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.

Proposed Rules Federal Register

47588

Vol. 62, No. 175

Wednesday, September 10, 1997

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.

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 bjr@nrc.gov.

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
Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Proposed Rules 47589

1Retail 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.

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 1 will provide market pricing at

all levels, including the retail level,

according to one commenter. Three

commenters believe that retail wheeling

will become widespread.

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:

• Functional unbundling which is the

divestiture of generation, transmission,

or distribution systems.

• 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.

• 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.

• 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
47590 Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Proposed Rules

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, nonbypassable 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 nonbypassable ‘‘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 ‘‘noncompetitive’’ per se, and thus does not

accept that nuclear plants are noncompetitive 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
Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Proposed Rules 47591

2See Draft Policy Statement on the Restructuring

and Economic Deregulation of the Electric Utility

Industry, (61 FR 49711; September 23, 1996).

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 2 should be a strong statement

of its expectations. NRC should

participate in the NARUC subcommittee

addressing restructuring.

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, nonbypassable 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
47592 Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Proposed Rules

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 nonbypassable 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 § 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 intergenerational 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-
Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Proposed Rules 47593

3The 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.

bypassable customer fees, including

securitization or exit fees, by a rateregulating 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 rateregulating 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 rateregulated activities, such as traditional

cost of service regulation or use of nonbypassable 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 § 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 caseby-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. 3 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.

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
47594 Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Proposed Rules

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 § 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 nonbypassable cost recovery mechanism or

would be required to provide the types

of up-front assurance described in

§ 50.75(e)(2). Those licensees who

remain utilities would have the funding

assurance provided through being rateregulated under § 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 nonbypassable 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
Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Proposed Rules 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 selfguarantees, 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 § 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
47596 Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Proposed Rules

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 reestimates 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 Staterequired 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
Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Proposed Rules 47597

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.

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 overcollection 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.4 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.

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
47598 Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Proposed Rules

5The Financial Accounting Standards Board is a

private body that establishes authoritative financial

accounting and reporting standards in the United

States.

or other tests of financial strength such

as ownership of other revenueproducing 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 5 (FASB) financial

disclosures for information in assessing

the nature, timing, and extent of the

company’s commitment of its future

resources.

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

• The period before safe storage,

when funds are accumulated;

• The decommissioning period, when

funds flow out of the trusts; and

• 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 ‘‘nonqualified’’ 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
47600 Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Proposed Rules

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:

• The period before safe storage,

when funds are accumulated.

• The decommissioning period, when

funds flow out of the trusts.

• 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
Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Proposed Rules 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 perunit 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
47602 Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Proposed Rules

50.80, the NRC is reluctant to become

involved in the business decisionmaking 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 Bankruptcy 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
Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Proposed Rules 47603

6Copies 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.

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 AXD3@nrc.gov.

For information about the interactive

rulemaking site, contact Ms. Carol

Gallagher, (301) 415–6215; e-mail

CAG@nrc.gov.

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).6

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
47604 Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Proposed Rules

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

BJS1@NRC.GOV; 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

bjr@nrc.gov.

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

§ 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 § 50.43, paragraph (a) is revised

to read as follows:

§ 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 § 50.54, the introductory text of

paragraph (w) is revised to read as

follows:

§ 50.54 Conditions of licenses.

* * * * *

(w) Each power reactor licensee under

this part for a production or utilization

facility of the type described in

§§ 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 § 50.63, paragraph (a)(2) is

revised to read as follows:

§ 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 § 50.73, paragraph

(b)(2)(ii)(J)(2)(iv) is revised to read as

follows:

§ 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 § 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:

§ 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
47606 Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Proposed Rules

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

DEPARTMENT OF TRANSPORTATION

Office of the Secretary

14 CFR Part 255

[Docket No. OST–97–2881; Notice No.

97–9]

RIN 2105–AC65

Computer Reservations System (CRS)

Regulations

AGENCY: Office of the Secretary,

Transportation

ACTION: Advance notice of proposed

rulemaking

SUMMARY: The Department is initiating

this rulemaking to determine whether it

should continue or modify its existing

rules governing airline computer

reservations systems (CRSs). Unless

extended by the Department, the

existing rules (14 CFR part 255) will

expire on December 31, 1997. It is the

Department’s preliminary position that

the rules should be continued, probably

with revisions.

DATES: Comments must be submitted on

or before November 10, 1997. Reply

comments must be submitted on or

before December 9, 1997.

ADDRESSES: Comments must be filed in

Room PL–401, Docket 49812, U.S.

Department of Transportation, 400 7th

St. S.W., Washington , D.C. 20590. Late

filed comments will be considered to

the extent possible. To facilitate

consideration of comments, each

commenter should file six copies of its

comments.

FOR FURTHER INFORMATION CONTACT:

Thomas Ray, Office of the General

Counsel, 400 Seventh St. SW.,

Washington, DC 20590, (202) 366–4731.

SUPPLEMENTARY INFORMATION: The

Department adopted its rules governing

CRS operations—14 C.F.R. part 255—

because CRSs had become essential for