ML20136F022
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NUCLEAR REGULATORY COMMISSION j
WASHINGTON, D. C. 20555 o,
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JUN 14 tc84 11EMORANDUli FOR:
Chairman Palladino a
L4cmmissioner Gilinsky Comissioner Roberts Comissioner Asselstine Connissioner Bernthal FROM:
tiilliam J. Dircks Executive Director for Operations
SUBJECT:
DIRECTOR'S DECISION (DD-84-8) CONCERNING DIA MATERIAL FALSE STATEl1ENT In SECY-84-203, OCC recomends that the Comission take review under and Enforcement (DD-84-8) concerning a materia to the Pacific Gas and Electric Company (PGandE) for its failure in 1977 Canyon Nuclear Power Plant.to report the results of an audit of quality as Although OGC agreed that the ultimate sanction should be limited to issuance of a notice of violation, 0GC takes issue with the Director's selection of severity level IV under the Comission's enforce policy for the particular material false statement.
OGC's position that the violation should be classified at severity level III stems from two basic premiser.:
that the Director's discretion under the false statement and that the factual circumstances level classification.
any given case more than one reasorable result may be availab had only stated that they viewed the facts differently and reached a If OGC different result, we would not have brought this matter to the attention of the Comission.
the flexibility provided in the Cornission's enforcement polic enforcement action to the facts of the particular case at issue at a severity level IV.
0GC states:
Although the Director has discretion in applying the severity levels to different factual circumstances, we believe that the scope of that discretion in the circum-stances of this case was limited to classification as severity level II or severity level III.
Contact:
Stephen G. Burns, OELD v [ 272 d6
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SECY 84-203 at 9.
The enforcement policy is not as restrictive as OGC suggests.
The Commission promulgated the policy to provide general guidance and criteria, rather than a prescriptive formula, for taking enforcement action.
In the Statement of Consideration accompanying promulgation of 10 CFR Part 2, Appendix C, in 198:', the Commission remarked:
In drafting the statement it was expected that the specific enforceraent criteria should provide adequate guidance and be applied in the majority of circumstances requiring enforcement actions.
The policy, as indicated above, does provide discretion to take appropriate action if, after considering the policy statement, the Director detemines that application of the criteria is inappropriate.
47 Fed. Reg. 9987, 9989 (flarch 9, 1982).
The policy itself states:
In recognition that the regulation of nuclear activities in many cases does not lend itself to a mechanistic treatu nt, the Director must exercise judgement and dis-
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creticn ir, detemining the severity levels of the violations and tha appropriate enforcement sanctions....
10 CFR Part 2, Appendix C, ! VI " Responsibilities" (1983). If i
liith respect to selection of severity levels, the policy states, "While examples i
are provided in Supplements I through VII for determining the appropriate severity level for violations in each of the seven activity areas, the examples are neither exhaustive nor controlling." Id. at E III (emphasis added).
Im-l portantly, Supplement VII, which deals with material false statements, has a footnote which expressly recognizes the flexibility in. arriving at a sever-i ity level. Thus, contrary to the implication in OGC's memorandum, the l
Director has broad discretion in applying a severity level to a particular violation.
0GC believes that the material false statement should be classified at severity level III primarily on the basis of its view that.
PG&E acted with careless disregard when it knowingly informed the Licensing Board that there were no QA problems at the same time that the flSC audit was under i
review and PG&E had little reason to believe that later reviews of the audit would be favorable to Pullman.
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The same basic language, with minor alterations to reflect responsibility of the Regional Administrators in taking enforcement action, also appears in the revised policy published at 49 Fed.
Reg. 8583, P591 (itarch 8,1984).
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. SECY 84-203 at 8.
In determining the severity level, OGC drew several conclusions with which the staff differs.
It is an overstatement to say that PGandE represented that there were n_o_ QA problems at Diablo Canyon.
fir. Uischow's testimony before the Licensing Board was somewhat qualified with respect to the effectiveness of the QA program. y In his testimony, 11r. Wischow indicated that, because one could expect imperfections in the construction program, a quality assurance program was necessary, and he also admitted that there had been imperfections in the quality assurance program, "because here again quality assurance people are sort of not God or immortal, either". Transcript at 3604. The thrust of fir. Wischow's testimony was that the quality assurance program had in practical application uncovered defects in construction which were then corrected and that the program was generally working. See also " Proposed Findings of Fact and Conclusions of Law Submitted by Pacific Gas & Electric Company (flovember on All Remaining Non-Seismic Issues Other Than the Security Plan", at 6 11,1977).
The material false statement for PGandE's failure to report the audit is based on the theory of an omission, as opposed to an affinnative false statement. While FGendE obviously " knowingly" filed its testimony and subsequent findings on the quality assurance issue, it is not so obvious that PGandE made these filings with the same degree of carelessness or recklessness as was present in the Flaxman case cited by OGC, wherein the broker falsely answered a direct request to identify any prior suspensions from trading.
Flaxman v. Commodity Futures Tradino Comission, 697 F.2d 782 (7th Cir.1983).
For similar reasons the Director distinguished in his decision other instances in which the Conmission had classified material false statements at a severity level III, wherein the licensee's affinnative representations were false and were made in response to express staff requests for information.
See D0-84-8 at 15. Under all the. circumstances, it is far from clear that PGandE's conduct rises to the same level as the Fla man, or even the Pilgrim and Brunswick cases.
CGC suggests that PGandE had "little reason" to believe that later reviews of the ilSC audit would be favorable to Pullman. 3/ However, lir. Uischow y
fir. Wischow was the Director of the PGandE Quality Assurance Department at the time.
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SECY 84-203 at 8.
0GC also states, "That PG&E was not sure it could rely on Pullman's review of the audit which discounted the seriousness of the findings is evidenced by its decision to conduct its cwn audit to determine whether a significant safety problem existed." OGC's inference does not necessarily hold true since llRC would generally expect that the licensee review the results of the audit and take appropriate follow-up actions, whether the audit results were glowing or dire.
See 10 CFR Part 50, Appendix B, Criterion XVIII.
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indicates in an affidavit which is referenced in the Director's decision that, in February-itarch 1978, upon review of the NSC audit and Pullman's initial
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- response, PGandE agreed that the NSC audit was misdirected in that the hardware installed by Pullman had not been audited by NSC as I
was intended. He concurred with Pullman that many of the NSC opinions were not consistent with the QA requirements at the l
time that the work was done and, in some instances, the opinions were inconsistent with the then-current 1977 regulations and requi rements.
Regardless of this misunderstanding, we required appropriate corrective actions to be taken on the results of this audit in accordance with the then current PGandE Corporate QA Program, t
Thus, there may well have been good reason to suspect that further review of the NSC audit results would have been favorable to Pullman.
OCC seems to suggest that the Director abused his discretion in classifying this material false statement at severity level IV. In our view, the 4
1 circumstances surrounding this matter suggest that the level IV classification can be legitimately chosen.
The Commission is not limited to a strict i
abuse-of-discretion standard in reviewing the Director's decision and can substitute its judgment for that of the Director.
The staff suggests, however, that the Commission's chief enforcement officer has provided a clear, reasoned judgment in his decision as to why a severity level IV classification is appropriate.
b William J. Dircks t
E y xecutive Director for Operations CC; OGC OPE SECY I
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