NRC needs an independent budget process to match its independent mandate

The Nuclear Regulatory Commission is an independent regulatory agency whose focus is the safe use of radiation and radioactive materials. I cannot tell you how many times I have heard from regulators, commissioners, and elected officials that the agency must make its safety decisions without regard to their cost implications.

However, as any teenager, project manager, husband or wife can tell you, independence is a myth unless you can control your own expenditures and have a way to obtain additional funds if unplanned needs arrive. If your priorities are beyond your control or if you have no way to earn or obtain additional money you are not independent.

After years of watching NRC budget hearings, I recognize that the agency is far more dependent on political decisions that it likes to admit. For complex reasons that I think I can grasp but not completely explain, the commissioners, including the Chairman, are in a poor position to advocate for the budget process change that they need. They are prevented from articulating why they need a new budget process and paradigm in order to be a more capable, independent, mission-focused agency.

Their ability to perform their safety mission would benefit from more isolation from political decision-making and priority-shaping.

The agency needs to have adequate resources to enable it to “surge” to respond to events that require more labor, more analysis, and more public interactions to explain their decisions without robbing from their planned and budgeted activities.

Though a new process might need to be invented, within current rules it is possible for Congress to appropriate a contingency fund. Agencies are not generally allowed to request such a fund, but there are a number of reasons why I believe this is an appropriate interim solution that will improve the ability of the agency to perform its vital functions.

Limitations of current process

Despite being nominally an independent agency that has a proven potential for emergent work, and despite being an independent agency with specific legal responsibilities for actions that require resource expenditures that might not be aligned with political priorities, the NRC’s budget is treated like that of any other executive branch agency.

It must begin planning for its budget request at least two years in advance. Its request goes through the same OMB prioritization process as those of any other agency.

Even though it is a 90% fee-recoverable agency — which means that it charges licensees and applicants enough money to cover 90% of its expenditures — the fees that are collected are deposited directly into the treasury. Only budgeted and appropriated funds are available to be spent.

Even though only 10% of its budget comes from general revenues, when sequestration cuts were imposed, the amount of the NRC cut was based on a percentage of its entire budget, not just the general revenue portion. License fees covering the budget had already been assessed and collected.

The current process does not serve the nation very well. It puts a real damper on creative thought, both on the part of dedicated regulators that want to do a better job and in the minds of nuclear energy system designers that believe they know of dozens to hundreds of ways to improve their products. Here are some examples of why the current funding process is broken.

Event-driven Emergent Work

While I disagree with the way that the NRC and Congress decided that the agency needed to respond as it did after Fukushima, that response was apparently considered to be within the mandate of the agency.

Unfortunately for the public, neither the administration nor the Congress saw fit to provide the agency with any additional mid-year funding adjustments to account for the unplanned work. In order to meet the demands placed on it by their congressional oversight committees, the public and the administration, the agency performed a massive amount of internal “reprogramming” to free up the people necessary to perform the new work.

As one would expect, the reprogrammed resources did not come from the work hours devoted to overseeing current activities involving operating power plants or other current licensees. Instead, they had to come from the small segment of the agency’s budget that is planned to be used for discretionary tasks like reviewing new licenses, preparing for advanced reactor licensing, engaging with international regulatory agencies, or completing long-term rulemaking actions.

I’ll give the people involved the benefit of the doubt; it is entirely plausible that there was no intent to starve the future to pay for an unplanned present event.

My sources and an in-depth look at the agency’s production during the past several years indicate there is a significant backlog of planned work that has yet to be accomplished. Some of that work may be included in the proposed budget, but it is always subject to additional deferrals and reprioritizing.

Using budget process to force political prioritization

Another example of the broken process is the way that the NRC’s budget request has been formed by an Administration decision to halt reviews of the Yucca Mountain license application. It is a situation that has caused a great deal of tension and it has put the Commissioners in the awkward position of having to explain an action that was purely political and had nothing to do with the agency’s mission. In fact, the budget submission process has resulted in the NRC being held in violation of the law because they were not reviewing the license application as required.

There was an enlightening exchange between Senator Alexander and Chairman Burns during the February 24, 2016 Senate Energy and Water Appropriations Committee hearing about the Yucca Mountain license review budget request.

Chairman Burns’s response helps to illustrate the frustrating and difficult position that the current budget process creates. He did something that most political appointees and people who are not at the top of their organizations are trained to avoid. He told Senator Alexander that the budget request was the Administration’s. Not said, but clearly implied was the fact that it wasn’t the request that he would have submitted. In military parlance, he did not take ownership of a command decision with which he obviously disagreed.

I congratulate him on his natural honesty.

Aside: One of my personality traits that probably limited my advancement potential as a Naval Officer is that I have a terrible poker face. I always had difficulty passing orders with which I strongly disagreed to my subordinates as “if they were my own.” I was told more than once that was a risky trait, especially for an Executive Officer (XO). Those counseling sessions contributed to my search for other opportunities during my post department head, pre-executive officer shore tour.

That was when I began developing Adams Engines and left active duty before I could be ordered to become an XO. End Aside.

As you watch the exchange, keep in mind that licensees storing used nuclear fuel for the government on their power plant sites have collected funds that, with accumulated interest, amount to more than $30 billion dollars. That money is already in the government treasury, though it has been used like other trust funds to reduce the apparent size of the government’s debt.

Under the current paradigm, the NRC can only gain access to those funds if they are requested by the President, appropriated by Congress, and included in an appropriations bill signed by the President. Of course, Congress can add money to an appropriations bill that is not requested, but the President has the authority to refuse to sign the bill.

Slowly developing Nuclear Renaissance

In the past several years, there has been a lot of discussion at conferences, public meetings, and hearings about the fact that the NRC added new staff in anticipation of a Nuclear Renaissance. A few influential people believe that the promised Renaissance has not arrived and imply that it will never arrive. There is a lot of optimism in some sectors of the energy industry and among their favored policymakers that we have all of the natural gas, wind, water and solar energy resources that we will ever need.

There is also a perceptible feeling among some professionals that the nuclear industry in which they have chosen to work will do well to tread water. In the established nuclear industry, there existing plant operators that are putting pressure on the NRC to downsize and reduce the magnitude of their fees. Some green-eye shade types advocate that the agency get rid of the “excess” staff that was hired and trained to respond to a Renaissance than has not and will not arrive any time soon.

My view is less discouraged. I would have preferred for design certifications and combined license approvals to have happen more rapidly, and I wish that more projects were being vigorously pursued. As I age, however, I gain more appreciation of the fact that it takes time to change the direction of a system with as high a level of inertia as the U.S. energy industry.

Applications for a total of 26 new nuclear power plants were submitted soon after the passage of the Energy Policy Act of 2005, which provided financial incentives for a tightly limited number of participants.

Those applications came at a time when natural gas prices were reaching and exceeding $10 per MMBTU, before the Great Recession and before the Fukushima distractions. It is completely understandable that some of the early applicants dropped out of the race as soon as they recognized that their project would not be completed in time to qualify for the limited financial incentives. It’s also logical for companies to put applications on hold if their markets are growing more slowly than expected, competitive fuel costs are low, and there is not yet any value put on being able to produce reliable, emission-free electricity from nuclear power plants.

It’s also understandable that NRC and political turmoil created by the Fukushima Frenzy inserted enough financial and schedule risk to encourage others to put their projects on the shelf to pursue at a less disturbed time. It’s also been expected by savvy industry insiders that power plant customers would wait to see what cost and schedule experience shows after the first few new nuclear plants begin operating before they make their final investment decisions.

The Part 52 “one step” combined license process is actually more like one and a half steps; until the first units complete the Inspections, Tests, Analyses, and Acceptance Criteria (ITAAC) process there is still a lot of risk that needs to be “retired.”

Even with the slowdown in the pace of the nuclear energy revival, the NRC has completed combined licenses for seven units and it still has seven more units under review. That means that more than half of the original 26 have not been abandoned.

Four of the approved units are under construction (two at Vogtle in Northeast Georgia and two at VC Summer in South Carolina). Those construction projects require the agency to invest substantial oversight resources, many of whom need specialized training. I hope the agency is using more people in the process than they actually need; it is a training opportunity for important skills that must not be wasted.

Three of the approved units are on hold for now, but the projects can be restarted well within the turning circle of the current budgetary process if market conditions change.

Those three approved units are not the AP1000 reactors that are currently under construction. Two are Toshiba ABWRs and one is a GEH ESBWR. If the owners decide it’s time to begin, they will establish a significant new demand signal as the lead vendors assemble their component and service supply chains. That process requires NRC oversight and professional staff hours are associated with approving each new supplier.

Advanced Reactors

Enabling the safe and efficient reviews for a potentially large array of reactors of sizes, shapes, and technology that are not familiar to the agency is another source of unknown demand. The NRC, NEI, DOE and Congress are well aware of the fact that NuScale will be submitting a design certification application by the end of this year. Some rest a lot of their future hopes for the industry on that single project.

However, NuScale is only one of a large group of potential customers for the NRC’s regulatory services.

I attended the Advanced Reactor Technical Summit in Oak Ridge that Commissioner Ostendorff mentions. I spoke with a number of the representatives from the 21 different companies that are designing various types of reactors. A study by Third Way put the total number of different reactors closer to 50, indicating that less than half of that group participated in the summit. I can testify that meetings like the one held at Oak Ridge often are high cost, low value endeavors for small companies at certain stages of development.

Though the companies involved in this process know they must to pay for regulatory services, it is virtually impossible for them to provide schedule and resource estimates to the NRC two years before they need to get their reviews started.

Commissioners I’ve spoken to are proud of the fact that the FY2017 budget request includes $5 million for advanced reactor licensing activities. For the past half dozen years, despite clearly expressed interest and carefully articulated early actions needed before small and advanced reactor projects can get rolling, the agency has only devoted a few part time people to advanced reactor efforts. My best estimate, based on a number of occasionally heated conversations with regulators, is that the annual investment in advanced reactor licensing preparations has been less than 10 full time equivalents FTE.

The $5 million request may be enough to make a little more headway, but it is short sighted to have billions of dollars worth of potential investment waiting in idle because the regulatory body that has a monopoly on the approval process can only apply a few people and one half of one percent of its budget to the required, but vaguely understood tasks.

The magnitude of the tasks may be difficult to measure with sufficient resolution to withstand scrutiny by OMB, but the $5 million requested for expenditure between October 2016 and October 2017 might be woefully inadequate.

At conferences and meetings I’ve attended, NRC representatives frequently repeat their recommendation that potential applicants engage with the NRC early and often during the time before they submit a design certification application. In the next breath, those same NRC representatives remind those applicants that “the first meeting is free.” Unsaid, but well understood, is the fact that after the first meeting, the potential applicant loses control of its budget because the NRC charges $268 per professional staff hour. According to a NuScale presentation at Oak Ridge, single day meetings can cost $40,000 in NRC fees alone. That might be possible for Westinghouse, GE, Areva, B&W or the DOE to absorb, but is difficult for a start-up that is only on its first or second round of financing.

All of the vendors I’ve spoken to are reluctant to begin too much engagement at a time when the NRC still has major fundamental decisions to finalize that affect all advanced reactors, especially those that are much smaller than the 1 GWe models that are operating today.

It’s also unfair to innovative companies to ask them to reveal very much about their project plans to the public or to the government before they have been able to line up financing and sufficient intellectual property protection. It is also not an effective use of government and private resources to insert a year or more of delay in finding and training staff AFTER the company has its financing and technology development to the point of being able to submit a license application.

Additional unknown work

Because there is still a lot of uncertainty associated with the long term plans for used fuel, there are a couple of projects underway to establish private interim used fuel storage facilities.

Though the agency has some dated experience in reviewing and approving independent spent fuel storage facilities, it is still an activity that takes a substantial investment of regulatory resources. As discussed in the appropriations hearing on Feb 24, the budget request includes enough resources to review one application, even though two entities have already told the NRC that they intend to submit their facility applications before the end of this year.

Unexpected plant closure decisions also add a larger than planned burden for both the staff and the commission during the transition process.

Bottom line: An independent agency that is locked to the political budget process is much less independent than it should be. The NRC’s safety responsibility needs to be fully and responsively funded. Decisions by the OMB should not be used as an artificial barrier that creates a de facto situation of the government picking winners and losers because the designated safety regulator only has sufficient funds to perform a tightly limited set of actions at a time.