The NRC issued a Notice of Proposed Rulemaking (NOPR) proposing a rule, “Alternatives to the Use of Credit Ratings,” that would amend its decommissioning financial assurance mechanisms in 10 CFR Part 30.
The Atomic Energy Act of 1954 requires that in order to obtain and maintain a reactor license and certain materials licenses, applicants and licensees must demonstrate reasonable assurances that funds will be available when needed for decommissioning. Under the NRC’s current regulations, an applicant/licensee may make this demonstration through a parent company guarantee or a self-guarantee, provided they satisfy financial test metrics or minimum guarantor bond credit rating criteria.
Following the financial crisis of 2007–2008, however, Congress provided in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Act) that ‘‘ratings on structured financial products have proven to be inaccurate’’ and that ‘‘[t]his inaccuracy contributed significantly to the mismanagement of risks by financial institutions and investors, which in turn adversely impacted the health of the economy.’’ In Section 939A of the Act, Congress directed each federal agency to identify any of its regulations that require the use of an assessment of the creditworthiness of a security or money market instrument and to remove ‘‘any reference to or requirement of reliance on credit ratings and to substitute in such regulations such standard of [creditworthiness] as each respective agency shall determine as appropriate for such regulations.’’
As we described in our July 20, 2020 post, NRC staff in 2019 initially sought to comply with the Act through a direct final rule package that eliminated the credit rating option, but which also did not substitute a new standard of creditworthiness. In response to the industry’s significant opposition, the staff withdrew its proposal and decided to instead seek public comment through an advance notice of proposed rulemaking (ANOPR).
On December 21, 2020, the NRC issued an ANOPR soliciting public comment on potential approaches for amending its regulations to comply with the Act. Specifically, the NRC solicited views on “financial statement metrics or other quantifiable financial characteristics that could be reported by licensees to assess a licensee’s creditworthiness” and also on “the NRC performing an independent, risk-informed, performance-based determination of a licensee’s credit-worthiness . . . based on its review of financial data.”
In the current NOPR, the NRC proposes to remove bond rating requirements for both parent and self-guarantees and add the requirement that guarantors demonstrate “creditworthiness that demonstrates an adequate capacity to provide full and timely payment of the amount guaranteed.” The NRC states it would make its creditworthiness determination “based on the NRC’s review of financial data, . . . [which] could include evaluation of financial data available from the licensee, open sources, and third parties, and may include credit ratings.”
In the Draft Interim Staff Guidance on Removal of Bond Ratings from Parent and Self-Guarantees, Decommissioning Financial Assurance (Draft Guidance) issued by the NRC to support implementation of the proposed rule (available in ADAMS under accession number ML21306A361), the NRC states that “[n]o single piece of financial data stands alone as a determinant of a licensee’s creditworthiness.” The NRC, however, provides the following list of financial data metrics that a licensee/applicant might submit to the NRC to allow it to make its creditworthiness determination:
- Total annual revenue
- Total annual net income
- Capital structure: total (tangible) assets of the company, and total debt and total equity portions as a percentage of total (tangible) assets
- Total annual free cash flow
- Annual interest expense
- Annual interest coverage, defined as the company’s income before interest expenses and income taxes, divided by that year’s interest expense
- Timely statements, evaluations, analyses, bond ratings, and other such information that can be used to support a creditworthiness determination for use of guarantee mechanisms
The NOPR seeks comments on whether the proposed rule and Draft Guidance specify all of the information to be submitted to the NRC to allow it to make its creditworthiness determination. The NRC also asks for comments on whether the proposed creditworthiness standard presents additional risk to the public regarding reasonable assurance that NRC licensees have adequate funding to decommission their facilities.
Comments to the NOPR are due by March 20, 2023. Please contact the Energy and Project Development Group with any questions.