The electricity industry is the largest industry in the United States. According to the Department of Energy’s (DOE) Energy Information Administration (EIA), the industry had total assets worth about $700 billion in 1993 and has revenues of about $200 billion annually. Nuclear power plants have provided about 20 percent of the nation’s electricity in recent years. Most nuclear power plants are owned and operated by investor-owned utilities. Investor-owned utilities comprise only about 8 percent of the nation’s 3,200 electric utilities but generate and sell over 75 percent of the electricity. One such utility—the Commonwealth Edison Company—received the former Atomic Energy Commission’s first license to operate a civilian nuclear power plant almost 40 years ago. Since then, the Atomic Energy Commission and its successor regulatory agency—the Nuclear Regulatory Commission (NRC)—have issued operating licenses for a total of 125 plants. Twenty-one of the plants licensed to operate have been permanently retired, leaving 104 with operating licenses. The Atomic Energy Act of 1954, as amended, and the Energy Reorganization Act of 1974, as amended, require NRC to, among other things, protect the radiological health and safety of the public. Under this mandate, NRC licenses nuclear power plants to operate for up to 40 years and continually regulates the utility-licensees’ operation of these plants. In addition, NRC permits utilities to seek license extensions of up to 20 years. Decommissioning a nuclear power plant involves dismantling the structures and equipment at the plant, properly disposing of the resulting radioactive and other wastes, and then ensuring that the plant site complies with applicable environmental standards. Decommissioning involves a combination of technical, financial, and regulatory challenges. For example, the nuclear reactor vessel, other plant components, and concrete surfaces of various rooms in the plant are radioactive or contaminated with radioactive material. Therefore, the processes of maintaining the plant in a safe condition prior to dismantling it and disposing of the resulting radioactive wastes requires constant attention to protecting workers and the public from exposure to radiation. The interval of time between the initial operation of a plant and its eventual dismantling also presents challenges to licensees and NRC. This interval can be as short as a few years if a plant is retired earlier than expected and dismantled shortly thereafter or as long as 40 to 60 years if a plant operates for an extended license period. In lieu of dismantling a plant immediately after its retirement, a utility may instead elect to decommission a plant by placing the plant in safe storage before dismantling it, as long as the entire decommissioning process is completed within 60 years. This feature of NRC’s regulation allows utilities to defer dismantling a retired plant if they (1) are awaiting the retirement of a colocated plant, (2) need to give DOE time to remove all of the spent (used) fuel from the plant, and (3) need to allow the radioactivity in the plant to decay before dismantling the plant, among other things. Finally, the financial aspects of decommissioning also present challenges to utility-licensees. For example, although actual decommissioning experience is limited, decommissioning a single plant is expected to cost hundreds of millions of dollars. NRC does not have the authority to regulate the manner in which licensees recover from their customers the costs of constructing, operating, and decommissioning nuclear power plants. Most licensees are investor-owned utilities that traditionally have been provided a monopoly within their service areas. In return, these utilities built generating plants, including nuclear, coal, gas, and hydro power plants, and transmission and distribution facilities to provide electricity for all of the existing and future customers within their service areas. Under this traditional “cost-of-service” regulation, state public utility commissions approved electricity rates that reflected the utilities’ costs of building and operating their electricity systems and approved the financial returns on these investments. Similarly, the interstate aspects of the electric utility industry, including financial transactions, wholesale rates, and interconnection and transmission arrangements, are regulated by the Federal Energy Regulatory Commission (FERC). In this context, utilities’ proposed arrangements to finance the decommissioning of their nuclear plants are a part of their financial operations that are subject to review and approval by their respective state public utility commissions and FERC. NRC’s authority to require utilities to accumulate funds to decommission their nuclear power plants is derived from its responsibilities under the Atomic Energy Act of 1954, as amended, to regulate the safety of nuclear power. Until 1988, NRC required licensees to certify that sufficient financial resources would be available when needed to decommission their nuclear power plants but did not require these licensees to make specific financial provisions for decommissioning. On July 26, 1988, NRC’s original regulations on the technical and financial aspects of decommissioning became effective. By then, NRC had licensed 114 plants to operate. NRC’s 1988 regulations provided utilities with the following options for providing decomissioning financial assurance: The prepayment of cash or liquid assets into an account segregated from the licensee’s assets and outside the licensee’s administrative control. Prepayment may be made in the form of a trust, escrow account, government fund, certificate of deposit, or deposit of government securities. External sinking funds. These types of funds are established and maintained through the periodic setting aside of funds in an account segregated from the licensee’s assets and outside the licensee’s administrative control. An external sinking fund may be in the same forms permitted for prepayment. A surety method or insurance. A surety method may be in the form of a surety bond, letter of credit, or line of credit payable to a trust established for decommissioning costs. For “federal licensees,” such as the Tennessee Valley Authority, a statement of intent that decommissioning funds will be obtained when necessary. NRC recognized both the uncertainty over decommissioning costs and the authority of public utility commissions and FERC to regulate the economic affairs of utilities. Therefore, NRC approached the regulation of the financial aspects of decommissioning by requiring utilities to provide “reasonable assurance” that sufficient funds would be available to decommission their nuclear power plants when the plants are permanently shut down. Among other things, NRC required, by July 27, 1990, each holder of an operating license to (1) certify that the licensee would provide the required financial assurance for decommissioning; (2) calculate, using a formula contained in NRC’s regulations, the minimum amount (expressed in current-year dollars) that utilities would accumulate for decommissioning their plants by the time they expect to retire them; and (3) provide a copy of the financial instrument(s) executed to provide the required financial assurance. Essentially all utilities have elected the option of establishing external sinking funds to finance future decommissioning costs. A portion of the charge that utilities’ customers pay for their electricity is earmarked for deposit in these funds, and the funds are invested to earn income. In its regulations, NRC deferred to utilities and their rate regulators the details of collecting the required decommissioning funds. NRC requires only that the amount actually accumulated by the end of a plant’s operating life equals the projected cost to decommission the plant. About 5 years before the projected end of plant operations, NRC requires a utility to submit a preliminary decommissioning cost estimate that includes an up-to-date assessment of the major factors that could affect the cost to decommission its plant. Also, if necessary, the cost estimate shall include plans for adjusting needed funds for decommissioning to demonstrate that a reasonable level of assurance will be provided so that funds will be available when needed to cover the cost of decommissioning. Finally, not later than 2 years after a plant has been permanently shut down, the utility must submit to NRC a decommissioning report that includes, among other things, a site-specific decommissioning cost estimate. After about 10 years of experience with NRC’s 1988 decommissioning regulations, the electricity industry has begun to change in ways that have prompted NRC to reassess the adequacy of its regulations governing nuclear power plants, including financial assurances for decommissioning retired plants. Over the next 10 years or so, many states are expected to replace their traditional systems of economic regulation of monopolistic electric utilities with more-competitive, less-regulated environments mainly for the generation of electricity but, to a lesser degree, for the transmission and distribution of electricity as well. Competition, according to NRC, could result in economic pressures that will affect the availability of adequate funds for decommissioning and how utilities address maintenance and safety in nuclear power plant operations. Currently, the Congress is considering a number of bills to restructure the retail electricity industry to promote a more efficient and market-driven industry. Also, as of September 1997, 49 states had considered reforming their retail electricity markets. As of June 1, 1998, FERC and at least 18 states had either enacted legislation or issued comprehensive regulatory orders implementing plans to restructure the industry. In California, for example, a plan to produce competitive electricity markets and allow consumers to choose their electricity supplier went into effect in March 1998. Also, some of these initiatives would encourage or require the restructuring of the affected electricity industry. Specifically, utilities that have traditionally generated, transmitted, and distributed electricity would be encouraged or required to separate the operation of electricity generation systems from the operation of transmission and distribution systems.