ML20077G033

Motion for Reconsideration of ASLB 830714 Ruling Refusing to Certify to Commission,Citizens Concerned About Nuclear Power Motion for New Contention Re Financial Qualifications. Certificate of Svc Encl

ML20077G033
Person / Time
Site:	South Texas
Issue date:	07/29/1983
From:	Sinkin L Citizens Concerned About Nuclear Power, INC.
To:	Atomic Safety and Licensing Board Panel
References
ISSUANCES-OL, NUDOCS 8308030316
Download: ML20077G033 (23)

Text

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l UNITED STATES OF AMERICA g

NUCLEAR REGULATORY COMMISSION M ..

i W BEFORE THE ATOMIC SAFETY AND LICENSING B0 g, ._.

~~ b In the Matter of )

HOUSTON LIGHTING AND POWER Docket Nos. 50-4 k g/

COMPANY, ET AL. 50-49 4

- N (South Texas Project, )

Units 1 and 2) (

- CCANP MOTION FOR RECONSIDERATION 0F ASLB RULING OF JULY 14, 1983 .- '

ON CCANP MOTION FOR NEW CONTENTIGN I. Introduction On July 14, 1983, the Atomic Safety and Licensing Board in this proceeding issued a Memorandum and Order refusing to certiify to the Commission CCANP's motion for a new contention which sought a waiver of the Commission's rule on financial qualifications in order to. permit inquiry into the financial qualifications of the Applicants.

• The Board based its decision on the failure of CCANP to make a prima facie showing that the application of the Commission's rule eliminating financial qualifications review for certain electric utilities would not serve the purpose for which the rule was adopted.

Memorandum and Order at 9-11.

~~ ' For reasons stated hereinafter, CCANP contends that this decision

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was made in error and moves that the Board reconsider the motion.

II. Discussion A. Basis for the Rule Change The Staff asserts that the NRC changed the financial qualifications review rule because it f6und no general relationship between financial qualifications and safety. Contrary to the Staff's position, the Commission found the general proposition that financial qualifications can affect safety to be " unexceptionable." Public Service Company of New Hampshire (Seinbrook Station, Units 1 and 2), 7 NRC 1, 18 (1978).

Although the Commission found this proposition to be generally valid, it also found that, in the case of a regulated electric utility, the relationship between safety and financial qualifications review is "less compelline." Id. The Commission cited three factors in support

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8308030316 830729 PDR ADOCK 05000498 G PDR - T50qs

of its finding: the regulated status of electric utilities, the utilities' self interest in safety, and the NRC's ongoing inspection efforts. Id,. at 18-19. Based on these factors, the NRC distinguished electric utilities from the general rule; it did not reject the general rule that financial difficulties can affect safety.

Of the three factors cited, the regulated status of electric utilities was the primary basis of the Commission's finding. The rule change was limited to applicants which are regulated utilities

• or utilities which can set their own rates. His:orically, this

,s class of applicants has been able to make reasonfable assurances that they can obtain the funds necessary to carry out their license obligations. Id. note 10. As a result, the Commission found that extensive inquiry into their financial qualifications revealed no significant new information and was therefore ,

unnecessary.

The Commission did.not find that the self' interest in safety and NRC inspections common to all applicants would prevent financial pressure from affecting safety. Instead, it found that the financial pressures utility applicants foreseeably experience would not be great enough to affect safety. Had the Commission found otherwise, r

there would be no logical basis for limiting the exception from i financial qualifications review to electric utilities; if there was j

no connection, there would be no need for financial qualifications 5

review of non-regulated utility applicants.

I As the Atomic Safety and Licensing Board pointed out the l

basis of the Commission's findings is the " duty of state regulatory bodies to approve such rates as are necessary to enable a regulated I

utility to fulfill' obligations imposed on it by the nuclear facility b

licenses." Memorandum and Order at 9. The Commission recognized this

[ duty in the comment to the rule change when it was proposed, 46

• Fed. Reg. 41788 and cited the two United States Supreme Court

Federal _

' decisions which form the basis of modern rate regulation:

Power Comnission v. Hope Natural Gas Co._, 320 U.S. 591 (1944) and I

Bluefield Water Works and Improvement Co. v. Public Service Comm' of the State of West Virginia, 269 U.S. 679 (1923).

However, the principle established in these cases does not

e 3-impose an absolute duty on regulatory bodies to enable utilities to fulfill al1 of their obligations. According to these cases, the return allowed a public utility should be " adequate, under efficient

- and economical management, to maintain and support its credit and enable it to raise the money necessary for the proper discharge of its public duties." Bluefield at 693 (emphasis added). Otherwise, the rate is an unconstitutional taking of property without just .

. compensation. Id,. at 690.

Under this standard, a utility will only meet its obligations if it is efficiently managed. Wasted expenditures do not contribute to ,

p' the used and useful value of the utility's equipment and are,

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.,' therefore, not properly included in its rate base. F.P.C. v.

~ Naturh1 Cas Pipeline Co., 315 U.S. 390. As a result, a reasonable rate may cause a poorly managed utility to operate without any net revenue. Hope at 603. As a matter of constitutional law, it is j

permissible to set a rate which will not permit a utility to fulfill its obligations if the utility is poorly run. .

Thus the presumption that underlies the Commission's rule change - that regulated utilities will generally be able to meet i

their licensing obligations - is based on the duty of state j

regulatory bodies to provide such utilities adequate rate relief.

l To the extent that a utility is mismanaged, no constitutional duty to provide that relief exists. Therefore, the rule exempting electric utilities from financial qualifications review fails of its essential purpose when the electric. utility involved is mismanaged and the mismanagement is of such a degree that it I produces financial reversals which in turn cast doubt on the utility's ability to fulfill its safety obligations.

B. Burden of Proof Necessary to Make a Prima Facie Case

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10 C.F.R. Section 2.758 requires the party seeking a waiver of a rule to make a prima facie case that the rule will fail of its essential purpose. This rule' eliminated litigation of financial .

qu'alifications for applicants whose ability to meet the reasonable assurance standard is substantially unquestioned.

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- To make a prima facie case that the rule fails of its essential purpose, it must be shown that the applicanta' ability to make that l

- e $,- --- p--es--a--r p- , *-- - w . y ----P. 7 -- --- -

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showing is not substantially certain.

l The party seeking a waiver need not. prove that the applicant-f

! cannot meet the reasonable assurance standard; that is a question for the hearing on the merits and the burden of proof is on the applicants. 10 C.F.R. Section 2.732. Since the rule was predicated on the absencs of a substantial question, documentation of a  !

substantial question constitutes a prima facie showing that the ,

! rule fails of its essential purpose.

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i C. The Facts of This Case .

D 1. Actions of the Public Utility Commission of Texas

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. 1a its Memorandum and Order at 10, the Board states

i "Having reviewed the PUC Order, together with the portions of the hearing examiner's report and PUC Commissioner's comments which CCANP provided us, we find no indication that t

the Texas PUC is not taking into account HL&P's revenue

, requirements for successfully meeting the obligations of its NRC licenses."

There is no indication, however, that the PUC jjls taking into account "HL&P's revenue requirements for successfully meeting the obligations of the NRC licenses." The PUC rate cases do not include j any specific information on how much the utility needs to meet NRC j

licensing obligations. The PUC does not consider the safety aspects of construction as a basis for deciding a rate request. In fact, the PUC is preempted by federal law from involving itself in the safety questions of construction or operation of a nuclear power plant.

There is njt ndication i that the PUC considers NRC licensing i

requirements in setting the penalties for HL&P nor that they ever would. Nor is there any law which would provide the NRC enforcement i powers over a PUC that refused to allow a rate of return which the NRC considered essential to the safe operation of a nuclear plant; the NRC would only have the authority to order the plant shut down

for lack of adequate funds to safely operate.

The Commission could never have intended for state regulatory bodies to argue with utilities over how much money the utility needed to scfely cparate a nuclear plant; the question is simply beyond the purview of the PUC.

j In its Memorandum and Order at 11, the Board states:

"When NRC changed its rules, it could not have contemplated tha t any utility covered thereby would never have financial w ,-w ,..y ,---,,,---v.e- c.,ww,,_,..w .,

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difficulties or that a State would ever deny a utility some of the return it is seeking."

But the Commission explicitly provided for a vaiver; the Commission must have considered that there could be a point at which the financial difficulties or State regulatory action would create i

a significant problem varranting inquiry.

This interpretation by the ASLB proves too much. It offers no guidance on where the line is drawn regarding justification for a waiver; in fact, the ASLB seems to suggest that because the Commission assumed the possibility of financial difficulties or a reduced rate of return, any financial difficulties or reduction, no matter how i

severe, were also considered.

At some point, the financial difficulties or amount of return allowed should justify a waiver. The ruling by the Board leaves no room for such a waiver.

When applied to this particular case, the Board's interpretation is demonstrably too sweeping in its scope. The Public Utility Commission 1

did not merely differ with HL&P over the amount of a reasonable return.

The Commission found that 16.85% return on common equity would be reasonable. Then the Commission penalized HL&P for poor management by reducing the allowable return to 16.35%. See CCANP's Motion for New Contention, Exhibit 1, page 2. In addition, the PUC found that $166 million dollars were spent imprudently on the Allen's Creek Nuclear Project, disallowed amortization of that amount, and ordered all tax savings associated with writing off the loss passed on to the ratepayers. Id. at 5. As a result the actual return on common equity for 1982 was 6.8%, even though the Commission found 16.85% to be reasonable. Houston Industries Annual Report at 38. There is clearly a prima facie case that for 1982 at least,HL&P has less money than it said it needed and less than the PUC agreed was reasonable and necessary absent mismanagement.

In addition, the Commission indicated that HL&P's expenditures on STNP would be carefully scrutinized, that imprudent expenditures weuld not be included in HL&P's rate base.

Based on conversaticas with an expert in the economics of nuclear power plants, CCANP believes that as much as $700 million will eventually prove to have been wasted on this project prior to 1982.

O Given that the plant is 7-8 years behind schedule, is expected to cost 6-7 times the original estimate, and has a record of incompetence l _

on the part of both the Applicants and their prime contractor, such a figure is not unlikely. HL&P's share of this waste as a percentage of ownership would be roughly $200 million. The question remains open whether HL&P will be responsible only for its percentage or,

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as managing partner, for the entire amount.

, For HL&P to pay back such an amount or have ,its future return reduced by such an amount will again place HL&P in a position where its return is less than requested and less than the PUC would find t

reasonable and necessary absent mismanagement.

What CCANP is suggesting in its motion for a new contention a

and request for rule waiver is that there is a line between rate request reductions which are merely differences between the regulator

j. and the utility as to what constitutes a reasonable and necessary return and rate request reductions resulting from mismanagement,

, imprudence, or other non-financial considerations which reduce the return below what the regulator would have otherwise considered reasonable and necessary.

In the former type of case, reduction would not be cause for a waiver of the financial qualifications review rule. The latter type of reduction would lead to consideration of a waiver with the potential size of the penalty a key factor in deciding whether a

( waiver would be granted.

In the instant case, HL&P liability for mismanagement alone could l

run to hundreds of millions of dollars in reduced return.

2. The Austin' Law Suit - '

In its Memorandum and Order at 11, the Board states:

"even were Austin to succeed [in its litigation against HL&P),

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we have not been shown that HL&P would be so adversely affected that it could not fulfill its NRC regulatory obligations."

CCANP disagrees that the initial motion did not.show'su'ch an.

adverse effect. The'CCANP motion at 9 indicates the potential loss should the partners file similar suits would " easily surpass $1.5

billion and make HL6? completely responsible for raising the money needed to finish STNP." The current ch imated cost of STNP is $5.495 tillion. Whether in refunde to partners or in costs to complete SINP, i

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_ _ _ _ , . ~ . . . , , ,- . - - _ _ . _ , - _ . . _ - -_

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HL&P would be responsible for that amount rather than its current

$1.7 billion share of the projected total. Furthermore, should

' HL&P have to pay the partners a refund of $1.5 billion, that sum

,' would be more than six times HL&P's net earnings in this twelve months ended April 30, 1982 - the year before the Allens Creek loss. Such a judgment would put the company into receivership.

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In fach from conversations with Austin attorneys, CCANP's best

- judgment is that EL&P.will go into receivership rather than j' , permit the Austin law suit to go to trial.

! - ^J D. Propriety of Litigating Speculative Events in a Licensing ,

Hearing f

, 4.7 In its Memorandum and Order, the Board states:

"As for the generally deteriorating financial condition of the nuclear industry, to which CCANP refers as background to l

it motion, the NRC explicitly referenced that condition when it amended its rules."

. Again, the Board position proves too much. At some point, the j

I national climate for nuclear investment would be so hostile to those

• seeking such investment that a waiver would be justified. Again there l

D is no line drawn by the Board. Just because the Commission once considered a general condition does not mean that condition could l-not change sufficiently to warrant reconsideration. The national financial conditions have deteriorated significantly since the Commission adopted the rule; there is a qualitative difference between those conditions at the' tim'e the rule was adopted and those conditions today.

Recent events make this issue more than merely a background issue. Two of the partners in STNP - the City of Austin and the City Public Service Board of, San Antonio - are municipally owned utilities.

They seek investment capital in the municipal tax free bond market.

• The default at WPPSS appears to have made S2.25 billion in municipal tax free bonds worthless. See Exhibit I hereto. Even dutther defaults could follow at WPPSS.

l' The municipal tax free market is primarily an individual investor e, market depe.ndent on the confidence of such investors. Id. at 82. ,

The primary attraction of the municipal tax free bonds was their appa rent risk free nature. WPPSS has damaged that perception, creating potential difficulties for both municipal utilities in STNP.

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, f' Higher interest rates and/or no bidders are both possibilities for their future bond issues. Even municipal governments can only stand so much debt before they cannot pay their bills, e.g. New Ycrk and Cleveland.

The national economic climate for STNP is in turmoil with all

, signspointing toward major deterioration.

1. HL&P Future Earnings Licensing hearings are predictive in nature. Financial qualifications review is especially uncertain because of the difficulty in predicting with certainty the factors which may affect an applicant's ability to meet its license obligations. However, the Commission held in Seabrook that likely PUC action is a proper subject of litigation.

C Seabrook at 20. Since the PUC is already on record as committed to ,

I recouping expenditures caused by mismanagement and since CCANP will i be prepared to put on evidence as to the amount of such expenditures, I substantive litigation is appropriate.

From the PUC's treatment of any potential losses suffered by HL&P in its litigation with Brown and Root, see CCANP Motion for New Contention, Exhibit 1 at 5, item 4, it is clear that losses suffered by HL&P in the Austin law suit-and similar suits by the partners will not be recoverable from the rate payers but instead

! will reduce HL&P's revenues.

2. HL&P's Safety Record I The Consnission stated that utilities have a self interest in

safety, which absent significant financial pressures, would prevent safety violations. However, prior to 1982. HL&P suffered no significant financial pressures, other than a project over budget and behind schedule. Yet its safety record was abysmal. A major breakdown in the quality assurance program produced the largest fine in'NBC history -

up to that date and an Order to Show Cause threatening to shut down

- all safety related construction.

HL&P's safety record to date indicates that even absent the significant financial pressures it is experiencing and will continue to experience as the price of mismangement, it will not operate STNP safely. Even without PUC penalities or major law suit losses,

the financial pressures on HL&P are . severe. See Exhibit 2 hereto.

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9-Just as HL&P continued to pursue Allens Creek for years af ter it no longer made economic sense, HL&P is refusing to consider cancellation of even Unit 2 of SINP despite a recent report of the Department of Energy that such a cancellation seemed appropriate and the opinion expressed by financial advisors that Unit 2 should be cancelled.

• See " Nuclear Plant Cancellations: Causes, Costs, and Consequences" DOE /EIA-0392, April 1983 and Exhibit 2 at last page bottom column 2.

Forced into a massive construction program, HL&P is already over extended in its demand for new infusions of capital.

3. NRC Inspection / Investigation -

The Board recognizes that Region IV inspection efforts in the

, past have been less than effective. Memorandum and Order at 12. But the Board notes that reorganization and restructuring have taken ,

place, apparently indicating a belief that such reorganization and restructuring has improved NRC perfor7ance. The Board also notes that the NRC can call on other resources than Region IV field office

, personnel.

In response, CCANP calls the Board's attention to the Comanche Peak proceeding, Dockets 50-445 and 50-446 in which the ASLB has called into question the efficacy of NRC investigations. Exhibit 3 hereto is a copy of a recent ASLB Memorandum in the Comanche Peak proceeding in which the ASLB demonstrates such a lack of faith in the NRC's investigative abilities that the ASLB requests the State of Texas to conduct an investigation of inspector I

batimidation at Comanche Peak.

Further there is Exhibit 4 hereto, not yet-filed in the Comanche Peak proceeding by the intervenor, but soon to be filed.

' This exhibit contains an even more recent document demonstrating

j. incompetence in a Region IV investigation. The exhibit includes the relevant portion of the challenged investigation.

In this latter case, the availability of other NRC investigative

- resources really is irrelevant. The national office will come in ,

I under extraordinary ' circumstances, like the special investigation which produced I&E 79-19. But for routine inspections / investigations, j

- it would be fruitless to go running to Washington every tire Region l l

,y.-._a ,- - . - -w - y -e.- c --, --- -

IV fails to perform.

III. Conclusion The Commission exempted electric utility applicants from financial qualifications review because it found them generally to be financially qualified to safely build and operate nuclear

. power plants. Although it relied principally on the role of state regulatory boards in setting electric rates, it also cited the utilities' self interest in safety and the NRC's own inspection ,

and enforcement process as further justification for the change.

CCANP contends that HL&P will not receive sufficient rate support to meet its safety obligations. CCANP contends further that HL&P's safety record to date and the performance of the Region IV Inspection and Enforcement office substantiate a concern that financial reverses will lea'd to safety violations by HL&P at STNP.

l CCANP contends that the possibility of large revenue deficiencies caused by the national economic climate for nuclear investment, the

• PUC of Texas, and litigation involving HL&P raise a substantial question of fact regarding HL&P's ability to make a reasonable assurance that I

it can raise sufficient funds to meet its license obligations. Therefore, CCANP prays that the Atomic Safety and Licensing Board certify CCANF's j motion to the Commission for determination.

l In addition, CCANP amends its motion as to the timing of the ASLB hearing on said contention. In its original motion, CCANP

proposed the financial qualifications contention be heard in the expedited phase of this proceeding. CCANP Motion for New Contention at 1.

Upon reflection, CCANP believes that the contention would be more appropriately heard at the normal time for such licensing l- hearings, i.e. in 1985 given the current schedule of the project.

l The events of concern in this motion will have that much more i

i time to mature. The Board will thus be in a better position to assess their potential impact on safe operation.

Respectfully submitted, guy h:1 i

Lanny sinkin Dated: July 29, 1983 Citizens Concerned About Nuclear Power 2207 D Nucces Austin, Texas 78705

] EMdl

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THE FALLOUT FROM 'WH00PS' A DEFAULT LOOMS, CASTING A PALL OVER THE ENTIRE MUNICIPAL MARKET ditionaDy have been the biggest buyers Y

$q c*i; $.

.w.d Washington satiricPublic Power sobriquet Sup- now on individual ply System, better known by of municipals have deserted. The market is heavily dependent g ne the

" Whoops," designed its five nuclear investors (chart, page 82), many of EL;.

6M-  % F .fe M,j.D.:

power plant.; to withstand an earth- whom took their first tentative step into ** M 3 ??j'Q 4*' C quake. But as it turned out, WPPsS' am- tax-exempt investing by buying Whoops - CO.gE-d bitions undertakmg feu viedm to an bonds-which initially were highly re-

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J equally destructive though more prosaic force: human error. Quite probably, only garded by the credit rating agencies and aggressively marketed by many of the Q-5%[Mj ,. ii

$gM.i Y.3 ky.gy.t-p #

,1 one of these plants wiB ever generate premier Wall Stre'et b'rokers.

"This whole' Whoops aEair has taught N MAN.sV&i: M * % W M,- Awl y electricity.Two already have been aban-doned. Yet wPPSS has more than $8.3 us that the emperor has no clothes in the t N 5 M w

• 3.

E biHion in debt.

muni market," says Peter J. Schmitt, di .

rector of research at Prescott bad &

N"'M" S'W-@W@:"~r' E-W 7 g That this is a blunder of epic propor-tion is clear. However, who must pay for Turben. In addition to graphically IDumi- 6(#M@.E:n EC W MMMY  ;' C -

&m #

it and how much it will :nd up costing nating the inherent hazards of an invest- M M'M 2 9-E M ment still widely misperceived as risk-p remains very much in doubt. Obviously, the stakes are high for WPPSs-the larg- free, as well as taxtee, the Whoopa 5 %h;i M~'y; s d c.

g g

est issuer of tax-exempt municipal bonds ever-and the entire Paci5e Northwest.

But the nation's utility industry, and ev-debacle also calls into question the valid-ity of basic techniques increasingly used by many state and local governments to gy".

N W- gM#M

e. .

"'Sh g finance major construction projects. In- 4

• ery state or local government that hopes deed, a Whoops default would be widely

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h to tap the bond market, also has a vital interest in the outcome, as do thousands perceived as a court-sanctioned assault 5

m ecr5 y4-!@$ M-Q g on the contract itself-the definitive ele- . _ . . . .r of individual investors, most major in-  ;

surance companies, and much of WaH ment of any security.

@ -- Street. Even the federal government, 'ws wowr pay.' On June 15 the Washing- . , .

-J through the BonneviDe Power Admmis- ton Supreme Court released utilities in "^ N 4 0-

1. tration (BPM, has a major stake. that state from contracts they signed with WPPSS obligating them to pay for b " W'M M a mANClat. ME1.TI>OwM. The immediate N f' lflMN

$j threat to all parties is that WPPSS will plants 4 and 5 even if they never are . Id *MC;(

completed. The decision is " shocking, it g '

default on 32.25 billion in bonds sold to finance the two canceled plants (Nos.4 really is," says Ryland E.D. Chase, a

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and 5). This would easily be the biggest veteran municipal bond consultant. "It c

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municipal default in history, fully the just rips up contracts. In the case of equal of the largest corporate defaults New York City, the city said, 'We want -W R _,,_ u. ,.,'

g in legal complexity and the amount of to pay, but we can't.' Here, it's a matter W investor money at stake. The financial" of, 'We won't pay, period.'"

EEBEHIh f Although so far the market has taken g meltdown of WPPSS does not imperil the _

-l nation's bar. king sy. tem, beenuse the WPPsS's slide pretty much in stride, -

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sttpply system has no bank loans. But it many market watchers fear it eventually does pose the gravest threat to the na- will sour individual investors on all mu-

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f r tion's municipzl bond market since New nicipal bonds. That would drive up the York City missed a payment on $2.4 bil- borrowing costs of all states and local-hp ities and probably squeeze some of them ~

lion in short-term notes in 1915. out of the market altogether at a time A Whcops default could irdiet mere when their need for outside financing is . ,

g8evous dannge than did New York acute. "It is like 'alling off the witch

) City's bruzh mth Iankruptcy. The tax- m --

- -j exempt m:.rket now is rcuch mere vu' do-tor and then wai:ing fc,r the lightning -

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nerable to severe disrupten, becsure bolt to strike," de:iares James A. ' . . -

new-issue vo$ume is soarmg while the Lebenthal, chairman cf Iebenthal & Co.

bar.ks and ins trance companies that t-a- "There is a :urve hz.g.ng over the mar j iJ g l --

! I so diUSNESSWS/JULv 11. G83 i

GNL) (8)M MN'5NO-N7NNYMM"5bkDik k%

Despite the BPA's Dackmg, prices of other 56.1 billion of bonds in lengthy, bonds for plants 1, 2, and 3 plunged unpredictable court proceedings. WHERE 'WH00PS' 15 KING-. after the state Supreme Court ruling.

I "That would turn a disaster into a THE BOOMING REALM j Moody's suspended its rating on the I catastrophe," warns Energy Secretary Donald Paul Hadel, who was chief ad. OF REVENUE BONDS 3 1 bonds on June i because of the deterio.

J rating fmancial condition of BonnevD!e, ministrator of Bonneville at the time the "I* l55 50' which sells the power output of federal-two doomed plants were plaened. None- TM -j theless. Hodel echoes the view of others $.y,"",";go,g3 8 i ly owned dams in the Northwest to utili.

ties. Although the BPA has boosted its lI

! in the Reagan Adtninistration and Con-se f,, - rates 500% to 1,200% since 1979, its costs

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gress in arguing that the federal govern- ' are rising faster than revenues.

mect should not become involved until

~;~ R '" Pavas'vs emu. Bonds for Nos.4 and 5 the thicket of WPPSS litigation is cleared g also nose-dived and now are fetching I away and a consensus view on how to .. . . . .

bids cf only about 20e on the dollar. The resolve the crisis emerges in the North- E.tninut j 8 l. carnage spilled over to the bonds of west. "We cannot impose a solution on a .

-- Y F.;5 ~ many other Pacine Northwest issuers- ,

barroom brawl," says Hodel ~ ~ ~

even those without direct involvement in The Washington Supreme Court deci-sion-which followed a similar ruling by an Oregon court-probably dashed ~3 a[ -- >hw

_; 4 - 'j Whoops-and into other electric power bonds, particularly those backed by take.

or-pay contacts. Some analysts detect WPPSS's last remaining hope of maintain- &=;Waggjg an even more pervasive chill.

ing solvency. Although "more political ,[ W .g;z vj;7.g. p 3cf m "It has cast a pall over the entire mar-i ,

than it should be," the ruling is "6 sal no m n n n n v.

ll and fatal," sighs Don C. Frisbee, chair. -

. ga m ket," says Philip Braverman, capital i markets analyst for Chase Manhattan

' man of PaciSc Power & Light Co., own-Bank. During periods of dimbing inter-I er of a 10% share of No.5. "I don't see m muc noxna a '

est rates, taxable government bond how default can be avoided now." Be-cause the decision is based solely on a lett, a partner in the Wall Street law. rates usually rise twice as fast as tax-i firm of Gaston Snow Beekman & Bogue. exempt rates. But since early May, tax-state court's reading of the statutory exempt yields o: average are up a full authority of its localities, it appears Bonds for WPPSS Nos.1,2, and 3 are doubtful that the U.S. Supreme Court backed by take or-pay contracts between percentage point, while taxable rates the supply system and a separate group have risen only a half point, says Bra-will agree to hear the case. -

verman, adding that Whoops "was a ma-snex soussoor.' Although the narrow- of Northwest utlities. Unlike Nos.4 and ness of the decision probably will pre- 5, though, the participants have assigned jor contributing factor."

their share in the project to Bonneville, The spike in rates could have been vent it from settng a legal precedent i

even higher had new-issue volume not outside Washington, participants in trou- which is responsible for meeting all obli-gations to creditors. The BPA will provide tailed o!I recently from a record $17.5 bled projects everywhere can be exp billion pace during the first quarter.

ed to look for legal loopholes of their the $150 million needed to finish No.2, c which is 98% complete. However, work Whoops was partly responsible for that,

! own. *What the decision means is that if too, as North Carolina Municipal Power you are going to try to sticic somebody on No.1 (63% complete) was suspended a year ago, and Bonneville is refusing to Agency No.1 postponed a $350 million for something under a takeer-pay con- orTering rather than test the market in tract, you better have explicit statutory help WPPSS obtain the bank credit line it needs for No.3,74% complete. the wake of the court ruling. However, authority to do so," says Joseph Bart- most market watchers expect issunnees to boom again soon. The long recession

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HOW THE MUNI MARKET DEPENDS ' and Units n feder 183d ha" crunped ON THE INDIVIDUAL INVESTOR *a ..- state and local revenues, while pressure un uw rutousts Il ' ' '

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g g-to provide services keeps growmg and roads, bridges, water systems, and other cf uumicPn SICutmts . ..

+ se infrastructure keep deteriorating.

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E3 HOUSEN0tDS' .

" 'Pusuc pumpost' The taxpayer revolt

~

that spread after passage of California's "NsNgYeuN

~

U -

Proposition 13 has left many states or g

+4 gg . - a '

a c:tes unwilling or unable to raise taxes.

% It also has curbed the use of the general

"* C6d'

-+8

,U~5IM,~

d.W obligation bond, which is backed by the

r. . .,...,.....g ll'*l'; full taxing power of the issuer and H- 4 E' -

7~]-

',[

.. ~ "

$Q S Sk,$ _ $7 L hence is subject to voter approval. That leaves the revenue bond as many murue2-kg! .g mm m.

• r/ e-~ M h @ k B "."

M palities' only hope for raising capital.

m- W+ M9 --_ y %

j Revenue bonds are paid orY from fees

. +u t.d- y e4- gnw 9 .61 collected from the users of the project q -

h-- W Nif M$ & W X being financed.

M  % M h2 se b -QJ # N y

nn Man nn nn an an an g g nei nu The revenue bond has proven such a flexible tocl that ioealities have adapted 4 nn - it to increasingly diverse use -apidly Aswt.n er r,cuns ..ms ex in m e mwam nusn expanding their definition of "publ;c pur-sn.us un muuss cwmts cwcuno uc sxt m mac scmum pose" 'u aneing to encompass factories j' '

, fer private use, hcusing, pollution con-CtMER STCRY S2 ts.' SINC $$wH,K/,QY 11,1983 b .. _ _ _ . . .. .. . . . . . .

l q .

so WPPSS Nos.4 and 5 w;re launched Soon w:rk was stopped en the two tsuers, says Jeffrey Alexopolous.

without the benefit of net biHing. plants, never to resumi tor cf municipal research for T.

The task of simultaneously building Of5cials of other big joint-action agen- Price Associates Inc., which unloa.

five stats,f the art plants at a time of cies downplay Whoops' significance. Nos. 4 and 5 bonds in 1978 79. By t rising interest rates and intensifying 'There will be a tendency to evaluate an of 1977 2ree separate studies-f regulatory scrutiny of the nuclear indus- agency like ours more closely, but the by the federal government and try soon proved too much for WPPSS and economics of joint ownership are stall BPA--concluded that low cost cor.

the small town businessmen on its there," says Donald 1 Stokley, general tion measures could eliminate th-board. WPPSS stepped up its bond sales manager of Municipal Electric Authority for at least two Whoops plan:s. F in a futile effort to keep pace with soar- of Georgia. Others in the industry, how- er, these reports received scant rr ing costs. Completion dates slipped, pub- ever, suspect that the joint action agency in early prospectuses.

lie opposition ,took root, and eventuaDy movement already has ervsted. Following past calamities,11 the ruison d'etre for the plants evapo- awrren.nuarr.' Municipal utilities in New Spiotto notes, "the municipal bon rated as demand for electricity in the England and Teus are reevaluating ket has demanded that there be :

Northwest grew about l'7. yearly-far their participation in mammoth projects tive action." In the wake of W below the 79 that had been projected. plagued by ballooning costs. Through municipalities will be pressure Although some of WPFSS's failings joint action agencies, municipalities fuller fmancial disclosure. More were peculiarly its own, Wall Street was hoped to obtain a secure supply of pow- wi3 be insured against default, w-intimately involved every step of the er at a lower price than if they had ing out weaker issuers. "We don':

contracted for it themselves. But some got in over their heads. "Municipals EVEis AFTER' WHOOPS / THERE

^" have to be careful to buy small chunks ARE 5OME SAFI MUNI BETS they can handle," says PhDlip C. Otness, A lthough " Whoops" is tarra executsve director of New England Pow- Mthe image of all municipal 1

~

v er Pool. 'The next era of generation wiB strong issuers can still be found :

M be smaller planta."

Says Richard Freeman, a managing tax exempt market. Many analys

-- ~. clude Texas, Virginia, North Car 7 director of the Tennessee Valley Auther- and Missouri among the EscaDy l-

-,, ,. 7 ,._ Q

,  %- 1.: ity:'The structure of WPPSS was so thin iest states and favor I timore, C

.g ..' that any error in its predictions of- de-mand or any' cost overruns did not leave nati, Dallas, and San i ego amon jor cities. Geographiul proximi much margm for error. If you have any Whoops has not hurt Portland, j

,f .%

7s * .

, k= . entity that is buildmg five nuclear plants ano nothing else, then you don't have a which is rated AAA. Even such ay  ?: .. ..,k.y.M q ., q firm situacon. {A WPPSS defaulQ is go-power agencies as Intermountain

-@..- d er, which has drasticaDy cut its m E .: /- k mg to cause the financial community to building program, and Municipal y e- look ver capacity.[ carefully at any plan forthe tric Authority of Georgia rema new

- -- buy lists of some analysts.

Y ~" Such scrutiny will not be limited to the electric power sector, suggests John E. we should enhance a security (w Petersen, research director of the Munic- surance) to the point where iD-a projects are brought to market,'

13ae -

ipal Finance Officers Assn. "A credit-worthiness witch-hunt will be visited on John Butler, president of the doi all of project fmance," especially proj- insurer, Municipal Bond Insurance 4  ; ects accomplished through special fi- musvino namnoans.The rating ag4 nancing authorities not directly backed stung by accusations that they by taxing power, he says. " Whoops is slow to react, will expand their (N' ?-]a not going to bring the muni market to a grinding halt, but it will cause a lot of staffs and plug into computerize:

bases. Wall Street firms, too, wi up their muni research staffs, m;

$NA O O A 200 1 consternation about the appropriateness of tax-exempt financmg. which were set up only m recent way and kept the cash spigot wide open suno rarra.The proliferating use of mu- and take greater pains to insulat4 until belated investor skepticism forced nicipal bonds already is coming under from sales pressures. " Inevitably, it closed. 'They became captives of the increasingly strident attack in Washing- tions arise where there is an in mystique of the nuke," WPPSS Chairman ton, D. C. For example, early in June the conflict of interest between servir Carl Halvorson has said of his feDow Tr'easury Dept. asked Congress to enact dermiting] clients and investors, d: rectors. "And they had unlimited mon- strict limits on the burgeoning use of Howard Sit:er, municipal research ey. That was the worst of it." tax-exempt industrial revenue bonds, tar for Thomson McKinnon Sec In March,1981. WPPSS came to market chargmg that they are often used to Inc. 'There is a need for auton with what turned out to be the final sale subsidize construction proje+ts of ques- research that cannot be comprom of Nos.4 and 5 bonds. The $200 million tionable public benefit. In addition, some Whoops will not be easily for1 offering was rated A 1 by Moody's and Wall Stn eters fear the furor kicked up The courtf. will be clogged with it A+ by Standard & Poor's Corp - aach by Whoops might lead to fonnal federal debris for years. And for wnat cc agency's third-highest radng. Iess than regulation of the muni market, which decades, near Satsop and Ris th-ee me.nths later, WPPss Managing Di- today is largely unregulated. Wash., two part:aDy completed j restor Robert Ferguson announced thst 'There has been an awful lot of blind power plants will stand as rusm the supply system had reestimated the faith placed in contract terms" in the minders.The thought of spending total project's cost at $23.9 billion, up market genently ard insufficient sttan- er fortune to tear down what from 315.9 bi: lion. H- c .'ld fer e "r en . tN: gli to tne ecenoraic viability of fortune to erect is mo-e than anye tofi2m" on constmetior. of Nos.4 and 5. l projectg and the financia! ccndition of bear at the moment.

1 ccnasTony susmesswEEmu.y p

i

• the Snowbelt if electric service were unre5- hour uses about one Idlowatt hour of elec- tries, Jordan earned $280,983 in salari<

able' HL&P offers two grim options-pay tricity.) Although average montNy bGs are and fees. Direct:rs' fees, salaries at up to four times as much for electricity, or high here, HL&P's mies nre stin relatively bonuses for aH company of5cers and dire <

sweat in the dark. low, at last count only 5 percent above the tors increased from 51,M1,495 annuaHy :

HL&P bases this choice on three assump- national average. 32.202.786. (AH this in just Sve years.)

tions. De Erst is that the Houston area In exchange fo crovidmg service to its HL&P's investors have been rehtive:

faces a serious shortage of electrical capac. customers, HL&P has enjoyed protection pleased, but ratecayen have found little :

ity by the end of the decade. De second is from compet: tion as a regul.ted monopoly cheer about in the hst decade-rates has that quadrupling electric rates win have no in the most pro utility climate in the coun- quadrupied since 1972. driven upwa-effect on Houston's economic growth. ne try, growing to be the nation's fourth larg- mostly by escalating fuel costs. (ne rate i-third is that only HIAP can build the addi. est investor-owned utility in terms of sales. creases for the rest of this decade will rest.

tional generating plants needed to shke Like its cousins in Texas, HIAP performed from construction costs and inflation.)

Houston's lust for electricity. These better fnanciaHy than most utilities in the "We have given up on building a syste-assumptions look reasonable. Accept them. U.S. His explains why so much of the that can supply aH Houston's need for ele-and an inescapabic conclusion foHows- company's stock is held by banks, pension tricity," says HL&P spokesman Grahar consumers must pay for the additional funds and other institutional investon. Painter. "We're depending on a three pa:

power plants, no matter how high the price. However,youwouldn't knowHL&Pisin program to help us fD1 the needs we can De fact is, however, that each of HIAP's relatively good Snancial shape from hearing finance: conservat:en. load managemer assumption sbould be questioned. and cogeneration. Nevertheless, we're gt True, demand for electrical power is ing to have to raise a growing in Houston. Approx:mately 3000 Cornparison of F:,lectn.c .ec cean ,, c,,. tlot of money avoid togtEnanc and that's megawatts more electr cal generating Rates By Cit 2es .

ing to have to come from our ratepayer capacity wD1 be needed by the end of the 4 and investors."

decade-a 29 percent increase over current Cents per kilowatt hour HL&P does have one of this part of tb capacity. But 6ere are those who say g g 4 g 2' country's most aggressive programs fo HLAP could deliver as much as two. thirds promoting consen ation and " load manage of the additional capacity without raising SSSSSSSSSSSSS ment." And HL&P has begun cooperatint electric rates a single cent, and at no loss in - -

. with industrial customers who generati comfort or reliability to any ofits customen. San Dieget 10.49 - . electricity whDe producing heat nom:all, nis may sound like the proverbial free used in industrial processes "cogen lunch, but it's not. How can it work? The $$$$$$$$$$$ :/ . . .

eraton" in mdustry jargon (more abou answer depends on a compUcated mix of them hter).

politics, economics and technology and PhnWphia SII.' ' .' '. - -

These pwas are insigmScant com some say ee solution may regmre rearrang- SSSSSSSSS 4 '. . . , ' ~

pared with MAP's consouction progran-ing the way HL&P does business. Anyone .- however. The Light Company says it wi.

who thinks electric rates were a political Houstom 8.35 . .

have to spend an average of SL34 binior issue when Mark White ran for governor .SSS$$$$$$ per year unta 1991 to 5 nance a twoun:

last year ain't seen nothing yet. The circus . .

nuclear phnt in south Texas and a pair e is just senting, and HL&P will be in the Chicago: 7.83 -

two-unit coal-fired generating plants i:

center ring. What is p'ain already is that the n reeast Taas. inenasing me tota stakes are too high to let the issue simply SSSSS.SSS .; ;g.. ,

amount of capital it has invested from S4 run its cwne. biHi n to nearly $17 biHi n. It's the bigges:

First things Erst. HL&P is not run by a Dallas: 6 80 - -

consm2ction program planned by any maie-bunch of bloated and greed < razed comic- $$$$$8S .

utHity in de coumry. That's why, Wal opera capitalists with doHar signs on their . Street analysts say, the company will meet vests, nor(given the way electric uti'aty reg- Los Angeles: 6.73 . 15 percent to 20 percent rate increases eact ulation is set up in Texas) can HL&P be considered misznanaged. It's simply a busi-a.

. year for the rest of the decade. The com.

pany has said itT. ask regulators for the ness, maximiring profits within the con- money year after year umil it gets what 11 straints of the law. The company has made - Average rated 91 wants. De altemative, HLAP insists, is some mistakes, but by and large consumers HL&P rate 5% above average.

too awful to contemplate-brownouts, are responsible for most of the problems *For12 months endalfuly 1982. Houston's economy wrecked on the shoab HL&P now presents. Houston is built on of elecmcalinsuf5ciency.

the avadabnity of cheap energy, and inex- its pleas for " rate relief." Most utilities have "That seems like an awfullot of money pensive elect:icity is the cruciallink that has poor-mouthing down to a science, but for conscuction, but we're holding it to the held the city's boom-town growth together HIAP tens a different story to its stock. amu," says Graham Painter. "Yot for Sve decades. For most of the past 101 holders, proudly maintaining thn even in have to remember that electric rates wen:

years. HL&P (since 1977 a subsid:ary of the troubled pst sever 1 years, while cost up almost as fast in the 1970s." .

Houston Industries, Incorporated) has pro. ovemms pDed at its nuclear consmaction True, but so did rates all over the country vided reliable knv<ost electric service to all projects and its bond ratmgs have been In the 1980s, according to Leo :ard Hyman comers in the aret. Local electric bills are downgraded, "the dir:dend [ paid per shaar vice president and head cf Merrill Lyr.ch's m'2ch higher than the national avera ge, but cf s'cck] has gre.wn at an average annual utility research gmup in New York, mosq that is because Houstonians consume rate nearly double that of tr.e elecuic ut!1ity titilities wi:1 be asking for rate increases almcs twice the national average m elec- industry," to qucte a company repo:t. ' averaging kss than 10 percent. This mear) tricity-1149 kilowatt hours here, com- Compensation for the HL&P's executives HI4P's rates wElbe increasing much fasteJ pared with an avenge of 631 kilantt houn also has increcsed har.dso:nely. Company than the national average. and electrical in the rest of the cote:ry.(A kilowattis ene l recorda show,for ex;mple, that DonD.Jor. ; costs here couH be among de Nghest thcusand watts; rueir.g a hainiryer for an dan waa pa:d $105,967 ir.1976 fer services the country by the end of the decad as p*is. dent and director of HL&P In Wlsh would mean tre end of the ch I fort Warren 32ma is excaetin editav cf Cite 1981, c.s prrsident, director and chief exec- dectrial power that has fostered ecoacmi@

l Mg::mt. utive offcer of HL&P and Houston Indus. growth in Hou:: ton.

i.

22]%'1983

The newly activist regulatory agencies of recover from funds spent on But HIAP's opponents insist there b a c

me:a1 difference between the projected the city of Houston and the state of Texas Texas proj situation in the 1980s and what happened in a re beginning to agree with Steffes-one Most strikingly, Rollins sugges way or another, they're not going to sit still HL&P aDowed any service im the 1970s. HIAP's rates will be rising while such a spiral gains momentum. They (brownouts)in the future, the b much faster than the national average, a re focusing oa what they believe are flaws consider "decert:fying" part o a ccording to utility researchers. This n HL&P's second assumption-that the service area-handingits custort m eans that Houston's attractiveness to new i business will be seriously damaged. And Homton arca is facing a severe shortage HIAP, after oftaking otherautilities.

couple electncal capacity by the end of this decade.

that's not the only possible effect. catch its corporate breath. iss

" Houston City Council has the responsi-

"Dat scenado for rate increases would n akeitdifficult,if actimpcssible,formany bility oflooking out for the economic weH- rebuttal to Ronins merchants to keep their stores open," says being of the city," saysSince CWmember thething then,if anything, PUC* ruling Maurice J. Aresty, president of the Retail George Greanias, head of that body'senSelect worse for HlAP at the PI Merchants' Association of Houston. CommitteeenRate-MakingPolicies,which tand the other Clements holdo,

" Energy costs already apprcocmate oc- is studying ways to make HIAP's manage- signed and were replaced b cupancy costs for a lot of retaDers here." ment more ef5cient. "That doesn't mean we oppose every rate increase or we don't much different phDesophy of ut Energy consultant Albert Smith, presi- think HL&P should build any new generat- tion. New PUC chainnan Alan dent of Power Systems Engineering,Incor-ing plants. It does mean we have to evaluate example, says the former mem parated, a major Houston firm, predicts every request carefully to make sure it's board spent too much time pro-that effects of a precipitous rise in electric necessary and beneficial to the local ties when they should have bee rates, unmatched by'similar increases economy, and there is no lower-cost way of out for the interests of consu=

elsewhere, would be disastrous. "If electric the only thing his predecesso meeting growth in demand."

rates go up as fast as predicted, many of HIAP's large industrial customers would De city has beefed up its regulatory right, Erwinsays,was castigate workforce in the past year, adding several December.

be forced to cut back on their consumptien Erwinsays he doesn'tthirM veterans of the state public utility commis.

or even shut down and move elsewhere." ing a real shortage of electric says Smith. "HL&P gets over 50 percent of "I'llgrantthatdemandis rising its revenue from big industrial clients. ton area. But that doesn't mea That's the class of service most susceptible [gO[7[O 7gfgg simre, except if you exdude to curtailment." unny in euegion fmm consa ofyg gp g3fg3[gg Take a big chemical plant manufacturing fact,HIAPissurrounded byo' chlorine on the coast as an example. Smith ties-there's over-capacity in '

suggests that, like most of the chemical p7gg[g[gg# 37gg/y ,

shortage. Of course, HL&P companies in the area, Jhis manufacturer ,

buDd more facilities,but that d has facilities in several other states. If elec-

[g7&gO gydyg[7lg[ we should automaticaDy okay e tric rates s art rising significantly faster questandemmuedepjea here than elsewhere, the company won't cgs [Ogg73 MOg[d hg tainly a m: stake to treat ea-have any choice but to move its ch!crme intadm."

productim to another facnity.

"A cutback by a substantial number of

[OTCed 10 Cut bach Estimates of growth in c capacity for each of mutate; HIAP's industrial customers would be a OrShut dOMM GMd file at the PUC, appear to sup catastrophe," says Smith. "HIAP would c-tention.neyindicateeths have to raise rates for residential c move elsewhere. ities in the state could seu H sumers even higher to take up the slack. hundred megawatts of power, Then what's caHed the ' consumption spiral' waste, weH into the 1990s. S:

- starts-rising prices force customera to cut sion to its staff. If the reforms recom. ties, connected with vast rel mended by Greanias had become state law, back on usage, and that triggers another the city could have become a significant poolsin surrounding states, sc price increase, as HIAP's costs have to be terconnected with HL&P anc spread over fewer kilowatt hours sold, trig. force in setting HIAP's rates.utilities,PUC But understaffers say.Th<

gering rnere conservation. It's one ofpower the current state statute: the real regulatory rests with the three-member Texas severalhundred more megaw worst possible scenarios for a utnity."

Other analysts agree. Dale W. Steffes of Public UtSity Comnussion. So, untilarethe "nere pr,bably morlaw win changes, Houston is just another intervener the Houston. based Planning and Forecast. megawatts of unused power ing Consultants, whose predictions of s!aw in rate cases before the PUC, HL&P to purchase," says i The PUC has had an interesting history ,

electrical demand and sagging oil prices t could subtract billions of d' have proved among the most reliable in the and it prom:ses considerable entertainmen. struction from what HL&P country, says that electric rates in Housto n in the near future. In December of 1982. H Moak Ronins, a Clements appointee under rate increases for consumer have alrmdy reached what economists call

' "ptice elasticity"-the point at which peo. whose cha:rmanship the PUC had retained the its reputation as one of the most pro-utSity power from utilities opera ple cut back on consumption to avoid highe r bits. This means, Steifes says, the down. regulatory bodies in the country, resolved. Evenstartled states,b if the proble:

ward conservation spiral already ha s just about everybody by denouncing

, HIAP's management. ne HIAP teard,them solved, though, we would )

against possible advt-begun. acuortLng to Rollins, was dominated by "'m.

" Consumers alre:dy are cutting back; payers, such as avoiding at siders," and he said none of its memben pdces are too high," Steffes says."Thern's struction. We certainly wS had any " credibility" on wad Street. H e no law that can force consumers to con. charged that HIAP hed mis nanaged tre . HL&P and otner n'ilities ts sume. If you owestimate demand and therefcee overbuild you increase costs per Scath Texzs and Men's Creek nuclear j c;uest for construction unit, driving wrmumpuon co

• a mu e. But, projects, and he erdered that the company's tomen.1 Weavailable woTt justoption m for se eunings be cut by Inif s percent. He dreat-if yoc make the lesser m' stake of undarcti. ened to cet the amcunt the company ceuM (am l mang. Wu atleast keep unit costs down." )

30Julv 1983

EAl.if 3 UNITED STATES OF AMERICA

, NUCLEAR REGULATORY COMMISSION Before Administrative Judges:

, Peter B. Bloch, Chairman Dr. Kenneth A. McCollem Dr. Walter H. Jordan Docket Nos. 50-445 In the Matter of 50-446 TEXAS UTILITIES GENERATING COMPANY, ~

et al. (Application for Operating License)

(Comanche Peak Steam Electric Station, '

Units 1 and 2) , July 6, 1983 .

MEMORANDUM (Response to Commission Order of June 30,1983)

On June 30, 1983, the Nuclear Regula tory Comission issued CLI-83-18, which contained some questions for this Board to answer within ten days. This Memorandum is our response.

I. Identity of Interviewees This Board will not pursue any questions concerning the identity of people interviewed for the preparation of Staff Exhibit 199 or the nature of the participation of individuals in that Exhibit.

II.

Tentative Schedule on Atchison-Related Matters By separate order of today's date, this Board has determined that a recent decision of the Secretary of Labor concerning the dismissal of Charles A. Atchison is entitled to collateral estoppel effect in this proceeding. This establishes that one individual was discharged by I

applicant for reporting quality control deficiencies.

We believe that pursuit of the implications of the Secretary of Labor's ' decision requires us to inquire further into whether or not l

.c - . _. .

To this point, the Comission's staff (staff) has never' focused an investigation on this precise point. The Atchison investigation focused on the firing of that one individual. The Construction Assessment Team focused on the paper records of non-conformances and never conducted any evidentiary investigation of this point.

One would There are several ways to make our record more complete.

In one respect, we be to ask the staff to present more evidence.

consider this to be an appropriate way to proceed and have asked the .

staff to pursue this matter during yesterday's on-the-record telephone conference among the parties, de have suggested to the staff that it interviews with conduct a limited number (about five) of confidential non-supervisor quality assurance inspectors or craft' personnel in order ,

practice of discouraging to determine whether there has been a non-conformance reports. Staff counsel has expressed a willingness to initiate such an inquiry; and staff will infonn the Board by July 8 concerning whether this investigation will go forward.

With respect to witnesses previously interviewed by the staff, we b think that the inconclusive nature of the previous staff investigation l

U requires us to ask that some other mechanism be used to complete our h record. The adequacy and reliability of this particular investigation was questioned by this Board. See_ Notice of Resumed Evidentiary Hear-I Subsequently, this Board has not pursued ing., March 4, 1983 at 4-6.

Although it does this publicly-raised question of staff performance.

l-not now seem to the Board necessary to inquire further into the perfor-f' l' mance of the investigative team, we do not think it appropriate to rely

?

I entirely on staff to present further evidence to us from witnesses it f

~

I l

of the parties may attend), decide that there is no evidence for it to present. If so, it may file a statement seven days in advance of the scheduled evidentiary hearing, stating that it has no evidence to present and attaching affidavits of the witnesses in support of its position.

Although the applicant has objected to these procedures, Staff, CASE and the State of Texas have not objected. . .

III. Additional Matters

, As part of our review of questions raised in this proceeding prior to the appointment of the new Board chairman, we have ascertained, as a preliminary conclusion, that there are two open matters having to do with welding. These matters include weave-welding, which is not prohib-ited unless transverse oscillation exceeds code standards, and down-hill welding, which also is acceptable in some applications. With respect to weave welding, there is an allegation that it had occurred. Applicant's explanation appears to be incomplete because it rests on: (1) a state-ment that some' transverse oscillation is permitted, and (2) a statement that some weave welding has. been reported on non-conformance reports.

There apparently was no attempt to investigate further to ascertain whether there may be a real problem that has not come to management's attention. (See Tr. 8635-8639.) Similarly, applicant's response on l

down-hill welding is that it is permitted in root-and-cover pass welds. '

Apparently, applicant assumes that those are the only welds that .the -

. person making the allegaticn could have any knowledge of. But the record does not show the scope of the alleger's knowledge, nor does it l

l

ExltdiV +

- i AFFIDAVIT OF LARRY V. WITT_

Q: Please state your name and address for the record.

r A: My name is Larry V. Witt. I live at P. O. Box 278, Glen Rose, Texas 76043. 50-445/83-03, Q: Have you reviewed a copy of Investigation Report 50-446/83-01, which was prepared by the Nuclear Regulatory Commission

( "J . R. ") ?

(NRC) regarding allegations made by Arvil Dillingham, Jr.

I A: Yes, I have.

Q: We call your attention to page 9 of Appendix B of that Rep, ort, item 7 (a) , which states:

"Mr Dillingham apparently stated when intereviewed by the writer of the article that rejected aggregate was mixed with concrete that was subsequently poured The article stated to that formathe baseWitt Larry for the nuclear was the B&Rreactor.

equipment operator who had apparent first hand knowledge of the matter. The article also stated that Mr. Witt could not be reached for comment."

Are you f amiliar with the article mentioned in the report?

A: Yes, I read the article in the paper.

Q: Are you the Larry Witt mentioned in that article and in the NRC investigation report?

A: Yes, I am.

I Q:

Please read the portion of the investigation report beginning on page 10, about the middle of the page, the sentence which begins "The above memorandum indicates that a number of other people were interviewed by the B&R investigative group, one of whom was Mr. Witt" p

through the end of that paragraph.

Please comment on that portion of that paragraph.

A: The material was actually rejected gravel and perhaps rejected l Regarding the scales, the sand (I am not certain about the sand) .

wires were pulled leading to th'e scale head for the ice bin (instead l of leaning on the wires as stated in the report) .

Q:

The report states that the "B&R memorandum indicates that the investigation relative to use of rejected aggregate was apparently par-h tially substantiated but of no concern in that the aggregated pile, rat er, than actually being unacceptable, simply had not been~ tested ~ prior to j

use as required." Do you agree with that statement?

I 4

m ee g -- >---.b.-, e gn.ma a

Q: Do you know where the concrete which contained this reject (

material was used?

A: No. It could have been used anywhere. But I do know that a lot of times it was for Q pours.

Q: Please read the portion of the report on page 11, last par beginning with the first sentence "Regarding the above summarized a tion (a) . . ." through the sentence "It should be noted that only

~

B&R investigative group has been able to establish contact with Mr.

all others have apparently failed."

Have you .ever been contacted by the SRIC (Senior Resident Inspector-Construction, R. G. Taylor)?

A: No.

Q: Is it true that you are no longer an employee at CPSES?

A:

Yes.

Q: Is it true that you have relocated from the Glen Rose, Tex.

area to another state?

A: No. We do have a field office in Hobart, Oklahoma. But.I still live in Glen Rose, Texas, and my business is still listed as Witt Energy Resources , Inc. , in Glen Rose, Texas. Many of the peog at the plant with Brown & Root, including Doug Frankum, B&R ProjecG Manager, know me and know that I am still in Glen Rose.

," - Q: To your. knowledge, have any attempts been made to contact by phone at the office in Hobart, Oklahoma, or in Glen Rose, Texas?

A: Not to my knowledge, and I believe someone would have past this information along to me.

Q: Did you ever sign for a registered letter, receipt requesG from the NRC Region IV office?

A: No, I did not.

Q: To your knowledge,.did anyone affiliated with your businen either in Hobart, Oklahoma, or in Glen Rose, Texas, sign for such C registered letter?

A: Not to my knowledge, and as I stated before, I believe so would have passed this information along to me. No one I have aske about it knew anything about such a registered letter.

Q: How did you first become aware of the NRC investigation r4 about this matter?

. - --_ .__ -_ = -. _ . . _ _ - ., ._ .

O 4 .

I have read the foregoing 4 -page affidavit, which was prepared under my personal direction, and it is true and correct to the best of my knowledge ,

and belief, '

i The foregoing affidavit was prepared under my personal direction, and I the thoughts and words expressed therein are my own . thoughts and words (with the exception of minor gramatical changes, either to correct spelling or to clarify what I meant, which did not change the. intent of my. thoughts). ,

Where questions were posed, they were posed by CASE.

s C '

i lam y V. Witt Date: .T,,,. 27. 19s3 STATE OF TEXAS On this, the 23rd day of June ,1983, personally appeared l , known to me to be the person whose name Larry v. Witt is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes therein expressed.

23rd day of June ,1983.

i Subscribed and 5 worn before me on the Notary Public in anddor the State of Texas My Commission Expires:D 6/%

t

i 11 I

by the B&R investigation. Both of the substantiated allegations were found by the investigators to have been adequately documented and that corrective measures had been taken or were in progress.

. In a separate memorandum dated December 10, 1982, one of the TUGCD investigators documented a phone call from_ Mr. ~'Dillingham in which Mr. Dillingham apparently made yet additional alleg.ations. One of these allegations regarded welding done by an uncertified welder on the turbine-

generator pedestal (by implication). Mr. Dillingham also apparently furt mentioned Mr. Witt who was supposed to know about a sensor that had brokaa i off and was buried in the main dam. Also, Mr.,Witt was alleged to have personally driven a front loader that returned dry and lumpy cement that I

had been rejected to the bin, that this cement had been subsequently-used in the reactor core, and that this was why the cracks happened. The writer of the memorandum stated,that he had encourged Mr. Dillingham to

take his concerns to the.NRC. Mr. Dillingham in turn was reported as

saying that he had intended on going to the newspapers and Congress 4

instead. .

It appears-that Mr. Dillingham carried out his above stated intention in thattheabovereferencednewspaperarticlehasappearedandtothebest3 SRIC's knowledge, Mr. Dillingtam has made no centact with any component ot the NRC. NRC Region IV deterT ned.that the allegations in the news article should be investigated but that those made in the,Feehan letter and in the telephone conversation with TUCCO should not. This decision j was based on the premise that Mr. Dillingham has had his earlier concerns I

satisfied except for those appearing in the .trticle.

Regarding the above summarized allegation (a), the SRIC established that Ftr. Witt was no longer an employee at CPSES and further established that he had relocated from the Glen Rose, Texas, area to another state. NRC Region IV personnel made several attumpts to contact Mr. Witt by telephow at his new address, to no avail. A registered letter, receipt requested,l was then sent to Mr. Witt requesting that he contact Region IV as soon as possible. Receipt of the letter was acknowledged but as of this date, Mr. Witt has not contacted the region. It appears that Mr. Witt does not intend to assist the NRC in investigating allegations attributed to him.

It should be noted that only the B&R in'vestigative group has been able

~

' to establish contact with Mr. Witt; all others have apparently failed.

Regarding summarized allegation (c), the SRIC, with assistance of another Region IV inspector, was able to establish that the underwater lighting standards were fabricated in such a manner as to leave drilling chips inside and had not been removed. It was also established that the lighting standards were fabricated completely outside the licensee's QA program which included various welding operations. There are no records of inspection or of the welders invol.ved or of the weld procedures utilized. Review of the design drawings do not reflect that the A/E considered the lighting standards to be within the QA scope, yet should the standards physically fail during the seismic event, fuel couls be damaged. Given the possibility of failure, the standards should have been classified as Seismic Category II (licensee's FSAR definition for 6

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t UNITED STATEE OF AMERICA

• . NUCLEAR REGULATORY COMMISSION BEFORE THE ATOMIC SAFET9 AND LICENSING BOARD /.

d GESIIEIG9IE DE SEBElGE j.

I hereby certify that copies of CCANP MOTION FOR RECONSIDERATION T,,

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._. OF ASLB RULING OF JULY 14, 1983 ON CC/_NP MOTION FOR NEW CONTENTION were NN served by deposit in the United States Mail, first class postage paid 'A" to the following individuals and entities on the 29th day of July 1983.

- ~~

p- '

Charles Bechhoefer, Esq. William 5. Jordan Esq. . U M

Chief Administrative Judge Harmqn and.W'eiss M~ Atomic Safety and Licensing 1725 I Street, NW . NN.

Board Panel Suite 506 sj

'  !.k.d).2 3./,f U. 5. Nuclear Regulatory Commission Washington, D.C. 20006 er Y Washington, D.C. 20555 y; Jack R. Newmen, Esq. 'E Dr. James C. Lamb, III Lowenstein, Newman, Reis & -

Administrative Judge Axelrad 313 Woodhaven Road 1025 Connecticut Avenue, NW ' >

Chapel Hill, NC 27514 Washington, D.C. 20036 Ernest E. Hill Robert G. Perlis  ;

s Administrative Judge office of the Executive "

[

Lawrence Livermore Laboratory Legal Director l Universitiy of California -

U.S. Nuclear Regulatory Commission P. O. Box 808, L-123 Washington, D.C. 20555 Livermore, CA 94550 Mrs. Peggy Buchorn Atomic Safety and Licensing Board Executive Director U. S. Nuclear Regulatory Comm.

l Citizens for Equitable Washington, D.C.'10555 ..

i Utilities l .l.p Route 1, Box 1684 Atomic Safety and Licensing Sq B. Brazoria . Texas 77411 Appeal Board  ; 3j g!

3

,J Brian Berwick, Esq.

U. S. Nucl ea r Regul c.ato Washington,.D.C. 20555 -

! tl ' Assistant Attorney General le.!

l for the State of Texas ,

Docketing and Service Section Environmental Protection Office of the Secretary l Divisicn U. S. Nuclear Regulatory Comm.

P.O. Box 12548 Capitol Station Washington, D.C. 20555 Austin, Texas 78711 '

i . .

Tom Hudson, Esquire dA+ *y 6m b4 l y ., Shr ;nd L:;p EanngS1nkin ..

c..+. =.c.11 w yo. m 9 x * '

T hem. , Tax;; 77002- .

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