Nuclear Regulation: NRC's Oversight of Nuclear Power Reactors' Decommissioning Funds Could Be Further Strengthened
Released: 2012-05-07T00:00:00

Letter

Background

Decommissioning begins when a licensee has filed documentation with NRC to permanently shut down a reactor and the fuel has been removed. NRC requires decommissioning to be completed within 60 years after a reactor permanently shuts down unless additional time is necessary to protect public health and safety. Licensees choose from two decommissioning methods: immediate decontamination and dismantlement (DECON) or safe storage (SAFSTOR). The DECON method calls for the licensee to remove the radioactively contaminated equipment, structures, and parts of the reactor for shipment to a low-level radioactive waste disposal site or for temporary storage. This process generally takes 5 or more years. Under the SAFSTOR method, the reactor is left for up to 60 years in a state that allows the radioactive components to decay while the reactor is maintained and monitored. Once radioactivity has decreased, the reactor is then dismantled in a way similar to the DECON process. After all of the radioactive material has been removed, and NRC has terminated the reactor’s license, the site can be used for other purposes. Licensees can begin decommissioning a reactor while another reactor at the site is operating. Currently, 36 nuclear power plants have more than one reactor at the site, and six of those plants have one reactor that is in the process of decommissioning.

In addition to decommissioning, licensees are also responsible for other postshutdown activities. These activities include the management of spent nuclear fuel—a type of high-level radioactive waste—until it can be transferred to the Department of Energy, which is responsible for providing permanent disposal. Site restoration is another such activity, which includes the cleanup of nonradiological contaminants, such as acids and heavy metals, to restore the power plant site to a condition that is safe for public use. However, these activities do not fall within the scope of NRC’s definition of decommissioning or under NRC’s decommissioning oversight authority, and licensees must pay for these costs with funds that are separate from their decommissioning funds.

NRC Methods to Ensure That Licensees Provide Reasonable Assurance of Adequate Decommissioning Funds

NRC periodically reviews licensees’ decommissioning funds and related licensee data to determine if licensees have provided reasonable assurance that they will accumulate adequate funds for decommissioning. According to NRC guidance, the amount of funds that is considered adequate is established by NRC’s decommissioning formula, which represents the bulk of the funds needed to decommission a specific reactor and is not an estimate of the actual cost. The formula estimates decommissioning costs by reactor type—pressurized water reactor or boiling water reactor—and the reactor’s capacity to generate electricity. The formula is based on two studies, published in 1978 and 1980, that provided information on the technology available at the time, safety considerations, and the probable costs for decommissioning the two types of reactors. NRC codified its decommissioning funding formula in 1988. According to this regulation, the three cost factors identified in the formula—labor, energy, and low-level radioactive waste disposal—are adjusted annually to reflect the effects of inflation. To estimate costs in current year dollars, the labor and energy cost factors are adjusted from the prior year using data from the U.S. Department of Labor’s Bureau of Labor Statistics, while the waste disposal cost factor is adjusted based on actual disposal cost data published by NRC.

As part of NRC’s oversight of decommissioning funds, the agency requires licensees to provide decommissioning cost estimates and other information to NRC throughout the life cycle of a nuclear reactor: Initial decommissioning estimate and financial method. Beginning in July 1990, NRC has required licensees to report that they had (1) estimated the amount needed for decommissioning, typically using NRC’s decommissioning funding formula, and (2) developed a plan for accumulating these funds by the projected time of permanent shutdown. Since that date, license applicants have been required to submit this information as part of their license application. NRC regulations allow licensees to use one or more methods as part of their plan to accumulate funds, such as prepayment of the entire estimated decommissioning amount, a trust fund that is separate from other licensee assets and accrues earnings based on investments, parent company guarantees, or letters of credit. The most common financial method is a trust fund that is allowed to grow over the life of the reactor and during the decommissioning process. Once licensees contribute funds to a decommissioning trust fund, funds generally cannot be withdrawn for other purposes.  DFS reports. NRC requires licensees to submit DFS reports at least every 2 years while a reactor is operating, and every year once a reactor is within 5 years of permanent shutdown through license termination. Licensees may report the amount of funds estimated to be needed for decommissioning using the decommissioning funding formula or a licensee-generated site-specific cost estimate if it is greater than the formula amount. According to NRC guidance, NRC staff compare two things in reviewing these reports: (1) the licensee’s accumulated funds plus amounts provided by any other methods in the licensee’s plans to accumulate funds as described above and (2) the amount estimated to be needed for decommissioning, which is the greater of an NRC-generated formula estimate or the licensee- generated site specific cost estimate. If the licensee’s balance is greater than or equal to the estimated amount needed for decommissioning, an NRC reviewer makes a determination of reasonable assurance. If the balance is less than the estimated amount needed for decommissioning, the reviewer projects the licensee’s accumulated funds through the decommissioning period to account for any anticipated growth. If the projected amount plus amounts provided by other methods is less than the estimated amount needed for decommissioning and a second reviewer verifies this finding, then NRC may request additional information from the licensee and repeat the process. According to agency guidance, licensees are expected to make adjustments to correct shortfalls in 2 or 5 years, depending on the type of licensee, from when the DFS report in question is submitted. An NRC official told us that the agency determines on a case-by-case basis if additional actions should be taken to assure the agency that the licensee will have adequate decommissioning funds when needed.  Preliminary decommissioning cost estimate. About 5 years prior to a reactor’s projected permanent shutdown, NRC requires licensees to submit a preliminary decommissioning cost estimate that is more detailed than NRC’s decommissioning funding formula. This cost estimate provides NRC with an up-to-date estimate of expected decommissioning costs and an assessment of the major factors that could affect such costs, as well as the licensee’s plans for adjusting decommissioning funding levels if necessary. Major factors include, but are not limited to, the potential for contamination of the site and the decommissioning method the licensee plans to use. NRC guidance calls for staff to compare the preliminary cost estimate with the decommissioning cost estimate generated by the NRC formula. The licensee’s preliminary cost estimate is deemed acceptable if it is equal to or greater than the formula amount. If it is less than the formula amount, NRC informs the licensee that additional information is needed to assure the agency that the licensee will accumulate adequate funds for decommissioning.  Site-specific cost estimate. NRC requires licensees to submit a site- specific cost estimate prior to or within 2 years following permanent shutdown; licensees may also develop such estimates earlier at their discretion. The intent of this cost estimate is to provide NRC with a more detailed assessment that incorporates the cost impacts of site- specific factors. Site-specific factors include, but are not limited to, an estimate of the volume of radioactive waste and a summary of costs estimated for each major decommissioning activity. According to NRC guidance, the site-specific estimate may be significantly greater than the minimum amount based on the NRC formula. If the site-specific estimate and formula amount differ, NRC requires licensees to provide information on the basis for the difference. If NRC determines that the information provided is insufficient, an agency official told us that the agency decides, on a case-by-case basis, how many information requests it will make and whether it will consider taking additional actions to assure the agency that the licensee will have adequate decommissioning funds when needed.  License termination plan with updated site-specific cost estimate.

Toward the end of decommissioning and at least 2 years before termination of the reactor’s license, NRC requires licensees to submit a license termination plan. In this plan, licensees must estimate the remaining costs of decommissioning. NRC guidance calls for agency staff to review this report to independently verify that a reactor can be decommissioned safely and the license terminated. As part of this review, staff are to compare the estimated remaining costs of decommissioning with the licensee’s funds available for decommissioning. If the available decommissioning funds are less than the estimated remaining costs, the plan must indicate the means the licensee will use for ensuring adequate funds to complete decommissioning.

Licensees who choose to invest their decommissioning trust funds are generally required to do so in accordance with standards set by NRC. NRC defers to the Federal Energy Regulatory Commission (FERC) for investment standards for reactors that are owned by public utilities, which constitute about half of the 104 operating reactors. FERC requires the utilities it regulates to invest their decommissioning funds in accordance with several standards. These standards state, among other things, that the fund must be independent of the public utility, its subsidiaries, affiliates, or associates; the public utility may not serve as its own investment fund manager; and the investment manager must exercise the standard of care that a prudent investor would use in the same circumstances. Public utilities are required to submit annual decommissioning fund statements to FERC that summarize the public utility decommissioning fund balances and investments, among other things.

For reactors that are not owned by public utilities, NRC regulations set investment standards specifying, for example, that the funds must be held by an independent trustee who adheres to a standard of care required by state or federal law or, in the absence of any such standard, to a prudent investor standard as defined by FERC; investments may not be made in any reactor licensee or in a mutual fund in which 50 percent or more of the fund is invested in the nuclear power industry; and no more than 10 percent of the funds can be indirectly invested in securities of any entity owning or operating a reactor.

NRC Has Strengthened Its Oversight of Decommissioning Funds, but Several Weaknesses Remain

In response, in part, to GAO’s and the NRC OIG’s recommendations, NRC has taken actions to strengthen its oversight of licensees’ decommissioning funds, including creating guidance for reviewing DFS reports, reevaluating the decommissioning funding formula, and requiring licensees currently decommissioning their reactors to report to NRC the actual costs of decommissioning. However, remaining weaknesses in NRC’s oversight may limit the agency’s ability to ensure that licensees have provided reasonable assurance that they will have adequate funds to decommission their reactors.

NRC Has Taken Actions to Strengthen Its Oversight

NRC has taken steps to identify and resolve decommissioning funding shortfalls by creating guidance and other documentation related to criteria for reviewing DFS reports and by using its enforcement process when deficiencies are identified. In 2003, we recommended that NRC establish criteria for taking action when it determines that a licensee is not accumulating sufficient funds. Since then, NRC has developed guidance for reviewing DFS reports that includes criteria for when staff should request additional information from licensees to address shortfalls. NRC has updated this guidance several times based on lessons learned from its DFS report reviews. NRC also documented the approach staff are to use to request additional information from licensees when the agency identified decommissioning shortfalls in 2009 through its DFS reviews. In addition, NRC has used its enforcement process in three cases to address DFS reporting deficiencies since 2009. Agency officials said that such actions were effective in getting the licensees to resolve the issues identified, in part because NRC’s enforcement process provides publicly available information in the event that an apparent violation is identified.

In addition, in response to an NRC OIG recommendation, NRC has conducted reviews at licensee offices to verify that the amounts licensees reported to NRC in DFS reports as fund balances match the amounts stated in licensees’ year-end bank statements. The NRC OIG recommended in 2006 that the agency require verification of decommissioning fund balances in order to better ensure that licensees are providing reasonable assurance that they will have the necessary funds. NRC documents indicate that from April 2008 through October 2010, NRC officials performed 136 reviews at 35 locations. NRC officials told us that during these reviews they verified that the decommissioning fund balances reported in the bank statements matched the balances reported in the DFS reports, with one exception, and that they did not find any cases where a licensee overreported its fund balance.

Furthermore, in response to an NRC OIG recommendation, NRC began reevaluating its decommissioning funding formula in 2009 to determine if it should be updated because of changes in decommissioning technology and the cost of management and disposal of low-level radioactive waste.

The NRC OIG recommended in 2000 that the agency consider reassessing the reasonableness of the formula, in part because it was outdated, and reiterated this recommendation in 2006. NRC has not updated its decommissioning funding formula since it was codified in 1988. NRC officials told us that they plan to make a recommendation to agency management in late 2012 about whether an update is warranted based on its evaluation. In commenting on a draft of this report, NRC officials told us that, as part of evaluating the formula, they expect to estimate the lower and upper bounds of the cost of decommissioning based on licensee- generated cost estimates and historical decommissioning costs—thereby creating a range of expected decommissioning costs—and then see how an updated formula fits into this range.

Moreover, NRC amended its decommissioning funding regulations in June 2011 to improve decommissioning planning and reduce the likelihood that any currently operating power plant will become a legacy site—a facility with a licensee that cannot complete complex decommissioning work for technical or financial reasons. The regulatory changes as a result of the amendments will, among other things, require licensees of the reactors currently undergoing decommissioning to report to NRC the actual costs being incurred during decommissioning, specifically, to report annual decommissioning expenditures. NRC wants these data to assess the adequacy of decommissioning funding after permanent shutdown. These data could be used to determine if the agency’s decommissioning formula estimates the bulk of the funds that licensees will likely need to decommission their reactors. The amendments become effective in December 2012, and licensee reporting of these data is required by March 31, 2013.

Several Weaknesses May Limit the Adequacy of NRC’s Oversight of Decommissioning Funds

Even with the actions NRC took to strengthen its oversight, the agency’s ability to ensure that licensees provide reasonable assurance that they will have adequate funds at the time of decommissioning may be limited by several remaining weaknesses in its oversight. Specifically, NRC has not (1) clearly defined what the agency means by the “bulk” of the funds licensees will likely need to decommission and the decommissioning funding formula may not reliably estimate adequate decommissioning costs, (2) always clearly or consistently documented its fund balance review results and may discontinue these reviews, and (3) reviewed licensees’ compliance with investment standards.

NRC has not defined what it means by the bulk of the funds licensees will likely need to decommission a reactor. When we compared decommissioning funding formula estimates provided by NRC for 12 reactors with licensees’ site-specific cost estimates calculated for the same reactors, we found that the NRC formula captured from 57 to 103 percent of the costs reflected in each reactor’s site-specific estimate, with 5 of the 12 capturing 76 percent or less (see table 1). Even though the formula estimates captured more than 50 percent of the licensee’s site- specific cost estimates for each of the 12 reactors, the wide range of differences between formula and site-specific cost estimates raises a question about whether or not the formula can reasonably be said to have captured the bulk of decommissioning costs.

In addition, for 8 of the 12 reactors, the licensees calculated their site- specific cost estimates less than 7 years before the license was originally due to expire, and their estimates were as much as $362 million more than the formula estimates at that time. It is true that NRC expects that its formula estimate may be less than licensees’ site-specific cost estimates. However, licensees whose formula estimate is significantly less than the site-specific estimate when calculated near the end of their reactors’ operating lives would have fewer years to accumulate a significant amount of decommissioning funds. Overall, 9 of the 12 reactors have had their licenses renewed, which gives these licensees more time to accumulate the decommissioning funds they will likely need. However, without changes to the NRC formula, it is possible that the NRC formula estimates could be significantly less than the licensees’ site- specific cost estimates several years from their new shutdown date.

Furthermore, NRC’s decommissioning funding formula may not provide a reliable estimate of adequate decommissioning costs for several reasons. We compared NRC’s formula and the process the agency used to create the formula with GAO’s cost-estimating guide, which compiles cost- estimating best practices drawn from across industry and government and, in doing so, identified several issues that raise additional questions about the quality of the formula. For example, NRC’s decommissioning funding formula substantially met two characteristics of a high-quality formula, but only partially met the other two. Specifically, NRC’s supporting documentation for the formula was not thorough enough for us to understand and replicate its derivation. According to our cost- estimating guide, without thorough documentation, NRC cannot reliably explain its rationale for the cost elements that support the formula and formula-generated cost estimates. In addition, NRC did not perform a risk analysis on the formula, which would convey a level of confidence in the likelihood of the formula’s ability to estimate the most likely minimum cost of decommissioning. Without performing a risk analysis on the formula, NRC cannot be assured of the accuracy of the formula because management may not be able to determine a defensible level of contingency reserves that is necessary to cover increased costs such as underestimated labor and waste disposal costs. See appendix II for our detailed assessment of the formula in comparison with the four characteristics identified in our cost-estimating guide.

The results of more than one-third of the 136 fund balance reviews that NRC staff performed from April 2008 to October 2010 to verify the amounts in DFS reports were not always clearly or consistently documented. Specifically, the results of 49 reviews were not clear because the reviewer either did not check “yes” or “no” or checked both boxes on the one-page form NRC staff used to collect information when indicating whether the original licensee documents were verified to show that the amounts in year-end bank statements matched the amounts in DFS reports (see fig. 1). In other cases, the results were not consistently documented, with some reviewers providing general information on their forms, such as writing “no problem,” while others provided more detailed information, such as providing both the balance in the year-end bank statement and in the DFS report.

As of October 2011, NRC did not have written procedures describing the steps that staff should take in analyzing licensee documentation and documenting review results on the one-page form, which likely contributed to NRC staff not always documenting the results of the reviews clearly or consistently. We have previously reported that written procedures help ensure consistency within an organization. Under Standards for Internal Control in the Federal Government, federal agencies are to clearly document internal control—the policies, procedures, techniques, and mechanisms that enforce management’s directives—and the documentation is to be readily available for examination.

In addition, NRC officials told us that management was considering recommending that the agency discontinue the reviews. If NRC discontinues these reviews, the agency will no longer have a mechanism for verifying the accuracy of licensee fund balances in their DFS reports and will no longer address the 2006 NRC OIG recommendation to verify licensee balances to better ensure that licensees are providing reasonable assurance that they will have the necessary funds for decommissioning. NRC officials told us that the reasons they may discontinue the reviews are a lack of findings and budget constraints. However, according to our analysis of the results of the 136 reviews, it is unclear whether NRC’s conclusion of a lack of findings is accurate. In addition, an NRC official told us that these reviews could be incorporated into the DFS review process, thereby eliminating the cost of travel to a licensee’s office, potentially mitigating budget constraint concerns.

NRC has not reviewed licensees’ compliance with the investment standards the agency has set for decommissioning funds. NRC does not require licensees to file statements showing how their decommissioning funds are invested, and NRC’s DFS review process does not include an evaluation to ensure that licensees comply with these investment standards. As a result, NRC cannot confirm that licensees are avoiding conditions described in the standards, such as investing in other licensees. According to two stakeholders involved in decommissioning fund management and investment consulting, a small but growing number of licensees are considering investing in hedge funds as a way of improving returns on their investments and managing market volatility. As we have stated in the past, hedge funds pose a number of risks and challenges beyond those posed by traditional investments. NRC officials told us that their staff resources are limited and that they lack the financial expertise to evaluate compliance with investment restrictions. For public utility licensees, NRC officials stated that they coordinate informally with FERC in cases where potential funding shortfalls or problems arise. FERC officials told us that they review licensee compliance with the standards only if a problem with a licensee’s decommissioning trust fund is brought to the agency’s attention, which would mean that most licensees’ compliance with the standards would not be reviewed. Without awareness of the nature of licensees’ investments, NRC cannot determine whether it needs to take action to enforce the standards.

Conclusions

NRC ensures that licensees have provided reasonable assurance that they will have adequate funds to decommission their reactors by periodically reviewing licensees’ decommissioning funds and related licensee data. Consistent with its mission to protect the public and environment from the effects of radiation, NRC has taken steps to strengthen its oversight of licensees’ decommissioning trust funds. NRC, for example, amended its decommissioning funding regulations to improve decommissioning planning and reduce the likelihood that any currently operating power plant will become a legacy site. In addition, NRC began reevaluating its decommissioning funding formula in 2009 to determine if it should be updated because of changes in decommissioning technology and the cost and management of low-level radioactive waste. NRC officials plan to make a recommendation to management in late 2012 about whether an update is warranted based on this evaluation.

However, weaknesses remain in NRC’s oversight of decommissioning funds that could leave the public and environment vulnerable. For example, NRC has not defined what it means by the bulk of funds that the decommissioning funding formula is supposed to estimate, and we found a wide-range of differences between NRC’s decommissioning funding formula estimates and some licensees’ site-specific cost estimates. This raises questions about the reliability of the formula as an estimate of the minimum amount needed for decommissioning. In addition, the agency did not have thorough documentation that would enable us to understand and replicate the derivation of its formula and did not perform a risk analysis on the formula, raising questions about the quality of the cost estimates used to create the decommissioning formula. Without a definition of what NRC means by the bulk of decommissioning costs and without high-quality estimates of these costs, it is unclear how NRC can determine if the formula is performing as intended or that licensees will have adequate decommissioning funds when necessary. In addition, NRC does not have written procedures describing the steps that staff should take in their reviews analyzing licensee documentation and verifying that the amounts licensees report to NRC in their DFS reports match the amounts reported on their year-end bank statements, a fact that likely contributed to the results of the reviews not always being clearly or consistently documented. However, NRC may discontinue these reviews, which the agency undertook in response to a 2006 NRC OIG recommendation. Without conducting these reviews, NRC will not have an accountability mechanism for ensuring that the amounts reported in DFS reports match the amounts shown in licensees’ year-end bank statements. Finally, NRC has not reviewed licensees’ compliance with the investment standards it has set for decommissioning funds. Therefore, the agency cannot confirm that licensees are avoiding conditions described in the standards that could put decommissioning funds at risk. Without awareness of the nature of licensees’ investments, NRC cannot determine whether it needs to take action to enforce decommissioning investment standards.

Recommendations for Executive Action

To further strengthen NRC’s oversight of decommissioning funding assurance, we recommend that the NRC Commissioners take the following five actions:  Ensure reliability as part of the agency’s process of reevaluating its decommissioning funding formula, by  defining what the agency means by the “bulk” of the funds that licensees will likely need to decommission their reactors and  using the cost-estimating characteristics as a guide for a high- quality cost-estimating formula in the event that NRC chooses to update the formula.  Better ensure that licensees are providing reasonable assurance that they will have the necessary funds and improve the consistency of information the agency collects by  documenting procedures describing the steps that staff should take in their reviews analyzing licensee documentation and verifying that the amounts licensees report to NRC in their DFS reports match the balances on their year-end bank statements and continuing these reviews of fund balances in a way that is most efficient and effective for the agency.  Consider reviewing a sample of licensees’ investments to determine if licensees are complying with decommissioning investment standards and determine whether action should be taken to enforce these standards.

Agency Comments and Our Evaluation

We provided a draft of this report to NRC for review and comment. NRC provided written comments, which are presented in appendix III, and technical comments, which we incorporated in the report as appropriate. NRC agreed with three of our recommendations, disagreed with one recommendation, and partially agreed with another recommendation. Specifically, NRC agreed with our recommendations that the agency (1) document procedures describing the steps that staff should take in their reviews analyzing licensee documentation and verifying that the amounts licensees report to NRC in their DFS reports match the balances on their year-end bank statements; (2) continue these reviews of fund balances in a way that is most efficient and effective for the agency; and (3) consider reviewing a sample of licensees’ investments to determine if licensees are complying with decommissioning investment standards and determine whether action should be taken to enforce these standards.

However, NRC disagreed with our recommendation that, when the agency reevaluates its decommissioning funding formula, it define what it means by the “bulk” of the funds that licensees will likely need to decommission their reactors. In its comments, NRC stated that, in view of the comprehensiveness of the agency’s regulatory system, a precise definition of the meaning of “bulk” is not necessary to ensure that licensees adequately plan for decommissioning costs. We did not recommend that NRC provide a precise definition but we continue to believe that a definition is necessary. As we noted in our draft report, without a definition of what the agency means by bulk it is unclear how NRC can determine if the formula is performing as intended or if licensees will have adequate decommissioning funds when necessary, especially given the wide range of differences we identified when we compared formula-based and site-specific cost estimates. NRC suggested that we revise our recommendation to state that NRC’s reevaluation of the formula consider the relationship between the formula amount and the range of expected decommissioning costs. This approach could be appropriate, as long as NRC states what the relationship between the formula and the range should be. According to NRC officials, the agency has not yet developed this range of expected decommissioning costs. Officials explained that, as part of its process of reevaluating the formula, the agency expects to estimate the lower and upper bounds of the range of expected decommissioning costs based on licensee-generated cost estimates and historical decommissioning costs and will determine how an updated decommissioning funding formula fits into this range. We believe such an analysis could help the agency better define the bulk of funds licensees should accumulate to ensure adequate funds for decommissioning. In response to this comment, we modified the report to include information about the range of expected decommissioning costs NRC plans to develop, but did not revise the recommendation.

Finally, NRC partially agreed with our recommendation that the agency use the cost-estimating characteristics as a guide for a high-quality cost- estimating formula in the event that NRC chooses to update the formula as part of ensuring reliability during the process of evaluating its decommissioning funding formula. NRC agreed that the decommissioning funding formula should provide a credible and well-documented basis for establishing the minimum amount of funding needed to plan for the costs of decommissioning a reactor, but disagreed that the formula is the appropriate tool for achieving the characteristics of comprehensiveness and accuracy in estimating decommissioning costs. NRC commented that the formula was not intended to provide a cost estimate but rather provide a reference level for licensees as a planning tool early in a reactor’s life. We disagree that the formula is not a cost estimate. As we noted in our draft report, NRC considers the formula to be the minimum amount needed by licensees to decommission their reactors; we believe that this meets the definition of a cost estimate. NRC further commented that the agency believes that it achieves the characteristics of comprehensiveness and accuracy by requiring a licensee to provide an updated, plant-specific cost estimate late in a plant’s life. We recognize that the plant-specific cost estimate that NRC requires can draw on additional information to help achieve characteristics of a high-quality cost estimating formula. However, this requirement does not address the quality of the formula. The formula needs to be appropriately accurate and comprehensive for its intended purpose. As we noted in our draft report, licensees typically use the formula to meet NRC’s requirement to report an initial decommissioning cost estimate in their license application, and NRC uses the formula to determine if there is reasonable assurance that licensees will have adequate decommissioning funds as part of the DFS report review process. We recognize that NRC is in the process of reevaluating its more than 30-year old formula to determine if the formula should be updated to reflect changes in decommissioning technology and costs. We believe that an updated formula that reflects these changes and has the characteristics of a high-quality cost-estimating formula could help to ensure that NRC’s decommissioning funding formula is appropriately accurate and comprehensive.

As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Chairman of NRC, appropriate congressional committees, and other interested parties. The report also will be available at no charge on the GAO website at http://www.gao.gov.

If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or ruscof@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff that made major contributions to this report are listed in appendix IV.

Appendix I: Scope and Methodology

To describe how the Nuclear Regulatory Commission (NRC) ensures that reactor owners (licensees) provide reasonable assurance of adequate decommissioning funds, we reviewed relevant regulations, including Reporting and Record Keeping for Decommissioning Planning, and guidance documents, such as Procedures for NRC’s Independent Analysis of Decommissioning Funding Assurance for Operating Nuclear Power Reactors. We also reviewed GAO and NRC Office of the Inspector General (OIG) reports on decommissioning funding assurance and interviewed NRC officials from the Office of Nuclear Reactor Regulation and OIG to better understand the agency’s oversight of decommissioning funds.

To identify any improvements or weaknesses in NRC’s oversight of decommissioning funding assurance, we analyzed NRC’s decommissioning funding formula and the agency’s reviews of licensee decommissioning funding status (DFS) reports. To analyze NRC’s decommissioning funding formula, we compared NRC formula-generated cost estimates with licensee- generated site-specific cost estimates for 12 nuclear reactors for which we were able to obtain both types of estimates that were calculated in the same year. We also compared NRC’s formula and the process the agency used to develop the formula with GAO-identified best practices for cost estimating, and reviewed documents used to create the formula. To ensure our understanding of how the formula was developed and how it is used, we interviewed NRC officials and staff of the Pacific Northwest National Laboratory (the contractor NRC used to create the formula). To analyze NRC’s reviews of licensee DFS reports, we analyzed data from reactor licensees’ 2011 DFS reports for each of the operating reactors and for currently decommissioning reactors. These reports reflect estimated decommissioning costs and actual decommissioning fund balances as of December 31, 2010, among other things. We assessed the reliability of the data we used by interviewing NRC officials to identify steps the agency uses to verify the data, and several licensees to identify steps they take to ensure that the data they provide are reliable. In our assessment of the data, we determined these data were sufficiently reliable for our purpose of identifying the number of licensees who had not reported specific data in the 2011 DFS reports. We also reviewed the results of NRC’s in-licensee-office comparisons of licensees’ DFS reports and year-end bank statements from April 2008 through October 2010.

We also analyzed relevant Federal Energy Regulatory Commission (FERC) regulations governing decommissioning trust funds, because FERC oversees public utility financial reporting and about half of the 104 operating reactors are owned by public utilities.

To better understand issues related to decommissioning nuclear power reactors in general, we interviewed officials from other federal agencies (such as from FERC and the Department of Energy), a decommissioning cost estimator, nongovernmental organizations, nuclear power industry groups, licensees of nuclear power reactors, and decommissioning fund stakeholders—a fund trustee and two investment advisors—who have knowledge of nuclear reactor decommissioning or are involved with it. We identified the trustee through licensee interviews and one investment advisor through a March 2011 NRC public decommissioning workshop that we attended. We also attended the 23rd annual NRC Regulatory Information Conference held in March 2011. In addition, we visited five nuclear power plants—Haddam Neck (Connecticut Yankee) in Connecticut, Indian Point in New York, Peach Bottom Atomic Power Station and Three Mile Island Nuclear Station in Pennsylvania, and Enrico Fermi Atomic Power Plant in Michigan—interviewed licensee officials there, and toured the facilities. The five sites we visited were a nonprobability sample that we selected to include a mix of fully decommissioned, currently decommissioning, and operating reactors. Because we used a nonprobability sample, the information obtained from these site visits is not generalizable to other reactors. To select these sites, we considered sites that were a mixture of types of reactors, types of ownership, and types of decommissioning methods used, as well as reactors that are operating, currently decommissioning, or fully decommissioned. In addition to these criteria, we considered sites that were close to GAO headquarters in Washington, D.C., for cost-saving purposes. The exception was the Enrico Fermi Atomic Power Plant in Michigan. We visited this site because it has the closest currently decommissioning reactor using the immediate decontamination and dismantlement (DECON) method. We also interviewed relevant state agency officials (e.g., the Pennsylvania Public Utility Commission and Michigan Department of Environmental Quality) in the states where we conducted our site visits to better understand their roles in the decommissioning process.

We conducted this performance audit from February 2011 to April 2012, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Appendix II: GAO Assessment of NRC’s Decommissioning Funding Formula

Table 2 shows our comparison of NRC’s decommissioning funding formula compared with our cost-estimating guide’s four characteristics of a high-quality cost-estimating formula.

Appendix III: Comments from the Nuclear Regulatory Commission

Appendix IV: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the individual named above, Karen Jones, Assistant Director; Karen Richey, Assistant Director; Josey Ballenger; Bernice Dawson; Jennifer Echard; Jonathan Kucskar; Robin Marion; Katya Melkote; Cynthia Norris; Michelle K. Treistman; and Vanessa V. Welker made significant contributions to this report. Mehrzad Nadji and Anne Rhodes-Kline also made important contributions to this report.