ML20204F130
| ML20204F130 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 09/09/1988 |
| From: | Harrison R PUBLIC SERVICE CO. OF NEW HAMPSHIRE |
| To: | NRC OFFICE OF ADMINISTRATION & RESOURCES MANAGEMENT (ARM) |
| References | |
| CON-#488-7041 NYN-88-121, OL-1, NUDOCS 8810210518 | |
| Download: ML20204F130 (26) | |
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l Robert J.
Presioent one b4.jiarrisonsin NYN-88121
'88 SEP 12 P2 :47 Pub #c Service of New HampsNre September 9, 1988.g.
Ih ' . i U. S. Nuclear Regulatory Commission Washington, D.C. 20555 Attention: Document Control Desk
References:
a) Facility Operating License NSF-56, Docket No. 50-443 b) USNRC letter dated August 11, 1988, "Financial Coverage for the Cost of Low Power Operation - Request for Additional Information", B. Boger to R. J. Harrison c) PSNH Letter dated August 31, 1988, "Ret Request for Additional Inforination", NYN-88115 in Docket No. 50-443 Ret First Supplemental Response to Request for Additional Information Centlement In reference (b), the NRC requested clarification with regards tc the applicants' ability to provide financial coverage for the cost of low power operation of Seabrook and the cost of any permanent shutdown of the facility and maintenance in a safe condition following law power ,
operation. In reference (c), PSNH furnished detailed responses. l l
The Response to NRC Question 7 enclosed in reference (b) Indicated l that PSNH had filed with the Bankruptcy Court a Notice of Intention relating to its participation in the organization and implementation of New Hampshire Yankee Electric Corporation (NHYEC). On September 2, 1988, af ter Reference (b) had been filed with the NRC, the Court denied that notice, indicating that the evidentiary record before the Court was l "insufficient on balance to justify approval of the proposed transaction" l st this time. A copy of the Court Order is enclosed herewith. PSSH l intends to file for rehearing in the near future and will provide the Court with additional supporting information and clarification of certain aspects of the record currently before the Court.
If you need any further information or clarification, please contact the undersigned, or Edward A. Brown, President and CEO of Mew Hampshire Yankee Division.
Very truly yours, O [
. J. llarrison RJH fe Enclosure cci ASLB Service List 1000ElmSt.P.O Box 330,Morwhostor.NHO3105 To' ewe (6031669 4000
- TWX7102207505 Oh
DMKEir O u ac<
1a EP 12 P2 31 1 SERVICE LIST g, t,6CL ; W L J.i copies of the foregoing letter with its enclosureBare" being sent by federal express to the following individuals:
l Lando W. Zech, Jr. , Chairman Kenneth M. Carr, commissioner U.S. Nuclear Regulatory U.S. Nuclear Regulatory Commission Commission One White Flint North one White Flint North 11555 Rockville Pike 11555 Rockville Pike
- Rockville, MD 20852 Rockville, MD 20852 Kenneth C. Rogers, Commissioner Thomas M. Roberts, Commissioner U.S. Nuclear Regulatory U.S. Nuclear Regulatory
! Commission Commission '
'! One White Flint North one White Flint North l 11555 Rockville Pike 11555 Rockville Pike r Rockville, MD 20852 Rockville, MD 20852 Frederick M. Bernthal, commissioner U.S. Nuclear Regulatory Commission One White Flint North 11555 Rockville Pike Rockville, MD 20852 Alan S. Rosenthal, Chairman Howard A. Wilber Atomic Safety and Licensing Atomic Safety and Licensing Appeal Panel Appeal Panel U.S. Nuclear Regulatory U.S. Nuclear Regulatory Commission Commission East West Towers Building East West Towers Building 4350 East West Highway 4350 East West Highway -
Bethesda, MD 20814 Bethesda, MD 20814 Thomas S. Moore Mr. Richard Donovan Atomic Safety and Licensing FEMA, Region I Appeal Panel 442 John W. McCormack Post U.S. Nuclear Regulatory Office and Court House Commission Post Office Square East West Towers Building Boston, MA 02109 4350 East West Highway Bethesda, MD 20814 a
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Administrative Judge Sheldon J. Robert Carrigg, Chairman Wolfe, Esquire, Chairman ** Board of Selectmen Atomic Safety and Licensing Town Office Board Panel Atlantic Avenue U.S. Nuclear Regulatory North Hampton, NH 03862
, Commission l East West Towers Building 4350 East West Highway :
Bethesda, MD 20814 {
Administrative Judge Emmeth A. Diane Curran, Esquire Luebke Andrea C. Ferster, Esquire 4515 Willard Avenue !!armon & Weiss ,
chevy Chase, MD 20815 Suite 430 2001 S Street, N.W.
Washington, DC 20009 Dr. Jerry Harbour Stephen E. Merrill, Esquire Atomic Safety and Licensing Attorney General Board Panel George Dana Bisbee, Esquire U.S. Nuclear Regulatory Assistant Attorney General Commission Office of the Attorney General ,
East West Towers Building 25 Capitol Street 4350 East West Highway Concord, NH 03301-6397 Bethesda, MD 20814 Sherwin E. Turk, Esquire Mr. J. P. Nadeau ,
Office of General Counsel Selectmen's Office l U.S. Nuclear Regulatory 10 Central Road l I
Commission Rye, NH 03870 One White Flint North, 15th Fl.
11555 Rockville Pike Rockville, MD 20852 Robert A. Backus, Esquire Carol S. Sneider, Esquire Backus, Meyer & Solomon Assistant Attorney General 116 Lowell Street Department of the Attorney P.O. Box 516 General j Manchester, NH 03105 One Ashburton Place, 19th Fir.
- Boston, MA 02108 Philip Ahrens, Esquire Mr. Calvin A. Canney !
Assistant Attorney General City Manager l
., Department of the Attorney City Hall l 4
General 126 Daniel Street i Augusta, ME 04333 Portsmouth, NH 03801 l l
1 **Also sent to home address. l l
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1 Paul McEachern, Esquire R. Scott Hill-Whilton, Esquire Matthew T. Brock, Esquire Lagoulis, Clark, Hill-Shaines & McEachern Whilton & McGuire '
25 Maplewood Avenue 79 State Street P.O. Box 360 Newburyport, MA 01950 <
Portsmouth, NH 03801 ,
Mrs. Sandra Gavutis Mr. Peter S. Matthews i Chairman, Board of Selectmen Mayor i RFD 1 - Box 1154 City Hall ,
1' Route 107 Newburyport, MA 01950 Kensington, NH 03827 ,
- Senator Gordon J. Humphrey Mr. William S. Lord U.S. Senate Board of Selectmen :
Washington, DC 20510 Town Hall - Friend Street !
4 (Attn Tom Burack) Amesbury, MA 01913
- Senator Gordon J. Humphrey j One Eagle Square, Suite 507 Concord, NH 03301 (Attn: Herb Boynton)
Mr. Thomas F. Powers, III Town Manager Town of Exeter 10 Front Street
]
Exeter, NH 03833 H. Joseph Flynn, Esquire Charles P. Graham, Esquire !
Office of General Counsel Murphy and Graham '
i Federal Emergency Management 33 Low Street 01950
^
Agency Newburyport, MA 500 C Street, S.N.
j Washington, DC 20472 l Gary W. Holmen, Esquire Richard A. Hampe, Esquire 1 Holmew & Ells Hampe and McNicholas j 47 Winnacunnet Road 35 Pleasant Street l Hampton, NH 03841 Concord, NH 03301 l Judith H. Mizner, Esquire l 79 State Street, 2nd Floor Newburyport, MA 01950 j *U.S. First Class Mail i
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. Enclosure to NYN-88121 l UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW HAMPSHIRE In re PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE, SKd88-00043 Debtor ORDER ON NOTICE OF INTENTION DATED JULY 21. 1988 1
This court on August 26, 1988 conducted a hearing upon the "Notice of Intention To Enter Into Transaction Out Of The Ordinary Course (New Hampshire Yankee Electric Corporation)" filed herein by the debtor-in-possession on July 21, 1988. The court has set forth separately its findings and conclusions with regard to this matter, in !
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its sesorandum opinion entered this date, which are incorporated herein by reference, and accordingly it is ,
j ORDERED that approval of the intended action and proposed transactions is hereby denied.
DONE and ORDERED this 2nd day of September,1988 at Manchester, New Haapshire.
N
' JAMES'I. TACOS BANIRUPTCY JUDGE (
Debtor to serve on full list i j .
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Enclosure to NYN-88121 l UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW HAMPSilIRE In re PUBI.IC SERVICE COMPANY OF NEW HAMPSHIRE, gKf88-00043 Debtor MEMORANDUM OfINION RE PROPOSED RESTRUCTURING RIIATING TO OPERATION OT SEARROOK NUCLEAR POWER CENERATING STATION On July 21, 1988 the debtor in this reorganisation proceeding filed a "Notice of Intention To Inter Into Transactions out Of The Ordinary Course (New Hampshire Yankee Electric Corporation)" under which the ,
debtor gave notice that it proposed to enter into several related transactions under which the management and operational control with regard to the Seabrook nuclear plant would be transferred from a division of the debtor, i.e., the New Hampshire Yankee Division
("Division") of Public Service, to a separate corporation, i.e., the New Hampshire Yankee Electric Corporation, which corporation had been formed in 1984 in contemplation of the ultimate transfer of those powers and responsibilities to a separate corporation to be controlled by a board i
of directors representing each of the joint owners of the Seabrook plant.I The Notice of Intention succinctly summarises the existing 4
- situation regarding the Seabrook plant as follows
i 1 1. The debtor in this reorganisation proceeding, PSNH, holds a 36.37 percent share of the plant under the joint ownership
- agreement.
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At present, Seabrook is owned by Public Service and eleven other New England utili*2es (the "Joint owners").
Among the Joint Owners, only public Service is designated as "technically qualified" under the licenses and permits from the United States Nuclear lle gulatory Commission ("NRC")
relating to Seabrook (the "NRC Licensas"). Since 1984, the New Naapshire Yankee Division (the "Division") of public Service, as agent for certain purposes for all the Joint Owners, has conducted the day-tooday operations and management of Seabrook. The Joint owners supervise the Division's activities both directly (as a group) and through an executive connittee composed of reprssentatives of certain Joint ownera.
The Notice of Intention further summarises the preposed changes to be made in the existing situation as follows:
i Under the preposed restructuring, the Division will be reconstituted as an independent corporation, the New Maapshire Yankee Electric Company ("NHYEC"), which will replace the Division as managing agent for the Seabrook project. NNYEC was formed by the Joint owners for this purpose in 1984.
NHYEC will employ those personnel the Division presently employs, so there will be no disruptic,n of operations. ;
Various licenses and permits necessary to operate Seabrook Station will be anended to include NHYEC and to designate NHYEC as the sole licensee "technically qualified" to operate Seabrook Station. Finally, each Joint Owner will be ,
represented on the NHYIC Board of Governors by a representative having a vote weighted in proportion to its ownership share and, when the restructuring is fully implemented, each will own shares of NNYEC stock in the same proportion.
The proposed restructuring would be accomplished by the following specific actions (1) Shareholder Agreement (2) Managing Agent Operating Agreement; (3) Amendment of the Joint Ownership Agreements (4) l Issuance and purchase of stock in NHYEC: and (5) split of public l I
Service's employee pension plan and transfer of funds to an NNYEC )
l esployee pension fund. However, the Notice 'of Intention covered only )
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items 1 through 4 set forth above. It is centempleted that a subsequent notice and proposal would address the split of the employee pension plan i
I and fund.
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O THE RECORD DETORE THE COURT I
No evidence was proffered by the debtor or any other party at the ,
l hearing held by this court on August 26, 1988 upon the proposed '
restructuring. The entire evidentiary record in support c? the r6 structuring is c.utained in a declaration of Robert J. Harrison, president and chief executive officer of PSNN, which was filed in P
conjunction with the Notice of Intention on July 21, 1988. Af ter a number of paragraphs summarising the terms and details c,f the proposed restructuring, the declaration contains the following recitation of the benefits of the proposal to "both Public Service and the Seabrook project as a whole" as follows 9.1 Instability in the winin gess or ability of Public Snvise and other Joint owners c seet their finucial a
responsibilities to the Seabrook p!vject jeopardises the confidence and morale of the existing staff at Seabrook .
Station. 'the existence of NHYEC as the longters operator of '
Seabrook Station will likely laprove that confidence and morale, retaining the loyalty of the existing personnel and l i
attracting new employees as necessary. l 9.2 The existence of NHYEC as a separate cerporate entity will permit continuity of the direct managerant of the Seabrook project, independent of changes in owsership of Seabrook or in the status of individual owners. Such continuity is important to perceptions of continued management dependability and prudence.
9.3. The existence of NMTIC as e corporate entity devoted solely to Seabrook Statien will permit the Joint Owners to isolate in NNYEC all activities directed to that and, thus segregating tua free other utility business activities of the i Joint owners.
9.4. Because NNTIC will be evned ' to rate by the Joint i
Owners, and because the Joint owners vil ye a direct voi:e
, proportionate to their ernstship shares through representation ,
on the NHYEC Board of Governors, the Joint Owners will share l certain Seabrook responsibilities to a greater degree than
- under the present structure.
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The declaraticn of Mr. Ilarrison goes on further to sutaarize und concluded as to the "particular benefit to Public Service, as distinct from the ; her Joint Owners" as follows:
10.1. The assumption of Seabrook asnagement responsibilities by NHYEC would relieve Public Service and its Division of the primary ultimate responsibility for the safe operation of Seabrook Station and the taplementation of its quality assurance programa. Assumption of these rasponsibilities by NHYEC, the personnel of which now perform such operation and implementation, would place Public Service in a position on par with the other Joint owners by making it responsible for operations in proportion to its ownev9 hip share.
J 10.2. Employment by NHYEC of the pe. : anne. .. %y employed through the Division would redace Public Se rvi:.e 's personnel record keeping responsibilitiee, remove the pension and benefit obligations associated with those employees, and reduce future risk of employment-related claims.
10.3. The Seabrook restructuring would permit Public Service greater flexibility in devising and implementing reorganization proposals. De NRC Licenses cuirently contain certain unique obligations and responsibilities relating to Seabrook manaAenent which attach only to Public Service. These are in addition to Public Service's pro rata obligations as a Joint owner uf Seabrook Station. Any change in the NRC Licenses requires specific NRC authorisation, which could be time consuming if contested. Any reorganisation proposal which might evntemplate a transfer of Public Service's license obligations or responsibilit.tes could be delayed while such authorization was contested. herefcre, it would be advantageous to Public Service and all parties interested in the pending Chapter 11 proceeding to separate and expedite regulatory proceedings relating to the transfet of 4eabrook management responsibilities so as to remove that issue from future consideration of potential future reorganisation
. proposals.
J Under the special motion and notice procedural orders entered in this proceeding, ar.y objections to the notice of intention filed July 21, 1988 vsre required to be filed on or before Augus 5, 1988. An objection was filed the Attorney General for the Commonwealth of Massachusetts. Objection was also filed by three citiran groups, i.e.,
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the Campaign For Ratepayers Rights. The Seacoast AntipoJ1ution 14 ague, and the Citizens Within The Ten Mile Radius, hereinafter referred to jointly as the "citizen groups" for convenience.
A response constituting a "non-objection" of sorts was filed by Consolidated Utilities And Coenunications, Inc. ("CUC") and Citicorp, holders of third nortgage debenture bonds who have been active in these proceedings. This response notes that CUC and Citicorp do not object to the Notice of intention but recites further immediately af ter that statemente gased upon various representations of PShH and its professionals, it is the understanding of CUC and Citicorp that the crestion by PShH and others of NNYEC:
, (1) will not affect in any way the jarisdiction of this Court over P5hH's Seabrook-related assets and (2) will not affect in any way the necessity on the part of PShH to receive this Court's approval prior to operating Seabrook pursuant to a low power operating license granted by the Nuclear Regulatory Commission.
Based upon the above-sentioned representations and understanding, CUC and Citicorp do not object to the creation J by PShH and others of NHYEC.
l Responses to the Notice of Intention supporting the proposed !
restructuring were filed by the Official Unsecured Creditors' Committeel r 1
by the Official Equity Holders' Committee; by the State of New j Rampshire, and by a group of utilities constituting owners of l spproximately fif ty percent of the Seabrook auclear project commonly l referred to as the
- Fifty-Percent Joint Owners" 'roup in these proceedings.
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The objection by the Commonwealth of Massachusetts notes that whereas the State of New Itampshire in 1984 and 1985 approved the purchase of stock in NNYEC by PShm, the Commonwealth of Nassachusetts has never granted that authorisation, and in fact requests have been
- ending before the Massachusests Department of Public Utilities since 1984 regarding the five Massachusetts utilities involved as joint owners of the Seabrook project. However, the terms of the propssed restructuring before this court specifically obviate the need for the Massachusetts utilities to purchase NNYZC stock, in that the other joint i
owners have agreed to give the Massachusetts utilities pro rata representation on the board of governors of NNYEC based on their !
ownership interest in the Seabrook project notwithstanding their interim non-stockholder status with regard to hTYEC. i The Commonwealth objects further that the restructuring proposed by i the debtor, in advance of a complete reorganlaation plan, should be i disapproved on the grounds that it is pranature:
The proposal seeks to reorganise one division of PShH and l j place it permanently and irrevocably in another corporate i entity. It appears to be a piecemeal reorganisation of PShH l submitted in advanca of the complete reorganization plan. De consideration to PSh1 for the assets to be transferred is unclear, as is the impact on pre- and post petition creditors i of the New Hampshire Yankee Division. PSNH was recently given '
1 an extension of the time to submit a complete reorganisation
- plan until December 27, 1988. The present proposal by PSh1 could be evaluated more usefully by all parties and the court
- in the context of the complete forthcoming reorganisation plan 4 being prepared by the company.
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- 2. gee Ra New Maspshire Yankee Electric Corporation, 69 l
N.H.P.U.C. 390 (1984) (ordering inter alia that NN'.1C is authorized to eugsge in business as a public utility solely for the purpose of managing the construction of Seabrook): Re New Hampshire Yankee l Electric Corporation, 70 N.H.P.U.C. 563 (1985) (ordering inter alia l that NHYEC's authority be enlarged to include the purpose of l managing the operation of Seabrook. I l
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The Commonwealth also argued that the record put forth by the j debtor to support the proposal was insufficient:
1 The grounds advanced for the proposal are largely speculative and conjectural. There is little record support for assertions that the PSNH proposal provides the clained benefits. For example, indications that this proposal "might l enhance" certain aspects of the licensing proceedings or
- aight realine" cost benefits provide little detail for the court or parties in evaluating the proposal. Beyond broad 4 assertions, the proposal and affidavit filed by the Debtor provide little information or support as to the need fer this reconstitution at this time.
ne three citizen groups objected primarily out of a concern that
) the proposed restructuring would result in a loss of bankruptcy court )
l jurisdiction to p avent low power testing of the Seabrook plant, in advance of a deterv.ination that it is likely that PSNH's reorganisation plan will provide, e.nd can guarantee, the ultimate full operation of j Seabrook and production of electric power from the plant on a commercial i
1 basis. The citizen groups note some interrelated economic questions and j Nuclear Regulatory Commission procedures that could result very shortly a
in presenting the guestion of whether loepower operation of seabrook ?
l should be authorised:
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i The NRC.... has a rule permitting low power operation of nuclear plans up to 5 percent of rated power, even though radiological emergency plans for a tentle area around the reactors, required for a full power operation, have not been yet reviewed or approved. (10 CFR 50.47(d)) It is pursuant
.; to this regulation that the Shorehas nuclear plant, on lang l Island in New York, was permitted to cosmbence low power operation in July of 1985, although it now seems unlikely that this plant will ever produce consercial power.
t he citizen groups point to the record of prior proceedings in this
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I j case indicating that radio active contamination of the Seabrook plant, j t
by introduction of nuclear fuel and low-power testing, followed by an l
l ultimate decision not to put Seabrook into commercial operation.
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vould convert the plant from an asset, having a positive salvage value, to a substantial liability, due to the high costs of decontamination and disposal of radioactive saterials. One indication in tha t record is that the "swing" in value could be as high as $130 million do11ars.2a They also argue that contamination of the plant would preclude -- due
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the optiou of converting the plant to non-nuclear fuel operation.
De court heard several hours of oral argument from all parties present at the August 26, 1988 hearing on the debtor's proposed action, and took the matter under advisement to better review the record in this matter. Having reviewed that record, it is now necessary to consider the status of the parties ob.1ecting, the appropriate legal standard for the court's decision on such a matter, and the result to be obtained by 1
applying that standard to these facts.
. THE STATUS OF THE OBJECTORS Ite debtor and the official committees have objected to the j "standing" of the Commonwealth and the citisen groups to object to the intended action. While this objection was made in the pleadings, no
{ party at the August 26th hearing orally objected to the Coemonwealth and the citisen groups being
- beard" by the court. I have previously noted
)
i that "staading" has to do with the right to appeal an order in a i
reorganisation proceeding - a far different matter than the question
] of status to be heard during the course of a hearing in the i
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2a. The court does not accept that prior record as establishing J
the exact costs of decontamination and a subsequent cleanup for present purposes. There is no serious question howeve that such I costs are very substantial.
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reorganization court as an entity having an arguable interest in a l particular matter before the court under i 1109 of the Bankruptcy Code.
See In re PSNH, S.R. . (Men. Op. , Court Document No. 952, p. 22)
(Bankr. N.H. , June 22, 1988).
The reorganisation court I believe has sufficient discretion to
- hear" any entity at any hearing to the extent that the entity may be ,
able to provide an aid to the court in understanding the matter before it. Accordingly, whatever an appella te court might decide as to "standing" for appeal purposes, this court sees no reason not to glean from the objections of the Commonwealth and the citisen groups such help i as it may find in evaluating the matter for decision, inasmuch as said objectors did not attempt to delay or overburden these proceedings with aztensive presentations not germane to the f.ssue before coert.
The court is aware that the Commonwealth and the citisea groups are committed to blocking the operation of the Seabrook nuclear plant for various noneconomic reasons relating to asserted environmental and safety dangers posed by the operation of the plant. The, debtor and the :
consittees argue credibly that these objectors may be aspected to ep;ese l -
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- 3. As noted at the hearing this court will look for the truth
! wherever it can find it. "Even the devil may speak truth" --- as ,
someone once said. '
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any decision in this reorganization case which has the prospect of advancing the day upon which Seabrook may become operational.'
Nonetheless, the objectors do raise, regardless of actives, a considerable "economic" question posed by the intended action of the debtor, i.e. , w'.11 this action if approved lead to t.he possibility of a diminution in the value of the assets of this estate by an unwise and premature activation of the nuclear chain reaction at the Seabrook plant which will be t>eyond any effective control which this court arguably now may have to under its present jurisdiction in these reorganization proceedings? It is also relevant that at least one "economic" party in these proceedings, i.e., CUC and Citicorp, have echoed the same concern in their responsive pleading set forth above.
- 4. Indeed, the objection by thn citizen groups by implication indicates as much:
"We recognise that the Court has indicated that it does not t
want to make Seabrook licensing decisiens en matters pertaining to public health and safety and hence might conclude this is not a matter within its una of concern.
(See Memorandua Opinion on Plan Exclusivity Extensica, page
- 38) However. the issues of eot'te health and safety at i Seabrook are inextricably bodn'd up with the financial and l valuation issues that this Court must decide. The !
inte: relationship of health and safety issues, and the necessity for the Court's continuing jurisdiction over New Hampshire Yankee, may shortly e me up in a very specific contexts whether or not low power operation of Seabrook should be authorised." [Bsphasis supplied]
The highlighted statament is erroneous to the extent that it implies that it would be relevant for this court to consider public l baalth and the safety issues sa factors in the financial 1
- aorganisation
. determinations necessary in this chapter 11
, proceeding, other than to assure Shat the reorganised debtor is able to meet health and safety opetational requirements prescribed by the appropriata public agencies. Cf. In re PShm, B.R. ,
Hez. Opin., C.P. No. 1066 (foonote, p.9) (tankr. N.H. , JulyT,, l 1988). Likewise, the province of the NRC in my judsent is to l determine whether those requirements are presently satisfied or - 1 if not - what additional assurances will be required of PSh1 or i
- any other party involved in the reorganisation plan. It obviously is not a permitted function of the NRC to deny approvalt simply i because PShH is in reorganisation. See, Bankruptey code _, I 525 (11 U.S.C. I 525). I lo
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Accordingly, I find and conclude that the Commonwealth and the citizen groups have raised a pertinent question for consideration by the court on this matter and are not precluded from being "heard" in that sense. In so dof ng I have no need to express any opinion as to their general standing, if any, to appeal any orders entered by this court j during the course of these reorganisation proceedings. That is a matter appropriately lef t to the appellate courts.
THE 1.'! GAL STANDARD i
The debtor seeks to portray the matter befor,e the court as simply a matter of "business judgment" on a "business operational matter" as to which the court should give its approval simply upon a surface showing of a "good faith business judgment" on the part of the debtor in making the decision to put forth the proposed restructuring. The debtor cites in this regard the decision in In re Curlev Valley Associati qs,, 14 B.R.
506 (Bankr. Utah 1981). The court there actually expressed its standard in terms of a business operational matter that "involves a business judgment made in nood faith. upon a reasonable basis, and 3
within the scope of his [ chapter 11 trustee's) authority under the Code." 14 B.R. at 513-514 (footnotes omitted) (emphasis added). It u ,
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fair to strte that the court in Curlew did azhibit considerable deference ;
to the business judgment of the chapter 11 trustee as to the particular (
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manner of his operation of the debtor's farm business in that case - l to the estent of refusing to even hear the evidence proffered by the debtor who sought injunctive relief against the methods esployed in the j trustee's operation as being economically unwise. 14 3.R. at 508.
What needs to be noted about the Curlew decision in the present context, bewever, is that it was a case that clearly involved an activity 11 ;
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I that was an ,"ordinary course" nutter involved in the business operation.
l 1.e. , whether the trustec in operating the debtor's f ara should "bale" hay rather than "cube" the same. The present case before this court on the contrary involves a proposed restructuring of the debtor which clearly h out of the ordinary course of the debtor's activity for reorganization purposes. Accordingly, I refuse to accept the debtor's invitation to accept the Curlew decision as persuasive on the present matter.0
- 5. Tne opinion in curlev askes it clear that the court did not I consider it necessary to its analysis that the business practice in question sight be considered out of the ordinary course of the debtor's business. 14 3.R. at 514, n. 13.
- 6. It may be noted that prior to the Curlev decision the "business judgment" standard for decisions by a bankruptcy court was applied I almost exclusively in terms of a debtor's decision to accept or reject an executory contract under what is now I 365 of the Bankruptcy Code. As with so many other interesting twists and developments of legal doctrine, the deference to business judgment or discretion steamed from the decision of the U.S. Supreme Court in A Croup of Instituthr.a1 Investors v. Milwaukee Railway Co. , 318 U.S. 323, 550-551 (1943/, in which the "part; ' to whose discretion deference was given, on a lease assumption / rejection issue, was the !
Interstate Commerce Commission, as an administrative agency given I special powers with regard to railroad reorganisations under i 77 of the Bankruptcy Act of 1898. It is also noted that the cases cited by the debtor as following the Curlev decision for present i
' purposes. In re Airlif t Intern.. Inc., 18 5.R. 787 (Bankr. S.D. ;
Fla. 1982) Imbrieel Enterprises. Inc. v. 3.ichmond Metal Finishers. '
Inc. , 756 T.2d 1043,1047 (4th Cir.1955), cert. denied, 475 U.S.
1 3373 In te Afco Enterprises. Inc. , 35 Bankr. 312 (Bankr. D. Utah 1983), actually did not involve the i 1107-1108 contast, but rather the marrower question of lease assumption / rejections, in the first two cases cited, and a narrow question of surcharge against a seeured creditor under C 506(c) of the Code, in the third case.
' None of these decisions, other than the _ Curlew case, stand for the broad proposition that a proposed action by the debtor out of the ordinary course of its normal business operations must be approved by a bankruptcy court staply upon a surface showing of business j judgment, notwithstanding an arguably unwise impac t upon the
, reorganisation process in the particular case.
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In my judgment the labeling of a particular proposed transaction occurring out of the ordinary course of a reorganisation debtor's business, as simply a "business judgecnt" by the debtor, does not insulate the proposed transactis from a more searching view as to its wisdom and reasonableness than was given the hay-harvesting transaction in the Curlev case which occurred in the ordinary course of the business operation there involved.
I note that the Court of Appeals for the Fif th Circuit, in Richmond leasina Company v. Capital Bank. W. A., 762 F.2d 1303 49 3.1. (222) (5th Cir.1985), while citing the Curlev case on the 1365 point, in affirming an order approving an assumption of a lease proposed by a debtor in ,
reorganization, expressed the appropriate standard in terms of a "valid azercise of.... business judgment" [762 F.2d at 1308) and summarized the extensive testimony taken by the court below with regard to the economic l
1 factors involved which indicated an enhancement of the debtor's estate.
762 F.2d at 1309.7 Noreovar, while the court in Richmond 14asina also considered the business judgment standard to apply even in the context of I i 1107 and i 1108 to the extent that the assumption of the lease there involved might be argued to represent "a true renegotiation" of the Inase, the j court in that context found it necessary to ao further and consider i l
whether the amended lasse alaht be deamed to be a "Sub Rosa Plan of l Reorganisation" before that attack upon the proposed action was also l considered to be insufficient. 762 F.2d at 1311-1312. See also, In re
- Lionel Corporation, 722 F.2d 1063,1071 (2nd Cir.1983)(proposed sale transaction subject to "sound business judgunt" standard which requires a showing of "a good business reason" other than appeasement of major ,
l creditors). ;
l
- 7. The court in Richmond 14asins also noted, in footnote 11, that it l saw no essential difference between its "valid" or "proper" standard !
and the "economic soundness" standard employed in Matter of Southern Biotech. Inc., 37 3 R. 318 (Bankr. M.D. Fla. A983).
13
Considering the particular business transaction here involved, i.e., a restructuring of the very entity in reorganization. I believe that an appropriate standard for approval or disapproval of the ;
transaction by the reorganisation court is whether good cause has been (
shovn to implament the transact *on of this stage of this proceeding 1.e., does it have valid business reasons supporting it and does it make good sense in the overall contest of the reorganisation process?
r Phrased negatively, the standard might be whether the proposed transaction might improperly and indirectly lock the estate into any
- particular plan mode prer.aturely, and without the protection afforded by i the procedures surrounding a disclosure statement and confirmation hearing, in a plan of reorganization.I" i
In my view it is simplistic to borrow from relatively staple 1
j assumption-rejection cases (or a hay-harvesting case) a broad, unitary ,
i surface standard to be applied to the continuum of transactions that can be encompassed under the rubric of an *out-of-the-ordinary course"
]
business transaction in a cospler reorganisation case. ne degree of
, scrutiny necessarily must be elastic - becoming more strict and l
searching the nearer the transactien gets to the heart of the i
- 7a. I cannot believe that when Congress removed the court and a
]
mandatory disinterested trustee from the plan formulation process in reorganisation cases, in the 1978 Sankruptcy Code, with the more
, astensive disclosure statement requirements under i 1125 as a ;
j necessary substitute for the former supervisory protections, l l Congress could have intended that this reimaining safeguard could t
easily be avoided by indirection and use of the ' business operation" and
- business judgment" labels.
l l 14
I reorganization plan process in terms of channeling that process toward any particular plan option. i I THE PROPOSED TRANSACTION l
l 1 Vithout approval of the intended action pending before the court
' the debtor PSNH will remain the "technically qualified" utility entitled to operate the Seabrook nuclear plant when fully-authorised to do so by l l
pShH would operate Seabrook itself, acting by one of its the NRC.
corporate divisions, and acting on behalf of itself and the other joint i
! owners of this Seabrook project.
Under the proposed transa ction the entity directly responsible for 1
) Seabrook operation would become a separate corporation not a debtor in 4
l these reorgantastion proceedings. The change in operational 4
responsibilities wuld require NRC approval of the transfer of PSh1's liwense obligations and responsibilities to that estent to the new 1
j separate corporate ettity. It would also require that the NNYEC entity l also be determined to be a "technically qualified" party to operate the '
Seabrook project. If that approval is given, and NNYEC becomes the l
} direct operator in contr.il of the Seabrcok ancisar plant, the guestion ;
I i i of its putting the plant 1sto the low-power testing mode whan authorised t I by NEC arguably would not s.ted to be brought to this court for approval l
1 1 with regard to the timing sad the effect of any such action upon the !
t
] ongoing process of plan formul.etion. l l
It is not necessary for this court at this time to determine whether such a transfer of operational responsibilities for the Seabrook project would defeat subject e tter jurisdiction of this court, for l
injunctive relief to prevent low power testing operation. if such
) . _ _ _ - _ - ._ _.
1
- 1. junctive relief were determined to be appropriate on the facts and ,
circumstances then existing. It also unnecessary for the court to determine whether in f a ct it has any such jurisdiction now. It is i
sufficient to note that the transfer of operational control to a separate non-debtor corporate entity raises an additional question as to the existence of that subject-matter jurisdiction.I 7 Since the debtor has been given an extensior until December 27, l 1988 of its esclusive period to file a plan of reorganisation in this 1 i case, by my order of June 22, 1988, the ' business judgment" of the debtor in advancing the NHYEC proposal at this time raises the obvious
! question as to what urgency there is to bring this matter before the court other than in conjunction with its plan of reorganisation. If the matter is considered in the plan context then all ramifications of the transaction in terms of reorganisation prospects could be evaluated in that specific context.
The debtor points to various improvements in morale of the employees dealing with the Seabrook operation, from being part of a J
separate entity, and the relieving of the debtor from some costs and i
over-involvement in Seabrook operations as opposed to the other joint -
r owners, as benefits from the proposed transsetion. The debtor notes !
j i that "The joint owners will share under certain Seabrook 1
j responsibilities to a greater degree than under the present structure.'
i l Nowever, the debtor sad the other joint owners have operated under the l l
! 5. There is an unresolved guestion in these proceedisse regarding the l
. power of the majority of the joint owners of the Seabrook project l to direct actions with regard to the project contrary to the wishes
- of PSNH without first securing approval of this court for such
! action. It would be highly laappropriate to unnecessarily 1 precipitate a decision on that question before and if it is necessary l to do so in these reorganisation proceedings. That is the whole i i point of the underlying rationale of chapter 11 to promote the l i prospects for a "consensual" plan of reorganisation to eliminate )
i needless and tire consuming litigation contrary to the interest of all involved.
! 16 l
l
l 9
present structure since 1984, with no apparent problems, and there is nothing to indicate that a plan of reorganisation could not be put forward even if the operation of Seabrook plant continues to be the l
direct responsibility of a corporate division of PSNH. It is difficult for this court to believe that the improvements in morale adverted to, and the savings of some undefined, unquantified costs to this debtor between now and De cembe r, are of sufficient importance to justify approval of this transaction prior to the filing of the reorganisation plan, if that were sole ground in support of the transactio,n.
De debtor adds bowever, that a particular benefit to PSNH itself would include, as quoted above, the rather cryptic comment by Mr.
Harrison in his declaratten to the effect that:
Any change in the NRC Licenses requires specific NRC authorisation, which could be time consuming if contested.
, Any reorganisation proposal which might contemplate a transfer of public Service's license obligations or responsibilities could be delayed while such authorisation was contested.
Therefore, it would be advantageous to Publie Service and all parties interested in the pending Chapter 11 proceeding to I separate and expedite regulatory proceedings relating to the transfer of Seabrook management responsibilities so as to j
1
- remove that issue from future consideration of potential ;
future reorganlaation proposals.
, Mr. Rarrison was not called to testify at the hearing on August 26, i
) 1988. ne debtor's motion and memorandum with regard to this point sheds no further 11.luminattoo upon this point and simply parrots the j recitation by Mr. Rarrison. Debtor's counsel did make it clear during l j i
- the course of the hearing that they do not agree with any implication from the CUC/ Citicorp statements that they concede that the question of initta
- ing low-power testing at the Seabrook plant is a question which 3
t 17 i
would have to bo brou., . before this court if the NilYEC transsetion werc
. to go into effect.
The court is left with the conviction that it was not presented the "whole story" with regard to the underlying reasons and anticipated effects of the proposed tranasction at the August 26, 1988 hearing. It would appear that the debtor and its counsel were operating under an assumption that this court would 4 pply mechanically the surface-judasent approach employed in the Curlew decision, yor the reasons stated above, however, I decline to use that approach to a matter of this importance in the context of this reorganisation case. It may well be that the debtor for good and sufficient tactical reasons does not wish to telegraph at this stage its game plan with regard to a plan of reorganisation. However that may be, the result is to leave this court l in the quandary of trying to evaluate the proposed trancaction without a full picture of its effects and ramifications.10
- 9. To be f air, the debtor's counsel also does not concede that that question necessarily has to be brought before this court in the existing situation.
- 10. The declaration of Mr. Harrison could be read as setting the stage for one of the plan options set forth by the debtor in its exclusivity motion, i.e., creating a separate entity that ultimately could be made a "wholesaler" subject only to TERC regulation rather than the present state-based regulatory control of consumer rates. Cf.
Mississippi Power & 1.ight Co.. v. Mississippi, U.S. 168 S.Ct. 2428 Gune 24, 1988). The present transaction by itself would not lead to that result, since the actions by the New Maapshire Public Utility Commission in 1984 and 1985, cited above, specifically precludes the new corporate entity NNTEC from having authority to sell electricity. There was no request for that er.largement of authority in the applications then pending before the NHFUC. In its 1984 decision the pVC specifically noted that *New Rampshire Tankee would not be involved in the application for rates or the selling of power. New Maapshire Tankee would not sell Seabrook energy to pShH on a wholesale basis.* It could be that this poii'bik y represents the real time urgency in submitting the propt te ssac tivt to the court at this time, rather than the matter of .av- V fer testing, which was the focus of discussion at the hearing, bs- -
fact is that the court simply has no basis for sting t it ,.
latter justification, if it exists, on the present :
18
m um um-CONCLUSION It is a daunting task for any reorganization court to tsle contra to a proposed action that is supported by all the major economic and regulatory interests directly involved in this case.II Upon a better evidentiary record this court might well have been in a position to approve the intended action. However, on the present record I do not believe that the court has a sufficient basis and showing of good cause to approve the intended action at this stage of this case, in light of the substantial question as to possible loss of jurisdiction with regard to the low-power testing matter discussed above. Debtor's counsel was given the opportunity by the court during the hearing to explain and amplify how denial of this approval might delay or lapair the
'lexibility of the debtor in plan formulation. Counsel declined to take up that invitation. Accordingly, I can only go upon the recitations made in the Harrison declaration and, as indicated, I find them insufficient on balance to justify approval of the proposed transaction.
In reaching this conclusion 1 express no opinion as to the merits of any potential future controversary as to low-power testing or any related 1
matter. l A word should be added as to the "understanding" be tween CUC/ Citicorp and the debtor, to the effect that the debtor would not seek to use the approval of this transaction in any further haaring in which jurisdiction of this court to prevent implementation of low power testing might be raised. While that understanding might give some 1 comfort to CUC/ Citicorp, and perhaps to the coenittees, it does not give any relevant confort to this court as to preserving the existing jurisdictional situation. It is elementary that federal courts, being
]
, ?
But Cf. In re upel corporation, aupra, at 1071.
11.
4 19
courts of limited jurisdiction, may have their subject-eatter jurisdiction challenged at any stage of the proceedings by any party, and by the court itself when the issue is apparent. h 20 Am. Jur. 2d COURTS I 95 (1965), citina coinsville v. grown-Crunner Invest. Co., 277 U.S. S4 ( ), Panhandle Eastern Pipe Line Co. v. Federal Power Ces. ,
324 U.S. 655 ( ), Crubb v. Ohio Public Utilities Coe., 281 U.S. 470
( ). Parties to proceedings la tha federal court saanot "stipulate jurisdiction" if in fact there is as subject-eatter jurisdiction in the federal court as to a particular matter Accordingly, while tempting, I do not believe that an attempt to "preserve jurisdiction" by some such understanding, or even a provision in this court's order approving the transaction, would be effectual.
A separate order in accordance with this opinion vill be entered denying approval of the intended action under the debtor's Notice of Intention filed July 21, 1988.
DATID at Manchester, New Raapshire this 2nd day of September,1988.
> W J E. TAC 05 UPTCY JUDGE Debtor to serve on full list 20