ML18054A567
| ML18054A567 | |
| Person / Time | |
|---|---|
| Site: | Palisades  |
| Issue date: | 02/23/1989 |
| From: | Hoffman D, Rebecca Stone CONSUMERS ENERGY CO. (FORMERLY CONSUMERS POWER CO.), PALISADES GENERATING CO. |
| To: | |
| Shared Package | |
| ML18054A566 | List: |
| References | |
| NUDOCS 8903060170 | |
| Download: ML18054A567 (11) | |
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ATTACHMENT 1 Consumers Power Company Palisades Plant Docket 50-255 LICENSE CHANGE REQUEST TRANSFER OF PALISADES OWNERSHIP TO PALISADES GENERATING COMPANY February 23, 1989 10 Pages u_T_1_1_o_o__o_1_0.:i_l\\J_L0.'.7 ____ _
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1 Consumers Power Company Docket 50-255 Request for Change to the License License DPR-20 For reasons hereinafter set forth, it is requested that Provisional Operating License DPR-20, Docket 50-255, issued to Consumers Power Company for the Palisades Plant, be amended as described in Section I below:
I. Proposed Changes This Request for Change to License DPR-20 requests NRC to approve the transfer of ownership of the Palisades Plant from Consumers Power Company (CPC) to a newly-formed Michigan corporation, Palisades Genera~ing Company (PGC), and to license PGC to possess but not to operate the Palisades Plant.
CPC will continue to retain its license authority to operate the Palisades Plant.
A discussion of the terms of the transfer of ownership is included in.Section II. sets. forth the proposed changes,
.to the license~. Attachment J is the Asset Purchase Agreement between CPC
.andPGC.
At.tachment 4 isa copy_of the Power Purchase Agreement as executed by CPC and PGC (a draft form thereof being Exhibit 9 to the Asset Purchase Agreement). is a statement of estimated sources and applications of funds for the years of plant life following the transfer.
The proposed change to Section 5.1 of Appendix A to the License deletes the statement that the site shall be "owned by Consumers Power Company".
As discussed in Section II, a portion of the existing plant site is being sold to PGC.
The reqiainder will continue to be owned by CPC.
For purposes of Appendix A, the e~isting plant site is considered to be unchanged, notwithstanding the partial change in title ownership, since control will remain with the licensees.
The definition of "site boundary" in Section 1.4 of Appendix A continues to be "that line beyond which the land is neither owned nor otherwise controlled by the licensee."
The proposed change to Section 5.1 of Appendix A also deletes the number of acres in the site as not being material, the significant factor being the distance to the nearest boundary, which is not changed from that depicted in Figure 5-1 of Appendix A.
Moreover, the acreage figure has been determined to be erroneous, the correct acreage for the area shown in Figure 5-1 being 432 rather than 487.
The effective date of the ownership transfer will be proposed by subse-
- quent correspondence as soon as all necessary approvals by other agencies have been obtained.
II. Discussion CPC wishes to transfer its ownership of the Palisades Plant to PGC in order to settle certain claims, improve plant reliability, and benefit its MI1188-0197-NL02
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customers and shareholders.
CPC will continue to operate the Palisades Plant as a contractor to PGC.
2 PGC's capital stock will be owned by CPC, Bechtel Power Corporation (BPC) or persons associated with BPC (Bechtel), and one or more additional investors.
PGC will purchase the real and personal property comprising the Palisades Plant, and assume certain liabilities, as described in the Asset Purchase Agreement included herein as Attachment 3.
Although the plant site purchased by PGC will be smaller than the existing plant site, the portion not sold to PGC will continue to be owned by CPC.
CPC and PGC will grant each other easement rights with respect to their respective parcels to assure necessary ingress, egress, control, etc.
The purchase by PGC will include certain s~itches and tra~smission lines connecting the Palisades Plant to the switchyard, but otherwise CPC will continue to own the switchyard and its equipment~ Other proper~y being sold includes machinery, equipment, furniture and other items of tangible personal property at the site, records and technical drawings pertaining to the plant, spare parts and inventory (including two replacement steam generators located at Combustion Engineering's facility in Tennessee), and construction work in progress (CWIP).
Financing for PGC is expected to consist of approximately $310 million in-*
secured indebtedness, $40 million in CPC equity, $30 million in equity provided by Bechtel, and an additional $20 million in eq~ity provided by other ihvestors, for a total of approximately $400 million.
The purchase price for the Palisades Plant and other property being purchased by PGC will be the net book value at the closing date.
Assuming the closing occurs on December 31, 1989, the approximate purchase price and other costs would be:
Pali sades Plant CWIP Spare Parts and Prepaid Insurance Purchase Price Working Capital (cash)
Organizational Costs Total
($ mi 11 ions) 340 25 12 377 13 10 400 Consumers and BPC will have additional contingent commitments to provide up to $20 million each if cash flow is insufficient to fund necessary capital additions.
PGC, as the owner of the Palisades Plant, will sell the electrical output of the plant to CPC under a Power Purchase Agreement included herein as MI1188-0197-NL02
Under the terms of the Power Purchase Agreement, which is subject to Federal Energy Regulatory Commission (FERC) jurisdiction and approval, 100% of capacity will be dedicated to CPC through December 31, 2006.
The rates under the Power Purchase Agreement are expected to provide sufficient revenues to cover the projected costs of debt service, 3
operation and maintenance, capital improvements, insurance, taxes, and decommissioning based on the Palisades Plant achieving an average capacity factor of 55% over its remaining life.
The projected capital improvements include plans for about $350 million (1988 dollars) in capital expen4-itures during the 17 year period following the plant sale.
Funding during outages will be.provided by PGC's working capital, by minimum capacity charge payments by CPC during outages after the first three months ot the outage and for up to nine months thereafter (except under certain circum-stances) to cover fixed operation and maintenance expense and debt service, by a $40 million revolving line of credit with senior debt lenders and, if
. need be, by the additional $40 million aggregate contingent commitments of CPC and BPC for capital expenditures.
Nuclear fuel cost, nuclear insurance (both liability.and.*property), retrospective. ~ssessments under the Pr:ice-Anderson.Act and.nuclear insurance policies, and FERG-approved decommissioning charges will be passed through to CPC.
PGC intends to determine decommissioning costs based on a site-sgecific a~sessment, and to fund such costs using external trust funds. !7 PGC intends to reassess the decommissioning cost estimate periodically*~
Re.visions to tpe decommissioning cost estimate will be evaluated for conf9rmance to NRC criteri~ and tpen submitted to FERC for rate adjustment.
CPC will continue to operate the Palisades Plant under the provisions of an Operating Agreement (the form of which is included herein as Exhibit 8 of Attachment 3) that will become effective immediately upon the transfer.
~ursuant to the Operating Agreement, CPC will operate and maintain the Palisades Pla~t in accordance with prudent utility practices, applicable laws, and the terms of the Operating Agreement, and is responsible for the safe operation of the plant.
Among other things, CPC is responsible for maintaining.the site (including handling and storing spent fuel); procuring supplies and materials (including fuel) required for plant operation; entering into subcontracts; hiring~ training and supervising plant personnel; and decommissioning the plant in accordance with the Operating Agreement.
While the Operating Agreement defines appropriate standards of l/ A decommissioning funding report will be submitted to the NRC by July 1990 in accordance with the NRC's new decommissioning rule.
Compliance with this rule will p~ovide reasonable assurance that decommissioning funds will be available.
MI1188-0197-NL02
4 conduct to which CPC as the operator must adhere (eg, compliance with regulations, prudent ~tility practice, etc) and provides PGC certain rights regarding finances, pudgeting, outage planning, information and audits, it does not restrain CPC from taking such actions as are necessary and appropriate for the safe operation of the Palisades Plant.
PGC will reimburse CPC for all actual and reasonable costs of the performance of CPC's duties under the Operating Agreement.
The safe and effective operation of the Palisades Plant by CPC is actively encouraged by the provision for a Management Target Fee that cor-relates compensation with achievement of safety and management effectiveness goals (see Exhibit C to the Operating Agreement).
Although terminable at PGC's option after three years, the Operating Agreement has an initial five-year term and can be renewed by PGC for an unlimited number of additional two-year terms.
Before the Operating Agreement is terminated, for whatever reason, NRC approval of a license amendment will be obtained, transferriµg operating authority to PGC or to a new operating service company.
Since CPC will continue to operate the Palisades Plant at least for the next three years, PGC's initial activities will be limited.
In essence, PGC will service the transactional debt, perform financial and budgeting activ1t1e~,
oversee. outage.planning,.. and inonitor.performance :of contractual r:equirements
.unde~ t~e Operating.Agreement and the power.Purchase Agreement.
Reflecting
. this limited activity, PGC' s organization will be small, consisting* of a Board of Directors and a small number of officers and employees.
MI1188-0197-NL02
III. Supporting Information Concerning PGC A~
Name:
Palisades Generating Company B.
Address:
Suite 701 777 E Eisenhower Parkway Ann Arbor~ MI 48108 5
C.
Description of Business:
PGC's business is to own the Palisades Plant and sell at wholesale the electricity generated by the Palisades Plant.
D.
Organization PGC is a corporation organized and existing under the laws of the State of Michigan.
All of PGC's directors and principal officer& are citizens of the
.United States.
Their names and business addresses are as follows:
Directors Frederick W Buckman Blake 0 Fisher, Jr Philip J Luks Robert H Stone 212 W M~chigan Ave, Jackson, MI 49201 212 W Michigan Ave, Jackson, MI 49201 50 Beale St, San Francisco, CA 94105 1574Q Shady Grove Rd, Gaithersburg; MD'20877*
Principal Officers Frederick W Buckman, President Robert H Stone, Executive VP David L Brannen, Vice President David P Hoffman, Vice President Philip J Luks, VP & Secretary Martin R Walicki, Treasurer 212 W Mich Ave, Jackson, MI 49201 15740 Shady Grove Rd, Gaithersburg, MD 20877 15740 Shady Grove Rd, Gaithersburg, MD 20877 1945 W Parnall Rd, Jackson, Ml 49201 50 Beale St, San Francisco, CA 94105 212 W Michigan Ave, Jackson, MI 49201 PGC is not owned, con~rolled or dominated by an alien, a foreign corporation, or a foreign government.
Under the equity terms of the Asset Purchase Agre~ment between CPC and PGC, CPC is allocated 4/9 of PGC's stock, Bechtel is allocated 3/9 of the stock, and the remaining 2/9 will be offered to third-party investors whose identities will be provided to the NRC as soon as firm commitments are obtained.
Technical Qualifications Following the ownership transfer, there will be no significant change MI1188-0197-NL02
6 in the number or qualifications of CPC's personnel who now manage and operate the Palisades Pl~nt.
CPC will continue to conduct operational activities, including security, quality assurance, and emergency planning and training.
CPC will continue in its current role in the Site Emergency Plan as contact for all local, state and federal agencies.
CPC will continue as the party responsible for all communi-cations with the NRC.
CPC will continue to direct all security functions related to the Palisades Plant.
Therefore, implementation of the amendment sought by this request will cause no change in the technical qualifications of the facility operator.
- CPC, as the operator, i~ not changing its operating organization as currently described in the Updated Safety Analysis Report for Pali-sades and as reflected in the Facility License.
This organization includes well-defined lines of authority, responsibility and communi-cation from th~ highest management levels through intermediate levels to and including all onsite operating organizatiori positions involved
~ith activities affecting the safety of the Palisades Plant.
These lines of responsibility and communication will be unaffected by PGC's acquisition of.ownership.
At. least initially,* the President of CPC (Mr.Buckman) will also serve as President of PGC; thus, the same individual will have responsibility over both the pperational and financial aspects of the Plant.
Financial Qualifications PGC is being established as a fully capitalized and self-sufficient corporation to own and market the power generated by the Palisades Plant.
As discussed below, the capitalization of the company, the projected revenues from sales of power (includi~g certain pass-through items),
and the arrangement of an extended line of credit are designed to be sufficient to cover the cost of safely operating and shutting down, and eventually decommissioning, the Palisades Plant.
Because PGC will b~ an entity recovering the costs of electricity generated at the Palisades Plant through rates regulated by FERC,.it qualifies as an electric utility under the NRC's regulations at 10 CFR 50.2 and 50.33(f).
Nevertheless, the following information is provided for the
- traC's review.
Apart from the initial capitalization of PGC, CPC, Bechtel and other shareholders in PGC will not, as such, have further obligations to fund PGC's activities, although CPC and BPC hav~ made contingent commitments to provide an additional $20 million each to fund capital expenditures determined by the Board of Directors of PGC to be neces-sary, to the extent other funds are unavailable.
These commitments will expire seven years after PGC acquires the Palisades Plant.
A statement of the operating costs and expenses (excluding fuel MI1188-0197-NL02
related costs) for the Palisades Plant for 1987 and the 'first half of 1988 is contained in Exhibit 16 to the Asset Purchase Agreement.
Estima~es of sources and applications of funds for the PGC ownership perioq are provided as Attachment 5 to this r~quest.
At the date of ownership and license transfer, the Power Purchase Agreement will have been approved by FERC.
The Power Purcha~e Agreement will provide the necessary funding to cover the costs of operations and decommissioning.
7
~.Jnder the Power Purchase Agreement, CPC will pay for "available energy", which is the surmnation over a period of time of the potential elec~rical output at any {nstant after deducting the output (a) required for operation and maintenance of the Palisades Plant, and (b) not available because of outages.
The price that CPC will pay for available energy will be comprised of a "capacity charge" and an 11energy charge."
The capacity charge is sta~ed in cents per kwh and r~lates to the Qase
.*plant.investment plus a yearly allowance for capital additions.
The base plant investment and projected capital.. additions have been amortized through the year'2006 to arrive at an amortized base plant investment and amortized capital additions (expreS$ed in ¢/kwh).* The precise cap~city ~barge for available energy eac~ year is the sum of the amortized base plant investment (expressed in c/kwh qased on 55%
capacity) apd tJ:ie amortized capital additions (in ¢/kwh based* on 55%
- capacity) multiplie!i by a nuclear capital cost escalator that is based on certaiq p~blished ~ureau of labor Statistics indices (see Exhibit I to the Power.P4rchase Agreement).
If PGC replaces the steam generators at the Palisades Plant, or if it rewinds or replaces the existing, main generator, CPC will pay additional capaci~y ~barges related to such capit~l investments.
If ~he Palisades Plant achieves an average capacity fac:tor of 55% through 2006, these capital costs are expected to pe entirely recovered.
If the plant operates at a higher average cap~city factor, greater returns will be realized.
The energy charge consists of a fixed energy charge and a-variable energy charg!=! stated in cents per kwh for available energy.
The. fi~ed.
energy c:harge accounts for operation and m~intenance (O&M) expenses, other than fuel tycle costs.
A base O&M expense has been determined for all con~ract years and each year this base amount is to pe mutti-plied by a nuclear O&M cost escalator.
The nuclear O&M cost escalator is based upon changes in the O&M cost of 25 operating pressurized water react()r units which went into service in 1968 to 1978.
The variable energy charge accounts for all fuel cycle costs (including disposal and any associated fuel lease charges) amortized over the active life of the fuel to which the costs relate.
These amortized expenses will be calculated on a monthly basis.
In addition to the capacity and energy charges, Consumers will pay MI1188-0197-NL02
'I
decoaunissioning funding charges, ac~ual nuclear insurance costs (both prope+ty and liapility) and any retrospective assessments under nuclear insurance policies or the Price Anderson Act.
CPC will also pay on a monthly basis a minimum capacity.charge during portions of unit outages.
This minimum charge consists of a fixed expense component*, as escalated by the nuclear o&M cost escalator, and a carrying charge (for debt service)~
8 Subject to and as more par~icularly described in Section 10.1.4 of the Power Purchase Agreement and exhibit M thereto, CPC is not obligated to pay m1n1mum capacity charges during the first 91 days of an outage nor any days beyond the 365th day of an outage, nor on any day where
~he average of the preceding 730 days* of available energy results in a capacity factor greater than 55% unles~ contingent commitment payments of BPC and CPC are or would thereby pecome outstanding, nor under certain circumstances where such charges could not be passed through to CPC's customers.
In addition to the foregoing and the $13 million of cash working ca pi td, PGC will have a $40 million 1 ine of c-redi t with senior debt
- lenders, and.a portion of the initial debt financing will provide for a.revolving.credit facility.that ~ill allow borrowing on previously repaid principal payments.
This should assure suffi~ient backup funding. to cover all O&M costs.
The tables in Attachment 5 to this request show,' in*addition**to the*
projected cost and capital expenditures, the revenues that will be.
generated under the Power Purchase Agreement if the Palisades Plant -
operates at capacity factors of 55%, 60% or 65%.
Additionally, no minimum capacity charges have been assumed in these projections.
These figures indicate tha~ even in the 55% case, PGC should have: the necessary funds to support its operations and to shut dowp the Palisades Plant and maintain it in a safe condition.
Statement of Purposes for Which Transfer is Required and Nature of Transaction Necessitating or Making the License Transfer Desirable The proposed transfer of ownership is part of a business transaction that i~ mutually advantageous to CPC and BPC and is also part of a settlement of claims relating to the cancelled Midland Nuclear Plant.*
It will afford BPC an.opportunity to increase and diversify its nuclear experience and at the same time bring additional nuclear expertise to the project.
The agreements among the parties in the transaction create incentives for more efficient operation and greater stability and predictability of power rates, which will benefit CPC's customers.
Agreement to Limit Restricted Data This Request for Change does not contain any restricted data or other MI 1188-0l 97-NL02
9 information sensitive to national security and it is not expected that any will become involved.
Nevertheless, CPC an~ PGC agree that they will appropriately safeguard such information if it does become involved and will not permit any individual to have access to restrict-ed data until the Civil Service Conuniss.ion (or its successor) has made an investigatio~ and has reported to the NRC on the character, associ-ation, and loyalty of such individ~al, and the NRC has determined that permitting such person to have ac~ess to restricted data will not endanger the common defen.se and security.
Offsite Power PGC aµd CPC have agreed to a Contract for Electric Service for Auxil-iary or Standby Power (Exhibit ll to Attachment 3).
This agreement provide~ a firm commitment by CPC to supply offsite power to the Palisad~s Plant, ~ubject to obtaining a local franchise.
PGC and CPC have al~o prepared a Facilities Agreement (Exhibit 10 to Attachment 3), which provides for the ownership, construction, operat io~. and maintenance of facilities connecting the Palisades Plant to CPC's.
system. It also includes provi~ions requiring CPC and PGC, before
.undertaking any.additions, modifications, repairs or replacements to the conne~tion facilities, to consult, develop plans, and coordinate schedul~s so as to provide for continuous and reliable operation of the connection facilities, the plan!: and CPC'ssystem.
The Facilities Agreement also obligates CPC to maintain the electrical connection with the plant and, in the event of an iµterruption; to rest*ore power 1n co~plianc~ with NRC's requlrement~.
No Significant Hazards Consideration This license change invoives no significant change in the facility (its systems, hardware, or ability to exercise control of the site),
the manner in which the Palisades Plant is operated,. or the number or technical qualifications of the personnel who operate the Palisades Plant.
There will be no significant cha~ge in CPC's responsibility for the ~onduct of operational activities, including security, quality assurance, and emergency planning and training. *Therefore, the proposed License Change to License DPR-20 dqes not:
- 1.
Involve a significant increase in the probability or consequences of an accident previously evaluated; or
- 2.
Create the possibility of a new or different kind of accident from any accident previously evaluated; or l*
Involve a ~ignificani reduction in the margin of safety.
Thus, CPC has determined that the proposed License Change does not involve a significant safety hazard.
MI! 188-0197-NL02
10 IV. Conclusion.
The Palisades Plant Review Committee has reviewed this License Change Request and has determined that this change does not involve an unreviewed safety questi?n and involves no significant hazards consideration.
This change has also been reviewed by the Nuclear Safety Board.
A copy of this License Change Request has been sent to the State of Michigan official designated to r~ceive such requests.
CONSUMERS POWER COMPANY By David P Hoff!Jl8.n, Nucl~ar Operations Sworn and subscribed to before me thisol3 th day of February, 1989 *
. ~£~
Elaine E Buehrer,'NOtary Public
- Jackson County, Michigan My cpllllllission expires October 3~, 1989 PALISADES GENERATING COMPANY By ~4~
ObertHStOne, Executive VI:>
Sworn and subscribed to before me this~th day of February, 1989.