ML20198P718

Motion of Nepco for Leave to Intervene & Petition for Summary Relief Or,In Alternative,For Hearing.* Moves to Intervene in Transfer of Montaup Seabrook Ownership Interest & Petitions for Summary Relief or for Hearing

ML20198P718
Person / Time
Site:	Seabrook
Issue date:	12/31/1998
From:	Berlin E NEW ENGLAND POWER CO., SWIDLER & BERLIN
To:	Atomic Safety and Licensing Board Panel
Shared Package
ML20198P591	List: ML20198P585 ML20198P650 ML20198P718 ML20198P755
References
LT, NUDOCS 9901070116
Download: ML20198P718 (12)

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UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION In the Matter of

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North Atlantic Energy Service Corporation and

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Docket No. 50-443 -LT hiontaup Electric Company

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(License No. NPF-86)

(Seabrook Station, Unit No 1)

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MOTION OF NEW ENGLAND POWER COMPANY FOR LEAVE TO INTERVENE, AND PETITION FOR

SUMMARY

RELIEF OR, IN_TJIE ALTERNATIVE. FOR A HEARING I.

Introduction. Summary and Affected Interest f

. Pursuant to Subpart M of the Nuclear Regulatory Commission's (" Commission") Rules of l

Practice and Procedure and, specifically,10 C.F.R. { 2.1306 (December 3,1998) New England Power Compsny ("NEP") moves to intervene in the captioned proceeding and petitions either for summary reliefor for a hearing.

In this proceeding, North Atlantic Energy ' Services Corporation (" North Atlantic"), the operator of the Seabrook $uclear unit, and Montaup Electric Company ("Montaup"), a minority owner and licensee of that unit, seek authorization for a license transfer of Montaup's ownership i

share, and ongoing financial responsibility for the unit, to Little Bay Power Corporation L

("Little Bay"). - Little Bay is a wholly-owned subsidiary of BayCorp Holdings, Ltd., a holding I

company that also wholly owns Great Bay Power Corporation, which owns approximately a 12.1%

ownership interest in the unit. Se effect will be to transfer financial responsibility for the unit from i

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i' a rate regulated electric utility, to an Exempt Wholesale Generator that will be dependent upon market revenues for the satisfaction ofits financial obligations.

As ajoint licensee ofSeabrook, NEP has a vital interest in the financial qualification ofeach t

licensee to meet its obligation for the safe operation and eventual decommissioning of the unit.

Currently, there is a mechanism in place to ensure satisfaction of those obligations - the rate recovery assured Montaup under its approved restructuring settlements. Those rate recovery mechanisms are premised on an unassailable assumption: that it is not now possible accurately to i

l predict the financial requirements associated with operation and decommissioning of a unit that is l

l licensed to operate until 2026. Recognizing that the public interest in safe decommissioning, in L

' particular, is so fundamental, those rate settlements take pains to provide adequate assurance even in the event of divestiture. Montaup would abandon that rate protection and replace it witlia prefunded decommissioning payment and an assumption about the adequacy of future market l

l revenues for the satisfaction of operating costs projected to be incuned over the next five years.

NEP recognizes that decommissioning prefunding and cost and revenue projections are alternative means of satisfying financial qualification for entities that do not qualify as " electric

- utilities" under 10 C.F.R.Q 50.2. But it also is the case that the electric power industry is undergoing -

profound change - particularly in New England. In much of that market, consumer choice is now l-the paradigm, and access by attemative suppliers is assured. As a consequence, approximately 60 new, efficient power plants have been announced and they, together with inexpensive energy from j

Canada, are placing intense pressure on the competitiveness of existing generation. In the past

- six years,' four of New England's nine nuclear units already have been retired. As described in the attached affidavit ofMr. James S. Robinson, NEP's Director ofGeneration Investments, these units 2-s

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t "were shutdown prematurely; well in advance of the expiration of their respective operating I

- licenses." Aff at16.

While it may well remain appropriate, in the abstract, to conclude that a licensee dependent I

upon market revenues and a prefunded decommissioning fund could satisfy the financial qualification requirements, in the dynamic New England circumstance it is inappropriate, without more, summarily so to assume. Instead, in the context of the present applications it is incumbent l

l upon the Commission to test the probity of the market revenue projections and the reasonableness i

of the assumption - critical to the Applicant's decommissioning funding representation - that i

Seabrook will indeed remain economic to operate for the remainder ofits license term. If the l

experience in New England as to the operating life of nuclear units remains true for Seabrook, the prepayment that is pwposed will prove significantly~ deficient.

Moreover, the dynamic l

circumstances of the relevant market make the revenue projections very uncertain even for the i

five-year period discussed in the application and quite speculative thereafter.

These issues are directly relevant to the judgments that the Commission must make in response to the Applications. They are issues that affect NEP directly as a joint licensee of L

Seabrook. NEP will be injured ifthe Commission grants the application unconditionally, for without reasonable assurance of adequate funds for safe operation and decommissioning, NEP's license L

l irterest in the plant will not reasonably be protected from radiological injury.

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In these circumstances the Commission has two attematives: set the issue of financial L

t qualifications for hearing or condition the transfer request on Montaup's agreement to remain contingently responsible should Little Bay prove unable to meet its financial obligations for the safe operation and decommissioning of the Seabrook unit.

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We urge the latter, conditioning, alternative. First, it will avoid the necessity of the l

j Commission having to make judgments about complex economic issues in a rapidly changing i

l' electric power market. Second, because it would leave ultimate responsibility, albeit contingent, i

with the rate-regulated company, it would make divestiture more palatable to the constituencies that l

l have a vital stake in restructuring.

In accordance with 10 C.F.R. 2.708(e) and 2.1306(b)(1), the following are designated as the persons on whom service of pleadings and other papers in this proceeding should be made:

John F. Sherman, Esq.

Associate General Counsel l

(508) 389-2971 James S. Robinson Vice President and Director of Generation Investments (508)389-2643 I

NEW ENGLAND POWER COMPANY 25 Research Drive g

f Westborough, Massachusetts 01582 l

(508) 389-2463 (facsimile)

Edward Berlin, Esq.

J. Phillip Jordan, Esq.

I Mark R. Klupt, Esq.

l SWIDLER BERLIN SHEREFF FRIEDMAN 3000 K Street, N.W., Suite 300 l

Washington, D.C. 20007 (202) 424-7504 l

(202) 424-7643 (facsimile) y l

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II.

The Issues Presented

- The issues presented are whether the Commission, under the ur.ique facts of this case and the state of electric power restructuring in New England, may appropriately find:

that the proposed level of funding for decommission is likely to be adequate; e 4

that the proposed licensee, Little Bay, is likely to have adequate financial resources to ensure the continued safe operation of the Seabrook unit.

NEP, as ajoint licensee of the Seabrook unit, has an obvious protected interest in ensuring that those who assume ownership interests in that unit can reasonably be found to possess the

. requisite financial capability. Resolution of this issue of financial capability goes to the heart of the Commission's responsibilities when it is asked to approve a license transfer. In the context of this case, that issue, as shall be described presently, presents novel factual issues which either must be l

considered at an evidentiary hearing, or be addressed by conditioning the transfer authorization.

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The Salient Facts f

As proposed by the Applicants, following transfer of Montaup's ownership interest, l-L Little B ay will assume Montaup's ongoing obligations for capital investment and operating expenses and for escalations in decommissioning obligations abcve an amount to be prefunded by Montaup.

To meet its financial obligations to the unit, Little Bay will look exclusively to Great Bay which is obligated to purchase Little Bay's share of the unit's output. Neither Little Bay nor Great Bay will l

be " electric utilities" under 50 C.F.R. @ 50.2. As such, neither will be rate-regulated or free to establish their own rate levels. Instead, Great Bay's sole ability to meet its obligations to Little Bay will turn, with one limitedgxception, on its ability to sell Little Bay's share of the unit's output in i

a competitive bulk powerinarket at rates sufficient to meet Little Bay's ongoing financial obligations to the Seabrook unit. Montaup,in contrast, is today an electric utility and will remain such. In this 1

'For a limited period of time, extended not beyond 2009, Great Bay may have the ability to

- sell a portion of Little Bay's Seabrook entitlement to Montaup at prescribed rates. But even this y

limited right is extinguishable at any time by Montaup's customers choosing to obtain their power i~

supplies from competitive sources.

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capacity, it is and will remain rate-regulated. Moreover, in the restructuring settlements approved by its State and Federal rate regulators, Montaup has the right to rate recovery of required L

decommissioning expenditures and of the majority of ongoing nuclear capital and operational expenditure requirements. That regulatory commitment parallels rate agreements between other minority owners of the Seabrook unit and their rate regulators.

Recognizing that Little Bay would not qualify for the relaxed standard applicable to " electric utilities," the Applicants urge that the Commission take comfort from a proposed prepayment of decommissioning expenditures and from their five-year projection of market revenues.

NEP recognizes that the "prefunding" of anticipated decommissioning obligations has been an accepted means by which to satisfy that portion of a licensee's financial obligation and that it may remain so,in appropriate circumstances, in the future. On the record as it presently stands, however,

- the Commission cannot properly make a finding of funding sufficiency.

Applicants propose that Montaup deposit in its decommissioning fund the amount which, if the current decommissioning cost estimate remains unchanged will, based on an assumed eamings level, produce sufficient funds, assuming that decommissioning expenditures are not incurred until 2026, the expiration of the Seabrook license term. If today's estimate were to prove lower than actual or were the unit to cpase cperations and commence decommissioning expenditures prior to 2026, the prepayment could prove seriously deficient. And at that point the licensee for Montaup's portion would be an entity that lacked any revenue-generating resource, a fact that, importantly, distinguishes this proposed transfer 90m situations where the proposed licensee would have alternative means for the satisfaction of any decommissioning deficiency. Early retirement of nuclear units has been the norm in New England, even before pressure was exerted from efficient r

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new suppliers. ~ Aff. at 16. If it were necessary to commence decommissioning activities at Seabrook prior to the expiration ofits operating license, the prefunded share could be deficient, even assuming that the fund earns at the level projected by Applicants. Aff. at 8. The irony is that under Montaup's rate settlements there is absolutely no need to impose that likely prejudice on the public.

Divestiture is not dependent on Montaup shedding itself of this obligation and, absent a probing inquiry into issues touching on the likely service life of Seabrook and the financial si uation likely t

to be confronting Little Bay some ten or twenty years hence, the Commission, on the facts thus far presented, is in no position to find that Little Bay is capable of discharging its responsibility for the decommissioning ofSeabrook or that the public interest would be served by authorizing the transfer as requested.

Nor is the Commission in a position to find that Little Bay is likely to have the financial f

capability to meet the ongoing capital and expense obligations associated with the ownership share of Seabrook that Montaup would transfer to it. Again, we recognize that in other circumstances the Commission has looked at five-year expense and earnings forecasts and that the Applicants here have presented that type of analysis, with the revenue portion submitted on a confidential basis and not currently available to NEP.

We already have referenced the fact that the electric power market in New England is in the midst ofprofound change. Divestitures are occurring and an Independent System Operator of the bulk transmission system has been put in place, each with the objective ofstimulating power supply entry and competition for load. Retail access is now a reality. Retail access was not in place when the original Great Bay' transfer was authorized,62 Fed. Reg. 40549 (1997). As Mr. Robinson describes, developers have announced plans for no less than 60 new units (totaling in excess of,

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. 30,000 megawatts) to be constructed in New England. Moreover, because of transmission

' constraints between New England and the states on which it borders, it must be assumed that much of that capacity is being planned for the load within New England. While surely not every

' announced project will achieve commercialization, it must also be assumed that a good deal of existing capacity will be displaced. Indeed, in a recent order facilitating access to New England's

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transmission grid, the Federal Energy Regulatory Commission made this point abundantly clear (New England Power Pool, 85 FERC 161,141, 61,551 (1998)):

Currently, NEPOOL's new generation requests total approximately 30,000 MW of capacity. Since the existing resources within NEPOOL (25,000 MW) are presently in general equilibrium with load and reserve requirements, if all of these generation projects are developed, there would be a l

surplus of generating capacity within NEPOOL. Accordingly, it is unlikely that all of these generation projects will be constructed and, if constructed, it is likely that l

many will displace more expensive resources in serving existing load.2 1

In these particular New England circumstances, any revenue projections will be difficult and, depending on assumptions and analyses, very uncertain even for the first five years and quite speculative thereafter. Therefore, the Commission cannot accept the Applicants' revenue projections without subjecting them to the crucible of an evidentiary inquiry.

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2In apparent response to this order, and that issued in a related docket, Champion International Corporation and Bucksport Energy. L.L.C., 85 FERC % 61,142 (l 998), the purchaser of Central Maine Power Company's non-nuclear generation assets is seeking to set aside the sale, L

on the basis of an alleged material change, contending that it no longer can be assumed that it will L

be able to operate the units at a level comparable to their historical performance. FPL Energy Maine i

v. Central Maine Power Co., Docket No. 98-CV-8162 (SD NY)..

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IV.

NEP's Proposed Resolution L

NEP is not at all hostile to the transfer of ownership interests in Seabrook. That transfer is indeed part of a commitment made by NEP and others as part of the restructuring effort that is underway in New England. As a leader in that restructuring effort and in the adoption of competition in place of the security of a captive service area franchise, NEP has a vital interest in

. assuring that restructuring works and that it in no way compromises nuclear safety. If the outcome L

of this or any other proceeding raises reasonable concerns about the consequences for ongoing safe operation and decommissioning, the restructuring effort that is so critical to the efficient evolution of the electric power industry can only be slowed, be subject to legitimate legislative and regulatory second-guessing, and ultimately impeded. Because NEP does not wish to see this happen, a sentiment that NEP is confident the Commission shares, we offer what we hope will be viewed as an eminently reasonable solution that will permit the restructuring efforts of Montaup and others to proceed apace, indeed without the need for a hearing.

To date, restructuring has proceeded, even where the divestiture of generation has been an essential component, upon the assumption that the electric utility will continue to meet its

responsibilities as a nuclear licensee. Thus, while Montaup and others, including NEP, were obliged i

to sell their non-nuclear generation, they were only encouraged to sell their nuclear entitlements.

State regulators and officials recognized that because of the unique safety considerations, nuclear investments had to be dealt with separately. Accordingly, along with encouraging the regulated firm 4

to sell their nuclear ownership interests, rate protection adequate for the discharge ofsafe operations and decommissioning was put in place.

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This is the appropriate paradigm. It leaves the licensee free to negotiate the best possible terms as part of the transfer ofits ownership interest, as presumably Montaup has, while leaving in place the backstop protection of rate regulation should resort to it prove necessary to satisfy safety obligations.

- Moreover, it is a paradigm that is restructuring-friendly for it not only alleviates public angst, i

'it avoids the necessity that this Commission conduct a detailed inquiry into the financial

_ qualifications of a new owner whose success will be dependent on exogenous and inevitably speculative market forces, and who, following retirement of the Seabrook unit, will not own a revenue-producing asset.

There is a simple resolution, one that is entirely in keeping with the objective upon which J

I the Commission embarked in 1982 when it set out to streamline financial qualification reviews 1

without at all compromising safety. The resolution is to use the Commission's inherent conditioning i

authority to authorize transfer ofMontaup's Seabrook interest to Little Bay but only on the condition that Montaup agree to remain contingently responsible for required safety and decommissioning expenditures in the event of default by Little Bay.3 By assuring the public, otherjoint-owners, and local regulators and public officials who share this Commission's concems about safe operation and decommissioning, that existing protections associated with being a rate-regulated " electric utility" l

_ (Montaup's circumstance) will remain in place -- protections that were relied upon when operation J

was authorized and were reaffirmed in rate settlements accompanying the restructuring of Montaup i

l 3This case does not even present the concem that the new owner, following transfer of the license, could direct actions at the unit that increase the cost of decommissioning. Little Bay will not be empowered to make operating decisions. As has been the case, that will remain the province of North Atlantic.

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-- they will be able to proceed with restructuring free ofwhat otherwise would be a significant cloud, if not outright impediment.

We urge the summary adoption of this " conditioning" suggestion. If adopted, we would see no need for a hearing or for any delay in approval of the transfer. If, however, the Commission is not yet persuaded of the appropriateness of our suggestion, then we do request that the Application be set for hearing, and that in advance of Commission approval of any transfer of Montaup's Seabrook ownership interest, the Commission permit full inquiry into the financial qualifications

. of Little Bay, including the assumptions being made about future market clearing prices.

CONCLUSION For the foregoing reasons, New England Power Company requests that it be permitted to intervene in this proceeding and that it be accorded full party status. Further, the Commission should now condition the transfer of Montaup's Seabrook ownership interest on the retention by Montaup of contingent responsibility for the financial obligations associated with the safe operation and decommicioning of the transferred ownership portion in the event of the default of Little Bay or, failing adoption of that condition, set for full hearing the issue ofwhether Little Bay reasonably can be assured of having the requisite financial qualifications safely to operate and decommission its ownership share of Seabropk.

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s Respectfully submitted, C

filward Berlin, Esq. ~

J. Phillip Jordan, Esq.

Mark R. Klupt, Esq.

SWIDLER BERLIN SHEREFF FRIEDMAN 3000 K Street, N.W., Suite 300 Washington, D.C. 20007 (202)424-7504 John F. Sherman, Esq.

Associate General Counsel NEW ENGLAND POWER COMPANY 25 Research Drive Westborough, MA 01582 (508) 389-2971 December 31,1998 f

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