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Performance and Accountability Report - Fiscal Year 2006 (NUREG-1542, Vol. 12)

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  • Introductory Pages (PDF - 1.92 MB)
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  • Chapter 2 (PDF - 1.76 MB)
  • Chapter 3 (PDF - 1.94 MB)
  • Appendices (PDF - 1.84 MB)

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Table of Contents

A Message from the Chairman

Chapter 1: Management's Discussion and Analysis

• Introduction
• About the NRC
• Program Performance Overview
• Future Challenges
• President's Management Agenda
• Financial Performance Overview
• Systems, Controls, and Legal Compliance

Chapter 2: Program Performance

• Measuring and Reporting Performance
• Goals and Performance Measures
• Addressing the President's Management Agenda
• Cost of Achieving the Agency's Goals
• Program Assessment Rating Tool
• Program Evaluations
• Data Sources and Quality

Chapter 3: Auditors' Reports and Financial Statements

• A Message from the Chief Financial Officer
• Auditors' Reports
• Independent Auditor's Report on the Financial Statements
• Management's Response to the Independent Auditors' Report on the Financial Statements
• Principal Statements
• Notes to Principal Statements
• Required Supplementary Information

Appendices

• A Inspector General's Assessment of the Most Serious Management and Performance Challenges Facing NRC
• B Management Decisions and Final Actions on OIG Audit Recommendations
• C Agreement States
• D NRC Organization Chart as of September 30, 2005
• E Glossary of Acronyms

A Message from the Chairman

I am pleased to present the Nuclear Regulatory Commission’s Performance and Accountability Report for FY 2006. Ensuring the protection of public health and safety and the environment has always been and will continue to be the NRC’s primary goal. I am proud to report that the NRC has again achieved its safety and security performance goals. While we did not meet some of our openness, effectiveness, and management performance measures, we have developed approaches to improve results in the coming year.

The Agency is continuing its successful regulatory oversight programs, including comprehensive safety inspections as well as force-on-force exercises to confirm licensees’ capabilities to provide adequate security. The NRC will also continue its program to renew the licenses of existing nuclear reactors following the necessary safety reviews. Projected new reactor licensing and other activities present significant challenges for the NRC, including the need to obtain additional resources to meet the increased workload, to hire and train several hundred new staff, to update the Agency’s regulatory review and construction inspection guidelines, and to expand the Agency’s infrastructure, including obtaining the necessary work space and implementing more innovative use of information technology, to accommodate this growth. I believe the Agency is on the right course to meet these challenges.

This report provides information that demonstrates that NRC’s financial and performance data are reliable and complete and that the funds entrusted to us by the American public are well managed. The auditors have rendered an unqualified opinion on the Agency’s FY 2006 financial statements. The NRC has evaluated its internal controls, including those relating to financial reporting and its financial management systems as required by the Federal Managers Financial Integrity Act. There is reasonable assurance that the NRC is in compliance with the Act, with the exception of two material weaknesses related to implementation of the Federal Information Management Security Act: the lack of contingency plan testing for information systems and the lack of certification and accreditation of information systems. The Agency has also identified its Fee Billing System as being in substantial noncompliance with government wide financial system requirements and with the Federal Financial Management Improvement Act. The financial statement auditors identified a third material internal control weakness associated with quality assurance for the fee billing process. I have declared this to be a reportable condition based on the results of the Agency’s internal control assessment. We have developed corrective action plans and will continue to work to eliminate the material internal control weaknesses and the Federal Financial Management Improvement Act substantial noncompliance (See Chapter 1, Audit Results and Management Assurances).

The NRC is committed to conducting its regulatory responsibilities to enable the use and management of radioactive materials and nuclear fuel for beneficial civilian purposes in a manner that protects public health and safety and the environment, promotes the security of our nation, and provides for regulatory actions that are open, effective, efficient, realistic and timely. The NRC looks forward to continuing its high-quality service to the American public in FY 2007 and beyond.

Dale E. Klein
November 15, 2006

Chapter 1: Management's Discussion and Analysis

INTRODUCTION

This Performance and Accountability Report represents the culmination of the U.S. Nuclear Regulatory Commission’s (NRC) program and financial management processes, which began with mission and program planning, continued through the formulation and justification of NRC’s budget to the President and the Congress, through budget execution, and ended with this report on the Agency’s program performance and use of the resources with which it is entrusted. This report was prepared pursuant to the requirements of the Chief Financial Officers Act, as amended by the Reports Consolidation Act, and covers activities from October 1, 2005, to September 30, 2006.

The NRC places a high importance on keeping the public informed of its activities. Visit our Web site at http://www.nrc.gov to access this report and to learn more about who we are and what we do to serve the American public.

Chapter 1, Management’s Discussion and Analysis, provides an overview of the NRC. It consists of six sections—About the NRC describes the Agency’s mission, organizational structure, and regulatory responsibility; Program Performance Overview summarizes the Agency’s success in achieving its strategic goals, which are further described in Chapter 2; Future Challenges includes forward-looking information; President’s Management Agenda
describes the Agency progress in “Getting to Green” for five management initiatives; Financial Performance Overview highlights the NRC’s financial position and audit results contained in Chapter 3; and Systems, Controls, and Legal Compliance describes the Agency’s compliance with key legal and regulatory requirements.

ABOUT THE NRC

The NRC was established on January 19, 1975, as an independent Federal agency to regulate various commercial and institutional uses of nuclear materials. The Atomic Energy Act, as amended, and the Energy Reorganization Act, as amended, define the NRC’s purpose. These acts provide the foundation for the NRC’s mission to regulate the Nation’s civilian use of byproduct, source, and special nuclear materials to ensure adequate protection of public health and safety, to promote the common defense and security, and to protect the environment.

To fulfill its responsibility to protect the public health and safety, the NRC performs three principal regulatory functions. The Agency (1) establishes standards and regulations, (2) issues licenses for nuclear facilities and users of nuclear materials, and (3) inspects facilities and users of nuclear materials to ensure compliance with regulatory requirements. These regulatory functions relate to civilian nuclear power plants, other nuclear facilities, and uses of nuclear materials, such as nuclear medicine programs at hospitals; academic activities at educational institutions; research work; industrial applications, such as gauges and testing equipment; and the transport, storage, and disposal of nuclear materials and wastes.

Organization

The NRC is headed by a Commission composed of five members, with one member designated by the President to serve as Chairman. The President appoints each member, with the advice and consent of the Senate, to serve a 5 year term. The Chairman is the principal executive officer and official spokesman for the Commission. The Executive Director for Operations carries out program policies and decisions made by the Commission.

The NRC’s headquarters is located in Rockville, Maryland. Four regional offices are located in King of Prussia, Pennsylvania; Atlanta, Georgia; Lisle, Illinois; and Arlington, Texas. The NRC’s technical training center is located in Chattanooga, Tennessee. The NRC also has at least two resident inspectors at each of the Nation’s nuclear power
reactor sites. The NRC’s Operations Center is the focal point for the Agency’s communications with its licensees, State agencies, and other Federal agencies concerning operating events in the commercial nuclear sector. The NRC operations officers staff the Operations Center 24 hours a day. Appendix D to this report presents the NRC organization chart.

The NRC’s budget for fiscal year (FY) 2006 was $741.5 million (see Figure 1) and 3,270 full-time equivalent staff (see Figure 2). The Agency’s FY 2005 budget was $669.3 million and 3,108 full-time equivalent staff. The NRC recovers most of its appropriations from fees paid by NRC licensees. Approximately 72 percent of the NRC’s budget and 71 percent of its staff are associated with nuclear reactor safety, security, and emergency response.

The Nuclear Industry

The NRC regulates all activities involved in the commercial use of radioactive materials. From nuclear fuel facilities, which produce the radioactive fuel used in the Nation’s nuclear power plants and other users of nuclear materials, through the safe transportation and disposal of nuclear waste, the NRC’s regulatory programs ensure that radioactive materials are used safely and securely throughout this nuclear material cycle.

Approximately 20 percent of the Nation’s electricity is generated by the 104 NRC-licensed commercial nuclear reactors operating in 31 States (see Figure 3). Since 1994, nuclear electric generation has increased by approximately 20 percent. The NRC expends over 368,500 hours annually inspecting operating reactors and licenses approximately 4,700 reactor operators.

The NRC oversees over 4,500 licenses for medical, academic, industrial, and general uses of nuclear materials (see Figure 4). The Agency conducts approximately 1,500 health and safety inspections of its nuclear materials licensees annually. In addition, the 34 Agreement States oversee over 17,600 licenses. These Agreement States have assumed the majority of regulatory responsibilities for overseeing the activities of industrial, medical, and other small users of nuclear material within their borders. The NRC, Agreement States, and their licensees share a common responsibility to protect public health and safety.

Fuel Facilities

Nuclear fuel is derived from milled uranium ore extracted from the earth at uranium mines to produce uranium concentrate called “yellow cake.” The yellow cake is converted into uranium hexafluoride gas at a special facility and loaded into cylinders. The cylinders are sent to a gaseous diffusion plant, where uranium is enriched for use as reactor fuel. The enriched uranium is then converted into oxide powder, fabricated into fuel pellets (each about the size of a fingertip), which are then loaded into metal fuel rods about 12 feet long and bundled into reactor fuel assemblies at a fuel fabrication facility. Assemblies are transported to nuclear power plants for use as fuel. The NRC licenses seven major fuel fabrication and production facilities and two uranium enrichment facilities licensed to operate in eight states. Because they handle hazardous material, these facilities take special precautions to prevent theft, diversion by terrorists, and dangerous exposures to workers and the public from the nuclear material they handle.

Reactors

Power plants change one form of energy into another. Electrical generating plants convert heat, the energy of wind or falling water, or solar energy into electricity. A nuclear power plant converts heat into electricity. The nuclear reactor’s fuel gives off energy as certain types of atoms split into pieces. This energy is in the form of fast-moving particles and radiation. As the particles and radiation move through the fuel and surrounding water, the energy is converted into heat. The heat is the useful energy resulting from the splitting of atoms. The radiation energy itself can be hazardous and requires special precautions to protect people and the environment.

Because the fission reaction produces radioactive materials, nuclear power plants are equipped with numerous safety systems to protect workers, the public, and the environment. In a nuclear reactor, most radioactive substances, called fission byproducts, are trapped in the fuel pellets themselves or in the sealed metal tubes holding the fuel. Small amounts of these radioactive fission byproducts, principally gases, become mixed with the water passing through the reactor (see Figure 5). The water is processed and filtered to remove these radioactive impurities and then returned to the reactor cooling system.

Materials Users

Nuclear materials are used extensively in the medical, academic, and industrial fields. For example, approximately 112 million nuclear medicine or radiation therapy procedures are performed annually, with the vast majority used in diagnoses. Used as a tool, radioisotopes give doctors the ability to “look” inside the body and observe soft tissues and organs in a manner similar to the way that x-rays provide images of bones. Radioisotopes carried in the blood help detect clogged arteries or check the functioning of the circulatory system. Radioisotopes are also used in the treatment of cancerous tissue.

Many of today’s industrial processes also use nuclear materials. High-tech methods that ensure the quality of manufactured products often rely on radioisotopes. To determine whether a well drilled deep into the ground has the potential for producing oil, geologists use nuclear well-logging, a technique that employs radiation from a radioisotope inside the well to detect the presence of different materials. Radioisotopes are also used to sterilize instruments, to find flaws in steel parts and welds that go into automobiles and modern buildings, to authenticate valuable works of art, and to solve crimes by spotting trace elements of poison. Radioisotopes can also eliminate dust from film and compact discs and static electricity from can labels.

Waste Disposal

During normal operations, a nuclear power plant generates two types of radioactive wastes—high-level waste, which consists of used fuel (usually called spent fuel), and low-level waste, which includes contaminated equipment, filters, maintenance materials, and resins used in purifying water for the reactor cooling system. Other users of radioactive materials, such as those discussed above, also generate low-level waste.

Each type of waste is handled differently. Typically, the spent fuel from nuclear power plants is stored in water-filled pools and dry casks at each reactor site pending final disposal. In dry cask storage, spent fuel is stored in heavy metal or concrete containers placed on concrete pads. Spent fuel is highly radioactive because it contains the fission byproducts that were created while the reactor was operating. The handling of spent fuel requires special procedures because the radiation levels can be dangerous without proper shielding. The water in the spent fuel storage pool provides cooling and adequate shielding from the radiation to protect workers in a nuclear plant. Concrete and steel in dry casks also provide adequate protection.

Most spent fuel remains stored at individual plants. Permanent disposal of spent fuel requires a facility that can provide reasonable assurance that the waste will remain isolated for thousands of years. The U.S. Department of Energy is developing plans for a permanent disposal facility at Yucca Mountain, Nevada, for spent fuel from nuclear power plants, as well as for the high-level waste produced by the Nation’s nuclear weapons production activities.

PROGRAM PERFORMANCE OVERVIEW

The NRC has five strategic goals—safety, security, openness, effectiveness, and management (see Figure 6). The Agency considers safety and security to be its highest priorities and the goals most closely aligned to the NRC’s strategic objective. The NRC’s ability to meet specific strategic outcomes defines the Agency’s success in achieving each goal. To this end, the NRC is organized into two major programs, Nuclear Reactor Safety and Nuclear Materials and Waste Safety.

Nuclear Reactor Safety Program

The Nuclear Reactor Safety Program encompasses all NRC efforts to ensure that civilian nuclear power reactor
facilities and research and test reactors are licensed and operated in a manner that adequately protects the public health and safety and the environment and protects against radiological sabotage and theft or diversion of special nuclear materials. The Nuclear Reactor Safety Program accounted for 72 percent of the Agency’s costs in FY 2006.

Nuclear Materials and Waste Safety Program

The Nuclear Materials and Waste Safety Program focuses on the safety and security of the remaining users of radioactive materials. The Nuclear Materials and Waste Safety Program regulates fuel facilities, medical and industrial nuclear materials users, the disposal of both high-level and low-level waste, the decommissioning of power plants, and the storage and transportation of spent nuclear fuel. The Nuclear Materials and Waste Safety Program accounted for the remaining 28 percent of the Agency’s costs.

The Agency’s Five Strategic Goals

(1) Safety: Ensure protection of public health and safety and the environment.
(2) Security: Ensure the secure use and management of radioactive materials.
(3) Openness: Ensure openness in our regulatory process.
(4) Effectiveness: Ensure that our actions are effective, efficient, realistic, and timely.
(5) Management: Ensure excellence in Agency management to carry out the NRC’s strategic objective.

Goal 1: Ensure protection of public health and safety and the environment.

The NRC’s primary goal is safety. The Agency achieves this goal by ensuring that the performance of licensees is at or above acceptable safety levels. The individual NRC programs partner with licensees for this purpose. The NRC’s licensees are responsible for designing, constructing, and operating nuclear facilities safely, while the NRC is responsible for the regulatory oversight of the licensees. The strategic outcomes discussed below reflect specific hazards which NRC activities mitigate.

Strategic Outcomes:

• No nuclear reactor accidents.
• No inadvertent criticality events.
• No acute radiation exposures resulting in fatalities.
• No releases of radioactive materials that result in significant radiation exposures.
• No releases of radioactive materials that cause significant adverse environmental impacts.

FY 2006 Results

The NRC met all of its safety strategic outcomes in FY 2006. The NRC also uses six performance measures, in addition to the five strategic outcomes, to determine whether the Agency has met its safety goal. The Agency met its six performance measures in FY 2006. The first measure analyzes plant performance based on a large number of performance indicators and inspection findings. The second measure tracks significant precursor events determined by the likelihood of an event adversely impacting safety. The conditions in the third performance measure indicate whether the NRC identifies significant issues in a plant during inspections conducted under the reactor oversight program. The measures indicated that not only were the plants safely operated, but the events that did occur were of relatively minor significance.

Another measure tracks the trends of several key indicators of nuclear power plant safety. This measure is the broadest measure of the safety of nuclear power plants, incorporating the performance results from all plants to determine industry average results. Results show no statistically significant adverse trends in any of the indicators in FY 2006.

The last two safety measures address harmful radiation exposures to the public and occupational workers and radiation exposures that harm the environment. None of these measures exceeded their targets in FY 2006. Ensuring that nuclear materials cause no harm to human health or the environment is the basis for the NRC’s safety mission.

Goal 2: Ensure the secure use and management of radioactive materials.

The NRC’s Security goal responsibilities include regulating licensees’ (a) accounting systems for special nuclear and source materials and (b) security programs and contningency plans for dealing with threats, thefts, and sabotage relating to special nuclear material, high-level radioactive wastes, nuclear facilities, and other radioactive materials and activities that the NRC regulates.

Strategic Outcome:

• No instances of licensed radioactive materials being used domestically in a manner hostile to the security of the United States.

FY 2006 Results

The NRC uses three performance measures, in addition to the strategic outcome, to determine whether the Agency has met its security goal. The Agency met all three performance measure targets in FY 2006. The first performance measure addresses unrecovered losses or thefts of risk-significant radioactive sources. The measure ensures that those radioactive sources that the Agency has determined to be risk-significant to the public health and safety are accounted for at all times. The ability to account for these sources is essential to securing the Nation’s critical infrastructure from “dirty bomb” attacks or other means of radiation dispersal.

The second performance measure evaluates the number of significant security events and incidents that occur at NRC-licensed facilities. The measure determines whether nuclear facilities are maintaining adequate protective forces to prevent theft or diversion of nuclear material or sabotage; whether systems at licensee plants are accurately accounting for the type and amount of materials which are processed, utilized, or stored, and whether the facilities are accounting for special nuclear material at all times and that no losses of this material has occurred. No events met the conditions for this measure in FY 2006.

The last performance measure tracks whether any significant unauthorized disclosure of classified and/or safeguard information that could cause damage to national security or public safety has occurred. This measure determines whether this type of information is stored and used in such a way as to prevent its disclosure from the public, terrorists, other nations, or personnel without a need to know. Unauthorized disclosure can harm national security or compromise public health and safety. The measure also determines whether controls are in place to maintain and secure the various devices and systems (electronic or paper based) which the Agency and its licensees use to store and transmit this information. No documented disclosures of this type of information occurred during FY 2006.

Goal 3: Ensure openness in our regulatory process.

The Agency’s openness goal recognizes the importance of informing the public about the NRC’s regulatory processes. The Agency is committed to providing the public with an opportunity to participate in these processes. The NRC views nuclear regulation as the public’s business and, as such, believes that it should be transacted openly and candidly in order to maintain the public’s confidence. The Agency is committed to keeping the public informed and believes that a responsible and effective regulatory process includes an involved public.

Strategic Outcome

• Stakeholders are informed and involved in NRC processes as appropriate.

FY 2006 Results

The NRC uses two performance measures, in addition to the strategic outcome, to determine whether the Agency has met its openness goal. One performance measure target was not undertaken in FY 2006. That measure, the percentage of surveyed stakeholders that perceive the NRC to be open about its process, was not undertaken because cost considerations precluded conducting the survey.

The second performance measure consists of nine supporting output measures. The Agency met six of the nine output measures, but did not achieve the overall target for this performance measure. The output measures primarily focus on the Agency’s responsiveness to the public through stakeholder requests for information, the release of regulatory documents, and Freedom of Information Act (FOIA) requests. In addition, a survey of the user satisfaction score for the Agency’s public Web site was conducted. The Agency did not meet the target for this performance measure. To improve results in FY 2007, the Agency will take steps to ensure that documents are released within required time frames. In addition, the Agency web site will be upgraded to improve the current search engine.

Goal 4: Ensure that our actions are effective, efficient, realistic, and timely.

Over the next several years, the NRC anticipates a significant increase in Agency workload. In particular, the future workload is likely to include licensing requests of unprecedented technical complexity, including the U.S. Department of Energy’s application to license the Yucca Mountain high-level radioactive waste repository and requests to license the next generation of nuclear reactors. In addition, security demands are becoming more complex, requiring diverse professional expertise and close coordination with other Federal, State, and local agencies. This goal focuses the NRC on continuously improving regulatory processes to ensure achievement of its goals in the midst of these new requirements.

Strategic Outcome:

• No significant licensing or regulatory impediments to the safe and beneficial uses of radioactive materials.

Many factors could contribute to licensing and regulatory impediments, such as an inadequate regulatory framework, an ineffective program, or an inefficient process that leads to an untimely regulatory decision. The NRC is committed to addressing such issues through initiatives related to this goal, and it will also monitor the regulated community for instances in which Agency actions may have unnecessarily impeded licensees and applicants. In conducting this monitoring, the NRC may consider the results of self and external assessments, feedback from stakeholders, Congressional direction, and other sources.

FY 2006 Results

The NRC uses three performance measures, in addition to the strategic outcome, to determine whether the Agency has met its efficiency goal. One performance measure was to limit to one the instances per program in which licensing or regulatory activities unnecessarily impeded the safe and beneficial uses of radioactive materials. This performance measure is designed to capture instances in which NRC programs may have unnecessarily impeded the use of radioactive materials, but which did not meet the requirements of the strategic outcome for a “significant” impediment. Examples include missing a key timeliness measure or not adjusting the regulatory framework to support new technologies or otherwise respond to significant changes in the regulatory environment. To date, the NRC regulatory processes have been shown not to be an unnecessary impediment to the safe and beneficial uses of radioactive materials.

Another measure is to achieve a score of 85 percent on the Agency’s Performance Assessment Rating Tool conducted by the Office of Management and Budget. The Office of Management and Budget postponed this review and therefore no results are presented for this measure. For the final measure, the Agency chose to improve efficiency for five processes. The results of this effort were disappointing. The Agency did not meet its target for this measure as it only showed improvements for one process. Of the remaining four processes, one had no activity, so it could not demonstrate progress, and three processes failed to show efficiency improvements for FY 2006. The Agency expects to reevaluate the process improvement plans to determine why gains were not achieved this year and how gains may be achieved in the future.

Goal 5: Ensure excellence in Agency management to carry out the NRC’s strategic objective.

The NRC strives for management excellence in carrying out its regulatory responsibilities. The Agency believes that management excellence should be achieved while fostering the successful conduct of priority activities. In setting this goal, the NRC considered the management and support needed to achieve the Agency’s mission, preexisting management challenges, and other initiatives identified by central organizations such as the Government Accountability Office, the Office of Management and Budget, and the Office of Personnel Management. This goal includes strategies for the management of human capital and infrastructure, improved financial performance, expanded electronic government, budget and performance integration, and internal communications.

Strategic Outcomes

• Continuous improvement in the NRC’s leadership and management effectiveness in delivering the mission.
• A diverse, skilled workforce and an infrastructure that fully support the Agency’s mission and goals.

FY 2006 Results

The NRC uses two performance measures, in addition to the strategic outcomes, to determine whether the Agency has met its management excellence goal.

The Agency met the first performance measure to determine whether selected NRC management programs deliver their intended outcomes. Those programs include infrastructure management, financial management integration, budget and performance integration, expanded electronic government, human capital management, and internal communications. Several of these areas draw directly from the President’s Management Agenda. These activities provide for a safe work environment for the Agency’s employees and guests, manage the Agency’s funds responsibly, use technology to its fullest extent, attract and retain the Agency’s highly skilled workforce, and provide that workforce with the information it needs to be successful.

The Agency did not meet the second performance measure to address whether selected support processes deliver efficiency improvements. The processes include drug testing, budget formulation, contracting for wireless communications, and hiring. The Agency will be reviewing these support process efficiency improvement plans to determine why gains were not achieved this year and how gains may be achieved in the future.

Program Assessment Rating Tool Results

Another measure of the effectiveness of the Agency’s programs is the Program Assessment Rating Tool (PART) reviews conducted by the Office of Management and Budget. Since FY 2002, PART reviews of most of the NRC’s activities have been conducted. The activities that have been assessed include nuclear reactor inspection, fuel facilities, nuclear materials users, nuclear reactor licensing, and spent fuel storage and transportation. The Office of Management and Budget rated four of the five Agency programs as “effective,” the highest category provided for in PART. The remaining NRC program received a “moderately effective” rating, the second highest category.

In revisiting NRC programs subject to PART in prior years, the Office of Management and Budget recommended that the Agency better link budget requests to the NRC’s annual and long-term goals, as well as link performance measures in the organization’s operating plan to the safety performance measures in the Agency’s FY 2004–FY 2009 Strategic Plan. A further recommendation was for more transparency in how allocation decisions are made and how an activity contributes to achievement of the Agency’s long-term goals. In addition, the Office of Management and Budget recommended a complete review of operating plan format and content to improve the effectiveness of these plans as management tools. The NRC has addressed these recommendations.

FUTURE CHALLENGES

Primary future challenges for the NRC involve the expected receipt of applications to construct and operate new nuclear plants and dispose of high-level nuclear waste. The nuclear industry has indicated that it expects to submit at least 20 combined license applications to the NRC to construct and operate almost 29 new nuclear power reactors over the next few years. The NRC needs to obtain additional resources to meet this increased workload, hire and train several hundred new technical staff, update the agency’s regulatory review and construction inspection guidelines, and expand its infrastructure to accommodate this growth.

The NRC also faces a major challenge as the U.S. Department of Energy prepares to submit an application to construct the Nation’s first repository for high-level radioactive waste at Yucca Mountain, Nevada. Safe disposal of the waste from nuclear power plants is vital to protect public health and the environment. The U.S. Department of Energy has indicated that it may file a license application for the Yucca Mountain repository in FY 2008. The NRC must be adequately prepared to review that application. The NRC’s review will require the evaluation and resolution of a wide range of technical and scientific issues, site inspections, and conduct of an adjudicatory hearing. Until a repository is licensed and ready to receive high-level nuclear waste, spent nuclear fuel will be safely and securely stored primarily at reactor sites.

While addressing these challenges, the safety and security of the existing fleet of reactor, fuel facility, and nuclear materials licenses will remain the Commission’s highest priority.

PRESIDENT'S MANAGEMENT AGENDA

The President’s Management Agenda prescribes Governmentwide initiatives to ensure that Government agencies become more citizen centered, results oriented, and market based and actively promote competition rather than stifle innovation. To achieve this goal, the Administration has identified the following five initiatives to improve Government performance.

Strategic Management of Human Capital

The Agency has streamlined recruitment, relocation, and retention incentives to expedite review and approval, thereby allowing offices to extend job and incentive offers to outside applicants and positioning the Agency to handle anticipated workload growth, especially in reactor licensing reviews. The NRC is also coordinating its efforts to implement knowledge management strategies, including the development of a knowledge management Web site.

Budget and Performance Integration

The NRC’s planning, budgeting, and performance management process links the Agency’s various budget accounts to its safety and security goals and clearly identifies the budgetary resources devoted to them. The Agency’s budget identifies the alignment of resources to the NRC’s safety and security goals. The associated output measures are also clearly linked to the safety, security, and management and support goals and performance measures.

Competitive Sourcing

The NRC continues to implement performance-based contracting for facility management services, data entry, information technology, and other support services. To give vendors a better understanding and perform to the contract requirements, the NRC includes such criteria as measurable performance requirements, quality standards, quality surveillance plans, and provisions for imposing penalties when the vendor fails to meet contract expectations.

Expanded Electronic Government

The NRC is integrating and aligning its information technology investments with the Federal Government’s Electronic Government Program. The NRC uses electronic government services for payroll, security clearance, acquisition support, Governmentwide customer service, and recruitment, and is currently implementing support for travel and training. In addition, the NRC established procedures to avoid information technology investments that would duplicate other Federal electronic government programs. The NRC is also participating in the Financial Management and Human Capital Lines of Business. Further, the NRC is participating in the Information Technology Security Lines of Business.

Improved Financial Performance

The NRC’s financial management systems strategy is to improve business processes, systems
performance, and information access and to reduce life-cycle costs by relying on off-the-shelf software hosted by shared service providers. A Federal shared service provider currently hosts and operates the NRC’s core accounting, payroll, and human resource systems. The NRC maintains its other financial management systems, which interface with the core accounting and payroll systems, internally. The Agency’s vision for improving the financial management system is to integrate, to the extent possible, the requirements of various functions into one or a few systems, including core accounting, fee billing, and cost accounting. The NRC also began work on upgrading its time and labor system, with the goal of having the system hosted and operated by a shared service provider.

In FY 2006, the NRC completed its first year of implementing the new OMB requirements for assessing its policies and procedures related to internal control over financial reporting. The deficiencies noted during testing were classified as either an internal control deficiency or reportable condition. No material weaknesses were identified. The NRC then implemented corrective actions to remediate those deficiencies. The Agency included the results of the assessment in the Federal Managers’ Financial Integrity Act Statement of Assurance (see Chapter 1, Management Assurances).

FINANCIAL PERFORMANCE OVERVIEW

As of September 30, 2006, and 2005, the financial condition of the NRC was sound with respect to having sufficient funds to meet program needs and adequate control of these funds in place to ensure obligations did not exceed budget authority. The NRC prepared its financial statements in accordance with the accounting standards codified in the Statements of Federal Financial Accounting Standards (SFFAS) and Office of Management and Budget Circular A-136, Financial Reporting Requirements.

Sources of Funds

The NRC has two appropriations, Salaries and Expenses and Office of the Inspector General, and funds for both appropriations are available until expended. The NRC’s total new FY 2006 budget authority was $741.5 million. Of this amount, $733.2 million was for the Salaries and Expenses appropriation and $8.3 million was for the Office of the Inspector General appropriation. This represents an increase in new budget authority of $72.2 million over FY 2005 ($71.4 million for the Salaries and Expenses appropriation and $0.8 million for the Office of the Inspector General appropriation). In addition, $58.3 million from prior-year appropriations, $4.9 million from prior-year reimbursable work, and $4.3 million for new reimbursable work to be performed for others was available to obligate in FY 2006. The sum of all funds available to obligate for FY 2006 was $809.0 million, which is a $86.1 million increase over the FY 2005 amount of $722.9 million.

The Omnibus Budget Reconciliation Act of 1990 (OBRA-90), as amended, required the NRC to collect fees to offset approximately 90 percent of its new budget authority, less the amount appropriated to the NRC from the Nuclear Waste Fund and Waste Incidental to Reprocessing for FY 2006. The NRC collected $625.0 million in reactor and material fees in FY 2006 (see Figure 7). This is 100 percent of the fee recovery requirement. For FY 2005, OBRA-90 required NRC to collect approximately 90 percent of its new budget authority, excluding appropriations from the Nuclear Waste Fund.

Uses of Funds by Function

The NRC incurred obligations of $734.7 million in FY 2006, which was an increase of $69.2 million over FY 2005. Approximately 57 percent of obligations were used for salaries and benefits. The remaining 43 percent was used to obtain technical assistance for the NRC’s principal regulatory programs, to conduct confirmatory safety research, to cover operating expenses, (e.g., building rentals, transportation, printing, security services, supplies, office automation, training), staff travel, and reimbursable work (see Figure 8). The unobligated budget authority available at the end of FY 2006 of $74.3 million increased compared to the FY 2005 amount of $57.3 million. Of this $74.3 million, $5.4 million is for reimbursable work and $68.9 million is available to fund critical NRC needs in FY 2007.

Audit Results

The NRC received an unqualified audit opinion on its FY 2006 financial statements. In FY 2006, the auditors identified a new material weakness in the Agency’s information system-wide security controls related to an independent evaluation of the NRC’s implementation of the Federal Information Security Management Act (FISMA). The FISMA report identified two significant deficiencies related to a lack of contingency plan testing for information security systems, and a lack of certification and accreditation for most of the Agency’s major information systems. These deficiencies were also identified as material weaknesses in the Agency’s Federal Managers’ Financial Integrity Act (Integrity Act) assurance statement. The NRC plans to have contingency plan testing completed during FY 2007 and all systems certified and accredited by FY 2008. For FY 2005, the auditors identified the weakness in information system-wide security controls as a reportable condition.

In FY 2004 and FY 2005, the auditors identified a material internal control weakness concerning the Fee Billing System and the quality assurance process over fee billing. In FY 2006, the auditors continued to classify this as a material weakness. NRC management has classified fee billing as a reportable condition in the annual Integrity Act assurance statement based on the corrective actions to implement compensating controls during the fiscal year (Chapter 1, Management Assurances). The Fee Billing System was also identified as a substantial noncompliance with the Federal Financial Management Improvement Act (Improvement Act). NRC will continue to improve internal controls by implementing and monitoring corrective actions during the agency’s internal control assessment.

The auditors closed two of the remaining three prior-year reportable conditions concerning the accounting for internal use software and financial controls over disbursements. The remaining reportable condition concerns the development of the hourly rate for license fees. In FY 2006, the agency implemented several corrective actions for the hourly rate development process for license fees and closure of this finding is pending the agency fully implementing the corrective action plan.

Limitations of the Financial Statements

The principal statements have been prepared to report the financial position and results of operations of the NRC, pursuant to the requirements of the Chief Financial Officers Act of 1990, as amended by the Government Management and Reform Act of 1994. These statements have been prepared from the books and records of the NRC in accordance with the formats prescribed by the Office of Management and Budget and in accordance with accounting principles generally accepted in the United States of America. However, these statements differ from the financial reports used to monitor and control budgetary resources that are prepared from the same books and records. The principal statements should be read with the realization that they are for a sovereign entity, liabilities not covered by budgetary resources cannot be liquidated without enactment of an appropriation, and the payment of all liabilities other than for contracts can be abrogated by the sovereign entity. Other limitations are discussed in the footnotes to the principal statements.

The NRC’s FY 2006 financial statements were audited by R. Navarro and Associates, under contract to the NRC Office of the Inspector General.

Financial Statement Highlights

The NRC’s financial statements summarize the financial activity and financial position of the Agency. The financial statements, footnotes, and required supplementary information, appear in Chapter 3, Auditors’ Report and Financial Statements. Analysis of the principal statements follows.

Analysis of the Balance Sheet

The NRC’s assets were approximately $386.1 million as of September 30, 2006. This is an increase of $72.4 million from the end of FY 2005. The assets reported in NRC’s Balance Sheet are summarized in the accompanying table.

The Fund Balance with Treasury represents the NRC’s largest asset of $281.7 million as of September 30, 2006, an increase of $61.0 million from the FY 2005 year-end balance. This balance accounts for approximately 73 percent of total assets and represents appropriated funds, collected license fees, and other funds maintained at the U.S. Treasury to pay current liabilities. The increase in Fund Balance with the U.S. Treasury is primarily due to an increase in new reactor licensing activities and homeland security related activities, and the impact of a $72.2 million increase in new budget authority offset by a $35.2 million increase in expenditures.

Account Receivable, Net, as of September 30, 2006, was $75.2 million and includes an offsetting allowance for doubtful accounts of $3.0 million. This is a 18 percent increase from the FY 2005 year-end Accounts Receivable, Net, balance of $64.0 million. This increase was primarily due to the increase in the hourly rates for materials and facilities inspection fees. Accounts Receivable Due from the Public was $71.3 million, representing 18 percent of total assets. The value of Property, Plant, and Equipment, Net, was $26.9 million, representing 7 percent of total assets. The majority of this balance represents information technology software and leasehold improvements.

The NRC’s liabilities were $173.5 million as of September 30, 2006. The accompanying table shows an increase in Total Liabilities of $17.3 million from the FY 2005 year-end balance of $156.2 million. This increase is primarily due to the liability that relates to future collections, which will be paid to the U.S. Treasury. Other Liabilities include $75.0 million for recoveries from unbilled accounts receivable, $36.0 million for accrued annual leave, and $13.8 million for accrued salaries to employees. Of the Agency’s liabilities, $45.3 million were not covered by budgetary resources, which is a slight increase over the balance as of September 30, 2005. These liabilities not covered by budgetary resources include unfunded pension expenses, accrued annual leave, and future workers’ compensation. It should be noted that the Federal budget process does not recognize the cost of future benefits for today’s employees until they are actually paid.

The difference between Total Assets and Total Liabilities, Net Position, was $212.6 million as of September 30, 2006. This is an increase of $55.1 million from the FY 2005 year-end balance. Net Position is comprised of two sections: Unexpended Appropriations and Cumulative Results of Operations. Unexpended Appropriations is the amount of authority granted by Congress that has not been expended. The increase of Unexpended Appropriations of $22.9 million is primarily due to the increase in Fund Balance with Treasury as a result of new reactor licensing activities and homeland security activities. The increase is also due to the change in the accounting treatment for the Nuclear Waste Fund (NWF) transfer in FY 2006 that is now classified to Cumulative Results of Operations. In FY 2005, the NWF transfer was reported as Unexpended Appropriations. Cumulative Results of Operations represent net results of operations since the NRC’s inception. The increase of $32.2 million is mainly due to the change in the accounting treatment of the NWF transfer.

Analysis of the Statement of Net Cost

The Statement of Net Cost presents the net cost of NRC’s two programs as identified in the NRC Annual Performance Plan. The purpose of this statement is to link program performance to program cost. The NRC’s net cost of operations for the year ended September 30, 2006, was $80.6 million, which is a decrease of $52.4 million over the FY 2005 net cost of $133.0 million. Net cost by program is shown in the accompanying table. Gross costs increased primarily due to new reactor licensing and homeland security activities. Earned Revenue increased primarily due to the increase in appropriations for NRC activities, of which the NRC is required to collect 90 percent through fee billing.

Total exchange revenue for the year ended September 30, 2006, was $640.1 million, which is an increase of $90.1 million from the exchange revenue of $550.0 million for the year ended September 30, 2005. Exchange revenue is derived from fees for reactor and materials licensing, inspections, and other services assessed in accordance with 10 CFR Parts 170 and 171.

Analysis of Statement of Changes in Net Position

The Statement of Changes in Net Position reports the change in net position during the reporting period. Net position is affected by changes in its two components—Cumulative Results of Operations and Unexpended Appropriations. The increase in Net Position of $55.1 million from FY 2005 to FY 2006 is due primarily from the net change in Cumulative Results of Operations. This increase of $32.3 million is primarily due to higher fees collected for FY 2006. When fees are collected they are transferred to the U.S. Treasury offsetting Appropriations Used, resulting in a higher Cumulative Results of Operations. During FY 2006, NRC changed the accounting treatment of the Nuclear Waste Fund transfer. The Nuclear Waste Fund transfer is now classified in Cumulative Results of Operations under Transfers-in/out without reimbursement and in FY 2005 it was classified to Unexpended Appropriations.

Analysis of the Statement of Budgetary Resources

The Statement of Budgetary Resources reports the source and status of budgetary resources during the period. It presents the relationship between budget authority and budget outlays, and the reconciliation of obligations to total outlays. For FY 2006, NRC had Total Budgetary Resources available of $809.0 million, the majority of which was derived from new budget authority. This represents a 12 percent increase over FY 2005 budgetary resources available of $722.9 million. This increase is primarily due to new reactor licensing and homeland security activities.

For FY 2006, the Status of Budgetary Resources reported Obligations incurred of $734.8 million, or 91 percent of funds available increased compared to FY 2005 obligations of $665.5 million, at 92 percent of funds available due to the increase of appropriations received for new reactor licensing and homeland security activities. Gross outlays for FY 2006 were $686.6 million, which represents a $35.2 million increase from FY 2005 total outlays of $651.4 million due to the increase in new reactor licensing and homeland security activities.

Analysis of the Statement of Financing

The Statement of Financing is designed to provide the bridge between accrual-based (financial accounting) information in the Statement of Net Cost and obligation-based (budgetary accounting) information in the Statement of Budgetary Resources by reporting the differences and reconciling the two statements. This reconciliation ensures that the proprietary and budgetary accounts in the financial management system are in balance. The Statement of Financing takes Budgetary Obligations of $734.8 million and reconciles to the Net Cost of Operations of $80.6 million by deducting non-budgetary resources, costs not requiring resources, and financing sources yet to be provided.

SYSTEMS, CONTROLS, AND LEGAL COMPLIANCE

This section contains information concerning Management Assurances, Prompt Payment Act, Debt Collection Improvement Act, Biennial Review of User Fees, Inspector General Act, and Other key legal and regulatory requirements.

Federal Managers’ Financial Integrity Act

The Federal Managers’ Financial Integrity Act (Integrity Act) mandates that agencies establish controls that reasonably ensure that (i) obligations and costs comply with applicable law; (ii) assets are safeguarded against waste, loss, unauthorized use, or misappropriation; and (iii) revenues and expenditures are properly recorded and accounted for. This Act encompasses program, operational, and administrative areas, as well as accounting and financial management. It also requires the Chairman to provide an assurance statement on the adequacy of internal controls and conformance of financial systems withgovernmentwide standards.

Management Control Review Program

Managers throughout the NRC are responsible for implementing effective controls in their areas of responsibilities. Each office director and regional administrator prepares an annual assurance statement, which identifies any control weaknesses that require the attention of the NRC’s Executive Committee on Internal Control (ECIC). These statements are based on various sources including management knowledge gained from the daily operation of Agency programs and reviews, management reviews, program evaluations, audits of financial statements, reviews of financial systems, annual performance plans, Inspector General and Government Accountability Office (GAO) reports, and reports and other information provided by the Congressional committees of jurisdiction.

The NRC’s ECIC comprises senior executives from the offices of the Chief Financial Officer and Executive Director of Operations, with the General Counsel and Inspector General participating as advisors. The ECIC met and reviewed the assurance statements provided by the offices and regions. The ECIC then informed the Chairman as to whether the NRC had any internal control deficiencies serious enough to be reported as a material weakness or material noncompliance.

The NRC’s ongoing internal control program requires, among other things, that internal control deficiencies be integrated into the offices’ and regions’ annual operating plans. The operating plan process provides for periodic updates and ensures that key issues receive senior management attention. The internal control information in these plans, combined with the individual assurance statements discussed previously, provide the framework for monitoring and improving the Agency’s internal controls on an ongoing basis.

FY 2006 Integrity Act Results

The NRC evaluated its internal control systems for the fiscal year ending September 30, 2006. The NRC is able to provide a qualified statement of assurance that the internal controls and financial management systems meet the objectives of the Integrity Act, with the exception of two material weaknesses and one nonconformance.

Material Weaknesses

The Office of the Inspector General (IG) performed an independent evaluation of the NRC’s implementation of the Federal Information Security Management Act (FISMA) for FY 2006. The following two significant deficiencies were identified in the NRC’s information system security program:

• Only 1 of 30 operational NRC information systems has a current certification and accreditation, and only 4 out of the 12 systems used or operated by a contractor or organization on behalf of the Agency have been certified and accredited.
  
  
• Annual contingency plan testing is not being performed for most of the NRC’s operational information systems.

As a result of this evaluation, the NRC identified these two findings as material weaknesses under the provisions of the Integrity Act. The NRC will implement the following corrective actions to resolve these material weaknesses:

• For the certification and accreditation effort, the NRC’s FY 2007 and FY 2008 budget include additional resources and the Agency has developed a milestone plan to ensure that one-half of the listed systems will be certified and accredited by September 2007, with the remaining systems being certified and accredited by September 2008. In addition, the Agency is evaluating its current certification and accreditation process to determine what can be streamlined.
  
  
• All system contingency plan testing will be completed by July 2007.

OMB Circular A-123, Management’s Responsibility for Internal Control, Including Appendix A, Internal Control over Financial Reporting

The Office of Management and Budget revised Circular A-123, stressing the added importance of internal control in light of the new requirements for publicly traded companies contained in the Sarbanes-Oxley Act of 2002. The Circular defines and strengthens management’s responsibility for internal control in Federal agencies. The revised Circular includes updated internal control standards and a new section, Appendix A, which requires Federal agencies to implement procedures for assessing the effectiveness of internal control over financial reporting. Federal agency heads are required to sign a separate statement of assurance for internal control over financial reporting as of June 30, 2006. This statement is a subset of the overall Integrity Act statement of assurance.

The NRC’s Chief Financial Officer established a Senior Assessment Team (SAT), consisting of senior managers from the Office of the Chief Information Officer, the Office of Information Services, Human Resources, and the Office of Administration to ensure that the assessment of internal control over financial reporting was carried out in a thorough, effective, and timely manner. The scope of financial reports and materiality values were determined. Nine financial reporting processes were determined to be key contributors to the Agency’s financial statement balances. A testing plan was developed, and all key controls were tested to establish a baseline for the year of implementation. The Senior Assessment Team analyzed the test results and found no material weaknesses. The team shared these results at their annual briefing. Based on the results of this evaluation, the NRC can provide reasonable assurance that its internal control over financial reporting was operating effectively as of June 30, 2006, and that no material weaknesses were found in the design or operation of the internal controls over financial reporting.

With respect to the fee billing process, the deficiency was recognized as a material weakness by the auditors in the FY 2006 financial statement audit. This deficiency is associated with intensive manual processes, lack of comprehensive quality assurance procedures, and fee billing feeder processes (see Chapter 3, Auditors’ Report).

The SAT concluded that the fee billing process does not rise to the level of a material weakness to be reported externally. The SAT reached this conclusion based on the low level of risk associated with the annual fee billings which comprise approximately 71 percent of fee billing revenue and the additional internal controls implemented for the annual fee and fee for service billing processes in FY 2006. For example, the new quality assurance review process demonstrated that errors were low in number and dollar value, and a statistical sampling test of annual fee billings, for small material licensees also demonstrated that the error rate and dollar value were minimal. In addition, an internal control assessment conducted in FY 2006 specifically identified this weakness as a reportable condition.

Nonconformance

The NRC’s financial management systems substantially conform to governmentwide requirements, except for the Fee Billing System. The issues related to the Fee Billing System include intensive manual processes and the lack of comprehensive quality assurance procedures.

During FY 2006, the NRC implemented a remediation plan for the fee billing system. The plan detailed the NRC’s approach for overcoming the deficiencies that resulted in the finding of nonconformance. The plan included an assessment of the feasibility of bringing the fee billing system into substantial compliance, as well as the schedule to replace it with a compliant system. The Fee Systems Replacement Project is scheduled to be completed by FY 2009.

Federal Financial Management Improvement Act

The Federal Financial Management Improvement Act (Improvement Act) requires each Agency to implement and maintain systems that comply substantially with (i) Federal financial management system requirements, (ii) applicable Federal accounting standards, and (iii) the standard general ledger at the transaction level. The Improvement Act requires the Chairman to determine whether the Agency’s financial management systems comply with the Improvement Act and to develop remediation plans for systems that do not comply.

FY 2006 Improvement Act Results

As of September 30, 2006, the NRC evaluated its financial systems to determine if they complied with applicable Federal requirements and accounting standards required by the Improvement Act. The following eight systems were evaluated—the Federal Financial System, Federal Personnel and Payroll System, Human Resources Management System, Cost Accounting System, Advice of Allotments/Financial Plan System, Capitalized Property
System, Fee Billing System, and Controller Resource Database System.

The Chairman determined that, as of September 30, 2006, the NRC financial management systems were in substantial compliance with the Improvement Act, except for the Fee Billing System, which is in substantial noncompliance because it does not meet Governmentwide standards as defined by the Financial System Integration Office (FSIO), formerly known as the Joint Financial Management Improvement Program (JFMIP). In making his determination, the Chairman considered all the information available to him, including the report from the NRC Executive Committee on Internal Control on the effectiveness of internal controls, Office of the Inspector General audit reports, and the results of the Agency’s financial management systems reviews. He also relied on the Department of the Interior National Business Center’s (DOI-NBC) annual reasonable assurance statement in which they concluded that, for FY 2006, the financial systems the NRC cross-services with them, are in substantial compliance with Federal financial management systems requirements.

Prompt Payment Act

The Prompt Payment Act requires Federal agencies to make timely payments to vendors for supplies and services, to pay interest penalties when payments are made after the due date, and to take cash discounts when they are economically justified. From FY 2005 to FY 2006, the NRC paid 8,860 invoices that were subject to the Prompt Payment Act. The NRC percentage of on-time payments subject to the Prompt Payment Act for FY 2006 is 95 percent (see Figure 9). The amount of interest penalties incurred during FY 2006 was $4,874 which is a decrease from FY 2005’s amount of $8,850.

Improper Payments

Improper payments continue to be at low risk for the Agency. The NRC continues to evaluate its internal controls to guard against improper payments and monitors and reports on improper payments within its programs. At the present time, NRC’s inventory of functional payment areas consists of commercial vendor, interagency, and travel payments. The DOI-NBC is responsible for monitoring and reporting on any improper payroll-related payments since they are the system of record for payroll disbursements. The NRC will continue to perform annual risk assessments for each of these areas. Based on the FY 2006 risk assessments, the number and amount of improper payments fall below external reporting requirement established by Office of Management and Budget guidance on what is considered to be a significant risk.

Debt Collection Improvement Act

The Debt Collection Improvement Act enhances the ability of the Federal Government to service and collect debts. The Agency’s goal is to maintain the delinquent debt owed to the NRC, at year end, to less than one percent of its annual billings. The NRC continues to meet this goal and at the end of FY 2006 delinquent debt was $0.5 million (see Figure 10). The NRC continues to pursue the collection of delinquent debt and refers all eligible delinquent debt over 180 days to the U.S. Treasury for collection.

Biennial Review of User Fees

The Chief Financial Officers Act requires agencies to conduct a biennial review of fees, royalties, rents, and other charges imposed by agencies and make revisions to cover program and administrative costs incurred. Each year, the NRC revises the hourly rates for license and inspection fees and adjusts the annual fees to meet the fee collection requirements of the Omnibus Budget Reconciliation Act of 1990, as amended. The most recent changes to the license, inspection, and annual fees are described in the Federal Register (71 FR 30722, May 30, 2006).

The NRC also revised the fees and charges for the Materials Access Authorization Program and Information Access Authorization Program to more appropriately recognize actual costs. The Agency concluded that other types of fees did not warrant revisions at this time.

Inspector General Act

The Agency has established and continues to maintain an excellent record in resolving and implementing open audit recommendations presented in reports from the Office of the Inspector General. Section 5(b) of the Inspector General Act requires agencies to report on final actions taken on audit recommendations. Appendix B includes this information, as well as data concerning disallowed costs determined through contract audits conducted by the Defense Contract Audit Agency.

Chapter 2: Program Performance

MEASURING AND REPORTING PERFORMANCE

This chapter presents information on the NRC’s performance in achieving its mission and goals during FY 2006. The Agency’s mission is to ensure the safety and security of the American public, and the environment, in the use of byproduct, source, and special nuclear materials. To fulfill this mission, the NRC established five goals: Safety, Security, Openness, Effectiveness, and Management which are contained in the Agency’s FY 2004-FY 2009 Strategic Plan. For each goal, strategic outcome(s) define success in attaining the goal. In addition, a set of performance measures is associated with each goal that not only indicates NRC effectiveness in achieving the goal, but also establishes the basis for NRC performance management.

This chapter also describes NRC achievements in accomplishing its goals. The safety goal key achievements are discussed within Nuclear Reactor Licensing, Nuclear Reactor Inspection, Fuel Facilities, Nuclear Material Users, High-Level Waste Repository, Decommissioning and Low-Level Waste, and Spent Fuel Storage and Transportation.

The Agency’s success in achieving its Security, Openness, Effectiveness, and Management goals is also described. In addition, the Agency’s progress in “getting to the green” for the five management initiatives identified in the President’s Management Agenda is described. Moreover, this chapter presents information on data sources, data quality, and the completeness and reliability of performance data. This discussion focuses primarily on NRC methods for collecting and analyzing data, ensuring data security, and improving the Agency’s performance measures and the quality of its data during the current reporting period. The performance measures reported in this chapter reflect measures in the NRC FY 2006 Performance Budget.

STRATEGIC GOALS AND PERFORMANCE MEASURES

Safety Goal: Ensure Protection of Public Health and Safety and the Environment

Strategic Outcomes

The NRC has five strategic outcomes associated with the Safety goal that determine whether the Agency has achieved its aim to ensure protection of public health and safety as well as the environment:

• No nuclear reactor accidents.¹
• No inadvertent criticality events.
• No acute radiation exposures resulting in fatalities.
• No releases of radioactive materials that result in significant radiation exposures.²
• No releases of radioactive materials that cause significant adverse environmental impacts.³

¹“Nuclear reactor accidents” are defined in the NRC Severe Accident Policy Statement as those events that result in substantial damage to the reactor fuel, whether or not serious offsite consequences occur.

²“Significant radiation exposures” are defined as those that result in unintended permanent functional
damage to an organ or a physiological system as determined by a physician in accordance with Abnormal
Occurrence Criterion I.A.3.

³Releases that have the potential to cause “adverse impact” are those that exceed the limits for reporting
abnormal occurrences as given by Abnormal Occurrence Criterion 1.B.1.

Results: In FY 2006, the NRC achieved all of its Safety goal strategic outcomes.

Performance Measures

The table below lists the performance measures and targets for the FY 2006 Safety goal, as stated in the FY 2006 Performance Budget. The NRC met all of its FY 2006 Safety goal performance measure targets.

Analysis of Results

1. Reactor Oversight Process red conditions: The NRC reactor inspection program monitors nuclear power plant performance in three broad areas: reactor safety, radiation safety, and security. Plant performance is analyzed based on a large number of performance indicators and inspection findings. These indicators and findings are categorized into one of four categories: green, white, yellow, or red with red being the category of highest significance. Red indicates a significant reduction in the safety of a nuclear power plant. In FY 2006, there were no red performance indicators or inspection findings.

2. Reactor significant precursors: The second measure tracks significant precursor events determined by the likelihood of an event adversely impacting safety. A significant precursor is an event that had a probability of 1 in 1,000 (or greater) of leading to substantial damage to the reactor fuel. No significant precursors occurred in FY 2006.

3. Reactor performance: The conditions in this measure indicate whether the NRC identifies significant issues in a plant during inspections conducted under the reactor oversight program. If any of the conditions in this measure are met, the NRC will take action to ensure that plant safety is improved. In FY 2006, no reactors meet the conditions in this measure.

4. Reactor safety trends: This measure tracks trends for several key indicators of the nuclear industry safety performance. These indicators provide insights into major areas of reactor performance, including reactor safety, radiation safety, and physical protection. Statistical analysis techniques are applied to each indicator to calculate its long-term trend. These trends represent industry averages rather than individual plant performance. In FY 2006, no statistically significant adverse trends have been documented in any of the indicators. This performance measure is the broadest indicator of nuclear power plant performance and shows that the nuclear industry, under the NRC oversight, continues to maintain overall safety of nuclear power plants.

5. Nuclear material radiation exposures: This measure tracks the number of radiation exposures to the public and occupational workers that exceed Abnormal Occurrence Criterion I.A, which is defined as those events that produce unintended permanent functional damage to an organ or a physiological system, as determined by a physician. This measure tracks both nuclear reactors and other nuclear material users, such as hospitals and industrial users. In FY 2006, no radiation exposures have exceeded Abnormal Occurrence Criterion I.A. Ensuring that nuclear materials cause no harm to human health constitutes an important measure of the success of both the NRC and the industry in the safe use of nuclear materials.

6. Nuclear material releases to the environment: This measure is an indicator of the effectiveness of the NRC’s nuclear material environmental programs which is defined through compliance with the applicable regulatory limits in 10 CFR Part 20. The dose constraints and concentration limits in 10 CFR are protective of human health and the environment. In FY 2006, the industry has had no nuclear material releases to the environment that exceed regulatory limits.

Nuclear Reactor Licensing Activity

The Nuclear Reactor Safety Program ensures that civilian nuclear power reactors and test and research reactors are licensed and operated in a manner that adequately protects public health and safety and the environment while safeguarding special nuclear materials used in reactors. Safety at nuclear power plants has improved substantially over the past 20 years (see following for long-term trends in safety indicators).This improvement in the safety performance of nuclear power plants results from the combined efforts of the nuclear industry and the NRC.

The NRC completed 1,659 reactor licensing actions during the year (see Figure 11), above the target of 1,500 licensing actions. At the end of FY 2006, 97.6 percent of the inventory was less than one year old and 99.9 percent of the actions were completed within two years. The targets were 96 percent and 100 percent respectively. The licensing action inventory age goal of 100 percent and less than two years old was not met because of the complexity of the staff’s review of Columbia Generating Station’s Alternate Source Term amendment request. Technical issues associated with the review, including continued efforts to resolve differing staff opinions, allowed this licensing action to exceed two years of age on September 30, 2006. The staff intends to devote resources to resolve these issues and complete the review by the end of October, 2006. (see Figure 12).

Evaluations of nuclear facility power uprate applications represent one of the more important types of licensing activities and are a means for facilities to increase the power output of their plants. The NRC reviews focus on the potential impacts of the proposed power uprate on overall plant safety. The review of a power uprate application ensures that risks associated with increasing a plant’s power output are fully addressed and that plant operation at the increased power level is safe. Power uprates increased the Nation’s electrical generating capacity by approximately 429 Megawatts electric (MWe) in FY 2006.

New Reactor Licensing

Another important area involves the preparations for conducting licensing reviews for a new generation of nuclear reactors. Licensing activities for new reactors ensure that these reactors will meet NRC safety requirements and that a stable and predictable regulatory process is in place so that the Agency can evaluate future license applications without imposing undue regulatory burden on nuclear power generating companies. The NRC is undertaking these preparatory activities in response to the nuclear industry’s increased interest in constructing new reactors as a result of the Energy Policy Act of 2005 and ongoing U.S. Department of Energy efforts to share the costs of new reactor licensing projects. The first applications to construct and operate new nuclear power reactors are expected to be filed as soon as 2007, with several more in FY 2008 and FY 2009. The current number of expected Combined License applications for the period FY 2007 through FY 2009 has increased to a total of 20. The NRC proposed revisions to the regulation governing early site permits, design certifications, and combined licenses to improve the effectiveness and efficiency of the licensing processes for new reactor applications.

New Reactor Designs

The NRC has been actively reviewing new nuclear reactor designs. On December 30, 2005, the Commission voted unanimously to certify a fourth power plant design, the Westinghouse AP1000 standard plant design. In addition, General Electric has submitted an application for the Economic Simplified Boiling-Water Reactor design. In a letter dated December 1, 2005, the staff informed General Electric that their application is sufficiently complete and that it was formally accepted as a docketed application for design certification.

By certifying nuclear reactor designs, the NRC resolves safety issues in a design certification rulemaking. When an applicant submits an application for construction of a new nuclear power plant using one of these designs that has been certified by the Commission, the license application review can proceed more efficiently in a manner that ensures safety while minimizing unnecessary regulatory burden and delays.

In addition to working on domestic issues for new reactor construction, the NRC has been a leader in cooperating with other national nuclear regulatory authorities to address advanced reactor oversight. The NRC is leading a multinational effort called the Multinational Design Evaluation Program to more efficiently review new reactor designs. The goal of this effort is to make all new reactor reviews more safety-focused. NRC representatives are communicating closely with representatives from the Finnish and French regulatory authorities about the EPR designs that are being constructed in Finland and planned for licensing in France and the United States. A longer-term multinational effort is being
undertaken under the auspices of the Office of Economic Cooperation and Development’s Nuclear Energy Agency in attempt to harmonize regulatory approaches to facilitate more efficient reviews of Generation IV reactors.

Early Site Permits

The NRC is currently reviewing early site permit applications for the Clinton, North Anna, Grand Gulf, and Vogtle nuclear power plant sites. The Agency issued the Clinton environmental impact statement on July 28, 2006, and the Grand Gulf environmental impact statement on April 7, 2006. The staff issued the associated safety evaluation report for the Grand Gulf site on April 24, 2006, the Clinton site on May 1, 2006, and the North Anna site on August 15, 2006. Early site permits address site safety issues, environmental protection issues, and plans for coping with emergencies independent of the review of a specific nuclear plant design.

In addition to working on domestic issues for new reactor construction, the NRC has been a leader in cooperating with other national nuclear regulatory authorities to address advanced reactor oversight. The NRC has proposed an initiative, the multinational design approval program, that will allow several regulatory authorities to share expertise and resources in reviewing new and future reactor designs.

License Renewal

Reactor operating licenses for nuclear reactors are granted for 40 years and can be renewed for as long as an additional 20 years. The review process for renewal applications is designed to assess whether a reactor can continue to be operated safely during the extended period of operation.

To renew a license, the utility must demonstrate that the effects of aging will not adversely affect structures or components important to safety during the renewal period.

Such structures and components include the reactor vessel, piping, electrical cabling, containment structure, and steam generators. For some structures or components, additional action may be needed to ensure adequate margins of safety. Additionally, the potential impact on the environment due to the extended period of operation is assessed to verify that the impacts are not so great as to preclude license renewal.

The NRC has received applications to renew the licenses for 55 units at 32 sites and has renewed licenses for 44 units at 23 sites (see Figure 13). The NRC is currently reviewing applications to renew the licenses for eleven units at nine sites. The Agency expects that almost all of the licensees for currently licensed units will ultimately apply to renew their licenses.

Extensive implementation guidance was developed to standardize and improve the efficiency of the renewal process such that the time period for renewing a standard application is not unduly long. This guidance enables the Commission to minimize unnecessary regulatory burden for the applicant while ensuring that the plant can continue to operate safely. In the future, the NRC will update this guide as needed based on lessons learned and process improvements identified during renewal application reviews.

Nuclear Reactor Inspection

The NRC’s Reactor Oversight Process verifies that nuclear plants are being operated safely and in accordance with the NRC’s rules and regulations. The NRC has full authority to demand immediate licensee action for any conditions which result in excess risk to the public, including requiring a plant be shut down if necessary. Inspection findings and performance indicators are evaluated to assess the safety performance of each operating nuclear power plant. The NRC performs a rigorous program of inspections at each plant and may perform supplemental inspections and take additional actions to ensure that the plants address significant safety issues. The results of NRC inspection findings for each plant are available to the public on the NRC web site. The NRC also conducts public meetings with licensees to discuss the results of the NRC’s assessments of its safety performance.

When necessary, the NRC initiates investigation and enforcement activities to identify and appropriately respond to instances of willful noncompliance with NRC regulations. If necessary, fines and sanctions are applied to punish willful noncompliance or malfeasance.

In FY 2006, the Nation’s nuclear power plants were operated well within NRC safety requirements. The performance measures for the safety goal document that no plants were operating at unacceptable levels. In addition, the safety trend for nuclear plants as a whole showed no adverse trends. More than 99 percent of plant safety indicators were rated green in FY 2006.

The NRC continued to improve the Reactor Oversight Process in FY 2006. Agency assessments confirm that the Reactor Oversight Process has resulted in a more objective, risk-informed, and predictable regulatory process that focuses NRC and licensee resources on aspects of plant performance that have the greatest impact on safe plant operations.

Reactor Investigations and Enforcement

Compliance with NRC requirements plays an important role in giving the Agency confidence that safety is being maintained. NRC policy endeavors to deter noncompliance and to encourage prompt identification and timely, comprehensive corrections. Licensees, contractors, and their employees who do not achieve the high standard of compliance expected by the NRC are subject to enforcement sanctions. Each enforcement action depends on the circumstances of the case. However, in no case will the NRC permit licensees to continue to conduct licensed activities if they cannot achieve and maintain adequate levels of safety.

Emergency Preparedness and Incident Response

The NRC emergency preparedness and incident response activities are aimed at ensuring that the Agency is capable of responding effectively to events at its licensees’ sites and that adequate protective measures can and will be taken to mitigate plant damage and to minimize radiation doses to members of the public.

In FY 2006, the NRC conducted numerous outreach initiatives regarding the review of emergency preparedness regulations and guidance; improved the licensing infrastructure to support new reactor license applications; continued a comprehensive review of requirements led by the Department of Homeland Security (DHS); worked with the U.S. Department of Health and Human Services (HHS) to distribute potassium iodide to States that request it; continued upgrades to the Agency’s incident response center; and developed and implemented key lessons learned from Hurricane Katrina, a pandemic workshop, and other emergency response exercises.

During the 2005 hurricane season, the NRC and DHS effectively responded to hurricanes Katrina, Rita, and Wilma which had no significant impact on commercial nuclear power plant safety. After the storms, the NRC and DHS coordinated their review of licensee, State, and local emergency preparedness and response capabilities to allow timely restart of nuclear power facilities to support restoration of infrastructure while maintaining the protection of public health and safety. The NRC conducted a lessons learned review of the 2005 hurricane season and developed thirteen recommendations grouped in the areas of coordination and communications, roles and responsibilities, and supporting NRC employee needs. Those items necessary to be completed before the 2006 hurricane season were completed on schedule.

The Agency uses different types of exercises to test and demonstrate its incident response and emergency preparedness capabilities. In FY 2006, 12 formal scheduled exercises were conducted at licensee sites, five of which included full NRC participation. In addition, the NRC participated in two governmentwide interagency exercises. The NRC also conducts other improvement techniques such as tabletop drills and internal procedural exercises. In FY 2006, the NRC conducted two of these drills. The exercises provide training, test the Agency’s plans, procedures, and guidance documents, and test and evaluate the headquarters incident response facility and critical incident response communication capabilities. The NRC conducted an unannounced emergency response drill at NRC headquarters to validate response time and exercise command controls and communications during an event.

Following completion of each exercise, the NRC conducts a comprehensive review