U.S. nuclear plant decommissioning funding adequacy — by individual funds, utilities, reactors, and industry-wide — assessed by Monte Carlo and baseline trend methods: 1998, 2000, 2001, and 2004

Abstract

This paper assesses, over years 1998, 2000, 2001, and 2004 — using varying sets of assumption values — the adequacy of decommissioning funding (year-end) for United States' nuclear electric power plants. I assess each of the 222 individual trust funds and 99 utility owners (as of August 2003), as well as each of the 122 reactors, and industry-wide. Individual trust fund results are the most important because, in general, dollars may not be transferred from one fund to another to strengthen a less-adequately financed fund. Using stochastic (Monte Carlo) analysis (20,000 iterations) to incorporate risk, or uncertainty, in my simulation modeling, I assess funding adequacy for 2004, but with estimated balances and contributions data for 2004. The paper also assesses the baseline (most likely) trends in funding adequacy, using “point” estimates for years 1998, 2000, 2001, and stochastic medians for 2004. I compute two measures of funding adequacy relative to two respective benchmark levels: (1) adequacy of “current year” fund balances; and (2), adequacy of “recent-year” fund contributions. The former is a more “looking-backward” measure relative to a benchmark (i.e., current balance embodies all past year contributions and rates of return on fund assets); the latter, more “looking-forward” relative to a forward benchmark. I use decommissioning fund balances data for 2000 and 1998, as reported by the utilities to the U.S. Nuclear Regulatory Commission (NRC), as well as additional balances, yearly contributions, rates of return, and cost escalation data over 1997–2001 obtained in a 2002 survey of owners by the U.S. Government Accountability Office (GAO). The most fundamental conclusion that one should draw from my simulation modeling results — whether using Monte Carlo or baseline trend analysis — is that these decommissioning adequacy percentages for the 222 funds are extremely variable, although a sizable majority of funds are likely above benchmark. Reduced variability — but still wide — also pertains to the more aggregated results for utilities, reactors, and industry-wide. This variability applies not only at a given point in time, but also across time. Funding adequacies that are substantially below benchmark may be of concern to regulators and other policymakers because of the increased risk of a funding shortfall at scheduled (or premature) permanent plant shutdown. Moreover, when explicitly considering risk — i.e., Monte Carlo analysis — this variability is extremely large. For example, for 2004, while 35% of fund balances — on average — are below benchmark (median values), 82% are below at the lower 5% confidence level but only 8% are below at the upper 5% level. Future outcomes are obviously very uncertain! The public at large, future ratepayers, and/or utilities (i.e., stockholders) may be assessed for funding shortfalls; but, who should bear such responsibility? Have utilities, NRC, and state Public Utility Commissions (PUCs) adequately assessed risk when formulating, and approving, the future funding plans for these 222 individual decommissioning trust funds?