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. 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. 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. 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 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. 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. 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). 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. 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. As a result, NRC cannot confirm that licensees are avoiding  conditions described in the standards, such as investing in other  licensees. Without  awareness of the nature of licensees’ investments, NRC cannot  determine whether it needs to take action to enforce the standards. 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. 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.
Why GAO Did This Study

About 20 percent of U.S. electricity is generated by 104 nuclear reactors. NRC, which regulates reactors, requires their owners (licensees) to reduce radioactive contamination after reactors permanently shut down. This process, called decommissioning, costs hundreds of millions of dollars per reactor. NRC requires licensees to provide reasonable assurance that they will have adequate funds to decommission, in part, by accumulating funds that are greater than or equal to NRCs decommissioning funding formula. GAO and NRCs OIG have identified concerns about NRCs oversight of decommissioning funds. GAO was asked by Representative Markey in his former capacity as Chairman of the House Subcommittee on Energy and Environment to (1) describe how NRC ensures that licensees provide reasonable assurance of adequate decommissioning funds and (2) identify any improvements or weaknesses in NRCs oversight of this area. GAO analyzed NRCs formula and reviews of licensee information and interviewed NRC officials, licensees, and others.

What GAO Found

The Nuclear Regulatory Commission (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. For example, licensees must submit estimates to NRC of decommissioning costs throughout the life of the reactor and submit fund status reports at least every 2 years while the reactor is operating. Licensees typically accumulate such funds over time through trust fund investments. The minimum amount of funds considered adequate is established by NRCs decommissioning funding formula, which is based on information collected more than 30 years ago.
NRC has taken actions to strengthen its oversight of licensees decommissioning funds by (1) creating guidance and other documents related to criteria for reviewing licensees 2-year reports and by using its enforcement process when deficiencies are identified, (2) conducting reviews at licensee offices to verify that fund balances licensees reported in their 2-year reports match their year-end bank statements in response to a 2006 NRC Office of the Inspector General (OIG) recommendation, (3) reevaluating the decommissioning funding formula to determine if it should be updated, and (4) improving decommissioning planning. However, several weaknesses may limit NRCs ability to ensure that licensees have provided reasonable assurance. Specifically:
NRCs formula may not reliably estimate adequate decommissioning costs. According to NRC, the formula was intended to estimate the bulk of the decommissioning funds needed, but the term bulk is undefined, making it unclear how NRC can determine if the formula is performing as intended. In addition, GAO compared NRCs formula estimates for 12 reactors with these reactors more detailed site-specific cost estimates calculated for the same period. GAO found that for 5 of the 12 reactors, the NRC formula captured 57 to 76 percent of the costs reflected in each reactors site-specific estimate; the other 7 captured 84 to 103 percent.
The results of more than one-third of the fund balance reviews that NRC staff performed from April 2008 to October 2010 to verify that the amounts in the 2-year reports match year-end bank statements were not always clearly or consistently documented. As an example of inconsistent results, some reviewers provided general information, such as no problem, while others provided more detail about both the balance in the year-end bank statement and the 2-year report. As of October 2011, NRC did not have written procedures describing the steps that staff should take for conducting these reviews, which likely contributed to NRC staff not always documenting the results of the reviews clearly or consistently.
NRC has not reviewed licensees compliance with the investment standards the agency has set for decommissioning trust funds. These standards specify, among other things, that fund 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. As a result, NRC cannot confirm that licensees are avoiding conditions described in the standards that may impair fund growth. Without awareness of the nature of licensees investments, NRC cannot determine whether it needs to take action to enforce the standards.

What GAO Recommends

GAO recommends, among other things, that NRC define what it means by the bulk of the funds needed for decommissioning and consider reviewing a sample of licensees investments to determine if they comply with standards. NRC agreed to consider reviewing a sample of investments, but disagreed that defining bulk is needed because of the comprehensiveness of NRCs regulatory system. GAO continues to believe that this definition is needed.