ML19264C573
| ML19264C573 | |
| Person / Time | |
|---|---|
| Issue date: | 02/08/1982 |
| From: | Matt Young NRC |
| To: | Christenbury E NRC |
| References | |
| FOIA-82-104 NUDOCS 8203010445 | |
| Download: ML19264C573 (6) | |
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February 8,1982 Note to:
Edward Christenbury
Subject:
TRANSFER OF CONSTRUCTION PERMITS TO FOREIGN ENTITIES After the board of directors of WPPSS formally announced its decision to cancel WNP-4 and 5, several issues energe.
This note sunmarizes the results of ny research regarding three ouestions:
(1) whether the holder of a construction permit can transfer, by sale or other means, the permit to any person; (2) whether a foreign entity could become full or part owners of the pernit; and (3) how has the NRC handled the permits of cancelled projects in the past.
Transfer of Construction Permits Any license issued under the Atomic Energy Act, as amended, may be transferred if the Commission gives its approval.
Section 184 of the Act, 42 U.S.C. 62234, provides in part:
No license granted hereunder and no right to utilize or produce special nuclear naterial...shall be transferred, assianed or in any manner disposed of, either voluntarily or involuntarily, directly or indirectly, through transfer of control of any license to any person, unless the Commission shall, after receiving full information, find that the transfer is in accordance with the provisions of [the] Act, and shall give its consent in writing.
(emphasis added)
Generally, a construction permit is considered a " license" under the Act.
Section 185, 42 U.S.C. D2235.
The inplementing regulations also provide that the Conmission must consent in writing before a transfer of a " license for a production or utilization facility, or any right thereunder." 10 C.F.R. 5s50.80(a),
50.54(c).
Section 50.80 does not expressly refer to construction pernits; however, 50.55(c) states that construction permits are subject to the same conditions as a license.
Thus, reading 50.55(c) and 50.54(c) together, the prohibition against the transfer of control of a license without Conmission approval applies equally to construction pernits.
An application for transfer of a license should include information necessary for an initiel license as required "y sections 50.33, 50.33e and 50.34. 10 C.F.R. @50.80(b). The application must also contain a statement regardino the purposes for which the transfer is requested, the nature of the transaction that necessitates, or makes desirable, the transfer, and an agreement to limit access to Restricted Data pursuant to 950.37.
I d_.
.. The Comnission must nake two findings to approve an application for the transfer of a license.
The proposed tranferee must be qualified to be a holder of the license and the transfer must be "otherwise consistent with applicable provisions of laws, regulations, and orders issued by the Comnission pursuant thereto." 10 C.F.R. @50.80(c).
With respect to the first finding as to the qualifications of the transferee required by @50.80(c), both the Act and the Commission's regulations deen aliens ineligible to obtain a license.
Section 103d.
of the Act states in relevant part:
No license may be issued to an alien or any corporation or other entity if the Comnission knows or has reason to believe it is owned, controlled, or dominated by an alien, a foreign corporation, or a foreign government.
In any event, no license may be issued to any person within the United States, if, in the opinion of the Commission, the issuance of a license to such person would be inimical to the common defense and security or to the health and safety of the public.1/
Section 50.38 of the regulations echoes this language and further states that citizens, nationals or agents of a foreign country "shall be ineligible to apply for and obtain a license." The definition section of Part 50, in 950.2, does not define the term " license." Section 50.38 does not state that the word " license" as used in that section includes construction permit.
However, a fair reading of the regulations and the Act together lead to the conclusion that foreign concerns may not " apply for and obtain" a construction permit and thus, may not be the transferee of a construction pernit. 42 U.S.C. 52234; 10 C.F.Ps. G50.55(c).
The prohibition against foreign entities applying for and obtaining, by any method of transfer, a license is not absolute.
The critical language to be interpreted is whether the transferee is " owned, controlled, or doninated" by a foreign entity. A case-by-case application of this language has led to different results.
The lead Commission decision construing the amount of control contenplated by the Act is General Electric Company (SEFOR), 3 AEC 99 (1966),
In that case, a West German company had agreed to contribute 50%
of the costs to construct a research reactor. Although the Licensing Board had rescinded the permit because it found the alien control of the project was more than that permitted by law, 3 AEC 76, 82 (1966), the Commission reinstated the SEFOR permit.
It found that the limitation in Section 104d.
of the Act was meant to safeguard the national defense and security.
Therefore, the words "' owned, controlled or dominated' refer to 1/
The identical lanauage is in Section 104d. which governs medical therapy and research and development licenses.
, relationships where the will of one party is subjugated to the will of another, and... the Congressional intent was to prohibit such relationships where an alien has the power to direct the actions of the licensee."
Id. at 101.
The Commission further stated that the most significant consideration is "f t]he ability to restrict or inhibit compliance with the security and other regulations of the AEC, and the capacity to control the use of nuclear fuel and to dispose of special nuclear material generated in the reactor."
Id.
The Commission found that the foreign corporation did not possess tee rights and powers indicative of ownership, control or domination.
The foreign company owned no stock, it had no voice in the day-to-doy nanagenent of the project except the right to designate scientists and engineers to participate in the design, construction and research program, no legal ownership or interest in the physical assets of the proaect, no voice in financial affairs of the American companies, and no control over the expenditures, but was obligated to pay its 50% share of the cost.
Id. at 101-102.
The Connission considered the agreement between one of the-licensees and the AEC under the f ast breeder reactor program the controlling contract.
That contract provided that the licensee would comply with security requirements and other regulations of the Commission and that the special nuclear material used as fuel in, or generated by the facility would be furnished by, and remain the property of the Commission.
Id. at 102.
The other 3 contracts (2 between the licensees regarding construction and research and I between one licensee and the German company) were dependent upon the agreenent with the Connission.
The contract between the foreign corporation and one of the licensees recogrized the suprenacy of the other contract obligations, including the limitations in the Act with respect to aliens.
Id.
The MRC has also rejected the proposed purchase of an Anerican facility by a foreign corporation.
In nid-1974, the Hoffman-laRoche Radiopharnaceutical, Inc. (HLRR) sought the transfer of an operating license held by a subsidiary of the National Lead Company for a small reactor in New Jersey in ccnnection with its proposed purchase of 1007 of the licensee's stock, which would nake the licensee a wholly-owned subsidiary of HLRR.
The ownership of HLRR, a Delaware corporation, through stock ownership and the chain of parent-subsidiary relationships, could be traced directly to Hoffnan-LaRoche & Company, Ltd.(HLR), a Swiss corporation.
Counsel for HLR argued that any potential for foreign control could be severely curtailed by bylaws which would require each director to be a resident and citizen of U.S.,
by setting up a voting trust agreenent with a U.S. bank as the trustee to insulate the licensee from voting control by foreign interests, and by conditioning the license on various comnitnents that would prevent foreign control or domination.
Letter from H. P. Green to H. K. Shapar, dated pecember 6, 1974.
None of these arguments convinced the agency that the acquisition of the Anerican firn by a wholly-owned subsidiary of a foreign company would not violate Section 104d. of the Act.
Interestingly, the Connission did not object to a joint venture that affected several facility licenses.
Gulf oil Corporation (" Gulf") and Scallop Nuclear, a Delaware corporation but a subsidiary of Royal
4 Dutch /Shell, a foreign corporation, executed a partnership agreement which created a partnership conducting business in the U.S.
Gulf and Shell were 50/50 owners of the partnership.
Gulf proposed to transfer to the partnership its interests in and rights under various facility licenses issued under Section 104 of the Act including the licenses for 2 TRIGA reactors and the Barnwell reprocessing plant then under construction.
Gulf also intended to transfer its interests in and rights under various special nuclear naterials licenses. Scallop's contribution was largely monetary.
Under general agency and partnership principles, the acts of each partner bind the partnership if the act is within the scope of the partnership.
Thus, the powers that flow from the mutual agency present in a partnership may have resulted in the control and domination articulated in the SEFOR decision.
The Gulf and Scallop partnership agreement contained clauses which apparently limited the right of either partner to bind the partnership by affirmative acts.
The effect of such a veto power would give each partner the " ability to restrict or inhibit compliance with" various regulations referred to in SEFOR.
Because Scallop would be a half-owner of the business with a voice in the managenent, financial affairs and day-to-day activities, and an owner or interest-holder in the physical assests of the partnership, the transfer of the facility licenses could contravene Section 104d. of the Act.
In response to AEC's concern, the partnership adopted a resolution which provided that the partnership would be conducted consistent with the connon defense and security of the U.S., the President and officers heving direct control would be U.S. citizens, and the provisions of the resolution would never be amended or rescinded without Connission approval.
Subsequently, the Connission consented to the transfer of the licenses conditioned upon this resolution.2/
The transfer of the interests and rights in various materials licenses held by Gulf to the partnership did not run afoul of the statute.
The Act does not contain any provisions similar to 103d. and 104d. that prohibit foreign or foreign controlled entities from holding materials licenses.
The only caveat is that the Connission cannot issue or transfer a license if it would be " inimical to the common defense and security and would constitute an unreasonable risk to the health and safety of the public." See Sections 57c.(2), 69, 184; 10 C.F.R. @b 30.34(b), 30.34(e), 40.32(d), 40T46, 70.31(d),
70.36.
To sunmarize, the holder of a construction pernit can transfer the pernit, provided that the transferee is neither a citizen, national or agent of a foreign country, nor an entity owned, controlled, or doninated by an alien, foreign corporation, or foreign government, and the 2/
A full exposition of the rationale behind the agency's decision to consent to the transfer has not been preserved.
Only the draft nemo written by J. Becker and T. Black to H. Shapar, which concluded that there was foreign control and reconnended the opposite position, has survived.
- Connission consents, in writing, prior to the transfer.
The indicia of control or ownership are as set forth in the SEFOR case.
In any event, such a transfer would be subject to an opportunity for hearing provided by Section 189a. of the Act.
Transfers of Licenses to Secured Creditors A related issue is whether a foreign or foreign controlled entity could obtain a construction pernit through foreclosure of a debt.
Section 184 of the Act states that the Connission may consent to the creation of a nortgage, pledge, or other lien upon a facility and the rights of secured creditors are enforceable by any court subject to the rules and regulaticns of the agency.
The implementing regulations grant such consent, without application, for facilities not owned by the U.S. government under two conditions:
(1) the rights of the creditor may only be exercised "in compliance with and subject to the same requirements and restrictions as would apply to the licensee" and (2) the creditor ney not take possession of the facility prior to the issuance of a license that authorizes such possession or transfer of the license.
550.81(a).
A creditor that applies for transfer of a license would have to satisfy the requirements of 550.80, including the requirement that the proposed transferee is qualified to be a holder.
550.81(b).
Since the tern " license" as used in 550.81, includes construction permits, a foreign entity would not be able to obtain a construction permit by enforcing its creditor rights.
Presently, neither the Act nor the regulations preclude en alien or an entity owned, controlled, or dominated by an alien, foreign corporation or foreign government from beconing a creditor of a qualified licensee.
Aliens can even hold security interests in the fuel of an operating reactor.
(This apparently is the case at Seabrook.) The owners of both the Palo Verde and Seabrook facilities have used Eurodollar bonds to finance their projects.
Consequently, although a foreign creditor nay not obtain a facility license by enforcing its creditor rights, it is conceivable that such a creditor would be eligible to hold a naterial license, and thus could, with the Connission's approval, obtain the fuel of a facility through foreclosure of a debt.
3/
The prohibition against a foreign secured creditor obtaining possession of a license or the physical assets of the facility nay be weakened by an apparent loophole in the regulations.
Section 50.81(c) states, "Nothino contained in this reculation shall be deened to affect the neans of ccouiring, or the priority of, any tax lien or other, lien provided by law."
(Enphasis added.)
If a creditor can " acquire" a lien by taking and maintaining possession of an asset, sinilar to the means of acquiring a nechanic's lien, section 50.81(b) would be inpotent.
The financial qualifications Staff has assured me that no such liens exist.
. The Fate of a Cancelled Project's Perm t i
Generally, when a permittee cancels the construction of a facility, the I
s NRC does not take any action with respect to the construction permit until the permittee or another interested party nakes a request for action.
A good 3
example of the way NRC has handled such cancellations is the treatnent afforded Tyrone Energy Park.
Northern States Power Company was issued a construction permit in December 1977 which was due to expire October 1985.
t In July 1979, the licensee announced that the co-owners of the facility ud voted to cancel the project. Within two days after that announcement, the.
permittee sent a letter to the NRC informing it of the decision to carcel the project and requesting NRR not take any further action on the faci'ity.
Later, the permittee petitioned the Appeal Board to terninate further proceedings.
The Appeal Board granted the request and dismissed the caw.
In August 1979, the NRC received a s2.206 request asking that the construction permit be revoked because of the permittee's decision to cancel. Almost a year later the NRC issued a show cause order, dated June 16, 1980, which required the permittee to show why the pernit should not be revoked.
45 Fed. Reg. 42093 (June 23, 1980).
The rationale Qr the show cause order was that the pernittee no longer wanted to "ccnduct activities which will serve a useful commercial purpose within the neaning of Sections 103 and 186 of the Act."
Id.
While the permittee consented to an entry of an order revoking the Tyrone permit, on J Ay 11, 1980 the public utility connissions of North and South Dakota asked the NRC to defer the proposed revocation and to grant them a hearing. The Dakota Commissions alleged that economic injury to Dakotan ratepayers might result from the cancelled project.
In November 1980, the Connission denied the Dakota Conmissions' recuest for deferral and for a hearing by finding they did not have standing and that a hearing would serve no useful purpose.
See Northern States Power Co. (Tyrone Energy Park, Unit 1), CLI-80-36, T FNRC 523 (1980).
Finally, after the Commission denied a petition for reconsideration on December 24, 1980, NRC revoked the pernit by order dated February 3,1981.
45 Fed. Reg. 11746 (February 10,1981).
Neither the statute nor the regulations required the revocation of the Tyrone permit.4/ The controllino factors in that decision were the
~
existence of a petition for revocation based upon the cancellation of the plant and, particularly, the unwaivering and unequivocal intent of the pernittee to abandon the project.
cd. W.y flit z i
. Young
-4/
Section 103 of the Act authorizes the issuance of licenses for production facilities to persrns whose proposed activities will serve a useful comnercial purpose proportionate to the amount of nuclear naterial to be utilized.
47 U.S.C. s 2133 (a) & (b).
Section 186 and 10 CFR s 50.100 provide that a construction pernit nay be revoked because of " conditions which would warrant the Connission to refuse to grant a license on an original application" or for failure to construct a facility in accordance with the rernit.