ML13135A001
| ML13135A001 | |
| Person / Time | |
|---|---|
| Site: | Pilgrim, Vermont Yankee, FitzPatrick File:NorthStar Vermont Yankee icon.png |
| Issue date: | 05/07/2013 |
| From: | Richard Guzman Division of Operating Reactor Licensing |
| To: | |
| Guzman R | |
| References | |
| 2.206, G20130211, NRC-4160, TAC MF1092, TAC MF1093 | |
| Download: ML13135A001 (81) | |
Text
Official Transcript of Proceedings NUCLEAR REGULATORY COMMISSION
Title:
10 CFR 2.206 Petition Review Board RE Entergy Nuclear Operations Docket Number: (n/a)
Location:
(teleconference)
Date:
Tuesday, May 7, 2013 Work Order No.:
NRC-4160 Pages 1-76 Edited by Richard Guzman, NRC Petition Manager NEAL R. GROSS AND CO., INC.
Court Reporters and Transcribers 1323 Rhode Island Avenue, N.W.
Washington, D.C. 20005 (202) 234-4433
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 1
UNITED STATES OF AMERICA 1
NUCLEAR REGULATORY COMMISSION 2
+ + + + +
3 10 CFR 2.206 PETITION REVIEW BOARD (PRB) 4 CONFERENCE CALL 5
RE 6
ENTERGY NUCLEAR OPERATIONS, INC.
7
+ + + + +
8 TUESDAY 9
MAY 7, 2013 10
+ + + + +
11 The conference call was held, Michele 12 Evans, Chairperson of the Petition Review Board, 13 presiding.
14 PETITIONERS: TIMOTHY L. JUDSON 15 PAUL GUNTER 16 DEB KATZ 17 JESSICA AZULAY 18 CHRIS WILLIAMS 19 MARY LAMPERT 20 21 FACILITATORS: LISA CLARK 22 JOAN OLMSTEAD 23 24 25
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PETITION REVIEW BOARD MEMBERS 1
MICHELE EVANS, Director 2
Office of Nuclear Reactor Regulation 3
(NRR), Division of Operating Reactor 4
Licensing (DORL) 5 RICHARD GUZMAN, Petition Manager for 2.206 6
petition 7
8 NRC HEADQUARTERS STAFF 9
TANYA MENSAH, Petition Coordinator, NRR, 10 Division of Policy and Rulemaking 11 ANNELIESE SIMMONS, NRR, Division of Inspection 12 and Regional Support, Financial Analysis 13 and International Projects Branch 14 JOCELYN LIAN, NRR, Division of Inspection 15 and Regional Support, Financial Analysis 16 and International Projects Branch 17 CHRISTOPHER M. REGAN, NRR, Division of 18 Inspection and Regional Support, 19 Financial Analysis and International 20 Projects Branch 21 JO ANN SIMPSON, NRR, Division of Inspection 22 and Regional Support, Financial Analysis 23 and International Projects Branch 24 25
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1 SEAN C. MEIGHAN, NRR, Division of Policy and 2
Rulemaking 3
SAM MCCARVER, Region I 4
PATRICIA JEHLE, Office of General Counsel, 5
Materials Litigation and Enforcement 6
Division 7
8 9
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
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P R O C E E D I N G S 1
1:00 P.M.
2 FACILITATOR OLMSTEAD: Good afternoon.
3 I'd like to open this meeting. My name is Joan 4
Olmstead and this is Lisa Clark. We're members of the 5
NRC's Facilitators Program and we'll be facilitating 6
today's meeting. Our role is to help ensure today's 7
meeting is informative and productive.
8 The purpose of today's meeting is to 9
allow the Petitioners from Citizens Awareness Network 10 Alliance for a Green Economy, Pilgrim Watch, Vermont 11 Citizens Action
- Network, and Beyond
- Nuclear, 12 represented by Mr. Timothy Judson, to address the 13 Petition Review Board regarding a 2.206 petition, 14 dated March 18, 2013.
15 The Petitioners request that NRC take 16 enforcement-related action against Entergy Nuclear 17 Operation, Inc. who jointly possess the licenses for 18 other Entergy subsidiaries, the three plants subject 19 to this petition: James A. FitzPatrick Nuclear Power 20 Plant, Vermont Yankee Nuclear Power Station, and 21 Pilgrim Nuclear Power Station.
22 This meeting is scheduled for an hour and 23 a half from 1:00 p.m. to 2:30 p.m. It's being 24 recorded by the NRC Operations Center and will be 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
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transcribed by a court reporter. The transcript will 1
become a supplement to the petition. Prior to 2
placing the transcript in ADAMS, the PRB, which is 3
the Petition Review Board, will review it to ensure 4
that it does not contain any allegations or sensitive 5
information.
6 To get a good transcript and minimize 7
distractions we ask that you turn off or mute any 8
devices that ring or buzz or beep or has an alarm.
9 And for those dialing into the meeting, please 10 remember to mute your phones. If you do not have a 11 mute button you can press *6 to mute your phone. To 12 unmute, press the *6 key again. And I'd like to 13 emphasize we need to speak clearly and loudly to make 14 sure the court reporter can accurately transcribe the 15 meeting. If you do have something that you would 16 like to say, please state your name first for the 17 record. And we ask you to minimize any side 18 conversations during the meeting. We will try to 19 have only one speaker at a time.
20 We are always looking to improve our 21 meetings and your feedback is important to us. At 22 the end of the meeting, please complete a feedback 23 form and return to us. For those here at NRC 24 Headquarters, we'll provide you with a public meeting 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
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form feedback and you may leave them here or mail 1
them back here. They're already post paid. If 2
you're participating by phone and would like to leave 3
an email feedback on this public meeting, please 4
forward your comments to the meeting contact, Rich 5
Guzman, by email at richard.guzman -- G-U-Z-M-A-N --
6
@nrc.gov.
7 Now I'd like to have the NRC meeting 8
participants introduce themselves. I ask all of the 9
participants to clearly state your name for the 10 record and your position and your organization. For 11 those here in the room, please speak up so those on 12 the phone can hear clearly and so that the court 13 reporter can accurately record your name.
14 And I'll start first and then the other 15 NRC participants in the room can also introduce 16 themselves afterwards. My name is Joan Olmstead.
17 I'm representing the NRC Facilitators Program here 18 and I also work for the Office of General Counsel.
19 FACILITATOR CLARK: I'm Lisa Clark. I'm 20 also here as a facilitator and I work in the NRC's 21 Office of General Counsel.
22 MS. JEHLE: I'm Patty Jehle, also in the 23 Office of General Counsel and Materials Litigation 24 and Enforcement.
25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 7
MR. GUZMAN: My name is Rich Guzman. I'm 1
a project manager from the Division of Operating 2
Reactor Licensing, or DORL, in the Office of Nuclear 3
Reactor Regulation, NRR.
4 MS. MENSAH: My name is Tanya Mensah.
5 I'm a 2.206 Coordinator in the Office of Nuclear 6
Reactor Regulation, Division of Policy and 7
Rulemaking.
8 CHAIRPERSON EVANS: I'm Michele Evans.
9 I'm the Director of the Division of Operating Reactor 10 Licensing in NRR.
11 MS. SIMMONS: I'm Anneliese Simmons. I'm 12 a financial analyst with the Division of Inspection 13 and Regional Support in the Office of Nuclear Reactor 14 Regulation.
15 MS.
LIAN:
I'm Jocelyn Lian also 16 financial analyst at Division of Inspection and 17 Regional Support.
18 MR. REGAN: Chris Regan, Chief of the 19 Financial Analysis and International Projects Branch, 20 in the Division of Inspection and Regional Support in 21 the Office of Nuclear Reactor Regulation.
22 MS. SIMPSON: I'm Jo Ann Simpson, a 23 financial analyst in the Division of Inspection and 24 Regional Support within the Office of Nuclear Reactor 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
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Regulation.
1 MR. MEIGHAN: Sean Meighan, Acting Branch 2
Chief, Branch 11 in Division of Reactor Licensing.
3 FACILITATOR OLMSTEAD:
- Okay, that 4
completes the introductions of NRC staff in the room.
5 Is there anyone else from NRC from Headquarters also 6
listening on the phone?
7 Are there any NRC participants from the 8
Regional Offices on the phone?
9 MR. McCARVER: This is Sam McCarver, 10 Project Engineer, Division of Reactor Projects, NRC 11 Region I.
12 FACILITATOR OLMSTEAD: Anyone else?
13 Okay, will the representatives, Entergy, the licensee 14 for the subject plants on the phone introduce 15 themselves?
16 MR. MANNAI: Yes, this is David Mannai, 17 Senior Engineer, Nuclear Safety Licensing for HD 18 Nuclear Northeast.
19 MR. GREEN: This is Derek Green. I'm the 20 Vice President of Risk and Finance.
21 MR.
KUTCHER:
Bill
- Kutcher, Senior 22 Licensing Specialist at Vermont Yankee.
23 MR. LYNCH: This is Joe Lynch, Licensing 24 Manager, Entergy Pilgrim Station.
25
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FACILITATOR OLMSTEAD: Is there anyone 1
else representing the licensee on the phone?
2 Mr. Judson, will you please introduce 3
yourself for the record and also any other 4
Petitioners who are participating in today's meeting?
5 PETITIONER JUDSON: Sure, my name is 6
Timothy Judson. I'm the President of Citizens 7
Awareness Network and the Down State Coordinator for 8
the Alliance for a Green Economy.
9 I'm joined today by my co-Petitioners, 10 Paul Gunter from Beyond Nuclear, who is here in the 11 room. And on the phone, we have four of our co-12 Petitioners, Jessica Azulay, who is the organizer for 13 the Alliance for a Green Economy; Deb Katz, who is 14 the Executive Director of Citizens Awareness Network; 15 Mary Lampert, who is the Director of Pilgrim Watch; 16 and Chris Williams, who is the President of Vermont 17 Citizens Action Network.
18 And if you guys want to introduce 19 yourselves or confirm you're here, please do.
20 PETITIONER WILLIAMS: This is Chris. I'm 21 here.
22 PETITIONER KATZ: This is Deb Katz. I'm 23 here.
24 PETITIONER AZULAY: This is Jessica 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 10 Azulay. I'm here.
1 FACILITATOR OLMSTEAD: Okay, it's not 2
required for members of the public to introduce 3
themselves. However, if you wish to introduce 4
yourself and state your name that would be great for 5
the record.
6 Okay, I'm going to turn this over to Lisa 7
now and she's going to talk about, in general terms, 8
about the Section 2.206 petition process.
9 FACILITATOR CLARK: Thank you, Joan. Our 10 Section 2.206 of Title 10 of the Code of Federal 11 Regulations describes the petition process. This is 12 our primary mechanism for the public to request 13 enforcement action by the NRC in a public process.
14 This process permits anyone to petition the NRC to 15 take enforcement-type action related to NRC licensees 16 or licensed activities. Depending on the results of 17 its evaluation of the petition, the NRC can take 18 action to modify, suspend, or revoke an NRC-issued 19 license or to take any other appropriate enforcement 20 action to resolve the problem.
21 The NRC staff's guidance for the 22 disposition of 2.206 petition request is found in 23 Management Directive 8.11 which is publicly 24 available.
25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 11 The purpose of today's meeting is to give 1
the Petitioners the opportunity to provide any 2
additional explanation or support for the petition 3
before the Petition Review Board's initial 4
consideration and recommendation.
5 This meeting is not an adjudicatory 6
hearing, nor is it an opportunity for Petitioners to 7
question or examine the Review Board on the merits or 8
the issues presented in the petition request. No 9
decisions on the merits of this petition will be made 10 at this meeting.
11 Following this meeting, the Petition 12 Review Board will conduct its internal deliberations.
13 The outcome of this internal meeting will be 14 discussed with the Petitioners. The Petition Review 15 Board typically consists of a chairman, usually a 16 manager at the Senior Executive Service level at the 17 NRC. It has a Petition Manager and other members of 18 the Board are determined by the NRC staff based on 19 the content of the information in the petition 20 request.
21 The members of this Board are Michele 22 Evans, who serves as the Chair; Rich Guzman, is the 23 Petition Manager; Tanya Mensah is the 2.206 24 Coordinator. We also today have technical staff, in 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 12 particular, Ms. Anneliese Simmons and Jocelyn Lian, 1
who are both financial analysts in the Division of 2
Inspection and Regional Support. On the phone we 3
have Mr. Sam McCarver, who is a Project Engineer from 4
the NRC's Region I Office. Ms. Patricia Jehle is 5
with the Office of General Counsel and a legal 6
advisor on the petition.
7 As described in our process, the NRC 8
staff may ask clarifying questions in order to better 9
understand his presentation and to reach a reasoned 10 decision whether to accept or reject your request for 11 review under 2.206 process. Also, as described in 12 our process, the licensees have been invited to 13 participate in today's meeting to ensure that they 14 understand the concerns about their facility or 15 activities.
16 While licensees may also ask questions to 17 clarify issues about process, I want to stress that 18 licensees are not a part of the Board's decision-19 making process.
20 I would now like to turn the meeting over 21 to Michele Evans, the Chair of the Board, who will 22 discuss the specific petition under consideration.
23 CHAIRPERSON EVANS: Thank you, Lisa. I'd 24 like to begin by summarizing the PRB's understanding 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 13 of the scope of the petition under consideration and 1
the NRC activities to date. On March 18, 2013, the 2
Petitioners submitted a petition under Title 10 of 3
the Code of Federal Regulations, Part 2.206 4
requesting that the NRC immediately order Entergy to 5
suspend operations at FitzPatrick and Vermont Yankee.
6 The Petitioners also requested that the NRC 7
investigate whether Entergy Nuclear, LLC possesses 8
sufficient funds to cease operations and to 9
decommission the FitzPatrick reactor, and other 10 Entergy nuclear operations, possesses sufficient 11 funds to cease operations and to decommission the 12 Vermont Yankee reactor per 10 CFR 50.75.
13 In addition, the Petitioners requested 14 that the NRC commence an investigation of the Pilgrim 15 Nuclear Power Station in order to determine whether 16 Entergy Nuclear Operations, Inc. has the current 17 financial qualifications of the Pilgrim licensees to 18 continue safe operation of the facility.
19 The PRB met on April 8, 2013 to consider 20 the immediate emergency actions requested in the 21 petition. The PRB's decision was to deny the 22 Petitioners' request for immediate suspension of the 23 operating licensees for FitzPatrick and Vermont 24 Yankee plants, concluding that Entergy's financial 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 14 situation does not pose an immediate danger to the 1
public health and safety and the environment. Mr.
2 Judson was informed of this decision on April 15, 3
2013.
4 The determination was based, in part, on 5
the immediate emergency shutdown of FitzPatrick and 6
Vermont Yankee as requested by the Petitioners was 7
not necessary to protect public health and safety.
8 The NRC relies on multiple engineered barriers and 9
multiple levels of reactor oversight that have been 10 established through NRC regulations to provide 11 reasonable assurance of adequate protection of public 12 health and safety and the environment.
13 Additionally, emergent safety concerns 14 are promptly assessed through the NRC's reactor 15 oversight process which requires that licensees show 16 prompt corrective actions to resolve safety concerns.
17 On-site resident inspectors monitor the day-to-day 18 operations of the plant providing additional 19 assurance.
20 On April 10th, Mr. Judson had requested 21 an opportunity to address this PRB in a public 22 meeting which is the purpose of today's meeting. So 23 as a reminder for the meeting participants, please 24 identify yourself if you make any remarks as this 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 15 will help us in the preparation of the meeting 1
transcript that will be made publicly available. In 2
addition, the NRC staff verified that there was no 3
sensitive or proprietary information contained within 4
the petition.
Since this is a
public 5
meeting, I'd like to remind the PRB members and the 6
licensee and the Petitioners and other meeting 7
participants of the need to refrain from discussing 8
any NRC sensitive or proprietary information during 9
today's public meeting.
10 Mr. Judson, I'd like to turn it over to 11 you to allow you to provide any additional 12 information you or your fellow Petitioners believe 13 the PRB should consider as part of this petition. I 14 would say generally you have about an hour for your 15 opportunity to present. Thank you.
16 PETITIONER JUDSON: Thank you, Ms. Evans, 17 for the opportunity to present today and thanks to 18 the Petition Review Board and the NRC for this 19 opportunity to address the Board regarding our 20 petition for emergency enforcement action.
21 We've taken the liberty of organizing 22 sort of an agenda for our presentation which I'd like 23 to share with everyone and sort of run through. I'll 24 be offering some introductory comments and an 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 16 overview of our request and our interpretation of the 1
regulations that are involved in this.
2 In addition, in Ms. Evans' recitation of 3
the process up to this point, we did actually submit 4
a supplement to our petition on April 23rd, including 5
some supplementary materials that we obtained since 6
we initially submitted the petition on March 18th 7
which we'd also like to acknowledge as part of the 8
record and soon it will be addressed in our comments 9
here today.
10 After my introductory comments, I turn it 11 over to Jessica Azulay, as agreed, to discuss the 12 financial qualifications requirements and how we 13 interpret the financial condition that Entergy is in 14 with respect to its decision making regarding safety 15 issues going forward and how that applies to our 16 request for enforcement action.
17 After that, Paul Gunter will address the 18 nexus to nuclear safety with financial 19 qualifications, conditions, and the operating 20 environment that these reactors are in going forward.
21 After that, Deb Katz will discuss issues 22 with Entergy's management practices and how they 23 relate to regulatory compliance issues going forward.
24 After that, we'll review some plant-25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 17 specific considerations for each of the reactors that 1
are the subject of the petition and expect to be 2
joined in that part by Mary Lambert from Pilgrim 3
Watch.
4 And then after that I'll conclude my 5
presentation and open it up for any questions that 6
the Board or the licensee has.
7 So with that said, we recognize coming 8
into this meeting that this moment that we're in and 9
what this petition represents -- well, we expect a 10 fairly unprecedented situation that's occurring in 11 the nuclear industry at this moment. It may not have 12 been fully anticipated in the NRC's adopting of the 13 regulations and the NRC's review of financial 14 qualification issues when essentially this period of 15 deregulation started.
16 All three ot the reactors are subject to 17 this petition, operate and deregulate the electricity 18 markets in the Northeast. They were acquired by 19 Entergy about 10 or 12 years ago through license 20 transfer processes that included a
financial 21 qualifications review and that NRC based on the 22 filings that were made at the time approved. And 23 what we note is that the recent reports coming from 24 the investment community note that the fundamental 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 18 financial conditions under which these reactors are 1
operating has fundamentally changed since Entergy 2
acquired the licenses to operate these reactors and 3
that this has happened to a degree which requires 4
regulatory enforcement action which is what we're 5
highlighting in our petition.
6 We recognize that NRC has taken notice of 7
this through instituting a request for additional 8
information to Entergy regarding the financial 9
qualifications for the Vermont Yankee reactor. We 10 think that actually this needs, this enforcement 11 action needs to go much further to encompass all of 12 the reactors that have been highlighted as having 13 financial qualifications problems by the investment 14 community.
15 To lay some groundwork in terms of the 16 regulations that we're citing in our petition and 17 that we hope to be
- enforced, the financial 18 qualifications regulations are set by 10 CFR 10 Part 19 33 Section (f) and in particular, regarding the 20 acquisition of the licenses by Entergy, 50.33(f)(2).
21 And what that requires is that at the time of 22 applying for the acquisition of the licenses, the 23 licensee had to make a filing essentially saying that 24 the applicant shall submit information that 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 19 demonstrates the applicant possesses or has 1
reasonable assurance of obtaining the funds necessary 2
to cover estimated operation costs for the period of 3
the license. So at the time of acquisition was 4
before most of these plants had been relicensed, was 5
for the period of the operating license. There was 6
no similar financial qualifications review upon the 7
relicensing of all three of these reactors. But we 8
interpret the regulations as requiring that the 9
licensee remain financially qualified for now the 10 period of these extended operating licenses through 11 the licensing process.
12 In addition, we have cited 50.33(f)(5) 13 which essentially acknowledges that the financial 14 conditions of licensees, the financial qualifications 15 of licensees can change over the period of a license 16 and that given additional information, the NRC may 17 institute a proceeding to request information and 18 potentially to take enforcement action.
19 In
- addition, we recognize another 20 regulation, 50.110 Section (a)(3), which essentially 21 allows the NRC to take preemptive enforcement action 22 to prevent the licensee from violating regulations in 23 the future. And given essentially what we interpret 24 as the purpose and the function of financial 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 20 qualifications regulations, and the fact that 1
Entergy, at least at two of these reactors, has been 2
demonstrated to not be financially qualified, that 3
the NRC must essentially take regulatory enforcement 4
action to prevent those conditions from leading to 5
further safety violations at these reactors and 6
potentially compromising the public health and 7
safety.
8 In addition, we cite to 50.82(a)(2) which 9
essentially covers the enforcement action we request 10 which is the permanent cessation of operations and 11 the requirement that the licensee refrain from 12 refueling of reactors and remove fuel from the cores 13 in order to begin the transition into a
14 decommissioning phase.
15 And in addition, and incumbent upon the 16 beginning of the cessation of operations, is 50.75 17 which covers financial decommissioning funding 18 assurance regulations and assuring that the licensees 19 have the financial means to begin the decommissioning 20 process.
21 So all that said, the subject of our 22 petition is the financial qualifications of these 23 licensees to continue operating these reactors. And 24 we recognize that it's not the NRC's business to 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 21 micromanage the finances of its licensees. And in 1
- fact, we feel that that's actually completely 2
inconsistent with the enforcement actions that we're 3
requesting. The financial qualifications regulations 4
are essentially in place to prevent licensees from 5
being in exactly the situation that the Entergy 6
licensees find themselves in at this moment which is 7
essentially to ensure that the licensees are not 8
going to be in a position where they have to think 9
about whether these assets are a liability on their 10 corporate balance sheets and they are essentially 11 distressed assets at this point.
12 We initially challenged the transfer of 13 the FitzPatrick license to Entergy back in 2000 and 14 2001 and we got a hearing before the Commission on 15 that contention of financial qualifications. And at 16 the time, we became very familiar with the standard 17 review procedure for financial qualifications that 18 the NRC uses and particularly this issue of requiring 19 the licensee to submit five-year cost and revenue 20 projections. As we understand it, the NRC basically 21 has a boilerplate method of assessing financial 22 qualifications of licensees using a foreseeable 23 window of financial conditions involving this five-24 year cost and revenue projections as a way to 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 22 forecast whether the licensee is going to remain 1
financially qualified for the period of the license 2
in order to make that kind of licensing decision.
3 Now in that proceeding, we had challenged 4
Entergy's financial qualifications on a couple of 5
points, one of them being the projected capacity 6
factors which Entergy was going to be operating the 7
plants. Its estimation with FitzPatrick was that, 8
for instance, that it would operate FitzPatrick at an 9
85 percent capacity factor, meaning that it was going 10 to be online and generating revenue 85 percent of the 11 time on average and as well as we also challenged 12 their estimates of operating costs. And in the end, 13 the Commission decided that it thought that Entergy's 14 projections were reasonable and conservative, that 15 they were able to withstand reasonable changes, 16 reasonable shortfalls in that capacity factor where 17 that capacity factor was a realistic estimate of what 18 the plant's performance was going to be going 19 forward.
20 And with the operating costs, they felt comfortable 21 with what Entergy was estimating for the operating 22 costs of the plant.
23 What has become apparent in the recent 24 news coming from UBS investment research analyses of 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 23 Entergy's finances is that those projections, however 1
valid they were at the time, are no longer valid.
2 And that, in fact, Entergy is operating at least two 3
of the three reactors in its merchant fleet, mainly 4
Vermont Yankee and FitzPatrick had operating deficits 5
and significant operating deficits and that it will 6
continue to be operating in these deficits for years 7
to come. And interestingly, in the documents that we 8
obtained since we initially filed the reactor, UBS 9
has actually done plant-specific cost and revenue 10 projections for Vermont Yankee and FitzPatrick that, 11 in fact, confirm this and actually show ballooning 12 operating cash flow deficits in the years to come.
13 And that this really is a signal that the financial 14 climate in which these plants are being operated has 15 fundamentally changed.
16 There's a way in which -- this is coming 17 up now, I think CAN and other groups had raised the 18 possibility of these kind of market uncertainties 19 when these licenses were transferred at the advent of 20 deregulation. NRC, in fact, took a hard look at it 21 themselves. During the first years of deregulation, 22 these issues didn't come up because the electricity 23 markets in the country were fundamentally different.
24 There was actually a period through the mid-2000 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 24 aughts where electricity prices had ballooned 1
substantially from where they were at the beginning 2
of this experiment.
3 Over the last five years, we've seen a 4
precipitous change in the other direction and given 5
advents within the energy markets nationwide, what 6
UBS is highlighting is that those conditions are 7
expected to continue for the foreseeable future.
8 And we're not here to predict whether in 10 or 15 9
years from now the same thing is going to be true, 10 but what we are concerned about is that these 11 licensees, if the NRC does not take enforcement 12 action now are going to be operating these plants in 13 a financially unqualified condition potentially for 14 years at this point. That is an unacceptable risk to 15 public health and safety and that the kind of safety 16 problems that we've seen accumulating as enumerated 17 in our petition so far had the potential to become 18 cumulative over time and reach a point where some 19 things that were enacted may actually occur.
20 Essentially, it's not predictable when that might 21
- happen, but that the financial qualifications 22 regulations are in place specifically to prevent this 23 sort of situation from occurring to begin with. And 24 that's what we're asking the NRC to enforce.
25
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(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 25 So some of the pertinent aspects of our 1
petition and the supplementary information that we 2
presented that some of the public may not have had a 3
chance to review yet involve the following. First, 4
UBS is projecting substantial cash-flow deficits for 5
Vermont Yankee and FitzPatrick, that these are not 6
trivial deficits that they're projecting. They're on 7
the order of in the case of Vermont Yankee on the 8
order of $31 million per year over the next four 9
years; at FitzPatrick even more, $34 million per 10 year. This is more than ten percent of their 11 operating revenues, these deficits are projected for.
12 Cumulatively, by 2016, FitzPatrick is 13 estimated to be in the hole by $136 million and 14 Vermont Yankee, based on our correction of some 15 errors in UBS' analysis to $125 million in the hole.
16 This is way beyond anything that the NRC was 17 prepared to accept in its initial financial 18 qualifications reviews of these plants.
19 Now one of the things that's interesting 20 about UBS' analysis is that it shows that those 21 initial filings are completely invalid at this point, 22 the filings that Entergy made in the license transfer 23 proceedings. First of all, we note in our petition 24 that the current electric rates that these plants are 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 26 operating, the market prices for electricity in the 1
markets that these plants are operating in are 2
substantially lower than the contract prices that 3
they relied upon when they bought the plants. When 4
each of these plants was purchased by Entergy they 5
were accompanied by a contract, a power purchase 6
agreement, with the plant's original owner to buy 7
most or all of the output from the plants for several 8
years into the future. In the case of Vermont Yankee 9
and FitzPatrick, it was on the order of ten years, 10 those power purchase agreements.
11 The rates that they were guaranteed under 12 those power purchase agreements as we note in our 13 petition are substantially higher than what current 14 market prices for electricity allow. Just as a for 15 instance, FitzPatrick, the power purchase agreement 16 price was 13 percent higher than what the average 17 price for electricity in the Upstate New York market 18 has been over the last two years. And last year, the 19 declining prices in the market fell below 25 percent 20 lower than what that PPA price was.
21 And Vermont Yankee, we see something very 22 similar on the order of 20 percent lower in the last 23 year versus what the power purchase agreement price 24 was. And when we look at Pilgrim, it's actually 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 27 larger. The final year's price and their power 1
purchase agreement with Boston Edison back in the 2
'90s was almost 40 percent higher than what current 3
market prices in the New England markets provide.
4 And so this is essentially tinkering 5
around the edges with the finances of these plants, 6
whether they can achieve some reductions in tax 7
breaks or whether other sort of programs is not going 8
to make the difference. These are large, structural 9
deficits in their finances that the NRC has to 10 consider when looking at their financial 11 qualifications.
12 in addition, UBS notes that these plants 13 have been performing at extremely high levels of 14 performance way beyond what was projected in the 15 initial financial qualifications filings.
16 FitzPatrick, for instance, has operated in excess of 17 94 percent capacity factor within the last or at 18 least until last year within the previous four years, 19 and whereas it was originally projected to run at 85 20 percent.
21 However, what we see in UBS' analysis is 22 that despite running at this, at an even higher 23 capacity factor than projected, FitzPatrick was 24 essentially break even last year on costs. And what 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 28 that suggests is that the operating costs for the 1
reactors have also increased beyond what was 2
projected in the initial financial qualifications 3
filings. And in fact, as what we discussed later, we 4
know that there's ballooning maintenance expenses 5
that are required if these reactors are going to 6
continue to be operated safely and reliably in the 7
future which need to be taken account of.
8 In addition, per the last point about the 9
capacity factors, UBS' projections are actually non-10 conservative in this regard. UBS, by projecting as 11 indicated with FitzPatrick in our supplement, 12 projecting 94 percent capacity factors over the next 13 four years, basically leaves little or no room for 14 shortfalls. While projecting operating cash flow 15 shortfalls at these reactors, they're doing that even 16 projecting the highest levels of performance that 17 could be expected out of these reactors. And as we 18 indicated in the petition, under estimating to some 19 extent the capital expenses that are going to be 20 necessary in order to maintain those kind of 21 performance levels.
22 So what we expect is actually that if you 23 sensitivity tested these projections that UBS 24 provided for reasonable expectations of plant 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 29 performance, even factoring in the lower performance 1
of FitzPatrick in 2012, you would end up at a 91 2
percent capacity factor going forward which would 3
lead to something around $170 million cash flow 4
deficit over the next four years instead of $135 5
million. So this is a very deep hole they're in that 6
could easily get much deeper depending on the actual 7
circumstances of the operation of these plants.
8 In addition, what becomes clear from UBS' 9
analysis is that Entergy is in no position to be able 10 to prioritize safe operations and compliance with 11 their license going forward, given that they're in 12 this financially unqualified condition. UBS lays out 13 a number of different imperatives that are affecting 14 Entergy's decision making with regard to these 15 plants. And in fact, UBS's evaluations from a 16 shareholder's perspective have been shifting over the 17 last few months as well reflecting this.
18 On the one hand, UBS points out that 19 there are clear upsides to Entergy's overall 20 financial performance to shutting these reactors, to 21 basically cutting their losses and ending these 22 operating cash flow deficits, that they would 23 actually see their net earnings per share increase 24 and this would be a benefit to their shareholders 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 30 potentially. But at the same time, the closure of 1
these plants could dampen market sentiment and could 2
convert investor confidence and ultimately their 3
share price which is sort of the countervailing 4
pressure that Entergy has to consider in all of this.
5 In addition, UBS has highlighted the 6
prospect that by making essentially a decision to 7
shut these reactors early that Entergy could incur a 8
decommissioning liability on the estimated cost of 9
the minimum funding requirements that NRC has in 10 place for decommissioning. We say that noting that 11 all three of these reactors actually are projected to 12 have surplus decommissioning funds in their funds 13 now, but knowing that NRC is revising its minimum 14 funding requirements this year which will be released 15 in late fall, that UBS is very concerned that may 16 diminish those margins of decommissioning funds, 17 potentially even going into negative and that this is 18 another factor that's weighing on Entergy's mind, 19 what is going to be impacted in terms of investor 20 confidence and its shareholders.
21 What also becomes apparent from looking 22 at the analysis that UBS provides is that we're not 23 dealing with just an individual reactor here. NRC 24 regulations very carefully -- individual reactors are 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 31 licensed to individual licensees and there's an 1
expectation that each reactor has to be maintained in 2
compliance with the regulations on its own basis.
3 What's clear from UBS' analysis is that 4
Entergy is not in a position to be thinking about one 5
plant at a time, that this is actually a circumstance 6
affecting their entire merchant nuclear fleet. And 7
in fact, UBS' analysis is directed towards an 8
analysis of their performance of Entergy's Wholesale 9
Commodities Division, essentially their merchant 10 power division, and noting that in particular, the 11 merchant nuclear fleet is hurting the company's 12 overall performance and then UBS highlights these 13 individual plants as particularly the bad apples that 14 are really dragging down the entire company.
15 From that standpoint, Entergy isn't in a 16 position to be dealing with one plant at a time, that 17 really there's a
structural problem with the 18 liability of carrying honest balance sheets from 19 these merchant reactors that clouds its judgment 20 about each individual plant and what's going to 21 happen there.
22 There's also as Entergy is sort of being 23 pulled in these different directions about what's the 24 best thing for shareholders, what's the best thing 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 32 for its corporate performance, UBS, the investment 1
community and the trade press are holding out these 2
sort of hail Mary opportunities that Entergy may be 3
relying on as a way to try to figure out ultimately 4
what it's going to do here.
5 In particular, the possibility that 6
Entergy may be able to leverage some sort of an 7
above-market rate bilateral contracts for output from 8
these plants, whether the regional independent system 9
operators that run the market flow will essentially 10 declare higher price in the capacity markets that 11 they may be able to take advantage of.
12 These are all highly speculative 13 developments. And in fact, they're not helpful in 14 terms of analyzing the situation. While certainly in 15 a theoretical sense there may be some miracle that 16 comes down to save these plants, in fact, Entergy is 17 not in a position to expect any favors from the 18 states in which these plants are operating. Both 19 Vermont and New York and Massachusetts have all 20 challenged in the license extensions on these plants.
21 And Entergy is involved in litigation against New 22 York and Vermont that has set a
very tense 23 relationship with the state governments in these 24 states.
25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 33 The idea that Entergy is going to get a 1
favor from New York and Vermont in order to prop up 2
plants that are not financially qualified is somewhat 3
speculative. But if Entergy has specific information 4
to share that shines light on that, that there is a 5
miracle to save these plants, we'd like to see it.
6 In addition, there are some obstacles 7
that stand in the way of any of this working out.
8 First of all, essentially the problem that the 9
FitzPatrick reactor faces is one of overcapacity in a 10 region. The market price in that part of New York 11 State are low, in part because there's a vast over 12 capacity and generation capacity in Central and 13 Western New York. And the same is true to a lesser 14 extent in New England. But one of the dynamics that 15 UBS points out in its analyses is that all the 16 generators in the region are under the same pressure.
17 And as certain plants declare their intent to close, 18 there may be a positive impact on electricity rates 19 in the region. And in particular, we think this is a 20 dangerous notion to hold on to from the standpoint of 21 financial qualifications in nuclear safety.
22 At the same time that UBS is indicating 23 this, it also analyzes one of Entergy's competitors 24 in the New York market which is Exelon which operates 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 34 the Ginna and the Nine Mile Point Unit 1 and 2 1
reactors in the same market that FitzPatrick is in.
2 While noting that Ginna and FitzPatrick are 3
essentially in similar circumstances and recommending 4
-- predicting that Exelon and Entergy may decide to 5
close those reactors, UBS notes that should Ginna 6
close that it could actually help Exelon's other 7
units operating in the region by essentially 8
stimulating the electricity price and allowing them 9
to generate more revenue.
10 However, given that Ginna is under a power purchase 11 agreement with Rochester Gas and Electric until mid-12 2014, they don't expect that Exelon would make any 13 decisions about the future of Ginna until 2015.
14 Entergy is not in a similar situation at 15 FitzPatrick. Its power purchase agreement with the 16 State Power Authority ended in December. It has 17 offered a completely off-of-market revenues at this 18 point in this depressed market environment. The idea 19 that Entergy could be allowed to operate this plant 20 in a financially unqualified situation for a year and 21 a half to two years while waiting for essentially a 22 hail Mary pass from the state or from the market is 23 frankly dangerous, especially given the trend in 24 performance we've seen of this reactor just in the 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 35 last year when essentially it was under a power 1
purchase agreement with a guaranteed revenue price 2
and still only broke even in 2012.
3 So this is really -- Entergy finds itself 4
essentially in a cat's cradle of different financial 5
imperatives that it has to consider and without 6
respect to the requirements of its license. These 7
are primary corporate considerations that it has 8
under SEC regulations to the particular interests of 9
its shareholders. And we don't believe that there's 10 been a clear a situation in which a licensee found 11 itself in conflict between its SEC obligations and 12 its NRC regulations until now.
13 So with that said, what's clear is that 14 from Entergy's standpoint it is viewing its operation 15 of these -- it's viewing these reactors not as -- not 16 primarily through the lens of their license 17 responsibilities under
- NRC, but essentially as 18 distressed assets, that these are similar to other 19 real sort of assets that are in distress. They're 20 not able to generate enough revenue to cover their 21 costs. They have liabilities that they're locked 22 into for decommissioning that are in the hundreds of 23 millions of dollars and essentially their assets that 24 Entergy can't unload in any meaningful way. In fact, 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 36 Entergy, as you remember three years ago, tried to 1
find a way to offload these merchant nuclear units 2
into a different corporation essentially what's 3
called a nexus spinoff, that it would have been a 4
resolution for Entergy corporate in this situation.
5 It would have obviously led to the same situation 6
that we're in now with the financial qualifications 7
for the licensees, but that Entergy corporate is no 8
longer in this situation. That scheme for how to 9
handle these liabilities was blocked by New York 10 State and given what is now known which is that these 11 plants are not able to operate profitably in their 12 market, that no one is prepared to take them off 13 their hands. I mean Entergy is among nuclear reactor 14 operators one of the best equipped to take advantage 15 of any economies of scale that might be involved in 16 assembling a large fleet of reactors. It's also 17 clear that Exelon which in that same line of argument 18 is in the same situation, is encountering the same 19 problems with its own reactors and some electricity 20 markets.
21 Entergy is locked into these distressed 22 assets and essentially it's in a mode right now where 23 it is essentially in triage and is attempting to 24 minimize its losses while maintaining the status quo 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 37 which from a safety standpoint is unacceptable and 1
that's why NRC intervention is necessary.
2 With that, I'd like to turn it over to 3
Jessica Azulay to go into this in more depth.
4 Jessica?
5 PETITIONER AZULAY: Can you hear me?
6 Okay, great. Thank you for this opportunity to 7
address you today. I'm Jessica Azulay, organizer for 8
Alliance for a Green Economy. And I'm calling from 9
Syracuse, New York to urgently ask you to step in 10 during what we believe is a very dangerous time for 11 Entergy and therefore a very dangerous time for 12 members of the public who live near Entergy reactors.
13 There's an undeniable tension at issue in 14 this hearing. This tension is between nuclear safety 15 and corporate profit. As a corporation, Entergy must 16 contend with this tension as it operates FitzPatrick, 17 Vermont Yankee, and Pilgrim, under what we have every 18 reason to believe will be increasing economic 19 pressures.
20 Entergy's corporate structure does not 21 put it in a position to act decisively in the 22 interests of the public living near its reactors.
23 There are just too many interests competing with the 24 public safety. Most obviously, is its short term 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 38 bottom line. That is why we are asking you, the NRC, 1
to step in. As the industry regulator, the NRC 2
should have no other competing interests when it 3
comes to protecting public health and safety. The 4
NRC must act decisively where Entergy cannot.
5 When the nuclear industry was 6
deregulated, there was a lot of speculation about 7
what would happen to nuclear power plants that could 8
not compete while in the market. Some would 9
obviously be uncompetitive and would close. Others 10 would continue to turn a profit, but some -- these 11 are called marginal plants, could be particularly 12 dangerous.
13 Marginal plants would have the potential 14 for profit, but would be skirting the edge. We just 15 can't afford to allow nuclear plants to operate on 16 the margins because the incentives for risk taking by 17 nuclear operators is too great. The corporate 18 structure, in fact, lends itself to favor short term 19 risk taking over long term risk management.
20 The financial qualifications requirement 21 that we're asking you to enforce today is the sanity 22 check on the scenario and for it to be a meaningful 23 check, it must be enforced.
24 I'd like to enter into the record an 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 39 April 2012 article by Chancellor Leo E. Strine, 1
Jr.[ADAMS Accession No. ML13133A412]. He's a Judge 2
serving on Delaware's Court of Chancery. The article 3
provides an essential analysis of the institutional 4
and legal forces that can push corporate managers to 5
take risks for the short term via stockholders. "The 6
whole design of corporate law in the United States,"
7 Chancellor Strine writes, "is built around the 8
relationship between corporate managers and 9
stockholders, not the relationships with other 10 constituencies. In the corporate republic, only 11 stockholders get to vote and only stockholders get to 12 sue to enforce directors' fiduciary duties."
13 He goes on to point out that "corporate 14 managers are increasingly subject to removal at the 15 instance of highly aggressive institutional investors 16 who do not hold shares or think long term." He gives 17 multiple examples of how these institutional forces 18 have caused companies to put profit for those who 19 control the board's reelection prospect over positive 20 outcomes for employees and communities who do not.
21 He gives some examples. He writes about 22 the 2010 BP Deepwater Horizon oil spill in the Gulf 23 of Mexico and the economic meltdown caused by the 24 mortgage crisis. In which he says, "In the Deepwater 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 40 Horizon disaster, BP is fit to gain all of the 1
profits from its risky oil drilling practices while 2
the cost of any accident would be spread out to 3
others. The same is true of the banks which lent 4
mortgages to people who could not pay them back and 5
then passed the risk down to the line by bundling 6
them into mortgage-backed securities."
7 "The lesson," writes Strine, "is simple.
8 For-profit businesses have incentives towards 9
current profit maximization, but make them poorly 10 positioned to evaluate risk and be safe regulators."
11 12 These lessons lend themselves well in 13 comparison with the nuclear industry. The nuclear 14 industry, similar to the oil and banking industries, 15 is in a position where short-term profits benefit the 16 executives and shareholders, while the risks and 17 social costs of the potential accident are largely 18 externalized.
19 So in the cases of the continued 20 operations of FitzPatrick, Vermont
- Yankee, and 21 Pilgrim, we must ask what is in the short-term 22 interests of Entergy's shareholders as these reactors 23 enter a period of economic distress? Do the 24 interests of the public living near these plants and 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 41 the interests of the shareholders align? Because if 1
they do not, we can easily predict whose Entergy 2
leadership 3
will favor.
4 In the near term on a day-to-day basis we 5
can expect that plant managers will do everything 6
they can to cut costs while increasing production.
7 We can expect them to try to reduce operations and 8
maintenance costs, defer maintenance, reduce training 9
costs, reduce staff and shorten refueling and other 10 outages which are necessary to maintain systems and 11 safety. This isn't about plant managers purposely or 12 even knowingly jeopardizing public safety. It is 13 about rational decisions being made to keep the plant 14 in business.
15 In the 2001 book, Safety Culture and 16 Nuclear Power Operations, Najmedin Meshkati, Thomas 17 S. Butler, and Kendall Pelling wrote "Reductions in 18 operations and maintenance expenditures could lessen 19 the effectiveness of safety systems or impede 20 operator effectiveness in preventing accidents, 21 especially if those costs are excessive or poorly 22 crafted. It may be tempting for plant management to 23 rationalize that redundant safety control systems may 24 be allowed to fall into disrepair. Cost-cutting 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 42 efforts which are undertaken in the duress of 1
financial losses may not fully appreciate the complex 2
functions that certain expenditures provide for."
3 As we will detail later in this hearing, 4
the Petitioners are concerned that we may already be 5
seeing some of the effects of cost cutting and 6
deferred maintenance at FitzPatrick, Vermont Yankee, 7
and Pilgrim.
8 I have just discussed some of the short-9 term ways Entergy's management might seek to protect 10 shareholders' interests. But what about the day-to-11 day operations? What about the question of whether 12 Entergy will eventually close these reactors on its 13 own if they continue to lose money? The financial 14 services firm, UBS, has pointed out that it may help 15 Entergy's share price in the long term if the 16 reactors were to close, so at first glance it may 17 seem in the interests of shareholders and the 18 interests of public safety are aligned. But as we 19 argued in our petition supplement and as Tim Judson 20 has just argued again, we believe multiple factors 21 may confound the issue for Entergy leadership, we 22 think to a dangerous limbo position in which the 23 company may neither invest in nor close the reactors.
24 A major disincentive to closure may be 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 43 decommissioning liabilities which could be 1
substantial for the plants that close before their 2
licenses expire. There's also the possibility that 3
shareholders and investors could react negatively to 4
a decision to close one or more plants regardless of 5
the upside. And finally, Entergy may hold out for 6
either one of its competitors to close which may 7
bring up electricity prices or it may hold out for 8
taxpayer or rate payer bailout in the form of 9
subsidies, higher capacity payments or power purchase 10 agreements.
11 For these reasons, Entergy management may 12 not be in a position to act decisively on this issue 13 for some time to come and we cannot afford to wait.
14 We need decisive action from the NRC and a commitment 15 to enforce the financial qualifications requirement.
16 Entergy leadership's accountability is ultimately to 17 its shareholders and it's not in a position to put 18 public safety first at these troubled reactors. But 19
- you, the NRC Petition Review
- Board, you are 20 ultimately accountable to us, to the public, and you 21 must act in the interest of public health and safety.
22 You must be our voice in this matter. You must shut 23 FitzPatrick and Vermont Yankee because Entergy is no 24 longer financially qualified to operate them safely 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 44 and you must swiftly find out whether Pilgrim is also 1
in this dangerous category. Thank you.
2 FACILITATOR OLMSTEAD: I just want to 3
interject. This is Joan Olmstead. You have about 25 4
minutes left.
5 PETITIONER JUDSON: Thank you, Jessica.
6 With that, I'd like to hand it over to Paul to talk 7
about the nexus between these financial 8
qualifications issues and nuclear safety in the 9
operating environment.
10 PETITIONER GUNTER: Thank you. My name 11 is Paul Gunter. I am the Director of the Reactor 12 Oversight Project at Beyond Nuclear out of Takoma 13 Park, Maryland. And I'm going to make my remarks 14 brief because I think it's quite obvious that if the 15 operator is financially distressed, particularly in 16 the context a
post-Fukushima environment, 17 particularly with these three plants that are the 18 focus of this petition being General Electric Mark I 19 boiling water
- reactors, Fukushima
- designs, and 20 subject to the Japan Lessons Learned Task Force and a 21 whole host of upgrades that are now subject to orders 22 and RAIs and increased scrutiny by this Agency, and 23 more particularly by the public and its 24 representation in Congress and at state levels.
25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 45 These issues are going to come under a more intense 1
spotlight for both the responsibilities of the 2
oversight as well as the responsibilities of the 3
operators to look at the issues that Fukushima now 4
demands of the safety reviews and the requirements 5
and the fiscal responsibilities that come with it.
6 I'm particularly concerned and would like 7
to focus on one particular order that's now before 8
the Agency and the operators that regards the 9
barriers that we heard referenced earlier today and 10 part of the decision that concerns us is that we 11 don't believe that the multiple barrier system that 12 you rely on, that we rely on, that the industry rely 13 on is adequate right now. And in fact, there's going 14 to be more scrutiny, more fiscal responsibility to 15 look at things like the Mark I pressure suppression 16 containment system. No small ticket item.
17 This reflects upon a whole host of issues 18 that if the operator is in a fiscal financial 19 distress that the Agency has more responsibility now 20 in its oversight to assure that the orders and the 21 mitigation efforts are adequate. And right now we 22 don't believe that to be the case. The Petition 23 Review Board of the NRC also has before it the whole 24 issue of noncompliance of general design criterion 16 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 46 which regards an essentially leak-tight containment 1
to protect against unreleased radiological releases.
2 So there are a number of financial 3
responsibilities that are going to come out of this.
4 The whole issue and contest that we see currently 5
with regard to whether or not to install the added 6
cost of a filter to provided some -- to restore some 7
iota of containment integrity and the tug of war that 8
that's created now not only between the staff and the 9
industry, but between the staff and its Commission, 10 between Commissioner and Chair, these are the kinds 11 of fiscal issues that are playing out that are 12 particularly worrisome given the financial distress 13 that this company is going for with regard to the 14 containment issue just alone.
15 But the history is really rich with this 16 concern where financial distress and fiscal gain has 17 compromised public health and safety. Does it take 18 going to the cover of Time Magazine for it to become 19 an issue because we've been there. We know, for 20 example, that Millstone in Connecticut in an effort 21 to protect its financial margins rushed workers into 22 refueling operations before the plant was even 23 sufficiently cooled so that you had workers melting 24 their boots on the cat walks of these facilities. So 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 47 there is a very clear history of how competition, 1
financial distress, how these can compromise not only 2
worker safety, but public health and safety. And I 3
think that we are in a period right now where not 4
only will the operators' financial distress be under 5
greater scrutiny because of the post-Fukushima 6
environment but so will this Agency's oversight.
7 Thank you.
8 PETITIONER JUDSON: Great, thank you, 9
Paul. And with that I'd like to hand it over to Deb 10 Katz of Citizens Awareness Network to talk about some 11 specific issues with how Entergy's management relates 12 to regulatory compliance issues.
13 PETITIONER KATZ: Hi, it's Deb Katz. I 14 want to thank you for this opportunity to talk and I 15 want to provide a kind of context with what's 16 happening in Vermont for what, in fact, has gone on 17 to one degree or another at all three of these 18 reactor sites in the Northeast.
19 Entergy presently has an adversarial 20 relationship with the State of Vermont. It has not 21 lived up to the contract it signed with the state in 22 2002 when it bought the reactor. It is, in fact, 23 involved in three lawsuits with the state, one in 24 terms of Act 160 which is now on appeal by the state 25
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(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 48 in Appellate Court and there is the potential for the 1
state to prevail. Is it also Entergy because it lost 2
a tax case. It's appealing that case to the 3
Appellate Court. We believe that the state will win 4
that case and Entergy's taxes by the state will 5
increase by potentially $8 million a year.
6 It has also just gone to Court against 7
the Public Service Board in Vermont over the issue of 8
their not moving fast enough as far as Entergy is 9
concerned in terms of approving backup generators for 10 the reactor even though at this point the State of 11 Vermont has not issued and the Public Service Board 12 has not issued Entergy a certificate of public good 13 to, in fact, continue to operate in the state. And 14 the Public Service Board has, in fact, ruled that 15 Entergy is operating illegally at this point because 16 it has refueled twice and has new fuel on site which 17 is a violation of its original contract. It did 18 receive basically a stay from District Court to 19 continue to operate, but the state holds it in 20 violation.
21 It also has, as far as we know, no long-22 term power contracts with -- certainly not with the 23 State of Vermont. It has none now and what it may 24 have in other states like Massachusetts as far as we 25
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(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 49 know it's over by 2014.
1 It has also appealed to the Vermont State 2
Supreme Court to, in fact, eviscerate the Public 3
Service Board so that the Vermont Public Service 4
Board can issue the certificate of public good to 5
allow it to operate.
6 There is an endless series of issues with 7
Entergy and it's violating its contract. It was 8
found to have repeatedly misrepresented, under oath, 9
before the Public Service Board questions about 10 underground piping at the site that were leaking.
11 There are serious questions about whether it will 12 receive a certificate of public good and whether it 13 will then go to Court again.
14 I just want to give this then, here is 15 this adversarial relationship in which Entergy has 16 agreed if it didn't have a certificate of public good 17 when it needed to renew it, if it didn't have one it 18 would shut the reactor and in
- fact, begin 19 decommissioning activities. It has not done so.
20 You know, when Entergy bought the reactor 21 for about $200 million it was ostensibly worth about 22
$500 million. It's now worth about $160 million.
23 The condenser has to be replaced in 2016 and Entergy 24 has gotten the NRC to delay this replacement.
25
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(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 50 Vermont Yankee has the oldest operating condenser in 1
the country. Of course, it's understandable why 2
Entergy wants to do this. The condenser replacement 3
may cost more than the reactor is worth by that 4
point.
5 Originally the taxes that Entergy was 6
paying was $4 million a year. The state has raised 7
that to up to $12 million a year and the estimates 8
that UBS has given has been on the basis of $4 9
million, but the state believes and in fact, it was 10 ruled in favor of the state that Entergy has to pay 11 the increased taxes.
12 In terms of this legislative session 13 there is the Red Cross Bill that will pass the 14 legislature which will require Entergy to come up 15 with $700,000 to create sheltering post-Fukushima in 16 the State of Vermont. There will also be legislation 17 that has already begun the process of going through 18 which will go into the next legislative session where 19 there is greenfield legislation. That will be $40 20 million. And since the Public Service Board took 21 testimony that the cleanup of the Vermont Yankee site 22 for non-radiological contamination could come to over 23
$94 million, their main threat will be legislation 24 around those issues because there are real questions 25
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(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 51 about Entergy's ability to follow through with its 1
contract.
2 There is also the potential that it will 3
be stopped from thermally polluting the Connecticut 4
River. It is estimated that this will be a sizable 5
increase in terms of Entergy's bottom line in terms 6
of operating the reactor.
7 All of these issues impact on Entergy's 8
bottom line and impact on our safety. There is, of 9
course, a struggle in all of this because we can't 10 come -- the state process in one sense has been far 11 more transparent than anything that has taken place 12 with the Nuclear Regulatory Commission. Chris 13 Williams is going to talk about an endless series of 14 questions that raise serious concerns about Entergy's 15 systemic mismanagement with one problem after another 16 where Entergy isn't following procedures, where 17 Entergy appears to be cutting corners, and in many 18 ways it's understandable why that would happen.
19 I want to focus for one minute on the 20 whole notion of the capacity factor, the notion that 21 Entergy's reactors are operating at such a high 22 capacity factor because they need that capacity 23 factor that high in this case not even to break even 24 any more, but to limit their losses. Well, that need 25
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(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 52 for that high a capacity factor is in direct conflict 1
with the issues of health and safety.
2 And Jessica raised a
very clear 3
understanding about how they come together in terms 4
of what is the most important issue to the 5
corporation as opposed to what is the most important 6
issue to the public and we can hope to the regulator.
7 Certainly what we're asking you to do is exercise a 8
kind of precautionary principle that sees this 9
corporation is in a lot of trouble, a lot of trouble, 10 financial instability. And the potential for there 11 to be serious consequences at any of these three 12 sites is very real. It hasn't happened yet. But it 13 can and we are asking you to take the action to 14 ensure that it won't. Thank you.
15 FACILITATOR OLMSTEAD: I just want to 16 interject again about eight minutes left in your 17 time. I just want to make sure we have time for NRC 18 staff to ask questions and also the licensees or 19 public.
20 PETITIONER LAMPERT: This is Mary Lampert 21 and I'll be very quick. Mary Lampert, Director or 22 Pilgrim Watch.
23 We have joined the petition requesting 24 that NRC investigate the financial qualifications of 25
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(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 53 Pilgrim based upon the UBS investment research 1
recommendation that it be looked at. To us, this is 2
just common sense that we're asking NRC to exercise 3
some common sense.
4 Just as for example, if you have five 5
sons and four carry a genetic mutation, it's only 6
reasonable to check the fifth brother to ensure they 7
are not carrying the same defect. We know that you 8
cannot operate a nuclear reactor, particularly one 9
designed as flawed as
- Pilgrim, Vermont and 10 FitzPatrick, same as those at Fukushima on the cheap.
11 And that is precisely what Entergy is doing. We 12 have evidence of that fact. Evidence on the series 13 of workers' strikes last summer here in Plymouth 14 where they were not given a fair deal to save money 15 and as a result the workers went on strike and still 16 had giant chips on their shoulders.
17 Now worker morale obviously is tied very 18 closely to safety. And there are talks of more 19 strikes coming up this summer. Pilgrim has had eight 20 event reports since 2013. ISO, I am told by workers, 21 is giving them a poor rating although the public 22 never gets to see those reports regrettably.
23 What we see in these events reports is 24 poor management and also cutting corners. Currently, 25
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(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 54 there's an outage. I have asked as have other 1
citizens asked workers are you doing any big repairs 2
and it's like hell no. We're doing as little as 3
possible because management does not want to spend 4
the money which is not good news.
5 At the same time, NRC is exacerbating the 6
problem by cowtowing to industry pressure not to 7
require safety fixes that would put an economic 8
burden on the industry. The example was the vote by 9
the majority of the Commissioners against the 10 technical staff's recommendations were filtered. And 11 just within a week's time I have been on calls at 12 public meetings. One is coming up tomorrow is a 13 consideration of cumulative effects of regulation 14 which is code for what are regulations to the 15 economic problems of the industry.
16 Last week, I was listening and commenting 17 on an NRC public meeting on the idea to give more 18 self regulation, if you will, choice to the industry, 19 to have individual reactors do PRAs, site specific, 20 so as to rank safety concerns. Obviously, safety 21 concerns that are expensive would be put at the 22 bottom. And so we have a vicious circle going on 23 here. The public clearly deserves and wants NRC to 24 step up to the plate, do the economic analysis at 25
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(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 55 Pilgrim and you can see here that there is an eroding 1
confidence and lack of support in Pilgrim's continued 2
operations. There are votes going on in town after 3
town after town on Cape Cod, citizens voting shut it 4
down.
5 At an NRC April 2nd meeting in Plymouth, 6
the host community, the selectmen each of the side 7
looked at NRC and said hey, it's time to change. We 8
don't trust the NRC and we don't trust Entergy to do 9
anything to protect our safety. It's a different 10 game in town. It's an opportunity I'm suggesting to 11 try to reverse the very bad reputation and most 12 importantly protect the public's health safety, 13 property, and environment which after all is the 14 responsibility of NRC and why you're in business.
15 Thank you very much.
16 PETITIONER JUDSON: Thank you, Mary. And 17 I'd like to hand it over to Chris for some discussion 18 of some plant-specific issues with respect to Vermont 19 Yankee and then I'll hand it over to Jessica and then 20 we can entertain questions from NRC staff and the 21 licensee.
22 FACILITATOR OLMSTEAD: And I've also been 23 told we aren't losing our line at 2:30 so we can 24 extend.
25
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(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 56 PETITIONER JUDSON: Oh, that's terrific.
1 PETITIONER WILLIAMS: Thanks, Tim. My 2
name is Chris Williams. I'm calling from Hancock, 3
Vermont. As a resident of Vermont, I'd like to 4
briefly share my concerns regarding the financial 5
fitness of Entergy Corporation and its ability to 6
maintain and operate the Vermont Yankee Nuclear Power 7
Station.
8 Several years ago we witnessed the 9
collapse of a cooling tower at Vermont Yankee. At 10 the time, I and others had to wonder if a lack of 11 maintenance on the nonradiological side of the plant 12 resulted in such a catastrophic equipment failure, 13 what's going on inside the reactor building? Those 14 questions remain and my concern is further amplified 15 by several subsequent circumstances. They are, 16 number one, repeated statements by Entergy management 17 that Vermont Yankee is a marginal financial performer 18 in their fleet. Two, company officials misled 19 Vermont state regulators while under oath regarding 20 the status of plant systems which may have a 21 significant cost effect on final decommissioning 22 expenses. Three, Vermont Yankee has costly equipment 23 replacement plans on the near-term horizon. Four, 24 for more than a year the company has not secured long 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 57 term power contracts for the output of the plant that 1
the public is aware of.
2 Entergy made a large wager when it adopts 3
its nuclear merchant business plan in the 1990s. The 4
management bet that buying a fleet of aging, high-5 maintenance reactors at rock-bottom prices would 6
allow for competitive power sales in high-rate 7
locations. And while that strategy might have worked 8
for a limited time, the company is now saddled with 9
an aging, expensive fleet facing enormous price 10 competition from other generation sources. So the 11 question is can the company afford the burden of a 12 business plan that has gone off the tracks? Thanks 13 for your attention.
14 PETITIONER JUDSON: Great. Thank you, 15 Chris. And I'd like to now also hand it off to 16 Jessica to talk about any specific issues with the 17 FitzPatrick reactor.
18 Jessica? Jessica are you unmuted?
19 PETITIONER AZULAY: Hello?
20 PETITIONER JUDSON: Hi. We can hear you.
21 PETITIONER AZULAY: So Alliance for a 22 Green Economy performs a
watchdog role over 23 FitzPatrick and in 2012 we saw the FitzPatrick have 24 two consecutive emergency shutdowns in November, the 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 58 second of which was a result of a fire that burned 1
for hours and ruined the plant's main transformer.
2 Before those emergencies, Entergy has 3
been bragging of breaker-to-breaker service because 4
the reactor operated between fueling outages without 5
going offline. However, when we took a look at the 6
NRC data last year, we noticed that while the reactor 7
never powered down completely during that period it 8
was plagued with problems causing an above average 9
number of unplanned power changes.
10 In 2011, FitzPatrick had 3.2 unplanned 11 power changes per 7,000 hours0 days <br />0 hours <br />0 weeks <br />0 months <br /> of operation which puts 12 it at 4 times the industry average. And we've seen 13 this get worse. At the end of 2012, FitzPatrick's 14 rolling average was 6.4 unplanned power changes per 15 7,000 hours0 days <br />0 hours <br />0 weeks <br />0 months <br /> and just in the last -- this last 16 quarter, the first quarter of 2013, we saw it jump to 17 7.4 per 7,000 hours0 days <br />0 hours <br />0 weeks <br />0 months <br />. So we're seeing this get worse, 18 not better, and we see FitzPatrick continuing to be 19 an industry outlier in this performance indicator 20 which has triggered increased NRC oversight.
21 What we think is important about these 22 unplanned power changes from what we understand is 23 that many of them stem from a deficiency with the 24 plant's main condenser which is an expensive piece of 25
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(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 59 equipment that Entergy is likely loathe to replace 1
given the uncertainty about the plant's future and 2
how expensive it is and this is exactly the time of 3
deferred maintenance the financial qualifications 4
requirement should be helping us avoid.
5 Other expensive upgrades are necessary 6
for FitzPatrick to approach even a baseline of 7
safety. As a Mark I boiling water reactor, 8
FitzPatrick is subject to new NRC orders regarding 9
hardened vents and complying with the orders may 10 prove especially costly for FitzPatrick because 11 unlike other Mark Is in the U.S. the plant does not 12 have a direct torus hardened vent. Instead, it has a 13 legacy vent path meant to release pressure and 14 radiation from an accident at ground level by blowing 15 the doors off the standby gas treatment building.
16 The post-Fukushima Inspection Report for 17 FitzPatrick noted the potential for hydrogen 18 explosion in the vent paths that were used. So this 19 presents a particularly dangerous situation which is 20 the subject of another pending 2.206 petition we're 21 involved in and it should be addressed immediately.
22 In a post-Fukushima environment we would 23 hope that Entergy would be acting quickly to remedy 24 this explosion-prone vent path, but we see no such 25
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about the potential burn accident at FitzPatrick. We 2
have an aging reactor with an increasing number of 3
equipment problems. The reactor has a faulty 4
containment design and no reliable vent to preserve 5
containment integrity in the case of an accident.
6 This is dry tinder for a catastrophic accident that 7
could radiologically kill our environment, our 8
economy, and many members of our community.
9 So we're here asking you today to not let 10 Entergy's financial woes be the match that starts 11 this fire at FitzPatrick. Thank you.
12 PETITIONER JUDSON: Great. Thank you, 13 Jessica. So I'm just going to take a couple of 14 minutes to wrap up our presentation today. One of 15 the issues that I mentioned, that I alluded to before 16 was the fleet-wide nature of the problem that Entergy 17 is facing. And that goes beyond specifically the 18 merchant power division which has been the subject of 19 this discussion. The investment community, as a 20 whole, has been steadily downgrading Entergy's bond 21 rating or Entergy's stock ratings over the last year.
22 And in fact, we've seen a marked decrease in their 23 share price and this whole issue of whether Entergy 24 is going to continue to see further stock declines 25
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(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 61 based on a decision to close these reactors really 1
amplifies the concern that Entergy isn't in a 2
condition to prioritize making a safety decision here 3
to close these reactors, that this is really 4
incumbent upon the NRC to step in.
5 But what's also clear from UBS' analyses 6
is that -- and UBS mentions this -- is that Entergy -
7 while Entergy's wholesale power business is 8
suffering as a result of the poor operations of these 9
plants which is creating, as we've indicated, a lot 10 of pressure on Entergy to uprate them outside of 11 regulatory compliance, but that in fact that's being 12 mitigated to some extent by the profitability of one 13 of its assets which is the Indian Point Nuclear Power 14 Plant which, as UBS notes, is an entirely different 15 electricity market. It's operating very profitably 16 at this point. And as we note in a supplement to our 17 petition, has been the subject of a report by a New 18 York State Assembly Member who commissioned an 19 analysis of Indian Point's finances which found that, 20 in fact, Indian Point is generating significant 21 profits at this point in the order of hundreds of 22 millions a year which Entergy is essentially using in 23 order to float the operations of these reactors which 24 are distressed assets.
25
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(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 62 Now with respect to this, we note that 1
Entergy's interest for shareholders is to maximize 2
its profits. It's not enough for Entergy that it's 3
making money at Indian Point that it could use in a 4
zero sum approach to managing its other reactors that 5
are not profitable, that given the analysis that the 6
investment community has arrived at which is 7
essentially that its wholesale power business is 8
really in trouble, that it only really has one 9
valuable asset which is Indian Point, but these other 10 assets are actually down the rest of the company. It 11 puts tremendous pressure on Entergy's management of 12 all of these assets including Indian Point to 13 maintain high capacity factors to minimize 14 maintenance cost, to minimize maintenance outages, 15 that in fact, the financial qualifications problems 16 that Entergy faces at FitzPatrick or Vermont Yankee 17 and possibly Pilgrim can also spread fleetwide to 18 affect its other reactors that are within the same 19 corporate division. So that, in fact, this situation 20 shouldn't persist, could begin to spill over into 21 Entergy's operations of other reactors.
It's 22 actually incumbent upon NRC to act here and cauterize 23 the situation as quickly as possible 24 In addition, what I'm sure the NRC will 25
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(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 63 hear from Entergy is an objection to NRC interfering 1
in their corporate decisions about their assets and 2
in imposing undue regulatory burden. We actually 3
note that this is the situation in which NRC acting 4
and intervening without respect to whether it's NRC's 5
job to protect the finances of a company would 6
actually be a benefit to Entergy to step in in this 7
way.
8 Entergy is under the status quo going 9
forward, apparently intending to use its surplus 10 profits from Indian Point in order to support the 11 operations of these plants that are no longer 12 financially qualified to operate.
13 Should NRC step in and enforce the 14 regulations or if NRC were to cease operations at 15 FitzPatrick and Vermont Yankee and potentially 16 Pilgrim if that's warranted, and all these reactors 17 under NRC's current decommissioning funding reports, 18 have surplus funds for decommissioning, that there's 19 no reason to believe that there's going to be an 20 increase liability on Entergy as a result of closing 21 these plants. In fact, Entergy could move into a 22 decommissioning mode at these
- plants, actually 23 minimize job losses to the work forces and begin the 24 decommissioning process that's already funded by rate 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 64 payer contributions that were made years ago. And 1
should there be any decommissioning shortfalls, they 2
certainly would not be on the order of the operating 3
cash shortfalls that are projected to be occurring 4
over the next -- over the foreseeable future 5
essentially, that essentially Entergy could close 6
these reactors and whatever surplus funds from Indian 7
Point were going to be used to float the operations 8
of these plants, could be applied to decommissioning 9
if necessary. There would be no undue regulatory 10 burden imposed by NRC for this action, but it would 11 actually be very much in the interest of public 12 health and safety and would have a collateral benefit 13 to Entergy held as a corporation regardless of 14 whether Entergy were to resist such a decision.
15 So with that, we'd like to conclude our 16 presentation and thank again NRC for considering this 17 petition and we look forward to your questions.
18 CHAIRPERSON EVANS:
Thank
- you, Mr.
19 Judson. At this time, since it's a public meeting, 20 I'd like to remind everyone of the need to refrain 21 from discussing any sensitive of proprietary 22 information during the remainder of the meeting.
23 Does the staff here at NRC Headquarters 24 have any questions for the Petitioners?
25
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(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 65 MS. SIMMONS: I have some questions and 1
then I'll turn it over to my colleagues who are also 2
financial analysts. I'm Anneliese Simmons with NRR.
3 First, I want to thank you for your 4
petition. I think it may be the first petition that 5
deals with merchant plants and financial 6
qualifications, at least to my knowledge, and that's 7
a very timely subject. So I want to thank you for 8
providing that and the supplement.
9 You brought up quite a number of issues 10 embedded in the petition and so I just want to ask a 11 couple of questions about that.
12 PETITIONER JUDSON: Sure.
13 MS. SIMMONS: And I want to be very clear 14 about the staff's limitations in terms of pursuing an 15 enforcement action related to financial 16 qualification. You're probably somewhat familiar 17 with all of the experience and case law regarding 18 financial qualification and one of the challenges is 19 that it's difficult to make the case that financial 20 distress has a direct impact on safety. I don't 21 believe that that has ever been an enforcement action 22 that's been taken by the NRC.
23 And so one of the challenges we have is 24 and you spoke about that, Mr. Gunter, about drawing 25
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(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 66 up that nexus to safety. I just want to say that is 1
a challenge that we have in terms of addressing this 2
and other issues.
3 Your analysis, a lot of the petition is 4
based on the analysis done by UBS. They are, as 5
folks probably know, a Swiss banking and investment 6
firm. Of course, they did a very comprehensive 7
analysis, but it is -- because the staff has to 8
depend on direct, I would say, probably more direct 9
statements by licensees or first level citations as 10 opposed to someone else's analysis because the staff 11 has to perform an independent analysis, I wondered if 12 you had any citations or references to some of the 13 supporting numbers that were in the UBS analysis?
14 PETITIONER JUDSON: Well, I think as you 15
- know, Entergy's financial performance
- metrics, 16 especially with regard to specific assets, are 17 proprietary information. They aren't generally made 18 public.
19 What we saw in the advent of these 20 reports from UBS was actually through the investment 21 community and Entergy's relationship with the 22 investment community. Some opening up of the plant 23 specific, you know, the financial situation. So we 24 would welcome NRC really prying open that can through 25
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(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 67 its powers under 50.33(f)(5) to confirm the basis of 1
UBS' analysis. And we wouldn't expect you to do any 2
less.
3 But it seems clear to us from the 4
analysis that UBS provided, especially given that it 5
was so non-conservative in terms of the plant-6 performance projections and the fact that the major 7
maintenance expenses from these reactors didn't seem 8
to be included that this really seems to be a pretty 9
clear-cut case, especially given what we know about 10 the power markets in New York and New England which 11 we documented in our petition that fall so 12 precipitously below the original financial 13 qualifications projections that Entergy submitted.
14 MS. SIMMONS: And I want to specifically 15 ask about that. So did the power projections that 16 you presented in your petition, were they based on 17 again the UBS analysis or were they based on, for 18 example, the Energy Information Administration or 19 other filings?
20 PETITIONER JUDSON: The market price 21 analysis that we did in our initial petition was from 22 hourly day-ahead market price data downloaded from 23 the New England and New York ISOs.
24 MS. SIMMONS: Okay.
25
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(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 68 PETITIONER JUDSON: And those were for 1
every hour within those years and then averaged.
2 Because these are base load plants, there's no 3
revenue projection to be based on an average of those 4
hourly prices.
5 MS. SIMMONS: The next question is 6
regarding the end of the PPA for FitzPatrick. I 7
couldn't find a direct reference to where they have 8
made a filing to that effect or if that's just 9
reflected in the UBS analysis.
10 PETITIONER JUDSON: That's reflected in 11 the UBS analysis and their initial power purchase 12 agreement with New York Power --
13 MS. SIMMONS: So you have -- is there a 14 citation to the New York --
15 PETITIONER JUDSON: It was submitted with 16 their license for application.
17 MS. SIMMONS: Okay. Some people would 18 argue that because Entergy is a diversified company 19 other components of its business, for example, is 20 regulated plants provide additional funding that can 21 be used to cover plants that have a short fall. They 22 also have other things that guides nuclear power 23 plants. I just wondered what your thoughts were 24 about that?
25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 69 PETITIONER JUDSON: Sure, as I mentioned 1
with respect -- my concluding comments about the 2
dynamic that the UBS points out where they do have 3
one asset in their merchant fleet which generates a 4
significant amount of profit that is essentially able 5
to float basically the rest of the business here.
6 This is -- I think this is a flaw when you look at 7
the situation. Entergy is a corporation that is in 8
business to maximize profit for its shareholders, so 9
its business isn't to use regulated rates in the deep 10 South to pay for unprofitable assets in the 11 Northeast. It has -- and this is what UBS' analysis 12 points out is that from the standpoint of its 13 shareholders which are Entergy's primary obligation, 14 it has to maximize its profits.
15 MS. SIMMONS: So it would be your 16 position that profits from the regulated section of 17 Entergy would not carry over?
18 PETITIONER JUDSON: It's not relevant to 19 how Entergy makes decisions about how it operates 20 these plants. I mean I think as Chris Williams 21 pointed out, Entergy has publicly stated that the 22 Vermont Yankee is considered a marginal asset within 23 its fleet. This means that Entergy in weighing how 24 it manages its assets is looking at these assets as 25
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1 And as we laid out in our presentation, 2
Entergy is basically in sort of a triage situation of 3
managing these distressed assets that, in fact, it is 4
in a position where it is trying to minimize its 5
outage time to minimize its maintenance cost while it 6
waits for some circumstance to change, a circumstance 7
that as we lay out, there's no reasonable expectation 8
that such a thing would occur, especially within the 9
foreseeable future which is, in fact, which is in 10 comport with UBS' analysis and in
- fact, its 11 anticipation that Entergy in making a rational 12 decision about these plants may decide to close them.
13 PETITIONER KATZ: This is Deb Katz.
14 Entergy has also made clear in the press in Vermont 15 that it sees Vermont Yankee as a completely separate 16 entity from the rest of Entergy Nuclear and that 17 entity stands on its own. So it is not taking the 18 position where it was going to provide financial 19 help, at least that's what it said publicly.
20 PETITIONER LAMPERT: -- to say a limited 21 liability company, they were all set up --
22 CHAIRPERSON EVANS: Who was that?
23 PETITIONER JUDSON:
That was Mary 24 Lampert.
25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 71 MS. SIMMONS: How would you all address 1
the argument that performance issues and safety 2
issues will be captured by inspection through the 3
ROP?
4 PETITIONER JUDSON:
- Well, as we 5
understand the NRC's approach to safety regulation 6
and enforcement, what's required in evaluating safety 7
problems is a root cause analysis and given the plant 8
performance issues we've seen particularly at 9
FitzPatrick, but at all three of these reactors as we 10 enumerated in our presentation, there is sufficient 11 reason to believe that the financial qualifications 12 are a root cause of what's been happening recently at 13 those plants. And given NRC's regulatory approach we 14 feel that this is sort of a natural sort of extension 15 to take to looking at financial qualifications as a 16 root cause of both the recent issues of the plants, 17 but also we should reasonably anticipate that those 18 could become even more acute dynamic in the future.
19 MS. SIMMONS: I think I just have one 20 more question. In your petition, there's something 21 called the NYPA value sharing between Fitz and Indian 22 Point?
23 PETITIONER JUDSON: This is an aspect of 24 power purchase agreement between Entergy and the New 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 72 York Power Authority was a value-sharing agreement 1
that imposed a liability on Entergy and it may yet 2
impose it going forward to essentially sort of share 3
some of its revenue with our authority related to the 4
FitzPatrick.
5 MS.
SIMMONS:
But now that the 6
FitzPatrick power purchase agreement is over is that 7
value sharing authority over?
8 PETITIONER JUDSON: It's shown in UBS' 9
reports.
10 MS. SIMMONS: Yes, I see it in UBS' page 11
- 3.
12 PETITIONER JUDSON: Yes.
13 MS. SIMMONS: I was a little unclear 14 because they seem to remove it in one analysis and 15 then include it in another.
16 PETITIONER JUDSON: Our understanding 17 would be that that should have ended if the power 18 person had -- but they may have a separate agreement 19 to that effect.
20 MS. SIMMONS: Okay. Let's see. I think 21 that those are the questions that I have. I want to 22 turn it over to my colleagues to see if they have 23 questions, Jo Ann or Jocelyn?
24 Can I ask one final question? So again, 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 73 one of the issues that a lot of our procedures and 1
policies are around are reacting to performance 2
indicators. You mentioned something and I would like 3
your thoughts about those. Financial distress can 4
often have cumulative impacts, okay, so you might not 5
necessarily see some sort of immediate reaction or 6
performance indicator in a plant.
7 Could you just talk a little bit about 8
how -- what the NRC is to do in those kind of 9
situations where we see something happening on one 10 side. We see something in the financial statements, 11 but we may not see a clear-cut indicator, for 12 example, in an ROP.
13 PETITIONER JUDSON: Sure. Well, I mean I 14 think what this situation has brought to light, I 15 would say on a broader level, the NRC should take a 16 much more aggressive sort of stance on evaluating the 17 finances of nuclear plants that are particularly 18 (2:37:48) the electricity one. I think NRC should be 19 far more deeply engaged in evaluating the impact of 20 the electricity markets on reactor safety and 21 financial qualifications as a general matter going 22 forward. I think with respect to this particular 23 situation, what we have is a situation that clearly 24 indicates that these plants may be very significantly 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 74 in violation of financial qualifications standards 1
and that while we acknowledge that NRC has never 2
taken enforcement action preemptively around or 3
proactively on financial qualifications issues, that 4
we're really in a different ballgame now with the 5
situation facing Entergy, facing some of Exelon's 6
plants that warrants a different approach. And 7
essentially that enables the Agency to act 8
proactively in this situation.
9 Now that said, I think that with respect 10 to, like I indicated, taking a more proactive 11 approach in looking at financial qualifications 12 especially in deregulation of electricity markets, 13 that that should always be looked to towards a root 14 cause analysis of trends with the performance of 15 these plants. But I think with respect to Vermont 16 Yankee and FitzPatrick specifically and this is why 17 we ask for an investigation of Pilgrim, we're clearly 18 beyond the point where we're just adding it to the 19 inspection matrix that this is an inadequate 20 response.
21 MS. SIMMONS: Okay. Thanks.
22 MS. MENSAH: This is Tanya Mensah. I'm a 23 2.206 Coordinator again. Just to clarify, because I 24 heard several times you mentioned that you had some 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 75 concern about what's happening at Vermont Yankee and 1
FitzPatrick and possibly Pilgrim expanding to include 2
other reactors that are owned by Entergy. I just 3
wanted to clarify. Are you asking the PRB to expand 4
the scope of this petition or are you expanding the 5
scope of your petition to say you want to seek 6
enforcement, you want the NRC to seek enforcement 7
actions against other reactors that are currently not 8
listed?
9 PETITIONER JUDSON: No, we are not.
10 MS. MENSAH: Okay.
11 PETITIONER JUDSON:
What we're 12 highlighting is that with respect to especially sort 13 of this question of sort of how the problems with 14 these plants relates to Entergy as a whole or at 15 least its nuclear business that this is really a 16 problem that needs to be cauterized.
17 PETITIONER JUDSON: Okay, thank you.
18 CHAIRPERSON EVANS: Any other questions?
19 So on the phone from the Region, does staff have any 20 questions for the Petitioners.
21 MR. McCARVER: This is Sam McCarver, no 22 questions.
23 CHAIRPERSON EVANS: Okay, thanks, Sam.
24 So now I'm going to turn the meeting back over to our 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 76 facilitator to allow questions from other 1
participants.
2 FACILITATOR OLMSTEAD:
Thank
- you, 3
Michele. This is Joan Olmstead. Does any of the 4
licensee representatives on the phone have any 5
questions for the Petition Review Board on the 2.206 6
process or comments on the petition?
7 MR. MANNAI: This is David Mannai from 8
Entergy Nuclear. We have no questions on the process 9
or the petition.
10 FACILITATOR OLMSTEAD: Okay, are there 11 any members of the public that would have questions 12 for the Petition Review Board on the 2.206 process or 13 comments on the petition?
14 I'm giving people time to unmute their 15 phones. Okay, I don't think we have any comments or 16 questions from the public.
17 Do the Petitioners have any questions for 18 the Petition Review Board on the 2.206 process?
19 PETITIONER JUDSON:
I think we're 20 familiar with it. We've been through it a number of 21 times. We want to thank you for allowing us the 22 extra time and for this opportunity to present our 23 case. Thanks.
24 PETITIONER GUNTER: This is Paul Gunter.
25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 77 I would just like to ask for clarification. The 1
Petitioners will have the opportunity to request 2
another meeting with the Petition Review Board after 3
the draft Director's decision is that --
4 FACILITATOR OLMSTEAD: I'll defer to 5
Michele on that.
6 MR. GUZMAN: This is Rich Guzman. That 7
is correct. The next step following this meeting is 8
that the Petition Review Board will get together 9
internally and determine whether your petition meets 10 the criteria for review under 2.206. Once we have 11 the appropriate concurrences from management, I'll 12 contact you, Mr. Judson, and at that point give you 13 an opportunity for the second meeting.
14 CHAIRPERSON EVANS: So I'd like to thank 15 Mr. Judson, Mr. Gunter, and your fellow Petitioners 16 on the phone for taking the time to provide the NRC 17 staff with the clarifying information on your 18 petition.
19 Officially, I'll reiterate a little of 20 what Rich just said. The PRB does plan to meet 21 internally within a few weeks to discuss this 22 information that you've provided in your petition and 23 as supplemented, to make its initial recommendation 24 on the petition. Following that meeting, the 25
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 78 petition manager will inform you of the PRB's initial 1
recommendation to either accept or reject your 2.206 2
petition for review and in accordance with the 3
criteria in Management Directive 8.11. So before we 4
close, does the court reporter need any additional 5
information for this transcript?
6 With that, the meeting is concluded and 7
we will be terminating the phone lines. Thank you.
8 (Whereupon, at 2:43 p.m., the conference 9
call was concluded.)
10