ML20072T098
| ML20072T098 | |
| Person / Time | |
|---|---|
| Site: | Fort Saint Vrain  |
| Issue date: | 04/05/1991 |
| From: | Crawford A PUBLIC SERVICE CO. OF COLORADO |
| To: | Weiss S Office of Nuclear Reactor Regulation |
| References | |
| P-91096, NUDOCS 9104170224 | |
| Download: ML20072T098 (12) | |
Text
.
h Public Service' 20 0 %
P.O. Box 840 Denver co 80201 0840 April 5, 1991 Fort St. Vrain Unit No. ]
A. Clegg Craw'ord P-91096 Ec'O'g*",'an, U.S. Nuclear Regulatory Commission ATTN: Document Control Desk Washington, D.C.
20555 ATTN: Mr. Seymour H. Weiss, Director Non Power Reactor, Decommissioning and Environmental Project Directorate Docket No. 50-267
SUBJECT:
RESPONSE TO NRC REQUEST FOR INFORMATION - ACCUMULATION OF FUNDS FOR DECOMMISSIONING
REFERENCES:
(1) NRC letter, Crutchfield to Crawford, dated February 26, 1991 (G-91038)
(2)
PSC letter, Crawford to Weiss, dated November 5, 1990 (P-90318)
Dear Mr. Weiss:
Reference 1 requested Public Service Company of Colorado (PSC) to provide PSC's position within 30 days regarding what an acceptable decommissioning funding plan would include for fort St. Vrain.
Per a telephone discussion between Mr. R. - Dudley (NRC) and Mr. M. H.
Holmes (PSC), the NRC has allowed an extension of this submittal until April 5, 1991.
As reported to the NRC in Reference 2 (and noted in Reference 1),
PSC has selected the DECON decommissioning alternative as the basis for its Proposed Decommissioning Plan 'or Fort St. Vrain.
To i
support this alternative, PSC -has initiated efforts to evaluate finalicing rnethods that will - provide reasonable assurance of the availability of funds to decomission Fort St. Vrain, that will meet the requirements of 10 CFR 50.75(e) and that will be responsive to guidance provided in NRC Regulatory Guide 1.159 " Assuring the Availability-of Funds for Decommissioning Nuclear Reactors".
L Therefore, PSC is unable at this time to provide further specific information related to the proposed contents and format of the Decommissioning Funding Plan for Fort St. Vrain.
As noted in 1
l previo;s discussions with the NRC, PSC expects this plan to be l
finalized and submitted to the NRC in the third quarter of 1991.
j l
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9104170224 910403 ADOCK0500g7 k
DR l
P-91096 April'5, 1991 i
Page 2.
Additionally, as PSC has informed the' NRC in several previous i
submittals and meetings (most receatly on February 27, 1991), PSC's selection of the - DECON decommissioning alternative is contingent u)cn approval by the Colorado Public Utilities Commission (CPVC).
T11s-approval is necessary to ensure that sufficient revenue recovery conditions will be present to offset the additional expenditures :necessary to implement the DECON alternative and successfully repower! Fort St. Vrain as a conventional fossil fueled generating' unit.
The key element of selection of this -alternative t
-is the__ CPVC approval of PSC's application, which is to be submitted i
to-the CPVC notLlater than the end of April.
As noted-in Reference 2, PSC maintains its option to pursue-the z
-SAFSTOR decommissioning alternative if approval is not obtained for sufficient revenue recovery. Therefore, the NRC's proposed position t
regarding ; uce -of. bond ratings as a basis for determining an acceptable period to accumulate decommissioning funds for plants-that select ~ the SAFST0k decommissioning alternative is -of considerable concern to PSC.
Substantial NRC regulations and guidance regarding funding plan contents are currently available.
- These NRC controls are embodied in 10 CFR-SO.75(e)', 10 CFR_50.82 and' NRC Regulatory Guide; 1.159 " Assuring the-Availability of. Funds. for -
Decommissioning Nuclear Reactors".- -These NRC regulations and
-guidance,_ coupled with_ requirements for -NRC approval prior to:
initiating any decommissioning activities,- eliminate : the need for
-additional restrictionsi regarding the period: of fund accumulation.
. The attachment to this -letter.provides further detail on PSC's concerns.related'to the proposed additional restrictions.
If you have any-questions related to the contents of this letter or iPSC plans to submit its Decommissioning: Funding Plan, please contact Mr. M. H.. Holmes at (303) 480-6960. -
Very truly yours, g(& & h eY A. Clegg Crawfor Vice-President L
Nuclear Operations L
p.
I L
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A P-91096 April 5, 1991 Page 3 ACC:CRB/cb Attachment cc:
Regional Administrator, Region IV Mr. J.B. Baird Senior Resident Inspector Fort St. Vrain Mr. Robert M. Quillin, Director Radiation Control Division Colorado Department of Health 4210 East lith Avenue Denver, CO 80210 m-
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t ATTACHMEN r TO P 91096 USE OF BOND RATINGS AS A IIASIS TO DETERMINE PERIOD OF FUNDS ACCUMULATION
- I.
INTRODUCTION Public Service Company of Colorado (PSC) believes that there are numerous issues that should be considered prior to establishing an additional restriction on the period for accumulation of funds for decommissioning based upon corporate bond ratings.
This attachment briefly discusses the proposed NRC staff position and provides relevant background information related to -PSC's situation.
Following these discussions, PSC has identified several major concerns that should be considered before the NRC formally adopts or implements the proaosed staff position related to restricting decommissioning fund accumulation periods on the basis of corporate bond ratings.
Thes2 concerns can be summarized as follows and are discussed in further detail in the following paragraphs:
L (1)
Existing regulations provide adequate guidance and controls without the need to implement additional restrictions.
(2) -Use of bond ratings as a discriminator was not considered in the original rulemaking, p
(3) Application of this restriction to utilities-is not consistent with treatment of other guarantors that issue financial instruments.
l (4)
Restricting-the. period for accumulation of funds for SAFSTOR may
-effectively limit decommissioning
-alternatives.
L
.(5)
Reliance on bond ratings may result in unsound-business
-decisions to avoid accelerated fund accumulation.
L
-(6) The proposed restriction implements a generic approach to L
review of - licensee funding plans,.
rather -than a
case by-case review as. directed by the NRC
'I n its a
l decommissioning rule and comments thereto.
l (7) The proposed restriction does not provide allowances for
-favorable changes in bond ratings.
(8)
Effects of the differences in ratings between external.
investment rating services are not addressed.
~
(9) Use of bond ratings as a basis for determirinq a fund accumulation period may represent an inappropriatt use of these ratings.
(10) The NRC position may be inconsistent with operating nuclear plants and may unfairly penalize prematurely shutdown plants.
(11) Use of bond ratings may be inappropriate, since the rating may be based to a great extent en subjective rather than quantitative evaluations.
I
l 4 -
. to P 91096 April 5, 1991 Page 2 (12) Establishing the threshold as
' single A'
may be inconsistent with previous NRC criteria for investment grade debt instruments.
PSC believes that it would be inappropriate for the NRC to establish these additional restrictions at this time, as there are significant issues that must be tesolved before the NRC staff decides to recommend a position regarding use of bond ratings.
Establishment of this restriction will place utilities in a situation where competing obligations create an inherent conflict - such as making imprudent business decisions solely to maintain bond ratings in lieu of implementing souad business decisions based on the best long term interests of the utility, its ratepayers and its shareholders.
II. NRC PROPO VJ POSITION in Reference 1 of the cover letter, the NRC staff has provided proposed guidance related te acceptable financial assurances and possible effects on the allowable periods for accumulation of funds for decommissioning beyond that previously provided in 10 CFR 50.75(e), 10 CFR 50.82, and NRC Regulatory Guide 1.159 " Assuring the Availability of funds for Decommissioning Nuclear Reactors".
In RJerence 1, the NRC staff has indicated, for plants selecting the i
SAFSTOR decommissioning alternative, that the decommissioning funding plan must provide reasonable assurance that funds will be available to decommission the licensee's facility within a
reasonable period of time based on the licensee's financial and rate regulatory environment, in Reference 1, the NRC staff indicated that for licensee's that select the SAfSTOR alternative, the licensee MUST provide reasonable assurance that funds will be available within a reasonable period of time, and that the licensee would demonstrate such assurance by one of the following two approaches: (1) provide a surety bond, letter of credit, or other third party agreement for all projected decommissioning costs not externally funded within five years; or (2) accumulate external funds for decommissioning for a period not extending beyond the full remaining term of the licensee's operating license.
However, to use the second approach, the staff believes I
that the licensee must maintain a bond rating of at least " single A" or eouivalent as determined by the Moody's Investment Service, Standard and Poors, or another national bond rating agency.
If the licensee's bond rating drops below " single A",
the licensee would be required to externally fund the entire remaining balance within i
three months or obtain a surety bond, letter of credit, or other third party guarantee for the outstanding balance.
III. PSC CURRENT AND HISTORICAL. BOND RATINGS l
l PSC's First Mortgage Bonds, the senior corporate debt, are now rated as 'BBB+'
by the Standard and Poor's investment rating service.
l l
l
. to P-91096 n
April 5, 1991 Page 3 PSC's bond ratings since 1980 are provided in Table 1 of this attachment.
IV. DISCUSSI')N The following paragraphs identi fy the more significant concerns identified by PSC related to use of bond ntings as a basis for determining the period of funds accumulation.
1.
Existina Reaulations Provide Adequate Guidance and Controls:
Guidance related to decommissioning funding plans is provided in 10 CFR 50.75(e) and 10 CFR 50.82, which identifies the l
intent as well as the required contents of these funding plans.
Additional guidance and staff interpretation is provided in NRC Regulatory Guide 1.159, " Assuring the Availability of funds for Decommissioning Nuclear Reactors." Guidance contained in these documents impresses upon the licensee their responsibilities with respect to providing adequate financial assurance for decommissioning, as well as reiterating the intent of the decommissioning rule: to ensure that sufficient funds are available to decommission the reactor in a manner that protects public health and safety.
The regulations also clearly define the period of collection of decommissioning funds.
However, since premature shutdown -was not considered in the original rule, the NRC has provided additional guidance (NRC letter dated October 4,
1989 (G-89338)) to allow licensees of prematurely shutdown plants to collect decommissioning funds until tM expiration of the originsi operating license, so as to limit the financial hardship on the licensee and current ratepayers, yet provide the NRC and the public reasonable assurance that all necessary l_
funds will be accumulated within a limited (but reasonable) period of time and thus provide the financial assurances originally intended by the NRC.
Additionally, current regulations provide suitable and sufficient controls and accountability beyond specifying the required content of decommissioning funding plans.
Since the NRC must approve the Proposed Decommissioning Plan (which I.
includes the Funding Plan) prior to allowing any licensee to l ~
place the plant in a SAFSTOR configuration, the.NRC is assured that the financial assurance will be provided before the plan is implemented.
Subsequent to this approval for plants selecting SAFSTOR,10 CFR 50.82(c)(2) r equires the licensee to adjust the cost estimate and associated funding levels over the storage and surveillance period.
Therefore, the NRC retains l
the authority to periodically evaluate these plans and confirm the continued adequacy of the original financial assurances.
L 1
, to P-91096 April 5; 1991=
Page 4 o
The combination of regulatory guidance for financial-assurance, l
NRC approv:1 of funding prior to implementing SAFSTOR, and continued l periodic monitoring of funding plans by both the-licensee and _ the. NRC will provide the necessary reasonable
. assurance originally. intended _ by the
- rule, without the necessity for additional restrictions in the form of corporate
+
bond ratings.
E 2.
Bond Rattu.as Were Not Considered in Oriainal Rulemakina 1
Evaluation of licensees on the basis of their bond rating goes E
beyond the underlying original intent of the rule, which is to ensure that; sufficient funds are available to decommission the reactor in a-manner that protects the public health and safety; Acceptable mechanisms were established in the decommissioning
-q rule that would provide funding prior. to-the permanent cessation 'of power operations.
Reviewirg the rule and supplemental information, there is no-requirement or perceived need, to. evaluate the credit worthiness of the licensee before determining the period for.-accumulation of funds.
Decommissioning funding plans based on the SAFSTOR alternative that" provide full funding of decommissioning by the expiration of t_he. original operating license' period will provide reasonable assurance of the timely' availability 'of. funds for 7
decommissioningi Such a ' plan meets the underlying intent of -
L, the decommissioning rule.
i 3.
Aeolication of: This Restriction to Utilities Is Not
-Consistent With Treatment of Other Guarantor Institutions-A decisinn' _ on the ' part of the NRC to -impose special funding;
' restrictions on utilities based on ~ bond ratings is also not_
consistent with treatment for guarantors issuing other acceptable means of financial assurance, specifically surety
~ bonds, insurance, letters _of credit,.or lines of credit. ~ Reg.
4 Guide 1.159 imposes the-following limited requirements for_
a H
guarantor methods:
(1) ' surety bond companies must be-listed by the US Department a
of the Treasury in Circular 570 'and have a= coverage limit sufficient to' cover the cost estimate.
(2) issuing institutions for letters of credit are regulated and examined by a Federal or State agency.
(3) insurance companies must-be licensed by-State regulatory
)
-authorities' to transact business as an insurer in one or i
l>
more states.
L Fince no similar provis'ons have been identified to verify the L
credit-worthiness of any financial, lending or insurance L
institution that might -issue these financial guarantees,.i t appears arbitrary to impose such restrictions. only on i
Attachment I to P-91096 April 5, 1991 Page 5 utilities, especially in view of the ample evidence of instability in both the financial and insurance industries.
I Attempts on the part of the NRC to impose such restrictions on l
lending or insurance institutions could result in either higher costs associated with these guarantees (as well as increases in the cost of decommissioning), or result in loss of this potential source, since guarantors may elect. not to provide assurances due to the uncertain and fluctuating regulatory environment.
4.
Reduced SAFSTOR Accumuintion Period May Effectively limit Decommissionina Alternatives Requiring utilities to fund within five years as a result of l
i
- low bond ratings (or within 3 months if bond ratings fall below l
investment grade) will effectively eliminate SAFSTOR as a l
financially attractive decommissioning alternative.
If SAFSTOR is eliminated as a financially attractive alternative, the NET EFFECT of the NRC position will be that the DECON alternative will be the only financially attractive decommissioning alternative for prematurely shutdown plants.
This does not provide the " alternatives" orininally intended, nor is it consistent with the intent of the decommissioning rule.
5.
Unsound Business Decisions to Avoid Accelerated Fund accumulation l
Potentially adverse effects of this restriction may occur with utilities that are operating economically inefficient nuclear facilities, due to the high cost of power resulting from such factors as age of the plant, high maintenance costs, costs of improvements, or high annual operating costs.
A situation may occur where a
utility has not completely
' recovered l
decommissioning costs, but would be faced with accumulating decommissioning funds within five years or less if the plant is prematurely shutdown.
Faced with this possibility, the utility may be influenced to make an unsound business decision to L
continue to operate the pl an t.
Such a
decision is irresponsible to both the PVC and the utilities' ratepayers, and would not have been made in the absence of a limited period i
l of funds accumulation for SAFSTOR.
l In this instance, a utility may make an imprudent busi ess
-decision to avoid the short-term effects of the NRC's proposed restriction, while avoiding long-term (and potentially l
beneficial)- investment opportunities.
The NRC potentially could insert itself as a major factor affecting business decisions within electric utilities which may result in unsound i
l business decisions that are not in the best interests of the utility, its ratepayers, and its shareholders.
l l
. to P-91096 April 5, 1991 Page 6 6.
Generic vs. Case-by-Case Evaluation In response to SECY-90 386, "NRC Polh on the Accumulation Period for Decommissioning Funds for Prenaturely Shut Down Reactors", the NRC Commissioners directed the NRC staff to evaluate each plant on case-by-case basis.
- However, in establishing the NRC staff restriction related to complete funding in five years or less if a licensee does not have an
'A' bond rating, the staff has established an arbitrary and artificial threshold that may not be consistent with the intent c mmissioner's directive.
The NRC proposed restriction of the o
will allow the staff to evaluate all plants with an ' A' rating or higher on a case-by case basis, whereas all other plants below this rating will be required to accumulate funds over a fixed, non negotiable period, 7.
Allowances for Chances in Bond Ratinas Not Clearly Defined Based on the limited information available, it appears that the NRC's proposed approach is very inflexible to improvements in bond ratings.
The licensee must continue to maintain good credit worthiness, since the occurrence of any adverse event may jeopardize the bond rating and will require tha licensee to rapidly provide (within three months) financial s' arances for decommissioning funding, which in turn may case further deterioration in bond ratings and a corresponding increase in the cost of capital.
On the other hand, for a licensae required to fund decommissioning within five years (due to bond ratings below ' single A') who may improve its bond rating to
' A' or higher, there is no method identified in the proposed NRC staff restriction that would allow relief from the five year funding commitment.
Additionally, the financial " damage" would have already been done upon the NRC imposed the five year requirement.
8.
Differences in External Ratina Services Not Addressed It is also important to note that there are at least five different major investment rating services, including Standard
& Poor's, Moody's, Duff & Phelps, and Fitch Investor Services.
It is unclear from the information provided what ef fect, if any, may occur from investment rating services with different ratings for the same utility.
Table 1 identifies one such instance where this has occurred to PSC in late 1986, following the Fort St. Vrain Settlement Agreement.
9.
Proposed Use of the Bond Ratinas May Be Inappropriata Investment rating agencies provide the bond rating service at the request of the utility as an indicator for major investment institutions.
Potential borrowers (in this case utilities) request that their prospective debt issues be rated by the
+
(
Attachment I to F-91096-April 5,--1991 Page 7 1
investment rating service.
One component of the evaluation is the : ability _ of the bond issucr - to make bond principal and-interest payments over the life of the bond, typically 30 years.
-Use of-this rating service as a basis for determining eriods of: accumulation of decommissioning funds.was clear y not considered by investment rating services..The proposed use of bond ' ratings to determine fund-accumulation periods is analogous to State. PUCs using NRC SALP ratings to reward or 4
penalizo neclear power-utilities.
The NRC's objection to this practice is well documented.
- 10. -Treatment May Be Inconsistent With That of Ooeratina i
Nuclear Plants In preliminary discussions.with the NRC, the staff has indicated that they do not feel that this treatment is necessary-for operating plants, since operating plants will
. continue to enjoy a steady revenue stream from ratepayers, i
- However,1this may be a rather generic treatment of operating
- plants, since -there may be utilities / plants in. financial distress that could:go into default'and oankruptcy as easily as any utility with a' prematurely shutdown nuclear plant.
- 11. Determination of Bond Ratinas Includes Sub.iective Evaluation with limited leaal Standina-Bond ratings are prepared by outside investment rating services at the request of-the; utility.
In preparing their rating, the-rating service relies primarily upontinformation -prepared and submitted by~ :.he-: utility, and upon the -findings of the-independent 3 auditor's report. ' Unlike the annual audit, the a
rating - agency. usually does not have open and~.nencumbered access to all of the corporation's records
' Addi.onally, this-service. is.unlike -other outside evaluations (e.g.,-
annual auditor's report-or LNRC'. regulatory criteria) =in: that it.does not represent a legally binding or enforceable agreement M
'between the utility and the rating service.
In preparing its. rating, frequently there are areas of -the rating criteria-that -may not be. quantifiable.
Evaluations
' performed by the investment service in -these areas are largely subjective,'
based on their BEST -ESTIMATE of the present situation, PROPOSED plans of the
- utility, and market
_ conditions.
In' this instance, the utility may be penalized with a lower bond -rating,
'1though the utility may have excellent financial-history c ; may be in excellent financial health.
Attachment I to P-91096 April 5, 1991 Page 8 Additionally, during the preparation of financial information and records for submittal to the investment rating service, insufficient information may be made available (or inadvertently omitted),
since the utility is unaware of specific areas of concern on the part of the rating service.
This lack of information may result in a lower bond rating until the utility is able to provide the investment rating service more detailed information in the area (s) of concern.
The bond rating could be restored to its previous level (or higher) in a short period of time af ter the utility resolved 4
4 the rating service uncertainties.
However, as a result of the NRC proposed restriction, the utility would be required to provide accelerated funds accumulation or financial assurances within three months.
Furthermore, since rating agencies do not have the resources necessary for the continuous analysis of rated issues, their periodic reviews, bond ratings, and revisions must almost necessarily lag behind the utility's actual financial situation.
12.
Definition of Investment Grade The NRC selection of single 'A' as the lowest investment grade is inconsistent with major investment rating services.
Standard and Poor identifies 'BBB' as the lowest investment bond rating, while Moody's recognizes 'Baa' as its lowest investment grade.
Selection of ' A' as the lowest investment grade is also inconsistent with criteria for parent companies, identified in Appendix B.6.5 of Reg.
Guide 1.159, which identifies a minimum rating of 'BBB' by Standard and Poor's, or
'Baa' by Moody's.
- to P-91096 April 5, ?991 Page 9 TABLE 1 PSC CURRENT AND HISTORICAL BOND RATINGS FOR PSC FIRST HORTGAGE BONDS BONQ RATING AGENCY:
MOODY'S STANDARD & POOR'S DUFF & PHELPS t
From To Date Chanced Feca To Date Chanotsj From To Dete Chanced AA A
2/01/80 AA-A 2/06/80 A+
AA-2/85 A
A2 4/26/82 A
A+
4/28/83 AA A+
5/86 A2 At 4/07/83 A+
BSB+
11/20/86 A+
A-12/86
.I AA3 3/04/85 A-BBB+
7/90 A. 3 A1 7/30/86 A1 A2 11/18/86 A2 A3 6/21/90 A3 BAA) 2/06/91
~