Spent-Fuel Fedcorp


The Blue Ribbon Commission’s best answer for the nuclear waste dilemma.

Fortnightly Magazine - May 2011

For America’s nuclear power operators, the future looks more uncertain than it has for almost 30 years.

Among all the complex political, financial and technical issues affecting the country’s nuclear future, the spent-fuel dilemma has proved to be one of the most difficult. However, just as the Department of Energy’s Blue Ribbon Commission on America’s Nuclear Future (BRC) prepares to issue its recommendations for a new approach to spent-fuel management, the Fukushima disaster has focused tremendous public attention on nuclear risks—adding pressure to a problem that already was nearing critical mass.

With the insistent media focus on details of the Fukushima-Daiichi failure, American citizens have learned that spent nuclear fuel pools aren’t protected by containment, and that many such pools have exceeded their designed capacity. This awareness has increased fear of radiation exposure, and fueled growing opposition to nuclear power. Recent polls show support for nuclear power has diminished drastically since before the Fukushima disaster. (See “Nuclear Power in US: public support plummets in wake of Fukushima crisis,” Christian Science Monitor, March 22, 2010).

This change in support arrives just one year after President Barack Obama abruptly canceled the Yucca Mountain project, leaving DOE without a credible long-term plan for the permanent disposal of U.S. spent nuclear fuel, pursuant to its obligations under the Nuclear Waste Policy Act (NWPA) of 1982. Lawsuits filed by nuclear operators claim damages now reaching $1.8 billion, with the federal government’s legal exposure to such litigation projected to balloon to more than $13 billion over the next decade. According to Kim Cawley with the Congressional Budget Office, each year of delay adds between $300 and $400 million in liabilities to the budget deficit, at a time when Congress is paying intense attention to deficits.

In this context, public trust and confidence in nuclear power seems unlikely to be restored unless, among other things, the federal government defines a credible path forward for developing a repository for spent nuclear fuel. Tasked with finding this path forward, the BRC has been engaged in hearings and technical investigations for more than a year, with draft recommendations expected to be released this summer. Sources tell Fortnightly the BRC likely will advise the federal government to create a new entity to manage disposal of spent nuclear fuel—probably a federal corporation (fedcorp) modeled on TVA.

A spent-fuel fedcorp could remove the constraints of the annual congressional budget cycle, allowing predictable annual financial support and improving the odds that a safe and effective future can be crafted for long-term management of depleted fuel rods and other radioactive materials. Similar approaches in Sweden and Finland have succeeded in moving their spent-fuel storage projects toward construction. And such a fedcorp—the Nuclear Fuels Management Corp.—was proposed in Congress by Sen. George Voinovich (R-Ohio, now retired), first in 2008 ((S.3661), The United States Nuclear Fuel Management Corporation Establishment Act of 2008), and most recently last year (S.3322), with a companion bill sponsored by Rep. Fred Upton (R-Mich.), who now chairs the House Energy & Commerce Committee.

Although the Fukushima crisis might have delayed or even ended the nuclear renaissance, it also has intensified the urgency of fuel-cycle issues. “Spent fuel is one issue that has been on the table in this country for a long time,” Voinovich told Fortnightly. “It has ping-ponged back and forth, and it’s now time to deal with it forthrightly.”

Why Fedcorp?

Federal agency management of such a large and complex project through the Department of Energy has failed to produce a spent-fuel storage solution, although the last 20 years have seen many attempts. Numerous factors have conspired to prevent a successful outcome.

First, annual appropriations by Congress fail to insure a consistent level of funding, as priorities within Congress change over time. Plus, executive-branch priorities also change over time; the spent-fuel project has rarely been considered a major federal priority in the last 20 years. It has never been a primary focus of DOE, whose mission is large and complex with multiple priorities.

Moreover, the skill sets at government agencies are different from those in business. As such, DOE’s people arguably lack the expertise, experience and background needed to manage and complete large construction projects.

Also, the siting process adopted by Congress in 1987 proved to be flawed when Congress chose the Yucca Mountain site without adequate technical knowledge of the specifications for such a site or of the geological characteristics of the site. Additionally, by dictating the site without sufficient involvement of either the local or state communities affected, the government generated instant opposition to the project—and that opposition has been unremitting. The ultimate consequence of this choice was the cancellation of the Yucca Mountain project. But more broadly, a top-down federal siting process that discounts local control or input has added to general public resistance to such facilities, and makes it unlikely that other locations will welcome what’s perceived as a national hazardous-waste dump.

Further, designing and constructing the facility turned out to be more technically complex than anticipated, perhaps because there was an assumption it would be easy compared with designing, building and operating a nuclear power plant. But whatever the reason, unexpected technical challenges increased development costs, and pushed Yucca Mountain’s schedule beyond a horizon that could receive consistent support by a federal government that tends to change hands approximately every four years.

Finally, DOE’s failure to begin accepting spent nuclear fuel as required by the NWPA has added to public distrust of nuclear power, since the public sees no credible solution for long-term disposal of spent fuel in a geologically safe environment.

A spent-fuel fedcorp could bring a fresh approach to decision making, and it would benefit from a more stable, long-term funding framework. Additionally, the idea of a fedcorp, at least in principle, enjoys strong support from the industry and its lawmakers. The Nuclear Energy Institute (NEI), representing the utilities that own nuclear power plants, favors the fedcorp model (See “Rethinking Spent Fuel,” February 2011). Some prominent state regulators are on the record supporting a fedcorp, including Michigan Public Service Commissioner Greg White; and of course the current chairman of the House Energy Committee co-sponsored the Voinovich bill.

However, by itself, a federal corporation structure shouldn’t be considered any guarantee of success, as the failures and foibles of some federal entities have illustrated. The U.S. SynFuels Corp. of the early 1980s provides an instructive example. The project to produce synthetic fuels, primarily from coal, lost its mission when its primary driving force vanished—i.e., the energy crisis ended, and petroleum prices dropped below the cost of the new fuels to be produced. And another example, Amtrak, continually suffers from the uncertainties of annual congressional appropriations.

There are, however, successful examples of corporations created as public entities with policy direction from Congress, such as the Tennessee Valley Authority (TVA) or more recently the U.S. Enrichment Corp. (USEC)—which was formed by the federal government in the early 1990s, and privatized in 1998.

Both successful and unsuccessful examples provide useful lessons. Several key steps stand out as being critically important in the effort to create a successful fedcorp to manage spent nuclear fuel.

Step 1: Policy Mandate

A central question for any new government corporation involves resolving how policy is set, and what functions and responsibilities accrue to the entity. In short, would the fedcorp be expected to craft policy on managing spent fuel, or would it receive such policy from the government?

Jack Bailey, TVA’s director of nuclear operations, argues that Congress and the administration—and not the board of a nuclear fedcorp—must bear the responsibility to establish America’s spent-fuel policy.

“We wouldn’t advocate that this fedcorp in any way establish policy,” Bailey says. “They are merely a tool to implement policy. That direction comes from the administration or the Nuclear Waste Policy Act, or some other legislative vehicle to establish overall policy.”

EES North America

Bailey does, however, specify functions to be carried out by the fedcorp. “The [fedcorp’s] board—and the management that it would hire—need the flexibility to implement policy as best they see fit, and to manage the money that’s put into the fund in a way that’s most efficient toward achieving the results of the corporation.”

In other words, the fedcorp’s mandate should be firmly established—but it should also give the fedcorp the flexibility it needs to get the job done right.

Step 2: An Independent Board

Like any successful corporation, a nuclear waste fedcorp would need strong governance and management expertise. “The board structure needs to include people who understand business,” Bailey says. “It can’t all be political appointees, for example, who have really no knowledge or interest in the business.”

Additionally the fedcorp board should include representation from major stakeholder groups, who will ensure the corporation is directed and managed in an independent way. According to Bailey, TVA has been most successful “when the board has had the ability to act on behalf of its mission without having to worry about a lot of extraneous things, whether they be political or other issues.”

Of course, nuclear waste policy is an intensely political subject, and the fedcorp would need people capable of managing the public-interest aspects of the corporation’s mission.

Some witnesses speaking before the BRC advocated having representatives of the public on the fedcorp board. Others suggest this might be unnecessary, and that simply ensuring proper regulatory oversight by the NRC and EPA would satisfy the need to ensure fair and impartial review of the corporation’s actions. “Remember, any decision [the board members] make is going to be under the National Environmental Policy Act (NEPA), which requires them to engage the public and the environmental groups that might be concerned,” Bailey says. “So it’s going to be a very public process.”

Also, last year’s Voinovich bill specified that the National Association of Utility Regulatory Commissioners (NARUC) would contribute two members to the proposed board of directors. This provision was intended to ensure the interests of customers and state governments are represented in the fedcorp’s decisions.

Step 3: Independent Funding

Assuring the continuity of funding from year to year is the most compelling reason to create a new entity that has direct access to the annual revenues from the Nuclear Waste Fund. Without such funding, consistent progress on construction of a repository can’t move forward at a reliable pace. It’s important for public reassurance and to support the huge, long-term financial commitments involved in constructing a spent-fuel repository—and not let the constantly shifting political winds in Washington affect those commitments.

The Nuclear Waste Fund has been the designated repository for ratepayer and utility fees since 1982, with accrued funds (allocated within the federal budget) of about $25 billion, and annual payments of about $750 million. To date, about $10 billion has been spent toward the construction of a permanent repository, mostly on Yucca Mountain.

Both the corpus of the Nuclear Waste Fund and the ongoing ratepayer payments logically might become the principal financial assets of a nuclear waste fedcorp. But transferring either accrued funds or annual contributions to a new fedcorp entity isn’t a trivial matter. For one thing, the Nuclear Waste Fund is earmarked for a permanent repository—as opposed to other options, such as interim storage or on-site casks, for example. Allowing the fedcorp to pursue the most pragmatic approach might require some legislative changes in the fund’s charter.

But perhaps more importantly, the fund presents a difficult budgeting matter for Congress and the Office of Management and Budget (OMB). The issue has caused difficulties for previous efforts at reforming the way the federal government manages the Nuclear Waste Fund. In April 2006, DOE Secretary Samuel Bodman proposed an ambitious plan for managing nuclear spent-fuel and high-level waste, and that plan ran aground reportedly in part because OMB objected to transferring dollars from the Nuclear Waste Fund out of the federal balance sheet. “Funding reform is necessary to correct a technical budgetary problem that has acted as a disincentive to adequate funding,” Bodman stated.

The issue hasn’t improved since 2006. In testimony before the BRC in February, Mike Telson, DOE’s former chief financial officer, said his budget committee and the OMB had engaged in “Talmudic” discussions of this issue—implying such discussions were complex and could’ve gone on forever. Likewise Joe Hezir, a senior official at OMB for decades, explained that budgeting rules have become more restrictive and adverse in the context of transferring funds to a fedcorp. He said:

Such budget conflicts, however, aren’t necessarily deal killers for funding a spent-fuel fedcorp. Bailey of TVA, for example, argues that the $25 billion corpus of the Nuclear Waste Fund isn’t immediately needed to initiate a fedcorp. Annual ratepayer fees would be adequate to get the fedcorp started, and the government could transfer the corpus of the fund to the fedcorp books later—or even leave the fund where it is, and use that fund in situ as an asset to secure bonds issued for financing the fedcorp’s work.

Step 4: Defined Liabilities

The major liability that arises in creating a fedcorp involves the federal government’s failure to meet its obligations under the NWPA to assume responsibility for managing spent fuel beginning in 1998. Several utilities and state regulatory agencies have successfully sued the government for compensation arising from its violation and their additional costs for onsite spent-fuel storage. Exposure to this liability would prove problematic for a spent-fuel fedcorp.

In his BRC testimony, Phil Sewell, senior vice president of USEC, reinforced the need to be precise in identifying liabilities and assets as a key component of a making a new fedcorp successful. Further, Bailey of TVA says that no matter where the responsibility lands, paying the federal government’s damages from the waste fund would be indefensible from a legal and policy standpoint. “Essentially [it would be] asking the utilities to pay for their own lawsuit victory,” he says. “Because the money they’re taking is the money we’re paying in. That makes no sense at all.”

And indeed, a federal court in 2002 ruled that settlements from these suits must come out of the Department of Treasury judgment fund, rather than from the Nuclear Waste Fund.

But a fedcorp could also find itself holding the bag for other federal liabilities. For example, DOE has spent more than $7 billion on Yucca Mountain, and that work carries certain liabilities and responsibilities. Arguably they rest with DOE, and not a new entity without any involvement at Yucca Mountain.

If a fedcorp is created, however, then at some point in the future it will assume liability under the NWPA for the federal obligation to take spent nuclear fuel. So in defining fedcorp’s liabilities, policy makers will need to establish a reasonable timeline during which NWPA liabilities transfer to the fedcorp.

Step 5: Collaborative Approach

The existing siting process, established by Congress in 1987, hasn’t worked. Instead, it has generated strong opposition from the State of Nevada, led by Senate Majority Leader Harry Reid (D-Nev.). Also, problems that were unknown when the Yucca Mountain site was selected—including water intrusion and cracks in the mountain—have raised issues about its appropriateness as a repository that must, in effect, last forever.

The BRC held hearings at locations that illustrate both success and failure at siting similar facilities. Their investigations took the BRC to Europe and across the United States, and included testimony from many experts on siting issues—as well as from those who express grave concerns and fears about such siting. Almost universally, public officials—from mayors to governors to state legislators—demand a say in approving such sites. Some demand a binding veto. Others ask for a permitting role. Some want the Congress to dictate a site, while others urge a competition from local communities and states for a site with huge financial bonuses—as was the case in Sweden and Finland, where there has been permanent repository siting success (see “Life After Yucca,” November 2010).

In any case, a spent-fuel fedcorp seems likely to succeed only if it can develop a new, collaborative approach to siting nuclear waste facilities. Also, to the degree the fedcorp considers interim storage options, it would need some way to establish credibility that “interim” isn’t a euphemism for “permanent” (see “Tough Questions for Fedcorp”).

In the Plan D for Spent Nuclear Fuel report—produced by a group of academics, led by Prof. Clifford Singer at the University of Illinois at Urbana-Champaign—a key recommendation is that “every shipment of spent nuclear fuel material should be accompanied by a payment into a Permanent Fund, to be held by the recipient state as long as that material stays in the state… States would receive interest earnings on the Permanent Fund balance beyond any needed to maintain the minimum balance.”

The Plan D report also argues against a single long-term storage site—e.g., the so-called “monopoly” approach that failed at Yucca Mountain. “A monopoly situation would generate tension within the state and with the federal government over whether the state had obtained adequate compensation,” Prof. Singer wrote. “This could lead to delays or even failure of the whole project again.” He suggested that a more successful process might involve about six finalist states, competing for two or preferably three repository site licenses—with an equal number of spent-fuel aging facilities to be licensed at repository sites.

Clean Slate

If the BRC recommends the federal government create a fedcorp to take over the process of siting a repository for spent nuclear fuel, it could establish a clean slate for resolving America’s nuclear waste dilemma. Properly structured, a fedcorp would allow a more rational and sustainable approach to the problem.

However, in order for it to succeed, the mission of such a fedcorp must be clearly defined, its powers carefully delineated, and its financing constructed so as to avoid the delays that have hampered DOE efforts to date.

A spent-fuel fedcorp would face a panoply of complexities in management, funding, legislative authority and structure, as well as legal and financial liabilities—and that’s before it even considers the technical and operational issues of siting, building and running nuclear waste facilities. This combination of complexities and difficulties has stymied progress by the DOE, but a dedicated fedcorp that’s more flexible and sustainably financed might be better positioned to tackle this generational challenge.

And now might be precisely the right time for the fedcorp idea.

A convergence of failures—i.e., the accident at Fukushima, the cancellation of Yucca Mountain as a permanent repository for spent fuel, and the growing budget impact of litigation settlements related to DOE’s non-performance on its NWPA obligations—already represents a call for action on the safe storage of spent fuel. If proponents of a fedcorp approach are correct, a forthcoming BRC recommendation—and a federal decision to act upon it—could begin the process of turning these failures into a new beginning for America’s policy on nuclear spent fuel.