[Federal Register Volume 60, Number 126 (Friday, June 30, 1995)]
[Rules and Regulations]
[Pages 34109-34126]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-15303]
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DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
18 CFR Part 35
[Docket No. RM94-14-000; and Order No. 580]
Nuclear Plant Decommissioning Trust Fund Guidelines; Final Rule
Issued June 16, 1995.
AGENCY: Federal Energy Regulatory Commission.
ACTION: Final rule.
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SUMMARY: The Federal Energy Regulatory Commission (Commission) is
adopting rules setting forth the guidelines for the formation,
organization and purpose of nuclear plant decommissioning trust funds
(Fund) and for Fund investments. The rules will give Funds greater
investment flexibility. The rules are intended to improve the returns
earned on funds contributed through wholesale electric rates and thus
decrease the amount collected from ratepayers for decommissioning.
EFFECTIVE DATE: This order is effective July 31, 1995. The
incorporation by reference of a publication listed in the regulations
is approved by the Director of the Federal Register as of July 31,
1995.
FOR FURTHER INFORMATION CONTACT: Joseph C. Lynch (Legal Information),
Federal Energy Regulatory Commission, Office of the General Counsel,
825 North Capitol St., N.E., Washington, D.C. 20426, Telephone: (202)
208-2128
James K. Guest (Accounting Information), Office of Chief Accountant,
825 North Capitol Street, N.E., Washington, D.C. 20426, Telephone:
(202) 219-2602
SUPPLEMENTARY INFORMATION: In addition to publishing the full text of
this document in the Federal Register, the Commission also provides all
interested persons an opportunity to inspect or copy the contents of
this document during normal business hours in Room 3401, at 941 North
Capitol Street, N.E., Washington, D.C. 20426.
The Commission Issuance Posting System (CIPS), an electronic
bulletin board service, provides access to the texts of formal
documents issued by the Commission. CIPS is available at no charge to
the user and may be accessed using a personal computer with a modem by
dialing (202) 208-1397. To access CIPS, set your communications
software to 19200, 14400, 12000, 9600, 7200, 4800, 2400 or 1200, full
duplex,
[[Page 34110]]
no parity, 8 data bits and 1 stop bit. The full text of this document
will be available on CIPS for 60 days from the date of issuance in
ASCII and WordPerfect 5.1 format. After 60 days the document will be
archived, but still accessible. The complete text on diskette in
WordPerfect format may also be purchased from the Commission's copy
contractor, La Dorn Systems Corporation, also located in Room 3104, 941
North Capitol Street, N.E., Washington, D.C. 20426.
Table of Contents
I. Introduction
II. Public Reporting Burden
III. Background
IV. Jurisdiction
A. Background
B. The Energy Policy Act
C. The Federal Power Act
D. Nuclear Regulatory Commission (NRC) regulation of nuclear
facilities
E. Managerial discretion
V. Treatment of Funds (and Earnings on Those Funds) Collected Prior
to Effective Date of a Final Rule in This Proceeding
VI. Whether, and, if so, and Under What Circumstances the Commission
Should Allow State Trust Fund Standards to Govern the Portion of
Fund Contributions and Earnings That Are Related to Commission-
Jurisdictional Service
VII. General Guidelines
VIII. Reports
IX. The Alternatives
X. Conclusion regarding selection of Alternative
XI. Environmental Statement
XII. Regulatory Flexibility Act Certification
XIII. Information Collection Statement
XIV. Effective Date
Before Commissioners: Elizabeth Anne Moler, Chair; Vicky A.
Bailey, James J. Hoecker, William L. Massey, and Donald F. Santa,
Jr.
I. Introduction
On June 1, 1994, the Federal Energy Regulatory Commission
(Commission) issued a Notice of Proposed Rulemaking (NOPR) in which the
Commission proposed to amend 18 CFR Part 35 by adding a new Subpart E,
setting forth guidelines for the formation, organization and purpose of
Funds by public utilities and for the investment of Fund assets.
The Commission proposed to adopt: (a) General guidelines for the
formation, organization and operation of Funds; and (b) specific
guidelines governing the quality and quantity of investments that Funds
may make. The Commission requested comments on: (a) The proposed
general and specific guidelines; (b) the meaning of the reasonable
person standard under the general guidelines and under Alternatives 2
and 3 of the specific guidelines; and (c) on two additional issues: (1)
The treatment of monies collected in rates for decommissioning before
the effective date of the final rule in this proceeding; and (2)
whether, and, if so, under what circumstances, the Commission should
allow Funds to follow State trust fund standards for that portion of
contributions and earnings that are related to Commission-
jurisdictional service.\1\
\1\ Nuclear Plant Decommissioning Trust Fund Guidelines; Notice
of Proposed Rulemaking, 59 FR 28297 (June 1, 1994), IV FERC Stats. &
Regs., Proposed Regulations para. 32,506 (1994).
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A. General Guidelines Governing the Organization and Operation of Funds
The proposed general guidelines provide that the Fund must be an
external trust fund and that the Trustee must be independent of the
utility, have a net worth of at least $100 million, and exercise the
care that a reasonable person would use in the same circumstances.
Under the NOPR, the Trustee would: (a) Keep accurate and detailed
records; (b) open the Fund to inspection and audit; (c) limit Fund
investments to those that the Commission allows; and (d) not invest in
any securities of the utility that owns the plant, or in the utility's
affiliates, associates, successors or assigns.
The Trustee would also use the Fund only to decommission the
nuclear power plant to which the Fund relates, and to pay any
administrative or other expenses of the Fund. If Fund balances exceed
the amount necessary for plant decommissioning, the utility would
refund the excess to its customers in a manner that the Commission will
determine. The utility would deposit in the Fund at least quarterly all
monies that it collects in Commission-jurisdictional rates to fund
decommissioning. The proposed general guidelines also provided that
establishing a Fund does not relieve a utility of any obligation that
it may have to decommission a nuclear power plant.
B. Specific Guidelines Governing the Investment of Fund Monies
The Commission proposed for consideration three alternative
approaches to Fund investment:
Alternative No. 1.: No change in present guidelines, i.e.,
continuation of ``Black Lung'' restrictions;
Alternative No. 2.: A reasonable person standard with no
restrictions; and
Alternative No. 3.: A reasonable person standard with certain
restrictions on the quality and quantity of Fund investments.
The Commission requested comments on the appropriate alternative.
With respect to the general guidelines and with respect to Alternatives
2 and 3 of the specific guidelines, the Commission requested comments
on the precise definition and content of the reasonable person
standard.
Thirty-three entities (Commenters) submitted comments.2 The
Commission is now adopting a final rule promulgating regulations
governing the formation, organization and operation of Funds and
permissible Fund investments applicable to amounts collected from
Commission-jurisdictional customers for nuclear decommissioning.3
\2\ The Commenters are: Boatmen's Trust Company of Illinois and
Boatmen's Trust Company (Boatmen's); Sanford C. Bernstein & Co.
(Bernstein); Carolina Power & Light Company (Carolina Power &
Light); Connecticut Department of Public Utility Control
(Connecticut Commission); Consolidated Edison Company of New York
(Consolidated Edison); Consumers Power Company (Consumers Power);
Cooperatives (consisting of Old Dominion Electric Cooperative, North
Carolina Electric Membership Cooperative, Oglethorpe Power
Corporation and the National Rural Electric Cooperative
Association); Duke Power Company (Duke); Edison Electric Institute
(Edison Electric); Entergy Services, Inc. (Entergy - commenting on
behalf of: Arkansas Power & Light Company, Gulf States Utilities
Company, Louisiana Power & Light Company, and System Energy
Resources, Inc.); Florida Power & Light Company, Texas Utilities
Electric Company, and The Washington Public Power Supply System
(Companies); Florida Public Service Commission (Florida Commission);
Indiana Michigan Power Company (Indiana Michigan); Investment/Trust/
Utility Companies; Louisiana Public Service Commission (Louisiana
Commission); Maine Yankee Atomic Power Company (Maine Yankee);
Mellon Bank (Mellon); Michigan Public Service Commission (Michigan
Commission); National Association of Regulatory Utility
Commissioners (NARUC); New England Power Company (New England
Power); New Hampshire Nuclear Decommissioning Finance Committee (New
Hampshire Committee); New York State Department of Public Service
(New York State); NISA Investment Advisors, L. L. C. (NISA);
Northeast Utilities Service Company (Northeast Utilities); Nuclear
Energy Institute (Nuclear Energy); Nuveen-Duff & Phelps Investment
Advisors (Nuveen); Pennsylvania Public Utility Commission
(Pennsylvania Commission); South Carolina Electric & Gas Company
(South Carolina E&G); Union Electric Company (Union Electric);
Virginia Electric and Power Company (Virginia Power); Wisconsin
Electric Power Company (Wisconsin Electric); and Wisconsin Power and
Light Company (Wisconsin Power and Light).
Because the Investment Advisory and Trust Companies' and the
Utility Companies' comments are virtually identical, we are treating
their comments, although filed separately, as joint comments.
Citations to these filings will track the page numbers in the
Investment Advisory and Trust Companies' filing. Appendices A and B
list the Investment Advisory and Trust Companies and the Utilities
Companies respectively.
Note: These Appendices will not appear in the Code of Federal
Regulations.
Although Companies filed their Comments one day past the filing
deadline, we find good cause to accept them.
\3\ The Funds' funding status as of December 31, 1993 appears in
Appendix C. Please Note: This Appendix will not appear in the Code
of Federal Regulations.
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II. Public Reporting Burden
The final rule codifies and clarifies the Commission's requirements
regarding the organization and operation of Funds and the investment of
Fund assets. The Commission estimates that the public reporting
requirements for the information collection requirements contained in
this rule average 4 hours per response. Public utilities will submit
the information to the Commission on an annual basis. The Commission
estimates that the number of respondents is 72. The burden estimate
includes the time required to implement the standards, search existing
data sources, gather and maintain the data needed, and complete and
review the information. The annual burden associated with this
information requirement is 288 hours. Interested parties may file
comments regarding these burden estimates or any other aspect of this
information collection requirement, including suggestions for reducing
this burden, with the Federal Energy Regulatory Commission, 941 North
Capitol Street, N.E., Washington, D.C. 20426 [Attention: Michael
Miller, Information Services Division, (202) 208-1415, FAX (202) 208-
2425], and send them to the Office of Information and Regulatory
Affairs of OMB (Attention: Desk Officer for the Federal Energy
Regulatory Commission--(202) 395-3087; FAX: (202) 395-5167).
III. Background
The Commission set forth the background of the development of its
current guidelines for Fund investments in the NOPR. We will repeat
that discussion here only to the extent necessary to provide a context
for our summary and discussion of the comments received in response to
the NOPR.
In System Energy Resources, Inc. (System Energy I) 4 the
Commission set forth the guidelines for public utilities to use in
developing Funds and for investing Fund assets. The Commission based
those guidelines, inter alia, upon the then applicable Internal Revenue
Service (IRS) standards, which imposed on Fund investments the same
investment restrictions that the Internal Revenue Code (IRC) imposed on
Black Lung Disability Trusts.5 Subsequently, section 1917 of the
Energy Policy Act of 1992,6 among other things, repealed the
portion of 468A(e)(4) of the IRC that restricted the types of assets in
which a Fund could invest and still qualify for tax benefits. On
December 30, 1992, the IRS amended its regulations to reflect the
statutory change.
\4\ 37 FERC para. 61,261 (1986).
\5\ 37 FERC at 61,726-728. Former IRC section 468A(e)(4) imposed
investment restrictions on Fund investments by cross-referencing IRC
section 501(c)(21), which allowed a deduction for a contribution
only to those Black Lung Disability Trusts that met certain
investment restrictions.
\6\ Pub. L. No. 102-486, 106 Stat. 2776, 3024-25 (1992); see 26
U.S.C. Secs. 468A(e) (1988) (Energy Policy Act).
In response to section 1917 of the Energy Policy Act and the IRS's
revised regulations, the Commission, in System Energy Resources, Inc.
(System Energy II), 7 issued an order clarifying its policy
regarding permissible Fund investments. In that order, the Commission
continued to restrict Fund investments to those assets permissible for
Black Lung Disability Trusts (Black Lung assets). The Commission's
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order provided that:
\7\ 65 FERC para. 61,083 (1993).
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Except to the extent that a public utility can demonstrate in
advance that a proposal [to deviate from the guidelines] offers
equal or greater assurance of the availability of funds at the time
of decommissioning and is at least as beneficial to consumers as the
guidelines specified below, public utilities shall limit the
investments in Nuclear Decommissioning Reserve Funds to: (1) public
debt securities of the United States; (2) obligations of a state or
local government which are not in default as to principal or
interest; and (3) time or demand deposits in a bank, as defined in
26 U.S.C. Sec. 581 or an insured credit union, within the meaning of
12 U.S.C. Sec. 1752(7), located in the United States. [8]
\8\ 65 FERC at 61,514. Duke/TU filed a Request for Rehearing but
did not file comments. While the Commission accepts the Requests for
Rehearing as comments in this proceeding, the citations in this
section, for the sake of clarity, distinguish between the earlier-
filed Requests for Rehearing and the later-filed Comments.
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A number of parties intervened in System Energy II, seeking
rehearing of the Commission's decision to continue to require Funds to
invest in Black Lung assets; in the alternative, the parties sought a
rulemaking proceeding to decide Fund investment standards. In System
Energy III,9 the Commission denied rehearing of System Energy II
and commenced this rulemaking to adopt rules for the formation,
organization and operation of Funds and to explore whether the
Commission should retain its existing rules or adopt alternative rules
governing Fund investments.10
\9\ 67 FERC para. 61,228 (1994).
\10\ The Commission accepted the pleadings filed in System
Energy III as timely-filed comments in this rulemaking proceeding.
See 59 FR 28299 n. 10, IV FERC Stats. & Regs., Proposed Regulations,
at 32,851 n. 10. See also 67 FERC at 61,696.
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IV. Jurisdiction
A. Background
In the NOPR, the Commission stated that it would treat the requests
for rehearing of System Energy II (Requests for Rehearing) as comments
in this proceeding.11 Several Requests for Rehearing challenged
the Commission's jurisdiction over Fund investments, and some of the
Commenters reference their Requests for Rehearing in their
comments.12 Companies devoted its comments to the jurisdictional
issue; it argues that the Commission has no jurisdiction to dictate the
type of investments that a Fund may make.13
\11\ 59 FR at 28299 n. 10, IV FERC Stats & Regs., Proposed
Regulations at 32,851 n.10.
\12\ E.g., Cooperatives Comments at 2-3; Duke Comments at 2;
Edison Electric Comments at 26; Investment/Trust/Utility Companies
Comments at 2 n.1.
\13\ Companies Comments at, e.g., 2, 14.
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B. The Energy Policy Act
The Commission adopted the Black Lung restrictions for Fund
investments in System Energy I.14 In that order the Commission
required ``that a utility adopt the [Black Lung] requirements in
[Sec. 1.468A-5T of the IRS temporary regulations] or any subsequent
regulations pursuant to section 468(A) of the IRC in designing its
decommissioning fund.''15
\14\ 37 FERC para. 61,261 (1986).
\15\ 37 FERC at 61,726.
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Once section 1917 of the Energy Policy Act repealed the Black Lung
restrictions in the IRC on Fund investments, the IRS regulations had no
further legal effect for internal revenue purposes and, on December 20,
1992, the IRS modified its regulations to indicate that the Black Lung
restrictions no longer applied.16 Edison Electric states that the
Commission ``explicitly incorporated''17 the IRS regulations into
its decision. From this premise, Edison Electric argues that:
\16\ Nuclear Decommissioning Fund Qualification Requirements, 57
FR 62198 (December 30, 1992).
\17\ Edison Electric Request for Rehearing at 3 n.1.
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[R]estrictions of nuclear decommissioning reserve fund investment
vehicles ceased when the Internal Revenue Code no longer applied
such restrictions.[18]
\18\ Id.
Edison Electric is mistaken in arguing that Black Lung restrictions
on Fund investments terminated when Congress repealed the portion of
section 468A(e)(4) of the IRC that restricted the types of assets in
which a Fund could invest and still qualify for tax benefits. In System
Energy I the Commission did not adopt the IRS regulations implementing
section 468A of the IRC;
[[Page 34112]]
it merely set forth those regulations as a concise statement of the
Black Lung requirements that the Commission (not the IRS) was imposing
on Fund investments.
The Commission's Fund investment guidelines could not depend upon
and be co-terminus with IRC provisions or with IRS regulations, because
the Commission draws its authority not from the IRC but from the
Federal Power Act (FPA). The Commission's Black Lung guidelines for
Fund investments remained in force regardless of Congress's amendment
of section 468A of the IRC, because the Commission imposed those
guidelines on public utilities through its authority under sections 205
and 206 of the FPA, which Congress did not amend in the Energy Policy
Act.
In both System Energy II and System Energy III, the Commission
confirmed the independence of its Black Lung guidelines from IRC
section 468A. In System Energy II the Commission stated:
[W]e find that the former IRS regulations, limiting the type of
investments in which a Nuclear Decommissioning Reserve Fund may
invest, continue to be appropriate for decommissioning funds subject
to our jurisdiction. We continue to believe that the security of a
decommissioning fund is of primary importance. Thus, the Commission
reaffirms the application of the * * * [Black Lung] guidelines to
such funds * * *[ 19]
\19\ 65 FERC at 61,513-514 (emphasis supplied).
In System Energy III the Commission denied intervenors' requests
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that it vacate its order in System Energy II, stating:
Were we to vacate that order, there would be no guidelines
governing Fund investments. Ensuring that there will be sufficient
funds for the decommissioning of nuclear plants is too important to
allow Funds to invest without guidelines. * * * [T]he guidelines
that currently govern Fund investments, which are contained in
System Energy II, will remain in effect until completion of the * *
* [Final Rule]. [ 20]
\20\ 67 FERC at 61,696 (emphasis added).
In all of its System Energy cases, the Commission was plainly
exercising its authority under the FPA. That authority remains
unchanged by any modification of IRC section 468A.
Duke maintains that, when removing Black Lung investment
restrictions on Fund investments from the IRC, Congress intended to
give Funds more leeway for their investments. 21 Edison Electric
submits that the Energy Policy Act lowered the cost of decommissioning
by lowering the tax rate on Funds and by allowing Funds to invest in
common stocks and corporate debt, which have higher returns than Black
Lung assets. According to Edison Electric, ``[t]hese two actions need
to work in tandem to be highly effective in reducing [decommissioning]
costs.'' 22 Cooperatives insist that the Commission may not re-
impose upon Fund investments the Black Lung guidelines that Congress
has repealed. 23
\21\ Duke Request for Rehearing at 3.
\22\ Edison Electric Request for Rehearing at 6.
\23\ Cooperatives states that ``[t]he Commission's peremptory
reimposition of the very investment restrictions which were found by
Congress to be unnecessarily inflexible flouts the legislature's
considered and deliberate repeal of those restrictions.''
Cooperatives Request for Rehearing at 9. See also Investment/Trust/
Utility Companies Request for Rehearing at 13.
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We disagree with Cooperatives, Duke and Edison Electric that in the
Energy Policy Act ``Congress made a specific determination to ease
prior investment restrictions[,]'' 24 and that the Commission no
longer has the option of imposing Black Lung restrictions on Fund
investments. In the Energy Policy Act Congress made no decision on the
investment guidelines that Funds should follow; instead, Congress, as
shown below, intended that Fund investment guidelines would be
determined by public utility regulatory Commissions. Both the preamble
to the IRS Final Rule modifying the IRS regulations to implement
section 1917 of the Energy Policy Act (which modified IRC section 468A)
and the statement of the House Ways and Means Committee Report on
section 1917 of the Energy Policy Act support this view.
\24\ Duke Request for Rehearing at 3.
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In the preamble to the Final Rule, the IRS stated:
The Treasury Department and the Internal Revenue Service believe
that Congress intended the changes made by section 1917 to shift
oversight of the types of investments made by nuclear
decommissioning funds to the public utility commissions. [ 25]
\25\ 57 FR 62198 (December 30, 1992).
When commenting on the purpose of section 1917 of the Energy Policy
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Act, the House Ways and Means Committee stated:
The Committee believes that a nuclear decommissioning fund
should be allowed to invest in any asset that is considered
appropriate by the applicable public utility commission or other
State regulatory body. [ 26]
\26\ H.R. Rep. No. 474, 102d Cong., 2d Sess., pt. 6, at 47.
As the statement of the House Ways and Means Committee indicates,
Congress took no position in the Energy Policy Act on proper Fund
investment policy. Rather, Congress referred resolution of that issue
to the expertise of the public regulatory commissions. Funds can only
invest in those assets that this Commission and the State Commissions
(for that portion of Fund investments that is State-jurisdictional)
``consider[] appropriate.'' 27
\27\ Id.
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C. The Federal Power Act
According to Duke/TU, ``[t]here is no provision * * * [in] the * *
* [FPA] or [in] any other Act giving this Commission * * * specific
authority over decommissioning trust fund dollars.'' 28 While we
agree with Duke that there is no specific authority in the FPA giving
the Commission specific authority over decommissioning trust fund
dollars, we disagree that the Commission is without authority to set
Fund requirements including investment requirements. We note that the
FPA does not, for example, give the Commission specific authority to
set requirements for the collection of dollars for construction work in
progress (CWIP). Yet our CWIP regulations have been affirmed.29 We
also note that our tax normalization regulations have been
affirmed,30 as have our requirements for post retirement benefits
other than pensions(PBOPs).31 Each of the requirements concern, as
with Funds, the timing of the recovery of costs of jurisdictional
service from ratepayers. Very simply, under sections 205 and 206 of the
FPA,32 the Commission has sole jurisdiction to determine whether,
how, and to what extent a public utility will obtain decommissioning
funds through wholesale rates, just as it has authority to regulate the
inclusion of all other costs of wholesale service.
\28\ Duke/TU Request for Rehearing at 6. See also Companies
Comments at 4-5, 14.
\29\ Mid-Tex Electric Cooperative, Inc. et al. v. FERC, 864 F.
2d 156 (D.C. Cir. 1988).
\30\ Public Systems v. FERC, 709 F.2d 73 (D.C. Cir. 1983)
(Public Systems).
\31\ Town of Norwood v. FERC, ______ F. 3d ______ No. 93-1785
(D.C. Cir. May 12, 1995) (Town of Norwood).
\32\ 16 U.S.C. Secs. 824d, 824e.
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The Commission does not have to allow public utilities to collect
decommissioning funds in advance of their decommissioning
expenditures.33 The Commission, as with its treatment of PBOPs,
supra n.31, has allowed public utilities with nuclear units to collect
decommissioning funds in advance of decommissioning expenditures
because this method better matches the recovery of the costs of
decommissioning with the ratepayers who used the nuclear facility's
output. However, inclusion in rates of amounts to cover future
decommissioning
[[Page 34113]]
expenditures would not be just and reasonable without additional
protection to ensure that the amounts will be used for their intended
purpose.34 In addition, by allowing for collections from customers
prior to cash expenditure needs, utilities can certify to the NRC that,
upon termination of operations, funds will be available for
decommissioning.35
\33\ See Public Systems and Town of Norwood, supra.
\34\ Most utilities likely will not make decommissioning
expenditures for 20 years or longer.
\35\ See 10 CFR 50.75(b).
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By allowing public utilities with nuclear units to collect
decommissioning funds in advance of decommissioning expenditures, the
Commission has allowed the utilities to become fiduciaries for their
ratepayers. The Commission did not have to allow this fiduciary
relationship to form. But, having allowed the relationship to develop,
the Commission undoubtedly has the authority to impose appropriate
conditions upon the fiduciaries' use of ratepayers' funds to ensure
that Fund monies will be available for their intended purpose, i.e., to
cover the costs of decommissioning.
The bulk of decommissioning expenditures may not take place until
many years in the future.36 If the Commission did not have
authority to regulate Fund organization, operation and investments,
there would be no one to ensure the security of the many millions of
dollars that, by the time decommissioning takes place, the utilities
will have collected from their wholesale ratepayers and invested as
fiduciaries for their ratepayers.
\36\ See, e.g., Edison Electric Comments at 11 (use of SAFSTOR
method of decommissioning could extend the need for a majority of
funds about 50 years or so); Nuclear Energy Institute Comments at 2
(in the case of the SAFSTOR option the amount of time before
decommissioning would actually commence could be as much as 50 years
after the plant has been retired); Consumers Power Comments at 5
(``Because of the lack of storage capacity for spent nuclear fuel,
complete decommissioning * * * may not occur as of the license
expiration date.'').
Companies cite Board of Public Utility Commissioners v. New York
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Telephone Company 37 to the effect that:
\37\ 271 U.S. 23 (1926) (New York Telephone).
Customers pay for service, not for the property used to render
it. * * * Property paid for out of monies received for service
belongs to the company, just as does that purchased out of proceeds
of its bonds and stock. [ 38]
\38\ 271 U.S. at 32.
From this premise, Companies argue that, while the Commission has
authority to set just and reasonable rates, it has no jurisdiction over
the monies collected for service provided.39
\39\ Companies Comments at 4-5, 14.
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Companies are mistaken. Although it is true that the monies that a
company collects for the services it renders belongs to the company,
that is not the situation that the Final Rule addresses. We are here
setting requirements not for monies collected for services rendered,
but for monies that the Company is investing on behalf of its
ratepayers to meet a future cash expenditure obligation, i.e.,
decommissioning. In this instance, until the company meets its
decommissioning liability, it is holding the monies that it collects
for this purpose in trust for its ratepayers. New York Telephone is,
therefore, inapposite. Under its authority to establish just and
reasonable rates, the Commission has jurisdiction to ensure that public
utilities prudently invest the monies that they are holding in trust
for their ratepayers, so that the amounts that the public utilities
collect will be available when the decommissioning obligation comes
due.
D. Nuclear Regulatory Commission (NRC) Regulation of Nuclear Facilities
Duke argues that by adopting Black Lung guidelines for Fund
investments the Commission has exceeded its authority. Duke maintains
that ``the * * * [NRC], not the Commission, is the agency charged with
assuring that adequate funds are available for decommissioning.''
40 Although Duke concedes that ``[t]he Commission has the
authority to * * * determine whether recovery of a utility's investment
funds will be allowed in wholesale rates[,]'' 41 Duke maintains
that, by imposing Black Lung requirements on Fund investments, ``the
Commission has attempted to establish a rule or policy in an area in
which the NRC has responsibility and primary concern.'' 42
\40\ Duke Request for Rehearing at 4. See also Companies
Comments at 10-14.
\41\ Id. at 4-5.
\42\ Id. at 5.
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We do not agree with Duke that, in setting parameters for Fund
investments, we are invading an area in which the NRC has primary
jurisdiction.
The Commission's jurisdiction over the utilities' collection of
monies for Fund investments does not conflict with the NRC's
responsibility, which is, inter alia, to protect the radiological
health and safety of the public. Although the NRC requires public
utilities with nuclear assets to provide reasonable assurances that the
necessary funds will be available for decommissioning, the NRC's rules
do not address the issue of how public utilities will obtain those
funds through rates. For example, the NRC's calculations of the minimum
amounts necessary to decommission a facility do not address such issues
as intergenerational equity, rate of and procedures for fund
collections, taxation effects, regulatory accounting, responsiveness of
collection schedules to changing conditions, site restoration, or the
additional cost, beyond that necessary to terminate the license, and of
demolishing equipment and structures that are not radioactive.43
These are all concerns intimately associated with decommissioning; and
they are all exclusively the province of this Commission and state
regulatory commissions. Accordingly, this Commission has ample
authority to set reasonable parameters for the collection of
decommissioning funds in wholesale rates.
\43\ See 10 CFR 50.75, n.1.
The NRC explicitly recognizes the Commission's authority over the
collection of decommissioning funds through wholesale rates. The NRC
regulations governing reporting and recordkeeping for decommissioning
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planning acknowledge that:
Funding for decommissioning of electric utilities is also
subject to the regulation of agencies (e.g., Federal Energy
Regulatory Commission * * * and State Public Utility Commissions)
having jurisdiction over rate regulation. The requirements of this
section * * * are in addition to, and not in substitution for, other
requirements * * * [ 44]
\44\ 10 CFR 50.75(a).
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The issue in this proceeding, then, is not whether the Commission
can continue to impose Black Lung restrictions on Fund investments, the
issue is whether it should continue to do so.
E. Managerial Discretion
Duke/TU submits that, since there are now alternative investment
opportunities that do not result in the loss of the current
deductibility of Fund collections, it is primarily management's
responsibility to assure the availability of funds while minimizing the
burden on current customers by achieving maximum return.45 Duke/TU
argues that the Commission has no authority to promulgate guidelines
for Fund investment, but must defer to management decisions, which,
absent substantial evidence to the contrary, the Commission must
presume to be prudent.46
\45\ Duke/TU Request for Rehearing at 10-11.
\46\ Duke/TU Request for Rehearing at 11.
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We disagree. Citing West Ohio Gas Company v. Public Utilities
Commission
[[Page 34114]]
of Ohio 47 and New England Power Company,48 Duke/TU refers
---------------------------------------------------------------------------
to:
\47\ 294 U.S. 63 at 72 (1935).
\48\ 31 FERC para. 61,047 (1985), aff'd, sub nom., Violet v.
FERC, 800 F.2d 280 (1st Cir. 1986)(New England Power).
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[T]he longstanding practice and tradition which holds that
management decisions are presumed to be prudent until substantial
evidence is presented indicating imprudence. [ 49]
\49\ Duke/TU Request for Rehearing at 11.
What Duke/TU fails to recognize is that the development and
management of Funds differs from ordinary day-to-day management
decisions. Decommissioning is a cost,50 which public utilities
must fully fund by accumulating funds through wholesale rates over a
long period of time. The NRC and the Commission work in tandem in this
area. Although it is the NRC that properly insists on the assurance
that there will be sufficient monies to cover decommissioning
liabilities, it is the Commission that determines how public utilities
will accumulate those monies through wholesale rates. Because
decommissioning vitally affects the public health and safety, ``the
security of a decommissioning fund is of primary importance.'' 51
The Commission does not intend to relinquish its regulatory oversight
in this area through over-broad deference to management.
\50\ Under the Commission's existing Uniform System of Accounts
requirements, decommissioning is an estimated removal cost for plant
facilities, which is recovered as a component of net salvage in
determining depreciation expense. Removal costs are recognized on an
accrual basis on the balance sheet over the life of the asset. The
Financial Accounting Standards Board has recently undertaken a
project which, among other things, examines whether a liability
should be recognized for the entire cost of decommissioning at
approximately the time the asset is placed in service.
\51\ 65 FERC at 61,513.
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Duke/TU refers to:
[T]he longstanding regulatory principle that utility commissions are
not authorized to make investment decisions and must defer to
management in this area. [ 52]
\52\ Duke/TU Request for Rehearing at 11.
However, the case to which Duke/TU refers, New England Power, has
to do not with the investment of ratepayer funds to achieve the twin
criteria of safety and maximum return on such funds, but rather with
whether a public utility can recover the cost of an abandoned plant.
New England Power had nothing to do with the investment of capital to
fund decommissioning liability.
Moreover, New England Power does not say, as Duke/TU suggests, that
utility commissions must give utility managers unfettered discretion to
invest funds provided by ratepayers in advance of the utility's
spending dollars.53 What New England Power says is that:
\53\ Duke/TU Request for Rehearing at 11.
[M]anagers of a utility have broad discretion in conducting their
business affairs and in incurring costs necessary to provide
services to their customers. In performing our duty to determine the
prudence of specific costs, the appropriate test to be used is
whether they are costs which a reasonable utility management * * *
would have made, in good faith, under the same circumstances, and at
the relevant point in time. [54]
\54\ 31 FERC at 61,084, as quoted at 800 F.2d 282-83 (emphasis
supplied and deleted).
New England Power does not refer to investments of ratepayer
advanced funds, but to the recovery of specific costs necessary to
provide service to customers. Even in this restricted area,
management's discretion is broad; it is not unlimited.55
\55\ Id.
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For public utilities subject to our jurisdiction, we use the
prudence test to determine whether a utility may recover its expenses
in providing jurisdictional service.56 Fund investment guidelines
govern how a Fund may invest monies obtained from ratepayers in advance
of the need to pay for decommissioning work. The two are very
different. The prudence test is retrospective; the utility has expended
funds or committed to expend funds that it may recover from ratepayers
if it has acted prudently. Fund investment guidelines are prospective;
the utility is acting as a fiduciary to ratepayers from whom it has
obtained funds to pay for decommissioning activity that will occur in
the future. The Commission does not have to allow present collections
to meet future expenditures. But, if it does, then it is well within
the Commission's province to insist on appropriate guidelines for a
public utility's management of monies that it is holding in trust for
its ratepayers.
\56\ 800 F.2d at 282.
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V. Treatment of Funds (and Earnings on Those Funds) Collected Prior to
Effective Date of a Final Rule in This Proceeding
Several Commenters ask that the Commission either make the Final
Rule prospective only or allow for a sufficient transition period so
that utilities may conform Fund investments to the Final Rule without
forced-liquidation losses.57 For example, Carolina Power & Light
states that any immediate liquidation of securities to comply with new
investment guidelines will most likely result in a significant
premature tax payment. It recommends that, to minimize the payments of
taxes and to maximize the after-tax return of the Fund, the final rule
should only apply to fund collections taking place after the effective
date of the final rule.58 According to Virginia Power, it was not
apparent that the Commission's investment guidelines set forth in
System Energy I were applicable to non-qualified trusts, given the
Commission's reliance on the language in the Internal Revenue Code,
section 468A. Virginia Power suggests that, because of what it sees as
an ambiguity in the Commission's language, certain utilities may have
invested non-qualified trust funds in other than Black Lung assets
(e.g., equities).59
\57\ Carolina Power & Light Comments at 13; Edison Electric
Comments at 2, 26 and n.21 (Commission should allow time for prudent
transition to new guidelines); Investment/Trust/ Utility Companies
Comments at 16; Maine Yankee Comments at 5-6; South Carolina E&G
Comments at 2; Pennsylvania Commission Comments at 18-19; Virginia
Power Comments at 3; Wisconsin Electric Comments at 3.
\58\ Carolina Power & Light Comments at 13.
\59\ Virginia Power Comments at 3.
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Virginia Power speculates that utilities may also have begun
investing qualified trust funds in assets other than Black Lung assets
when Congress passed the Energy Policy Act.60
\60\ Id. at 3.
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Commission Ruling
We do not agree that our order in System Energy I was at all
unclear. Nor do we agree that the Energy Policy Act changed the System
Energy I investment requirements and thereby gave public utilities a
license to invest in other than Black Lung instruments.61 However,
our adoption of the reasonable investor standard for Fund Investments
moots this issue since the standard applies to all fund assets.
\61\ See discussion under Jurisdiction, supra.
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VI. Whether, and, if so, and Under What Circumstances the Commission
Should Allow State Trust Fund Standards to Govern the Portion of Fund
Contributions and Fund Earnings That Are Related to Commission
Jurisdictional Service
Several Commenters recommend that, when a State having jurisdiction
over a utility's retail rates has Fund investment guidelines and the
Commission-jurisdictional portion of a Fund is relatively small (25
percent or less) in comparison to the State-regulated portion, the
Commission should either adopt or defer to the State's Fund investment
guidelines.62 These
[[Page 34115]]
Commenters emphasize the State's interest in ensuring that Fund
investments achieve the highest possible returns consistent with
prudence and the administrative costs that utilities would avoid by not
having to maintain separate Funds for State and Commission-
jurisdictional portions of their decommissioning collections. Union
Electric recommends that, when more than one State regulates a Fund,
the Commission should afford the utility the option of selecting which
State standards to apply to the Commission Fund.63
\62\ E.g., Edison Electric Comments at 3; Entergy Comments at 5;
Indiana Michigan Comments at 9; Investment/Trust/Utility Companies
Comments at 14-15; Louisiana Commission Comments at 12-13; NARUC
Comments at 6; New Hampshire Committee Revised Comments at 1;
Northeast Utilities Comments at 21; Union Electric Comments at 2;
Virginia Power Comments at 3; Wisconsin Electric Comments at 3.
\63\ Union Electric at 2.
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On the other hand, New England Power asks the Commission not to
adopt State standards for the investment of Commission-jurisdictional
Fund contributions. New England Power submits that there should be one
set of national standards for the investment of Commission-
jurisdictional Fund contributions rather than many different standards,
which may support various State policies.64
\64\ New England Power Comments at 2-3.
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Commission Ruling
We will not adopt State standards for the Commission-jurisdictional
portion of decommissioning Funds. We agree with New England Power that
there should be but one national, uniform set of regulations for Fund
investments concerning wholesale sales of electric energy in interstate
commerce by public utilities. If there are special circumstances that
dictate the use of State guidelines for a specific Fund, the utility
may bring those circumstances to our attention. We will consider
allowing the application of State guidelines in specific instances on a
case-by-case basis.
VII. General Guidelines
In the NOPR, the Commission proposed general guidelines for the
formation, organization and purpose of Funds. Virginia Power suggests
that we narrow the focus of the guidelines, lest we inadvertently
summarily prohibit other decommissioning alternatives available to
nuclear utilities under the NRC's regulations governing reporting and
recordkeeping for decommissioning planning.65 Besides an external
sinking fund, the NRC's guidelines allow nuclear utilities to fund
decommissioning by prepayment, surety, insurance or ``other
guarantee.'' 66
\65\ Virginia Power Comments at 1-2.
\66\ 10 CFR 50.75(e)(1)(i)(iii).
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Many of the other Commenters seek other modifications of the
proposed general guidelines. For example, Commenters ask the Commission
to clarify what it means by a ``Trustee.'' Commenters state that, under
the trust agreement establishing an external Fund, the utility appoints
the Trustee to perform certain functions, including recordkeeping,
valuation and custodial services. According to Commenters, the utility
may also grant the Trustee the responsibility to invest the Fund's
assets. Alternatively, the utility may retain the investment
responsibilities, or may appoint an outside investment advisor to
direct the Trustee in investing the Fund's assets. Commenters suggest
that the Commission use the term ``fiduciary'' to designate the party
with investment responsibility.67
\67\ Edison Electric Comments at 7-8, 28-29; Investment/Trust/
Utility Companies Comments at 10-11; Mellon Comments at 1-2.
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Commenters recommend that the $100,000,000 net worth requirement
for a Trustee include the assets of the Trustee's parent corporation
and affiliates.68 Commenters also maintain that a public utility
should be able to audit a fund without first notifying the Commission
and that the Commission should not be able to direct a utility to
perform an audit or inspection, as the Commission has proposed to do in
the general guidelines.69
\68\ Boatmen's Comments at 1; Edison Electric Comments at 31;
Union Electric Comments at 1-2. Michigan Commission asks the
Commission to provide that the Trustee shall have assets of at least
five times the total of the decommissioning funds that it manages,
but in no event less than $100 million. Michigan Commission Comments
at 3.
\69\ Indiana Michigan Comments at 11; Virginia Power Comments at
2. Virginia Power states that a provision allowing the Commission to
direct a public utility to perform an audit or inspection of the
Fund is unnecessary, because the Commission has the ability to
conduct its own audits of Fund operations at any time, and will
receive annual statements showing all Fund activity. Virginia Power
Comments at 2.
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With respect to Fund surpluses and shortages, Commenters recommend
that the Commission: (a) Give utilities the right to bill current or
past customers for Fund shortages; 70 (b) provide for the
equitable distribution of excess Fund balances between shareholders and
ratepayers in those instances in which a utility has contributed
shareholder money to the Fund; 71 (c) provide that the company may
receive some portion of any Fund surplus resulting from superior Fund
and/or decommissioning-cost management; 72 and (d) allow a company
with multiple Funds to retain any excess in a particular Fund until
there is no possibility of a decommissioning deficiency in another Fund
of the same company.73
\70\ Edison Electric Comments at 31; Indiana Michigan Comments
at 11-12; Wisconsin Electric Comments at 3.
\71\ Edison Electric Comments at 31; Entergy Comments at 2;
Indiana Michigan Comments at 11; Investment/Trust/Utility Companies
Comments at 13; Wisconsin Electric Comments at 3.
\72\ Edison Electric Comments at 31-32.
\73\ Indiana Michigan Comments at 12.
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With respect to Fund management, Commenters suggest that the
Commission: (a) Amend its proposed general guidelines to except from
the ``exclusion of affiliates provision'' investments in broad market
indexes or other mutual funds; 74 (b) revise its rules regarding
quarterly deposits to the Funds to allow for annual deposits except
when annual contributions would exceed a million dollars; 75 (c)
provide that a fiduciary's standard of care under this section is the
same standard of care that the Commission adopts under the specific
guidelines for Fund investments; 76 (d) state that the Final Rule
applies only to Commission-jurisdictional Funds; 77 (e) delete the
term ``associates'' from the investment provisions because the meaning
is unclear; 78 and (f) state that a fiduciary (other than a
utility) does not have any responsibility to ensure that the amount of
monies that a Fund contains are adequate to pay for the decommissioning
liability.79
\74\ Northeast Utilities Comments at 15. Northeast Utilities
states that this exception is particularly important in the case of
a Fund for jointly-owned units, where a dozen or more different
utilities can be owners. Id.
\75\ Entergy Comments at 2; Nuclear Energy Comments at 3;
Investment/Trust/Utility Companies Comments at 14.
\76\ Investment/Trust/Utility Companies Comments at 12.
\77\ Edison Electric Comments at 30.
\78\ Investment/Trust/Utility Companies Comments at 12.
\79\ Investment/Trust/Utility Companies Comments at 17.
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Edison Electric states that the references to tax maximization and
minimization are unclear, and will be unnecessary if the Commission
adopts the reasonable person investment standard with no
restrictions.80 Edison Electric suggests, among other things, that
the Commission change the term ``liquidity,'' used in the section of
the proposed rules regarding after-tax earnings, to state: ``giving due
consideration to the timing of the need for the funds.'' 81
According to Edison Electric, this change would define the
[[Page 34116]]
type of liquidity needed. Investment/Trust/Utility Companies suggests
language that, it submits, would clarify the Commission's intent
regarding obtaining optimum tax treatment for the Fund.82
\80\ Edison Electric Comments at 29-30. Edison Electric refers
to the ``ERISA prudent person standard,'' but it is clear from the
context that Edison Electric is referring to proposed Alternative
No. 2.
\81\ Edison Electric Comments at 32.
\82\ Investment/Trust/Utility Company Comments at 14.
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Investment/Trust/Utility Companies asks the Commission to define
the term ``costs of decommissioning the nuclear power plant,'' and
offers a definition of the term.83
\83\ Id. at 12-13.
Maine Yankee states that, in the case of a public utility having
but a single asset, which is a nuclear generating unit, the Commission
should consider that all costs associated with unwinding the affairs of
the company are decommissioning costs.84
\84\ Maine Yankee Comments at 5.
---------------------------------------------------------------------------
Investment/Trust/Utility Companies suggests that the Commission
does not intend to require that a utility establish a separate Fund for
Commission-jurisdictional decommissioning collections, but only to set
aside a percentage of the assets of a Fund equal to the Commission-
jurisdictional portion of the total balance of the Fund. Investment/
Trust/Utility Companies asks the Commission to explain that it is this
portion of the Fund that the utility must administer and invest
according to the Commission's rules.85
\85\ Investment/Trust/Utility Companies Comments at 11.
---------------------------------------------------------------------------
Investment/Trust/Utility Companies also asks the Commission to
state that a utility may establish both qualified and non-qualified
funds with respect to a utility's interest in a specific nuclear plant.
It explains that a qualified fund is an external trust established
under section 468A of the Internal Revenue Code (Code). It states that,
because there are limits in Code section 468A on amounts that a utility
can contribute to a qualified fund, many utilities also establish one
or more external, non-qualified funds to hold additional
decommissioning collections from customers.86 Investment/Trust/
Utility Companies recommends that the Commission state whether it
intends the Final Rule to apply to both ``qualified'' (under Code
section 468A) and non-qualified funds.87
\86\ Id. at 11 and n.4.
\87\ Id. at 16.
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The Michigan Commission asks that the Commission amend the proposed
general guidelines that refer to specific investment limitations to
provide that:
(7) [T]he Trustee shall not invest in any securities of the
subsidiaries, affiliates, or associates or their successors or
assigns of the utility for which it is managing the Fund, or any
utility, which, on the date of the investment, has a nuclear plant
on its books. [88]
\88\ Michigan Commission Comments at 3.
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Commission Rulings
Although Virginia Power suggests that public utilities might fund
decommissioning by some mechanism other than a Fund,89 no other
Commenter has proposed that public utilities might fund decommissioning
in any manner other than by establishing a Fund. The NRC's regulations
governing reporting and recordkeeping for decommissioning planning
provide that electric utilities must certify that, upon termination of
operations, funds will be available for decommissioning.90
Electric utilities must supply the NRC with a copy of the financial
instruments that support the certification.91 Electric utilities
may give adequate assurance that funds will be available for
decommissioning through either: (a) Prepayment; (b) an external sinking
fund; or (c) surety, insurance or other guarantee.92 The NRC's
regulations provide that an external sinking fund is:
\89\ Virginia Power Comments at 1-2.
\90\ 10 CFR 50.75(b) and (e)(1)(ii).
\91\ 10 CFR 50.75(b).
\92\ 10 CFR 50.75(e).
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a fund established and maintained by setting funds aside
periodically in an account segregated from licensee assets and
outside the licensee's administrative control in which the total
amount of funds would be sufficient to pay decommissioning costs at
the time termination of operation is expected. An external sinking
fund may be in the form of a trust, escrow account, government fund,
certificate of deposit or deposit of government securities.
[93]
\93\ 10 CFR 50.75(e)(1)(ii).
---------------------------------------------------------------------------
The Comments indicate that all of the electric utilities that have
nuclear units have elected to furnish the requisite financial assurance
to the NRC by establishing external sinking funds. No one suggests
otherwise and we have no reason to believe that any public utilities
are funding the decommissioning expense by any mechanism other than
through an external sinking fund.
The general guidelines governing the formation, organization and
purpose of external Funds will apply to all public utilities that
employ such a device. However, the guidelines will not exclude any
options that may be theoretically possible but have not currently been
selected by public utilities. We see no reason, then, to restrict the
application of the guidelines. Accordingly, we will reject Virginia
Power's recommendation that in the Final Rule we more narrowly focus
the application of the general guidelines.94
\94\ See Virginia Power Comments at 1-2.
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If public utilities are using or intend to use any of the other
options that the NRC allows for funding the decommissioning expense,
they should promptly bring those alternatives to our attention.
We appreciate the Commenters' observation that, under a trust
agreement establishing a Fund, persons other than a Trustee, such as an
investment advisor or an investment fund manager, may invest the Fund's
assets, either directly or by directing the Trustee's investments. To
clarify, we will use the term ``fiduciary'' throughout the remainder of
this Final Rule to refer to both the person(s) or institution(s) that
perform the trustee and investment management functions, except where
otherwise noted.
As the Commenters have made clear, trust fiduciaries have various
duties. The primary duty of the Trustee is custodial. The Trustee
holds, manages, cares for and protects Fund assets, maintains records
of the Fund's investment activities, receives and delivers securities
in accordance with the instructions of the investment managers and
collects interest and dividends. Another related duty of a Trustee is
disbursement of funds. The Trustee makes distributions from the Fund
for decommissioning costs, administrative costs and fees in accordance
with the trust agreement, and periodically furnishes statements to the
utility setting forth the value of the Fund. A third duty of trust
fiduciaries is investment management; this duty may be performed by the
Trustee or by another fiduciary. We emphasize, however, that the
utility may not serve as investment manager. The investment manager
must be independent of the utility and its subsidiaries, affiliates,
and associates. As explained below, the utility may provide written
general investment policy, but it may not engage in day-to-day
management of the Fund. The investment manager directs and implements
the Funds' investment program, and executes contracts, agreements and
other documents necessary to manage and invest the Fund's
assets.95
\95\ Edison Electric Institute Comments at 7-8; Mellon comments
at 1-2.
The utility, as sponsor of the decommissioning fund, has overall
responsibility to direct the investment program, and appoint trustees
and investment managers. We would expect utilities to communicate
regularly with the fiduciaries they appoint. For
[[Page 34117]]
example, a utility would need to supply to the fiduciary, and to
regularly update, essential information about the nuclear unit covered
by the Trust Fund Agreement, including its description, location,
expected remaining useful life, the decommissioning plan that the
utility proposes to follow, the utility's liquidity needs once
decommissioning begins, and any other information that the fiduciary
would need to construct and maintain, over time, a sound investment
plan. A prudent utility would also monitor the fiduciary's performance
and, if necessary, replace the fiduciary if the fiduciary is not
properly performing its assigned responsibilities.
To ensure that the fund assets are not available to creditors in
the event of the bankruptcy of the utility, the Trust assets must be
segregated from those of the utility and outside the utility's
administrative control. There must be a written trust agreement and the
fiduciary or fiduciaries, in fullfilling the various duties, must be
completely separate and apart from the utility.\96\ The utility may
provide general investment policies, but it may do so only in writing
and it may not engage in the day-to-day management of the Fund or
mandate or itself make individual investment decisions. These criteria
accord with the NRC's regulations and the NRC Staff guidelines on the
subject of ensuring the availability of funds for decommissioning
nuclear reactors.\97\
\96\ Cf. In Re: Columbia Gas Systems, Inc., et al. 997 F.2d 1039
(3rd Cir. 1993).
\97\ 10 CFR 50.75(e)(1)(ii); U.S. Nuclear Regulatory Commission,
Regulatory Guide: Assuring the Availability of Funds for
Decommissioning Nuclear Reactors (1990) at 1.159-4.
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The $100,000,000 net worth requirement for a fiduciary ensures that
the fiduciary will have the necessary assets to adequately self-insure
its performance. In calculating the $100,000,000 net worth requirement,
we will take into account the net worth of the fiduciary's parent
corporation and affiliates only if those entities agree to act as
guarantors for the fiduciary with regard to its Fund responsibilities.
If they do not, then their assets are irrelevant to the purpose of the
$100,000,000 net worth requirement, since those assets would not be
available to insure the fiduciary's performance.
As an integral part of our oversight function, we will retain the
requirement that a utility notify the Commission before auditing a Fund
and we will retain our authority to direct a utility to audit or
inspect the Fund. There is no need to decide Virginia Power's position
that the provision allowing the Commission to direct a public utility
to perform an audit or inspection of the Fund is unnecessary since we
believe it is appropriate in any event to clearly specify this
requirement. Even though we will receive annual statements showing all
Fund activity, we must ensure that the statements are correct. We can
conduct our own audits. But the Fund oversight function imposes an
additional burden on the Commission's resources and it may be necessary
to direct public utilities to perform the audits or inspections and
forward the results of their monitoring to the Commission.
We will not provide blanket authority for utilities to bill current
and past customers for Fund shortages. We hope that there will be no
Fund shortages and that utilities are collecting all of their wholesale
decommissioning costs through the rates that they have on file with
this Commission. However, the actual, total cost of decommissioning
will not be known for years. Whether Funds' assets are sufficient,
insufficient, or just right will not be known until that time.
Accordingly, we will consider requests to bill current and past
customers for Fund shortages on a case-by-case basis.
We will not allow utilities to pay shareholders out of Fund assets.
It is the ratepayers who are paying for decommissioning through their
wholesale rates. Commenters have submitted no evidence that
shareholders have contributed to meeting decommissioning expenses.
Decommissioning expenses are costs of doing business for which public
utilities are entitled to reimbursement from their ratepayers.
Edison Electric asks that we allow a company to receive some
portion of any Fund surplus resulting from superior Fund and/or
decommissioning-cost management.\98\ Edison Electric does not explain
what it considers to be superior Fund and/or decommissioning-cost
management and offers no norm against which to measure such
management.\99\ What Edison Electric overlooks is that ratepayers
should receive the best Fund and decommissioning-cost management
available as a matter of course. Companies should not profit from
providing the service that they should provide in the normal course of
conducting their business.
\98\ Edison Electric Comments at 31-32.
\99\ As discussed above, utilities will not manage the Funds.
That will be the role of the independent fiduciaries.
---------------------------------------------------------------------------
We will adopt Commenters' suggestion and not allow a company with
multiple Funds to retain any excess in a particular Fund until there is
no possibility of a decommissioning deficiency in another Fund of the
same company.\100\ Companies must meet Fund deficiencies on a unit-by-
unit basis. Funds are not generic. Each Fund can only be unit-specific,
because the fiduciary duty of Fund managers can only be to the
ratepayers who have contributed to the cost of decommissioning the
specific unit for which it manages the Fund. A particular fiduciary may
administer more than one Fund, but it has a separate fiduciary
responsibility to each Fund.
\100\ See Indiana Michigan Comments at 12.
---------------------------------------------------------------------------
Were a utility able to use excesses in one Fund to offset
deficiencies in other Funds, one set of ratepayers would be required to
subsidize other ratepayers. The remedy for a Fund deficiency is not to
take a surplus from another Fund, but to adjust the collections for the
Fund that is deficient.
We reject Investment/Trust/Utility Companies' suggestion that a
public utility need not establish a separate Fund for Commission-
jurisdictional decommissioning collections, but only set aside a
percentage of the assets of a Fund equal to the Commission-
jurisdictional portion of the total balance of the Fund.\101\ Public
utilities must establish a separate Fund for Commission-jurisdictional
decommissioning collections. Although this will add to a utility's
administrative expenses, it is the only way that we can ensure the
integrity of Commission-jurisdictional Funds.
\101\ See Investment/Trust/Utility Companies' Comments at 11.
---------------------------------------------------------------------------
We will adopt Commenters' suggestion that we except investments in
broad market indexes or other mutual funds from the ``exclusion of
affiliates'' provision. Were we not to make this exception, the
``exclusion of affiliates'' provision would unduly restrict investments
in market indexes and other mutual funds, and make such investments
inordinately difficult to place and to monitor, especially for Funds
that pertain to jointly-owned units, when several different utilities
are participating owners of the same nuclear unit.\102\
\102\ See Northeast Utilities Comments at 15.
---------------------------------------------------------------------------
The reason for the requirement that utilities make deposits to the
Funds every quarter is to ensure that utilities promptly deposit into
the Funds (and thus begin earning a return on) the monies that they
collect for decommissioning. The notion that utilities might make Fund
deposits annually, except when annual
[[Page 34118]]
contributions would exceed a million dollars,\103\ is unacceptable.
Such a rule could deprive Funds of earnings on large amounts of
ratepayer-contributed monies. The purpose of collecting decommissioning
funds through wholesale rates is solely to fund nuclear
decommissioning. Public utilities should be using these funds for no
other purpose and they should be depositing these monies into the Funds
as promptly as possible. If a public utility faces special
circumstances, it may apply for a waiver of this rule. We will consider
requests for such waivers on a case-by-case basis.
\103\ See Entergy Comments at 2; Nuclear Energy Comments at 3;
Investment/Trust/Utility Companies Comments at 14.
---------------------------------------------------------------------------
We agree with Commenters that a fiduciary's standard of care under
the general guidelines must be the same standard of care that the
Commission adopts under the specific guidelines for Fund
investments.\104\ We will discuss this standard of care in the next
section and will incorporate into the fiduciary's standard of care
under the general guidelines the same standard of care that we adopt
under the specific guidelines for Fund investments.
\104\ See Investment/Trust/Utility Companies Comments at 12.
---------------------------------------------------------------------------
We will adopt Edison Electric's recommendation 105 and provide
that the Final Rule applies only to Commission jurisdictional Funds.
The Final Rule will also provide that it is not the responsibility of
the Fund's fiduciary investment manager to ensure that the amount of
monies that a Fund contains are adequate to pay for decommissioning
106
\105\ See Edison Electric Comments at 30.
\106\ See Investment/Trust/Utility Companies Comments at 17.
---------------------------------------------------------------------------
We will not delete the term ``associates'' from the Final Rule. The
only reason that Commenters advance for omitting this term from the
Final Rule is that, in their view, the meaning of this term is
unclear.\107\ By the term ``associates'' we mean any companies or
persons that directly, or indirectly through one or more
intermediaries, control, or are controlled by, or are under common
control with, the utility.\108\
\107\ See Id. at 12.
\108\ See 18 CFR Part 101, Definition 5A.
---------------------------------------------------------------------------
We agree with Commenters that the references to tax maximization
and minimization in the NOPR are unclear.\109\ In the Final Rule we
will adopt Commenters' suggested language, slightly modified, as
follows:
\109\ Edison Electric Comments at 29-30.
The utility and Fiduciary shall seek to obtain the best possible
tax treatment of amounts collected for nuclear plant
decommissioning. In this regard, the utility and Fiduciary shall
take maximum advantage of tax deductions and credits, when it is
consistent with sound business practices to do so. [\110\]
\110\ See Investment/Trust/Utility Company Comments at 14.
This modification obviates the need to redefine the word
``liquidity'' to mean ``giving due consideration to the timing of the
need for the funds[]'' as Edison Electric recommends.\111\
\111\ See Edison Electric Comments at 32.
---------------------------------------------------------------------------
Investment/Trust/Utility Companies asks the Commission to define
the term ``costs of decommissioning the nuclear power plant,'' and
offers the following definition of the term:
The term ``cost of decommissioning'' means all expenses to be
incurred in connection with the entombment, decontamination,
dismantlement, removal and disposal of the structures, systems and
components of a nuclear power plant that has permanently ceased the
production of electric energy, including all costs necessary to
bring the plant site to ``greenfield'' status and any other type of
cost included in a study accepted by the Commission as a basis for
determining the amount to be included in rates charged to customers.
Such term includes all expenses incurred in connection with the
preparation for decommissioning, such as engineering and other
planning expenses, and all expenses to be incurred after the actual
dismantlement occurs, such as physical security and radiation
monitoring expenses. The term also includes costs of spent fuel
storage, disposal and removal and low level waste storage, disposal
and removal. For a single asset company, the term includes the
winding up costs of the company. The term includes costs whether
they are treated as capital items or expense items for regulatory,
financial, or tax accounting purposes. [\112\]
\112\ Investment/Trust/Utility Companies' Comments at 12-13.
Decommissioning nuclear plants and recognition and measurement of
the related costs is complex.\113\ The Commission has had little
experience in examining the actual expenditures required in connection
with decommissioning a nuclear power plant. For this reason it would
not be appropriate to adopt at this time any definition, either that
proposed by Investment/Trust/Utility Companies or otherwise. If we were
to do so, we are afraid that costs legitimately part of decommissioning
would be excluded because such costs failed to fall within the
categories provided by the definition. For the purposes of the Final
Rule, we need only define the amounts that are subject to the Final
Guidelines that we are adopting. In that regard, the Final Rule
provides that all amounts approved by the Commission as decommissioning
expenses in public utilities' rates are subject to the Fund
requirements of the Final Rule.
\113\ We note that the Financial Accounting Standards Board
presently has under consideration a project to address the
accounting for nuclear plant decommissioning.
However, we do not agree that, in the case of a public utility
having but a single asset, which is a nuclear generating unit, all
costs associated with winding up the affairs of the company are
necessary decommissioning costs.114 In any event, this issue is
best addressed on a case-by-case basis.
\114\ See Maine Yankee Comments at 5.
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Several commenters pointed out that public utilities may establish
both qualified and non-qualified Funds with respect to a utility's
interest in a specific nuclear plant. The Final Rule will apply to both
``qualified'' (under Code section 468A) and non-qualified
Funds.115
\115\ See Investment/Trust/Utility Companies Comments at 11 and
n.4, and 16.
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We will partially adopt Michigan Commission's suggestion and
provide that fiduciaries shall not invest in any securities of the
subsidiaries, affiliates, or associates or their successors or assigns
of the utility for which they manage the Fund.116 The only
exception to this restriction will be for investments in mutual funds
or in broad market indexes, since such a restriction would virtually
preclude such investments.
\116\ See Michigan Commission Comments at 3.
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VIII. Reports
In the NOPR, the Commission proposed that the utility must submit
to the Commission by June 30 of each year a copy of the financial
report that the fiduciary furnishes to the utility for the most recent
12-month period, showing assets and liabilities and various other
information.117 Indiana Michigan asks the Commission to: (a)
change the wording ``the most recent 12-month period'' to ``the prior
calendar year;'' and (b) eliminate the word ``liabilities,'' since the
Fund should have only assets. Indiana Michigan also asks the Commission
to consider allowing the companies to maintain the fiduciary's reports
available for inspection by Commission auditors, rather than file the
reports with the Commission.118
\117\ 59 FR 28302 (June 1, 1994), IV FERC Stats. & Regs.,
Proposed Regulations at 32,856-58.
\118\ Indiana Michigan Comments at 14.
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Edison Electric requests that the provision for the filing of
reports specify that the reports due by June 30th are or may be for the
preceding calendar year rather than for the most recent 12-month
period. Edison Electric also suggests that the Commission consider
allowing
[[Page 34119]]
companies to keep the reports on file and open to Commission
inspection, rather than requiring the companies to file the reports
with the Commission.119
\119\ Edison Electric Comments at 25.
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Consolidated Edison suggests that the Commission consider allowing
utilities to file the Fund annual report as part of the utility's FERC
Form No. 1.120
\120\ Consolidated Edison Comments at 5.
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Investment/Trust/Utility Companies asks the Commission to state
that the required financial report should include only the assets of
the Fund (e.g., obligations held by or on behalf of the Fund) and only
the liabilities of the Fund (e.g., accrued but unpaid taxes or
fiduciaries' fees), and not the liability for decommissioning, which is
a liability of the utility, not of the Fund. Investment/Trust/Utility
Companies also asks the Commission to specify that the term ``most
recent 12 months'' refers to the most recently-completed annual
accounting period that the Fund uses.121
\121\ Investment/Trust/Utility Companies at 9.
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Duke maintains that the Commission's proposed reporting
requirements are an additional, unnecessary burden. Duke submits that
the Commission could obtain the same information during its routine
audits of the utilities.122 The Louisiana Commission recommends a
comprehensive set of reporting requirements to promote ``a dialogue
between consumer representatives * * * and * * * utilities on
investment and fund management practices.'' 123 In addition to
financial statements, identification of fiduciaries, the manner of
their selection, and a statement of their fees, the Louisiana
Commission would require, among other things, a comparison of asset
returns with the returns of the Standard & Poor's 500 and a narrative
description of the Fund's investment strategy.124
\122\ Duke Comments at 5.
\123\ Louisiana Commission Comments at 10.
\124\ Louisiana Commission Comments, Appendix A at 15-16.
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Commission Rulings
We will adopt Edison Electric's suggestion to report the prior
calendar year performance. This will permit the Commission to monitor
how a Fund is performing in relation to other Funds and will permit
ready identification over time of Funds that may be significantly
under-performing. Allowing Funds to report on different time periods
would complicate such analysis.125 We will require utilities to
file the reports by March 31 of each year, with the first report due
April 1, 1996 (March 31 of that year being a Sunday). This will afford
sufficient time for any changes necessary in current reporting
systems.126
\125\ We believe, however, that any comparisons of Fund
performances must be based on several years' data.
\126\ For this reason we reject Nuclear Energy's suggestion that
the utility decide the reporting period based on its reporting
responsibilities to the Commission, State regulators and the NRC.
See Nuclear Energy Comments at 3.
---------------------------------------------------------------------------
We will also maintain the requirement that utilities submit the
annual Fund reports to the Commission, rather than simply retain them,
open for inspection. Having to go to each utility to review the Funds'
annual reports would unnecessarily burden the Commission's resources.
We will not make the Funds' annual reports part of FERC Form No. 1.
To do so would require development and use of a structured format
particularly for purposes of our electronic filing requirements for
that form. The submission of a copy of the financial reports provided
by the Fund fiduciaries will be administratively less burdensome and
will be sufficient for our purposes.
We will not omit from the reporting requirements the word
``liabilities.'' We must know if Funds incur liabilities and the
amounts of those liabilities or our oversight would be
incomplete.127
\127\ For example, each fund will probably have unpaid
fiduciaries' fees.
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We disagree with Duke that the reporting requirement is
unnecessary. Duke's thesis is that the Commission can obtain the
required information during its routine audits of the utilities.
However, the Commission does not audit each public utility annually.
The information will not always coincide with our scheduled audit
activity. Moreover, an annual filing requirement will provide the
Commission greater flexibility to monitor Funds. The Commission has a
responsibility to routinely monitor the Funds in order to protect
ratepayer interests.
We reject Louisiana Commission's proposed reporting requirements as
unnecessary. The reporting requirements that we adopt are sufficient
for our purposes.128
\128\ Of course, the Louisiana Commission can impose whatever
reporting requirements are lawful under its authorities on Funds for
retail customers.
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We will adopt the recommendation of Investment/Trust/Utility
Companies and provide that the required financial report should include
only the assets and liabilities of the Fund and not the liability for
decommissioning. Investment/Trust/Utility Companies are correct that
the decommissioning expense is a liability of the utility and not of
the Fund.
IX. The Alternatives
A. Alternative No. 1: No Change in Present Guidelines, I.E.,
Continuation of Black Lung Restrictions
No Commenter favors adoption of Alternative No. 1 and most parties
oppose its adoption. Commenters recognize the need to ensure that the
requisite funds will be available at decommissioning. But Commenters
argue, among other things, that Black Lung investments are not
necessarily as safe as they seem, and that they disadvantage
ratepayers, because they do not keep up with inflation and necessitate
higher collections to meet the projected decommissioning
liability.129 Commenters also argue that the Black Lung Guidelines
are not required, because prudent investment principles and the
standard that applies to fiduciaries for private pension plans under
section 404 of the Employee Retirement Income Security Act of 1974
(``ERISA'')(29 U.S.C. Sec. 1104) (the ERISA standard) provide ample,
tested, and federally-sanctioned protection to ratepayers.130 But
Edison Electric cautions that, if the Commission selects a guideline
that allows for investments in other than Black Lung instruments, the
Commission should make it clear that investment in a Black Lung
instrument is not proscribed, so long as the investment is prudent
under the circumstances.131 While Indiana Michigan opposes the
Commission's limiting Fund investments to Black Lung instruments, it
states that the Commission should make it clear that Black Lung
instruments may form part of a Fund's portfolio depending on the Fund
Manager's evaluation of the risk and rewards of such
investment.132
\129\ See Bernstein Comments at 2; Consolidated Edison Comments
at 3; Consumers Power Comments at 3; Cooperatives Comments at 6-7;
Duke Comments at 2; Edison Electric Comments at 14-15; Investment/
Trust/Utility Companies Comments at 3; Louisiana Commission Comments
at 4-6; New York State Comments at 4-5; Northeast Utilities Comments
at 6-8; Pennsylvania Commission Comments at 3, 13, and 20; Wisconsin
Power Comments at 1-2.
\130\ See Consumers Power Comments at 4.
\131\ Edison Electric Comments at 15.
\132\ Indiana Michigan Comments at 2.
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New York State maintains that certain criticisms of the Black Lung
Guidelines are unfounded. First, in its view, arguments that the Black
Lung Guidelines are not a guarantee against loss are inapposite. New
York State recognizes that, while Black Lung instruments are
conservative investments, they are not guaranteed against loss. But New
York State notes that Black Lung investments are very low risk, and,
barring a national
[[Page 34120]]
catastrophe, would be expected to provide a full return of interest and
principal. Second, according to New York State, the criticism that the
use of Black Lung investments increases the risk that the returns will
be insufficient to meet the decommissioning obligation is unfounded.
While agreeing that Black Lung investments provide lower returns than
investments associated with higher risk, New York State submits that
the predictability of the return on Black Lung investments makes it
highly unlikely that returns will be insufficient to meet
decommissioning obligations. New York State points out that one can
more readily project amounts placed in Funds that invest exclusively in
Black Lung instruments. According to New York State, less predictable
returns are a greater threat to meeting decommissioning obligations,
since there is a greater opportunity for lost investment.133
\133\ New York State Comments at 4.
---------------------------------------------------------------------------
New York State recognizes that Black Lung investments may yield
returns lower than inflation, and that poorly managed Black Lung
investments may incur a loss, because the investments may need to be
sold at a discount to face value if their maturities are not carefully
timed and interest rates increase subsequent to their purchase.134
\134\ Id.
---------------------------------------------------------------------------
New York State concludes that continuing the Black Lung Guidelines
is ill-advised. New York State submits that Black Lung investments are
contrary to modern investment theory.
B. Alternative No. 2: A Reasonable Person Standard With No Restrictions
All but three of the Commenters support adoption of Alternative No.
2.135 The Commenters urging the Commission to adopt Alternative
No. 2 argue that this Alternative will permit Funds to tailor their
investment strategies to financial and market conditions during the
term of the decommissioning liability as well as to diversify
investments into a broad range of asset classes, and provide higher
long-term returns. According to these Commenters, by maximizing returns
consistent with acceptable risk, Alternative No. 2 will allow the
funding of the decommissioning of nuclear units with less contribution
from ratepayers than would be the case either under a continuation of
the current guidelines (Alternative No. 1) or under a reasonable person
standard with express constraints (Alternative No. 3).136 These
Commenters submit that the flexibility that Alternative No. 2 offers
will provide the greatest assurance that adequate funds will be
available at the time of decommissioning, at the minimum possible cost
to ratepayers.137
\135\ New England Power and the Public Utility Commissions of
Michigan and Pennsylvania support Alternative No. 3.
\136\ E.g., Carolina Power & Light Comments at 3.
\137\ E.g., Carolina Power & Light Comments at 4; Edison
Electric Comments at 2-4, 6, 9, 11-13; Consolidated Edison Comments
at 5; Cooperatives Comments at 9-14; Duke Comments at 4; Florida
Commission Comments at 2; New Hampshire Committee Comments at 1;
NARUC Comments at 5, 12; Nuclear Energy Comments at 1-2; Nuveen
Comments at 2-10; South Carolina E&G Comments at 1-2.
---------------------------------------------------------------------------
In the NOPR, the Commission asked whether the ``reasonable person''
standard should encompass the ``prudent person'' standard, which has
long governed trust investment,138 or whether it should, for
example, embody the ``prudent investor'' standard.139 The
Commission pointed out that the two standards are different. The
prudent person standard focuses on each investment individually and
proscribes certain investments as too risky.140 The prudent
investor standard, in contrast, does not focus on any single
investment, but rather insists on evaluating the entire portfolio (and
thus allows more risk for individual investments within a
portfolio).141 The Commission also requested comments on the use
of other standards to govern Fund investments.142
\138\ See Restatements (Second) of Trusts Sec. 227 (1959).
\139\ See Restatement (Third) of Trusts Sec. 227 (1992).
\140\ See Restatements (Second) of Trusts Sec. 227 & comments a
through o (1959).
\141\ See Restatement (Third) of Trusts Sec. 227 (1992).
\142\ 59 FR at 28300, IV FERC Stats. & Regs., Proposed
Regulations at 32,854.
---------------------------------------------------------------------------
Several Commenters recommending that the Commission adopt
Alternative No. 2 ask the Commission to adopt the ERISA standard. These
Commenters support the ERISA standard because it has a precise,
statutory definition, has served policymakers well for 20 years, has
widespread applicability, has a body of case law that clearly defines
its parameters, and is familiar to investors, investment managers and
fiduciaries throughout the country.143
\143\ E.g., Bernstein Comments at 2; Edison Electric Comments at
11-12; Duke Comments at 3-4; Investment/Trust/Utility Companies
Comments at 5-6; NISA Comments at 1-2; Wisconsin Electric Comments
at 1-2. According to Carolina Power & Light, at the end of 1993, the
ERISA standard governed the management of about $1.2 trillion in
corporate pension fund assets. Carolina Power & Light Comments at 5.
---------------------------------------------------------------------------
These Commenters submit that, because the ERISA standard focuses on
the entire investment portfolio over which the fiduciary has authority,
it is superior to a standard that views reasonableness on an
investment-by-investment basis.144 They note that the ERISA
standard imposes a duty to diversify the type of investments. They
maintain that this duty is fundamental to prudent investment, because
it permits a fiduciary to tailor portfolios to meet the needs and
circumstances of each trust. They argue that this perspective is
critical to Fund investment, given the variety of variables to consider
in connection with implementing a long-term investment program for a
nuclear power plant decommissioning fund.145 They maintain that,
for any given level of assumed risk, one may obtain a higher return by
investing in different classes of assets than by investing in a single
asset class. They contend that, because of the long time span of
decommissioning and the inflation sensitivity of decommissioning costs,
Funds should invest in common stocks as well as in fixed-income
securities.146
\144\ E.g., Bernstein Comments at 2; Edison Electric Comments at
2-6; Investment/Trust/Utility Companies Comments at 5-6.
\145\ E.g., Bernstein Comments at 2.
\146\ E.g., Bernstein Comments at 2; Carolina Power & Light
Comments at 8; Cooperatives Comments at 8-12; Edison Electric
Comments at 4-7, 9-12; Investment/Trust/Utility Companies Comments
at 4-6.
---------------------------------------------------------------------------
These Commenters acknowledge that equities are more risky than
fixed-income investments, because the return the investor may receive
in any given year can vary significantly from the average
return.147 But they submit that, because the value of a fixed-
income security declines as interest rates rise, over time, increases
in interest rates and inflation can cause the real return (nominal
return minus inflation) of a fixed-income portfolio to decline.
Commenters submit that, to meet or exceed the rate of inflation, an
investment portfolio should offset the lack of inflation protection in
fixed-income securities with the inflation protection inherent in
common stock investments. That is, a Fund should participate in both
classes of investments.148
\147\ E.g., Carolina Power & Light Comments at 9; New York State
Comments at 4; Nuveen Comments at 9 (``[C]ommon stocks are generally
regarded as the riskiest asset class.'').
\148\ E.g., Carolina Power & Light Comments at 8; Cooperatives
Comments at 10-12; Edison Electric Comments at 11-15; New York State
Comments at 4-7; Nuveen Comments at 3-10.
---------------------------------------------------------------------------
These commenters submit that it is fundamental to prudent
investment policies and practices that a fiduciary should invest
according to the risk and return objectives reasonably suited to the
Fund; accordingly, they maintain, the standard of prudence should apply
[[Page 34121]]
to the overall investment portfolio rather than to any single
investment.149
\149\ E.g., Carolina Power & Light Comments at 10; Cooperatives
Comments at 9; Edison Electric Comments at 2, 4, 13.
---------------------------------------------------------------------------
Wisconsin Electric submits that the Commission should adopt the
ERISA standard because that standard provides the flexibility to
efficiently manage Fund assets at the lowest possible cost to utility
customers, balancing risk and reward, while taking into account such
factors as general economic conditions, the expected operating life of
the plant, and the expected timing of the cash requirements associated
with decommissioning.150
\150\ Wisconsin Electric Comments at 2.
---------------------------------------------------------------------------
While these Commenters refer to the ERISA standard, it is clear
that they are really asking the Commission to adopt the ``prudent
investor'' standard as delineated in the Restatement (Third) of Trusts
(1992). This is obvious because, when these Commenters refer to the
ERISA standard, many of them refer to managing risk by focusing on the
entire portfolio (the signature characteristic of the prudent investor
standard) 151 rather than by examining individual investments (the
hallmark of the prudent person standard). For example, Edison Electric
submits that, ``[t]he concept of a prudent portfolio has replaced the
concept of a prudent investment.'' 152
\151\ E.g., Bernstein Comments at 2; Carolina Power & Light
Comments at 10; Duke Comments at 4; Investment/Trust/Utility
Companies Comments at 5; Wisconsin P&L Comments at 1.
\152\ Edison Electric Comments at 6, citing, Hagin, Modern
Portfolio Theory (1979) 12.
Edison Electric states that ``[T]he ERISA * * * standard is * * *
based upon the same rationale as the ``prudent investor'' standard of
the Restatement (Third) of the Law of Trusts * * * Sec. 227. * * * ''
153 And certain Commenters advocating adoption of the ERISA
standard refer to investments by a ``prudent investor,''154 a
``prudent investment manager''155 or even by a ``prudent
expert.''156
\153\ Edison Electric Comments at 4 (underscoring deleted).
\154\ New Hampshire Committee Comments at 1; Nuclear Energy
Comments at 2 (``prudent implementation of modern investment
practices'').
\155\ Nuveen Comments at 9.
\156\ Carolina P&L Comments at 10.
---------------------------------------------------------------------------
Other Commenters advocating adoption of Alternative No. 2 refer
directly to the prudent investor standard as it appears in the
Restatement (Third) of Trusts,157 or to ``prudent investment
principles''158 without referring to the ERISA standard. It is
clear from all of these references that those advocating adoption of
Alternative No. 2 are seeking Commission adoption of the ``prudent
investor'' standard.
\157\ Cooperatives Comments at 7-12; New York State Comments at
6 n.4.
\158\ Consumers Power Comments at 3.
---------------------------------------------------------------------------
C. Alternative No. 3: A Reasonable Person Standard With Certain
Restrictions on the Quality and Quantity of Fund Investments
Three Commenters support Alternative No. 3.159 The remaining
Commenters oppose this Alternative, arguing that the express
limitations are contrary to modern investment practices and reduce the
flexibility of fiduciaries. The Commenters opposing Alternative No. 3
maintain that the end of a units's licensed life is not necessarily the
appropriate measuring point for determining the need for cash to pay
for decommissioning costs. They submit that, depending on the method of
decommissioning and the availability of a national spent nuclear fuel
repository, many Funds may expend substantial amounts for
decommissioning costs long after the expiration of the operating
license.160 They criticize the proposed market capitalization and
minimum credit rating standards as unrealistically eliminating from
investment consideration more than 60 percent of the stocks listed in
the Standard & Poor's 500, as well as large over-the-counter, domestic
small capitalization, international and preferred stocks. They also
maintain that the proposed single-company and single-industry
limitations are too tight.161
\159\ As noted, these Commenters are New England Power and the
Michigan and Pennsylvania Commissions.
\160\ See supra n.36.
\161\ E.g., Bernstein Comments at 3-4; Consolidated Edison
Comments at 3-5; Consumers Power Comments at 5; Edison Electric
Comments at 2-3, 16, 19-20; Duke Comments at 5; Entergy Comments at
4; Indiana Michigan Comments at 8; Investment/Trust/Utility
Companies Comments at 7-8; Northeast Utilities Comments at 11-13;
Nuveen Comments at 11-12; Wisconsin Electric Comments at 2-3;
Wisconsin Power Comments at 2.
---------------------------------------------------------------------------
Edison Electric maintains that if the Commission adopts the prudent
investor standard, there will be no need for express guidelines, since
modern investment practices and modern investment guidelines allow
fiduciaries the flexibility to address specific situations that Funds
will face.162
\162\ Edison Electric Comments at 17-18.
---------------------------------------------------------------------------
Cooperatives and New York State express a similar thought. They
criticize Alternative No. 3 not for the restrictions that it contains,
``but, rather, because it contains requirements at all.''163 They
submit that the prudent investor rule would not function efficiently if
the Commission were to restrict the quality and type of investments
that a fiduciary may make. 164
\163\ New York State Comments at 7-8.
\164\ Cooperatives Comments at 13.
---------------------------------------------------------------------------
Of those favoring the adoption of Alternative No. 3, New England
Power supports the Alternative outright, without modification. New
England Power maintains that Alternative No. 3 strikes a reasonable
balance between the goals of ensuring sufficient funds to safely
decommission nuclear power plants and minimizing the cost to the
customers.165 New England Power states that Alternative No. 3
allows for sufficient diversification in investments to provide returns
over time that would exceed those derived from investments made under
the Black Lung investment guidelines, and will, accordingly, reduce
customer contributions for decommissioning. New England Power argues
that Alternative No. 3 improves upon Alternative No. 2, by establishing
quality and quantity guidelines that would limit the risk associated
with various possible investments.166
\165\ New England Power Comments at 3.
\166\ Id. at 4.
---------------------------------------------------------------------------
The Michigan Commission supports the Adoption of Alternative No. 3
with certain constraints on management fees and certain additions
regarding the Fund's risk-adjusted yield and unit-cost. The Michigan
Commission would also require that the fiduciary document the reasons
for making various investments. The Michigan Commission also recommends
that the aggregate value and Standard & Poor's rating requirements
should not apply to investments in index funds.167
\167\ Michigan Commission Comments at 1-3.
---------------------------------------------------------------------------
The Pennsylvania Commission recommends that, under Alternative No.
3, the Commission allow a fiduciary to speculate with not more than 25
percent of the corpus of the Fund. The Pennsylvania Commission
recommends that the Commission require that the remaining portion of
the Fund's assets remain in Black Lung grade investments.168
\168\ Pennsylvania Commission Comments at 16.
---------------------------------------------------------------------------
Commission Rulings
We agree with the majority of commenters that Alternative No. 3: a
reasonable person standard with certain restrictions on the quality and
quantity of Fund investments, unduly reduces investment flexibility. As
Northeast Utilities points out, there is no single set of investment
limitations that will adequately take into account the factors
affecting decommissioning of each nuclear generating plant. A Fund
manager must have sufficient leeway to address a Fund's needs under a
variety
[[Page 34122]]
of circumstances and to balance Fund security while obtaining the
maximum possible return under the circumstances.169 Accordingly,
we will not adopt Alternative No. 3.
\169\ Northeast Utilities Comments at 10-11.
---------------------------------------------------------------------------
Nor will we adopt Alternative No. 1: continuation of Black Lung
restrictions. Commenters have persuaded us that public utilities'
decommissioning requirements can best be funded by permitting
investment of ratepayers funds according to Alternative No. 2, a
reasonable person standard with no specified investment restrictions.
We agree that it is possible to protect the integrity of an investment
portfolio as a whole by investing in various classes of assets with
offsetting risks. This strategy will allow investment managers to
adjust quickly to financial and market conditions and should, over
time, produce higher returns than Black Lung investments and lower the
amount of ratepayer funds necessary for decommissioning.
The reasonable person standard, with its emphasis on a balanced
portfolio and offsetting risks, is a very sophisticated investment
approach, requiring considerable expertise to implement successfully.
Public utilities must choose trained, experienced, professional
investment managers who are skilled in the art of offsetting risk, and
must ensure that they act with the level of skill, care, diligence and
caution expected of a professional planner in light of the purposes,
terms, distribution requirements, and other circumstances of the Fund.
Several Commenters observe that Black Lung investments have a place
in a balanced portfolio under appropriate circumstances.\170\ They
state that it would be reasonable for a prudent investor to use these
more conservative investments to offset the higher risk of other
investments. And Commenters recognize that, as the date at which the
utility must meet decommissioning expenses comes closer, greater
liquidity and more conservative investments should be the norm of the
portfolio balance.\171\ We agree that Black Lung investments still have
a place in a Fund's investment portfolio under the unconstrained,
reasonable person investment approach. We also agree that a reasonable
approach would be to decrease the percentage of equity investment in a
portfolio, and increase the amount of lower risk investments, as the
time for expending the funds approaches.
\170\ E.g., Carolina Power & Light Comments at 8 (Because of
long time-horizon and sensitivity to inflation, Funds should invest
in common stocks as well as in fixed-income securities);
Cooperatives Comments at 9 (A diversified portfolio should have its
assets dispersed among a variety of equities and fixed-income
investments); Indiana Michigan Comments at 2 (Black Lung or other
conservative investments are always acceptable components of the
Fund); Northeast Utilities Comments, Exhibit C at 1 (trust to
maintain a balanced portfolio consisting of equity and fixed-income
securities); Nuveen Comments at 3 (Fund portfolio should contain a
targeted range of fixed-income and equity securities to manage
market risk).
Edison Electric goes further than this and insists that Black
Lung investments are not imprudent and continue to be an accepted
investment alternative. Edison Electric Comments at 15.
\171\ E.g., Duke Comments at 5 (``[I]t would be logical to have
higher equity exposure in the early years of the Fund than in the
concluding years. . . .''); Entergy Comments at 3 (Equity phase-down
should begin five years before expected license termination); New
York State Comments at 6; Northeast Utilities Comments at 12 and
Exhibit C at 1 (Under normal circumstances equity percentage of Fund
portfolio should decrease as decommissioning cash outflow approaches
[12]; Phase-out of equity investments to begin five years before the
expected need for significant decommissioning expenditures [Exhibit
C at 1]); Nuveen Comments at 11 (Percentage of equity investment
should decline as date of expenditure of substantial portion of Fund
assets approaches); Pennsylvania Commission Comments at 12, Reply
Comments at 9 (returns and invested principal should be moved back
into relatively secure instruments before decommissioning);
Wisconsin Power & Light Comments at 2 (The expected liquidity needs
of the Fund should determine the reduction in equity exposure.).
---------------------------------------------------------------------------
The Alternative that we are adopting in the Final Rule dictates our
choice of the precise definition and content of the reasonable person
standard. We will define a ``reasonable person'' as a ``prudent
investor.'' We choose the prudent investor standard because it does not
focus on any single investment but rather insists on an evaluation of
the entire portfolio.172 This is consistent with the unconstrained
reasonable person investment approach. If investment managers are to
properly implement the reasonable person investment strategy, without
restrictions, they are going to need the flexibility that the prudent
investor standard provides.
\172\ See Restatement (Third) of Trusts Sec. 227 (1992).
---------------------------------------------------------------------------
We see no need to incorporate the ERISA standard into this
proceeding. ERISA deals with a fundamentally different liability.
Rather, we will adopt Edison Electric's, Cooperatives', and
Pennsylvania Commission's recommendation and base the prudent investor
standard on the principles set forth in Sec. 227 of the Restatement
(Third) of Trusts (1992).173 This will accomplish the objective of
allowing for flexibility of Fund investment, without importing into
Fund investment standards all of the law surrounding employee pension
funds.
\173\ See Edison Electric Comments at 4-5; Cooperatives Comments
at 7-12; Pennsylvania Commission Comments at 15 and Reply Comments
at 14.
---------------------------------------------------------------------------
Also, it is unclear that the ERISA standard is sufficiently exact
to adequately address the contingencies of nuclear plant
decommissioning. ERISA requires of a fiduciary ``familiarity'' not
``expertise'' and requires diversification of investment assets not to
prevent but merely to ``minimize'' the risk of large losses to the
fund. The Restatement (Third) of Trusts is more rigorous in its demands
on a fiduciary.174
\174\ For example, Section 227 of the Restatement (Third) of
Trusts includes ``passive strategies'' as a practical investment
alternative that Trustees must consider. The Restatement points out
that investing in index funds that track major stock exchanges or
widely published lists of publicly traded stocks offers pricing
security and economies of purchase in essentially efficient markets.
See Restatement (Third) of Trusts, Sec. 227, comment h., Prudent
Investment: Theories and Strategies (1992).
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The prudent person standard, which we also considered in the NOPR,
focuses on each investment individually and proscribes certain
investments as too risky.175 This standard is inconsistent with an
investment strategy of offsetting risk, which is at the heart of the
reasonable person investment approach.
\175\ See Restatement (Second) of Trusts Sec. 227 & comments a
through o (1959). In the NOPR, the Commission also referenced the
standard that it uses to determine the prudence of specific costs,
citing New England Power, supra. See 59 FR 28,300, IV FERC Stats. &
Regs, Proposed Regulations 32,853-54. In the NOPR, we recognized
``that what we are concerned with here is a different factual
setting.'' Id. We agree with Edison Electric that ``pursuing a
prudent investment strategy is not necessarily the same thing as
incurring a prudent cost.'' Edison Electric Comments at 16.
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The prudent person investment standard would not allow fiduciaries
to rapidly adjust to ever changing market and financial conditions as
they must if they are to correctly manage the Fund portfolio as a
whole.
X. Conclusion Regarding Selection of Alternative
For the reasons given immediately above, we are adopting for Fund
investments Alternative No. 2, the reasonable person standard, without
constraints. We define a ``reasonable person'' as a prudent investor,
as delineated in the Restatement (Third) of Trusts (1992).
XI. Environmental Statement
Commission regulations require that an environmental assessment or
an environmental impact statement be prepared for any Commission action
that may have a significant adverse effect on the human
environment.176
[[Page 34123]]
The Commission has categorically excluded certain actions from this
requirement as not having a significant effect on the human
environment--such as electric rate filings under sections 205 and 206
of the FPA and the establishment of just and reasonable rates.177
The Final Rule, regarding the collection and subsequent investment of
monies to fund nuclear plant decommissioning, involves such matters.
Accordingly, no environmental consideration is necessary.
\176\ Regulations Implementing the National Environmental Policy
Act, Order No. 486, 52 FR 47987 (Dec. 17, 1987), FERC Stats. &
Regs., Regulations Preambles 1986-1990 para. 30,783 (1987))
(codified at 18 CFR Part 380).
\177\ 18 CFR 380.4(a)(15).
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XII. Regulatory Flexibility Act Certification
The Regulatory Flexibility Act 178 requires rulemakings to
either contain a description and analysis of the effect that the
proposed rule will have on small entities or to contain a certification
that the rule will not have a substantial economic impact on a
substantial number of small entities. Most public utilities to which
the proposed rule would apply do not fall within the definition of
small entity.179 Consequently, the Commission certifies that this
proposed rule will not have ``a significant economic impact on a
substantial number of small entities.''
\178\ 5 U.S.C. 601-612.
\179\ See 5 U.S.C. 601(3), citing to section 3 of the Small
Business Act, 15 U.S.C. 632, which defines ``small business
concern'' as a business that is independently owned and operated and
that is not dominant in its field of operation.
XIII. Information Collection Statement
The Office of Management and Budget's (OMB) regulations 180
require that OMB approve certain information collection requirements
imposed by an agency. The information collection requirements in this
proposed rule are contained in FERC-516 ``Electric Rate Filings''
(1902-0096).
\180\ 5 CFR 1320.13.
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The Commission uses the data collected in these information
requirements to carry out its regulatory responsibilities under the FPA
and the Energy Policy Act of 1992. The Commission's Office of Electric
Power Regulation uses the data for determination of electric rate
filings submitted by industry. The Office of the Chief Accountant uses
the data to ensure that jurisdictional companies comply with the
Uniform System of Accounts.
Interested persons may send comments regarding collection of
information to the Federal Energy Regulatory Commission, 825 North
Capitol Street, N.E., Washington, D.C. 20426 [Attention: Michael
Miller, (202) 208-1415]; and to the Office of Management and Budget,
Washington, D.C. 20503 [Attention: Desk Officer for the Federal Energy
Regulatory Commission--(202) 395-3087; FAX: (202) 395-5167].
XIV. Effective Date
This rule is effective July 31, 1995.
List of Subjects in 18 CFR Part 35
Electric power rates, Electric utilities, Incorporation by
reference, Reporting and recordkeeping requirements.
By the Commission. Commissioners Hoecker and Massey concurred
with a separate statement attached.
Linwood A. Watson, Jr.,
Acting Secretary.
In consideration of the foregoing, the Commission amends Part 35,
Chapter I, Title 18, Code of Federal Regulations, as set forth below.
PART 35--FILING OF RATE SCHEDULES
1. The authority citation for Part 35 continues to read as follows:
Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42
U.S.C. 7101-7352.
2. 18 CFR Part 35 is amended by adding Subpart E--Regulations
Governing Nuclear Plant Decommissioning Trust Funds, consisting of
Sec. 35.32 and Sec. 35.33, to read as follows:
Subpart E--Regulations Governing Nuclear Plant Decommissioning
Trust Funds
Sec.
35.32 General Provisions
35.33 Specific Provisions
Sec. 35.32 General provisions
(a) If a public utility has elected to provide for the
decommissioning of a nuclear power plant through a nuclear plant
decommissioning trust fund (Fund), the Fund must meet the following
criteria:
(1) The Fund must be an external trust fund in the United States,
established pursuant to a written trust agreement, that is independent
of the utility, its subsidiaries, affiliates or associates.
(2) The utility may provide overall investment policy to the
Trustee or Investment Manager, but it may do so only in writing, and
neither the utility nor its subsidiaries, affiliates or associates may
serve as Investment Manager or otherwise engage in day-to-day
management of the Fund or mandate individual investment decisions.
(3) The Fund's Investment Manager must exercise the standard of
care, whether in investing or otherwise, that a prudent investor would
use in the same circumstances. The term ``prudent investor'' means a
prudent investor as described in Restatement of the Law (Third), Trusts
Sec. 227 including general comments and reporter's notes, pages 8-101.
St. Paul, MN: American Law Institute Publishers, (1992). ISBN 0-314-
84246-2. This incorporation by reference was approved by the Director
of the Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR
part 51. Copies may be obtained from the American Law Institute, 4025
Chestnut Street, Philadelphia, PA 19104, and are also available in
local law libraries. Copies may be inspected at the Federal Energy
Regulatory Commission's Library, Room 8502, 825 North Capitol St.,
N.E., Washington, D.C. or at the Office of the Federal Register, 400
North Capitol St., N.W., Room 700, Washington, D.C.
(4) The Trustee and any other Fiduciary shall have a net worth of
at least $100 million. In calculating the $100 million net worth
requirement, the net worth of the Fiduciary's parent corporation and/or
affiliates may be taken into account only if such entities guarantee
the Fiduciary's responsibilities to the Fund.
(5) The Trustee or Investment Manager shall keep accurate and
detailed accounts of all investments, receipts, disbursements and
transactions of the Fund. All accounts, books and records relating to
the Fund shall be open to inspection and audit at reasonable times by
the utility or its designee or by the Commission or its designee. The
utility or its designee must notify the Commission prior to performing
any such inspection or audit. The Commission may direct the utility to
conduct an audit or inspection.
(6) Absent the express authorization of the Commission, no part of
the assets of the Fund may be used for, or diverted to, any purpose
other than to fund the costs of decommissioning the nuclear power plant
to which the Fund relates, and to pay administrative costs and other
incidental expenses, including taxes, of the Fund.
(7) If the Fund balances exceed the amount actually expended for
decommissioning after decommissioning has been completed, the utility
shall return the excess jurisdictional amount to ratepayers, in a
manner the Commission determines.
(8) Except for investments tied to market indexes or other mutual
funds, the Investment Manager shall not invest in any securities of the
utility for which
[[Page 34124]]
it manages the funds or in that utility's subsidiaries, affiliates, or
associates or their successors or assigns.
(9) The utility and the Fiduciary shall seek to obtain the best
possible tax treatment of amounts collected for nuclear plant
decommissioning. In this regard, the utility and the Fiduciary shall
take maximum advantage of tax deductions and credits, when it is
consistent with sound business practices to do so.
(10) Each utility shall deposit in the Fund at least quarterly all
amounts included in Commission-jurisdictional rates to fund nuclear
power plant decommissioning.
(b) The establishment, organization, and maintenance of the Fund
shall not relieve the utility or its subsidiaries, affiliates or
associates of any obligations it may have as to the decommissioning of
the nuclear power plant. It is not the responsibility of the Fiduciary
to ensure that the amount of monies that a Fund contains are adequate
to pay for a nuclear unit's decommissioning.
(c) A utility may establish both qualified and non-qualified Funds
with respect to a utility's interest in a specific nuclear plant. This
section applies to both ``qualified'' (under Internal Revenue Code (26
U.S.C. 468A) or any successor section) and non-qualified Funds.
(d) A utility must regularly supply to the Fund's Investment
Manager, and regularly update, essential information about the nuclear
unit covered by the Trust Fund Agreement, including its description,
location, expected remaining useful life, the decommissioning plan the
utility proposes to follow, the utility's liquidity needs once
decommissioning begins, and any other information that the Fund's
Investment Manager would need to construct and maintain, over time, a
sound investment plan.
(e) A utility should monitor the performance of all Fidiciaries of
the Fund and, if necessary, replace them if they are not properly
performing assigned responsibilities.
(f) These regulations apply only to Commission-jurisdictional
funds.
Sec. 35.33 Specific provisions.
(a) In addition to the general provisions of Sec. 35.32, the
Trustee must observe the provisions of paragraph (b) of this section.
(b) The Trustee may use Fund assets only to:
(1) Satisfy the liability of a utility for decommissioning costs of
the nuclear power plant to which the Fund relates as provided by
Sec. 35.32; and
(2) Pay administrative costs and other incidental expenses,
including taxes, of the Fund as provided by Sec. 35.32;
(3) To the extent that the Trustee does not currently require the
assets of the Fund for the purposes described in paragraphs (b)(1) and
(b)(2) of this section, the Investment Manager, when investing Fund
assets, must exercise the same standard of care that a reasonable
person would exercise in the same circumstances. In this context, a
``reasonable person'' means a prudent investor as described in
Restatement of the Law, (Third), Trusts Sec. 227, and including general
comments and reporter's notes, pages 8-101. St. Paul, MN: American Law
Institute Publishers, 1992. ISBN 0-314-84246-2. This incorporation by
reference was approved by the Director of the Federal Register in
accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies may be
obtained from the American Law Institute, 4025 Chestnut Street,
Philadelphia, PA 19104, and are also available in local law libraries.
Copies may be inspected at the Federal Energy Regulatory Commission's
Library, Room 8502, 825 North Capitol St., NE., Washington, DC or at
the Office of the Federal Register, 400 North Capitol St., NW., Room
700, Washington, DC.
(c) The utility must submit to the Commission by April 1, 1996 and
by March 31 of each year thereafter, a copy of the financial report
furnished to the utility by the Fund's Trustee that shows for the
previous calendar year:
(1) Fund assets and liabilities at the beginning of the period;
(2) activity of the Fund during the period, including amounts
received from the utility, purchases and sales of investments, gains
and losses from investment activity, disbursements from the Fund for
decommissioning activity and payment of Fund expenses, including taxes;
and
(3) Fund assets and liabilities at the end of the period. The
report should not include the liability for decommissioning.
(d) If an independent public accountant has expressed an opinion on
the report or on any portion of the report, then that opinion must
accompany the report.
Appendix A
Investment/Trust/Utility Companies
Ark Asset Management Co., Inc.
Bank of New York
Delaware Investment Advisers
Fidelity Management Trust Co.
J.P. Morgan Co.
Loomis, Sayles & Company
MD SASS Investors Services, Inc.
Mellon Bank
National Investment Services of America, Inc.
NBD Bank, NA
Nuveen Duff & Phelps Investment Company
Payden & Rygel
Pittsburgh National Bank
PNC Bank
Sanford Bernstein & Company, Inc.
Scudder, Stevens & Clark, Inc.
State Street Bank and Trust Company
T. Rowe Price Associates
Wellington Management Co.
Appendix B
Utility Companies
Arizona Public Service Co.
Arkansas Power & Light Co.
Carolina Power & Light Co.
Central Power and Light Co.
Cleveland Electric Illuminating Co.
Commonwealth Edison Co.
Connecticut Light & Power Co.
Connecticut Yankee Atomic Power Co.
Delmarva Power & Light Co.
Detroit Edison Co.
Duke Power Co.
Florida Power & Light Co.
Florida Power Corp.
Gulf States Utilities Co.
Houston Lighting & Power Co.
Illinois Power Co.
Indiana Michigan Power Co.
Iowa Electric Light and Power Co.
Jersey Central Power & Light Co.
Louisiana Power & Light Co.
Madison Gas and Electric Co.
Maine Yankee Atomic Power Co.
Metropolitan Edison Co.
Niagara Mohawk Power Corp.
North Atlantic Energy Co.
Northern States Power Co.
Ohio Edison Co.
Pacific Gas & Electric Co.
Pennsylvania Electric Co.
Pennsylvania Power & Light Co.
Pennsylvania Power Co.
Philadelphia Electric Co.
Public Service Co. of New Hampshire
Public Service Electric and Gas Co.
Rochester Gas and Electric Co.
Southern California Edison Co.
System Energy Resources, Inc.
Texas Utilities Electric Co.
Toledo Edison Co.
Union Electric Co.
Vermont Yankee Nuclear Power Corp.
Virginia Electric Power Co.
Western Massachusetts Electric Co.
Western Resources, Inc.
Wisconsin Electric Power Co.
Wisconsin Power and Light Co.
Wisconsin Public Service Corp.
[[Page 34125]]
Appendix C
Nuclear Decommissioning Funds--12/31/93 Funding Status
[Dollars in millions--Ranking by 12/31/93 funds]
----------------------------------------------------------------------------------------------------------------
Decom cost est by
MW company
Company License exp (avg. Nuclear ------------------------ 12-31-93
years) capacity Amt. (base fund
year) Amt./KW
----------------------------------------------------------------------------------------------------------------
Commonwealth Ed................................ 2008-2026(22) 11,638 $4,060(93) $349 914
SCECorp........................................ 2004-2028(21) 2,560 1,000(93) 390 853
Pacific G&E.................................... 2015-2016(21) 2,253 1,000(93) 443 576
FPL Group...................................... 2007-2023(21) 2,885 935(93) 324 445
Duke Power..................................... 2013-2026(26) 5,078 995(90) 188 319
Northern State Power........................... 2010-2014(18) 1,640 750(93) 457 302
Northeast Utilities............................ 2010-2026(24) 2,738 1,127(93) 408 238
Wisconsin Energy............................... 2010-2013(18) 970 280(93) 289 232
Dominion Resources............................. 2012-2020(22) 3,200 1,000(93) 312 226
Carolina P&L................................... 2010-2026(24) 2,711 999(93) 368 222
GPU............................................ 2009-2014(18) 2,369 1,044(93) 441 219
Entergy........................................ 2014-2024(25) 4,646 1,339 288 193
San Diego G&E.................................. 2004-2013(15) 517 322(93) 623 191
Southern Company............................... 2014-2029(28) 3,524 1,123(91) 319 185
PS Enterprise Group............................ 2008-2026(23) 2,842 681(90) 240 175
CMS Energy..................................... 2000-2007(10) 846 607(93) 717 171
Am Elec Pi..................................... 2014-2017(22) 2,130 1,100(91) 516 170
PEPCO Energy................................... 2008-2029(24) 3,958 643(93) 162 160
Connecticut Yankee............................. 2007(13) 582 309(92) 530 140
Consolidated Ed................................ 2013(19) 1,124 600(93) 534 137
Florida Progress............................... 2016(22) 703 308(93) 438 118
Niagara Mohawk................................. 2009-2026(24) 1,053 541(93) 514 114
Vermont Yankee................................. 2012(18) 528 240(92) 454 100
Yankee Atomic.................................. 2000(6) 175 247(92) 1,411 98
Baltimore G&E.................................. 2014-2016(21) 1,650 703(92) 428 93
Pennsylvania P&L............................... 2022-2024(29) 1,890 725 384 83
Centerior Energy............................... 2017-2027(28) 1,843 615(92) 334 74
Maine Yankee................................... 2008(14) 900 317(93) 352 69
Boston Edison.................................. 2012(18) 670 400(91) 597 66
Rochester G&E.................................. 2009-2026(23) 621 185(93) 298 63
Wisconsin PS................................... 2013(19) 220 149(93) 677 61
IES Industries................................. 2014(20) 396 223(93) 563 51
Altantic Energy................................ 2008-2026(23) 374 65(87) 175 46
Union Electric................................. 2024(30) 1,150 372(93) 323 46
Pinnacle West.................................. 2024-2026(32) 1,109 407(93) 367 45
WPL Holdings................................... 2013(19) 219 149(93) 677 45
Iowa ILL G&E................................... 2012(18) 394 173(93) 439 40
Texas Utilities................................ 2030-2032(37) 2,300 599(92) 260 38
El Paso Elec................................... 2024-2027(32) 603 221(93) 366 30
Ohio Edison.................................... 2016-2027(28) 1,255 382(92) 304 30
Delmarva P&L................................... 2008-2020(20) 321 117(93) 364 29
Madison G&E.................................... 2013(19) 95 61(92) 642 25
Scana Corp..................................... 2022(28) 593 152(93) 256 25
Detroit Ed..................................... 2025(31) 1,100 471(93) 428 24
Houston Ind.................................... 2027-2028(33) 770 146(89) 190 19
DOE Inc........................................ 2016-2027(28) 712 240(92) 337 18
Illinois Power................................. 2026(32) 823 344(93) 418 17
Central & SW................................... 2027-2028(33) 630 85(86) 135 15
Kansas City P&L................................ 2025(31) 540 174(93) 322 14
Western Resources.............................. 2025(31) 540 174(93) 322 13
PS New Mexico.................................. 2024-2026(32) 390 142(93) 384 11
Long Island Lighting........................... 2026(32) 194 80(93) 412 7
NY State E&G................................... 2026(32) 194 74(93) 381 6
Central Hudson G&E............................. 2027(33) 97 38(93) 392 5
----------------------------------------------------------------------------------------------------------------
Source: Nuveen Comments, Exhibit X.
Appendix D--Concurring Statements
HOECKER and MASSEY, Commissioners, concurring:
We support today's order. However, the order's reliance on the
``prudent investor'' standard does not spell out sufficiently certain
important principles to which we think investment management
fiduciaries must adhere. By selecting Alternative 2, which maximizes
the investment flexibility of the fiduciary, over Alternative 3, which
might specifically limit the investment manager's discretion in some
respects, the Commission does not imply that ``anything goes'' in
structuring and handling an investment portfolio. The comments make
clear, for example, that
[[Page 34126]]
indeed certain fundamentals are always followed by prudent
investors.\1\
\1\ See, e.g., Order, slip op. at 65 n.175 and accompanying
text.
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The financial marketplace offers investors many different
strategies. Some of these strategies would satisfy the prudent investor
standard; others would not. Neither we nor the Commission can
anticipate each possible strategy or investment option and decide
whether it is prudent. But, a failure to invest in accordance with
widely-held and time-honored practices may be irresponsible, if not
imprudent. In that regard, we believe implementation of the following
two strategies is, in broad terms, required of all investment
management fiduciaries.
First, as the time nears when fund assets will be spent on
decommissioning work, assets should be phased out of equity investments
and into less volatile and more conservative investments. Many
commenters endorsed this principle.\2\ Similarly, Maine Yankee Atomic
Company attached to its comments a financial advisor's report
recommending a five-year phase out of equity investments just before
the fund assets would be spent on decommissioning work. Today's order
acknowledges the validity of this principle.\3\ While nuclear plant
owners may choose different decommissioning strategies and thus have
different timelines for spending fund assets, an appropriately-timed
equity phase-out would always appear to be prudent.
\2\ See Id., at 65 n.177.
\3\ Id., at 66.
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Second, just as a prudent investor would invest little or no part
of its portfolio in penny stocks and junk bonds, a prudent investor
would limit the extent of its investments in derivatives. Derivatives
may serve a useful role in offsetting the risk of other investments.
For example, if a portfolio contains government or corporate bonds,
perhaps the sensitivity of these bonds to interest rate fluctuations
could be offset by hedging in derivatives. A prudent investor would, in
our view, limit investments in derivatives, if any, solely to such
risk-reducing uses.
With these additional thoughts, we concur in today's order.
James J. Hoecker,
Commissioner.
William L. Massey,
Commissioner.
[FR Doc. 95-15303 Filed 6-29-95; 8:45 am]
BILLING CODE 6717-01-P
