oversight

Nuclear Regulation: NRC Needs More Effective Analysis to Ensure Accumulation of Funds to Decommission Nuclear Power Plants

Published by the Government Accountability Office on 2003-10-30.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

               United States General Accounting Office

GAO            Report to the Honorable Edward J.
               Markey, House of Representatives



October 2003
               NUCLEAR
               REGULATION
               NRC Needs More
               Effective Analysis to
               Ensure Accumulation
               of Funds to
               Decommission
               Nuclear Power Plants




GAO-04-32
               a
                                                October 2003


                                                NUCLEAR REGULATION

                                                NRC Needs More Effective Analysis to
Highlights of GAO-04-32, a report to the        Ensure Accumulation of Funds to
Honorable Edward J. Markey, House of
Representatives                                 Decommission Nuclear Power Plants



Following the shutdown of a                     Although the collective status of the owners’ decommissioning fund
nuclear power plant a significant               accounts has improved considerably since GAO’s last report, some
radioactive waste hazard remains                individual owners are not on track to accumulate sufficient funds for
until the waste is removed and the              decommissioning. Based on our analysis and most likely economic
plant site decommissioned. In 1999,             assumptions, the combined value of the nuclear power plant owners’
GAO reported that the combined
                                                decommissioning fund accounts in 2000—about $26.9 billion—was about 47
value of the owners’
decommissioning funds was                       percent greater than needed at that point to ensure that sufficient funds will
insufficient to ensure enough funds             be available to cover the approximately $33 billion in estimated
would be available for                          decommissioning costs when the plants are permanently shutdown. This
decommissioning. GAO was asked                  value contrasts with GAO’s prior finding that 1997 account balances were
to update its 1999 report and to                collectively 3 percent below what was needed. However, overall industry
evaluate the Nuclear Regulatory                 results can be misleading. Because funds are generally not transferable from
Commission’s (NRC) analysis of                  funds that have more than sufficient reserves to those with insufficient
the owners’ funds and its process               reserves, each individual owner must ensure that enough funds are available
for acting on reports that show                 for decommissioning its particular plants. We found that 33 owners with
insufficient funds.                             ownership interests in a total of 42 plants had accumulated fewer funds than
                                                needed through 2000 to be on track to pay for eventual decommissioning. In
                                                addition, 20 owners with ownership interests in a total of 31 plants recently
NRC should (1) develop an                       contributed less to their trust funds than we estimate they needed to put
effective method for determining                them on track to meet their decommissioning obligations.
whether owners are accumulating
decommissioning funds at                        NRC’s analysis of the owners’ 2001 biennial reports was not effective in
sufficient rates and (2) establish              identifying owners that might not be accumulating sufficient funds to cover
criteria for taking action when it is           their eventual decommissioning costs. In reviewing the 2001 reports, NRC
determined that an owner is not                 reported that all owners appeared to be on track to have sufficient funds for
accumulating sufficient funds.                  decommissioning. In reaching this conclusion, NRC relied on the owners’
NRC disagreed with these                        future plans for fully funding their decommissioning obligations. However,
recommendations suggesting that                 based on the owners’ recent actual contributions, and using a different
its method is effective and that it is          method, GAO found that several owners could be at risk of not meeting their
better to deal with unacceptable                financial obligations for decommissioning when these plants stop operating.
levels of financial assurance on a
                                                In addition, for plants with more than one owner, NRC did not separately
case-by–case basis. GAO continues
to believe that limitations in NRC’s
                                                assess the status of each co-owner’s trust funds against each co-owner’s
method reduce its effectiveness                 contractual obligation to fund decommissioning. Instead, NRC assessed
and without criteria, NRC might                 whether the combined value of the trust funds for the plant as a whole was
not be able to ensure owners are                reasonable. Such an assessment for determining whether owners are
accumulating decommissioning                    accumulating sufficient funds can produce misleading results because
funds at sufficient rates.                      owners with more than sufficient funds can appear to balance out owners
                                                with less than sufficient funds even, though funds are generally not
                                                transferable among owners. Moreover, NRC has not established criteria for
                                                taking action if it determines that an owner is not accumulating sufficient
                                                funds.
www.gao.gov/cgi-bin/getrpt?GAO-04-32.

To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Jim Wells, at
(202) 512-6877 or WellsJ@gao.gov.
Contents



Letter                                                                                                   1
                             Results in Brief                                                            2
                             Background                                                                  4
                             Despite Industry-wide Improvement, Some Owners of Nuclear
                               Power Plants Are Not Accumulating Sufficient Decommissioning
                               Funds                                                                     6
                             NRC’s Analysis Did Not Effectively Determine Whether Each Owner
                               Was Accumulating Sufficient Decommissioning Funds                        11
                             Conclusions                                                                15
                             Recommendations for Executive Action                                       16
                             Agency Comments and Our Evaluation                                         16


Appendixes
              Appendix I:    Scope and Methodology of Our Analysis of the
                             Decommissioning Trust Funds                                                19
             Appendix II:    Detailed Results of Our Analysis of the Decommissioning
                             Trust Funds                                                                28
             Appendix III:   Comments from the Nuclear Regulatory Commission                            42
                             GAO Comments                                                               47
             Appendix IV:    GAO Contact and Staff Acknowledgments                                      52
                             GAO Contact                                                                52
                             Acknowledgments                                                            52


Tables                       Table 1: Status of Individual Owners’ Trust Fund Balances through
                                      2000, Compared with Benchmark Trust Fund Balances,
                                      under Most Likely Assumptions                                      9
                             Table 2: Status of Individual Owners’ Recent Trust Fund
                                      Contributions, Compared with Benchmark Trust Fund
                                      Contributions, under Most Likely Assumptions                      10
                             Table 3: Status of Combined Trust Funds Compared with
                                      Benchmarks for Balances and Contributions (by
                                      Percentage above or below Benchmarks)                             28
                             Table 4: Owners with More, or Less, Than Benchmark Trust Fund
                                      Balances and Contributions, under Most Likely
                                      Assumptions (by Percentage above or below
                                      Benchmarks)                                                       29




                             Page i                          GAO-04-32 Decommissioning Nuclear Power Plants
Contents




Table 5: Selected Owners with More, or Less, Than Benchmark
         Trust Fund Balances and Contributions, under Optimistic
         Assumptions (by Percentage above or below
         Benchmarks)                                                                   37
Table 6: Selected Owners with More, or Less, Than Benchmark
         Trust Fund Balances and Contributions, under Pessimistic
         Assumptions (by Percentage above or below
         Benchmarks)                                                                   39




Abbreviations

FERC         Federal Energy Regulatory Commission
GDP          Gross Domestic Product
NRC          Nuclear Regulatory Commission
SAFSTOR      Safe Storage

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Page ii                                 GAO-04-32 Decommissioning Nuclear Power Plants
A
United States General Accounting Office
Washington, D.C. 20548



                                    October 30, 2003                                                                           Leter




                                    The Honorable Edward J. Markey
                                    House of Representatives

                                    Dear Mr. Markey:

                                    Following the retirement of a nuclear power plant and removal of the
                                    plant’s spent or used fuel, a significant radioactive waste hazard remains
                                    until the waste is removed and disposed of, and the plant site
                                    decommissioned.1 Decommissioning of existing plants is expected to cost
                                    nuclear power plant owners about $33 billion dollars.2 The Nuclear
                                    Regulatory Commission (NRC), which licenses nuclear power plants,
                                    requires plant owners to submit biennial reports on decommissioning
                                    funding that, among other things, provide financial assurance that enough
                                    funding will be available when the power plants are retired.

                                    In 1999, we reported that the combined value of the owners’
                                    decommissioning trust fund accounts (as of the end of 1997) was 3 percent
                                    less than needed to ensure that enough funds would be available when the
                                    plants are retired.3 In addition, we found that NRC had not established
                                    criteria for responding to unacceptable levels of financial assurance. In
                                    December 2001, we reported that transfers of plant licenses among
                                    companies stemming from economic deregulation and the restructuring of
                                    the electricity industry had, in many cases, increased assurances that new
                                    plant owners would have sufficient decommissioning funds when their
                                    plants are retired.4 Nevertheless, in some instances, NRC’s evaluation of the
                                    adequacy of funding arrangements was not rigorous enough to ensure that
                                    decommissioning funds would be adequate.



                                    1
                                     Retirement means the permanent cessation of a plant’s operation.
                                    2
                                     Costs in 2000 present value dollars and are for decommissioning the plant site only and
                                    exclude costs for cleaning up nonradiological hazards and storing spent fuel.
                                    3
                                     U.S. General Accounting Office, Nuclear Regulation: Better Oversight Needed to Ensure
                                    Accumulation of Funds to Decommission Nuclear Power Plants, GAO/RCED-99-75
                                    (Washington, D.C.: May 3, 1999).
                                    4
                                     U.S. General Accounting Office, Nuclear Regulation: NRC’s Assurances of
                                    Decommissioning Funding during Utility Restructuring Could Be Improved, GAO-02-48
                                    (Washington, D.C.: Dec. 3, 2001).




                                    Page 1                                   GAO-04-32 Decommissioning Nuclear Power Plants
                   In this context, you asked us to update our earlier findings on the adequacy
                   of owners’ decommissioning funds. Specifically, this report (1) assesses the
                   extent to which nuclear plant owners are accumulating funds at sufficient
                   rates to pay decommissioning costs when their plants’ licenses expire and
                   (2) evaluates NRC’s analysis of the owners’ 2001 biennial reports and its
                   process for acting on reports that show unacceptable levels of financial
                   assurance.

                   As part of our review, we collected data from the 2001 biennial reports on
                   estimated decommissioning costs and actual decommissioning trust fund
                   balances, generally as of December 31, 2000, for 122 nuclear power plants
                   licensed by NRC. In addition, we surveyed the owners of the plants to
                   determine how the trust fund balances were invested in 2000 and to
                   identify the annual amounts that the owners had contributed to the trust
                   funds in recent years. Eighty-two percent of the owners responded to our
                   survey.5 Using an approach similar to that used for our 1999 report,6 we
                   analyzed both the combined efforts of all owners to accumulate funds to
                   decommission all of the nuclear plants and each individual owner’s efforts
                   to accumulate funds for decommissioning each of its plants. For our
                   analysis, we estimated the most likely future values of key assumptions,
                   such as decommissioning costs, earnings on the decommissioning funds’
                   assets, and the operating life of each plant. To address the inherent
                   uncertainty associated with forecasting outcomes many years into the
                   future, we also analyzed the effect of using pessimistic and optimistic
                   values for these key assumptions. To evaluate NRC’s analysis of the
                   biennial reports and its process for acting on reports that have not satisfied
                   decommissioning funding assurance requirements, we reviewed NRC’s
                   guidelines and policies for analyzing these reports and interviewed NRC’s
                   officials about how they conducted their analysis. Appendix I provides
                   more detail on the scope and methodology of our review.



Results in Brief   Although the collective status of the owners’ decommissioning fund
                   accounts has improved since our last report, some individual owners are
                   not on track to accumulate sufficient funds for decommissioning. Using


                   5
                    We administered the survey to 110 owners. Since then, the ownership of some plants has
                   changed and as a result, the total number of owners has declined. Our analysis assesses 222
                   trust funds held by 99 owners.
                   6
                   GAO/RCED-99-75.




                   Page 2                                   GAO-04-32 Decommissioning Nuclear Power Plants
our most likely economic assumptions, the combined value of the nuclear
plant owners’ trust funds in 2000—about $26.9 billion—was about 47
percent greater than needed at that point to ensure that sufficient funds
will be available to cover the approximately $33 billion in estimated
decommissioning costs when the plants are retired. This value contrasts
with account balances that collectively were 3 percent below what was
needed by the end of 1997. Overall industry results can be misleading,
however. Because NRC does not allow owners to transfer funds from a
trust fund with sufficient reserves to one without sufficient reserves, each
individual owner must ensure that enough funds are available for
decommissioning its particular plants. We found that 33 owners of all or
parts of 42 different plants had accumulated less funds than we estimated
they needed to have through 2000 to be on track to pay for eventual
decommissioning. Under our most likely assumptions, these owners will
have to increase the rates at which they accumulate funds to meet their
future decommissioning obligations. Of the 33 owners, 26 provided
contributions information for our survey. Of these 26 owners, only 8
appeared to be making up their shortfalls with recent increases in
contributions to their trust funds.

NRC’s analysis of the owners’ 2001 biennial reports was not effective in
identifying owners that might not be accumulating sufficient funds to cover
their eventual decommissioning costs. In reviewing the 2001 reports, NRC
reported that all owners appeared to be on track to have sufficient funds
for decommissioning. In reaching this conclusion, NRC relied on the
owners’ future plans for fully funding their decommissioning obligations.
However, based on the actual contributions the owners recently made to
their trust funds, we found that several owners could risk not meeting their
financial obligations for decommissioning when these plants are retired. In
addition, for the plants with more than one owner, NRC did not separately
assess the status of each co-owner’s trust funds against the co-owner’s
contractual obligation to fund decommissioning. Instead, NRC assessed
whether the combined value of the trust funds for each plant as a whole
was reasonable. Such an assessment for determining whether owners are
accumulating sufficient funds can produce misleading results because
owners with more than sufficient funds can appear to balance out owners
with less than sufficient funds, even though funds are generally not
transferable among owners. Furthermore, NRC has not established criteria
for responding to any unacceptable levels of financial assurance.
Accordingly, we are recommending that NRC develop and use an effective
method for determining whether owners are accumulating funds at




Page 3                            GAO-04-32 Decommissioning Nuclear Power Plants
             sufficient rates and establish criteria for responding to unacceptable levels
             of financial assurance.



Background   NRC’s primary mission is to protect the public health and safety, and the
             environment, from the effects of radiation from nuclear plants, materials,
             and waste facilities. Because decommissioning a nuclear power plant is a
             safety issue, NRC has authority to ensure that owners are financially
             qualified to decommission these plants.

             Of the 125 nuclear power plants that have been licensed to operate in the
             United States since 1959, 3 have been completely decommissioned. Of the
             remaining 122 plants, 104 currently have operating licenses (although 1 has
             not operated since 1985), 11 plants are in safe storage (SAFSTOR) awaiting
             active decommissioning,7 and 7 plants are being decommissioned. At the
             time of our analysis, 43 plants were co-owned by different owners.

             NRC regulations limit commercial nuclear power plant licenses to an initial
             40 years of operation but also permit such licenses to be renewed for
             additional 20 years if NRC determines that the plant can be operated safely
             over the extended period. NRC has approved license renewals for 16 plants
             (as of August 20, 2003).

             In 1988, NRC began requiring owners to (1) certify that sufficient financial
             resources would be available when needed to decommission their nuclear
             power plants and (2) require them to make specific financial provisions for
             decommissioning.8 In 1998, NRC revised its rules to require plant owners to
             report to the NRC by March 31, 1999, and at least once every 2 years
             thereafter on the status of decommissioning funding for each plant or
             proportional share of a plant they own.9 Under NRC requirements, the



             7
              SAFSTOR involves placing the stabilized and defueled facility in storage for a time followed
             by final decontamination and dismantlement, and license termination.
             8
              NRC licenses include all co-owners as co-licensees; in general, one owner is authorized to
             operate the facility while the others are authorized only to have an ownership interest. Co-
             owners generally divide costs and output from their power plants by using a contractually
             defined pro rata share standard.
             9
              U.S. Nuclear Regulatory Commission, Financial Assurance Requirements (Sept. 22, 1998),
             63 Fed. Reg. 50465.




             Page 4                                    GAO-04-32 Decommissioning Nuclear Power Plants
owners can choose from one or more methods, including the following, to
provide decommissioning financial assurance:

• prepayment of cash or liquid assets into an account segregated from the
  owner’s assets and outside the owner’s administrative control;

• establishment of an external sinking fund maintained through periodic
  deposit of funds into an account segregated from the owner’s assets and
  outside the owner’s administrative control;

• use of a surety method (i.e., surety bond, letter of credit, or line of credit
  payable to a decommissioning trust account), insurance, or other
  method that guarantees that decommissioning costs will be paid; and

• for federal licensees, a statement of intent that decommissioning funds
  will be supplied when necessary.

In September 1998, NRC amended its regulations to restrict the use of the
external sinking fund method in deregulated electricity markets. Prior to
this time, essentially all nuclear plant owners chose this method for
accumulating decommissioning funds. However, under the amended
regulations, owners may rely on periodic deposits only to the extent that
those deposits are guaranteed through regulated rates charged to
consumers.

In conjunction with its amended regulations, NRC issued internal guidance,
describing the process for reviewing the adequacy of a prospective owner’s
financial qualifications to safely operate and maintain its plant(s) and the
owner’s proposed method(s) for ensuring the availability of funds to
eventually decommission the plant(s).10 The guidance outlines a method
for evaluating the owner’s financial plans for fully funding
decommissioning costs. In addition, the guidance states that, except under
certain conditions, the NRC reviewer should, when plants have multiple
owners, separately evaluate each co-owner’s funding schedule for meeting
its share of the plant’s decommissioning costs.11


10
 U.S. Nuclear Regulatory Commission, Standard Review Plan on Power Reactor Licensee
Financial Qualifications and Decommissioning Funding Assurance, NUREG 1577, Rev.
1, March 1999.
11
   Under NRC’s guidance, co-owners trust funds can be collectively evaluated when the lead
licensee agrees to coordinate funding documentation and reporting for all the co-owners.




Page 5                                  GAO-04-32 Decommissioning Nuclear Power Plants
Despite Industry-wide       Using our most likely economic assumptions, the combined value of the
                            nuclear power plant owners’ decommissioning trust funds was about 47
Improvement, Some           percent higher at the end of 2000 than necessary to ensure accumulation of
Owners of Nuclear           sufficient funds by the time the plants’ licenses expire. This situation
                            contrasts favorably with the findings in our 1999 report, which indicated
Power Plants Are Not        that the industry was about 3 percent below where it needed to be at the
Accumulating                end of 1997 to ensure that enough funds would be available. However,
Sufficient                  because owners are not allowed to transfer funds from a trust fund with
                            sufficient reserves to one without sufficient reserves, overall industry
Decommissioning             sufficiency can be misleading. When we individually analyzed the owners’
Funds                       trust funds, we found that 33 owners for several different plants had not
                            accumulated funds at a rate that would be sufficient for eventual
                            decommissioning.



Collectively the Nuclear    Through 2000, the owners of 122 operating and retired nuclear power
Power Industry Is on Pace   plants collectively had accumulated about 47 percent more funds than
                            would have been sufficient for eventually decommissioning, using our most
to Accumulate More Than
                            likely economic assumptions. Specifically, the owners had accumulated
Sufficient Funds for        about $26.9 billion—about $8.6 billion more than we estimate they needed
Decommissioning             at that point to ensure sufficient funds. This situation contrasts with the
                            findings in our 1999 report, which indicated that the industry had
                            accumulated about 3 percent less than the amount we estimated it should
                            have accumulated by the end of 1997.

                            Using alternative economic assumptions changes these results. For
                            example, under higher decommissioning costs and other more pessimistic
                            assumptions, the analysis shows that the combined value of the owners’
                            accounts would be only about 0.2 percent above the amount we estimate
                            the industry should have collected by the end of 2000. (See app. II for our
                            results using more optimistic assumptions.)




                            Page 6                            GAO-04-32 Decommissioning Nuclear Power Plants
                            The collective improvement in the status of the owners’ trust funds (under
                            most likely assumptions) since our last report is due to three main factors.
                            First, all or parts of the estimated decommissioning costs were prepaid for
                            15 plants when they were sold to new owners. For example, the seller
                            prepaid $396 million when the Pilgrim 1 nuclear plant was sold in 1998 for
                            the plant’s scheduled decommissioning in 2012. Second, for 16 other
                            plants, NRC approved 20-year license renewals, which will provide
                            additional time for the owners to make contributions and for the earnings
                            to accumulate on the decommissioning fund balances. Third, owners
                            earned a higher rate of return on their trust fund accounts than we
                            projected in our 1999 report. For example, the average return on the trust
                            funds of owners who responded to our survey was about 8.5 percent12
                            (after-tax nominal return) per year, from 1998 through 2000, instead of the
                            approximately 6.25 percent per year we had assumed. The higher return
                            was a result of the stronger than expected performance of financial
                            markets in the late 1990s.13 Since that time, however, the economy has
                            slowed and financial markets—equities in particular—have generally
                            performed poorly.



Several Owners Are Not      In contrast to the encouraging industry-wide results, when we analyzed the
Accumulating Sufficient     owners’ trust fund accounts individually, we found that several owners
                            were not accumulating funds at rates that would be sufficient to pay for
Funds for Decommissioning   decommissioning if continued until their plants are retired. Each owner has
Their Plants                a trust fund for each plant that it owns in whole or in part. For example, the
                            Exelon Generation Company owns all or part of 20 different plants. For this
                            analysis, we assessed the status of 222 trust funds for 122 plants owned in
                            whole or part by 99 owners. As shown in table 1, using our most likely
                            assumptions, 33 owners of all or parts of 42 different plants (50 trust funds)
                            had accumulated less funds than needed through 2000 to be on track to pay
                            for eventual decommissioning (see app. II for details).14 Thirteen of these


                            12
                             Based on 72 owners who provided after-tax rates of return for 1998, 1999, and 2000. These
                            owners’ trust funds accounted for about 71 percent of the total trust funds in 2000.
                            13
                             For 2000 (the only year for which we have data on fund allocations), on average, owners
                            allocated their funds rather evenly between equities and fixed income assets (see app. I for
                            details). Investment plans such as pension funds that invested more heavily in equities may
                            have earned a greater overall return during this period.
                            14
                             Some owners whom we estimate are below the benchmark have a parent company
                            guarantee or other method to support financial assurance obligations. However, we did not
                            evaluate the adequacy of these provisions. See app. II, table 4.




                            Page 7                                   GAO-04-32 Decommissioning Nuclear Power Plants
plants were shut down before sufficient funds had been accumulated for
decommissioning. Although the remaining 78 owners of all or parts of 93
plants (172 trust funds) had accumulated more funds than we estimate they
needed to have at the end of 2000, funds are generally not transferable from
owners who have more than sufficient reserves to other owners who have
insufficient reserves. Under our most likely assumptions, the owners whom
we estimate to be behind will have to increase the rates at which they
accumulate funds to meet their eventual decommissioning financial
obligations.

For our analysis, we compared the trust fund balance that individual
owners had accumulated for each plant by the end of 2000 with a
“benchmark” amount of funds that we estimate they should have
accumulated by that date. In setting the benchmark, we assumed that the
owners would contribute increasing (but constant present-value) amounts
annually to cover eventual decommissioning costs.15 For example, at the
end of 2000, an owner’s decommissioning fund for a plant that had
operated one-half of a 40-year license period (begun in 1980) should
contain one-half of the present value of the estimated cost to
decommission the owner’s share of that plant in 2020. Although this
benchmark is not the only way an owner could accrue enough funds to pay
future decommissioning costs, it provides both a common standard for
comparisons among owners and, from an equity perspective among
ratepayers in different years, a financially reasonable growing current-
dollar funding stream over time. Appendix I describes our methodology in
more detail.




15
 Our analysis simulates that the owners will increase their yearly future funding at the
assumed after-tax rate of return on the investments of the funds, and that once in the fund,
these yearly contributions will grow at this same rate. See appendix I for a discussion of our
methodology.




Page 8                                    GAO-04-32 Decommissioning Nuclear Power Plants
Table 1: Status of Individual Owners’ Trust Fund Balances through 2000, Compared
with Benchmark Trust Fund Balances, under Most Likely Assumptionsa

                                                              Plants currently      Plants shut
Status                    Trust funds             Owners            operating             down
Above benchmark
balance                            172                  78                   88                   5
Below benchmark
balance                              50                 33                   29                   13
                                                          b                    b                   b
Total                              222
Source: GAO analysis.
a
 Most likely assumptions include 20-year license renewals that have been approved by NRC for 16
plants as of August 20, 2003.
b
Not applicable.


The status of each owner’s fund balance at the end of 2000 is not, by itself,
the only indicator of whether an owner will have enough funds for
decommissioning. Whether the owner will accumulate the necessary funds
also depends on the rate at which the owner contributes funds over the
remaining operating life of the plant; by increasing their contribution rates,
owners whose trust fund balances were below the benchmark level could
still accumulate the needed funds. Consequently, for the owners who
provided contributions information to us, we also analyzed whether their
recent contribution rates would put them on track to meet their
decommissioning obligations. For this second analysis, we compared the
average of the amounts contributed in 1999 and 2000 (cost-adjusted to
2000) with a benchmark amount equivalent to the average yearly present
value of the amounts the owners would have to accumulate each year over
the remaining life of their share of the plants to have enough
decommissioning funds.

As table 2 shows, 28 owners with ownership shares in 44 different plants
(50 trust funds) contributed less than the amounts we estimate they will
need to meet their decommissioning obligations, under our most likely
assumptions.




Page 9                                      GAO-04-32 Decommissioning Nuclear Power Plants
Table 2: Status of Individual Owners’ Recent Trust Fund Contributions, Compared
with Benchmark Trust Fund Contributions, under Most Likely Assumptionsa

                                          Trust                      Plants currently   Plants shut
Status                                   funds              Owners         operating          down
Above benchmark
contributions                               122                 58                76               5
Below benchmark
contributions                                50                 28                34              10
                                               b                 c                  c              c
Total                                      172
Source: GAO analysis.
a
 Most likely assumptions include 20-year license renewals that have been approved by NRC for 16
plants as of August 20, 2003.
b
    Contributions not available for 50 other trust funds.
c
 Not applicable.


We compared the owners in table 1 with those in table 2 to see whether
owners who are behind in balances were making up their shortfalls with
recent increases in contributions. Of the 33 owners who we estimate had
less than the benchmark balances through 2000, 26 owners of all or parts of
38 plants provided contributions information. Of these owners, only 8
owners of all or parts of 9 plants appeared to be making up their shortfalls
with recent increases in contributions. By contrast, 20 owners with
ownership interests in 31 plants recently contributed less to their trust
funds than we estimate they needed to put them on track to meet their
decommissioning obligations.16

These results would change under alternative economic assumptions. For
example, if economic conditions improve to those assumed in our
optimistic scenario, of the 20 owners who were below the benchmark
under most likely assumptions on both balances and contributions, 12
owners would still be below the benchmark in both categories, even under
optimistic assumptions.

However, if economic conditions worsen to those in our pessimistic
scenario, 34 owners who were above the benchmark under most likely
assumptions on either balances or contributions would be below either of



16
     Some of these owners were also making up their shortfalls on other plants.




Page 10                                            GAO-04-32 Decommissioning Nuclear Power Plants
                         these benchmarks under pessimistic assumptions. (See app. II for detailed
                         results.)



NRC’s Analysis Did Not   NRC’s analysis of the 2001 biennial decommissioning status reports was
                         not effective in identifying owners that might not be accumulating funds at
Effectively Determine    sufficient rates to pay for decommissioning costs when their plants are
Whether Each Owner       permanently shut down. Although the NRC reported in 2001 that all owners
                         appeared to be on track to have sufficient funds for decommissioning,17 our
Was Accumulating         analysis indicated that several owners might not be able to meet financial
Sufficient               obligations for decommissioning. NRC’s analysis was not effective for two
Decommissioning          reasons. First, NRC overly relied on the owners’ future funding plans, or on
                         rate-setting authority decisions, in concluding that the owners were on
Funds                    track to fully fund decommissioning. However, as discussed earlier, based
                         on actual contributions the owners had recently made to their trust funds,
                         several owners are at risk of not accumulating enough funds to pay for
                         decommissioning. Second, for the plants with more than one owner, NRC
                         did not separately assess the status of each co-owner’s trust funds relative
                         to the co-owner’s contractual obligation to fund a certain portion of
                         decommissioning. Instead, NRC combined funds on a plant-wide basis and
                         assessed whether the combined trust funds would be sufficient for
                         decommissioning. Such an assessment method can produce misleading
                         results because the owners with more than sufficient trust funds can
                         appear to balance out those with insufficient trust funds. Furthermore, if
                         NRC had identified an owner with unacceptable levels of financial
                         assurance, it would not have had an explicit basis for acting to remedy
                         potential funding deficiencies because it has not established criteria for
                         responding to unacceptable levels of financial assurances.

                         NRC officials said that their oversight of the owners’ decommissioning
                         funds is an evolving process and that they intend to learn from their review
                         of prior biennial reports and make changes to improve their evaluation of
                         the 2003 biennial reports. However, they also said that any specific changes
                         they are considering are predecisional, and final decisions have not yet
                         been made.




                         17
                          Summary of Decommissioning Trust Funding Status Reports For Power Reactors,
                         SECY-01-0197, Nuclear Regulatory Commission, November 5, 2001.




                         Page 11                             GAO-04-32 Decommissioning Nuclear Power Plants
NRC’s Review Relied on     According to NRC officials, in reviewing the 2001 biennial reports, they
Owners’ Future Plans for   used a “straight-line” method to establish a screening criterion for
                           assessing whether owners were accumulating decommissioning funds at
Making Contributions       sufficient rates. Specifically, NRC compared the amount of funds
                           accumulated through 2000 (expressed as a percentage of the total
                           estimated cost as of 2000 to decommission the plant) to the expended plant
                           life (expressed as a percentage of the total number of years the plant will
                           operate). Under this method, the owner of a plant that has operated for
                           one-half of its operating life would be expected to have accumulated at
                           least one-half of the plant’s estimated decommissioning costs (that is, it
                           would be collecting at or above the straight-line rate). NRC found that the
                           owners of 64 out of 104 plants currently licensed to operate were collecting
                           at the above a straight-line rate, and that the owners of the remaining 40
                           plants were collecting at the less than a straight-line rate.18

                           On a plant-wide basis, NRC then reviewed the owners’ “amortization”
                           schedules for making future payments to fully fund decommissioning. The
                           schedules, required as part of the biennial reports, consist of the remaining
                           funds that the owners expect to collect each year over the remaining
                           operating life of the plants. In estimating the funds to be collected, the
                           owners may factor in the earnings expected from their trust fund
                           investments. To account for such earnings, NRC regulations allow an
                           owner to increase its trust fund balance by up to 2 percent per year (net of
                           estimated cost escalation), or higher, if approved by its regulatory rate-
                           setting authority, such as a state public utility commission. Because these
                           owners’ amortization schedules identified sufficient future funds to enable
                           them to reach the target funding levels, NRC concluded that all licensees
                           appear to be on track to fund decommissioning when their plants are
                           retired.

                           However, relying on amortization schedules is problematic, in part because
                           the actual amounts the owners contribute to their funds in the future could
                           differ (that is, worsen) from their planned amounts if economic conditions
                           or other factors change. NRC officials said that owners are not required by
                           regulation to report their recent actual contributions to the trust funds, and
                           NRC does not directly monitor whether the owners’ actual contributions
                           match their planned contributions. Consequently, NRC relies on the
                           owners’ amortization schedules as reported in the biennial reports.


                           18
                                One plant—Browns Ferry 1—has a license but is currently not operating.




                           Page 12                                    GAO-04-32 Decommissioning Nuclear Power Plants
                            Such reliance is also problematic because in developing their amortization
                            schedules, the owners could use widely varying rates of return to project
                            the earnings on their trust fund investments. For example, each of the three
                            co-owners of the Duane Arnold Energy Center nuclear plant assumed a
                            different rate, ranging from 2 to 7 percent (net of estimated cost
                            escalation). Other factors being equal, the owners using the higher rates
                            would need to collect fewer funds than the owner using the lower rate of
                            return. While the return that each owner actually earns on its investments
                            may be higher or lower than these rates, by relying on the owners’
                            amortization schedules, NRC effectively used a different set of
                            assumptions to evaluate the reasonableness of the trust funds accumulated
                            by each owner. Consequently, NRC did not use a consistent “benchmark” in
                            assessing the owners’ trust funds. By contrast, we used historical trends
                            and economic forecasts to develop assumptions about rates of earnings
                            and other economic variables, applied the same assumptions in evaluating
                            the adequacy of each owner’s trust fund, and based expected future
                            contributions on actual amounts contributed in recent years.



NRC’s Analysis Focused on   NRC’s internal guidance for evaluating the biennial reports states that for
the Adequacy of Trust       plants having more than one owner, except in certain circumstances, each
                            owner’s amortization schedule should be separately assessed for its share
Funds on a Plant-by-Plant
                            of the plant’s decommissioning costs.19 For those plants that have co-
Basis                       owners, NRC used the total amount of funds accumulated for the plant as a
                            whole in its analysis. However, as we demonstrated with our industry-wide
                            analysis, such an assessment for determining whether owners are
                            accumulating sufficient funds can produce misleading results because
                            owners with more than sufficient funds can appear to balance out owners
                            with less than sufficient funds, even though funds are generally not
                            transferable among owners.




                            19
                             Requirement is waived if lead owner has agreed to coordinate funding documentation and
                            reporting for all co-owners. In such cases, the guidance does not require a separate
                            evaluation of each co-owner’s amortization schedule.




                            Page 13                                GAO-04-32 Decommissioning Nuclear Power Plants
                             In explaining their approach, NRC officials said that the section of the
                             guidance that calls for a separate evaluation of each owner’s amortization
                             schedule for its share of the plant is not compulsory. In addition, they said
                             that they consider each owner’s schedule to determine the total funds for
                             the plant as a whole, but they believe that the same level of effort is not
                             required for each individual trust fund balance unless there is a manifest
                             reason to do so. They also stated that NRC’s regulations do not prohibit
                             each co-owner from being held responsible for decommissioning costs,
                             even if these costs are more than the co-owner’s individual ownership
                             share. However, assessing the adequacy of decommissioning costs on a
                             plant-wide basis is not consistent with the industry view, held by most plant
                             owners, that each co-owner’s responsibility should be limited to its pro rata
                             share of decommissioning expenses and that NRC should not look to one
                             owner to “bail out” another owner by imposing joint and several liability on
                             all co-owners.20 NRC has implicitly accepted this view and has
                             incorporated it into policy to continue it. In a policy statement on
                             deregulation,21 NRC stated that it will not impose decommissioning costs
                             on co-owners in a manner inconsistent with their agreed-upon shares,22
                             except in highly unusual circumstances when required by public health and
                             safety considerations and that it would not seek more than the pro rata
                             shares from co-owners with de minimis ownership. Nevertheless, unless
                             NRC separately evaluates each co-owner’s trust fund, NRC might
                             eventually need to look to require some owners to pay more than their
                             share.



NRC Has Not Established      While the NRC has conducted two reviews of the owners’ biennial reports
Criteria for Responding to   to date, it has not established specific criteria for responding to any
                             unacceptable levels of financial assurances that it finds in its reviews of the
Unacceptable Levels of       owners’ biennial reports. As we noted in our 1999 report, without such
Financial Assurance          criteria, NRC will not have a logical, coherent, and predictable plan of
                             action if and when it encounters owners whose plants have inadequate
                             financial assurance. NRC officials said that their oversight of the owners’


                             20
                              Joint and several liability refers to the legal doctrine, which would allow holding all or any
                             one of the co-owners financially responsible for the default of any co-owner.
                             21
                              Final Policy Statement on the Restructuring and Economic Deregulation of the Electric
                             Utility Industry, 62 Fed. Reg. 44071 (Aug. 19, 1997).
                             22
                              Co-owners generally divide costs from their facilities using a contractually defined pro rata
                             share.




                             Page 14                                    GAO-04-32 Decommissioning Nuclear Power Plants
              decommissioning funds is an evolving process, and they are learning from
              their prior reviews. However, they also said that any specific changes they
              are considering are predecisional and final decisions have not yet been
              made.

              The absence of any specific criteria for acting on owners’ decommissioning
              financial reports contrasts with the agency’s practices for overseeing safety
              activities at nuclear power plants. According to NRC, its safety assessment
              process allows it to integrate information relevant to licensee safety
              performance, make objective conclusions regarding the information, take
              actions based on these conclusions in a predictable manner, and effectively
              communicate these actions to the licensees and to the public. Its oversight
              approach uses criteria for identifying and responding to levels of concern
              for nuclear plant performance. In determining its regulatory response, NRC
              uses an “Action Matrix” that provides for a range of actions commensurate
              with the significance of inspection findings and performance indicators. If
              the findings indicate that a plant is operating in a way that has little or no
              impact on safety, then NRC implements only its baseline inspection
              program. However, if the findings indicate that a plant is operating in a way
              that implies a greater degree of safety significance, NRC performs
              additional inspections and initiates other actions commensurate with the
              significance of the safety issues. A similar approach in the area of financial
              assurance for decommissioning would appear to offer the same benefits of
              objectivity and predictability that NRC has established in its safety
              oversight.



Conclusions   Ensuring that nuclear power plant owners will have sufficient funds to
              clean up the radioactive waste hazard left behind when these plants are
              retired is essential for public health and safety. As our analysis identified,
              some owners may be at risk of not accumulating sufficient trust funds to
              pay for their share of decommissioning. NRC’s analysis was not effective in
              identifying such owners because it relied too heavily on the owners’ future
              funding plans without confirming that the plans were consistent with
              recent contributions. Moreover, it aggregated the owners’ trust funds plant-
              wide instead of assessing whether each individual owner was on track to
              accumulate sufficient funds to pay for its share of decommissioning costs.
              In addition, NRC has not explained to the owners and the public what it
              intends to do if and when it determines an owner is not accumulating
              sufficient trust funds. Without a more effective method for evaluating
              owners’ decommissioning trust funds, and without criteria for responding




              Page 15                            GAO-04-32 Decommissioning Nuclear Power Plants
                      to any unacceptable levels of financial assurance, NRC will not be able to
                      effectively ensure that sufficient funds will be available when needed.



Recommendations for   To ensure that owners are accumulating sufficient funds to decommission
                      their nuclear power plants, we recommend that the Chairman, NRC,
Executive Action      develop an effective method for determining whether owners are
                      accumulating funds at sufficient rates to pay for decommissioning. For
                      plants having more than one owner, this method should include separately
                      evaluating whether each owner is accumulating funds at sufficient rates to
                      pay for its share of decommissioning. We further recommend that the
                      Chairman, NRC, establish criteria for taking action when NRC determines
                      that an owner or co-owner is not accumulating decommissioning funds at a
                      sufficient rate to pay for its share of the cost of decommissioning.



Agency Comments and   We provided a draft of this report to NRC for its review and comment.
                      NRC’s written comments, which are reproduced in appendix III, expressed
Our Evaluation        three main concerns regarding our report. First, NRC disagreed with our
                      observation that its analyses of funding levels of the co-owners of a nuclear
                      plant are inconsistent with its internal guidance. We revised the report to
                      remove any inferences that NRC was not complying with its own guidance.
                      While clarifying this point, we remained convinced that NRC needs to do
                      more to develop an effective method for assessing the adequacy of nuclear
                      power plant owner’s trust funds for decommissioning. NRC’s current
                      practice is to combine the trust funds for all co-owners of a nuclear plant,
                      then assess whether the combined value of the trust funds is sufficient.
                      However, as our analysis indicates, NRC’s practice of combining the trust
                      funds of several owners for its assessment can produce misleading results
                      because co-owners with more than sufficient funds can appear to balance
                      out those with less than sufficient funds. As a practical matter, owners
                      have a contractual agreement to pay their share of decommissioning costs,
                      and owners generally cannot transfer funds from a trust fund with
                      sufficient reserves to one without sufficient reserves. While NRC
                      recognizes that private contractual arrangements among co-owners exist,
                      the agency stated that it reserves the right, in highly unusual situations
                      where adequate protection of public health and safety would be
                      compromised if such action were not taken, to consider imposing joint and
                      several liability on co-owners for decommissioning funding when one or
                      more co-owners have defaulted. Nonetheless, we believe that NRC should
                      take a proactive approach, rather than simply wait until one or more co-



                      Page 16                           GAO-04-32 Decommissioning Nuclear Power Plants
owners default on their decommissioning payment expenses, to ensure
that sufficient funds will be available for decommissioning and that the
adequate protection of public health and safety is not compromised. Such
an approach, we believe, would involve developing an effective method
that, among other things, separately evaluates the adequacy of each co-
owner’s trust fund.

Second, NRC disagreed with our view that some owners are not on track to
accumulate sufficient funds for decommissioning. NRC’s position is that it
has a method for assessing the reasonableness of the owners’ trust funds
and that our method has not been reviewed and accepted by NRC. While
we recognize that NRC has neither reviewed nor accepted our method, our
report identifies several limitations in NRC’s method that raise doubts
about whether the agency’s method can effectively identify owners who
might be at risk of not having sufficient funds for decommissioning. A
particularly problematic aspect of this method is NRC’s reliance on the
owners’ future funding plans to make up any shortfalls without verifying
whether those plans are consistent with the owners’ recent contributions.
We found some owners’ actual contributions in 2001 were much less than
what they stated in their 2001 biennial reports to NRC that they planned to
contribute. For example, one owner contributed about $1.5 million (or 39
percent) less than the amount they told NRC that they planned to
contribute. In addition, based on our analysis using actual contributions
the owners had recently made to their trust funds, we found that 28 owners
with ownership shares in 44 different plants contributed less than the
amounts we estimate they will need to make over the remaining operating
life of their plants to meet their decommissioning obligations. Therefore,
we continue to believe that some owners are not on track to accumulate
sufficient funds to pay for decommissioning.

Finally, NRC disagreed with our view that it should establish criteria for
responding to owners with unacceptable levels of financial assurance. NRC
stated that its practice is to review the owners’ plans on a case-by-case
basis, engage in discussions with state regulators, and issue orders as
necessary and appropriate. Since NRC has never identified an owner with
unacceptable levels of financial assurance, it has never implemented this
practice. We believe that NRC should take a more proactive approach to
providing owners and the public with a more complete understanding of
NRC’s expectations of how it will hold owners who are not accumulating
sufficient funds accountable. As stated in our draft report, this lack of
criteria is in contrast to NRC’s practices in overseeing safety issues at
nuclear plants, where the NRC uses an “Action Matrix” that provides for a



Page 17                           GAO-04-32 Decommissioning Nuclear Power Plants
range of actions commensurate with the significance of safety inspection
findings and performance indicators. In the area of financial assurance, a
similar approach could involve monitoring the trust fund deposits of those
owners who NRC determines are accumulating insufficient funds to verify
that the deposits are consistent with the owners’ funding plans.


We conducted our review from June 2001 to September 2003 in accordance
with generally accepted government auditing standards. 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 of this report to the appropriate congressional committees; the
Chairman, NRC; Director, Office of Management and Budget; and other
interested parties. We will also make copies available to others upon
request. In addition, this report will be available at no charge on the GAO
Web site at http://www.gao.gov. If you or your staff have any questions,
please call me at (202) 512-6877. Key contributors to this report are listed in
appendix IV.

Sincerely yours,




Jim Wells
Director, Natural Resources
  and Environment




Page 18                            GAO-04-32 Decommissioning Nuclear Power Plants
Appendix I

Scope and Methodology of Our Analysis of the                                                   Appendx
                                                                                                     ies




Decommissioning Trust Funds                                                                     Append
                                                                                                     x
                                                                                                     Ii




               This appendix describes the scope and methodology of our review for our
               first objective: the extent to which nuclear power plant owners are
               accumulating funds at sufficient rates to pay decommissioning costs when
               their plants’ licenses expire.

               In addressing this objective, we analyzed the status of the
               decommissioning trust funds from two perspectives. First, we analyzed
               whether the industry as a whole is accumulating funds at rates that would
               be sufficient for decommissioning. For this analysis, we combined the trust
               funds of the owners of 122 nuclear plants. We then compared our results
               with those of our 1999 report to see whether the industry’s status had
               changed.

               Second, because owners generally cannot transfer funds from a trust fund
               with sufficient reserves to one without sufficient reserves, we also
               analyzed the status of each owner’s trust fund for each plant in which the
               owner had an ownership share. For this analysis, we analyzed the status of
               222 individual trust funds, representing 99 owners of all or parts of 122
               plants.

               For both the combined industry-wide trust funds and the individual
               owners’ trust funds, we conducted two separate analyses (hereafter
               described in terms of our analysis of the individual owners’ trust funds).
               This method is the same as that used in our earlier report on the adequacy
               of decommissioning funding.1 First, we looked backward from a base
               year—2000—and assessed whether, when taking into account key
               economic factors such as decommissioning cost-escalation rates and after-
               tax rates of return on the funds (the discount rate), each owner’s
               decommissioning fund balance for its ownership share of each of its plants
               was consistent with the expended portion of the licensed operating life of
               that plant. In other words, we assessed whether the monies the owner had
               contributed to its fund as of the end of 2000, together with the past earnings
               on these monies, equaled a benchmark or expected balance the owner
               should have accumulated by that time.




               1
               GAO/RCED-99-75.




               Page 19                            GAO-04-32 Decommissioning Nuclear Power Plants
Appendix I
Scope and Methodology of Our Analysis of
the Decommissioning Trust Funds




To determine the benchmark balance for 2000 for each plant (owner’s
share), we multiplied the present value of the plant’s estimated future
decommissioning costs (owner’s share) by the fraction of the plant’s
operating life used up by 2000. For example, a plant that began operating in
1980 would have used up one-half of its 40-year operating life by the end of
2000. Therefore, by the end of 2000, the owner for this plant should be
expected to have accumulated in its trust fund one-half of the present value
(in constant 2000 dollars) of the estimated decommissioning costs. Over
the life of a plant, our benchmark measure presumes that an owner would
contribute an annual amount that increases (but constant in present-value
terms) at the trust fund’s after-tax rate of return. The sum of these annual
amounts plus the income earned on the investment of the funds would
equal the total estimated (present value of) the decommissioning costs
when the plant’s operating license expires.2

Although recent deregulation and restructuring of the electricity industry
have led some owners to prepay decommissioning costs, many owners
continue to fund the trust funds by collecting fees from electricity users.
Thus, under our benchmark measure, by paying decommissioning “fees”
that are deposited into the trust funds, electricity users pay for the present
value of each year’s accrued decommissioning costs. As a result, the
benchmark embodies the principle of economic efficiency in that the price
of a product (i.e., electricity) should, if possible, equal all of its costs—
current and accrued. In addition, by assuming that current and future users
pay the same decommissioning fees, in constant present-value terms, our
benchmark ensures that decommissioning costs are accrued transparently
over time.

In addition to the looking-backward analysis, we conducted a second
analysis, a “looking forward” from a base year—end of 2000—and assessed


2
 We assume that decommissioning will most likely occur within 5 years of a plant being
retired. For simplicity, our model therefore decommissions a plant “instantaneously” at 2.5
years after the 40-year lifespan. Thus, the present value of decommissioning costs after the
first year of operation is computed by discounting the estimated future costs by 41.5 years
(39+2.5). Under our benchmark, the first contribution to the fund at the end of the first year
should equal 1/40th of the present value of the costs, discounted over 41.5 years. At the end
of the second year of the plant’s operation, the trust fund (including earnings) would equal
2/40th of the present value of the future costs, discounted back by 40.5 years. Finally, at the
end of the 40th and final year of operation, the fund would contain 40/40th of the present
value of the future costs, discounted back by 2.5 years. At “instantaneous”
decommissioning, 2.5 years hence, the trust fund balance would equal the entire current-
dollar decommissioning costs.




Page 20                                    GAO-04-32 Decommissioning Nuclear Power Plants
Appendix I
Scope and Methodology of Our Analysis of
the Decommissioning Trust Funds




whether each owner’s recent contributions to its decommissioning funds
for respective shares of each of its nuclear power plants were at a level
consistent with the remaining portions of the licensed operating lives of
each plant. In other words, we assessed whether the owner recently added
monies to its decommissioning trust fund for each plant at the benchmark
contribution necessary to have enough funds to decommission the plant
when its operating license expires. For example, an owner who is behind in
terms of trust fund balance through the end of 2000 could have recently
contributed to its fund at much higher rates than it had in the past to make
up for its shortfall over the remaining operating life of the plant.

To determine an owner’s benchmark annual contribution, for each of its
plants, we computed the annual-average present value of the required
future contributions that are summed over the remaining life of the plant.
The total present value contribution must equal the present value of the
total future decommissioning costs minus the value of the current trust
fund balance. We then compared this annual amount with the average
contribution to the trust fund that the owner made in 1999 and 2000 (cost
adjusted to 2000). We assume that an owner will annually increase its most
recent contribution (2-year average, cost adjusted to 2000) over the
remaining life of its plant by the assumed after-tax rate of return on its
decommissioning fund. Owners whose recent average contributions
exceeded the benchmark amount would be adding funds at a rate that
would be more than sufficient, while owners whose recent average
contributions were below the benchmark rate would be adding funds at an
insufficient rate to pay for future decommissioning costs (under our
specific economic assumptions).

For our assessment of the status of the industry as a whole (and for both
the looking-backward and looking-forward analyses), we developed three
different scenarios: baseline (i.e., most likely), pessimistic, and optimistic.
For the baseline analysis, we used our most likely economic assumptions.
For the pessimistic and optimistic scenarios, we used different values for
several key assumptions, as described later in this appendix.

For our assessment of the status of each individual owner’s trust funds, we
looked at the status of each owner’s trust funds under baseline (most
likely) assumptions (for both the looking-backward and looking-forward
analyses). In addition, for owners who were below the benchmark on both
balances and contributions under the baseline assumptions, we reviewed
the 2003 and 2001 biennial reports to ascertain whether the owner has
and/or had an additional method (e.g., parent company guarantee) to



Page 21                                GAO-04-32 Decommissioning Nuclear Power Plants
                            Appendix I
                            Scope and Methodology of Our Analysis of
                            the Decommissioning Trust Funds




                            support financial assurance obligations. We indicate in our detailed results
                            when an owner reported having an additional method (see app. II, table 4).
                            However, we did not evaluate the adequacy of these methods.

                            In addition, for selected owners depending upon our baseline results, we
                            analyzed how these results might change under alternative conditions—
                            optimistic or pessimistic assumptions. For example, for owners who were
                            below the benchmark on both balances and contributions under the
                            baseline (see app. II, table 5), we assessed the status of their trust funds
                            under optimistic conditions to determine which of these owner’s funds
                            would still remain below benchmark on both our looking-backward and
                            looking-forward measures. In addition, for owners who were from zero to
                            100 percent above the benchmark, under baseline assumptions for either
                            balances or contributions, we assessed the status of their funds under
                            pessimistic assumptions to determine whether their funds would fall below
                            benchmarks for both balances and contributions (see app. II, table 6).3



Key Data Used in Analysis   To conduct our analysis we used a spreadsheet simulation model that uses
                            a base year of 2000. In addition, for the key data in our analysis, we used
                            the owner’s 2001 biennial reports and responses from a mail survey that we
                            administered to nuclear power plant owners.

                            More specifically, the key data used in the model are the following:

                            (1) Owner’s name, percentage of each plant in which the owner has a share,
                            year the plant was licensed to operate (or commenced operation, if earlier),
                            and year the plant’s license will expire. We obtained these data using the
                            owners’ 2001 biennial reports to Nuclear Regulatory Commission (NRC)
                            and other NRC publications.

                            (2) A decommissioning cost estimate for each plant (that is, a current
                            dollar amount for the year that the estimate was made). When available, we
                            used a site-specific estimate of NRC-related costs (that is, radiation-related
                            costs). If a site-specific estimate was not available, we used cost estimates
                            derived from NRC’s generic formula for these NRC-related costs. We
                            obtained these data using the owners’ 2001 biennial reports to NRC.


                            3
                             Table 6 includes some trust funds for which we did not have contributions data but whose
                            balance adequacy percentage for the baseline fell below zero under the pessimistic
                            assumptions.




                            Page 22                                 GAO-04-32 Decommissioning Nuclear Power Plants
                          Appendix I
                          Scope and Methodology of Our Analysis of
                          the Decommissioning Trust Funds




                          (3) Decommissioning fund balances as of December 31, 2000 for each
                          owner and its plant share. When indicated, we used that portion of the fund
                          balance that the owner designated for NRC-type costs (that is, excluding
                          the costs relating to nonradiation or spent-fuel activities). Otherwise we
                          used the entire fund balance. We obtained these data from the owners’
                          responses to our survey or from their 2001 biennial reports.

                          (4) Decommissioning fund contributions for 1999 and 2000 for each owner
                          and its plant share. We assumed these contributions were for NRC-related
                          costs only. We obtained these data from the responses to our survey, and
                          for owners who did not respond to our survey, we do not report on the
                          adequacy of their contributions.

                          In some cases, the ownership shares of plants have changed hands since
                          our survey and the 2001 biennial reports. In these cases, to make our
                          analysis as current as possible, we assess the adequacy of the funds that
                          were accumulated by the previous owner but report the results under the
                          name of the new owner of the trust fund (see app. II, table 4). Nonetheless,
                          the new owner might accumulate trust funds at a different rate than the
                          former owner.



Key Assumptions Used in   The analysis of the industry-wide trust funds and the individual owners’
the Analysis              trust funds depends on the following six key assumptions. The values for
                          these six assumptions vary based upon the scenario: baseline (most likely),
                          pessimistic, or optimistic. For each scenario, we used the same assumption
                          values for each owner and each plant in order to apply an “even-handed”
                          standard.

                          (1) Future after-tax rate of return on decommissioning fund assets
                          (discount rate): An after-tax rate of return was used to discount future trust
                          fund contributions and plant decommissioning costs. In our survey, we
                          asked owners for information on the financial assets contained in their
                          respective decommissioning funds. We grouped these assets into five basic
                          financial categories and calculated estimated, industry-wide, average
                          weights for each type, these asset weights themselves reflecting the
                          weights of the varying fund sizes. These categories, and calculated
                          weighted-averages were: equities (e.g., common stocks), 47.1 percent; U.S.
                          securities (e.g., federal government bonds), 26.7 percent; corporate bonds,
                          9.8 percent; municipal bonds, 10.4 percent; and cash and short-term
                          instruments, 6.0 percent. Therefore, on average, these decommissioning
                          funds contained roughly a 50-50 split between equities and bonds. We used



                          Page 23                                GAO-04-32 Decommissioning Nuclear Power Plants
Appendix I
Scope and Methodology of Our Analysis of
the Decommissioning Trust Funds




these results for all of the decommissioning funds, for all three scenarios,
but recognize three qualifications: (1) the variation in these asset weights
among individual funds for 2000 was quite large, (2) our asset composition
data represent only a time “snapshot” of such allocation—for year 2000
only, and (3) these same (baseline) asset weights are also assumed for our
other two scenarios, because appropriate data were lacking to do
otherwise.

Using a long-term forecast from Global Insight (an economic forecasting
company),4 we developed a forecast for each asset category under a
baseline, pessimistic, and optimistic forecast scenario. For the baseline
scenario, we used Global Insight’s trend forecast; for the pessimistic
scenario, we used their pessimistic forecast (representing slower real gross
domestic product (GDP) growth); and for the optimistic scenario, we used
their optimistic forecast (representing faster real GDP growth).

For the baseline scenario, we calculated a forecast (current-dollar) growth
rate of 6.26 percent for equities, 6.83 percent for U.S. securities, 7.83
percent for corporate bonds, 6.27 percent for municipal bonds, and 5.02
percent for cash and short-term instruments.5 Multiplying these forecast
rates with their respective asset weights in the owners’ portfolios yielded a
baseline “portfolio average” forecast pretax annual-average rate of return
of 6.49 percent. Similarly, we calculated pretax rates of return for the
pessimistic and optimistic forecasts of 7.27 percent and 6.45 percent,
respectively. The rate under the pessimistic forecast is higher than the rate
under the baseline or optimistic forecasts because of higher inflation in the
Global Insight pessimistic forecast and because of the owners’ relatively
high average allocation of trust fund investments in bonds. (In Global
Insight’s pessimistic forecast, the nominal-rate return on bonds is greater
than on equities.)




4
Forecast as of January 30, 2003.
5
 To forecast the growth in equities, we used Global Insight’s forecast for the S&P 500. We
assumed that dividends would be reinvested. For example, for our baseline scenario, we
combined the compound annual-average growth rate for the S&P 500 Index with its
corresponding annual-average dividend yield rate to obtain a total growth rate. For U.S.
securities, we used the forecast for 30-year federal government bonds. For corporate bonds
and municipal bonds, we used the forecast for Aaa-rated corporate and municipal bonds,
respectively. For cash, we used the forecast for 6-month U.S. Treasury Bills.




Page 24                                 GAO-04-32 Decommissioning Nuclear Power Plants
Appendix I
Scope and Methodology of Our Analysis of
the Decommissioning Trust Funds




To convert the “portfolio average” forecast pretax rate of return to an after-
tax rate of return, we used the pre- and post-tax rates of return data that
owners provided in our survey. Based on these data we determined that the
pretax rate should be reduced by 0.87 percentage points to derive a
baseline after-tax rate of return of 5.62 (6.49 – 0.87) percent.6 Similarly, we
calculated an after-tax rate of return of 6.40 (7.27 – 0.87) percent for the
pessimistic scenario and an after-tax rate of return of 5.58 (6.45 – 0.87)
percent for the optimistic scenario.

(2) Future decommissioning cost escalation rate: For our baseline
scenario, we assumed that decommissioning costs would increase annually
at a nominal rate of 4.60 percent.7 Combining the after-tax rate of return
and the cost escalation rate gave us an implied real (cost-adjusted) after-tax
rate of return of 1.02 (5.62 - 4.60) percent for the baseline scenario.

To calculate real after-tax rates of return for the pessimistic and optimistic
scenarios, we first adjusted the nominal after-tax rates of return using
Global Insight’s inflation forecasts. Its annual-average inflation forecast
was about 2.47 percent for trend, or baseline, 3.04 percent for pessimistic,
and 2.15 percent for optimistic. Using these forecasts, the real forecast
rates of return are 3.15 (5.62 - 2.47) percent for baseline, 3.36 (6.40 – 3.04)
percent for pessimistic, and 3.43 (5.58 – 2.15) percent for optimistic. We
then used proportionality ratios to obtain real cost adjusted after-tax rates
of return of 1.09 percent for the pessimistic scenario and 1.11 percent for
the optimistic scenario.8 From these real after-tax rates of return, we




6
 Using rate of return data provided by 84 owners, we calculated a weighted-average
difference between their pretax and after-tax rates of return for each fund and year over
1997-2001, weighted by the relative size of their funds. We then calculated the simple mean
of the weighted average differences for each year to obtain an overall weighted average
difference of about 0.87 of a percentage point.
7
 The 4.60 percent cost-escalation rate is fund-weighted average based on the owners’
assumptions about future nominal-dollar cost-escalation, as reported in their 2001 biennial
reports.
8
 To calculate a cost-adjusted real rate-of-return for the pessimistic and optimistic scenarios,
we formed proportionality ratios. For pessimistic, 3.36% / 3.15% = x% / 1.02%; therefore, x =
1.09%. For optimistic, 3.43% / 3.15% = y% /1.02%; therefore, y = 1.11%.




Page 25                                    GAO-04-32 Decommissioning Nuclear Power Plants
Appendix I
Scope and Methodology of Our Analysis of
the Decommissioning Trust Funds




computed implied cost-escalation rates of 5.31 percent and 4.47 percent for
the pessimistic and optimistic scenarios, respectively. 9

Note that the real (cost-adjusted) after-tax rates of return are quite similar
in value among our scenarios; therefore, any differing effect on model
results caused by the combination of the fund rate of return and
decommissioning cost-escalation assumptions will be fairly minimal.
Nonetheless, all other things being equal, for these two assumptions only,
the balance and contribution adequacy results for the pessimistic scenario
will be slightly above those of the baseline scenario, and only slightly below
those of the optimistic scenario.

(3) Alternative initial decommissioning cost estimates: In our baseline
scenario, for the “initial” decommissioning (NRC-related) costs, we used
the site-specific estimates when available. Otherwise, we used the cost
estimates derived from NRC’s generic formula. For the pessimistic and
optimistic scenarios, we used professional judgment to adjust the estimate
used in the baseline. For example, to reflect a general concern among
industry observers that future decommissioning costs could be much
higher than expected, we increased the initial cost estimate by 40 percent
for the pessimistic scenario, and reduced the initial decommissioning cost
estimate by only 5 percent for the optimistic scenario.

(4) Alternative start of decommissioning--years after shutdown: For the
baseline scenario, we assumed that decommissioning would occur within
the immediate 5 years after license termination; for simplification, we
assumed “instantaneous” decommissioning at 2.5 years after shutdown.10
For the pessimistic assumption, decommissioning is assumed to occur
within the first 4 years—at 2 years after shutdown. For the optimistic
assumption, we assumed a 5-year delayed start of decommissioning—
within 5-10 years after license termination—at 7.5 years after shutdown.
Under certain circumstances (e.g., co-located plants), NRC may permit a
decommissioning delay. As long as the assumed after-tax rate of return
exceeds the assumed cost-escalation rate (i.e., a positive, real, cost-


9
 For pessimistic, 6.40% - x% = 1.09%; therefore, x = 5.31%. For optimistic, 5.58% - y% = 1.11%;
therefore, y = 4.47%.
10
 To test this simplifying assumption in the looking-backward analysis, we assessed the
impact of assuming that one-fifth of decommissioning occurred over each of the 5 years.
The result was virtually identical to that obtained when we assumed that all
decommissioning occurred at 2.5 years after shutdown.




Page 26                                    GAO-04-32 Decommissioning Nuclear Power Plants
Appendix I
Scope and Methodology of Our Analysis of
the Decommissioning Trust Funds




adjusted rate of return), a delay in decommissioning will improve the
outlook for an owner’s trust fund in both the looking-backward (trust fund
balance) and looking-forward (trust fund contributions) analysis, all else
the same.

(5) Alternative operating license expiration year: The year of plant
operating-license expiration is assumed to vary among our three scenarios
to reflect that NRC has approved license renewals for some plants, and it
may approve 20-year license renewals for other plants in the future. For the
baseline and pessimistic scenarios, we include the renewals that have been
approved for 16 plants, as of August 20, 2003.11 In addition, because NRC
has received renewal applications from owners of 14 plants, and it
anticipates applications from owners of another 8 plants by the end of 2003
(as of August 20, 2003), we assume in the optimistic scenario that license
renewals will be approved for an additional 22 plants.12 In general, these
plant license renewals suggest that the electricity market today is robust
and owners expect higher electricity prices in the future.13

(6) Alternative market values for decommissioning funds: For the baseline
and optimistic scenarios, we use the actual market value of the trust fund
balances as of the end of 2000. In contrast, for the pessimistic scenario, we
reduced the actual market value of the funds by 5 percent for 2000 to
simulate the effect of a slowing economy on investment returns from 2000
through 2002. The simulated decline is modest, and over the period, the
overall increase in bond prices would have offset to some degree the
overall decline in the value of common stocks.




11
 The 16 plants are: Arkansas Nuclear Unit 1; Calvert Cliffs Units 1 and 2; Hatch Units 1 and
2; North Anna Units 1 and 2; Oconee Units 1, 2, and 3; Peach Bottom Units 2 and 3; Surry
Units 1 and 2; and Turkey Point Units 3 and 4.
12
 The 14 plants are: Catawba Units 1 and 2; Dresden Units 2 and 3; Fort Calhoun; Ginna;
McGuire Units 1 and 2; Quad Cities Units 1 and 2; Robinson 2; St. Lucie Units 1 and 2; and
Summer. The other 8 plants are: Arkansas Nuclear Unit 2; Browns Ferry Units 1, 2, and 3;
Cook, D.C. Units 1 and 2; and Farley Units 1 and 2.
13
 This expectation is in contrast to conditions reported in our 1999 report, when the market
for electricity appeared much weaker. In that report, we assumed in the baseline scenario
that 6 plants would be prematurely retired during 1998 to 2002.




Page 27                                  GAO-04-32 Decommissioning Nuclear Power Plants
Appendix II

Detailed Results of Our Analysis of the
Decommissioning Trust Funds                                                                                          Appendx
                                                                                                                           Ii




               This appendix presents the detailed results of our analysis of the
               decommissioning trust funds. Specifically, table 3 shows industry-wide,
               weighted-average results under three scenarios—baseline (most likely)
               assumptions, pessimistic assumptions, and optimistic assumptions. Table 4
               presents the results for individual owners under baseline, or most likely
               assumptions. Table 5 shows the results of our analysis under optimistic
               assumptions for individual owners whose trust funds were below the
               benchmarks for both balances and recent contributions under the baseline
               scenario. Table 6 presents the results under pessimistic assumptions for
               individual owners whose trust funds were zero to 100 percent above the
               benchmark balances and/or contributions under the baseline scenario. See
               appendix I for a description of our methodology.



               Table 3: Status of Combined Trust Funds Compared with Benchmarks for Balances
               and Contributions (by Percentage above or below Benchmarks)

                                                                                     Scenario
                                                                                 a
               Analysis                Number of    Number of         Baseline       Pessimistica      Optimisticb
               category                  owners        plants         (percent)         (percent)       (percent)
               Balances
               through 2000                   99             122             46.9               0.2             82.5
               Recent
               Contributionsc                 75             109           106.5              -18.0           224.4
               Source: GAO analysis.

               Note: Percentages are weighted averages, measured relative to the benchmark balances or
               benchmark contributions.
               a
                The baseline and pessimistic scenarios include the 20-year license renewals already granted for 16
               plants, as of August 20, 2003.
               b
                The optimistic scenario includes 20-year license renewals for 38 plants, including renewals: (1)
               already granted for 16 plants, (2) for another 14 plants whose owners have applied for but not yet
               received renewals, and (3) for another 8 plants whose owners are expected to apply by December
               2003 (all as of August 20, 2003).
               c
                 Adequacy of recent contributions is based on responses to our survey. The percentages are more, or
               less, than the benchmark contribution, meaning the owner has contributed more, or less, on average
               for 1999 and 2000 (cost adjusted to 2000) than the annual average of the present value of the amounts
               required in each subsequent year until the plant’s license expires.




               Page 28                                       GAO-04-32 Decommissioning Nuclear Power Plants
                                           Appendix II
                                           Detailed Results of Our Analysis of the
                                           Decommissioning Trust Funds




Table 4: Owners with More, or Less, Than Benchmark Trust Fund Balances and Contributions, under Most Likely Assumptions
(by Percentage above or below Benchmarks)

                                                                                           Baseline (most likely) scenario
                                                               Ownership         Adequacy of trust          Adequacy of recent
                                                             share of plant      fund balances as of        trust fund
Plant name           Owner                                       (percent)       end of 2000                contributionsa
Arkansas             Entergy Arkansas, Inc.                              100     ++++                       ++++
Nuclear 1b
Arkansas             Entergy Arkansas, Inc.                              100     +                          _
Nuclear 2c
Beaver Valley 1      Ohio Edison Co.                                      35     +                          +
Beaver Valley 1      Pennsylvania Power Co.                               65     _                          ___
Beaver Valley 2      Cleveland Electric Illuminating Co.               24.47     ++                         +
Beaver Valley 2      Ohio Edison Co.                                   41.88     ++                         _
Beaver Valley 2      Pennsylvania Power Co.                            13.74     ++++                       ___
Beaver Valley 2      Toledo Edison Co.                                 19.91     ++                         ++
                 d
Big Rock Point       Consumers Energy Co.                                100     +                          + + + +e
Braidwood 1          Exelon Generation Co., LLC                          100     +++                        ___
Braidwood 2          Exelon Generation Co., LLC                          100     ++++                       ++++
Browns Ferry 1c      Tennessee Valley Authority                          100     __                         ___
                 c
Browns Ferry 2       Tennessee Valley Authority                          100     __                         ___
Browns Ferry 3c      Tennessee Valley Authority                          100     __                         ___
Brunswick 1          North Carolina Eastern Municipal                  18.33     _                          +
Brunswick 1f         Progress Energy Carolinas, Inc.                   81.67     __                         _
Brunswick 2          North Carolina Eastern Municipal                  18.33     _                          +
Brunswick 2 f        Progress Energy Carolinas, Inc.                   81.67     __                         +
Byron 1              Exelon Generation Co., LLC                          100     +++                        ___
Byron 2              Exelon Generation Co., LLC                          100     +++                        +++
Callaway             AmerenUE                                            100     +                          __
Calvert Cliffs 1b    Constellation Energy Group                          100     +                          g


Calvert Cliffs 2b    Constellation Energy Group                          100     +                          g

             h
Catawba 1            Duke Power Co.                                    12.50     +                          +++
             h
Catawba 1            North Carolina Electric                            28.1     +                          ___
                     Membership
Catawba 1h           North Carolina Municipal Power                    37.50     ++                         +
Catawba 1h           Piedmont Municipal Power Agency                   12.50     +                          ++
             h
Catawba 1            Saluda River Electric Cooperative                  9.38     ++++                       ___
Catawba 2h           Duke Power Co.                                     12.5     ++                         ++++




                                           Page 29                                    GAO-04-32 Decommissioning Nuclear Power Plants
                                             Appendix II
                                             Detailed Results of Our Analysis of the
                                             Decommissioning Trust Funds




(Continued From Previous Page)
                                                                                             Baseline (most likely) scenario
                                                                 Ownership         Adequacy of trust          Adequacy of recent
                                                               share of plant      fund balances as of        trust fund
Plant name             Owner                                       (percent)       end of 2000                contributionsa
               h
Catawba 2             North Carolina Electric                             28.1     +                          ___
                      Membership
Catawba 2h            North Carolina Municipal Power                      37.5     +++                        +
               h
Catawba 2             Piedmont Municipal Power Agency                     12.5     ++                         +++
Catawba 2h            Saluda River Electric Cooperative                   9.38     ++++                       ___
Clinton               AmerGen Energy Co., Inc.                             100     ++++                       +++
Columbia Generating   Energy Northwest                                     100     _                          __
Station
Comanche Peak 1       Texas Utility Electric Co.                           100     ++++                       ++++
Comanche Peak 2       Texas Utility Electric Co.                           100     ++++                       ++++
Cook, D.C. 1c         Indiana Michigan Power Co.                           100     +++                        + + + +e
Cook, D.C. 2c         Indiana Michigan Power Co.                           100     +++                        ++++
Cooper                Nebraska Public Power District                       100     +                          ++++
                                                                                                              g
Crystal River 3       City of Alachua Electric Dept.                      0.08     +
                                                                                                              g
Crystal River 3       City of Bushnell Utility Dept.                      0.04     ++
Crystal River 3       City of Gainesville Regional                        1.41     +                          ++++
                      Utilities
                                                                                                              g
Crystal River 3       City of Kissimmee Utilities                         0.68     +
                                                                                                              g
Crystal River 3       City of Leesburg Municipal Electric                 0.82     +
                                                                                                              g
Crystal River 3       City of Ocala Utilities Division                    1.33     +
Crystal River 3       New Smyrna Beach Utilities                          0.56     +++                        + + + +e
                      Comm.
                                                                                                              g
Crystal River 3       Orlando Utilities Comm.                             1.60     +++
Crystal River 3       Progress Energy Florida                             91.8     +++                        + + + +e
Crystal River 3       Seminole Electric Cooperative, Inc.                  1.7     ++                         +++
Davis-Besse           Cleveland Electric Illuminating Co.                51.38     +                          ++++
Davis-Besse           Toledo Edison Co.                                  48.62     +                          ++++
Diablo Canyon 1       Pacific Gas & Electric Co.                           100     ++++                       + + + +e
Diablo Canyon 2       Pacific Gas & Electric Co.                           100     ++++                       + + + +e
Dresden 1d            Exelon Generation Co., LLC                           100     ___                        ___
Dresden 2h            Exelon Generation Co., LLC                           100     +                          ++++
               h
Dresden 3             Exelon Generation Co., LLC                           100     +                          ++++
Duane Arnold          Central Iowa Power Cooperative                        20     ___                        ___
Duane Arnold          Corn Belt Power Cooperative                           10     __                         __
Duane Arnold          IPL                                                   70     __                         __
           c
Farley 1              Alabama Power Co.                                    100     +                          ++++




                                             Page 30                                    GAO-04-32 Decommissioning Nuclear Power Plants
                                                 Appendix II
                                                 Detailed Results of Our Analysis of the
                                                 Decommissioning Trust Funds




(Continued From Previous Page)
                                                                                                     Baseline (most likely) scenario
                                                                     Ownership         Adequacy of trust              Adequacy of recent
                                                                   share of plant      fund balances as of            trust fund
Plant name                 Owner                                       (percent)       end of 2000                    contributionsa
           c
Farley 2                   Alabama Power Co.                                   100     ++                             ++++
          d
Fermi 1                    Detroit Edison Co.                                  100     _                              ___
Fermi 2                    Detroit Edison Co.                                  100     +++                            ++++
FitzPatrick                Entergy Nuclear Operations, Inc.                    100     +++                            + + + +e
                   h
Fort Calhoun               Omaha Public Power District                         100     +                              ++++
      h                                                                                                               g
Ginna                      Rochester Gas & Electric Corp.                      100     _
Grand Gulf 1               South Mississippi Electric Power                     10     __                             ___
Grand Gulf 1               System Energy Resources, Inc.                        90     +                              ++++
Haddam Neckd               Connecticut Yankee Atomic Power                     100     +                              + + + +e
                           Co.
Harris 1                   North Carolina Eastern Municipal                  16.17     +                              _
Harris 1                   Progress Energy Carolinas, Inc.                   83.83     +                              +
Hatch 1b                   City of Dalton (Georgia)                            2.2     ++++                           e, g


Hatch 1b                   Georgia Power Co.                                  50.1     +++                            ++++
Hatch 1b                   Municipal Electric Authority of                    17.7     +++                            ++++
                           Georgia
Hatch 1b                   Oglethorpe Power Co.                                 30     +++                            ++++
          b                                                                                                           e, g
Hatch 2                    City of Dalton (Georgia)                            2.2     ++++
          b
Hatch 2                    Georgia Power Co.                                  50.1     ++++                           ++++
          b
Hatch 2                    Municipal Electric Authority of                    17.7     ++++                           ++++
                           Georgia
Hatch 2b                   Oglethorpe Power Co.                                 30     +++                            ++
Hope Creek 1               PSEG Nuclear, LLC                                   100     + + + +i                       g


Humboldt Bay 3d            Pacific Gas & Electric Co.                          100     +                              + + + +e
                   d, f                                                                      i
Indian Point 1             Entergy Nuclear Operations, Inc.                    100     ___                            _ _ _i
Indian Point 2             Entergy Nuclear Operations, Inc.                    100     +                              ++++
Indian Point 3             Entergy Nuclear Operations, Inc.                    100     +++                            + + + +e
Kewaunee                   Wisconsin Power & Light                              41     ++++                           + + + +e
                                                                                                 i
Kewaunee                   Wisconsin Public Service                             59     ++++                           + + + +e, i
                           Corporation
LaCrossed, f               Dairyland Power Cooperative                         100     _                              ___
LaSalle County 1           Exelon Generation Co., LLC                          100     +++                            _
LaSalle County 2           Exelon Generation Co., LLC                          100     +++                            +++
               j
Limerick 1                 Exelon Generation Co., LLC                          100     _                              ___
Limerick 2j                Exelon Generation Co., LLC                          100     _                              _
                       d
Maine Yankee               Maine Yankee Atomic Power Co.                       100     __                             __




                                                 Page 31                                    GAO-04-32 Decommissioning Nuclear Power Plants
                                                Appendix II
                                                Detailed Results of Our Analysis of the
                                                Decommissioning Trust Funds




(Continued From Previous Page)
                                                                                                   Baseline (most likely) scenario
                                                                    Ownership         Adequacy of trust             Adequacy of recent
                                                                  share of plant      fund balances as of           trust fund
Plant name               Owner                                        (percent)       end of 2000                   contributionsa
             h
McGuire 1                Duke Power Co.                                       100     +                             +++
             h
McGuire 2                Duke Power Co.                                       100     +                             ++++
Millstone 1d, f, j       Dominion                                             100     _                             g

                         Nuclear Connecticut
                                                                                                                    g
Millstone 2              Dominion                                             100     ++
                         Nuclear Connecticut
                                                                                                                    g
Millstone 3              Central Vermont Public Service                      1.73     ++++
                         Corp.
                                                                                                                    e, g
Millstone 3              Dominion                                           93.47     ++++
                         Nuclear Connecticut
                                                                                                                    g
Millstone 3              Massachusetts Municipal                             4.80     ++++
                         Wholesale Electric Co.
Monticello               Xcel Energy                                          100     _                             ++
                     f                                                                    i                         g
Nine Mile Point 1        Constellation Energy Group                           100     _
                                                                                               i                    g
Nine Mile Point 2        Constellation Energy Group                            82     +++
Nine Mile Point 2        Long Island Power Authority                           18     +++                           ++++
North Anna 1b, k         Old Dominion Cooperative                            10.4     ++++                          e, g


North Anna 1b, k         Virginia Electric & Power Co.                       89.6     ++++                          ++++
North Anna 2b, k         Old Dominion Cooperative                            10.4     ++++                          e, g


North Anna 2b, k         Virginia Electric & Power Co.                       89.6     ++++                          ++++
Oconee 1b                Duke Power Co.                                       100     ++                            ++++
            b
Oconee 2                 Duke Power Co.                                       100     ++                            ++++
Oconee 3b                Duke Power Co.                                       100     +++                           ++++
Oyster Creek             AmerGen Energy Co., Inc.                             100     +++                           + + + +e
Palisades                Consumers Energy Co.                                 100     ++++                          + + + +e
Palo Verde 1             Arizona Public Service Co.                          29.1     +++                           ++++
Palo Verde 1             El Paso Electric Co.                                15.8     _                             +
Palo Verde 1             Los Angeles Dept. of Water &                         5.7     ++++                          + + + +e
                         Power
Palo Verde 1             Public Service Company of New                       10.2     ++                            ++++
                         Mexico
                                                                                                                    g
Palo Verde 1             Salt River Project Agricultural                    17.49     +++
                         Improvement & Power District
                                                                                                                    e, g
Palo Verde 1             Southern California Edison Co.                      15.8     ++++
Palo Verde 1             Southern California Public Power                    5.91     ++++                          + + + +e
Palo Verde 2             Arizona Public Service Co.                          29.1     +++                           ++++
Palo Verde 2             El Paso Electric Co.                                15.8     _                             _




                                                Page 32                                       GAO-04-32 Decommissioning Nuclear Power Plants
                                                 Appendix II
                                                 Detailed Results of Our Analysis of the
                                                 Decommissioning Trust Funds




(Continued From Previous Page)
                                                                                                     Baseline (most likely) scenario
                                                                     Ownership         Adequacy of trust              Adequacy of recent
                                                                   share of plant      fund balances as of            trust fund
Plant name                Owner                                        (percent)       end of 2000                    contributionsa
Palo Verde 2              Los Angeles Dept. of Water &                        5.70     ++++                           + + + +e
                          Power
Palo Verde 2              Public Service Company of New                       10.2     ++                             +++
                          Mexico
                                                                                                                      g
Palo Verde 2              Salt River Project Agricultural                    17.49     +++
                          Improvement & Power District
                                                                                                                      e, g
Palo Verde 2              Southern California Edison Co.                      15.8     ++++
Palo Verde 2              Southern California Public Power                    5.91     ++++                           + + + +e
Palo Verde 3              Arizona Public Service Co.                          29.1     +++                            +++
Palo Verde 3              El Paso Electric Co.                               15.80     _                              +
Palo Verde 3              Los Angeles Dept. of Water &                         5.7     ++++                           + + + +e
                          Power
Palo Verde 3              Public Service Company of New                       10.2     ++                             ___
                          Mexico
                                                                                                                      g
Palo Verde 3              Salt River Project Agricultural                    17.49     +++
                          Improvement & Power District
                                                                                                                      e, g
Palo Verde 3              Southern California Edison Co.                      15.8     ++++
Palo Verde 3              Southern California Public Power                    5.91     ++++                           + + + +e
                   d, j
Peach Bottom 1            Exelon Generation Co., LLC                           100     ___                            ___
                   b, j                                                                     i
Peach Bottom 2            Exelon Generation Co., LLC                            50     ++                             +++
Peach Bottom 2b           PSEG Nuclear, LLC                                     50     + + +i                         g


Peach Bottom 3b, j        Exelon Generation Co., LLC                            50     + + +i                         ++++
                   b
Peach Bottom 3            PSEG Nuclear, LLC                                     50     + + + +i                       g


Perry 1                   Cleveland Electric Illuminating Co.                44.85     +++                            ++++
Perry 1                   Ohio Edison Co.                                       30     ++                             +++
Perry 1                   Pennsylvania Power Co.                              5.24     +                              +++
Perry 1                   Toledo Edison Co.                                  19.91     ++                             ++++
Pilgrim 1                 Entergy Nuclear Operations, Inc.                     100     ++                             ___
Point Beach 1             Wisconsin Electric Power Co.                         100     +++                            + + + +e
Point Beach 2             Wisconsin Electric Power Co.                         100     +++                            + + + +e
Prairie Island 1          Xcel Energy                                          100     +                              ++++
Prairie Island 2          Xcel Energy                                          100     +                              ++++
Quad Cities 1h            Exelon Generation Co., LLC                            75     +                              ++
               h
Quad Cities 1             MidAmerican Energy Holdings Co.                       25     ++                             ++++
Quad Cities 2h            Exelon Generation Co., LLC                            75     +                              ++++
               h
Quad Cities 2             MidAmerican Energy Holdings Co.                       25     _                              +




                                                 Page 33                                        GAO-04-32 Decommissioning Nuclear Power Plants
                                               Appendix II
                                               Detailed Results of Our Analysis of the
                                               Decommissioning Trust Funds




(Continued From Previous Page)
                                                                                                   Baseline (most likely) scenario
                                                                   Ownership         Adequacy of trust              Adequacy of recent
                                                                 share of plant      fund balances as of            trust fund
Plant name              Owner                                        (percent)       end of 2000                    contributionsa
                 d
Rancho Seco             Sacramento Municipal Utility                         100     __                             ___
                        District
River Bend 1            Entergy Gulf States, Inc.                            100     ++++                           ++++
          f, h
Robinson 2              Progress Energy Carolinas, Inc.                      100     __                             __
Salem 1                 Exelon Generation Co., LLC                         42.59     _                              __
                                                                                           i                        e, g
Salem 1                 PSEG Nuclear, LLC                                  57.41     +++
Salem 2                 Exelon Generation Co., LLC                         42.59     _                              _
                                                                                           i                        g
Salem 2                 PSEG Nuclear, LLC                                  57.41     +++
                 d                                                                                                  e, g
San Onofre 1            San Diego Gas & Electric Co.                          20     ++++
San Onofre 1d           Southern California Edison Co.                        80     +++                            e, g

                                                                                                                    e, g
San Onofre 2            Anaheim Public Utilities Dept.                      3.16     ++++
                                                                                                                    e, g
San Onofre 2            Riverside Utilities Dept.                           1.79     ++++
                                                                                                                    e, g
San Onofre 2            San Diego Gas & Electric Co.                          20     ++++
                                                                                                                    e, g
San Onofre 2            Southern California Edison Co.                     75.05     ++++
                                                                                                                    e, g
San Onofre 3            Anaheim Public Utilities Dept.                      3.16     ++++
                                                                                                                    e, g
San Onofre 3            Riverside Utilities Dept.                           1.79     ++++
                                                                                                                    e, g
San Onofre 3            San Diego Gas & Electric Co.                          20     ++++
                                                                                                                    e, g
San Onofre 3            Southern California Edison Co.                     75.05     ++++
      d                                                                                                             e, g
Saxton                  GPU Nuclear                                          100     ++++
Seabrook 1              FPL Energy                                          88.2     + + +i                         + + + +i
Seabrook 1              Hudson Light & Power Dept.                          0.08     ++                             ++++
Seabrook 1              Massachusetts Municipal                             11.6     ++                              +++
                        Wholesale Electric Co.
Seabrook 1              Taunton Municipal Lighting Plant                     0.1     ++                             ++++
Sequoyah 1              Tennessee Valley Authority                           100     _                              ___
Sequoyah 2              Tennessee Valley Authority                           100     _                              ___
South Texas Project 1   AEP (Texas Central Co.)                            25.20     + + + +i                       + + + +i
South Texas Project 1   City of Austin—Austin                                 16     ++++                           ++++
                        Energy
South Texas Project 1   City Public Service Board of San                      28     +++                            ++++
                        Antonio
South Texas Project 1   Texas Genco                                        30.80     + + + +i                       + + + +i
                                                                                               i
South Texas Project 2   AEP (Texas Central Co.)                            25.20     ++++                           + + + +i
South Texas Project 2   City of Austin—Austin Energy                          16     ++++                           ++++
South Texas Project 2   City Public Service Board of San                      28     ++++                           ++++
                        Antonio




                                               Page 34                                    GAO-04-32 Decommissioning Nuclear Power Plants
                                              Appendix II
                                              Detailed Results of Our Analysis of the
                                              Decommissioning Trust Funds




(Continued From Previous Page)
                                                                                                 Baseline (most likely) scenario
                                                                  Ownership         Adequacy of trust             Adequacy of recent
                                                                share of plant      fund balances as of           trust fund
Plant name              Owner                                       (percent)       end of 2000                   contributionsa
South Texas Project 2   Texas Genco                                       30.80     + + + +i                      + + + +e, i
St Lucie 1h             Florida Power & Light Co.                           100     ++++                          + + + +e
                  h                                                                                               g
St Lucie 2              Florida Municipal Power Agency                      8.7     +++
St Lucie 2h             Florida Power & Light Co.                          85.2     ++++                          + + + +e
                  h                                                                                               e, g
St Lucie 2              Orlando Utilities Comm.                            6.05     ++++
Summerh                 South Carolina Electric & Gas Co.                 66.67     __                            ___
Summerh                 South Carolina Public Service                     33.33     +                             ++++
                        Authority
Surry 1b                Virginia Electric & Power Co.                       100     +++                           ++++
          b
Surry 2                 Virginia Electric & Power Co.                       100     +++                           ++++
Susquehanna 1           Allegheny Electric Cooperative                       10     __                             _
Susquehanna 1           PPL Susquehanna, LLC                                 90     +                             +
Susquehanna 2           Allegheny Electric Cooperative                       10     __                             _
Susquehanna 2           PPL Susquehanna, LLC                                 90     +                             ++++
Three Mile Island 1     AmerGen Energy Co., Inc.                            100     +++                           + + + +e
Three Mile Island       Jersey Central Power & Light                         25     _i                            g

2d
Three Mile Island       Metropolitan Edison Co.                              50     _i                            g

2d
Three Mile Island       Pennsylvania Electric Co.                            25     _i                            g

2d
Trojand, f, j           Eugene Water & Electric Board                        30     ___                           g

        d, f, j
Trojan                  Pacific Power & Light Co.                          2.50     _                             ++++
        d, f, j
Trojan                  Portland General Electric Co.                     67.50     ___                           ___
Turkey Point 3b         Florida Power & Light Co.                           100     ++++                          + + + +e
Turkey Point 4b         Florida Power & Light Co.                           100     ++++                          + + + +e
                                                                                        i
Vermont Yankee          Entergy Nuclear Operations, Inc.                    100     +                             + + +i
                                                                                                                  e, g
Vogtle 1                City of Dalton (Georgia)                           1.60     ++++
Vogtle 1                Georgia Power Co.                                 45.70     ++++                          ++++
Vogtle 1                Municipal Electric Authority of                   22.70     ++++                          ++++
                        Georgia
Vogtle 1                Oglethorpe Power Co.                                 30     +                             ___
                                                                                                                  e, g
Vogtle 2                City of Dalton (Georgia)                           1.60     ++++
Vogtle 2                Georgia Power Co.                                 45.70     ++++                          ++++
Vogtle 2                Municipal Electric Authority of                   22.70     ++++                          ++++
                        Georgia




                                              Page 35                                       GAO-04-32 Decommissioning Nuclear Power Plants
                                             Appendix II
                                             Detailed Results of Our Analysis of the
                                             Decommissioning Trust Funds




(Continued From Previous Page)
                                                                                                    Baseline (most likely) scenario
                                                                       Ownership          Adequacy of trust            Adequacy of recent
                                                                     share of plant       fund balances as of          trust fund
Plant name              Owner                                            (percent)        end of 2000                  contributionsa
Vogtle 2                Oglethorpe Power Co.                                       30     _                            ___
Waterford 3             Entergy Louisiana, Inc.                                   100     _                            +
Watts Bar 1             Tennessee Valley Authority                                100     ++++                         ___
Wolf Creek 1            Kansas City Power & Light Co.                              47     +                            _
Wolf Creek 1            Kansas Electric Power                                        6    __                           ___
                        Cooperative
Wolf Creek 1            Kansas Gas & Electric Co.                                  47     +                            +
                  d
Yankee Rowe             Yankee Atomic Electric Co.                                100     _                            ++++
Zion 1d                 Exelon Generation Co., LLC                                100     __                           ___
        d
Zion 2                  Exelon Generation Co., LLC                                100     ___                          ___
                                             Legend
                                             + means that fund balance/recent contributions were 0 to 25 percent more than benchmark.
                                             ++ means that fund balance/recent contributions were 26 to 50 percent more than benchmark.
                                             +++ means that fund balance/recent contributions were 51 to 100 percent more than benchmark.
                                             ++++ means that fund balance/recent contributions were 101 percent or more than benchmark.
                                             _ means that fund balance/recent contributions were 0.1 to 25 percent less than benchmark.
                                             _ _ means that fund balance/recent contributions were 26 to 50 percent less than benchmark.
                                             _ _ _ means that fund balance/recent contributions were 51 to 100 percent less than benchmark.
Source: GAO analysis.
                                             a
                                              Adequacy of recent contributions is based on responses to our survey. The percentages are more, or
                                             less, than the benchmark, meaning the owner has contributed more, or less, on average for 1999 and
                                             2000 (cost adjusted to 2000) than the annual average of the present value amounts required in each
                                             subsequent year until its plant is retired.
                                             b
                                                 Plant’s operating license extended for 20 years.
                                             c
                                                 Plants whose owners are expected to apply for 20-year license renewals by December 2003.
                                             d
                                                 Plant has permanently shut down.
                                             e
                                                 Trust fund balance exceeds present value of estimated decommissioning costs.
                                             f
                                             Owner has, as of March 31, 2003, an additional method to support financial assurance obligations
                                             (e.g., parent company guarantee, statement of intent).
                                             g
                                                 Contributions data are not available.
                                             h
                                                 Plants whose owners have applied for 20-year license renewals, as of August 20, 2003.
                                             i
                                             Includes balances and/or contributions from a previous owner’s biennial report and/or responses to
                                             our survey.
                                             j
                                             Owner had, as of March 31, 2001, an additional method to support financial assurance obligations
                                             (e.g., parent company guarantee, statement of intent).
                                             k
                                                 Liability is for decommissioning share and not ownership share.




                                             Page 36                                           GAO-04-32 Decommissioning Nuclear Power Plants
                                             Appendix II
                                             Detailed Results of Our Analysis of the
                                             Decommissioning Trust Funds




Table 5: Selected Owners with More, or Less, Than Benchmark Trust Fund Balances and Contributions, under Optimistic
Assumptions (by Percentage above or below Benchmarks)

                                                                                                     Optimistic scenariob
                                                                   Ownership           Adequacy of trust        Adequacy of recent
                                                                 share of plant        fund balances as of      trust fund
Plant name              Ownera                                       (percent)         end of 2000              contributionsc
Beaver Valley 1         Pennsylvania Power Co.                                65       +                        ___
Browns Ferry 1d         Tennessee Valley Authority                           100       ++                       ___
                  d
Browns Ferry 2          Tennessee Valley Authority                           100       ++                       ___
Browns Ferry 3d         Tennessee Valley Authority                           100       ++                       ___
Brunswick 1             Progress Energy Carolinas,                         81.67       _                        +
                        Inc.
Columbia Generating     Energy Northwest                                     100       _                        __
Station
Dresden 1e              Exelon Generation Co., LLC                           100       ___                      ___g
Duane Arnold            Central Iowa Power                                    20       ___                      ___
                        Cooperative
Duane Arnold            Corn Belt Power Cooperative                           10       __                       __
Duane Arnold            IPL                                                   70       _                        _
Fermi 1e                Detroit Edison Co.                                   100       +                        + + + +f
Grand Gulf 1            South Mississippi Electric                            10       _                        ___
                        Power
Indian Point 1e         Entergy Nuclear Operations,                          100       _ _ _g                   _ _ _g
                        Inc.
LaCrossee               Dairyland Power Cooperative                          100       +                        + + + +f
Limerick 1              Exelon Generation Co., LLC                           100       _                        __
Limerick 2              Exelon Generation Co., LLC                           100       _                        +
Maine Yankeee           Maine Yankee                                         100       _                        _
                        Atomic Power Co.
Palo Verde 2            El Paso Electric Co.                               15.80       +                        +
                  e
Peach Bottom 1          Exelon Generation Co., LLC                           100       ___                      ___
Rancho Secoe            Sacramento Municipal Utility                         100       __                       ___
                        District
Robinson 2d             Progress Energy Carolinas,                           100       +                        ++++
                        Inc.
Salem 1                 Exelon Generation Co., LLC                         42.59       _                        _
Salem 2                 Exelon Generation Co., LLC                         42.59       +                        +
Sequoyah 1              Tennessee Valley Authority                           100       _                        ___
Sequoyah 2              Tennessee Valley Authority                           100       +                        ___
Summerd                 South Carolina Electric & Gas                      66.67       ++                       ++
                        Co.



                                             Page 37                                       GAO-04-32 Decommissioning Nuclear Power Plants
                                           Appendix II
                                           Detailed Results of Our Analysis of the
                                           Decommissioning Trust Funds




(Continued From Previous Page)
                                                                                                           Optimistic scenariob
                                                                       Ownership         Adequacy of trust           Adequacy of recent
                                                                     share of plant      fund balances as of         trust fund
Plant name               Ownera                                          (percent)       end of 2000                 contributionsc
Susquehanna 1            Allegheny Electric Cooperative                            10    __                          +
Susquehanna 2            Allegheny Electric Cooperative                            10    __                          +
Trojane                  Portland General Electric Co.                         67.50     __                          __
Vogtle 2                 Oglethorpe Power Co.                                      30    +                           ___
Wolf Creek 1             Kansas Electric                                            6    __                          __
                         Power Cooperative
Zion 1e                  Exelon Generation Co., LLC                               100    __                          ___
        e
Zion 2                   Exelon Generation Co., LLC                               100    __                          ___
                                           Legend
                                           + means that fund balance/recent contributions were 0 to 25 percent more than benchmark.
                                           ++ means that fund balance/recent contributions were 26 to 50 percent more than benchmark.
                                           +++ means that fund balance/recent contributions were 51 to 100 percent more than benchmark.
                                           ++++ means that fund balance/recent contributions were 101 percent or more than benchmark.
                                           _ means that fund balance/recent contributions were 0.1 to 25 percent less than benchmark.
                                           _ _ means that fund balance/recent contributions were 26 to 50 percent less than benchmark.
                                           _ _ _ means that fund balance/recent contributions were 51 to 100 percent less than benchmark.
Source: GAO analysis.
                                           a
                                            Owners’ funds were selected to be screened under optimistic assumptions based on our baseline
                                           results; namely, that the status of their trust funds was below baseline benchmarks on both balances
                                           and contributions.
                                           b
                                               See appendix I for description of optimistic assumptions.
                                           c
                                            Adequacy of recent contributions is based on responses to our survey. The percentages are more, or
                                           less, than the benchmark, meaning the owner has contributed more, or less, on average for 1999 and
                                           2000 (cost adjusted to 2000) than the annual average of the present value amounts required in each
                                           subsequent year until its plant is retired.
                                           d
                                            Plant whose owners have applied for 20-year license renewals or are expected to apply by December
                                           2003, as of August 20, 2003.
                                           e
                                               Plant has permanently shut down.
                                           f
                                             Trust fund balance exceeds present value of estimated decommissioning cost.
                                           g
                                            Includes balances and/or contributions from a previous owner’s biennial report and/or responses to
                                           our survey.




                                           Page 38                                           GAO-04-32 Decommissioning Nuclear Power Plants
                                            Appendix II
                                            Detailed Results of Our Analysis of the
                                            Decommissioning Trust Funds




Table 6: Selected Owners with More, or Less, Than Benchmark Trust Fund Balances and Contributions, under Pessimistic
Assumptions (by Percentage above or below Benchmarks)

                                                                                          Pessimistic assumptions scenariob
                                                                 Ownership        Adequacy of trust fund      Adequacy of recent
                                                               share of plant     balances as of end of       trust fund
Plant name                Ownera                                   (percent)      2000                        contributionsc
Arkansas Nuclear 2d       Entergy Arkansas, Inc.                          100     _                           ___
Beaver Valley 1           Ohio Edison Co.                                  35     __                          ___
Beaver Valley 2           Cleveland Electric Illuminating               24.47     _                           __
                          Co.
Beaver Valley 2           Ohio Edison Co.                               41.88     _                           __
Beaver Valley 2           Toledo Edison Co.                             19.91     _                           _
                 e
Big Rock Point            Consumers Energy Co.                            100     __                          ___
Brunswick 1               North Carolina Eastern                        18.33     __                          __
                          Municipal
Brunswick 2               North Carolina Eastern                        18.33     __                          __
                          Municipal
Brunswick 2               Progress Energy Carolinas,                    81.67     __                          __
                          Inc.
Callaway                  AmerenUE                                        100     __                          ___
                 f                                                                                            g
Calvert Cliffs 1          Constellation Energy Group                      100     _
                 f                                                                                            g
Calvert Cliffs 2          Constellation Energy Group                      100     _
Catawba 1d                Duke Power Co.                                12.50     _                           _
Catawba 1d                North Carolina Electric                        28.1     __                          ___
                          Membership
Catawba 1d                Piedmont Municipal Power                       12.5     _                           _
                          Agency
Catawba 2d                North Carolina Electric                        28.1     _                           ___
                          Membership
                                                                                                              g
Crystal River 3           City of Alachua Electric Dept.                 0.08     _
                                                                                                              g
Crystal River 3           City of Bushnell Utility Dept.                 0.04     _
                                                                                                              g
Crystal River 3           City of Kissimmee Utilities                    0.68     __
                                                                                                              g
Crystal River 3           City of Leesburg Municipal                     0.82     __
                          Electric
                                                                                                              g
Crystal River 3           City of Ocala Utilities Division               1.33     __
Crystal River 3           Seminole Electric                              1.70     _                           __
                          Cooperative, Inc.
Dresden 2d                Exelon Generation Co., LLC                      100     _                           _
            d
Dresden 3                 Exelon Generation Co., LLC                      100     _                           _
Farley 1d                 Alabama Power Co.                               100     _                           _




                                            Page 39                                    GAO-04-32 Decommissioning Nuclear Power Plants
                                            Appendix II
                                            Detailed Results of Our Analysis of the
                                            Decommissioning Trust Funds




(Continued From Previous Page)
                                                                                             Pessimistic assumptions scenariob
                                                                  Ownership         Adequacy of trust fund          Adequacy of recent
                                                                share of plant      balances as of end of           trust fund
Plant name                 Ownera                                   (percent)       2000                            contributionsc
                 e
Haddam Neck                Connecticut Yankee Atomic                        100     _                               ___
                           Power Co.
Harris 1                   North Carolina Eastern                         16.17     _                               __
                           Municipal
Harris 1                   Progress Energy Carolinas,                     83.83     _                               __
                           Inc.
Humboldt Bay 3e            Pacific Gas & Electric Co.                       100     __                              ___
Indian Point 2             Entergy Nuclear Operations,                      100     _                               _
                           Inc.
                                                                                                                    g
Millstone 2                Dominion Nuclear Connecticut                     100     _
Monticello                 Xcel Energy                                      100     __                              __
Palo Verde 1               El Paso Electric Co.                            15.8     __                              __
Palo Verde 3               El Paso Electric Co.                            15.8     __                              __
Palo Verde 3               Public Service Co. of New                      10.20     _                               ___
                           Mexico
Peach Bottom 2f            Exelon Generation Co., LLC                         50    _h                              _
Pilgrim 1                  Entergy Nuclear Operations,                      100     _                               ___
                           Inc.
Prairie Island 1           Xcel Energy                                      100     _                               _
               d
Quad Cities 1              Exelon Generation Co., LLC                         75    _                               ___
Quad Cities 2d             Exelon Generation Co., LLC                         75    _                               __
               d
Quad Cities 2              MidAmerica Energy Holdings                         25    __                              __
Susquehanna 1              PPL Susquehanna, LLC                               90    __                              __
                                                                                         h
Vermont Yankee             Entergy Nuclear Operations,                      100     __                              _ _h
                           Inc.
Vogtle 1                   Oglethorpe Power Co.                               30    __                              ___
Waterford 3                Entergy Louisiana, Inc.                          100     __                              __
Wolf Creek 1               Kansas City Power & Light Co.                      47    __                              __
Wolf Creek 1               Kansas Gas & Electric Co.                          47    _                               __
               e
Yankee Rowe                Yankee Atomic Electric Co.                       100     __                              ___
                                            Legend
                                            + means that fund balance/recent contributions were 0 to 25 percent more than benchmark.
                                            ++ means that fund balance/recent contributions were 26 to 50 percent more than benchmark.
                                            +++ means that fund balance/recent contributions were 51 to 100 percent more than benchmark.
                                            ++++ means that fund balance/recent contributions were 101 percent or more than benchmark.
                                            _ means that fund balance/recent contributions were 0.1 to 25 percent less than benchmark.
                                            _ _ means that fund balance/recent contributions were 26 to 50 percent less than benchmark.




                                            Page 40                                      GAO-04-32 Decommissioning Nuclear Power Plants
                        Appendix II
                        Detailed Results of Our Analysis of the
                        Decommissioning Trust Funds




                        _ _ _ means that fund balance/recent contributions were 51 to 100 percent less than benchmark.
Source: GAO analysis.
                        a
                         Owners’ funds were selected to be screened under pessimistic assumptions based on our baseline
                        results; namely, that the status of their trust funds was 0 to 100 percent above baseline benchmark on
                        balances and/or contributions.
                        b
                            See app. I for description of pessimistic assumptions.
                        c
                         Adequacy of recent contributions is based on responses to our survey. The percentages are more, or
                        less, than the benchmark, meaning the owner has contributed more, or less, on average for 1999 and
                        2000 (cost adjusted to 2000) than the annual average of the present value amounts required in each
                        subsequent year until its plant is retired.
                        d
                         Plant whose owners have applied for 20-year license renewals or are expected to apply by December
                        2003, as of August 20, 2003.
                        e
                            Plant has permanently shut down.
                        f
                        Plant’s operating license extended for 20 years.
                        g
                            Contributions data are not available.
                        h
                         Includes balances and/or contributions from a previous owner’s biennial report and/or responses to
                        our survey.




                        Page 41                                          GAO-04-32 Decommissioning Nuclear Power Plants
Appendix III

Comments from the Nuclear Regulatory
Commission                                                                      Appendx
                                                                                      iI




Note: GAO comments
supplementing those in
the report text appear
at the end of this
appendix.




See comment 1.




See comment 2.




See comment 3.




See comment 4.




                         Page 42   GAO-04-32 Decommissioning Nuclear Power Plants
                 Appendix III
                 Comments from the Nuclear Regulatory
                 Commission




See comment 5.




See comment 6.




                 Page 43                                GAO-04-32 Decommissioning Nuclear Power Plants
                 Appendix III
                 Comments from the Nuclear Regulatory
                 Commission




See comment 7.



See comment 8.




Now on p. 3.



See comment 9.




                 Page 44                                GAO-04-32 Decommissioning Nuclear Power Plants
                  Appendix III
                  Comments from the Nuclear Regulatory
                  Commission




Now on p. 3.




See comment 10.




Now on p. 7.


See comment 11.




See comment 12.




                  Page 45                                GAO-04-32 Decommissioning Nuclear Power Plants
                  Appendix III
                  Comments from the Nuclear Regulatory
                  Commission




Now on p. 14.




See comment 13.




                  Page 46                                GAO-04-32 Decommissioning Nuclear Power Plants
               Appendix III
               Comments from the Nuclear Regulatory
               Commission




               The following are GAO’s comments on NRC’s letter dated October 3, 2003.



GAO Comments   1. Rather than concluding that NRC does not have a method, we stated
                  that the agency’s analysis was not effective in identifying owners who
                  might be at risk of accumulating insufficient funds to pay for
                  decommissioning. For example, NRC relied on the owners’ future
                  funding plans to make up any shortfalls without verifying whether the
                  plans are consistent with the owners’ recent contributions. See also our
                  response in the Agency Comments and Our Evaluation section on page
                  16.

               2. We agree that NRC should be primarily concerned with ensuring that
                  owners of nuclear power plants will have sufficient funds for
                  decommissioning. However, we believe that NRC should take a
                  proactive, rather than reactive, approach to providing owners and the
                  public with a more complete understanding of NRC’s expectations as to
                  how they will hold owners who are not accumulating sufficient funds
                  accountable. As discussed in the report, the lack of any specific criteria
                  for acting on owners’ decommissioning financial reports contrasts with
                  NRC’s practices in overseeing safety issues at nuclear plants, where the
                  agency uses an “Action Matrix” that provides for a range of actions
                  commensurate with the significance of safety inspection findings and
                  performance indicators. Without similar criteria in its oversight of
                  decommissioning funding assurance, NRC will not have a logical,
                  coherent, consistent, and predictable plan of action if and when it
                  encounters owners whose plants have inadequate financial assurance.
                  See also our response in the Agency Comments and Our Evaluation
                  section on page 16.

               3. See our responses to comments 5, 6, and 9 in this appendix.

               4. See our responses to comment 9.

               5. We agree that current NRC regulations do not establish intermediate
                  benchmarking levels, but rather establish the minimum balance that
                  must be obtained when plants are retired. We also agree that the state
                  regulatory authorities and Federal Energy Regulatory Commission play
                  a role. However, we believe that NRC should take a more proactive
                  approach in developing an effective method for ensuring that sufficient
                  funds will be available for decommissioning. For example, a common
                  expected rate of return could be used to project the earnings of each



               Page 47                                GAO-04-32 Decommissioning Nuclear Power Plants
Appendix III
Comments from the Nuclear Regulatory
Commission




    owner’s trust fund. NRC’s current method allows the owners to use up
    to 2 percent (real) or another rate if approved by its state regulator. As
    we stated in our report, one state regulator approved owners of the
    same plant to use widely varying rates of return to project earnings on
    their trust fund investments. Other factors being equal, the owner using
    the higher rate would need to collect fewer funds than the owner using
    a lower rate of return. While the actual rate the owners will earn on
    their funds could be higher or lower, NRC accepted the state regulator-
    approved rates without assessing whether they were consistent with
    market expectations.

    In another example, in its 2001 biennial report, one owner using NRC’s
    2 percent rate of return estimated that the amount of funds needed for
    decommissioning under NRC’s regulations would be insufficient at five
    of its nuclear power plants. Therefore, the owner provided additional
    assurance in the form of a parent guarantee. However, the owner
    sought and subsequently received approval from its state regulator to
    use a higher real rate of return. After receiving the approval, the owner
    withdrew its parent guarantee since under the higher rate, the
    projected trust funds were sufficient to cover estimated
    decommissioning costs. We believe that by being more proactive, and
    not simply deferring to others, the NRC can develop a more effective
    and consistent method and better achieve its primary concern of
    ensuring that owners are accumulating funds at sufficient rates.

6. We found no evidence during our review that NRC has ever determined
   that an owner is not accumulating sufficient funds. Therefore, without
   any experience that its “practice” has been applied, we believe that
   without clear criteria, NRC will not have a logical, coherent, consistent,
   and predictable plan of action if and when it encounters owners whose
   plants have inadequate financial assurance. Accordingly, we are
   recommending that NRC establish criteria for responding to
   unacceptable levels of financial assurance.

7. We agree that our method is different from that used by NRC. Our draft
   discussed and reviewed NRC’s analysis. Based on our review, we
   concluded that NRC’s analysis was not effective in identifying owners
   who might be at risk of accumulating insufficient funds to pay for
   eventual decommissioning. For example, NRC relied on the owners’
   future funding plans, or on rate-setting authority decisions, in
   concluding that the owners were on track to fully fund
   decommissioning. However, we found some owners’ actual



Page 48                                GAO-04-32 Decommissioning Nuclear Power Plants
Appendix III
Comments from the Nuclear Regulatory
Commission




    contributions in 2001 were much less than what they stated in their
    2001 biennial reports to NRC that they planned to contribute. For
    example, one owner contributed about $1.5 million (or 39 percent) less
    than the amount it told NRC that it planned to contribute. Moreover,
    using actual contributions the owners had recently made to their trust
    funds, we identified several owners that are at risk of accumulating
    insufficient funds to pay for eventual decommissioning.

8. We do not believe any changes are needed.

9. We agree, and the our draft report stated, that NRC does not separately
   assess the status of each co-owner’s decommissioning funding against
   the co-owner’s private contractual obligation to fund decommissioning.
   The NRC guidance states: “Some licensees are part owners of power
   reactors. In such cases, the [NRC] reviewer should evaluate separately
   each licensee’s [co-owner’s] amortization schedule [i.e.,
   decommissioning funding] for its share of the facility, unless the lead
   licensee has agreed to coordinate funding documentation and reporting
   for all co-owners.” Nonetheless, we revised the report to remove any
   inferences that NRC’s practice is inconsistent with its internal
   guidance. Notwithstanding NRC’s characterization of its practice, we
   believe that both the guidance and NRC’s actions do not go far enough.
   For example, the guidance allows for an exception when the lead
   licensee agrees to coordinate documentation and reporting. More
   importantly, the critical issue is that NRC should do more to develop an
   effective method for assessing the adequacy of nuclear power plant
   owner’s trust funds for decommissioning. Under NRC’s current method,
   it combines the trust funds for all co-owners of a nuclear plant and then
   assesses the adequacy of decommissioning funds on a plant-wide basis.
   However, as our analysis indicates, combining the trust funds of several
   owners can produce misleading results because those co-owners with
   more than sufficient funds can appear to balance out those with less
   than sufficient funds. In addition, as a practical matter, owners have
   contractual agreements to pay for their share of decommissioning, and
   the trust funds are generally not transferable among owners. Unless
   NRC separately evaluates the adequacy of each co-owners’
   decommissioning trust fund, the agency’s existing process would
   appear to require some co-owners to pay more than their fair share of
   decommissioning costs. We believe this would be inconsistent with
   NRC’s stated policy of generally not looking to one co-owner to bail out
   another.




Page 49                                GAO-04-32 Decommissioning Nuclear Power Plants
Appendix III
Comments from the Nuclear Regulatory
Commission




10. Rather than state that NRC has not developed and used a method, we
    found that the agency’s method was not effective in identifying owners
    who might be at risk of accumulating insufficient funds to pay for
    decommissioning. For example, we identified several limitations in
    NRC’s method, including the agency’s practice of combining the trust
    funds for all the co-owners of a nuclear plant and then assessing
    whether the combined value of the trust funds is sufficient. We believe
    that this practice can produce misleading results because those co-
    owners with more than sufficient funds can appear to balance out those
    with less than sufficient funds.

    In addition, we agree that NRC has not established criteria for taking
    action when it finds cases of unacceptable levels of financial assurance.
    According to NRC officials we spoke to, NRC has never identified an
    owner with unacceptable levels of financial assurance. Moreover, the
    general activities that NRC stated above are not included in its internal
    guidance for reviewing the owners’ biennial reports. We believe that
    NRC should take a more proactive approach to providing owners and
    the public with a more complete understanding of NRC’s expectations
    as to how they will hold owners who are not accumulating sufficient
    funds accountable. We believe having established criteria for taking
    action when it is determined that unacceptable levels of financial
    assurance exist will better prepare NRC to make this determination.
    Furthermore, having such criteria would not only increase public
    confidence that NRC has a plan to take action to ensure sufficient funds
    will be available for decommissioning but also would make its
    determination of inadequacy more transparent to owners.

11. As indicated in our draft report, we reviewed NRC’s analysis of the
    owners’ 2001 biennial reports. Our review clearly points out that the
    agency’s method has limitations that reduce its effectiveness. For
    example, NRC relied on the owners’ future funding plans to make up
    any shortfalls without verifying whether those plans are consistent with
    the owners’ recent contributions. We found that some owners’ actual
    contributions in 2001 were much less than what they stated in their
    2001 biennial reports to NRC that they planned to contribute. For
    example, one owner contributed about $1.5 million (or 39 percent) less
    than the amount they told NRC that they planned to contribute. In
    addition, based on our analysis using the actual contributions the
    owners recently made to their trust funds, we found that 28 owners
    with ownership shares in 44 plants contributed less than the amounts
    we estimate they will need to contribute over the remaining life of their



Page 50                                GAO-04-32 Decommissioning Nuclear Power Plants
Appendix III
Comments from the Nuclear Regulatory
Commission




    plants to meet their decommissioning obligations. Accordingly, we
    believe that our recommendation to NRC to develop an effective
    method is clearly warranted to ensure that all owners are accumulating
    funds at sufficient rates. See also our response to comment 12.

12. As stated in our draft, our conclusions are based on a method that uses
    a benchmark to assess the adequacy of each nuclear plant owner’s
    decommissioning trust fund. In addition, our draft stated that this
    benchmark is not the only way an owner could accrue enough funds to
    pay future decommissioning costs. Still, we believe that our benchmark
    is useful for assessing the status of the owners’ decommissioning trust
    funds because it (1) provides a common standard for comparisons
    among owners, (2) embodies the principle of economic efficiency in
    that the price of a product (i.e., electricity) should, if possible, equal all
    of its costs—current and accrued, and (3) provides for transparency in
    that it assumes that current and future users pay the same
    decommissioning fees, in constant present-value terms.

13. As we stated in our draft, NRC stated that it will not impose
    decommissioning costs on co-owners in a manner inconsistent with
    their agreed-upon shares, except in highly unusual circumstances when
    required by public health and safety considerations and that it would
    not seek more than the pro rata shares from co-owners with
    de minimis ownership. Nevertheless, unless NRC separately evaluates
    the adequacy of each co-owners’ decommissioning trust fund, the
    agency’s existing process would appear to require some co-owners to
    pay more than their fair share of decommissioning costs. We believe
    this would be inconsistent with NRC’s stated policy of generally not
    looking to one co-owner to bail out another one.




Page 51                                GAO-04-32 Decommissioning Nuclear Power Plants
Appendix IV

GAO Contact and Staff Acknowledgments                                                         Appendx
                                                                                                    iIV




GAO Contact       Tim Guinane (202) 512-4939



Acknowledgments   In addition, Ronald La Due Lake, Carolyn McGowan, Cynthia Norris,
                  Michael Sagalow, Barbara Timmerman, Daniel G. Williams, and Dwayne
                  Weigel made key contributions to this report.




(360094)          Page 52                        GAO-04-32 Decommissioning Nuclear Power Plants
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