ML20125A346
| ML20125A346 | |
| Person / Time | |
|---|---|
| Site: | Beaver Valley, Davis Besse, Perry, 07201043, 07200069 |
| Issue date: | 05/04/2020 |
| From: | Benyak D Energy Harbor Nuclear Corp, Energy Harbor Nuclear Generation LLC |
| To: | Document Control Desk, Office of Nuclear Material Safety and Safeguards, Office of Nuclear Reactor Regulation |
| Shared Package | |
| ML20125A345 | List: |
| References | |
| L-20-126 | |
| Download: ML20125A346 (10) | |
Text
Confidential Commercial and Financial Information Withhold From Public Disclosure Under 10 CFR 2.390 and 10 CFR 9.17 of this letter contains Confidential Commercial and Financial Information.
Withhold from public disclosure under 10 CFR 2.390 and 10 CFR 9.17.
Upon removal of Attachment 4 this letter is decontrolled.
Energy Harbor Nuclear Corp.
341 White Pond Drive Akron, Ohio 44320 May 4, 2020 L-20-126 U.S. Nuclear Regulatory Commission Attention: Document Control Desk Washington, D.C. 20555
SUBJECT:
Beaver Valley Power Station, Unit Nos. 1 and 2 Docket No. 50-334, License No. DPR-66 Docket No. 50-412, License No. NPF-73 Beaver Valley Power Station, Unit Nos. 1 and 2, ISFSI Docket No. 72-1043 Davis-Besse Nuclear Power Station, Unit No. 1 Docket No. 50-346, License No. NPF-3 Davis-Besse Nuclear Power Station, Unit No. 1 ISFSI Docket No. 72-14 Perry Nuclear Power Plant, Unit No. 1 Docket No. 50-440, License No. NPF-58 Perry Nuclear Power Plant, Unit No. 1 ISFSI Docket No. 72-69 Request for Threshold Determination Energy Harbor Nuclear Corp., acting on behalf of itself and Energy Harbor Nuclear Generation LLC (together, the Licensees), requests a determination by the Nuclear Regulatory Commission (NRC) that the interim stage of the below-described stock buy-back transaction involving the current owners of the Licensees does not constitute a change of control requiring prior agency approval pursuant to 10 CFR 50.80 or 10 CFR 72.50.
Darin M. Benyak Vice President, Nuclear Support & Regulatory Affairs 330-436-1380
Confidential Commercial and Financial Information Withhold From Public Disclosure Under 10 CFR 2.390 and 10 CFR 9.17 Beaver Valley Power Station, Unit Nos. 1 and 2 Beaver Valley Power Station ISFSI Davis-Besse Nuclear Power Station, Unit No. 1 Davis-Besse Nuclear Power Station ISFSI Perry Nuclear Power Plant, Unit No. 1 Perry Nuclear Power Plant ISFSI L-20-126 Page 2 of this letter contains Confidential Commercial and Financial Information.
Withhold from public disclosure under 10 CFR 2.390 and 10 CFR 9.17.
Upon removal of Attachment 4 this letter is decontrolled.
I.
BACKGROUND The Licensees emerged from bankruptcy on February 27, 2020, at which point the ultimate parent company of the Licensees became Energy Harbor Corp. Energy Harbor Corp. is owned by the previous creditors of FirstEnergy Solutions Corp. (FES) and FES debtor-affiliates who converted their claims into equity in Energy Harbor Corp.
Nuveen Asset Management, LLC (Nuveen), through funds it manages, is the largest holder of voting shares of Energy Harbor Corp., holding approximately 39 percent (%) of the issued and outstanding shares of common stock (stock) on a fully diluted basis.
Avenue Capital Management II, L.P. (Avenue), through funds it manages, is the second largest holder of voting shares of Energy Harbor Corp., holding approximately 14% of the stock on a fully diluted basis.1 A depiction of the current structure of the Licensees (including the major holders of stock) is provided in Attachment 1.
The Board of Directors (Board) of Energy Harbor Corp. (currently eight members) is selected pursuant to a Stockholders Agreement in place among Energy Harbor Corp. and its stockholders.2 Nuveen and Avenue have certain director designation rights under this agreement. In particular, so long as Nuveen and Avenue hold a minimum threshold of outstanding Energy Harbor Corp. stock, Nuveen has the authority to designate two directors, and Avenue one director. Of the two directors Nuveen can designate, one of those directors must be independent of any stockholder with director nomination rights, including Nuveen.
II.
DESCRIPTION OF STOCK BUY-BACK PROGRAM AND INTERIM STAGE A.
Overview of Stock Buy-Back Program Energy Harbor Corp. is buying back outstanding stock currently held by its stockholders (the Buy-Back Program). By buying back stock, the overall pool of outstanding Energy 1 Both Nuveen and Avenue are investment advisory or management firms that act as investment advisers or fund managers on behalf of certain funds or accounts.
2 Energy Harbor Nuclear Corp. letter to the NRC dated March 27, 2020, titled Submittal of Information Pertaining to Foreign Ownership, Control, or Influence.
Confidential Commercial and Financial Information Withhold From Public Disclosure Under 10 CFR 2.390 and 10 CFR 9.17 Beaver Valley Power Station, Unit Nos. 1 and 2 Beaver Valley Power Station ISFSI Davis-Besse Nuclear Power Station, Unit No. 1 Davis-Besse Nuclear Power Station ISFSI Perry Nuclear Power Plant, Unit No. 1 Perry Nuclear Power Plant ISFSI L-20-126 Page 3 of this letter contains Confidential Commercial and Financial Information.
Withhold from public disclosure under 10 CFR 2.390 and 10 CFR 9.17.
Upon removal of Attachment 4 this letter is decontrolled.
Harbor Corp. stock will decrease, resulting in the remaining stockholders increasing their relative holdings of Energy Harbor Corp., and thus indirectly the Licensees.
Specifically, the Energy Harbor Corp. Board has authorized Energy Harbor Corp.s management to repurchase up to $500 million of Energy Harbor Corp.s outstanding stock. Energy Harbor Corp. expects to repurchase such stock from time to time in accordance with applicable laws and regulations. The actual timing, number, and value of stock repurchased will be determined by Energy Harbor Corp.s management and will depend on a number of factors, including market prices, general market and economic conditions, and compliance with applicable legal requirements.
As noted above, Nuveen and Avenue currently hold approximately 39% and 14% of the stock of Energy Harbor Corp., respectively. If the Buy-Back Program proceeds as anticipated, the percentage of stock held by each of Nuveen and Avenue will increase because fewer shares of stock will be outstanding overall. While the Licensees do not know at this time precisely how much these current ownership percentages will increase, in any event Nuveen will not hold more than 58% of the stock of Energy Harbor Corp., nor will Avenue hold more than 30% of the stock of Energy Harbor Corp.
The anticipated post Buy-Back Program ownership changes are also identified in.
Apart from the Buy-Back Program, the percentage of stock held by each of Nuveen and Avenue may also increase to the extent that the two stockholders purchase additional stock from other Energy Harbor Corp. stockholders from time to time. The impacts from any such normal-course purchases are included in the percentage ownership figures and limits cited in the analysis herein.
As is discussed further below, if the percentage of Energy Harbor Corp. stock held by Nuveen increases above its current level (that is, approximately 39%), Nuveen will only hold a beneficial (that is, an economic non-controlling) interest in such additional ownership percentage until necessary regulatory approvals are received. More specifically, under the terms of a Voting Agreement, Attachment 4 and described below, Nuveen will not have the ability to vote above its approximately 39% current level of stock ownership until necessary regulatory approvals are received. The Stockholders Agreement will also continue to govern the composition of the Energy Harbor Corp.
Board.
Confidential Commercial and Financial Information Withhold From Public Disclosure Under 10 CFR 2.390 and 10 CFR 9.17 Beaver Valley Power Station, Unit Nos. 1 and 2 Beaver Valley Power Station ISFSI Davis-Besse Nuclear Power Station, Unit No. 1 Davis-Besse Nuclear Power Station ISFSI Perry Nuclear Power Plant, Unit No. 1 Perry Nuclear Power Plant ISFSI L-20-126 Page 4 of this letter contains Confidential Commercial and Financial Information.
Withhold from public disclosure under 10 CFR 2.390 and 10 CFR 9.17.
Upon removal of Attachment 4 this letter is decontrolled.
Certain confidential commercial and financial information is included in Attachment 4.
Energy Harbor Nuclear Corp. requests that Attachment 4 be withheld from public disclosure pursuant to 10 CFR 2.390 and 10 CFR 9.17. A redacted version of is provided in the publicly available version of this request as Attachment
- 2. The redacted information is identified by brackets [ ]. An affidavit from Nuveen supporting the request for withholding the proprietary confidential commercial and financial information from public disclosure is provided in Attachment 3.
The financial and technical qualifications of the Licensees to own and operate the four above-referenced reactors and independent spent fuel storage installations (the facilities) will not be affected by the Buy-Back Program. There will be no physical changes to the facilities, no changes in their day-to-day operations, and no material changes to equipment operating procedures in connection with the contemplated transaction. The facilities onsite organizations will remain unchanged by the transaction, and the onsite organizational structure, including lines of authority and communication, will not be affected by the transaction. There will also be no changes to the Energy Harbor Corp. corporate structure as a result of the transaction.
B.
Transaction Stages Energy Harbor Corp. commenced initial purchases under the Buy-Back Program. To the extent that the Buy-Back Program, along with independent purchases of stock by Nuveen, initially results in Nuveen obtaining a beneficial interest of up to 49.9% of the stock of Energy Harbor Corp., the incremental change in relative stockholding from approximately 39% to 49.9% offers Nuveen no material new rights or ability to control decision-making beyond its current approximate 39% stake. Energy Harbor Nuclear Corp. concludes that this incremental change does not amount to a transfer of control and therefore this change is not requested for review under this Threshold Determination Request. The Licensees nonetheless recognize that to the extent Nuveen would obtain 50% or more of the stock of Energy Harbor Corp., this could result in a transfer of control of the facility licenses (the licenses), requiring NRC approval.
As a result, to facilitate the Buy-Back Program in compliance with NRC requirements, the remaining Buy-Back Program transaction is proposed to occur in two stages, as outlined below. The first stage (Interim Stage) is intended to restrict Nuveens exercise of stockholder voting rights to current levels, so that it cannot exert majority stockholder
Confidential Commercial and Financial Information Withhold From Public Disclosure Under 10 CFR 2.390 and 10 CFR 9.17 Beaver Valley Power Station, Unit Nos. 1 and 2 Beaver Valley Power Station ISFSI Davis-Besse Nuclear Power Station, Unit No. 1 Davis-Besse Nuclear Power Station ISFSI Perry Nuclear Power Plant, Unit No. 1 Perry Nuclear Power Plant ISFSI L-20-126 Page 5 of this letter contains Confidential Commercial and Financial Information.
Withhold from public disclosure under 10 CFR 2.390 and 10 CFR 9.17.
Upon removal of Attachment 4 this letter is decontrolled.
control over Energy Harbor Corp. even if it accrues beneficial ownership of a majority of outstanding shares. The second stage (Final Stage) would occur if Nuveen desires to exercise the voting rights for its shares.
Pursuant to the Threshold Determination Request herein, the Licensees request NRC confirmation that this Interim Stage of the transaction, as described further below, would not result in a transfer of control of the licenses.
x Interim Stage - Transfer of Economic Rights In the Interim Stage of the proposed transaction, Nuveen will adhere to the Voting Agreement. Section 2.1 of the Voting Agreement prevents Nuveen from voting its stockholdings beyond its current holdings of approximately 39% of Energy Harbor Corp.
stock. The Energy Harbor Corp. Board will also continue to be constituted pursuant to the Stockholders Agreement already in place (which gives Nuveen the right to designate two directors, as discussed above).
Therefore, although during the Interim Stage of the Buy-Back Program Nuveen could potentially increase its proportional beneficial ownership of the Energy Harbor Corp.
stock up to 58% (also accounting for any Nuveen purchases of Energy Harbor Corp.
stock), pursuant to the Voting Agreement and Stockholders Agreement it will not obtain any increased voting power or ability to designate more Energy Harbor Corp. directors than it currently has.
x Final Stage - Transfer of Control In the final stage of the proposed transaction, the Licensees will submit a license transfer application to the NRC for review and approval before terminating the Voting Agreement, if Nuveens beneficial ownership of Energy Harbor Corp. stock exceeds
Confidential Commercial and Financial Information Withhold From Public Disclosure Under 10 CFR 2.390 and 10 CFR 9.17 Beaver Valley Power Station, Unit Nos. 1 and 2 Beaver Valley Power Station ISFSI Davis-Besse Nuclear Power Station, Unit No. 1 Davis-Besse Nuclear Power Station ISFSI Perry Nuclear Power Plant, Unit No. 1 Perry Nuclear Power Plant ISFSI L-20-126 Page 6 of this letter contains Confidential Commercial and Financial Information.
Withhold from public disclosure under 10 CFR 2.390 and 10 CFR 9.17.
Upon removal of Attachment 4 this letter is decontrolled.
49.9% as a result of the transaction and Nuveen desires to vote its shares.3 The Voting Agreement will be terminated at that point and Nuveen will be able to vote in accordance with its holdings - potentially up to 58% of outstanding stock.
The following diagram provides a depiction of Nuveens economic and control rights during the Interim and Final Stages of the Buy-Back Program.
Figure 1: Depiction of Nuveen Economic and Control Rights III.
REQUEST FOR THRESHOLD DETERMINATION AS TO INTERIM STAGE The Licensees request NRC confirmation that the Interim Stage of the above-described Buy-Back Program does not result in a change of control of the NRC licenses. This position aligns with NRC case law and precedent concerning similar transactions.
3 By its terms, if Nuveens ownership of Energy Harbor Corp. exceeds 49.9%, the Voting Agreement will only terminate upon approval of a license transfer application by the NRC. See Voting Agreement Section 4.1 (The agreements termination date follows Federal Energy Regulatory Commission (FERC) and NRC approval of required filings.).
Confidential Commercial and Financial Information Withhold From Public Disclosure Under 10 CFR 2.390 and 10 CFR 9.17 Beaver Valley Power Station, Unit Nos. 1 and 2 Beaver Valley Power Station ISFSI Davis-Besse Nuclear Power Station, Unit No. 1 Davis-Besse Nuclear Power Station ISFSI Perry Nuclear Power Plant, Unit No. 1 Perry Nuclear Power Plant ISFSI L-20-126 Page 7 of this letter contains Confidential Commercial and Financial Information.
Withhold from public disclosure under 10 CFR 2.390 and 10 CFR 9.17.
Upon removal of Attachment 4 this letter is decontrolled.
Under NRC case law, control of an NRC license is to be found in the person or persons who, because of ownership or authority explicitly delegated by the owners, possess the power to determine corporate policy and thus the direction of the activities under the license.4 Thus, control requires actual power to determine corporate policy and thus the direction of the activities, and when there is no change in power to direct corporate activities, there is no change in control.
In the case of a typical holder of stock such as Nuveen, control is primarily exercised in two ways - by choosing the members of the board of directors (either through voting of stock or agreement between the stockholders), and by voting stock for those actions that require stockholder vote.5 The Voting Agreement and Stockholders Agreement together essentially freeze Nuveens ability to vote its stock and select Board directors at current levels until an anticipated future license transfer application is approved.
The NRC has recently affirmed that similar restrictions can effectively mitigate change of control concerns. In 2018, Westinghouse Electric Company, LLC (Westinghouse),
operator of the Columbia nuclear fuel fabrication facility, and its parent companies, engaged in a two-stage transaction with Brookfield WEC Holdings LLC (Brookfield) similar to what is proposed here - with a preliminary stage involving a sale of restricted stock to Brookfield, followed later by a release of those restrictions in the later stage.6 The NRC found that the interim transaction in the Westinghouse example, in which stock transferred but was subject to strict voting restrictions, did not result in a change of control until those restrictions were removed. The NRC concluded that voting restrictions effectively prohibited Brookfield from exercising the control that it would otherwise have over Westinghouse.
In the Westinghouse example, Brookfield retained certain reserved rights to vote its acquired stock during the interim transaction, which were closely reviewed by the NRC.
4 Safety Light Corp. (Bloomsburg Site Decontamination), ALAB-931, 31 NRC 350, 367 (1990).
5 See South Texas Project Units 1 and 2, Request for Threshold Determination Under 10 CFR 50.80, NRC Safety Evaluation Report at 3 (Nov. 1, 2012) (Accession No. ML12297A134) (the NRC staff looking to majority control of stockholders and board members as key indicia of corporate control).
6 See Evaluation of and Threshold Determination on the Share Purchase Agreement Between Toshiba Corporation and Brookfield WEC Holdings LLC (Mar. 22, 2018) (Accession No. ML18073A224)
(Westinghouse Threshold Determination).
Confidential Commercial and Financial Information Withhold From Public Disclosure Under 10 CFR 2.390 and 10 CFR 9.17 Beaver Valley Power Station, Unit Nos. 1 and 2 Beaver Valley Power Station ISFSI Davis-Besse Nuclear Power Station, Unit No. 1 Davis-Besse Nuclear Power Station ISFSI Perry Nuclear Power Plant, Unit No. 1 Perry Nuclear Power Plant ISFSI L-20-126 Page 8 of this letter contains Confidential Commercial and Financial Information.
Withhold from public disclosure under 10 CFR 2.390 and 10 CFR 9.17.
Upon removal of Attachment 4 this letter is decontrolled.
However, the Energy Harbor Corp. Voting Agreement and Stockholders Agreement contain no such reserved rights for Nuveen. Therefore, the Energy Harbor Corp. Buy-Back Program is simpler than what was previously approved by the NRC.
The Westinghouse Threshold Determination itself builds on a history of NRC evaluations that have relied on voting restrictions on investors to limit control concerns.7 This precedent also aligns with determinations made by other regulatory agencies indicating that stockholders who cannot vote or otherwise use their stock to control company activities do not have control of the company.8 IV. REQUESTED REVIEW DATE The Licensees request confirmation that the Interim Stage of the Buy-Back Program described above, in which Nuveens beneficial ownership of Energy Harbor Corp. stock could increase above 50% and up to 58%, does not constitute a change of control of the licenses in view of the restrictions of the Voting Agreement and Stockholders Agreement.
The Licensees request completion of the NRCs review by 60 days from filing, to accommodate the Energy Harbor Corp. stock Buy-Back Program. Apart from NRC review of this request, there are no other regulatory approvals required for the Interim 7 See, e.g., Comanche Peak Steam Electric Station, Units 1 and 2, Safety Evaluation Report Re: Threshold Determination Concerning Convertible Notes and Stock Transactions, at pages 3 and 5 (Apr. 14, 2003)
(Accession No. ML031040532) (Use of independent voting trusts effectively limited Credit Suisse control of stock it owned.); Review of Phase 2 of the Toshiba American Nuclear Energy Corporation and the Babcock &
Wilcox Investment Company Investment In USEC Inc., at page 1 (Feb. 8, 2011) (Accession No. ML103630746) (The NRC determined that an ownership interest transfer in the sale of nonvoting preferred stock did not cause a change of control.).
8 See AES Creative Resources, L.P., et al., 129 FERC ¶ 61,239, at PP 24-25 (2009) (For securities to be voting securities they must give an investor actual authority to manage, direct, or control the activities of the company.); Federal Power Act Section 203 Supplemental Policy Statement, 72 Fed. Reg. 42,277 (Aug. 2, 2007), FERC Stats. & Regs. ¶ 31,253, at P 54 (2007), order on clarification and denying reconsideration, 122 FERC ¶ 61,157 (2008) (Investments in public utilities that do not convey control may be considered to be passive investments not subject to the change of control restrictions of Section 203 of the Federal Power Act.).
Confidential Commercial and Financial Information Withhold From Public Disclosure Under 10 CFR 2.390 and 10 CFR 9.17 Beaver Valley Power Station, Unit Nos. 1 and 2 Beaver Valley Power Station ISFSI Davis-Besse Nuclear Power Station, Unit No. 1 Davis-Besse Nuclear Power Station ISFSI Perry Nuclear Power Plant, Unit No. 1 Perry Nuclear Power Plant ISFSI L-20-126 Page 9 of this letter contains Confidential Commercial and Financial Information.
Withhold from public disclosure under 10 CFR 2.390 and 10 CFR 9.17.
Upon removal of Attachment 4 this letter is decontrolled.
Stage of the buy-back transaction to proceed.9 The Licensees intend to submit a license transfer application to the NRC for review and approval before terminating the Voting Agreement and moving to the Final Stage of the Buy-Back Program, if Nuveen exceeds or is expected to exceed a 49.9% ownership share of Energy Harbor Corp. and if Nuveen desires to vote its shares.
There are no regulatory commitments contained in this letter. If there are any questions or if additional information is required, please contact Mr. Thomas A. Lentz, Manager -
Nuclear Licensing and Regulatory Affairs, at (330) 315-6810.
Sincerely, Darin M. Benyak Attachments:
- 1. Corporate Organization and Ownership
- 2. Redacted Nuveen Asset Management, LLC Voting Agreement
- 4. Unredacted Nuveen Asset Management, LLC Voting Agreement 9 FERC approval under Section 203 of the Federal Power Act is potentially required for termination of the Voting Agreement, because it results in a potential transfer of control under FERC precedent. However, FERC approval is not required for the Interim Stage to proceed.
Confidential Commercial and Financial Information Withhold From Public Disclosure Under 10 CFR 2.390 and 10 CFR 9.17 Beaver Valley Power Station, Unit Nos. 1 and 2 Beaver Valley Power Station ISFSI Davis-Besse Nuclear Power Station, Unit No. 1 Davis-Besse Nuclear Power Station ISFSI Perry Nuclear Power Plant, Unit No. 1 Perry Nuclear Power Plant ISFSI L-20-126 Page 10 of this letter contains Confidential Commercial and Financial Information.
Withhold from public disclosure under 10 CFR 2.390 and 10 CFR 9.17.
Upon removal of Attachment 4 this letter is decontrolled.
cc: NRC Region I Administrator (without Attachment 4)
NRC Region III Administrator (without Attachment 4)
NRC Project Manager - Energy Harbor Nuclear Corp. Fleet (without Attachment 4)
NRC Resident Inspector - Beaver Valley Power Station (without Attachment 4)
NRC Resident Inspector - Davis-Besse Nuclear Power Station (without Attachment 4)
NRC Resident Inspector - Perry Nuclear Power Plant (without Attachment 4)
Director BRP/DEP (without Attachment 4)
Site Representative BRP/DEP (without Attachment 4)
Branch Chief, Ohio Emergency Management Agency, State of Ohio (NRC Liaison) (without Attachment 4)
Utility Radiological Safety Board (without Attachment 4)