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{{#Wiki_filter:PROPRIETARY INFORMATION PROPRIETARY INFORMATION May 9, 2014 UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION BEFORE THE ATOMIC SAFETY AND LICENSING BOARD  
{{#Wiki_filter:PROPRIETARY INFORMATION May 9, 2014 UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION BEFORE THE ATOMIC SAFETY AND LICENSING BOARD In the Matter of                                        )
                                                        )
AEROTEST OPERATIONS, INC.                                )      Docket No. 50-228-LT
                                                        )
(Aerotest Radiography and Research                      )
Reactor)                                        )
NRC STAFF RESPONSE TO AEROTEST OPERATIONS, INC.
AND NUCLEAR LABYRINTH, LLCS STATEMENT OF AREAS OF CONTROVERSY REGARDING DENIAL OF INDIRECT LICENSE TRANSFER OF AEROTEST RADIOGRAPHY AND RESEARCH REACTOR INTRODUCTION In accordance with the Presiding Officers April 25, 2014 Order,1 the U.S. Nuclear Regulatory Commission (NRC) staff (Staff) hereby files its response to Aerotest Operations, Inc.s (Aerotest) and Nuclear Labyrinth, LLCs (Nuclear Labyrinth) (collectively the Companies)
Statement of Areas of Controversy regarding the denial for the indirect transfer of license number R-98 for the Aerotest Radiography and Research Reactor (ARRR).2 As outlined in their Areas of Controversy, the Companies disagree with the Staffs conclusion that the Companies license transfer application: (1) did not demonstrate that they have or with reasonable assurance will have sufficient funding to conduct activities authorized by the ARRR license if the license is indirectly transferred, and (2) did not provide sufficient information for the NRC Staff to determine whether there will be sufficient funds to cover the annual cost of spent fuel storage 1
Order (Memorializing Discussion at April 24, 2014 Pre-Hearing Conference) (Apr. 25, 2014).
2 Aerotest Operations, Inc. and Nuclear Labyrinth, LLCs Statement of Areas of Controversy Regarding Denial of Indirect License Transfer of Aerotest Radiography and Research Reactor (Apr. 22, 2014) (Areas of Controversy).
PROPRIETARY INFORMATION


In the Matter of          )
PROPRIETARY INFORMATION until the Department of Energy (DOE) accepts ARRRs spent fuel.3 As discussed below, the claims outlined in the Companies Areas of Controversy are without merit and/or fall outside the scope of this license transfer proceeding and should not be admitted to this proceeding; thus, the denial of the indirect transfer of the ARRR license should be upheld.
          )
DISCUSSION
AEROTEST OPERATIONS, INC.    )  Docket No. 50-228-LT      )  (Aerotest Radiography and Research      )
: 1. The Staffs Denial of the Indirect License Transfer was Reasonable In the Areas of Controversy, the Companies argue that they have provided an adequate showing of financial qualifications in their application and their responses to Staff Requests for Additional Information (RAIs).4 However, based on the Staffs review of these documents, the Staff concluded that neither Aerotest nor Nuclear Labyrinth meet the financial qualifications requirements of 10 C.F.R. § 50.33(f), as required under 10 C.F.R. § 50.80.5 The NRC Staff determined that Aerotest does not qualify as an electric utility as defined in 10 C.F.R. § 50.2.6 Therefore, Aerotest must meet the financial qualifications requirements outlined in 10 C.F.R.
Reactor)    )
§ 50.33(f)(2), which states, in part, that:
 
If the application is for an operating license, the applicant shall submit information that demonstrates the applicant possesses or has reasonable assurance of obtaining the funds necessary to cover estimated operation costs for the period of the license. The applicant shall submit estimates for total annual operating costs for each of the first five years of operation of the facility. The 3
NRC STAFF RESPONSE TO AEROTEST OPERATIONS, INC. AND NUCLEAR LABYRINTH, LLC'S STATEMENT OF AREAS  OF CONTROVERSY REGARDING DENIAL OF INDIRECT LICENSE  TRANSFER OF AEROTEST RADIOGRAPHY AND RESEARCH REACTOR INTRODUCTION In accordance with the Presiding Officer's April 25, 2014 Order, 1 the U.S. Nuclear Regulatory Commission (NRC) staff (Staff) hereby files its response to Aerotest Operations, Inc.'s (Aerotest) and Nuclear Labyrinth, LLC's (Nuclear Labyrinth) (collectively the Companies) Statement of Areas of Controversy regarding the denial for the indirect transfer of license number R-98 for the Aerotest Radiography and Research Reactor (ARRR).
Areas of Controversy at 1.
2  As outlined in their Areas of Controversy, the Companies disagree with the Staff's conclusion that the Companies' license transfer application: (1) did not demons trate that they have or with reasonable assurance will have sufficient funding to conduct activities authorized by the ARRR license if the license is indirectly transferred, and (2) did not provide sufficient information for the NRC Staff to determine whether there will be sufficient funds to cover the annual cost of spent fuel storage 1  Order (Memorializing Discussion at April 24, 2014 Pre-Hearing Conference) (Apr. 25, 2014).
4 Id. at 2-4.
2  Aerotest Operations, Inc. and Nuclear Labyrinth, LLC's Statement of Areas of Controversy Regarding Denial of Indirect License Transfer of Aerotest Radiography and Research Reactor (Apr. 22, 2014) (Areas of Controversy).
5 See Safety Evaluation by the Office of Nuclear Reactor Regulation Indirect License Transfer of Aerotest Radiography and Research Reactor Due to the Proposed Acquisition of Aerotest Operations, Inc. by Nuclear Labyrinth, LLC Facility Operating License No. R-98, at 9. The public version is located under Agencywide Documents Access and Management System (ADAMS) Accession No. ML13129A001. (License Transfer SE). The proprietary version is located under ADAMS Accession No. ML13128A403. (Proprietary License Transfer SE).
PROPRIETARY INFORMATION PROPRIETARY INFORMATION until the Department of Energy (DOE) accepts ARRR's spent fuel.
3 As discussed below, the claims outlined in the Companies' Areas of Controversy are without merit and/or fall outside the scope of this license transfer proceeding and should not be admitted to this proceeding; thus, the denial of the indirect transfer of the ARRR license should be upheld.
DISCUSSION 1. The Staff's Denial of the Indirect License Transfer was Reasonable In the Areas of Controversy, the Companies argue that they have provided an adequate showing of financial qualifications in their application and their responses to Staff Requests for Additional Information (RAIs).
4 However, based on the Staff's review of these documents, the Staff concluded that neither Aerotest nor Nuclear Labyrinth meet the financial qualifications requirements of 10 C.F.R. § 50.33(f), as required under 10 C.F.R. § 50.80.
5 The NRC Staff determined that Aerotest does not qualify as an electric utility as defined in 10 C.F.R. § 50.2.
6 Therefore, Aerotest must meet the financial qualifications requirements outlined in 10 C.F.R.  
§ 50.33(f)(2), which states, in part, that: If the application is for an operating license, the applicant shall submit information that demonstrates the applicant possesses or has reasonable assurance of obtaining the funds necessary to cover estimated operation costs for the period of the license. The applicant shall submit estimates for total annual operating costs for each of the first five years of operation of the facility. The 3 Areas of Controversy at 1.
4 Id. at 2-4. 5 See Safety Evaluation by the Office of Nuclear Reactor Regulation Indirect License Transfer of Aerotest Radiography and Research Reactor Due to the Proposed Acquisition of Aerotest Operations, Inc. by Nuclear Labyrinth, LLC Facility Operating License No. R-98, at 9. The public version is located under Agencywide Documents Access and Management System (ADAMS) Accession No. ML13129A001. (License Transfer SE). The proprietary version is located under ADAMS Accession No. ML13128A403. (Proprietary License Transfer SE).
6 License Transfer SE at 4.
6 License Transfer SE at 4.
PROPRIETARY INFORMATION PROPRIETARY INFORMATION applicant shall also indicate the source(s) of funds to cover these costs.7  In its evaluation, the Staff reviewed the application and the RAI responses, including pro forma projected financial statements (projected net income statement for Aerotest and projected balance sheet for Nuclear Labyrinth).
PROPRIETARY INFORMATION
8  The Staff also evaluated the financial condition of Nuclear Labyrinth, which would be the ultimate owner of Aerotest following the proposed indirect license transfer.
9  After considering the reasonableness of estimating operating costs, the reasonableness of financial projections and underlying assumptions, and the sensitivity of plant revenue projections, among other things, the Staff reasonably concluded that "neither Aerotest nor Nuclear Labyrinth meets the financial qualification requirements under 10 CFR 50.33(f) because they have not demonstrated that they possess or have reasonable assurance of obtaining the funds necessary to cover estimated operating costs for the period of the license."10  Accordingly, on July 24, 2013, the Staff denied the license transfer request.
11 7  See also 10 C.F.R. § 50.33(f) (providing that application shall state "information sufficient to demonstrate to the Commission the financial qualification of the applicant to carry out, in accordance with the regulations in this chapter, the activities for which the permit or license is sought.").
8  License Transfer SE at 4-9.
9  Id. at 7-9. 10  Id. at 9. 11  Letter to Michael Anderson, President, Aerotest Operations, Inc. from Eric Leeds, NRC, Re: Denial of License Renewal, Denial of License Transfer, etc. (July 24, 2013) (ADAMS Accession No. ML13120A598) (Denial Letter). Since the issuance of the Denial Letter, damaged fuel has been discovered and it is uncertain how much more fuel may be damaged or whether there is enough undamaged fuel to operate the reactor. Aerotest Operations, Inc. - Notice of Violation - NRC Inspection Report No. 50-228/2012-201 (Dec. 18, 2013) (ADAMS Accession No. ML13212A051) (stating that Aerotest had notified the NRC that there were a total of 22 aluminum-clad fuel elements with cracks in the cladding). Although the damaged fuel was not the reason for the denial of the transfer, the NRC has an ongoing obligation to protect the public health and safety. Therefore, the NRC cannot issue a license to Nuclear Labyrinth, where the Staff cannot determine whether 1) there is sufficient fuel to run the reactor, 2) Nuclear Labyrinth will have sufficient funding to replace the damaged fuel and restart the reactor, 3) the reactor will be able to operate for even a portion of the license term, or 4) Nuclear Labyrinth has funds to put the ARRR into SAFSTOR until DOE accepts the fuel in 2055 or later.
PROPRIETARY INFORMATION PROPRIETARY INFORMATION The Companies also assert that the Staff's selection of two prior customers out of the 65 that Aerotest served in 2009 as the primary basis for its conclusion of "likely post-transfer revenues" was unreasonable and unnecessarily restrictive.
12        Therefore, the Staff used historic data reported by the Companies to calculate potential revenue from these two customers because it was the only information available.
15  Given the limited availability of information, the Staff's selection of two prior customers in determining potential future revenue was reasonable. The Companies also note that they could not rely on long term contracts to demonstrate source of funds nor was it practical for them to obtain letters of intent for such long term contracts.
16  However, the Staff never suggested that there was a requirement to submit long term contracts. The Staff simply noted that because Aerotest does not use long term contracts, the potential revenue from previous customers who expressed interest in using Aerotest services is uncertain.
17  Nevertheless, as explained above, the Staff used historic data to calculate potential revenue from these customers because it was the only information available. Additionally, the Companies contend that the Staff failed to follow its own policies by not considering "other relevant financial information" as outlined in NUREG-1577, such as "the funding agreements between Nuclear Labyrinth and Autoliv ASP [that] provide for a fully funded decommissioning trust fund, a fully funded fuel transportation and disposal trust fund, and 12  Areas of Controversy at 4.
13  Proprietary License Transfer SE at 5.
14  Id. 15  License Transfer SE at 5-6.
16  Areas of Controversy at 3.
17  License Transfer SE at 5.
PROPRIETARY INFORMATION PROPRIETARY INFORMATION twelve months' worth of cash."
18  However, the Staff specifically considered these items in Section 4.2 of the Safety Evaluation.
19  Therefore, the Companies' assertions are without merit. The Companies also assert that the Staff stated "without explanation" that it could not determine that there will be sufficient funds to cover the annual cost of fuel storage until DOE accepts the fuel and that the Companies provided sufficient information to provide such reasonable assurance in its RAI response.
20  Contrary to the Companies' assertion, the Staff evaluated the information provided in the RAI response regarding the costs associated with fuel storage, and provided its explanation and analysis regarding the sufficiency of the funding to cover these fuel storage costs in Section 5.0 of the Safety Evaluation.
21 2. Foreign Ownership Domination and Control Was Not a Basis for the Staff's Denial of the Indirect License Transfer and Falls Outside the Scope of this Proceeding The Companies contend that foreign ownership, control, and domination (FOCD) issues played a role in the Staff's ruling in the license transfer case and that the Staff seeks to inappropriately impose FOCD related conditions on Autoliv's financial support arrangements with Nuclear Labyrinth.
22  In its evaluation, the Staff notes that according to the application, "Nuclear Labyrinth and Aerotest will not be owned, controlled or dominated by an alien, a foreign corporation, or a foreign government after the proposed indirect license transfer."
23  The 18  Areas of Controversy at 5. The Companies assert that the 12 months' worth of cash provided for in the funding agreements between Nuclear Labyrinth and Autoliv ASP is sufficient in accordance with NUREG-1577 to cover an outage of at least 6 months.
Id. However, the Companies previously indicated that the funds received from Autoliv would be used to support the first 12 months of operation and maintenance of the facility. License Transfer SE at 8-9. The Companies are thus inappropriately attempting to use a single set of funds for the purpose of fulfilling two separate obligations.
19  Proprietary License Transfer SE at 8 (The Staff's analysis contains proprietary information and is therefore only available in the proprietary version of the safety evaluation).
20  Areas of Controversy at 5-6.
21  License Transfer SE at 10-11.
22  Areas of Controversy at 6.
23  License Transfer SE at 11-12.
PROPRIETARY INFORMATION PROPRIETARY INFORMATION Staff's evaluation also states that "the NRC needs to conduct an additional review of the financial documents, including but not limited to support agreements, to determine whether the applicants will be subject to [FOCD]."
24    However, no finding of FOCD was made in the Staff's evaluation of the indirect transfer application. The Staff's denial of the indirect license transfer was based on its conclusion that "neither Aerotest nor Nuclear Labyrinth meets the financial qualification requirements under 10 CFR 50.33(f)."
25  To the extent the NRC Staff suggested in its evaluation that Autoliv's financial support arrangements should include specific provisions to negate foreign control, the inclusion of these provisions would be contingent upon some later Staff determination of FOCD.
26  Indeed, the Staff specifically stated that these provisions should be in place "to negate Autoliv, Inc. control, if any, over NRC regulated activities . . . after the transfer," thereby indicating that any provisions would be based upon some later Staff determination of FOCD.
27  Thus, FOCD issues were not the basis of the Staff's denial of the indirect license transfer. Accordingly, the Companies' FOCD claims are without merit and fall outside the scope of this proceeding. Additionally, the Companies claim that the Staff's determination that the Companies are not financially qualified is a result of the Staff's own actions. Specifically, the Companies assert that the NRC's "erroneous application of [FOCD] restrictions" led Aerotest to shutdown the ARRR and ultimately left Aerotest without current revenue.
28  These claims are without merit 24  License Transfer SE at 12.
25  Id. at 9, 14-15; see also Denial Letter at 1-2.
26  License Transfer SE at 11-12.
27  Id. at 12 (emphasis added). Moreover, in granting this license transfer hearing, the Commission itself noted that the license transfer denial did not turn on FOCD. Aerotest Operations, Inc.
(Aerotest Radiography and Research Reactor), CLI-14-05, 76 RC __ (Apr. 10, 2014) (slip op. at 5 n. 16) ("[T]he license transfer denial did not turn on the foreign ownership question, but the Staff nevertheless expressed a concern that Autoliv could, in the future, subject Aerotest and Nuclear Labyrinth to foreign control.").
28  Areas of Controversy at 4-5.
PROPRIETARY INFORMATION PROPRIETARY INFORMATION and are otherwise irrelevant to the Staff's denial of the indirect license transfer. In 2011, Aerotest notified the NRC that it was voluntary ceasing operations.
29  Nevertheless, the Companies submitted an application for an indirect license transfer in 2012. The Staff's denial of the transfer was based on the Staff's regulatory determination that the Companies did not
 
meet the NRC's financial qualifications regulations.
30  The purpose of the financial qualifications requirements is to ensure the protection of public health and safety and the common defense and security.
31  Thus, the Companies' assertion that they were unable to meet the NRC's regulations because of equity issues is not relevant to the Staff's denial of the license transfer. CONCLUSION  For the foregoing reasons, the Companies' claims as outlined in their Areas of Controversy are without merit and/or fall outside the scope of this proceeding and should not be admitted to this proceeding; thus, the proposed indirect license transfer denial should be upheld.
Respectfully submitted,  /Signed (electronically) by/
Anita Ghosh Counsel for NRC Staff U.S. Nuclear Regulatory Commission Office of the General Counsel Mail Stop O15-D21 Washington, DC 20555 Telephone: (301) 415-4113
 
E-mail: Anita.Ghosh@nrc.gov Executed at Rockville, Maryland
 
this 9 th day of May, 2014
 
29 Letter from Eric Leeds, Director, Office of Nuclear Reactor Regulation, USNRC, to Dario Brisighella, President, Aerotest Operations, Inc., subject: Confirmatory Action Letter for Aerotest Operations, Inc., Aerotest Radiography and Research Reactor (Feb. 26, 2011) (ADAMS Accession No. ML103640183).
30  License Transfer SE at 9, 14-15.
31  Progress Energy Florida, Inc. (Levy County Nuclear Power Plant, Units 1 & 2) LBP-09-10, 70 NRC 51, 83 (2009) (citing Louisiana Energy Services, L.P. (Claiborne Enrichment Center), CLI-97-15, 46 NRC 294, 303 (1997)).
UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION BEFORE THE ATOMIC SAFETY AND LICENSING BOARD In the Matter of          )            ) AEROTEST OPERATIONS, INC.    )  Docket No. 50-228-LT      )          (Aerotest Radiography and Research      )  Reactor)    )


CERTIFICATE OF SERVICE I hereby certify that copies of the foregoing "NRC STAFF RESPONSE TO AEROTEST OPERATIONS, INC. AND NUCLEAR LABYRINTH, LLC'S STATEMENT OF AREAS OF CONTROVERSY REGARDING DENIAL OF INDIRECT LICENSE TRANSFER OF AEROTEST RADIOGRAPHY AND RESEARCH REACTOR", dated May 9, 2014, have been served upon the Electronic Information Exchange, in the above-captioned proceedings, this 9th day of May, 2014.
PROPRIETARY INFORMATION applicant shall also indicate the source(s) of funds to cover these costs.7 In its evaluation, the Staff reviewed the application and the RAI responses, including pro forma projected financial statements (projected net income statement for Aerotest and projected balance sheet for Nuclear Labyrinth).8 The Staff also evaluated the financial condition of Nuclear Labyrinth, which would be the ultimate owner of Aerotest following the proposed indirect license transfer.9 After considering the reasonableness of estimating operating costs, the reasonableness of financial projections and underlying assumptions, and the sensitivity of plant revenue projections, among other things, the Staff reasonably concluded that neither Aerotest nor Nuclear Labyrinth meets the financial qualification requirements under 10 CFR 50.33(f) because they have not demonstrated that they possess or have reasonable assurance of obtaining the funds necessary to cover estimated operating costs for the period of the license.10 Accordingly, on July 24, 2013, the Staff denied the license transfer request.11 7
See also 10 C.F.R. § 50.33(f) (providing that application shall state information sufficient to demonstrate to the Commission the financial qualification of the applicant to carry out, in accordance with the regulations in this chapter, the activities for which the permit or license is sought.).
8 License Transfer SE at 4-9.
9 Id. at 7-9.
10 Id. at 9.
11 Letter to Michael Anderson, President, Aerotest Operations, Inc. from Eric Leeds, NRC, Re:
Denial of License Renewal, Denial of License Transfer, etc. (July 24, 2013) (ADAMS Accession No. ML13120A598) (Denial Letter).
Since the issuance of the Denial Letter, damaged fuel has been discovered and it is uncertain how much more fuel may be damaged or whether there is enough undamaged fuel to operate the reactor.
Aerotest Operations, Inc. - Notice of Violation - NRC Inspection Report No. 50-228/2012-201 (Dec. 18, 2013) (ADAMS Accession No. ML13212A051) (stating that Aerotest had notified the NRC that there were a total of 22 aluminum-clad fuel elements with cracks in the cladding). Although the damaged fuel was not the reason for the denial of the transfer, the NRC has an ongoing obligation to protect the public health and safety. Therefore, the NRC cannot issue a license to Nuclear Labyrinth, where the Staff cannot determine whether 1) there is sufficient fuel to run the reactor, 2) Nuclear Labyrinth will have sufficient funding to replace the damaged fuel and restart the reactor, 3) the reactor will be able to operate for even a portion of the license term, or 4) Nuclear Labyrinth has funds to put the ARRR into SAFSTOR until DOE accepts the fuel in 2055 or later.
PROPRIETARY INFORMATION


/Signed (electronically) by/             
PROPRIETARY INFORMATION The Companies also assert that the Staffs selection of two prior customers out of the 65 that Aerotest served in 2009 as the primary basis for its conclusion of likely post-transfer revenues was unreasonable and unnecessarily restrictive.12 Therefore, the Staff used historic data reported by the Companies to calculate potential revenue from these two customers because it was the only information available.15 Given the limited availability of information, the Staffs selection of two prior customers in determining potential future revenue was reasonable.
The Companies also note that they could not rely on long term contracts to demonstrate source of funds nor was it practical for them to obtain letters of intent for such long term contracts.16 However, the Staff never suggested that there was a requirement to submit long term contracts. The Staff simply noted that because Aerotest does not use long term contracts, the potential revenue from previous customers who expressed interest in using Aerotest services is uncertain.17 Nevertheless, as explained above, the Staff used historic data to calculate potential revenue from these customers because it was the only information available.
Additionally, the Companies contend that the Staff failed to follow its own policies by not considering other relevant financial information as outlined in NUREG-1577, such as the funding agreements between Nuclear Labyrinth and Autoliv ASP [that] provide for a fully funded decommissioning trust fund, a fully funded fuel transportation and disposal trust fund, and 12 Areas of Controversy at 4.
13 Proprietary License Transfer SE at 5.
14 Id.
15 License Transfer SE at 5-6.
16 Areas of Controversy at 3.
17 License Transfer SE at 5.
PROPRIETARY INFORMATION


Anita Ghosh Counsel for NRC Staff U.S. Nuclear Regulatory Commission Office of the General Counsel
PROPRIETARY INFORMATION twelve months worth of cash.18 However, the Staff specifically considered these items in Section 4.2 of the Safety Evaluation.19 Therefore, the Companies assertions are without merit.
The Companies also assert that the Staff stated without explanation that it could not determine that there will be sufficient funds to cover the annual cost of fuel storage until DOE accepts the fuel and that the Companies provided sufficient information to provide such reasonable assurance in its RAI response.20 Contrary to the Companies assertion, the Staff evaluated the information provided in the RAI response regarding the costs associated with fuel storage, and provided its explanation and analysis regarding the sufficiency of the funding to cover these fuel storage costs in Section 5.0 of the Safety Evaluation.21
: 2. Foreign Ownership Domination and Control Was Not a Basis for the Staffs Denial of the Indirect License Transfer and Falls Outside the Scope of this Proceeding The Companies contend that foreign ownership, control, and domination (FOCD) issues played a role in the Staffs ruling in the license transfer case and that the Staff seeks to inappropriately impose FOCD related conditions on Autolivs financial support arrangements with Nuclear Labyrinth.22 In its evaluation, the Staff notes that according to the application, Nuclear Labyrinth and Aerotest will not be owned, controlled or dominated by an alien, a foreign corporation, or a foreign government after the proposed indirect license transfer.23 The 18 Areas of Controversy at 5. The Companies assert that the 12 months worth of cash provided for in the funding agreements between Nuclear Labyrinth and Autoliv ASP is sufficient in accordance with NUREG-1577 to cover an outage of at least 6 months. Id. However, the Companies previously indicated that the funds received from Autoliv would be used to support the first 12 months of operation and maintenance of the facility. License Transfer SE at 8-9. The Companies are thus inappropriately attempting to use a single set of funds for the purpose of fulfilling two separate obligations.
19 Proprietary License Transfer SE at 8 (The Staffs analysis contains proprietary information and is therefore only available in the proprietary version of the safety evaluation).
20 Areas of Controversy at 5-6.
21 License Transfer SE at 10-11.
22 Areas of Controversy at 6.
23 License Transfer SE at 11-12.
PROPRIETARY INFORMATION


Mail Stop O15-D21 Washington, DC 20555 Telephone: (301) 415-4113
PROPRIETARY INFORMATION Staffs evaluation also states that the NRC needs to conduct an additional review of the financial documents, including but not limited to support agreements, to determine whether the applicants will be subject to [FOCD].24 However, no finding of FOCD was made in the Staffs evaluation of the indirect transfer application. The Staffs denial of the indirect license transfer was based on its conclusion that neither Aerotest nor Nuclear Labyrinth meets the financial qualification requirements under 10 CFR 50.33(f).25 To the extent the NRC Staff suggested in its evaluation that Autolivs financial support arrangements should include specific provisions to negate foreign control, the inclusion of these provisions would be contingent upon some later Staff determination of FOCD.26 Indeed, the Staff specifically stated that these provisions should be in place to negate Autoliv, Inc. control, if any, over NRC regulated activities . . . after the transfer, thereby indicating that any provisions would be based upon some later Staff determination of FOCD.27 Thus, FOCD issues were not the basis of the Staffs denial of the indirect license transfer. Accordingly, the Companies FOCD claims are without merit and fall outside the scope of this proceeding.
Additionally, the Companies claim that the Staffs determination that the Companies are not financially qualified is a result of the Staffs own actions. Specifically, the Companies assert that the NRCs erroneous application of [FOCD] restrictions led Aerotest to shutdown the ARRR and ultimately left Aerotest without current revenue.28 These claims are without merit 24 License Transfer SE at 12.
25 Id. at 9, 14-15; see also Denial Letter at 1-2.
26 License Transfer SE at 11-12.
27 Id. at 12 (emphasis added). Moreover, in granting this license transfer hearing, the Commission itself noted that the license transfer denial did not turn on FOCD. Aerotest Operations, Inc.
(Aerotest Radiography and Research Reactor), CLI-14-05, 76 RC __ (Apr. 10, 2014) (slip op. at 5 n. 16)
([T]he license transfer denial did not turn on the foreign ownership question, but the Staff nevertheless expressed a concern that Autoliv could, in the future, subject Aerotest and Nuclear Labyrinth to foreign control.).
28 Areas of Controversy at 4-5.
PROPRIETARY INFORMATION


E-mail: Anita.Ghosh@nrc.gov
PROPRIETARY INFORMATION and are otherwise irrelevant to the Staffs denial of the indirect license transfer. In 2011, Aerotest notified the NRC that it was voluntary ceasing operations.29 Nevertheless, the Companies submitted an application for an indirect license transfer in 2012. The Staffs denial of the transfer was based on the Staffs regulatory determination that the Companies did not meet the NRCs financial qualifications regulations.30 The purpose of the financial qualifications requirements is to ensure the protection of public health and safety and the common defense and security.31 Thus, the Companies assertion that they were unable to meet the NRCs regulations because of equity issues is not relevant to the Staffs denial of the license transfer.
CONCLUSION For the foregoing reasons, the Companies claims as outlined in their Areas of Controversy are without merit and/or fall outside the scope of this proceeding and should not be admitted to this proceeding; thus, the proposed indirect license transfer denial should be upheld.
Respectfully submitted,
                                                            /Signed (electronically) by/
Anita Ghosh Counsel for NRC Staff U.S. Nuclear Regulatory Commission Office of the General Counsel Mail Stop O15-D21 Washington, DC 20555 Telephone: (301) 415-4113 E-mail: Anita.Ghosh@nrc.gov Executed at Rockville, Maryland this 9th day of May, 2014 29 Letter from Eric Leeds, Director, Office of Nuclear Reactor Regulation, USNRC, to Dario Brisighella, President, Aerotest Operations, Inc., subject: Confirmatory Action Letter for Aerotest Operations, Inc., Aerotest Radiography and Research Reactor (Feb. 26, 2011) (ADAMS Accession No. ML103640183).
30 License Transfer SE at 9, 14-15.
31 Progress Energy Florida, Inc. (Levy County Nuclear Power Plant, Units 1 & 2) LBP-09-10, 70 NRC 51, 83 (2009) (citing Louisiana Energy Services, L.P. (Claiborne Enrichment Center), CLI-97-15, 46 NRC 294, 303 (1997)).
PROPRIETARY INFORMATION


Dated at Rockville, Maryland this 9 th day of May, 2014}}
UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION BEFORE THE ATOMIC SAFETY AND LICENSING BOARD In the Matter of                                    )
                                                    )
AEROTEST OPERATIONS, INC.                          )      Docket No. 50-228-LT
                                                    )
(Aerotest Radiography and Research                  )
Reactor)                                  )
CERTIFICATE OF SERVICE I hereby certify that copies of the foregoing NRC STAFF RESPONSE TO AEROTEST OPERATIONS, INC. AND NUCLEAR LABYRINTH, LLCS STATEMENT OF AREAS OF CONTROVERSY REGARDING DENIAL OF INDIRECT LICENSE TRANSFER OF AEROTEST RADIOGRAPHY AND RESEARCH REACTOR, dated May 9, 2014, have been served upon the Electronic Information Exchange, in the above-captioned proceedings, this 9th day of May, 2014.
                                                    /Signed (electronically) by/
Anita Ghosh Counsel for NRC Staff U.S. Nuclear Regulatory Commission Office of the General Counsel Mail Stop O15-D21 Washington, DC 20555 Telephone: (301) 415-4113 E-mail: Anita.Ghosh@nrc.gov Dated at Rockville, Maryland this 9th day of May, 2014}}

Latest revision as of 21:18, 5 February 2020

NRC Staff Response to Aerotest Operations, Inc. and Nuclear Labyrinth, Llc'S Statement of Areas of Controversy Regarding Denial of Indirect License Transfer of Aerotest Radiography and Research Reactor
ML14129A479
Person / Time
Site: Aerotest
Issue date: 05/09/2014
From: Amitava Ghosh
NRC/OGC
To:
Atomic Safety and Licensing Board Panel
SECY RAS
References
50-228-LT, ASLBP 14-931-01-LT-BD01, RAS 25925
Download: ML14129A479 (8)
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PROPRIETARY INFORMATION May 9, 2014 UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION BEFORE THE ATOMIC SAFETY AND LICENSING BOARD In the Matter of )

)

AEROTEST OPERATIONS, INC. ) Docket No. 50-228-LT

)

(Aerotest Radiography and Research )

Reactor) )

NRC STAFF RESPONSE TO AEROTEST OPERATIONS, INC.

AND NUCLEAR LABYRINTH, LLCS STATEMENT OF AREAS OF CONTROVERSY REGARDING DENIAL OF INDIRECT LICENSE TRANSFER OF AEROTEST RADIOGRAPHY AND RESEARCH REACTOR INTRODUCTION In accordance with the Presiding Officers April 25, 2014 Order,1 the U.S. Nuclear Regulatory Commission (NRC) staff (Staff) hereby files its response to Aerotest Operations, Inc.s (Aerotest) and Nuclear Labyrinth, LLCs (Nuclear Labyrinth) (collectively the Companies)

Statement of Areas of Controversy regarding the denial for the indirect transfer of license number R-98 for the Aerotest Radiography and Research Reactor (ARRR).2 As outlined in their Areas of Controversy, the Companies disagree with the Staffs conclusion that the Companies license transfer application: (1) did not demonstrate that they have or with reasonable assurance will have sufficient funding to conduct activities authorized by the ARRR license if the license is indirectly transferred, and (2) did not provide sufficient information for the NRC Staff to determine whether there will be sufficient funds to cover the annual cost of spent fuel storage 1

Order (Memorializing Discussion at April 24, 2014 Pre-Hearing Conference) (Apr. 25, 2014).

2 Aerotest Operations, Inc. and Nuclear Labyrinth, LLCs Statement of Areas of Controversy Regarding Denial of Indirect License Transfer of Aerotest Radiography and Research Reactor (Apr. 22, 2014) (Areas of Controversy).

PROPRIETARY INFORMATION

PROPRIETARY INFORMATION until the Department of Energy (DOE) accepts ARRRs spent fuel.3 As discussed below, the claims outlined in the Companies Areas of Controversy are without merit and/or fall outside the scope of this license transfer proceeding and should not be admitted to this proceeding; thus, the denial of the indirect transfer of the ARRR license should be upheld.

DISCUSSION

1. The Staffs Denial of the Indirect License Transfer was Reasonable In the Areas of Controversy, the Companies argue that they have provided an adequate showing of financial qualifications in their application and their responses to Staff Requests for Additional Information (RAIs).4 However, based on the Staffs review of these documents, the Staff concluded that neither Aerotest nor Nuclear Labyrinth meet the financial qualifications requirements of 10 C.F.R. § 50.33(f), as required under 10 C.F.R. § 50.80.5 The NRC Staff determined that Aerotest does not qualify as an electric utility as defined in 10 C.F.R. § 50.2.6 Therefore, Aerotest must meet the financial qualifications requirements outlined in 10 C.F.R.

§ 50.33(f)(2), which states, in part, that:

If the application is for an operating license, the applicant shall submit information that demonstrates the applicant possesses or has reasonable assurance of obtaining the funds necessary to cover estimated operation costs for the period of the license. The applicant shall submit estimates for total annual operating costs for each of the first five years of operation of the facility. The 3

Areas of Controversy at 1.

4 Id. at 2-4.

5 See Safety Evaluation by the Office of Nuclear Reactor Regulation Indirect License Transfer of Aerotest Radiography and Research Reactor Due to the Proposed Acquisition of Aerotest Operations, Inc. by Nuclear Labyrinth, LLC Facility Operating License No. R-98, at 9. The public version is located under Agencywide Documents Access and Management System (ADAMS) Accession No. ML13129A001. (License Transfer SE). The proprietary version is located under ADAMS Accession No. ML13128A403. (Proprietary License Transfer SE).

6 License Transfer SE at 4.

PROPRIETARY INFORMATION

PROPRIETARY INFORMATION applicant shall also indicate the source(s) of funds to cover these costs.7 In its evaluation, the Staff reviewed the application and the RAI responses, including pro forma projected financial statements (projected net income statement for Aerotest and projected balance sheet for Nuclear Labyrinth).8 The Staff also evaluated the financial condition of Nuclear Labyrinth, which would be the ultimate owner of Aerotest following the proposed indirect license transfer.9 After considering the reasonableness of estimating operating costs, the reasonableness of financial projections and underlying assumptions, and the sensitivity of plant revenue projections, among other things, the Staff reasonably concluded that neither Aerotest nor Nuclear Labyrinth meets the financial qualification requirements under 10 CFR 50.33(f) because they have not demonstrated that they possess or have reasonable assurance of obtaining the funds necessary to cover estimated operating costs for the period of the license.10 Accordingly, on July 24, 2013, the Staff denied the license transfer request.11 7

See also 10 C.F.R. § 50.33(f) (providing that application shall state information sufficient to demonstrate to the Commission the financial qualification of the applicant to carry out, in accordance with the regulations in this chapter, the activities for which the permit or license is sought.).

8 License Transfer SE at 4-9.

9 Id. at 7-9.

10 Id. at 9.

11 Letter to Michael Anderson, President, Aerotest Operations, Inc. from Eric Leeds, NRC, Re:

Denial of License Renewal, Denial of License Transfer, etc. (July 24, 2013) (ADAMS Accession No. ML13120A598) (Denial Letter).

Since the issuance of the Denial Letter, damaged fuel has been discovered and it is uncertain how much more fuel may be damaged or whether there is enough undamaged fuel to operate the reactor.

Aerotest Operations, Inc. - Notice of Violation - NRC Inspection Report No. 50-228/2012-201 (Dec. 18, 2013) (ADAMS Accession No. ML13212A051) (stating that Aerotest had notified the NRC that there were a total of 22 aluminum-clad fuel elements with cracks in the cladding). Although the damaged fuel was not the reason for the denial of the transfer, the NRC has an ongoing obligation to protect the public health and safety. Therefore, the NRC cannot issue a license to Nuclear Labyrinth, where the Staff cannot determine whether 1) there is sufficient fuel to run the reactor, 2) Nuclear Labyrinth will have sufficient funding to replace the damaged fuel and restart the reactor, 3) the reactor will be able to operate for even a portion of the license term, or 4) Nuclear Labyrinth has funds to put the ARRR into SAFSTOR until DOE accepts the fuel in 2055 or later.

PROPRIETARY INFORMATION

PROPRIETARY INFORMATION The Companies also assert that the Staffs selection of two prior customers out of the 65 that Aerotest served in 2009 as the primary basis for its conclusion of likely post-transfer revenues was unreasonable and unnecessarily restrictive.12 Therefore, the Staff used historic data reported by the Companies to calculate potential revenue from these two customers because it was the only information available.15 Given the limited availability of information, the Staffs selection of two prior customers in determining potential future revenue was reasonable.

The Companies also note that they could not rely on long term contracts to demonstrate source of funds nor was it practical for them to obtain letters of intent for such long term contracts.16 However, the Staff never suggested that there was a requirement to submit long term contracts. The Staff simply noted that because Aerotest does not use long term contracts, the potential revenue from previous customers who expressed interest in using Aerotest services is uncertain.17 Nevertheless, as explained above, the Staff used historic data to calculate potential revenue from these customers because it was the only information available.

Additionally, the Companies contend that the Staff failed to follow its own policies by not considering other relevant financial information as outlined in NUREG-1577, such as the funding agreements between Nuclear Labyrinth and Autoliv ASP [that] provide for a fully funded decommissioning trust fund, a fully funded fuel transportation and disposal trust fund, and 12 Areas of Controversy at 4.

13 Proprietary License Transfer SE at 5.

14 Id.

15 License Transfer SE at 5-6.

16 Areas of Controversy at 3.

17 License Transfer SE at 5.

PROPRIETARY INFORMATION

PROPRIETARY INFORMATION twelve months worth of cash.18 However, the Staff specifically considered these items in Section 4.2 of the Safety Evaluation.19 Therefore, the Companies assertions are without merit.

The Companies also assert that the Staff stated without explanation that it could not determine that there will be sufficient funds to cover the annual cost of fuel storage until DOE accepts the fuel and that the Companies provided sufficient information to provide such reasonable assurance in its RAI response.20 Contrary to the Companies assertion, the Staff evaluated the information provided in the RAI response regarding the costs associated with fuel storage, and provided its explanation and analysis regarding the sufficiency of the funding to cover these fuel storage costs in Section 5.0 of the Safety Evaluation.21

2. Foreign Ownership Domination and Control Was Not a Basis for the Staffs Denial of the Indirect License Transfer and Falls Outside the Scope of this Proceeding The Companies contend that foreign ownership, control, and domination (FOCD) issues played a role in the Staffs ruling in the license transfer case and that the Staff seeks to inappropriately impose FOCD related conditions on Autolivs financial support arrangements with Nuclear Labyrinth.22 In its evaluation, the Staff notes that according to the application, Nuclear Labyrinth and Aerotest will not be owned, controlled or dominated by an alien, a foreign corporation, or a foreign government after the proposed indirect license transfer.23 The 18 Areas of Controversy at 5. The Companies assert that the 12 months worth of cash provided for in the funding agreements between Nuclear Labyrinth and Autoliv ASP is sufficient in accordance with NUREG-1577 to cover an outage of at least 6 months. Id. However, the Companies previously indicated that the funds received from Autoliv would be used to support the first 12 months of operation and maintenance of the facility. License Transfer SE at 8-9. The Companies are thus inappropriately attempting to use a single set of funds for the purpose of fulfilling two separate obligations.

19 Proprietary License Transfer SE at 8 (The Staffs analysis contains proprietary information and is therefore only available in the proprietary version of the safety evaluation).

20 Areas of Controversy at 5-6.

21 License Transfer SE at 10-11.

22 Areas of Controversy at 6.

23 License Transfer SE at 11-12.

PROPRIETARY INFORMATION

PROPRIETARY INFORMATION Staffs evaluation also states that the NRC needs to conduct an additional review of the financial documents, including but not limited to support agreements, to determine whether the applicants will be subject to [FOCD].24 However, no finding of FOCD was made in the Staffs evaluation of the indirect transfer application. The Staffs denial of the indirect license transfer was based on its conclusion that neither Aerotest nor Nuclear Labyrinth meets the financial qualification requirements under 10 CFR 50.33(f).25 To the extent the NRC Staff suggested in its evaluation that Autolivs financial support arrangements should include specific provisions to negate foreign control, the inclusion of these provisions would be contingent upon some later Staff determination of FOCD.26 Indeed, the Staff specifically stated that these provisions should be in place to negate Autoliv, Inc. control, if any, over NRC regulated activities . . . after the transfer, thereby indicating that any provisions would be based upon some later Staff determination of FOCD.27 Thus, FOCD issues were not the basis of the Staffs denial of the indirect license transfer. Accordingly, the Companies FOCD claims are without merit and fall outside the scope of this proceeding.

Additionally, the Companies claim that the Staffs determination that the Companies are not financially qualified is a result of the Staffs own actions. Specifically, the Companies assert that the NRCs erroneous application of [FOCD] restrictions led Aerotest to shutdown the ARRR and ultimately left Aerotest without current revenue.28 These claims are without merit 24 License Transfer SE at 12.

25 Id. at 9, 14-15; see also Denial Letter at 1-2.

26 License Transfer SE at 11-12.

27 Id. at 12 (emphasis added). Moreover, in granting this license transfer hearing, the Commission itself noted that the license transfer denial did not turn on FOCD. Aerotest Operations, Inc.

(Aerotest Radiography and Research Reactor), CLI-14-05, 76 RC __ (Apr. 10, 2014) (slip op. at 5 n. 16)

([T]he license transfer denial did not turn on the foreign ownership question, but the Staff nevertheless expressed a concern that Autoliv could, in the future, subject Aerotest and Nuclear Labyrinth to foreign control.).

28 Areas of Controversy at 4-5.

PROPRIETARY INFORMATION

PROPRIETARY INFORMATION and are otherwise irrelevant to the Staffs denial of the indirect license transfer. In 2011, Aerotest notified the NRC that it was voluntary ceasing operations.29 Nevertheless, the Companies submitted an application for an indirect license transfer in 2012. The Staffs denial of the transfer was based on the Staffs regulatory determination that the Companies did not meet the NRCs financial qualifications regulations.30 The purpose of the financial qualifications requirements is to ensure the protection of public health and safety and the common defense and security.31 Thus, the Companies assertion that they were unable to meet the NRCs regulations because of equity issues is not relevant to the Staffs denial of the license transfer.

CONCLUSION For the foregoing reasons, the Companies claims as outlined in their Areas of Controversy are without merit and/or fall outside the scope of this proceeding and should not be admitted to this proceeding; thus, the proposed indirect license transfer denial should be upheld.

Respectfully submitted,

/Signed (electronically) by/

Anita Ghosh Counsel for NRC Staff U.S. Nuclear Regulatory Commission Office of the General Counsel Mail Stop O15-D21 Washington, DC 20555 Telephone: (301) 415-4113 E-mail: Anita.Ghosh@nrc.gov Executed at Rockville, Maryland this 9th day of May, 2014 29 Letter from Eric Leeds, Director, Office of Nuclear Reactor Regulation, USNRC, to Dario Brisighella, President, Aerotest Operations, Inc., subject: Confirmatory Action Letter for Aerotest Operations, Inc., Aerotest Radiography and Research Reactor (Feb. 26, 2011) (ADAMS Accession No. ML103640183).

30 License Transfer SE at 9, 14-15.

31 Progress Energy Florida, Inc. (Levy County Nuclear Power Plant, Units 1 & 2) LBP-09-10, 70 NRC 51, 83 (2009) (citing Louisiana Energy Services, L.P. (Claiborne Enrichment Center), CLI-97-15, 46 NRC 294, 303 (1997)).

PROPRIETARY INFORMATION

UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION BEFORE THE ATOMIC SAFETY AND LICENSING BOARD In the Matter of )

)

AEROTEST OPERATIONS, INC. ) Docket No. 50-228-LT

)

(Aerotest Radiography and Research )

Reactor) )

CERTIFICATE OF SERVICE I hereby certify that copies of the foregoing NRC STAFF RESPONSE TO AEROTEST OPERATIONS, INC. AND NUCLEAR LABYRINTH, LLCS STATEMENT OF AREAS OF CONTROVERSY REGARDING DENIAL OF INDIRECT LICENSE TRANSFER OF AEROTEST RADIOGRAPHY AND RESEARCH REACTOR, dated May 9, 2014, have been served upon the Electronic Information Exchange, in the above-captioned proceedings, this 9th day of May, 2014.

/Signed (electronically) by/

Anita Ghosh Counsel for NRC Staff U.S. Nuclear Regulatory Commission Office of the General Counsel Mail Stop O15-D21 Washington, DC 20555 Telephone: (301) 415-4113 E-mail: Anita.Ghosh@nrc.gov Dated at Rockville, Maryland this 9th day of May, 2014

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