for all unfunded 
decommissioning obligations. The options contained in that section 
include prepayment; an external sinking fund coupled with a surety 
method or insurance for any unfunded balance; or a surety method, 
insurance, or other guarantee method.
    The Commission emphasizes that the changes to the definition of 
``electric utility'' introduce additional flexibility to address 
deregulatory developments. Thus, the NRC would expect licensees to be 
more likely to continue to qualify, in whole or in part, as electric 
utilities under the revised definition. Although licensees who no 
longer qualify, in whole or in part, as electric utilities could 
encounter difficulties in securing alternative decommissioning funding, 
experience to date indicates that PUCs and FERC are addressing 
decommissioning costs through various recovery mechanisms.
    The timing of the rulemaking was addressed in the response to 
comments in section A of this notice. Any additional rulemaking in this 
area would result from experience gained from industry and regulatory 
actions. As several of the commenters stated, the NRC has the authority 
to approve or disapprove any transfer of license related to a merger or 
reorganization. Section 184 of the Atomic Energy Act of 1954, as 
amended, and 10 CFR 50.80 provide that control over a license may not 
be transferred, directly or indirectly, unless the Commission consents 
to such transfer in writing.
    The regulations do not explicitly impose joint liability on co-
owners and co-licensees. As stated by some commenters, joint liability 
may create problems with respect to potential disagreement on 
decommissioning methods, the inhibition of flexibility, the weakening 
of competitive position, and the difficulty in implementation. Also, as 
some noted, joint liability may not be needed. The new owners and 
operators should assume the obligation to safely operate the facility 
and assure adequate funding for decommissioning, as they have the 
incentives to properly manage and operate the units. More importantly, 
however, is the fact that with the proposed modified definition of 
``electric utility,'' restructured entities would either have to have 
adequate coverage of decommissioning funding obligations through some 
non-bypassable cost recovery mechanism or would be required to provide 
the types of up-front assurance described in Sec. 50.75(e)(2). Those 
licensees who remain utilities would have the funding assurance 
provided through being rate-regulated under Sec. 50.75(e)(3). The 
Commission considers this level of assurance to be adequate and 
therefore sees no need to impose an additional regulatory obligation of 
joint liability on co-owners or co-licensees.
    Lastly, with respect to the question of impacts, the Commission has 
considered the comments relating to potential impacts in arriving at 
the positions taken. The Commission understands that financial 
assurance would place a burden on licensees that may affect their 
competitiveness in a deregulated environment. The Commission has chosen 
to take an approach that would create no additional financial impact 
over present regulations for electric utilities and has also expanded 
the definition of electric utility to accommodate types of rate 
regulation not previously anticipated. There are also sufficient 
existing options to demonstrate financial assurance for non-electric 
utilities. Entities without adequate financial capital may find it 
difficult to both finance up-front decommissioning funding and operate 
a nuclear power plant safely. These newly formed companies may not be 
good candidates for nuclear power plant ownership.
C.4  Financial Test Qualifications
    About half the commenters flatly opposed requiring licensees to 
demonstrate financial assurance by satisfying minimum standards of net 
worth, cash flow, or other financial measures.
    Many of the commenters, including NEI and four commenters who 
adopted the NEI position, argued that such a test was not necessary or 
appropriate. If NRC is concerned about the financial condition of a 
particular licensee, three commenters said, an individualized case-by-
case review would be more appropriate. Some commenters said that 
financial measures appropriate for investor-owned utilities would not 
be useful for cooperatives, or for utilities that do not have parent 
companies. Because generation and transmission companies typically are 
highly leveraged, with many of their assets in the nuclear generating 
facility, they cannot meet a test with a tangible net worth requirement 
of ten times the current decommissioning costs, but this does not mean 
that they cannot satisfy their financial obligations. A non-bypassable 
charge was suggested as an alternative.
    Some commenters suggested that NRC should adopt more than one 
alternative test, none of which would be mandatory. Any alternative 
adopted should be consistent among owners, and should not discriminate 
against one class of owners, and should not be applied as a static one-
time requirement. Other suggestions included a requirement that a firm 
demonstrate that it had ``ample margins, subsequent to restructuring'' 
to cover funding contributions or to cover decommissioning costs in the 
event of a premature shutdown. Another suggested disclosure standards, 
developed through the Financial Accounting Standards Board, for use in 
annual reports and 10-K filings, that would be reviewed by Federal 
regulators. Still another argued that measures of market value and cash 
flow, rather than net worth, were appropriate in a competitive 
environment, and that the ratio of available cash and cash equivalents 
to

[[Page 47595]]

unfunded decommissioning requirements would be the best measure of 
ability to support decommissioning, along with an assessment of the 
utility's competitive situation. Determining whether a utility had 
minimum cash flow sufficient to maintain its plants in a non-operating, 
interim stage prior to decommissioning, and the period of time the 
utility could sustain such cash flows, was suggested by one commenter.
    One commenter suggested using a financial test as an indicator, 
from which a Federal agency could determine that the utility needed 
assurance of continued rate recovery of the decommissioning obligation.
    Only two commenters endorsed a test of financial stability as a 
financial test qualification. One pointed to assets sufficient to fund 
an immediate decommissioning, or a minimum level of financial stability 
(measured through investment grade securities) or insurance, or a 
surety to cover decommissioning costs as three potentially acceptable 
mechanisms. The other approved of parent or self-guarantees, but noted 
that generators with nuclear facilities might have difficulty meeting 
the financial test criteria, including the investment grade bond rating 
requirement.
    Response. With the proposed revision of the definition of 
``electric utility,'' licensees who no longer meet the new definition 
will need to comply with the requirements of Sec. 50.75(e)(2), which 
describes the acceptable methods of financial assurance for 
decommissioning for a licensee other than an electric utility. These 
methods are flexible and contain at least four major categories of 
acceptable methods to ensure funding for decommissioning as identified 
in the previous response. Few commenters offered insights on other 
potential test qualifications, although several stated that the 
financial structure of utilities means that meeting the criteria in 10 
CFR Part 30 could be problematic. The NRC would need to conduct 
additional research and analysis to determine which additional 
financial measures would be most useful and appropriate if a financial 
test requirement for parent or self-guarantee were pursued. Criteria 
could be identified and thresholds developed, but evolution of the 
industry might mean that the criteria would become outdated and 
misleading relatively quickly. Hence, the Commission will continue to 
evaluate this issue, but is not presently offering any changes to its 
financial test criteria.
C.5  PUC/FERC Certification
    Only two commenters gave unequivocal support to the idea of 
requiring PUC/FERC certification. One encouraged NRC to undertake 
direct dialogue on certifications with the appropriate PUCs and FERC; 
the other stated that PUCs and FERC must undertake such certifications 
and that NRC should impress upon them the importance of doing so. A few 
PUCs, in the opinion of this commenter, such as California and New 
York, had already recognized the need to provide this assurance during 
restructuring. Two other commenters expressed optimism that State 
regulators would resolve the decommissioning funding problem in the 
transition to competition, with or without certification, but one went 
on to say that certification would probably be unnecessary. Of these, 
six adopted the NEI position, which was that without new Federal 
legislation it would be difficult to require legally binding 
certification from PUCs or FERC. Requiring a licensee to obtain such 
certification would place it in noncompliance, with no way of achieving 
compliance. If a licensee did obtain certification, however, NEI 
suggested that it be allowed to satisfy the financial assurance 
requirements using that mechanism.
    Two commenters opposed to certification argued that it would be 
counter-productive because the utility would have no incentive to 
maintain adequate decommissioning funds. NARUC and several PUCs either 
opposed the idea or expressed strong reservations about it. NARUC noted 
first that no current commission can bind a future commission at either 
the Federal or State level. However, NARUC was confident that State 
PUCs would examine the causes of underfunding, if it occurred, and seek 
remedies. A PUC stated that it might not have the authority to certify 
that nuclear plant licensees under its jurisdiction would be allowed to 
collect decommissioning funds through rates after restructuring, and 
another PUC similarly stated that it could not give a blanket guarantee 
that all licensees would be allowed to collect revenues to complete 
decommissioning funding. A third PUC stated that no current commission 
could legally bind a future commission, so it could not identify an 
effective form of certification. Another PUC also expressed doubt about 
how certification would change current procedures, in which PUCs can 
adjust rates based on the cause for and the prudence of the 
underfunding. A different PUC noted that, in the past, ratemaking 
authorities had allowed recovery and expected them to act in the future 
in the same way, but could not be certain that they would issue 
certifications. Another PUC stated that it already has and would 
maintain authority to ensure that utilities collect sufficient funds 
for decommissioning. One commenter pointed out that FERC has 
jurisdiction only over rates for wholesale sales of power. Over 80 
percent of decommissioning costs are recovered through rates for retail 
power sales, over which PUCs have jurisdiction. Relying on State 
regulators would be particularly problematic for multi-State utilities. 
Another commenter stated that within five years the issue would become 
moot and certification would become impractical because of competition 
and evolving antitrust law. A public interest group had questions about 
whether PUCs and FERC could certify, but in any case thought NRC should 
concentrate instead on the licensees. Another commenter noted that 
since a significant portion of nuclear licensees' business are not 
FERC-regulated, FERC certification would have no relevance to them.
    One commenter suggested procedures through which NRC could interact 
with State PUCs and FERC; the NRC could determine that a utility's rate 
of recovery for decommissioning was insufficient, and that 
determination could be the basis of an action by a PUC to modify the 
rates.
    The final set of commenters argued that the question of 
certification was one that the PUCs and FERC should determine.
    Response. The Commission does not plan to implement certification 
by the State PUC's or FERC because of the reasons given in many of the 
comments outlined above. Although ``certification'' initially appeared 
to the NRC to be an option meriting further consideration, since 
experience to date has indicated that PUCs and FERC are addressing 
decommissioning funding assurance through more viable mechanisms, the 
NRC is not pursuing this option further.
C.6  Impact of Accelerated Funding
    Only a small number of commenters supported the idea of 
accelerating funding of decommissioning costs. Two expressed general 
support. Two provided quantitative analyses that suggested that the 
impact of accelerated funding would not create a large financial burden 
on either licensees or ratepayers. The Public Utility Commission of 
Texas reported analysis for three Texas plants that suggested that, for 
a ten-year recovery period, electric base rates would need to be

[[Page 47596]]

increased by about 0.5 percent and the fund earnings would be increased 
by about 50 percent. For a five-year recovery period, rates would 
increase by about 1 percent; total life-of-facility contributions by 
customers would be decreased by about 55 percent. In addition to 
arguments that the burden would not be great, another argument made in 
support of accelerated funding was that, after funding was completed, 
the licensees who had paid up their decommissioning funds would be in a 
better competitive position. Commenters also argued that earnings from 
the accelerated funding, because they would have a longer time to earn 
interest, would grow substantially and provide a gain to the licensees 
that they would not otherwise obtain.
    Licensees both supporting and opposing accelerated funding noted 
that unless the Internal Revenue Service changed its rule on the 
deductibility of payments into the decommissioning trust fund, the 
accelerated payments would not be deductible. The NRC was urged to 
encourage the IRS to change the rule.
    Almost three-quarters of the commenters opposed accelerated funding 
of decommissioning. Their arguments against the idea stressed (1) that 
it would adversely impact the competitive situation of nuclear 
licensees and (2) that it would be inequitable because the amount that 
each plant would have to supply in an accelerated payment would depend 
on the age of the plant and the amount it had previously paid in the 
its decommissioning fund. The financial marketplace, rather than 
regulation, should determine the speed with which funding is provided. 
Accelerated funding, in the view of some commenters, could not be 
accomplished through rate increases and would have to be paid by 
licensees' stockholders. One commenter argued that utility shareholders 
should bear the burden of decommissioning costs, but would not do so 
under accelerated funding. Other commenters argued that accelerated 
funding would shift the costs of decommissioning onto current 
ratepayers from future ratepayers. Commenters believed accelerated 
funding would lead to cash flow problems for licensees and could result 
in increased borrowing to cover cash outlays. Accelerated funding could 
lead to the shutdown of marginal facilities, which would be contrary to 
the intent of the policy and lead to additional shortfalls of 
decommissioning funding. One commenter argued that the amount of 
decommissioning funding that will ultimately be required is too 
uncertain to be collected through accelerated funding.
    Response. The Commission continues to be concerned with the 
availability and efficacy of financial assurance mechanisms for 
decommissioning for those licensees whose rate regulatory oversight by 
FERC or the State PUC's is substantially reduced or eliminated. Under 
the NRC's current regulations (and as proposed to be modified in this 
rule), licensees who no longer meet the definition of ``electric 
utility'' may use financial assurance mechanisms for decommissioning as 
defined in 10 CFR 50.75(e)(2), including (i) prepayment; (ii) an 
external sinking fund coupled with a surety method or insurance; (iii) 
a surety method, insurance, or other guarantee method, including parent 
company guarantees and self guarantees coupled with financial tests; 
and (iv), in the case of Federal, State, or local licensees, a 
statement of intent.
    The Commission is concerned that these financial assurance 
mechanisms may not be available to some licensees and is thus asking 
for additional comment on alternative methods of financial assurance 
that would provide assurance equivalent to that already provided under 
the Commission's regulations. For example, in the advance notice of 
proposed rulemaking, the Commission raised the issue of whether 
requiring the acceleration of decommissioning funding over a shorter 
period of time (e.g., 10 years) than the period of the operating 
license would provide an equivalent level of assurance to current 
allowed mechanisms. As discussed above, most commenters stated their 
opposition to accelerated decommissioning funding. However, this 
opposition appeared to be predicated on the assumption that the NRC 
would require accelerated funding for all power reactor licensees, and 
not only those who no longer met the definition of ``electric 
utility.'' Thus, the Commission is asking for additional comments on 
whether this, or some other equivalent assurance mechanism, should 
receive additional consideration in this rulemaking for those entities 
which would not be classified as ``electric utilities.''
C.7  Potential Shortfalls From Underestimates of Costs
    Commenters suggested a range of responses to decommissioning 
shortfalls occurring as many as 50 years into the future, after a 
period of safe storage. None, however, clearly identified a source of 
funding to make up the shortfall.
    NEI and eight additional commenters argued that there is a 
reasonable probability that future cost estimates could decrease rather 
than increase because of several factors, including accumulated 
industry experience, application of new technologies, and reductions in 
the ultimate disposal volumes of decommissioning wastes. They also 
suggested that periodic re-estimates of decommissioning costs and 
adjustments to the rate of collection to reflect these re-estimates, 
both during operation and in the post-operation phase, could resolve 
the problem.
    Several other commenters emphasized solutions that involved cost 
estimates. One PUC suggested that the NRC should allow utilities to use 
State-required facility-specific cost estimates if they were higher 
than NRC estimates. Two others suggested that NRC should review cost 
estimates every five years, with more frequent reviews as license 
termination approaches. The Utility Decommissioning Group predicted 
that shortfalls would be unlikely to arise suddenly or to be drastic. 
Two utilities also suggested that periodic reviews of cost estimates, 
coupled with increased collections as necessary, would remedy 
underfunding. Two other commenters made only the general statement that 
current procedures would be adequate, and any shortfalls should be 
handled through appropriate funding mechanisms.
    Some commenters recognized that the problem of underfunding arising 
after the safe storage period could be serious. One public interest 
group did not suggest any remedy, stating only that NRC could be 
virtually certain that the funds accumulated for decommissioning would 
be insufficient. A utility suggested that the only solution would be to 
delay decommissioning activities to allow the decommissioning fund to 
accumulate additional earnings and to modify the decommissioning plans 
to reduce cash flow needs. Another suggestion was that NRC could 
require every licensee to adopt an investment strategy that would 
ensure that the decommissioning fund earned at least the rate of 
inflation measured by the consumer price index (CPI), and that NRC 
could require the utility to place additional money into the fund if 
necessary.
    Several commenters recommended approaches to the problem that 
involved PUCs. Two suggested that underfunding would be remedied by 
application to the PUC. One suggested such PUC involvement would occur 
after the shortfall was identified, the other suggested that PUCs would 
take potential shortfalls into account prior to utility restructuring 
and that the shortfall would not occur until after

[[Page 47597]]

several years of competition. This commenter suggested that a wires 
charge could be used to ensure that such shortfalls did not occur. 
Three commenters said that NRC should intervene with State PUCs to 
ensure that shortfalls do not occur, either immediately or when the 
underfunding was recognized. A few commenters argued that the causes of 
the shortfall should be identified. If the plant's management was 
responsible, the additional decommissioning costs should be recovered 
from stockholders. NRC could require additional contributions if the 
invested decommissioning funds are insufficient. Alternatively, if the 
utility management is not responsible, customers should bear the 
additional cost. However, as one PUC noted, underestimates that are not 
identified until far into the future could become a social problem. If 
the underestimate is not identified until after the plant is removed 
from service, no ratepayers will be required to provide additional 
funding. If the company still exists and is solvent, shareholders may 
be held accountable, but only to the point of insolvency. Gross 
underestimates could very well bankrupt the company and place a 
significant burden on regulators and legislators to step in to fund 
completion of the decommissioning.
    None of the commenters recommended increasing contingency factors 
to provide for potential shortfalls far in the future. Several argued 
that contingency factors are intended to address ``unforeseeable cost 
elements'' or that contingencies are inappropriate for some other 
reason. The size of such contingencies would be too arbitrary. In 
addition, some State PUCs would not apply larger contingencies, 
particularly since the current cost estimates already contain a 
significant contingency factor. Finally, one commenter argued that 
larger contingencies would lead to over-collection and distortion of 
prices for electricity. Seven commenters joined NEI in taking a 
position against the use of contingencies to address the problem of 
potential shortfalls occurring far in the future.
    Response. The Commission sees its proposed reporting requirement as 
a way to keep informed of licensees' decommissioning funding status and 
potential underestimates of cost. However, the Commission has 
undertaken a study to analyze the actual costs incurred by the power 
reactor licensees that are in the process of decommissioning, and the 
Commission will act accordingly after studying those results. Further, 
the Commission has the authority to require power reactor licensees to 
submit their current financial assurance mechanisms for NRC review, 
revision as necessary, and approval. The Commission reserves the right 
to take the following steps in order to assure a licensee's adequate 
accumulation of decommissioning funds: review, as needed, the rate of 
accumulation of decommissioning funds; and either independently or in 
cooperation with either the FERC and the State PUC's, take additional 
actions as appropriate on a case-by-case basis, including modification 
of a licensee's schedule for accumulation of decommissioning funds.
C.8  Captive Insurance Pool
    The idea of setting up a captive insurance pool to pay unfunded 
decommissioning costs did not obtain strong support. A few commenters 
endorsed it, with qualifications. One said that, in fact, the mechanism 
would more nearly resemble a mutual insurance pool, and listed a number 
of factors, including the size of premiums, when deregulation occurred, 
Federal mandates, the ability to recover costs, and the attitude of 
participants, that would determine success. Several commenters 
responded that if such a pool could be developed, it would be a useful 
or constructive mechanism.
    NEI and six commenters taking the same position expressed doubts 
about the usefulness of such a pool, but suggested that the industry 
should examine it. They argued that in addition to an insurance pool, 
NRC should also consider approving self-insurance as an option.
    Almost half the commenters expressed strong doubts about the 
insurance concept. No such product currently exists, and insuring 
against shortfalls in funding a known and planned event would be a 
novel concept, open to problems of adverse selection and moral 
hazard.<SUP>4</SUP> Some commenters said it would be difficult to 
underwrite, and wondered whether in a competitive environment one 
company would be interested in supporting the financial obligations of 
its competitors. A cross-subsidy of this sort, one said, was what 
deregulation was being undertaken to eliminate. Participation also 
might be affected by the policies of individual State PUCs. Premium 
setting would be difficult because of the possibility that utilities 
that had been prepared to pay their decommissioning costs would be 
reluctant to subsidize utilities that had not, and because premiums, to 
provide sufficient coverage, might need to be large. The pool could 
face the problem of motivating utilities to close plants when it would 
otherwise not be economic to do so, or motivating State PUCs to 
disallow the recovery of decommissioning costs through rates in 
reliance on the pool. Some utilities might underestimate their 
decommissioning costs, to keep their premiums low. A pool would 
increase costs of electricity because, in addition to decommissioning 
costs, insurance premiums would need to be recovered. Finally, one 
serious decommissioning shortfall might deplete the pool.
---------------------------------------------------------------------------

    \4\ ``If the risk of the insurable event varies between 
potential buyers, if the buyers know their risk level better than 
the insurer, and if the coverage is not mandatory, then the worst 
risks will tend to buy the most insurance. As a result, the loss 
experience will tend to be higher than expected, premiums will 
increase, the best risks will leave the programs, and the process 
can cycle on itself until only the worst risks are left.'' This 
phenomenon is known as adverse selection. Moral hazard is defined as 
a general laxity in loss prevention, laxity in cost control, once a 
loss has occurred, and the intentional destruction of property. U.S. 
Nuclear Regulatory Commission, ``Design, Costs, and Acceptability of 
an Electric Utility Self-Insurance Pool for Assuring the Adequacy of 
Funds for Nuclear Power Plant Decommissioning Expense,'' NUREG/CR-
2370, December 1981.
---------------------------------------------------------------------------

    Other commenters stated flatly that they opposed the concept. 
Several said that it raised the problem of insuring against an event 
that a facility could choose to create (the moral hazard problem). An 
insurance pool would create, at the least, an incentive for less 
responsible utilities to underfund their decommissioning assurance, 
burdening responsible utilities with high insurance premiums. Some 
commenters argued that licensees demonstrating strong financial 
capability should not be required to participate. Reinsurance and 
diversification to larger pools would make better policy, in the view 
of one commenter.
    Response. The Commission recognizes the problems associated with 
the concept of a captive insurance pool as identified by the above 
commenters, and believes that they are serious enough to eliminate this 
option from further consideration. The Commission is also of the 
opinion that those in favor of this option do not offer sufficient 
evidence that the identified problems can be overcome.
C.9  Other Options for NRC in Case of Limited Role for PUC or FERC
    Commenters suggested a wide variety of financial assurance options 
for NRC to consider if PUC or FERC oversight is limited or eliminated. 
One utility suggested that financial assurance requirements should be 
focused on the financial viability of the responsible entity. Other 
utilities suggested, as nonregulatory showings, self-guarantees

[[Page 47598]]

or other tests of financial strength such as ownership of other 
revenue-producing assets (e.g., electricity transmission and/or 
distribution and/or natural gas operations). Another relevant factor 
could be whether the licensee has insurance for premature 
decommissioning caused by an accident. One commenter stated its 
opposition to the use of surety bonds and insurance because of cost and 
limited availability.
    Two utility commenters suggested that regulatory approaches include 
mandated or allowed stranded cost recovery through a charge on 
distribution or transmission or some other charge on all electric power 
or energy sales, regulatory certification that such costs will be 
recovered, and other arrangements involving regulatory control such as 
priority dispatch for nuclear units. Another commenter suggested that 
NRC could request FERC to clarify Order No. 888 to make certain that 
competitive access or other transmission charges intended to recover 
stranded costs also include a load-proportionate contribution to fund 
decommissioning costs. Another commenter stated that NRC and FERC 
should urge Congress to adopt stranded cost legislation that will 
ensure recovery of decommissioning costs as the most prudent solution. 
The commenter specifically advocates a wires charge that would include 
decommissioning costs.
    One commenter asked NRC to consider its actions in the event that a 
licensee enters into bankruptcy. In such a case, the NRC could enter 
the proceeding and argue that full funding for decommissioning must be 
fulfilled as the first priority. The commenter also asked NRC to 
consider proposing legislation that would amend the Bankruptcy Code to 
give first priority to nuclear decommissioning costs, as the Supreme 
Court has already held for hazardous waste cleanup costs.
    NEI and several other commenters raised the possibility that NRC 
could rely on the Financial Accounting Standards Board's <SUP>5</SUP> 
(FASB) financial disclosures for information in assessing the nature, 
timing, and extent of the company's commitment of its future resources.
---------------------------------------------------------------------------

    \5\ The Financial Accounting Standards Board is a private body 
that establishes authoritative financial accounting and reporting 
standards in the United States.
---------------------------------------------------------------------------

    According to one commenter, NRC should evaluate each utility's 
particular situation on a case-by-case basis to determine the degree of 
assurance needed depending on the financial strength of the utility, 
the size of the remaining unfunded obligation, the age of the plant, 
and other factors as may be appropriate to the specific situation. 
Another believes NRC could retain control through licensing constraints 
and financial evaluations made when NRC approves transfers of assets 
and licenses.
    A number of utilities commented that NRC need not identify all 
options immediately, but could ultimately authorize a number of 
alternative approaches, either based on 10 CFR 50.75 or on options that 
have not yet been recognized. A PUC commenter asked NRC to work 
collaboratively with States to explore, as necessary, alternative 
financial assurance mechanisms in the event that privately owned 
nuclear generators are no longer regulated.
    One commenter suggested that NRC's support for existing Federal 
obligations to provide a national nuclear fuel repository would also 
contribute to the financial assurance of responsible nuclear 
decommissioning. Another called for financial assurance to be mandated 
at the Federal level, and a third said NRC should consider whether DOE 
responsibility can be developed for providing solutions to 
decommissioning.
    Four commenters said no other options were necessary. They reasoned 
that current options are sufficient irrespective of PUC or FERC 
oversight, regulatory oversight is unlikely to be curtailed, and FASB 
standards and competitive pressures will provide sufficient assurance.
    Response. The Commission believes that additional consideration of 
accelerated decommissioning funding or other alternative financial 
assurance mechanisms may be warranted, as discussed in its response at 
C.6. In addition, it should be pointed out that the Commission enters 
bankruptcy proceedings to protect the integrity of the decommissioning 
funding, as suggested by a commenter. Also, the Commission is proposing 
use of the FASB standard as a means for the reporting decommissioning 
obligations. Further, the Commission believes that the proposed change 
to the definition of ``electric utility'' will be adequate to address 
all contingencies with respect to financial assurance for 
decommissioning under deregulation. Further, the proposed reporting 
requirement will provide the NRC with the opportunity to be informed on 
the status of licensees' financial assurance for decommissioning.

D. Federal Government Licensee Use of Statement of Intent

    Slightly fewer than half of the commenters (20 commenters) 
expressed an opinion on this question. Almost all commenters took the 
position that Federal licensees should be treated in the same way as 
non-Federal licensees. NEI argued that regardless of who owns the 
plant, a number of options for financial assurance should be allowed, 
and the current options should continue to be permitted. One commenter 
stated clearly that because Federal licensees were expected to face the 
same problems as other licensees, they should be required to set aside 
funds rather than rely on statements of intent. Several commenters 
pointed out that different treatment for Federal licensees could create 
competitive advantages for the Federal licensees. NRC should ensure 
that the playing field remained level. One licensee argued that if a 
financial assurance option, such as a statement of intent, meets NRC's 
criteria, it should be available for use by all licensees. Others took 
the position that the statement of intent should not be allowed, 
because it does not provide any assurance. Its use by Federal licensees 
means that the taxpayers are providing the assurance. One licensee 
questioned the long-term financial condition of the Tennessee Valley 
Authority (TVA). One commenter argued that use of tax exempt bonds 
provides a similar competitive advantage to those licensees who can 
issue them.
    Only TVA took the position that ample reasons exist for continuing 
the use of statements of intent as provided under the current 
regulations. However, TVA also provided an extended description of the 
steps it has taken to use an external trust, ``all requirements'' 
contracts, and its power to issue indebtedness to ensure its 
decommissioning costs.
    Response. The NRC's Office of the Inspector General published an 
Audit Report, ``NRC's Decommissioning Financial Assurance Requirements 
for Federal Licensees May Not be Sufficient,'' OIG/95A-20, dated April 
3, 1996. The report found that ``* * * NRC's decision to allow Federal 
licensees to use a statement of intent * * * was based primarily on the 
assumption that the Federal Government would pay the financial 
obligations of the lone Federal licensee, * * * should it be unable to 
do so. However, based on our review of the U.S. Code and discussions 
with officials from the Department of the Treasury, the Office of 
Management and

[[Page 47599]]

Budget and TVA, we believe NRC's assumption is questionable.'' The 
report also found ``* * * that, although not required, TVA has 
established a fund dedicated to meet its decommissioning obligations. 
However, because this is an internal fund it can be used for other 
purposes. In fact, TVA had at one time temporarily depleted its 
decommissioning fund.''
    The majority of those who commented were opposed to allowing the 
TVA's use of a statement of intent, their reason basically being that 
all licensees should have the same ``level playing field.'' The 
Commission, however, does not believe that the elimination of the 
statement of intent option for a Federal licensee can be justified on a 
public health and safety basis. The Commission believes that the risk 
of a Federal licensee not being able to fund its decommissioning 
expenses is remote, as the Commission is proposing to define a 
``Federal licensee'' as having the full faith and credit backing of the 
Federal Government. The Commission considers the issue of whether TVA 
qualifies for the use of a statement of intent to be distinguishable 
from the question of whether other ``Federal licensees'' should have 
this option. Further, the Commission does not believe it to be in the 
public interest to foreclose the possibility of a future licensee with 
the full faith and credit backing of the Federal Government using a 
statement of intent. Hence, the Commission does not propose to 
eliminate the statement of intent as an option for Federal licensees, 
but realizes that this proposed definition may result in the TVA no 
longer being able to meet NRC's definition of ``Federal licensee.''

E. Trust Fund Earnings Credit for Extended Safe Storage Period

    Two commenters opposed credits for earnings during extended safe 
storage, arguing that earnings assumptions could be manipulated and 
that earnings could otherwise act as a hedge against increases in the 
cost of decommissioning. Seventeen commenters, however, supported 
allowing credit for earnings on funds during extended storage periods. 
Some of these commenters argued that if credits for earnings are not 
allowed, more funds than necessary would be collected, thereby 
generating unwarranted expense for licensees and customers and possibly 
intergenerational inequities.
    An additional eight commenters supported allowing earnings credits, 
not only for the extended safe storage period, but also for other 
periods:
    <bullet> The period before safe storage, when funds are 
accumulated;
    <bullet> The decommissioning period, when funds flow out of the 
trusts; and
    <bullet> Both the accumulation and outflow periods.
    Three commenters expressed the opinion that States should decide 
whether or not to allow credit for projected earnings.
    One group of commenters understood that NRC's ANPR considered a net 
positive rate of return when assessing the status of decommissioning 
funding during a SAFSTOR period, and not that a licensee would be 
allowed to consider prospectively during the license term the 
possibility of a net positive rate of return over some extended period 
following shutdown and prior to actual decommissioning. These 
commenters felt that it would be largely irrelevant to start 
considering positive earnings during a SAFSTOR period because, by the 
time of termination of operations, licensees should have already 
accumulated sufficient funds to pay for decommissioning.
    Another commenter disagreed with the position that excludes the 
benefit of future tax deductions (i.e., in ``non-qualified'' trust 
accounts) in determining the adequacy of a licensee's decommissioning 
funding program because the deductions will have value for those who 
assume the responsibility for decommissioning.
    Response. The Commission is proposing to allow credit for earnings 
and believes that its existing implicit assumption of a zero rate of 
return is too conservative and not borne out by the data. The 
Commission is proposing licensees may take credit using a 2 percent 
real rate of return from the time of the funds' collection through the 
decommissioning period. As stated below, this proposed action provides 
licensees relief from current requirements with no adverse impact on 
public health and safety, licensees, or NRC resources, and the proposed 
reporting requirements would allow the licensees' decommissioning funds 
to be monitored by the Commission.
E.1 Real Rate of Return
    Five commenters took the position that NRC should not specify a 
single allowable rate of return, but should allow licensees to take 
credit for any rate they can justify given their specific situation. 
Some of these commenters supported their positions by stating that 
licensees employ different investment strategies depending on factors 
such as the number of plants, when they expect to begin 
decommissioning, applicable State taxes, and whether the funds are in a 
qualified or nonqualified trust. Another commenter suggested that 
plant-specific annualized rates could be justified based on historical 
data. Considerable judgment will be needed to develop the rate, argued 
one utility group, but no more judgment than is needed in developing 
decommissioning cost estimates.
    Three commenters suggested that NRC use long-term, historical rates 
for the asset allocation employed, adjusted by the long-term, 
historical inflation rate.
    Six commenters stated that NRC should not specify a single 
allowable rate of return, but should define the basis on which 
licensees may select an appropriate positive real rate.
    Four commenters expressed the view that States should decide the 
rate, and a fifth commenter thought either States or FERC should decide 
the rate. Another commenter thought the rate should be determined by an 
(unidentified) ``acceptable third party.''
    One commenter suggested an after-tax rate of 3 percent as 
reasonable and achievable with acceptable levels of investment risk 
(e.g., 50 percent equity, 50 percent fixed income). Another commenter 
proposed a rate of 3 percent because that rate is the historical real 
return on Treasury bonds. One commenter felt NRC should float the 
values based on contemporary 30-year Treasuries.
    Two commenters opposed the use of a positive rate assumption for 
earnings during extended safe storage, arguing that earnings 
assumptions could be manipulated and that earnings could otherwise act 
as a hedge against increases in the cost of decommissioning.
    Response. Based on the NRC review of historical data, real (i.e., 
inflation adjusted, after tax) rates of return using U.S. Treasury 
issues have been on the order of 2 percent. Therefore, the Commission 
proposes to use a 2 percent real rate of return throughout the 
decommissioning collection period as a default earnings amount and in 
the safe storage period as a specified amount. The NRC acknowledges 
that the historical data is subject to some degree of interpretation, 
and that a 3 percent real rate may be viewed by some as a 
``reasonable'' measure for this parameter. While some may propose use 
of higher values based on other types of investments, the Commission 
believes the proposed value represents as close to a ``risk free'' 
return as possible and has increased confidence that the 2 percent 
value can be consistently achieved. Higher earnings amounts will be 
allowed during the period of reactor

[[Page 47600]]

operation if specifically approved by a rate-setting authority. To the 
extent that earnings in a given year prove to be greater than 2 
percent, the balance of the fund will be greater than anticipated. 
Licensees may take this higher balance into account in calculating 
subsequent contributions to their sinking funds. This means the size of 
subsequent contributions will decrease, even though these subsequent 
contributions will still be based on a 2 percent earnings assumption. 
If rates turn out to be lower than this, 10 CFR 50.82 already provides 
that licensees are to adjust decommissioning funds during safe storage 
to reflect changes in cost estimates. Thus, there is little risk that 
there will be major shortfalls in decommissioning funds. Further, the 
proposed reporting requirements will allow the licensees' 
decommissioning funds to be monitored by the Commission.
E.2 Appropriate Time Period
    Twelve commenters expressed the view that credit for projected 
earnings should be allowed over the full length of the extended safe 
storage period. An additional eight commenters also thought credit 
should be allowed for earnings projected over additional periods:
    <bullet> The period before safe storage, when funds are 
accumulated.
    <bullet> The decommissioning period, when funds flow out of the 
trusts.
    <bullet> Both the accumulation and outflow periods.
    Two more would allow commensurate credit for a period with site-
specific schedules for funding and decommissioning. Another commenter 
noted that considerable judgment would be needed to determine the 
appropriate time period, but no more than would be needed to develop 
the decommissioning cost estimate. Four commenters, all PUCs or PUC 
groups, felt NRC should leave the issue of the length of the period to 
the States.
    Only two commenters suggested that credit be limited to a fixed 
number of years. One of these suggested 10 years. The other proposed a 
maximum of 20 years, and a minimum of 5 years.
    Two commenters opposed the use of positive earnings assumptions 
during any period, arguing that earnings assumptions could be 
manipulated and that earnings could otherwise act as a hedge against 
increases in the cost of decommissioning.
    Response. The Commission proposes to allow licensees to take credit 
for earnings on external sinking funds from the time of the funds' 
collection through the decommissioning period. Because the NRC is 
requiring the funding, it is reasonable for the NRC to provide for a 
positive rate of return on the collected funds, where justified. 
Further, the NRC is proposing a longer period in which credit should be 
allowed for earnings because the justification for allowing a positive 
rate of return over the safe storage period also holds for allowing 
credit from the time of fund collection through the decommissioning 
period. Again, the proposed reporting requirement provides the NRC with 
the ability to monitor licensees' decommissioning funds. Lastly, this 
proposed action provides licensees relief from current requirements 
with no adverse impact on public health and safety, licensees, or NRC 
resources.

F. Reporting on the Status of Decommissioning Funds

    Many commenters supported a reporting requirement in light of 
concerns about decommissioning funding. Some of these felt that NRC 
should require relatively comprehensive reports because NRC's authority 
extends beyond that of FERC and the States, and because FERC and the 
States do not always require uniform information to be submitted at 
regular intervals. One commenter stated that an NRC regulatory 
amendment is needed even in the absence of deregulation to correct the 
flawed assumption that PUCs and FERC actively monitor decommissioning 
funds. The commenter stated that PUC and FERC monitoring efforts are, 
in most cases, limited in scope and may take place infrequently (i.e., 
when a rate case is filed). Each PUC is generally concerned only about 
its jurisdictional portion of the decommissioning funds, and FERC's 
jurisdiction is limited to only the wholesale portion of a company's 
sales. Moreover, many States do not have jurisdiction over municipal 
and cooperative agencies, some of which are owners or partial owners of 
nuclear plants. Therefore, the NRC may be the only regulating agency 
that can provide an effective and timely monitoring function for all 
the funds required for decommissioning.
    Three commenters opposed a reporting requirement as unnecessary, 
while two others believed such a requirement was premature and could 
conflict with or be duplicative of information that may be required by 
forthcoming FASB standards. Two commenters stated that NRC requirements 
should not duplicate requirements of States or FASB. Lastly, a 
commenter stated that if PUC oversight is limited or eliminated, NRC 
should assume oversight of decommissioning funds.
    Response. The Commission is proposing that a periodic reporting 
requirement be implemented so that the Commission has appropriate 
assurance that licensees are collecting their required decommissioning 
funds. The benefits of obtaining this information through a reporting 
requirement, in terms of both determining licensee compliance with NRC 
decommissioning funding regulations and responding to Congressional and 
other requests, outweigh the minimal impact of the requirement and 
would be less burdensome to licensees and the NRC than relying on the 
existing NRC inspection process.
F.1  Contents
    Three commenters stated that reporting requirements would be 
unobjectionable if they were minimal and limited to material of the 
nature historically provided to State regulators or in other financial 
reports. Similarly, others stated that NRC should rely on the same 
information as will be required by the proposed FASB statement 
regarding accounting for certain liabilities related to closure or 
removal of long-lived assets. Five commenters agreed with the NEI that 
reports should be kept as simple as possible. One commenter stated that 
comprehensive reports should be prepared for each facility, integrating 
information for all owners. Thus, if a facility has multiple owners, 
one consolidated report would be prepared with separate data for each 
owner attached. On the other hand, one commenter argued that reports 
should be based on the licensee's interest in the nuclear unit and not 
on a total unit basis.
    One group of commenters stated that NRC could make the annual 
reports from plant operators available to the public, which would be 
consistent with the availability of information required under proposed 
FASB standards.
    A PUC stated that New Jersey's reporting rules may be adequate for 
NRC's purposes.
    Suggested contents for the reports included 50 items under the 
following general headings: Decommissioning Costs and Activities, 
Contributions, Trust Status and Activity, Other Financial Information, 
and several Miscellaneous Items.
    Response. The Commission is in the process of issuing a draft 
regulatory guide on this proposed requirement which would endorse FASB 
draft standard No. 158-B, ``Accounting for Certain Liabilities Related 
to Closure or Removal of Long-Lived Assets.'' The

[[Page 47601]]

NRC is endorsing this draft FASB standard as a means of providing 
guidance for licensees to comply with those portions of the NRC's 
regulations regarding a licensee's reporting on the status of its 
decommissioning funding. Licensees would comply with the FASB standard 
once it becomes final in order to remain consistent with generally 
accepted accounting principles. The NRC believes that the FASB standard 
would, if adopted, provide the required information. However, because 
of the ambiguity in the FASB standard with respect to whether the 
required information will be reported on a per-unit basis, the NRC has 
defined its reporting requirement to include such per-unit information. 
The NRC has reviewed the proposed contents of the reports on 
decommissioning funds to ensure that the needs of the agency are 
balanced versus the time constraints of the licensees in assembling the 
reports. The Commission is also proposing to require that any 
modifications to a licensee's external trust agreement also be 
reported.
F.2 Frequency
    Several commenters stated that licensees should report on the 
status of decommissioning funds on an annual basis. Others believed 
reports should be required no more frequently than annually. NEI stated 
that NRC should not require licensees to report on the status of their 
decommissioning funds any more frequently than every 3 to 5 years. NEI 
noted that SEC rules and proposed FASB standards require utilities to 
disclose the decommissioning costs in financial statements.
    Two commenters suggested reporting at 5-year intervals. One of 
these suggested that interim status reports could be required on an 
annual basis.
    One commenter stated that NRC should require no more frequent 
reporting beyond FASB requirements. Another commenter stated that 
reports should be no less frequent than specified by the Securities and 
Exchange Act of 1934.
    One commenter suggested that NRC consider more frequent reporting 
for plants approaching the end of commercial operation and for plants 
experiencing operating problems. One commenter stated that the timing 
of required reports should parallel that of other reports such as FERC 
Form 1, SEC 10-K, and annual financial reports. Similarly, two 
commenters felt that annual reports should be caused by NRC by 
September 30 of the following year. Two commenters stated that interim 
reports could be required for significant events (e.g., merger, 
acquisition, financial deterioration). This commenter also suggested 
that limited or negative growth of the fund in a given year due to 
overall market conditions should not automatically trigger adjustments 
to funding levels but rather that a 3- to 5-year time frame should be 
used.
    Response. The Commission is proposing that every licensee submit 
its initial report on the status of decommissioning funds to the NRC 
within 9 months after the effective date of this rule, and at least 
once every 2 years thereafter. Annual submission is not being proposed 
as an option because the NRC believes it can adequately review licensee 
financial assurance status for decommissioning biennially while 
reducing licensee reporting burden. However, the licensee(s) of any 
plant that is within 5 years of its planned end of operation would be 
required to submit its report annually.

G. Comments on Topics Not Specifically Raised in the ANPR

    Commenters suggested several actions that NRC had not asked about 
specifically in the ANPR. First, a commenter stated that NRC should 
require sites to be decommissioned to ``green field'' status, 
consistent with FERC guidelines.
    Response. The Commission's position is that once radioactive 
contamination of the reactor facility is removed to a level acceptable 
to the NRC, there is no longer a health and safety concern preventing 
the NRC license from being terminated.
    A commenter suggested the imposition of a mandatory insurance 
requirement for licensees to cover fund shortfalls at the time of 
premature decommissioning in States where accelerated collection from 
ratepayers and intergenerational subsidies are not allowed.
    Response. The Commission does not agree with the commenter on the 
need for mandatory insurance. As stated in the response to comments on 
Stranded Costs, Section B, the previously referenced ``Draft Policy 
Statement on the Restructuring and Economic Deregulation of the 
Electric Utility Industry'' stated that the NRC has the authority ``to 
take actions that may affect a licensee's financial situation when 
these actions are warranted to protect public health and safety.'' The 
Commission believes that there are enough alternatives available to 
address the potential problems caused by premature decommissioning so 
that mandatory insurance would not be required.
    One commenter stated that the requirements for subaccounts should 
be waived. Their position is that licensees that have contributed 
monies to a single trust fund for multiple decommissioning-related 
purposes be required simply to demonstrate to the NRC that there are or 
will be sufficient assets in the trust fund, in the aggregate, to pay 
for the NRC-defined decommissioning cost of the nuclear unit and for 
any other decommissioning-related purposes identified in the trust 
agreement.
    Response. The Commission is not concerned with the details of how a 
licensee keeps accounts for decommissioning as long as a licensee is 
able to demonstrate, on a per-unit basis, the amount of funds 
identified and available for the required decommissioning purposes. 
Thus, the Commission accepts the commenter's position in general, 
although it notes that there is no current requirement, only guidance, 
relating to the use of subaccounts.
    A commenter stated that NRC should undertake as a priority task the 
identification of nuclear plants that do not perform well. For plants 
with performance problems, NRC should take aggressive steps to persuade 
the operator to sell the plant to another operator at a price that 
recognizes its market value or to terminate the license. In some cases, 
particularly when plants were financed with bond indentures or other 
instruments that limit the owner's ability to sell the plant or impose 
conditions on such sales, these restrictions would need to be 
identified in the process of identifying well-run plants. Further, the 
commenter states that if the plant does not produce a price acceptable 
to the operator, the Federal Government will offer a price that will 
provide the operator with some fraction of the purchase price and take 
over control and ownership, including any decommissioning fees that 
have been collected. The Federal Government would restart any plant it 
believes can continue as a source of power and will decommission the 
others from public funds.
    Response. The Commission does not see its position as one to force 
a licensee to sell its plant. While the NRC does aggressively attempt 
to identify poorly performing plants through such processes as the 
``Watch List,'' the decision as to whether another entity should become 
the operator of a facility is for the owners of that facility to make. 
Although the NRC would have to approve any transfer of control over any 
power plant license under Section 184 of the Atomic Energy Act and 10 
CFR

[[Page 47602]]

50.80, the NRC is reluctant to become involved in the business 
decision-making processes of the licensees on such matters. As to the 
NRC taking over poorly performing plants, the Atomic Energy Act confers 
``takeover'' authority on the NRC only in extremely limited 
circumstances. See Section 108 of the Atomic Energy Act (42 U.S.C. 
2138) limiting such authority to circumstances where ``* * * the 
Congress declares that a state of war or national emergency exists* * 
*.''
    A commenter stated that the NRC should develop a reliable, sound 
estimate (or method of estimating) decommissioning costs, and should 
update the estimates on a regular basis to incorporate technological 
and other changes.
    Response. The Commission is planning to revise its estimates of 
decommissioning costs after it obtains actual plant-specific data from 
ongoing decommissioning projects.
    Another commenter stated that NRC should sponsor technical 
conferences on decommissioning so the pace of technological resolutions 
for cleaning up and decommissioning plants could be increased.
    Response. While the proposed action is not a suggested rulemaking, 
the Commission is taking the suggestion under consideration. However, 
the Commission is aware of a number of deregulation and decommissioning 
conferences that have been held or are being planned.
    A commenter stated that the NRC should ask separately about other 
financial issues because changes to the definition of ``electric 
utility'' could have implications in contexts other than 
decommissioning, such as general financial qualifications reviews for 
initial licensing and related license amendments, from which utilities 
are now exempted.
    Response. While the Commission is not presently asking questions on 
other financial issues, it is attempting to address the concerns by 
proposing revisions to Part 50 to be consistent with the proposed 
change in the definition of ``electric utility.''
    A commenter stated that NRC should delay action as the Texas PUC 
has initiated three regulatory investigation projects focusing on the 
restructuring and partial deregulation of the electric industry in that 
State. Further, the State has not developed a formal policy on many of 
the issues set forth in the ANPR.
    Response. It is because of the number and variety of State actions 
being proposed in the areas of deregulation and restructuring that the 
Commission is proposing this rulemaking now. The Commission wishes to 
prepare for any new types of nuclear power generating licensees 
resulting from the States' actions. However, the Commission is well 
aware that this proposed rulemaking may not be the last action for it 
to undertake in this area.
    One commenter stated that the Commission should support revisions 
to Internal Revenue Code Section 468A regarding deductibility for 
contributions to an external fund.
    Response. The commenter does not make a suggestion as to what 
should be done in this rulemaking. Rather, the suggestion goes to 
questions regarding consideration of whether any changes to the U.S. 
Code are needed to address decommissioning financial assurance, in 
particular any changes to the Bank-ruptcy Code. This matter will be 
addressed separately by the NRC as part of its input to an inter-agency 
review process for the development of proposed legislation.
    Lastly, a commenter stated that the NRC should hold all licensees 
to the same high standard for assurance of decommissioning funds. 
Previously, the NRC had one standard for non-utility licensees and a 
much more lenient standard for rate-regulated utilities. NRC must 
establish strict and thorough standards for the collection, investment, 
segregation, and reporting of decommissioning funds and those standards 
must apply to all licensees, including those that have traditionally 
been considered regulated utilities.
    Response. The Commission position is that it is not necessary to 
impose any additional decommissioning funding requirements on those 
entities that meet the proposed definition of ``electric utility.'' 
However, as explained above, the Commission believes that those 
entities that no longer meet the proposed definition should be required 
to meet the more ``strict'' standards. The Commission also believes 
that most power reactor licensees would be allowed to fund 
decommissioning costs through non-bypassable charges.
    To summarize, the Commission's underlying philosophy of financial 
assurance for decommissioning is unchanged. Basically, those licensees 
that remain ``electric utilities'' by the Commission's revised 
definition should follow the same financial assurance regulations as 
before. However, the Commission believes that this proposed rulemaking 
provides for adequate protection in the face of a changing environment 
that was not envisioned when the existing rule was originally written. 
Further, with deregulation, the Commission does not believe that it 
would be able to identify all the potential types of licensees to which 
it will be exposed. Therefore, new and unique restructuring proposals 
will necessarily involve ad hoc reviews by the NRC. Further, the 
Commission will exercise direct oversight of such reviews to maintain 
consistent NRC policy toward new entities. In addition to the proposed 
definition revisions, the Commission is proposing two other 
modifications. The first is to require power reactor licensees to 
periodically report on the status of their decommissioning funds and 
changes to their external trust agreements. Second, the Commission is 
proposing to allow licensees to take credit for the earnings on 
decommissioning trust funds. The Commission does not see the need to 
take actions proposed by some commenters that would, in its view, 
strain licensees unnecessarily, because of licensees' competing needs.

Section-By-Section Description of Changes

10 CFR Part 50

    Section 50.2 is amended to revise the definition of ``electric 
utility'' in response to deregulation of the electric generating 
industry. The section also is amended by the insertion of definitions 
of previously undefined terms that aid in the understanding of the 
NRC's rulemaking position. Further, ``Federal licensee'' is defined, so 
that the characteristics of a licensee that may make use of a statement 
of intent as a mechanism to satisfy financial assurance requirements 
for decommissioning is clarified. Sections 50.43, 50.54, 50.63, 50.73, 
and 50.75 are amended to replace the term ``licensees'' or a similar 
term depending on the context for the term ``electric utility'' to be 
consistent with the proposed changes to 10 CFR 50.2.
    Section 50.43 is amended so States are added to regulatory agencies 
as those entities to which the Commission will give notice of 
application for a class 103 license for a commercial power generation 
facility.
    Section 50.54(w) is amended by requiring that power reactors, as 
opposed to electric utilities, obtain insurance in the manner 
prescribed.
    Section 50.63 is amended so that licensees, as opposed to the 
originally used term utilities, are required to provide specific 
material for NRC review relating to reactor core and associated 
systems.
    Section 50.73 is amended to refer to ``licensee'' rather than 
``utility'' personnel in stating the information required to be 
reported regarding

[[Page 47603]]

personnel errors related to matters requiring a Licensee Event Report.
    Section 50.75 is amended in three paragraphs to include the 
definitional change in the reporting and recordkeeping for 
decommissioning planning.
    Section 50.75 also is amended to allow licensees to take 2 percent 
credit on earnings for prepaid trust funds and external sinking funds, 
to institute a reporting requirement for licensees on the status of 
their decommissioning funding and on changes to licensees' external 
trust agreements.

Electronic Access

    Comments may be submitted electronically, in either ASCII text or 
WordPerfect format (version 5.1 or later), by calling the NRC 
Electronic Bulletin Board (BBS) on FedWorld. The bulletin board may be 
accessed using a personal computer, a modem, and one of the commonly 
available communications software packages, or directly via Internet. 
Background documents on the advance notice of proposed rulemaking are 
also available, as practical, for downloading and viewing on the 
bulletin board.
    If using a personal computer and modem, the NRC rulemaking 
subsystem on FedWorld can be accessed directly by dialing the toll free 
number 1-(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 rulemaking 
subsystem can then be accessed by selecting the ``Rules Menu'' option 
from the ``NRC Main Menu.'' Users will find the ``FedWorld Online 
User's Guides'' particularly helpful. Many NRC subsystems and data 
bases also have a ``Help/Information Center'' option that is tailored 
to the particular subsystem.
    The NRC subsystem on FedWorld can also be accessed by a direct dial 
phone 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 Mall.'' At that 
point, a menu will be displayed that has an option ``U.S. Nuclear 
Regulatory Commission'' that will take you to the NRC Online main menu. 
The NRC Online 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 Online 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 also can 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.
    You may also access the NRC's interactive rulemaking web site 
through the NRC home page (http://www.nrc.gov). This site provides the 
same access as the FedWorld bulletin board, including the facility to 
upload comments as files (any format) if your web browser supports that 
function.
    For more information on NRC bulletin boards call Mr. Arthur Davis, 
Systems Integration and Development Branch, NRC, Washington, DC 20555, 
telephone (301) 415-5780; e-mail AXD<a href="/cdn-cgi/l/email-protection#5f6c1f312d3c71383029"><span class="__cf_email__" data-cfemail="c2f182acb0a1eca5adb4">[email protected]</span></a>. For information about 
the interactive rulemaking site, contact Ms. Carol Gallagher, (301) 
415-6215; e-mail <a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="480b090f08263a2b662f273e66">[email protected]</a>

Finding of No Significant Environmental Impact: Availability

    The NRC is proposing to amend its regulations on financial 
assurance requirements for the decommissioning of nuclear power plants. 
The proposed amendments are in response to the likelihood of 
deregulation of the power generating industry and resulting questions 
on whether current NRC regulations concerning decommissioning funds and 
their financial mechanisms will need to be modified. The proposed 
action would revise the definition of ``electric utility'' contained in 
10 CFR 50.2, would add a definition of ``Federal licensee'' to address 
the issue of which licensees may use statements of intent, and would 
require power reactor licensees to report periodically on the status of 
their decommissioning funds and on the changes in their external trust 
agreements. Also, the proposed amendments would allow licensees to take 
credit for the earning on decommissioning trust funds.
    These proposed changes could have the following effects on nuclear 
power reactor licensees: (1) Potentially requiring licensees who have 
been ``deregulated'' to secure decommissioning financial assurance 
instruments that provide full current coverage of projected 
decommissioning costs, (2) limiting the types of licensees that can 
qualify for the use of Statements of Intent to satisfy decommissioning 
financial assurance requirements, (3) requiring periodic reporting on 
the status of their accumulation of decommissioning funds, thus leading 
to the potential for the NRC to require some remedial action if the 
licensee's actions are inadequate, and (4) permitting licensees to 
assume a real rate of return of two percent per annum, or such other 
rate as is permitted by a Public Utility Commission or the Federal 
Energy Regulatory Commission, on their accumulated funds. These actions 
are of the type focused upon financial assurances and mechanisms to 
assure funding for decommissioning and are not actions that would have 
any effect upon the human environment. Neither this action nor the 
alternatives considered in the Regulatory Analysis supporting the 
proposed rule would lead to any increase in the effect on the 
environment of the decommissioning activities considered in the final 
rule published on June 27, 1988 (53 FR 24018), as analyzed in the Final 
Generic Environmental Impact Statement on Decommissioning of Nuclear 
Facilities (NUREG-0586, August 1988).<SUP>6</SUP>
---------------------------------------------------------------------------

    \6\ Copies of NUREG-0586 are available for inspection or copying 
for a fee from the NRC Public Document Room at 2120 L Street NW. 
(Lower Level) Washington, DC 20555-0001; telephone (202) 634-3273; 
fax (202) 634-3343. Copies may be purchased at current rates from 
the U.S. Government Printing Office, P.O. Box 370892, Washington, DC 
20402-9328; telephone (202) 512-2249; or from the National Technical 
Information Service by writing NTIS at 5285 Port Royal Road, 
Springfield, VA 22161.
---------------------------------------------------------------------------

    Promulgation of these rule changes would not introduce any impacts 
on the environment not previously considered by the NRC. Therefore, the 
Commission has determined, under the National Environmental Policy Act 
of 1969, as amended, and the Commission's regulations in subpart A of 
10 CFR Part 51, that this rule, if adopted, would not be a major 
Federal action significantly affecting the quality of the human 
environment and, therefore, an environmental impact statement is not 
required. No other agencies or persons were contacted in reaching this

[[Page 47604]]

determination, and the NRC staff is not aware of any other documents 
related to consideration of whether there would be any environmental 
impacts of the proposed action. The foregoing constitutes the 
environmental assessment and finding of no significant impact for this 
proposed rule.

Paperwork Reduction Act Statement

    This proposed rule amends information collection requirements that 
are subject to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et 
seq.). This rule has been submitted to the Office of Management and 
Budget for review and approval of the information collection 
requirements.
    The public reporting burden for this information collection is 
estimated to average 8 hours per response, including the time for 
reviewing instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the 
information collection. The U.S. Nuclear Regulatory Commission is 
seeking public comment on the potential impact of the information 
collections contained in the proposed rule and on the following issues:

    1. Is the proposed information collection necessary for the 
proper performance of the functions of the NRC, including whether 
the information will have practical utility?
    2. Is the estimate of burden accurate?
    3. Is there a way to enhance the quality, utility, and clarity 
of the information to be collected?
    4. How can the burden of the information collection be 
minimized, including the use of automated collection techniques?

    Send comments on any aspect of this proposed information 
collection, including suggestions for reducing the burden, to the 
Information and Records Management Branch (T-6 F33), U.S. Nuclear 
Regulatory Commission, Washington, DC 20555-0001, or by Internet 
electronic mail at <a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="71333b2240313f23325f363e27">[email protected]</a>; and to the Desk Officer, Office of 
Information and Regulatory Affairs, NEOB-10202, (3150-0011), Office of 
Management and Budget, Washington, DC 20503.
    Comments to OMB on the information collections or on the above 
issues should be submitted by October 10, 1997. Comments received after 
this date will be considered if it is practical to do so, but assurance 
of consideration cannot be given to comments received after this date.

Public Protection Notification

    The NRC may not conduct or sponsor, and a person is not required to 
respond to, an information collection unless it displays a currently 
valid OMB control number.

Regulatory Analysis

    The Commission has prepared a draft regulatory analysis on this 
proposed regulation. The analysis examines the costs and benefits of 
the alternatives considered by the Commission. The draft analysis is 
available for inspection in the NRC Public Document Room, 2120 L Street 
NW. (Lower Level), Washington, DC. Single copies of the analysis may be 
obtained from Brian J. Richter, Office of Nuclear Regulatory Research, 
U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, 
telephone (301) 415-6221, e-mail <a href="/cdn-cgi/l/email-protection#9af8f0e8daf4e8f9b4fdf5ec"><span class="__cf_email__" data-cfemail="12707860527c60713c757d64">[email protected]</span></a>.
    The Commission requests public comment on the draft analysis. 
Comments on the draft analysis may be submitted to the NRC as indicated 
under the ADDRESSES heading.

Regulatory Flexibility Certification

    In accordance with the Regulatory Flexibility Act of 1980 (5 U.S.C. 
605(b)) as amended by the Small Business Regulatory Enforcement 
Fairness Act of 1996, Public Law 104-121 (March 29, 1996), the 
Commission certifies that this rule will not, if promulgated, have a 
significant economic impact on a substantial number of small entities. 
This proposed rule affects only the licensing, operation, and 
decommissioning of nuclear power plants. The companies that own these 
plants do not fall in the scope of the definition of ``small entities'' 
set forth in the NRC's size standards (10 CFR 2.810).

Backfit Analysis

    The regulatory analysis for the proposed rule also constitutes the 
documentation for the evaluation of backfit requirements, and no 
separate backfit analysis has been prepared. As defined in 10 CFR 
50.109, the backfit rule applies to

 * * * modification of or addition to systems, structures, 
components, or design of a facility; or the design approval of 
manufacturing license for a facility; or the procedures or 
organization required to design, construct, or operate a facility; 
any of which may result from a new or amended provision in the 
Commission rules or the imposition of a regulatory staff position 
interpreting the Commission rules that is either new or different 
from a previously applicable staff position * * *.

    The proposed amendments to NRC's requirements for the financial 
assurance of decommissioning of nuclear power plants would revise the 
definition of ``electric utility,'' define ``Federal licensee,'' and 
add several associated definitions; add new reporting requirements 
pertaining to the use of prepayment and external sinking funds; impose 
new reporting requirements for power reactor licensees on the status of 
decommissioning funding that specify the timing and contents of such 
reports; and permit power reactor licensees to take credit for a 2 
percent annual real rate of return on funds set aside for 
decommissioning from the time the funds are set aside through the end 
of the decommissioning period. These proposed actions are necessary to 
ensure that nuclear power reactors provide for adequate protection of 
the health and safety of the public in the face of a changing 
environment not envisioned when the reactor decommissioning funding 
regulations were promulgated.
    Although some of the changes proposed to the regulations are 
reporting requirements, which are not covered by the backfit rule, 
other elements in the proposed changes could be considered backfits 
because they would modify or clarify procedures with respect to (1) 
acceptable decommissioning funding options under various scenarios, (2) 
what licensees may use statements of intent, and (3) permitted credit 
for real rates of return on funds set aside for decommissioning. The 
NRC has determined to treat this action as an adequate protection 
backfit, because the action is necessary for the NRC to maintain 
assurance of adequate funding for power plant decommissioning, 
particularly in the face of the uncertainties associated with electric 
utility restructuring and deregulation. Accordingly, these proposed 
changes to the regulations are required to satisfy 10 CFR 50.109(a)(5) 
and a full backfit analysis is not required pursuant to 10 CFR 
50.109(a)(4)(ii).

List of Subjects in 10 CFR Part 50

    Antitrust, Classified information, Criminal penalties, Fire 
protection, Intergovernmental relations, Nuclear power plants and 
reactors, Radiation protection, Reactor siting criteria, Reporting and 
recordkeeping requirements.

    For the reasons set out in the preamble and under the authority of 
the Atomic Energy Act of 1954, as amended, the Energy Reorganization 
Act of 1974, as amended, and 5 U.S.C. 553, the NRC is proposing to 
adopt the following amendments to 10 CFR Part 50.

[[Page 47605]]

PART 50--DOMESTIC LICENSING OF PRODUCTION AND UTILIZATION 
FACILITIES

    1. The authority citation for part 50 continues to read as follows:

    Authority: Secs. 102, 103, 104, 105, 161, 182, 183, 186, 189, 68 
Stat. 936, 937, 938, 948, 953, 954, 955, 956, as amended, sec. 234, 
83 Stat. 1244, as amended (42 U.S.C. 2132, 2133, 2134, 2135, 2201, 
2232, 2233, 2236, 2239, 2282); secs. 201, as amended, 202, 206, 88 
Stat. 1242, as amended, 1244, 1246 (42 U.S.C. 5841, 5842, 5846).
    Section 50.7 also issued under Pub. L. 95-601, sec. 10, 92 Stat. 
2951 (42 U.S.C. 5851). Section 50.10 also issued under secs. 101, 
185, 68 Stat. 955 as amended (42 U.S.C. 2131, 2235), sec. 102, Pub. 
L. 91-190, 83 Stat. 853 (42 U.S.C. 4332). Sections 50.13, and 
50.54(dd), and 50.103 also issued under sec. 108, 68 Stat. 939, as 
amended (42 U.S.C. 2138). Sections 50.23, 50.35, 50.55, and 50.56 
also issued under sec. 185, 68 Stat. 955 (42 U.S.C. 2235). Sections 
50.33a, 50.55a and Appendix Q also issued under sec. 102, Pub. L. 
91-190, 83 Stat. 853 (42 U.S.C. 4332). Sections 50.34 and 50.54 also 
issued under sec. 204, 88 Stat. 1245 (42 U.S.C. 5844). Sections 
50.58, 50.91, and 50.92 also issued under Pub. L. 97-415, 96 Stat. 
2073 (42 U.S.C. 2239). Section 50.78 also issued under sec. 122, 68 
Stat. 939 (42 U.S.C. 2152). Sections 50.80--50.81 also issued under 
sec. 184, 68 Stat. 954, as amended (42 U.S.C. 2234). Appendix F also 
issued under sec. 187, 68 Stat. 955 (42 U.S.C. 2237).

    2. In Sec. 50.2 the definition of Electric Utility, is revised and 
the definitions of Cost of service regulation, Federal licensee, and 
Non-bypassable charges are added in alphabetical order to read as 
follows:


Sec. 50.2  Definitions.

* * * * *
    Cost of service regulation means the traditional system of rate 
regulation in which a rate regulatory authority allows an electric 
utility to charge its customers all reasonable and prudent costs of 
providing electricity services, including a return on the investment 
required to provide such services.
* * * * *
    Electric utility means any entity that generates, transmits, or 
distributes electricity and that recovers the cost of this electricity 
through rates established by a regulatory authority, such that the 
rates are sufficient for the licensee to operate, maintain, and 
decommission its nuclear plant safely. Rates must be established by a 
regulatory authority either directly through traditional cost of 
service regulation or indirectly through another non-bypassable charge 
mechanism. An entity whose rates are established by a regulatory 
authority by mechanisms that cover only a portion of its costs will be 
considered to be an ``electric utility'' only for that portion of the 
costs that are collected in this manner. Public utility districts, 
municipalities, rural electric cooperatives, and State and Federal 
agencies, including associations of any of the foregoing, that 
establish their own rates are included within the meaning of ``electric 
utility.''
* * * * *
    Federal licensee means any NRC licensee that has the full faith and 
credit backing of the United States Government.
* * * * *
    Non-bypassable charges means those charges imposed by a 
governmental authority which affected persons or entities are required 
to pay to cover costs associated with operation, maintenance, and 
decommissioning of a nuclear power plant. Affected individuals and 
entities would be required to pay those charges over an established 
time period.
* * * * *
    3. In Sec. 50.43, paragraph (a) is revised to read as follows:


Sec. 50.43  Additional standards and provisions affecting class 103 
licenses for commercial power.

* * * * *
    (a) The Commission will give notice in writing of each application 
to such regulatory agency or State as may have jurisdiction over the 
rates and services incident to the proposed activity; will publish 
notice of the application in such trade or news publications as it 
deems appropriate to give reasonable notice to municipalities, private 
utilities, public bodies, and cooperatives which might have a potential 
interest in such utilization or production facility; and will publish 
notice of the application once each week for 4 consecutive weeks in the 
Federal Register. No license will be issued by the Commission prior to 
the giving of such notices and until 4 weeks after the last publication 
in the Federal Register.
* * * * *
    4. In Sec. 50.54, the introductory text of paragraph (w) is revised 
to read as follows:


Sec. 50.54  Conditions of licenses.

* * * * *
    (w) Each power reactor licensee under this part for a production or 
utilization facility of the type described in Secs. 50.21(b) or 50.22 
shall take reasonable steps to obtain insurance available at reasonable 
costs and on reasonable terms from private sources or to demonstrate to 
the satisfaction of the Commission that it possesses an equivalent 
amount of protection covering the licensee's obligation, in the event 
of an accident at the licensee's reactor, to stabilize and 
decontaminate the reactor and the reactor station site at which the 
reactor experiencing the accident is located, provided that:
* * * * *
    5. In Sec. 50.63, paragraph (a)(2) is revised to read as follows:


Sec. 50.63  Loss of alternating current power.

    (a) * * *
    (2) The reactor core and associated coolant, control, and 
protection systems, including station batteries and any other necessary 
support systems, must provide sufficient capacity and capability to 
ensure that the core is cooled and appropriate containment integrity is 
maintained in the event of a station blackout for the specified 
duration. The capability for coping with a station blackout of 
specified duration shall be determined by an appropriate coping 
analysis. Licensees are expected to have the baseline assumptions, 
analyses, and related information used in their coping evaluations 
available for NRC review.
* * * * *
    6. In Sec. 50.73, paragraph (b)(2)(ii)(J)(2)(iv) is revised to read 
as follows:


Sec. 50.73  Licensee event report system.

* * * * *
    (b) * * *
    (2) * * *
    (ii) * * *
    (J) * * *
    (2) * * *
    (iv) The type of personnel involved (i.e., contractor personnel, 
licensed operator, nonlicensed operator, other licensee personnel.)
* * * * *
    7. In Sec. 50.75, paragraphs (a), (b), (d), (e)(1)(i), (e)(1)(ii), 
and (e)(3) introductory text are revised and paragraphs (f)(1), (2), 
and (3) are redesignated as paragraph (f)(2), (3), and (4) and a new 
paragraph (f)(1) is added to read as follows:


Sec. 50.75  Reporting and recordkeeping for decommissioning planning.

    (a) This section establishes requirements for indicating to NRC how 
reasonable assurance will be provided that funds will be available for 
decommissioning. For power reactor licensees it consists of a step-wise 
procedure as provided in paragraphs (b), (c), (e), and (f) of this 
section. Funding for decommissioning of electric utilities is also 
subject to the regulation of agencies (e.g., Federal Energy Regulatory 
Commission (FERC) and

[[Page 47606]]

State Public Utility Commissions) having jurisdiction over rate 
regulation. The requirements of this section, in particular paragraph 
(c), are in addition to, and not substitution for, other requirements, 
and are not intended to be used, by themselves, by other agencies to 
establish rates.
    (b) Each power reactor applicant for or holder of an operating 
license for a production or utilization facility of the type and power 
level specified in paragraph (c) of this section shall submit a 
decommissioning report, as required by 10 CFR 50.33(k) of this part 
containing a certification that financial assurance for decommissioning 
will be provided in an amount which may be more but not less than the 
amount stated in the table in paragraph (c)(1) of this section, 
adjusted annually using a rate at least equal to that stated in 
paragraph (c)(2) of this section, by one or more of the methods 
described in paragraph (e) of this section as acceptable to the 
Commission. The amount stated in the applicant's or licensee's 
certification may be based on a cost estimate for decommissioning the 
facility. As part of the certification, a copy of the financial 
instrument obtained to satisfy the requirements of paragraph (e) of 
this section is to be submitted to NRC.
* * * * *
    (d) Each non-power reactor applicant for or holder of an operating 
license for a production or utilization facility shall submit a 
decommissioning report as required by 10 CFR 50.33(k) of this part 
containing a cost estimate for decommissioning the facility, an 
indication of which method or methods described in paragraph (e) of 
this section as acceptable to the Commission will be used to provide 
funds for decommissioning, and a description of the means of adjusting 
the cost estimate and associated funding level periodically over the 
life of the facility.
    (e)(1) * * *
    (i) Prepayment. Prepayment is the deposit prior to the start of 
operation into an account segregated from licensee assets and outside 
the licensee's administrative control of cash or liquid assets such 
that the amount of funds would be sufficient to pay decommissioning 
costs. Prepayment may be in the form of a trust, escrow account, 
government fund, certificate of deposit, or deposit of government 
securities. A licensee may take credit on earnings on the prepaid 
decommissioning trust funds using a 2 percent annual real rate of 
return from the time of the funds' collection through the 
decommissioning period, if the licensee's rate-setting authority does 
not authorize the use of another rate.
    (ii) External sinking fund. An external sinking fund is a fund 
established and maintained by setting funds aside periodically in an 
account segregated from licensee assets and outside the licensee's 
administrative control in which the total amount of funds would be 
sufficient to pay decommissioning costs at the time termination of 
operation is expected. An external sinking fund may be in the form of a 
trust, escrow account, government fund, certificate of deposit, or 
deposit of government securities. A licensee may take credit for 
earnings on the external sinking funds using a 2 percent annual real 
rate of return from the time of the funds' collection through the 
decommissioning period, if the licensee's rate-setting authority does 
not authorize the use of another rate.
* * * * *
    (3) For an electric utility, its rates must be sufficient to 
recover the cost of the electricity it generates, transmits, or 
distributes. These rates must be established by a regulatory authority 
such that they are sufficient for the licensee to operate, maintain, 
and decommission its plant safely. The Commission reserves the right to 
take the following steps in order to assure a licensee's adequate 
accumulation of decommissioning funds: review, as needed, the rate of 
accumulation of decommissioning funds; and either independently or in 
cooperation with either the FERC and the State PUC's, take additional 
actions as appropriate on a case-by-case basis, including modification 
of a licensee's schedule for accumulation of decommissioning funds. 
Acceptable methods of providing financial assurance for decommissioning 
for an electric utility are--
* * * * *
    (f)(1) Each power reactor licensee shall report to the NRC within 9 
months after [the effective date of the final rule], and at least once 
every 2 years thereafter on the status of its decommissioning funding 
for each reactor facility or part of a reactor facility that it owns. 
The information in this report must include, at a minimum: the amount 
of decommissioning funds estimated to be required pursuant to 10 CFR 
50.75(b) and (c); the amount accumulated to the date of the report; a 
schedule of the annual amounts remaining to be collected; the 
assumptions used regarding rates of escalation in decommissioning 
costs, rates of earnings in decommissioning trust funds, and rates of 
other factors (e.g., discount rates) used in funding projections; and 
any modifications occurring to a licensee's current trust agreement 
since the last submitted report. Any licensee for a plant that is 
within 5 years of the projected end of its operation shall submit such 
a report annually.
* * * * *
    Dated at Rockville, Maryland, this 4th day of September, 1997.

    For the Nuclear Regulatory Commission.
John C. Hoyle,
Secretary of the Commission.
[FR Doc. 97-23962 Filed 9-9-97; 8:45 am]
BILLING CODE 7590-01-P


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