ML19364A149
| ML19364A149 | |
| Person / Time | |
|---|---|
| Site: | Wolf Creek  |
| Issue date: | 03/16/1999 |
| From: | Robert Elliott Kansas Gas & Electric Co, Miller, Balis & O'Neil, National Rural Electric Cooperative Association |
| To: | Annette Vietti-Cook NRC/SECY |
| SECY/RAS | |
| References | |
| 50-482-LT | |
| Download: ML19364A149 (25) | |
Text
WILLIAM T MILLER STANLEY W. BALIS ROBERT A. O'NEIL JAMES R. CHOUKAS-BRADLEY JOHN MICHAEL ADRAGNA JAMES H. BYRD JOHN P. GREGG SEAN T BEENY SUSAN N. KELLY RANDOLPH LEE ELLIOTT Ms. Annette L. Vietti-Cook Secretary of the Commission Nuclear Regulatory Commission Washington, DC 20555-0001 LA w OFFICES D O C ti' F -~ ~- D MILLER, BALIS & O'NEIL US :J.. {'(
A PROFESSIONAL CORPORATION I 140 NINETEENTH STREET, N.W.
SUITE 700 WASHINGTON, D.C. 20036-6600 (202) 296-2960
'99 MAR 18 P 3 :23 CARRIE L. HILL
- LISA M. OCHSENHIRT
- DEBRA H. REDNIK
- MATTHEW E. ROSS
- CRAIG W. SILVERSTEIN FAX (202) 296-0166 March 16, 1999 MARY A. HEKMAN JOSHUA L. MENTER
- BENJAMIN L. WILLEY COUNSEL
- ADMITTE.D iN OlliER THAN Tiffi DISTRJCT OF COLUMBIA i
Re:
In the Matter of Kansas Gas and Electric Company, Docket No. 50-482-LT
Dear Ms. Vietti-Cook:
Enclosed is a hard copy of the Joint Brief of the Kansas Electric Power Cooperative, Inc.,
and Amicus Curiae National Rural Electric Cooperative Association, which was filed with your office by electronic mail.
This brief is submitted in accordance with the Commission's Memorandum and Order of March 2, 1999, in this docket. The March 2 Order provides that reply briefs may be filed within twenty-one days of that order. The order further states: "No other pleadings in response to this order, or as authorized by Subpart M, shall be filed pending further order of the Commission."
On March 1, 1999, the applicants filed an answer to the petition to intervene and request for hearing of the Kansas Electric Power Cooperative, Inc. ("KEPCo") in this proceeding. Under Subpart M, "[ u ]nless otherwise specified by the Commission," a reply to an answer may be filed within five days. 10 C.F.R § 2. 1307(b). Because of the March 2 Order, KEPCo did not file a reply to this answer. Neither did KEPCo attempt in its brief to reply to matters contained in the answer or to address the factors in 10 C.F.R. § 2.1308. KEPCo respectfully requests that it be permitted to file such reply before the Commission disposes ofKEPCo's petition to intervene and request for hearing in this proceeding.
Respectfully submitted, Randolph Lee Elliott cc:
Service List
- )O 1 \\ 3
UNITED STATES OF AMERICA NUCLEAR REGULA TORY COMMISSION OOCKETr-~o us!1:::c
'99 MAR 18 PJ :23 In the Matter of Request for the Transfer and Amendment of the Wolf Creek Generating Station Facility Operating License NPF-42 To Reflect Transfer of Ownership
)
)
)
)
)
)
JOINT BRIEF OF Docket No. 50-48~ ~-;
1 ADJI I THE KANSAS ELECTRIC POWER COOPERATIVE, INC.,
AND AMICUS CURIAE NATIONAL RURAL ELECTRIC COOPERATIVE ASSOCIATION The Kansas Electric Power Cooperative, Inc. ("KEPCo"), and amicus curiae National Rural Electric Cooperative Association ("NRECA") submit this joint brief in accordance with the Memorandum and Order of March 2, 1999 ("the March 2 Order"), issued by the Nuclear Regulatory Commission ("the Commission" or "NRC) in this proceeding.
KEPCo's Petition To Intervene and Request for Hearing ("KEPCo's Petition") of February 18, 1999, describes its operations as a generation and transmission ("G&T") electric cooperative, its six-percent ownership share in the Wolf Creek Generating Station ("Wolf Creek"), and its contractual and competitive relationships with each of the applicants for the license transfer in this matter, Western Resources, Inc., ("WRI"), WRI's subsidiary, Kansas Gas and Electric Company ("KGE"), and the Kansas City Power & Light Company ("KCPL").
NRECA is a not-for-profit national trade association of approximately 1,000 rural electric cooperatives. More than 900 of these cooperatives are distribution cooperatives that provide retail electric service to approximately thirty million consumer-owners in forty-six states. 1-,**
Kilowatt-hour sales by rural electric cooperatives account for 7.4 percent of total retail electricity sales in the United States. In addition, there are more than sixty G&T cooperatives, which supply wholesale power to their owner-members, more than 700 of the more than 900 distribution cooperatives. NRECA cooperatives are wholesale power and transmission customers of, and wholesale and retail competitors of, most of the electric utilities that own nuclear power reactors licensed by the Commission. Moreover, numerous NRECA cooperatives own minority shares in nuclear power reactors licensed by the Commission.
The March 2 Order states that the Commission "intends to consider in this case whether to move away from [its] prior practice and to direct the [Commission] staff no longer to conduct significant changes reviews in license transfer cases, including the current case." March 2 Order at 1-2. The Commission directs the parties and invites amici to address a single question:
"whether as a matter of law or policy the Commission may and should eliminate all antitrust reviews in connection with license transfers and therefore terminate this adjudicatory proceeding forthwith." Id at 2.
KEPCo and NRECA submit that the Commission may not and should not take such action, either in this case or generally. Accordingly, the Commission should review the anticompetitive effects that would result from the antitrust license conditions in the proposed license transfer and address the issues raised by KEPCo's Petition.
SUMMARY
OF ARGUMENT I. The Commission may not, as a matter of law, eliminate all antitrust reviews in license-transfer proceedings. The language and legislative history of section I 05 of the Atomic Energy Act ("AEA" or "the Act"), 42 U.S.C. § 2135, do not hint that Congress intended to eliminate, or to allow the Commission by administrative action to eliminate, any and all antitrust review when a nuclear power reactor is sold or transferred to a new owner if as a potential result of the transfer "the activities under the license would create or maintain a situation inconsistent with the antitrust laws," id. § 213 5 ( c )(5). Moreover, neither the statutory language nor the legislative history explicated in American Public Power Ass'n v. NRC, 990 F.2d 1309 (D.C. Cir. 1993) ("APPA"),
and in the Commission rulemaking reviewed in that case, support a contrary conclusion.
- 2. Even assuming arguendo that section I05(c) allows the Commission to eliminate antitrust review of all license-transfer applications, the Commission may not, as a matter of law, "direct the NRC staff" not to conduct a significant changes review in this case "and therefore terminate this... proceeding forthwith." March 2 Order at 2. The Commission's regulations unambiguously require the Commission staff to make a threshold determination whether there have been significant changes in the licensee's activities or proposed activities since the last antitrust review. The Commission cannot direct its staff to disregard the Commission's regulations. The Commission can change these regulations only through notice-and-comment rulemaking.
- 3. Even assuming arguendo that section I05(c) allows the Commission to eliminate antitrust review of all license-transfer applications and that the Commission may do so in this proceeding, the Commission should not abandon such review for two policy reasons.
First, changes in the industry are creating more, not less, reason for Commission review of the antitrust implications of license transfers. Federal and state regulators are increasingly relying on market competition rather than direct regulation to protect smaller electric utilities and consumers in wholesale and retail electric markets. Many utilities have reacted to the prospect of such competition by seeking to merge with or acquire other utilities, thereby expanding the geographic scope of their retail markets and creating barriers to the entry of new competition.
Although nuclear power may have high investments costs, those costs are now sunk, so that the low energy costs of nuclear generating plants play a significant competitive role. Electricity mergers, such as the proposed merger of Western Resources and KCPL, expand the geographic market controlled by a single company, and would, such as in the instant case, consolidate the low-energy-cost nuclear power of the merger applicants under the control of an enlarged merged company. The resulting industry consolidation could well undermine effective competition even before it begins. Moreover, this consolidation is certain to change the activities under many licenses for which the Commission's consent to transfer will be sought. The limited additional powers given to the Federal Energy Regulatory Commission ("FERC) to order interconnection and transmission service cannot substitute for this Commission's authority to ensure that the activities it licenses do not "create or maintain a situation inconsistent with the antitrust laws."
Second, the Commission should ensure that nuclear power is used economically. In the proposed merger, the Applicants would not consolidate the antitrust license conditions, so as to allow KEPCo to utilize its Wolf Creek entitlement economically. Applicants for changes in licenses should be required to consolidate their different antitrust license conditions in a fashion that ensures that minority owners can utilize their entitlements economically. Western Resources and KCPL propose not consolidating their different merger conditions with the result that KEPCo would be arbitrarily restricted in the economic dispatch of its Wolf Creek entitlement in the Joint Applicants combined control area, an area in which the Applicants would economically dispatch their consolidated entitlements in Wolf Creek.
Thus, the proposed transfer of the Wolf Creek license shows the need for continued scrutiny of antitrust matters by this Commission. Simply substituting the name of the new merged company in the antitrust conditions imposed on KGE's license, as the Applicants propose, would unfairly and uneconomically restrict KEPCo's use of its share of Wolf Creek in comparison with the planned use by Westar Energy of its majority share of Wolf Creek. This case shows that license transfers and subsequent amendments can be far more than mere administrative matters raising no antitrust issues.
ARGUMENT I.
The NRC May Not as a Matter of Law Eliminate All Antitrust Reviews in Connection With License Transfers.
The question whether the Commission may eliminate all antitrust reviews, including significant changes reviews, in connection with license transfers, is a question of statutory construction. The starting point in interpreting a statute is its language. "If the intent of Congress is clear, that is the end of the matter." Chevron U S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842 (1984).
Section 101 of the AEA, 42 U.S.C. § 2131, prohibits the possession or use of any utilization or production facility except under "a license issued by the Commission pursuant to,"
inter alia, section 103, id. §2133. Section 103 authorizes the Commission to issue commercial licenses for such purposes. Such licenses are issued in accordance with provisions of the Act, see id. § 213 3 (a), including section 184, id. § 23 44, which prohibits the transfer of a license to another person unless the Commission finds that the transfer "is in accordance with the terms of this Act."
The focus in this case is section 105( c) of the Act, which mandates an antitrust review of an "application for a license to construct or operate a utilization or production facility under section 103." Id § 2135(c)(2). Under section 105(c), the Commission sends the application to the Attorney General for advice. Upon publication of the advice received from the Attorney General, the Commission must determine "whether the activities under the license would create or maintain a situation inconsistent with the antitrust laws.... " Id § 2135(c)(5). Upon making such a finding, the Commission can issue, refuse to issue, issue with conditions, or rescind or modify the license. Id § 2135(c)(6).
Under section 105(c), if the Commission has issued a construction permit under section 103, then antitrust review of "an application for a license to operate" is not required "unless the Commission determines such review is advisable on the ground that significant changes in the licensee's activities or proposed activities have occurred subsequent to the previous review by the Attorney General and the Commission under this subsection in connection with the construction permit for the facility." Id Section 105 thus does not explicitly refer to license transfers. Nonetheless, as the March 2 Order acknowledges, the Commission has historically interpreted this language to authorize the Commission to undertake antitrust reviews in considering license transfers. March 2 Order at 1.
This interpretation of the statute not only is reasonable, but the alternative interpretation-which would authorize the Commission to cease such review in all license-transfer cases-is unreasonable, and thus impermissible, in light of the language, structure, and purposes of the statute. See Chevron, 467 U.S. at 842-43.
First, a license transfer is the issuance of a license to the transferee. Thus, an application for a transfer of a license should be treated as "an application for a license" by the new owner or operator under section 105(c). The Appeal Board in St. Lucie explained the Commission's authority in just those terms, concluding that although the Commission does not have authority to review antitrust issues over the entire forty-year term of a license, the Commission does have this review power when "necessary to enforce the terms of the license, to revoke one fraudulently obtained, or to issue a new license if a plant is sold or is significantly modified."l l Although the Commission has also recognized that a license transfer can be thought of as resulting in an amended rather than a new license, the Commission has properly held that such a distinction makes no difference in accomplishing the purposes of section 105( c):
[A] significant change review is undertaken if an amendment request involves the transfer of control of the operating license from the original owner(s) of the facility to another entity.
Although that circumstance does not involve the issuance of a new license, a review of any adverse antitrust implications raised by the new ownership has never been undertaken. [JI]
Thus, even if license amendments usually do not trigger a significant changes antitrust review, such review is necessary for the transfer of a license to a new owner. For example, although neither Western Resources or KCPL are "new" owners in that they already own shares in Wolf l l In re Florida Power and Light Co. (St. Lucie Nuclear Power Plant, Unit J,* Turkey Point Nuclear Generating Plant, Units 3 and 4), 6 NRC 221, 226 n.12 (1977) (emphasis added).
JI In re Ohio Edison Co. (Perry Nuclear Power Plant, Unit 1), 36 NRC 47, 60 n.45 (1 992)
( citation omitted).
Creek, their merger would consolidate their minority ownership shares in Wolf Creek ( each 4 7%)
that now require KEPCo's concurrence in plant decisions into a majority owner share (94%) by the new company allowing its unilateral control of the plant. Significantly, the new company plans to economically dispatch its majority share in the unit over the merging companies' combined control area, but arbitrarily deny KEPCo the right to economically dispatch its share of Wolf Creek over the same control area wherein KEPCo competes at wholesale with the Joint Applicants and KEPCo's member cooperatives compete at retail with the Joint Applicants. These are significant changes, and absent a mandatory significant changes review, the transfer of a license could result in the ownership or operation of a facility without the Commission undertaking any antitrust review of the new owner or operator's activities under the license.
Requiring significant changes antitrust reviews for license transfers also recognizes the limited purposes of antitrust review under section 105(c). The Commission held in South Texas that its antitrust authority is not defined by its broad power to revoke licenses under section 186 of the Act, 42 U.S.C. § 2236, but rather derives from section 105, with its "significant changes" restriction.}/ Accordingly, the Commission ruled that its "police powers" under section 186 can be used to enforce license conditions, but not to re-open license conditions except pursuant to a "significant changes" finding.1/ The Commission has thus recognized that the South Texas and St. Lucie cases "stand for the principle that, in accord with the underlying policy of section 105c, l l Houston Lighting & Power Co. (South Texas Project), 5 NRC 1303, 1317, 1318 (1977).
1/
Id at 1316-17.
the NRC cannot initiate antitrust review to impose new antitrust conditions after the operating license has been issued, except under limited circumstances.... '"ii Those limited circumstances include license transfers that require Commission approval under section 184 of the Act. In dictum in the South Texas case, the Commission indicated that its authority to initiate an antitrust review "where an application for transfer of control of a license has been made" is "not explicitly referred to in the statute or its history, [but] could be drawn as an implication from our regulations," which require license-transfer applications to include the same antitrust information as an application for a new license.§/
Notwithstanding these principles, the Commission now asserts that the text and legislative history of section I 05( c) "do not appear to call for fresh Commission antitrust reviews after the initial construction permit and operating license stage." March 2 Order at 2. The Commission's conclusion that it appears to have authority to cease antitrust reviews in license-transfer cases rests exclusively upon the APPA case and the snippets of the legislative history relied upon by the Commission and the reviewing court in that case.
The APPA case held that while the language of section 105 was ambiguous on the point, it was reasonable for the Commission to construe section 105 not to require significant changes antitrust reviews of applications to renew an operating license. An application for transfer, however, can make a far more significant substantive change to the license than renewing a license. Changing the ownership of the license may cause serious anticompetitive effects that
'j_/
Ohio Edison, 36 NRC at 55.
§/
Houston Lighting & Power Co., 5 NRC at 1318 (citing 10 C.F.R. § 50.80(b)) (emphasis added).
require and fully justify an antitrust review. A finding that it was reasonable to interpret the statute not to require antitrust review of license renewals is not dispositive of the reasonableness of the same conclusion as to license transfers.
Moreover, the decision in APPA rested in part on what the court deemed to be a permissible reading of a probable typographical error in the legislative history-that "applications to extend or review a license," which would not trigger an antitrust review, probably meant applications to "extend or renew." 990 F.2d at 1313 (emphasis original). The legislative history considered in APPA contains nothing similar that would indicate that Congress probably intended to foreclose antitrust review of license transfers.
In particular, the excerpt from the legislative history quoted in APPA does not support the Commission's proposed interpretation of the statute to foreclose all post-licensing antitrust reviews. That excerpt, from the report of the Joint Committee on Atomic Energy on the 1970 amendments to section 105, states that the phrases "any license application," "an application for a license," and "any application" in section 105(c) refer to the initial application for a construction permit, the initial application for operating license, or the initial application for a modification which would constitute a new or substantially different facility, as the case may be, as determined by the Commission. The phrases do not include, for purposes of triggering subsection 105 c., other applications which may be filed during the licensing process. [11]
The APPA court expressly declined to find that this language compelled the Commission's interpretation that license renewals could not trigger antitrust reviews. 990 F. 2d at 1313.
Moreover, as noted above, the court rested its holding in that case on the "extend or review" 11 Joint Committee Report, 1970 U.S. Code Cong. & Admin. News at 5010. See APPA, 990 F.2d at 1311-12.
language; no parallel passage addresses license transfers. Thus, the APPA case and the legislative history of section 105 explicated in that case do not require the statutory construction offered by the Commission in its March 2 Order.
II.
The Commission May Not Lawfully Terminate This Proceeding Without Finding Whether There Would Be Significant Changes in the Licensees' Activities.
The Commission's regulations require the Commission to determine whether there have been significant changes in the licensees' activities before approving the license transfer.
Dismissing this case without making that finding would be unlawful.
Section 184 of the Act and section 50.80 (a) of the Commission's regulations, 10 C.F.R.
§ 50.80 (a), prohibit the transfer of a license without the Commission's consent. Where, as here, the license was issued under section 103, the Commission's regulations require that the application for license transfer must contain the antitrust information required by section 50.33a, 10 C.F.R. § 50.33a, as if the application were for an initial license. Id. § 50.80 (b).
Section 2.101 ( e ), id. § 2.10 I ( e ), sets forth the procedures for antitrust reviews of section 103 facility license applications, including license-transfer applications. The Commission has consistently followed these procedures in license-transfer cases.~/
Section 2. lOl(a)(l) of the Commission's regulations, 10 C.F.R. § 2. lOl(a)(l), as amended by the Commission's new hearing procedures for license-transfer cases, see Streamlined Hearing Process for NRC Approval of License Transfers, 64 Fed. Reg. 66,721 (1998) ("License-Transfer
~/
See, e.g., Gulf States Utilities Co., 60 Fed. Reg. 18,151 (1995) (no significant changes finding for River Bend Station, Unit 1, in Entergy Corporation/Gulf States Utilities Company merger); Gulf States Utilities Co., 60 Fed. Reg. 29720 (1995) (same; re-evaluation denied); Ohio Edison, 36 NRC at 60 n.45 ("under 10 C.F.R. § 2. lOl(e), a significant changes review is undertaken if an amendment request involves the transfer of control of the operating license from the original owner( s) of a facility to another entity").
Rule"), confirms beyond cavil that license-transfer applications are subject to the mandatory procedures of section 2.101, including section 2. lOl(e), just like applications for a license. See 64 Fed. Reg. at 66,730 (to be codified at 10 C.F.R. § 2. lOl(a)(l)) ("An application for a license, a license transfer, or an amendment to a license shall be filed with the Director of the Office of Nuclear Reactor Regulation or Director of Nuclear Material Safety and Safeguards, as prescribed by the applicable provisions of this chapter.").
Section 2.101 ( e) requires that, upon receipt of the antitrust information in the application, the Director of Nuclear Reactor Regulation or the Director of Nuclear Material Safety and Safeguards, as appropriate, "shall publish" in the Federal Register and trade journals a notice of the receipt of the antitrust information submitted with the application, providing an opportunity for public comment. 10 C.F.R. § 2. lOl(e)(l). The Director uses these comments to determine whether significant changes in the licensee's activities have occurred since the completion of the last antitrust review. Id. If the Director finds there have been no significant changes, and no request for re-evaluation is timely filed, then the Director's finding becomes a final Commission order. Id. § 2.10l(e)(2) and (3). If the Director finds that significant changes have occurred, then the procedures of section 2.102(d), id. § 2.102(d), apply. Id. § 2.1 Ol(e). Under those procedures, the Director must submit the application to the Attorney General for antitrust advice, and publish a subsequent notice containing the Attorney's General's advice or stating that the Attorney General has offered no advice, and providing an opportunity for comment and to request a hearing. Id. § 2.102(d).
The obligations on the Director to publish these notices, to provide an opportunity for public comment, to determine whether there have been significant changes, and upon request to re-evaluate a finding of no significant changes, are mandatory. The Applicants agree, contending that the Commission cannot grant a hearing in this case without first complying with these procedures. See Answer of Applicants to Petition To Intervene and Request for Hearing of the Kansas Electric Power Cooperative, Inc., 16-17 (Mar. 1, 1999). It is equally true that the Commission may not terminate this proceeding without first complying with these procedures.
The Commission is itself bound by its regulations until they are amended or revoked. See United States v. Nixon, 418 U.S. 683, 695-96 (1974); United States ex rel. Bilokumsky v. Tod, 263 U.S.
149, 155 (1923) (Brandeis, J.) ("It may be assumed that one under investigation with a view to deportation is legally entitled to insist upon observance of rules promulgated by the Secretary pursuant to law."). Therefore, regardless of the Commission's determination regarding its authority under section 105 to eliminate future antitrust reviews, the Commission may not simply direct its staff to disregard these regulations and "terminate this... proceeding forthwith."
It also follows that if the Commission determines to eliminate antitrust reviews in license-transfer cases, it must do so by substantive rule pursuant to notice-and-comment rulemaking under the Administrative Procedure Act ("APA"), 5 U.S.C. § 553. The Commission cannot, in the guise of a policy determination in this case, institute a binding rule in contravention of the notice-and-comment procedures of the Administrative Procedure Act. See, e.g., Public Citizen, Inc. v. NRC, 940 F.2d 679, 681-82 (D.C. Cir. 1991) (citing cases). A policy determination in this case, to be lawful, could not be a binding rule applicable in other cases, for "[ w ]hen the agency applies the policy in a particular situation, it must be prepared to support the policy just as if the policy statement had never been issued." Pacific Gas & Electric Co. v. FPC, 506 F.2d 33, 38 (D.C. Cir. 1974). Otherwise, a party would not be able to challenge the policy either when issued as a statement or when applied in an individual case. See McLouth Steel Products Corp. v.
Thomas, 838 F.2d 1317, 1321 (D.C. Cir. 1988).
Finally, any determination not to conduct a significant changes review, either in this case or more generally, must be the product of a reasoned analysis and be supported by record evidence. See Motor Vehicle Manufacturers Ass 'n v. State Farm Mutual Auto. Ins. Co., 463 U.S. 29 (1983). The "agency must examine the relevant data and articulate a satisfactory explanation for its action including a 'rational connection between the facts found and the choice made.'" Id. at 43 (quoting Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168 (1962)). In this context, any amendment or revocation of the Commission's current regulations to eliminate significant changes reviews must have a reasoned basis in the record, just as if the Commission were promulgating new regulations. See Motor Vehicle Manufacturers Ass 'n, 463 U.S. at 42. There is no record in this proceeding on which such reasoned analysis can be made, either for this case or more broadly, so as to justify the Commission eliminating its antitrust review in license-transfer cases. A rulemaking would "force important issues into full public display and in that sense make for more responsible administrative action." NLRB v. Wyman-Gordon Co., 394 U.S. 759, 779 (1969) (Douglas, J., dissenting). Receiving threshold briefs on legal and policy issues at the outset of an adjudication is not an adequate substitute for such procedures.
Moreover, in framing the issue for briefing, the March 2 Order appears to confuse the applicable burdens of proof In this case, the Applicants, not KEPCo, have the burden of proof 10 C.F.R. § 2.1326. This includes the burden of demonstrating there has been no significant changes and that the Commission should "terminate... this proceeding forthwith." Similarly, when the Commission considers "whether to move away from [its] prior practice and to direct the
[Commission] staff no longer to conduct significant changes reviews in license transfer cases, including the current case," March 2 Order at 1-2, KEPCo and NRECA do not bear the burden of justifying the Commission's continuance of its present policy. To the contrary, the Commission must justify its change of course, for an agency acts arbitrarily when it departs from its precedent without giving any good reason. See, e.g., Pontchartrain Broadcasting Co. v. FCC, 183, 185 (D.C. Cir. 1994); IRS v. FLRA, 963 F.2d 429, 434 (D.C. Cir. 1992).
ill.
The NRC Should Not, as a Matter of Policy, Eliminate All Antitrust Reviews in Connection with License Transfers.
Federal and state regulators of the electric-power industry are increasingly relying on market competition rather than direct regulation to control prices and terms of service.
Competition is being adopted as a substitute for direct regulation to protect wholesale and retail customers from the exercise of market power.
In reaction to the prospect of increased competition, many utilities are seeking to increase the size of their wholesale and retail markets by merging with or acquiring other utilities. Thus, the Commission has seen a significant increase in the number of license transfers and as a consequence has adopted streamlined regulations to facilitate its review of transfer applications.
See License Transfer Rule, 63 Fed. Reg. at 66,721. This trend toward consolidation makes Commission review of the antitrust implications oflicense transfers all the more important. The resulting industry consolidation could well undermine effective competition even before it begins.
Moreover, this consolidation is certain to change the activities under many licenses for which the Commission's consent to transfer will be sought. Consolidation expands the geographic market in which the licensee of a nuclear plant may exercise monopoly power, and the expanded scope of the market when combined with the vertical integration of generation and the sale of electricity at retail creates a barrier to the entry of new competition, undermining the competitive structure of both wholesale and retail markets. Expanding their geographic markets enhances their ability to retain their retail market shares by creating barriers to the entry of new competition. Barriers to the entry of new competition are created by expanding vertical integration, wherein the merged company monopolizes the wholesale requirements power market in its geographically expanded transmission area, monopolizes the coordination power market in its transmission area (the market wherein the components must be obtained to assemble wholesale requirements power), and retail requirements power market it its transmission area.
With this consolidation of the industry, the Commission's antitrust review oflicense transfers arising from electric utility mergers during the transition from regulation to competition is all the more necessary. As the Commission correctly observed, "[t]hrough the licensing process, we can effectuate the special concern of Congress that anticompetitive influences be identified and corrected in their incipiency.".2/ Such scrutiny "serves the important function of establishing a first line of defense against those competitive practices that might later be the subject of antitrust proceedings."lQ/
The Commission's March 2 Order observed that the Energy Policy Act of 199211/ gave the Federal Energy Regulatory Commission ("FERC) "broad powers to order relief remedying 2/
South Texas Project, 5 NRC at 1316.
10/
Gulf States Utilities Co. v. FPC, 411 U.S. 747, 760 (1973).
lll Pub. L. No. 102-486, 106 Stat. 2776 (1992).
anti-competitive situations." March 2 Order at 2. But the FERC's still-circumscribed authority to order interconnection and transmission service, see 16 U.S.C. § 824i, 824j, 824k, cannot substitute for this Commission's much different authority-or relieve this Commission of its much different obligation-to ensure that the activities it licenses do not "create or maintain a situation inconsistent with the antitrust laws." While the FERC can remedy unlawful denials of and discrimination in transmission service, its new authority to order interconnection and wheeling will not enable it to provide broader relief, including the provision of wholesale electric power coordination services, which are the wholesale power components necessary in order to assemble wholesale requirements power so as to compete in the sale of requirements power at retail. Such broader relief is required under many NRC antitrust license conditions. Neither does the FERC's Order No. 888 obviate the need for NRC antitrust review of license transfers.}1/
When Section 105 was amended in 1970, Congress was concerned that the Commission's licensing of large, efficient nuclear facilities might give an unfair competitive advantage to their owners. Given the scale required to invest in such facilities, smaller utilities would be competitively disadvantaged.l}/ The changing economics of the industry does not render irrelevant Congress' concern about the scale advantages enjoyed by nuclear licensees. Existing 12/
Promoting Wholesale Competition Through Open-Access Non-Discriminatory Transmission Service by Public Utilities and Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Order No. 888, 61 Fed. Reg. 21,540 (May 10, 1996),
FERC Stats. & Regs.,r 31,036 (1996), order on reh 'g, Order No. 888-A, 62 Fed. Reg.
12,274 (March 14, 1997), FERC Stats. & Regs.,r 31,048 (1997), reh 'g denied, Order No.
888-B, 81 FERC,r 61,248 (1997), reh 'g denied, Order No. 888-C, 82 FERC,r 61,046 (1998), appeal pending sub nom. Transmission Access Policy Study Group v. FERC, No.
97-1715 (D.C. Cir.) (argument scheduled Nov. 3, 1999).
l11 Ohio Edison Company (Perry Nuclear Power Plant, Unit 1), 1987 WL 274119 (N.R.C.)
(1987).
large-scale nuclear generating plants have relatively low energy costs (operating costs) that give their owners a competitive advantage over new entrants. The threat that, with the advantage of low operating costs, the incumbent electric utility may strategically reduce price temporarily when a new entrant attempts to enter creates a powerful deterrent to entry or barrier to entry that protects the exercise of market power to arbitrarily raise price above the competitive level.
Moreover, utilities are attempting to use devices such as accelerated depreciation and stranded-cost recovery in an effort to recover the sunk investment costs of nuclear plants, making nuclear power even more competitively advantageous and a greater threat to potential entrants.
The NRC has the authority and obligation to conduct a significant-changes antitrust in license-transfer proceedings in order to ensure that the consolidation of control over the nation's nuclear plants does not squelch effective competition or arbitrarily raise the generating costs of minority owners of nuclear plants (as would occur in the instant case). Moreover, the NRC is uniquely able to condition operation of a nuclear facility on the inclusion of certain terms in the operating license and/or ownership agreement. For these reasons, the NRC should not abandon its historical practice of performing antitrust reviews on license transfers just when these reviews are needed most.
Second, the NRC should not abandon this crucial antitrust review in the hopes that the FERC or any other agency will investigate these issues. As noted in KEPCo's Petition, 14/
KEPCo is unaware of any case in which any other agency has conditioned the acceptance of a merger on the alteration of any outstanding NRC license--the relief sought here by KEPCo. The NRC is the agency staffed with the needed expertise to review issues directly related to the 14/
KEPCo's Petition at 17.
ownership, operation, and licensing of a nuclear unit such as Wolf Creek. The chances that the FERC will insert itself into the process of reviewing the operation of a nuclear unit are extremely slim.U/ The NRC is almost certainly the only forum that would review these issues.
Lastly, if the NRC refuses to review this potential transfer, KEPCo's competitive position may be severely damaged. Without an NRC review in this case, KEPCo will be left to react defensively to any actions by the new 94% owner of Wolf Creek with no hope of effectuating a change in the operating license or ownership agreement. Nor will KEPCo be the last to be put in this position. All interested parties in all future transfer application cases will be similarly harmed.
The Commission has noted that a "typical NRC staff review" in license-transfer cases "consists largely of assuring that the ultimately licensed entity has the capability to meet financial qualification and decommissioning funding aspects ofNRC regulations." 63 Fed. Reg. at 66,722.
But the Commission specifically found that these issues "are not the sole issues that may bear on a license transfer approval, even when the transfer will change only the ownership of all or part of a facility and will not directly affect management or operation." Id. at 66,724.
The instant case is an example. Wolf Creek Nuclear Operating Company will continue to operate the plant for Westar Energy and KEPCo. The Applicants propose to retain the existing separate KGE and KCPL antitrust conditions to the Wolf Creek license, only substituting "Westar Energy" for KGE or KCPL as the licensee in each case. The merger will allow WRI and KCPL to use their combined share of Wolf Creek differently: Westar Energy will dispatch Wolf Creek U /
Nothing in the FERC's l996Merger Policy Statement indicates the FERC's intention to review NRC operating license antitrust conditions. See Inquiry Concerning the Commission's Merger Policy Under the Federal Power Act: Policy Statement (Order No.
592), FERC Stats. & Regs.,I 31,044 (1996), recons. denied, Order No. 592-A, 79 FERC
,I 61,321 (1997).
and Westar Energy's other resources over a large geographic market area to meet the entire Westar Energy load. Applicants claim millions of dollars in benefits from such joint dispatch of their resources.
But the antitrust conditions to the Wolf Creek operating license, even with the Applicants' proposed amendments, would arbitrarily restrict KEPCo to continue using its Wolf Creek share as if the merger of the Applicants' services areas, transmission systems, and control areas had not occurred. KEPCo's economic use of its share of Wolf Creek would be artificially restricted to the KGE area, while the Applicants would economically dispatch Wolf Creek over the combined Westar Energy control area.
Condition 2(b) of the KGE Wolf Creek license conditions provides that "no less than 42 percent of the total demand requirements" of seven ofKEPCo's twenty-one retail distribution cooperative members (those that were in the KGE service area in 1976) "shall be satisfied by
[KEPCo] by use of its available power from [Wolf Creek]." This is restriction, which is tied to the size of KGE's service area, has no purpose in the larger Westar Energy service area.
Similarly, condition 7( d) states that "no less than 40 megawatts of power transmitted for
[KEPCo] pursuant to the provisions of subparagraph 7(b) above, if available, shall be used to satisfy the power requirements" ofKEPCo's members in the former KGE service area. This restriction serves no purpose in the Westar Energy service area.
Under contract between KEPCo and the Applicants, the Applicants would economically dispatch KEPCo's share of Wolf Creek to meet the combined load of Applicants and KEPCo in the Applicants' combined control area. After the economic dispatch of Wolf Creek to meet the combined load, however, the Applicants in after-the-fact accounting (i.e., accounting after economic dispatch) would deny KEPCo the full benefit of its entitlement in Wolf Creek. Thus, the anticompetitive problem that would be created by the Applicants' merger and their failure to combine the KGE and KCPL antitrust license conditions is not the efficient use of Wolf Creek, but Applicants arbitrarily raising KEPCo's costs by denial to KEPCo of the full economic benefits ofKEPCo's share of Wolf Creek. The NRC should not allow the transfer of the license to allow the Applicants to unjustly appropriate any part of the value ofKEPCo's ownership share in Wolf Creek.
The Applicants have offered a confusing gloss on the license conditions, which they contend obviates any unfairness to KEPCo, yet they have declined to amend the license conditions to accomplish that result. Without amendment, the Wolf Creek license conditions would arbitrarily restrict KEPCo's economic use of its share in Wolf Creek. KEPCo's ability to use its share of Wolf Creek economically should match that of the Joint Applicants with whom KEPCo will have to compete at wholesale and with whom KEPCo members will have to compete at retail.
Without license amendment, KEPCo will be competitively disadvantaged based on its ownership in the Wolf Creek unit. Whereas the AEA is intended to prevent a situation inconsistent with the antitrust laws, ironically the lack oflicense amendment in the application of Western Resources and KCPL for license transfer would in fact create a situation inconsistent with the antitrust laws.
Wolf Creek would be used by the merged company to competitively injure KEPCo. This case illustrates why antitrust review is needed in license-transfer cases.
CONCLUSION For the reasons outlined above, the Commission may not, in this case, discontinue its long-held practice of performing a "significant changes" review in license transfer cases. Therefore, with regard to Applicants' request to transfer and amend their operating license, the Commission should perform the significant changes review mandated by the statute and its regulations. Based on this review, the Commission should then perform an entire antitrust review of the potential anticompetitive effects that such a transfer would have on competition.
Furthermore, the Commission should not abandon its antitrust review of license transfer cases in this case. Such an abandonment would not only potentially cause severe injury to the customers, competitors, and co-owners of Wolf Creek, but would also set a dangerous precedent for future cases. Any hope the Commission harbors that another federal agency will begin reviewing these issues is unrealistic.
Respectfully submitted, KANSAS ELECTRIC POWER COOPERATIVE, INC.
Harold Haun Vice-President of Administration and General Counsel Kansas Electric Power Cooperative, Inc.
5990 S.W. 28th Street P.O. Box 4877 Topeka, Kansas 66604 (785) 273-7010 (785) 271-4888 (fax) hhaun(fYkepco.org Miller, Balis & O'Neil, P.C.
1140 Nineteenth Street, N.W.
Suite 700 Washington, D.C. 20036-6600 (202) 296-2960 (202) 296-2960 (fax) wmiller@mbolaw.com March 16, 1999 NATIONAL RURAL ELECTRIC COOPERATIVE ASSOCIATION Wallace F. Tillman Richard Meyer National Rural Electric Cooperative Association 4301 Wilson Blvd.
Arlington, VA 22203 (703) 907-5811 (703) 907-5517 (fax) rich. meyer@nreca.org By------------'ea.-..
=------------
~...z...._____~ ~
~~ ~~~
William T. Miller Randolph Lee Elliott Lisa CERTIFICATE OF SERVICE DOCrff f ED us :~c
- 99 MAR 18 P 3 :23 I hereby certify that I have this day served the foregoing document upon the following OI+
RJ._,
persons 10 C.F.R. § 2.1313 :
ADJL'L*
,:=F Jay Silberg, Esq.
Shaw, Pittman, Potts & Trowbridge 2300 N Street N.W Washington, DC 2003 7 jay silberg(a)shawpittman. com (by e-mail)
Secretary of the Commission United States Nuclear Regulatory Commission Washington, DC 20555-0001 Attention: Rulemakings and Adjudications Staff secy(tanrc. gov (by e-mail)
General Counsel United States Nuclear Regulatory Commission Washington, DC 20555 (by first-class mail)
Office of Commission Appellate Adjudication United States Nuclear Regulatory Commission Washington, DC 20555 (by first-class mail)
Dated at Washington, D. C. this 16th day of March, 1999. tZ~1-<<2Pw<
Randolph Lee Elliott Miller, Balis & O'Neil, P.C.
1140 Nineteenth Street, N.W.
Suite 700 Washington, D.C. 20036 (202) 296-2960