ML20235T535

Safety Evaluation Supporting Amend 150 to License NPF-1

ML20235T535
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Site:	Trojan File:Portland General Electric icon.png
Issue date:	02/28/1989
From:	Office of Nuclear Reactor Regulation
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ML20235T527	List: ML20235T524 ML20235T529 ML20235T535
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NUDOCS 8903080337
Download: ML20235T535 (8)

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SAFETY EVALUATION BY THE OFFICE OF NUCLEAR REACTOR REGULATION

.RELATED TO AMENDMENT NO.150 TO FACILITY OPERATING LICENSE NO. NPF-1 PORTLAND GENERAL ELECTRIC COMPANY THE CITY OF EUGENE, OREGON PACIFIC POWER AND LIGHT COMPANY TROJAN NUCLEAR PLANT DOCKET N0. 50-344

1.0 INTRODUCTION

By letter dated May 9, 1988, an application was made to the NRC to revise Facility Operating License No. NPF-1 for Trojan Nuclear Plant. The revision would reflect that Pacific Power and Light Company, a 2.5 percent owner of Trojan Nuciear Plant, has merged with Utah Power and Light Company to become a new corporation, PacifiCorp, but is continuing to do business under the assumed name of Pacific Power and Light Company.

The NRC has reviewed the proposed corporate restructuring of Pacific Power and Light Company and found that the proposed corporate restructuring has no adverse effect on the safe operation of Trojan Nuclear Plant.

The responsibility for operation of the plant continues with the majority co-owner, Portland General Electric Company.

TLS staff evaluation of antitrust and financial considera ions follows.

2.0 EMLUATION 2.1. Antitrust g ns,iderations n The NRC staff reviews license amendment applications for the purpose of determining whether or not a significant change has occurred since the previous antitrust review that would impact on arc existing antitrust license conditions or change conditions or activitte!, under the license that vould create or maintain inconsistencies with the antitrust laws.

The staff has considered the data submitted by the Licensee in conjunction with the " conditional" approval of the captioned merger by the Federal Energy Regulatory Comission. As a result of its review, the staff has determined that the captioned amendment request will not significantly impact competition and should be approved.

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License amendments that involve changa in ownership, specifically new owners, are of particular concern to the staff in the context of its antitrust review responsibilities. It is important for the staff to be aware of the identity of owners of the nuclear facility in question so that an assessment can be made regarding the manner in which the facility will be used by any new owner in a particular bulk power services market.

Owners and potential owners that possess the ability to control various aspects of the bulk power services market, i.e., those with market power, are reviewed by the staff in an effort to ensure that the addition of the nuclear facility to their generation and transmission mix will not adversely impact the competitive process -- specifically, staff is charged with preventing the creation or maintenance of activities that may be inconsistent with the antitrust laws.

On October 5,1987, Utah Power and Light Company (UP&L), PacifiCorp and PC/UP&L Merging Corp. filed a joint application before the Federal Energy Regulatory Commission (FERC) under Section 203 of the Federal Power Act (FPA) seeking approval of the proposed merger between PacifiCorp and UP&L. Even though both FERC and NRC approval are required before the merger can be consummated, the regulatory mandates for the FERC and the NRC are different. As a result, the NRC review, which directly addresses the competitive significance of the effect of the merger on one of its licensees, is not necessarily "duplicative" (as characterized by the Licenseeinitsamendmentrequestatpagethree)tothereviewconducted bytheFERgwhichfocusesmoreontheimpactofthemergeronthe"public interest." As noted in Opinion No. 318 in the instant docket, FERC states that, '

"It is our responsibility to make findings related to the pertinent antitrust statutes and weigh them along with other important public interest considera-tions." [0 pinion,atp.26]

By letter dated May 9, 1988, PacifiCorp and PC/UP&L Herging Corp. jointly submitted an a Plant (Trojan)pplication Operatingto the NRC License. staff to amend PacifiCorp, the Trojan a minority Nuclear co-owr.er of Trojan, is engaged in the electric utility industry, doing business under the name of Pacific Power and Light Company (PP&L). PacifiCorp, through PP&L, intends to transfer its ownership interest in Trojan to a rawly I Fursuant to Section 203(a) of the FPA, the FERC may approve a uerger that is subject to its jurisdiction if it finds that the merger will be consistent with the public interest. Under Section 203(b) of the FPA, the FERC may approve a merger, "upon such terms and conditions as it finds necessary or appropriate to secure the maintenance of adequate service and proper coordination in the public interest. . ." (Emphasis added.) 16 U.S.C. 824(b)(1982).

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.' created corporate entity, PC/UP&L Merging Corp., that has been recently formed to accommodate the proposed merger of PacifiCorp and the Utah Power and Light Company. At the time of the merger, PC/UP&L Merging Corp. will change its name to PacifiCorp, but will continue to do business as an electric utility under the business name of Pacific Power and Light Company. Upon consummation of the proposed merger, all of the properties of PP&L, including PP&L's ownership interest in Trojan, will be transferred to and vested in the new PP&L. Under the terms of the merger agreement, UP&L will be operated as a division of PacifiCorp, engaging in essentially the same business formerly conducted by UP&L prior to the merger.

A. NRC Staff Review In its antitrust review of nuclear plant licensees, the staff, as indicated supra is concerned with any activities that may create or maintain inconsistencies with the antitrust laws. The focus of the staff's antitrust review in the captioned proceeding is primarily on.

UP&L, which has not previously been subjected to an antitrust review by the NRC, and UP&L's affect upon the corporation formed as a result of the proposed merger. As indicated above, the responsibility for operating the plant continues with the majority co-owner, Portland General Electric Company. The staff addressed the following questions during.its review of the proposed amendment request: 1) Does UP&L possess k rket power? 2) Does the addition of PP&L's share of. the generation and transmission associated with Trojan increase UP&L's market power? and 3) '

Is UP&L presently abusing its market power in the bulk power services market (s') in question? The staff is also concerned with the manner in which the existing licensee, PacifiCorp, will react to any increase in its market power as a result of the merger. In this regard, the staff addressed the following questions: 1) Does PacifiCorp, as co-owner of Trojan, presently possess market power in any relevant market (s)? 2) Will the addition of UP&L's generation and transmission facilities enable PacifiCorp to compound its existing market power? and 3) What is the probability that the newly formed corporation will in any way abuse this new found anarkct power to the detriment of competition and the competitive process in the western bulk powe services marketing area of the United Stated In order fnr PacifiCorp to be able to exercise any market power associated with its 2.5 percent minority ownership interest in Trojan, PccifiCorp's share, either in conjunction with UP&L's generation and transmission facilities or independently on its own, would have to include meaningful centro? over some type of essential facility" -- either in generation, transmission or a related coordination services market (s). It is most feasible to assume in thi$ case that a 2.5 percent ownership of attendant  ;

transmission facilities associated with Trojan could possibly be strategi- '

cally located in the transmission configuration grid of the market (s) in question. If it is established that such an essentici facility exists, control over such a strategic or essential facility could determine who would receive power or energy in the area, when and where the power or energy would be delivered, how much the power or energy would cost, the interruptible nature of the power or energy, etc. If this is a feasible

9 assumption, and staff has not determined th' e infeasibility of this assumption in this case,;then any meaningful increase in PacifiCorp's market power over a strategic or " bottleneck facility", such as trans-mission lines in the northwestern and southwestern portions of the United States, would be an area of concern for the staff if there was any evidence of' abuse of this market power.

-The same scenario would apply to UP&L, the proposed new joint owner of the Trojan facility. Although Portland. General . Electric retains ~ the responsibility to operate the facility as majority co-owner, if it was.

determined that UP&L has market power in relevant transmission services, has abused or-is abusing this market power and the addition of. PacifiCorp's ownership in Trojan, principally the Trojan transmission grid, would exacerbate the new corporate entity's ability -to abuse its market power,

-then the' staff would have serious concerns with approving the captioned amendment request in its present form. As noted below, the FERC addressed'many of these same issues in Lits review of the proposed merger and attached an extensive set of conditions to its approval of the merger that ameliorated the staff's concerns.

. B. FERC Proceeding Although the process of reviewing merger applications at the FERC is not necessarily focused on the competitive activities of the merger participants, in this particular case the administrative proceeding at the FERC offered an opportunity for viewpoints and issues to be raised by many different competin'g interests throughout the western portion of the domestic electric bulk power industry.

During the initial hearing before the administrative law judge (ALJ), a factual record was established that provided significant insight into many of the areas of primary concern to the NRC's review process. On June 13, 1988, the ALJ issued an Initial Decision disallowing the proposed merger. According to the Decision, the Applicants failed to show that the proposed merger was consistent with the public interest. Of particular interest to the NRC staff and the entitrust review of the proposed merger war the finding by the ALJ that the merger, if consummated, would tend to substantially lessen competition and create a monopoly. J FERC set the proposed merger for hearing before the full Commission and after reviewing the ALJ's Initial Decision, as well as the Findings of Fact set forth in the ALJ proceeding and hearing arguments from several interested parties, issued Opinien No. 318 on October 26, 1988 approYing the merger -- but only if Certain ConditioCs were met by the Applicants. (The FERC decision attaching conditions to the merger was unique for the FERC but not unlike the NRC antitrust review process that may grant a construction permit or an operating license with certain license conditions attached, i.e., a type of " conditional" approval.)

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As noted in the ALJ's Decision and. elaborated on in the FERC Opinion, the two principal operating entities. involved in the proposed merger, i.e.,

PP&L and UP&L, had:significant market positions and substantial market power in their respective geographic markets.: As a result, FERC con-cluded_that,.

"By combining the transmission facilities of UP&L and PP&L, PacifiCorp Oregon [the surviving corporate entity] would

, effectively control access by Northwest sellers to the

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Southwest through the eastern corridor." [ Opinion,at page30]

The FERC Opinion emphasized the substantial anticompetitive effects that-would occur in the various markets for transmission of power and energy

-if the merger.were allowed without specific conditions designed to mitigate these projected effects. As a result, FERC proposed a far-reaching " wheeling" condition that was designed to ameliorate these anticipated antico'npetitive effects. As the FERC states in its Opinion at page 25,

. . . if we were to approve the merger without such conditions, utilities that compete with the merged company could be denied access to the merged com>any's .

strategically-located transmission facilities." Emphasis added..

The conditions ~ attached to the merger of PacifiCorp and UP&L are far-reaching in: terms of the number of competitive entities they touch and the broad spectrum of. bulk power services they can potentially provide.

The conditions provide access to the newly formed corporate entity's transmission grid and enable all power systems that want to, to shop for the most efficient source of power supply.

C. Conclusions on Antitrust Matterr As a result of the proposed merger between PacifiCorp and UP&L, UP&L will become part of s newly formed corporate entity with owwrship interests in the Trojan Nuclear Plant. The staff last co.tducted an antitrust y reviewoftheTrojanowners(includingPacifiCorp)in1975andfoundno activities by any of the owners su0gesting that an antitrust hearing 2

The FERC Opinion at page 32 indicates that,

"...therecordestablishesthatpriortothemerger(even without the additional transmission control that would result from ther merger) UPSL's transmission system constitutes an essential facility since: (1) UP&L's system is controlled by a monop(olist; (2) competitors it; 3) its use has been deniedare unable to economically) to competitors; and (4 it is duplicate feasible to make the facilities available to competitors."

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l should be initiated. Moreover, the staff noticed the proposed merger and I concomitant amendment request in the Federal Register in July of 1988.. '

The Federal Register notice requested public comment on the antitrust aspects of the proposed merger and no comments were received.  ;

The FERC conducted extensive hearings on the proposed merger and on October 26, 1988 issued Opinion No. 318 approving the merger. What is significant about-the FERC proceeding, for purposes of the NRC's review, is not the fact that FERC approved the merger, but the fact that the FERC conditioned its approval of. the merger upon an extensive set of obliga-tions that each of the merging parties must adhere to in order to prevent the merger from detrimentally affecting the competitive process in the northwestern and southwestern portions of the domestic bulk power industry.

These obligations or conditions provided for significant access to the

. transmission facilities of the newly formed corporate entity, thereby providing stimuli to competition and the competitive process in the broad geographic area that will be served by the merging parties. Substantial barriers to freer competitive access to all forms of power and energy were lessened by the FERC decision.

Although the regulatory mandates pursuant to antitrust review and competi-tive analysis differ for the FERC and the NRC, they are not necessarily mutually exclusive. In this particular merger proceeding, the FERC addressed competitive concerns that were substantially identical to those raised by the NRC staff. FERC's conditional approval of the PacifiCorp/

UP&L merger mitigated the competitive concerns raised by the staff in its review of the captioned amendment request. Moreover, the Department of Justice also examired this merger in the context of its Section 105c advisory role and by letter dated November 21, 1988, ". . . concluded that no antitrust hearing is necessary . . ." with respect to the merger in question.

Based upon an analysis of the data available to staff, the Department of Justice's advice letter and the conditional approval of the merger by the FERC, we believe that there have been no significant changes 3

.. which would warrant a formal antitrust review. Accordingly, the proposed  !

amendment raises no antitrust issues that would preclude its issuance. f 2.2 Financial Considerations The NRC staff review of financial considerations of the proposed merger include PP&L's and UP&L's joint proxy statement and prospectus dated October 29, 1987, which was included with the application. As stated above, PP&L would be n.erged with UP&L, thus creating a single, larger utility to be named Pacificorp, but continuing to use the business name, Pacific Power and Light Company. At present PP&L has a 2.5 percent ownership interest in Trojan. The other owners are Portland General 1

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• l Electric Company (67.5 percent) and Eugene Water and Electric Board (30 percent). (The Eugene Water and Electric Board is an agency of the City of Eugene, Orgeon.) The proposed merger has no effect on the ownership interests of these other two owners. It also has no.effect on control or operation of the facility. .

The stated reasons for.the proposed merger are the business economies that PP&L and UP&L expect to achieve by joining forces. The two utilities state that the merger will enable the combined company to achieve increased i financial strength, greater efficiencies of operation and reductions in '

requirements. for future generating capacity. Benefits are anticipated from, among other things, the complementary locations of the companies' service territories, the compatibility of their seasonal demand peaks and the combination of PP&L's low-cost surplus power from the Northwest and UP&L's access to markets for such power in the Southwest.  ;

i The new PP&L (PacifiCorp) is an electric u.tility, and retains the 2.5 '

percent ownership interest in Trojan being transferred from the present PP&L. In this situation, NRC's financial qualification concern is the source of funds for facility operation. The source of funds for PP&L's pro rate share (2.5 percent) of Trojan's operating and maintenance expenses and eventual decommissioning expenses is the revenues from system-wide . utility operations. The ultimate providers of these funds ere the utility's wholesale and retail customers. PP&L's customer base and revenue base will be significantly expanded by the addition of UP&L's entire service territory. Thus the source of funds for this licensee!s share of plant expenses will apparently be enhanced by the proposed merger.

Conclusion - Financial Considerations Based on the above there will be no adverse change and there will apparently be an enhancement (as a result of the proposed merger) in PP&L's source of funds for nuclear plant operating, maintenance and decommissioning costs.

3.0 CONTACT WITH STATE OFMCIAL The tiRC ttaff has notified tte Oregon Department of Energy of the proposed issuance of this amendment along with the proposed determination of no significant hazards consideration. No coments were received.

4.0 iMVIRONMENTAL CONSIDERATION This amendment only involves the administratico of credit and financial arrangements and antitrust considerations for the Trojan Nuclear Plant.

Accordingly, the amendment meets the eligibility criteria for categorical exc1w ion set forth in 10 CFR $51.22(c)(10). Pursuant to 10 CFR 951.22(b),

no er,vironmental impact statement or env tronmental assessment need be prepared in connection with the issuance of the amendment.

5.0 CONCLUSION

We have concluded, based on the considerations discussed above, that (1) there is reasonable assurance that.the health and safety of the public will not be endangered by operation in the proposed manner, (2) such activities will be conducted in compliance with the Commission's-regulations, and (3) the issuance of the amendment will not be inimical to the common defense and security or to the health and safety of the .

public,.

PRINCIPAL CONTRIBUTORS: W. M. Lambe, J. Petersen, and R. Bevan Dated: February 28, 1989 o

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