ML20135F945

Nuclear Regulatory Commission Issuances for December 1996. Pages 315-432

ML20135F945
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Issue date:	02/28/1997
From:	NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM)
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NUREG-0750, NUREG-0750-V44-N06, NUREG-750, NUREG-750-V44-N6, NUDOCS 9703170243
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Available from Superintendent of Documents U.S. Govemment Printing Office RO. Box 37082 Washington, DC 20402-9328 l l

A year's subscription consists of 12 softbound issues, 4 Indexes, and 2-4 hardbound editions for this publication.

Single copies of this publication are available from National Technical Infonnation Service i Springfield, VA 22161 I Enors in this publication may be reported to the Office of information Resources Management U.S. Nuclear Regulatory Commission Washington, DC 20555-0001 (301-415-6844) r s

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NUREG-0750 Vol. 44, No. 6 Pages 315-432 1

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l l NUCLEAR REGULATORY l

COMMISSION ISSUANCES t

i December 1996 l This report includes the issuances received during the specified period

{ from the Commission (CLI), the Atomic Safety and Ucensing Boards 1 (LBP), the Administrative Law Judges (ALJ), the Directors' Decisions j (DD), and the Decisions on Petitions for Rulemaking (DPRM)

The summaries and headnotes preceding the opinions reported herein j are not to be deemed a part of those opinions or have any independent legal significance.

U.S. NUCLEAR REGULATORY. COMMISSION Prepared by the Office of Information Resources Managemert U.S. Nuclear Regulatory Commission Washington, DC 20555-0001 (301-415-6844)

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l COMMISSIONERS -

- l Shirley A. Jackson. Chainnan I Kenneth C. Rogers

!, Greta J. Dicus Nils J. Diaz Edward McGaffigan, Jr.

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B. Paul Cotter, Jr., Chief Administrative Judge, Atomic Safety & Ucensing Board Panel s'

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l CONTENTS Issuance of the Nuclear Regulatory Commission CLEVELAND ELECTRIC ILLUMINATING COMPANY, et al .

(Perry Nuclear Power Plant, Unit 1) i Docket 50-440-OLA-3 '

MEMORANDUM AND ORDER, CLI-96-13, December 6,1996. 315 l

I Issuances of the Atomic Safety and Licensing Boards  !

LOUISIANA ENERGY SERVICES, L.P.

(Claiborne Enrichment Center)

Docket 70-3070-ML (ASLBP No. 91-641-02-ML) (Special j Nuclear Material License) l PARTIAL INITIAL DECISION, LBP-96-25, L)ecember 3, 1996 .. .. 331 '

NORTilERN STATES POWER COMPANY (Independent Spent Fuel Storage Installation)

Docket 72-18-ISFSI (ASLBP No. 97-720-01-ISFSI)

MEMORANDUM AND ORDER, LBP-96-26, December 3,1996. ,,406 Issuances of Directors' Decisions l

GENERAL PUBLIC UTILITIES NUCLEAR CORPORATION )

(Oyster Creek Nuclear Generating Station)

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Docket No. 50-219 DIRECTOR'S DECISION UNDER 10 C.F.R. 6 2.206, DD-96-22, December 11,1996. .. .. , , 413 NORTiiEAST NUCLEAR ENERGY COMPANY (Millstone Nuclear Power Station, Unit 1)

Docket 50-245 (License No. DPR-21) l PARTI AL DIRECTOR'S DECISION UNDER 10 C.F.R. 9 2.206,  !

DD-96-23, December 26,1996. ., ,, , , , 419  !

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Cite as 44 NRC 315 (1996) CU-96-13 UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION COMMISSIONERS:

Shirley Ann Jackson, Chairman Kenneth C. Rogers Greta J. Dicus Nils J. Diaz Edward McGaffigan, Jr.

In the Matter of Docket No. 50-440-OLA 3 CLEVELAND ELECTRIC lLLUMINATING COMPANY, et al.

(Perry Nuclear Power Plant, Unit 1) December 6,1996 The Commission reviews an Atomic Safety and Licensing Board decision that concluded that any change to the Perry Nuclear Power Plant's withdrawal schedule for reactor vessel material specimens must be treated as a license amendment. and granted the Intervenors' motion for summary disposition. LBP-95-17,42 NRC 137 (1995). The Commission reverses and vacates the Licensing Board's decision. The Commission finds that not all agency approvals granted to licensees constitute license amendments.

REGULATIONS: INTERPRETATION (10 C.F.R. PART 50, APPENDIX H,5 II.B.3)

Section ll.B.3 of 10 C.F.R. Part 50, Appendix H, requires licensees to seek pnor NRC Staff approval for all material specimen withdrawal schedule changes.

OPERATING LICENSE: AMENDMENTS In evaluating whether an NRC authorization represents a license amendment within the meaning of section 189a of the Atomic Energy Act, courts repeatedly 315

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have considered whether the NRC approval granted the licensee any greater operating authority or otherwise altered the original terms of a license.

OPERATING LICENSE: AMENDMENTS Where an NRC approval does not permit the licensee to operate in any greater capacity than originally prescribed and all relevant regulations and license terms remain applicable, the authorization does not amend the license.

l OPERATING LICENSE: AMENDMENTS Any changes to the material specimen withdrawal schedule that conform to the ASTM standard referenced in Appendix H will not exceed the operating authority already granted under the licensee's license and therefore will not represent a license amendment. That the NRC Staff may wish to verify in advance that a proposed withdrawal schedule revision conforms to the required technical standard does not make the Staff approval a license amendment.

l MEMORANDUM AND ORDER

1. INTRODUCTION in this DecEon we review the Atomic Safety and lacensing Board's Mem-orandum and Order, LBP-95-17, 42 NRC 137 (1995). The order granted a motion for summary disposition submitted by Intervenors the Ohio Citizens for Responsible Energy (OCRE) and Ms. Susan L. Hiatt. In granting the mo-

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tion, the Board concluded that any change to the Perry Nuclear Power Plant's withdrawal schedule for reactor vessel material specimens must be treated as a license amendment, Cleveland Electric Illuminating Company (the Licensee) )

petitioned for review of the Licensing Board's decision. We granted review in CLI-96-4,43 NRC 51 (1996). Cleveland Electric and the Nuclear Regulatory Commission Staff (Staff) urge the Commission to reverse LBP-95-17. The In- l tervenors support the decision. We reverse and vacate LBP-95-17.

11. BACKGROUND Dis proceeding stems from Cleveland Electric's request for a license amend-ment. The amendment, issued by the NRC Staff on December 18,1992, trans- I ferred the withdrawal schedule for reactor vessel material specimens from the  !

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Perry plant's technical specifications to the facility's updated safety analysis report (USAR).5 The blaterial Specimen Withdrawal Schedule At issue in this proceeding is what is commonly referred to as either the material specimen or surveillance capsule withdrawal schedule. The withdrawal schedule is one component of the NRC's program to monitor and er.sure the structural integrity of reactor pressure vessels. Long-term exposure to neutron radiation and elevated temperatures in a reactor vessel affects vessel materials.

Over time, the ductility of ferritic materials decreases, thereby decreasing the vessel materials' " fracture toughness," or resistance to fracture.

Appendix 11 to 10 C.F.R. Part 50 sets forth a surveillance program to monitor the fracture toughness of beltline materials in light-water reactor vessels.

Appendix 11 directs licensees to attach a particular number of surveillance

" capsules" to specified areas within the reactor vessel, typically near the inside vessel wall at the beltline. Each capsule contains a number of material specimens that remain exposed to radiation during plant operation. Under the Appendix II surveillance program, licensees must periodically withdraw capsules from the reactor vessel. Capsule removal permits the material specimens to be tested for changes in ductility and fracture toughness - effects of the neutron irradiation and elevated temperatures in a given reactor pressure vessel.

Ilow frequently a capsule must be removed for testing and evaluation is determined by a standard of the American Society for Testing and Materials

. (ASTM), which Appendix 11 incorporates by reference and directs licensees to apply. See 10 C.F.R. Part 50, Appendix if, i Hl.B.1, referencing ASTM E 185-

82. " Standard Practice for Conducting Surveillance Tests for Light-Water Cooled Nuclear Power Reactor Vessels." The ASTM standard provides licensees with the criteria for determining both the minimum number of surveillance capsules that need to be installed within the reactor vessel at the start of the plant's life, and when in the plant's life - measured in effective full-power years - a capsule should be withdrawn for evaluation.

Cleveland Electric's request to remove the withdrawal schedule from the tech-nical specitications was prompted by NRC Generic Letter 91-01. Issued by the NRC Staff in January 1991, the letter advised licensees that the material speci-men withdrawal schedule need not be retained in plant technical specifications.

Similar generic letters encouraging licensees to remove other line-item provi-sions from plant technical specifications have been and continue to be issued as part of the Staff's policy to improve standard technical specifications by prun-8 See 58 ist Reg 5438 dan 21,1993). The beenw amendment also revised the Perry plant's reactor vessel preuure/ temperature hmits but the Intervenors did not challenge this portion or the anrndment.

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ing technical specifications of items not deemed "of controlling importance to safety." See " Final Policy Statement on Technical Specifications Improvements for Nuclear Power Reactors," $8 lbd. Reg. 39,132, 39,136 (July 22,1993), as l amended. 60 Ibd. Reg. 36,953 (July 19,1995).

l Section 182a of the Atomic Energy Act (AEA) requires technical specifica.

tions to be incorporated in every license to operate a production or utilization facility. The AEA further requires the technical specifications to include infor- +

mation on the amount, kind, and source of special nuclear material, the place of use, and the specific characteristics of the facility. 42 U.S.C. 6 2232. What other information should be included in technical specifications - to ensure public health and safety - is left for the Commission to determine, and prescribe by rule or regulation.

The NRC rule outlining the required contents of technical specifications is 10 C.F.R. 6 50.36, promulgated in 1968.2 Largely due to section 50.36's " lack of well-defined criteria," however, the number of items included in technical specifications mushroomed after the rule was issued, and essentially came to include all " Commission requirements governing the operation of nuclear  ;

power reactors."1 Because technical specifications are part of an operating license, any change to the technical specifications requires a license amendment.

Consequently, as the number of items in standard technical specifications grew, so did the number of license amendment applications, as licensees sought to alter line-item provisions that had been inserted in plant technical specifications.

By the early 1980s, the NRC Staff concluded that the burgeoning number of items commonly included in standard technical specifications was both divert-ing Staff and licensee attention from the most significant safety requirements and unnecessarily burdening agency and industry resources with a severalfold increase in license amendment applications. To remedy this trend, the. Staff ini-tiated a Technical Specifications Improvement Project.4 The project resulted in a policy to limit technical specifications to those items deemed most important to safety.5 As part of the new policy to streamline and improve technical specifications, the NRC Staff over the past several years has been identifying which items can be removed - without safety consequences - from the standard technical specifications. Items so identified can be transferred to the licensee's updated safety analysis report or some other licensee-controlled document. In late 1990, the Staff concluded that the material specimen withdrawal schedule could be 2

33 led Reg 18.6l0 (Ike.17.1%8) 3-Final Puhey Statenwns on Technicut Specihcutions improvenwnts for Nuclear Power Reactors," 58 red Reg.

39.132. 39.133 Ouly 22.1993).

" I.L 3 1.1. 58 fed. Reg at 39.135 See ut.m 6n Fed Reg. 36.953. 36.957 58 (1995).

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I moved from the standard technical specifications to the licensee's updated safety analysis repolt. Generic letter 91-01 encouraged this transfer.

Responding to the generic letter, Cleveland Electric requested the challenged license amendment. The amendment deleted the actual withdrawal schedule from the Perry technical specifications. Instead of containing the actual schedule for material specimen removal, the technical specifications now provide as follows: "The reactor vessel material surveillance specimens shall be removed and examined to determine changes in reactor pressure vessel material properties as required by 10 C.F.R. 50, Appendix II."

The Intertenors' Argument Intervenors OCRE and Ms. Iliatt petitioned for a hearing on the Perry license amendment. OCRE describes itself as a nonprofit corporation dedicated to research and advocacy on nuclear reactor safety. Several OCRE members reside within 15 miles of the Perry facility. Ms. Hiatt is an officer of OCRE, and resides approximately 13 miles from the plant. The Intervenors' asserted interests in this proceeding include "the preservation of their lives, their physical health, l their livelihoods, the value of their property," and their legal right to participate I ineaningfully in Perry plant issues that could affect these interests.* In March ,

1992, the Licensing Board denied the Intervenors' request for a hearing, ruling l they lacked standing to intervene.7 The Commission reversed the ruling on  !

standing," and remanded the case to the Licensing Board, which ultimately admitted one contention.

The Intervenors' sole contention raised one legal argument: that removal of I the withdrawal schedule from the plant technical specifications violates section i 189a of the Atomic Energy Act,42 U.S.C. i 2239(a). Section 189a requires the Commission to provide notice and an opportunity for a hearing to any member of the public whose interest might be affected by a proceeding to grant, revoke, renew, or amend an operating license. The Intervenors' basic claim is that section 189a entitles them to notice of, and an opportunity for a hearing on, any change to the Perry material specimen withdrawal schedule Any schedule change, they claim, would be a defacto license amendment.

' Prior to this license amendment proceeding, the Perry plant withdrawal sched-ute was included in the technical specifications. Because technical specifications are an integral part of an operating license, changes to technical specifications require a license amendment. Accordingly, before the withdrawal schedule was removed from the Perry technical specifications, any change to the schedule

'rttinon for Leave to Intervene and Request for a Heanng (Aug. 26,1991)("Intervenors' Peudon") at 4 7

1BP.92-4. 35 NRC 114 (1992).

3 CLI-93-21,38 NRC 87 (1993) 319 l

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i would have required a license amendment. Now, after the amendment, the withdrawal schedule no longer is included as a line-item in the license. The withdrawal schedule has been transferred to the USAR, a licensee-controlled document that can be modified without a license amendment, so long as the modifications do not involve a change to the technical specifications or an un-reviewed safety question. See 10 C.F.R. 6 50.59. Possible future changes to the Perry withdrawal schedule, therefore, will not necessarily require a license amendment. The Intervenors claim that even though the withdrawal schedule has been removed from the technical specifications, any changes to the sched-ute would still represent defacto license amendments, whether the Commission chooses to label them as such or not, in characterizing all possible withdrawal schedule chaages as license amend-ments, the Intervenors do not argue that it was improper to remove the schedule from the license. Indeed, they conceded before the Licensing Board that there is no legal requirement that the withdrawal schedule remain in the technical specifications. They stress, instead, that any future changes to the Perry plant withdrawal schedule will be defacto license amendments because Appendix 11

% II.B.3 requires prior NRC approval for any revision to the withdrawal sched-ule.'

This Staff " approval," argue the Intervenors, constitutes a material licensing action, requiring a formal license amendment. In the Intervenors' view, "a l licensee action for which NRC approval is required prior to implementation .  !

is a license amendment, even ifit is not explicitly designated as such.""' Hecause prior agency approval for a schedule change was, and continues to 5e, required by regulation, the only effect of removing the withdrawal schedu.e from the technical specifications, claim the Intervenors, was to exclude the p iblic from  ;

schedule changes " In short, the Intervenors claim that any action iequiring prior NRC approval is a de facto license amendment, warranting section 189a l hearing rights.

The Licensing floard's Decision Cleveland Electric and the NRC Staff argued two main points before the Board. One, they claimed that the Intervenors misinterpreted section II.B.3 of ,

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' Appendiz H to Part 50 was revised in January 1996, and supenedes in full the former Appendix H. Secuan II B 3. an often. cited provision in dus proceeding, is now found under 10 Cf R. Part 50. Appendiz H IIII B 3.

The language of the rule remains the same. Because the parues in dus proceeding repeatedly refer to the older proviuon. we chose for clanty to do m as meu ror the convemence of readers. the 1996 Code of Federal Rcolarnms provides the text of both the new and the supeneded Appendix H.

I"huervenors' Bnef in Support of Comnusuon Afbrmation of LDP 95-17 (May 29.1996) c Intervenors' Brief")

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' Intenenors' Peutron at 6 l

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Appendix 11, which in their view does not require prior Staff approval for every withdrawal schedule change. Two, they argued that even if prior Staff approval of all schedule changes is required, such changes will not always be material licensing actions, and therefore will not always require a license amendment.

In LDP-95-17, the Licensing Board concurred in full with the Intervenors.

Although the Board let stand the license amendment removing the withdrawal schedule from the technical specifications, the Board ordered the NRC to treat future proposed withdrawal schedule changes as license amendments, to be accompanied by notice and hearing rights under section 189a of the AEA.

42 NRC at 149. Because the Intervenors did not challenge removal of the withdrawal schedule from the technical specifications, the Board did not address whether any law or regulation requires the schedule to be retained in the terms of the license. Instead, the Board focused upon "whether a change in the withdrawal schedule is a material license issuance decision." Id. at 142.

The Board first flatly rejected the Staff's argument that section ll.B.3 does not i require prior Staff approval for every change to a withdrawal schedule. llaving found that all changes do require prior approval, the Board went on to conclude that such changes, a priori, require license amendments. In the Board's view, the

" linchpin" of the Intervenors' argument was their claim that the Commission's regulations require prior approval of any change to the withdrawal schedule. Id.

at 143. If the Intervenors were correct in their interpretation of section !!.B.3, l

concluded the Board,"then their summary disposition motion must be granted i and the Applicants' cross-motion must be denied." Id. Without elaboration, the Board in effect agreed with the Intervenors' claim that if prior approval is  ;

required for a change, that change is the equivalent of a license amendment. See '

id. at 148-49.

For the reasons detailed below, we first conclude, as the Board did, that j the Intervenors' interpretation of Appendix 11 is correct: Section !!.B.3 in l Appendix 11 requires Staff approval of withdrawal schedules, original or revised.

But contrary to the Board's reasoning, we nevertheless find that not all changes to a material specimen withdrawal schedule - even if some form of Staff approval is involved - are material licensing actions requiring a license amendment.

IIL ANALYSIS Appendix 11 to Part 50,6 II.B.3 We begin by looking at section II.B.3. Because the Intervenors have equated need for prior Staff approval with license amendments, we first examine whether section II.B.3 in Appendix H even requires licensees to seek prior Staff approval for all withdrawal schedule changes. We find that it does.

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'lhe disputed section ILB.3 reads as follows:

A proposed withdrawal schedule mtN be submitted with a technical justification as specihed in 5 50 4. The propowd schedule rnust be approved pnor to implementation.

The Staff submits that, "[w]hile the regulation explicitly requires Commis-sion prior approval of a ' proposed schedule,' it nowhere addresses the question of whether Commission approval of proposed changes to an already approved schedule is required."" According to the Staff, the Licensing Board went "be-yond the plain words of the regulation" to conclude that "a ' proposed sched-ule' includes not just a proposed schedule but also any proposed changes to an approved schedule, regardless of whether those changes are insignificant."U Unfortunately, the Staff does not provide the Commission with a clear and con-sistent explanation of what exactly are the "previously" or "already" approved schedules to which the Staff repeatedly refers, and which, presumably, did re-quire prior Staff approval."

The Licensing Board and the Intervenors interpreted the Staff's argument to be that section II.B.3 explicitly requires prior approval of a licensee's initial withdrawal schedule, but not of all possible changes to an already approved schedule. On this view, any later revisions would only require prior Staff approval if they do not conform to the ASTM standard for withdrawal schedules, incorporated by reference in Appendix H. Relying upon the Staff's arguments, the Licensee similarly stresses that Appendix H "does not specify whether it is only the initial schedule that must be approved or whether changes to that

[ initial) schedule must also receive prior approval."o Like the Licensing Board, we find that the plain language of section II.B.3 requires licensees to submit any " proposed schedule" to the Staff. Appendix H makes no distinction between requirements for original and revised schedules.

Nor can we infer any reason for such a distinction. First, the very nature of a withdrawal schedule is such that modifications may need to be made. If, for example, results from testing the first material specimens prove inconsistent with expectations, the withdrawal schedule may need to be revised. Appendix H thus provides for, and indeed may mandate, possible schedule revisions. It stands to reason, then, that if there were different requirements for implementing original and revised schedules, Appendix H would make this clear. Secondly, U

NRC Staff's Dnef in Support or Comnusuon Reverul of LBP 95-17 PStaff Bnef")(Apr. 26.1996) at 7.

U NRC Stafi's Answer to beensee's Petiuan for Comnsssion Review (Nov. 30.1995) at 5 n.i "See also, e s.. NRC Staff Response to intervenors' Motion for sumnwry Disponition (Mar. 7.1994). attached Affidavit at 3 (Appendia H "does not explicitly address the requirements for changes to a previously ap;woved schedule").

"Ucensees' Brief on Review of Ucenung Board Decinon LDP 9517 ("Ucensee's Brief")(April 26.1996) at 24 322

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where both initial and revised schedules must satisfy the same ASTM industry standard and, where prior approval of " initial" schedules is of interest at all, we cannot discern why there would be no interest in also checking, also " approving,"

revised schedules, to ensure that they too meet the required standard.

We also reject the Staff's claim that licensees need not submit a revised schedule for the Staff's review as long as the schedule conforms to the ASTM standard. The plain language of section llA3 does not intimate any exceptions to the required Staff review of " proposed schedules." Such a significant exception - likely to encompass most schedule revpns - surely would have been noted conspicuously in the rule, or at least somewhere in Appendix H.

The Staff relies upon Appendix H's " legislative history," but that history is inconclusive, indeed, the most recent regulatory history tends to suggest that all proposed schedules will receive Staff approval.

in short, the language and history of the rule are unsupportive of the Staff's interpretation. We also need not look far to find many instances when the Staff itself has stated that prior approval of all schedule changes is required. For example, the Federal Register notice for the very license amendment that brought about this proceeding states plainly that "the relocation of the surveillance capsule withdrawal schedule from the TS to the USAR in accordance with GL 91-01, is a purely administrative change; NRC prior approval is still necessary for any change to the schedule itself.""

Looking again to Staff statements about the Perry license amendment, the Safety Evaluation provides the following: 'The movement of the specimen withdrawal table from the TS to the USAR is only an administrative change.

The withdrawal schedule is not impacted and must receive NRC approval before it can be changed."18 The Safety Evaluation further notes that licensees shall include in the US AR the "NRC-approved revisions" to the withdrawal schedule.'9 These statements do not allude to any category of withdeval schedules exempt from Staff review.

In addition, the Federal Register notices of several other similar license amendments involving removal of the withdrawal schedule from technical spec-

Nr instance, a proviuon in the proposed rule requinng that the Comnussion be given 30 days advance notice of a capsule withdrawal was dropped from the final rule after a comrnenter suggested it was unnecessay because section II D.3 already required withdrawal achedules to be submitted for approval. See Final Rule, "Racture Toughneu Requirements for 1.ight. water Nucles Power Reactors," 48 Rd. Reg 24.008 0983) in aUsuon, a reportmg requirernent that test results be subnutted to the Comminuon withm 90 days of capsule withdrawal also was dropped from the fimd rule and changed to I year. "becauw capsule withdrawal schedules must be approved by the Director, onice of Nuclear Reactor Regulation, as provided in paragraph 11.0 3 of Appendis H." See id.

48 Fed Reg. at 24.008. In short, references to secuan 11 B 3 in the rule's statement of Conuderanons add to the impression that the prior approval requirenrnt is general and unquahlied.

"56 Fed Reg. 33,%I. D.%2 Ouly 24.1991)(emphasis added)

'8 tetter from Janes Hall, NRC, Office of Nuclear Reactor Regulanon, to Michael Lyuer. Vice President.

Cleveland Electric (Dec. I8,1992), attached Safety Esaluauon by NRR, at 6

" Safety Evaluauon at 4 < emphasis added), i 323 l

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1 ifications also expressed - without qualifications - the need for prior Staff j approval of schedule changes. See, e.g., 59 Fed. Reg. 2859, 2867 (Jan.19, 1994) (Re: Waterford Steam Electric Station, Unit 3: " Updates to the sched-ule will still be required to be submitted to the NRC prior to implementation per Section ll.B.3 of Appendix 11 to 10 C.F.R. Part 50 . . 'lhe schedule will continue to receive NRC review and approval prior to implementation of updates to the schedule"); $6 fid. Reg. 29,267 (June 26,1991) (Re: Calvert  !

Cliffs Nuclear Power Plant, Units 1 & 2: " changes to this schedule are con- l trolled by the requirements of Appendix H . which require NRC approval j and are maintained in the Updated Safety Analysis Report").

Of particular note, Cleveland Electric's letter requesting the Perry license amer:dment explicitly relates the understanding that Appendix H, Ill.B.3 "re-quires prior approval of any changes to the subject schedule."2o More signif-icamly, the letter advises that a companion letter of the same date is being submitted to the NRC requesting approval - pursuant to Appendix H - of a revised material specimen withdrawal schedule.: The technical justification

provided for the proposed revised schedule was that it was " consistent with" the applicable ASTM standard for withdrawal schedules.22 Apparently, Cleveland Electric was not proposing a schedule that conflicted with the ASTM standard.

But under the Staff's interpretation of Appendix II, the Licensee never would have needed to request approval for the revised schedule because that schedule conformed to the required standard.

The Staff's Safety Evaluation of the Perry license amendrnent acknowledges that "[ijn a separate letter dated March 15, 1991, the licensee requested staff approval of a revised surveillance capsule withdrawal schedule, as required by 10 CFR Part 50, Appendix H."23 The Staff goes on to " approve" this revised schedule, and directs Cleveland Electric to include the new schedule in the next Perry USAR.24 Although the Staff approved the new schedule at the same time that it granted the Perry license amendment, the license amendment did not involve revising the withdrawal schedule. The license amendment notice never referred to a proposed revised schedule. Moreover, the Srfety Evaluation explicitly declared that the Perry withdrawal schedule was "not imoacted" by the license amendment. Review, then, appears to have been conduaed , . _,

the correspondence indicates - pursuant to the requirement set forui m section ll.B.3.

20 Letter from Michael Lyster. Centenor Energy. to NRC Re: Technical Specificauen Change Request, Attah-ment 2 at I (Mar 15.1991)(emphasis addedl I' id. at i .

22 1stier trom Michael Lyster. Centenor Energy. to NRC. Re: Approval Request (Mar. 15.1991)at1.

23 Safety Evaluauon by NRR at 1.

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l Despite these many indications that the Staff's practice has been to review l schedule revisions, the Staff argues that the Board erroneously rejected the  ;

I Staff's " historical interpretation and application of the rule." Staff Brief at 8.

The Staff nevertheless concedes that contradictory statements have been made l and that the correct interpretation of the rule is " subject to question."25 l In its brief before the Commission, the Staff for the first time suggests l what the Commission believes is the correct interpretation of, and reasoning i behind, section II.B.3. The Staff notes that if Appendix H incorporates the self-implementing ASTM standard, then any withdrawal schedule that conforms l to the ASTM standard is " ipso facto al ready approved for implementation." l Staff Brief at 12. Why then, asks the Staff, would the Commission still require approval of all schedules? In response, the Staff suggests an alternative to its earlier reading of the rule: " Commission approval of all schedule changes is ,

required - but only to verify that the changes are consistent with the ASTM l standard." /d. l The Commission agrees with this alternative reading of the rule We believe l that the rule, correctly understood, provides the Staff with the opportunity to verify in advance that a proposed schedule - original or revised - indeed i conforms to the applicable ASTM standard for material specimen withdrawal l schedules. The Staff in fact has stated that it " reviewed proposed schedules and modifications to determine if they were consistent with the withdrawal schedules set forth"in the applicable ASTM standard.26 In short, section II.B.3 as promulgated in 1983 requires an approval or check by the Staff to ensure that the proper ASTM standard is used correctly. The plain language of the rule, ,

and even indications of past Staff practice, supports this conclusion. l The Staff is certainly free to change rule interpretations if appropriate. But l the Staff may not adopt an interpretation unsupported by the language and his- j tory of the rule. The various interpretive glosses proposed by the Staff- about initial versus revised schedules and other distinctions not found in the rule -

do not explain away section II.B.3's unqualified prior approval requirement. We cannot find in the current rule's text or its history any allusion to a separate i category of withdrawal schedules excluded from the prior approval requirement.

We therefore agree with the Licensing Board that the Staff's currently espoused 25 NRC Staff's Answer to t.icensce's !Yuuon for Comnsssion Review (Nov. 30.1995) at 6 n 9.

26 NRC Staff Respome to intervenors' Monon for Summay Dnposman (Ms. 7.1994 attacled Afhdavit at 4 See utso NRC Staff s Reply Bnef Oune 18.1996) at 6 o 8 C To be sure. the Staff nsght review such changes in i advance, to venfy th.d they are in fact consistent with the ASTM standards incorporated by reference in Appendu H~).

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interpretation of section ll.B.3 cannot be squared with the plain language of the rule.27 Licensing Authority and Appendix II Approvals j As arnended, sectie.n 189a of the Atomic Energy Act requires the Commission to afford interested parties notice of, and an opportunity for a hearing on, the j

" granting, suspendinj , revoking, or amending" of any license or constn ctico permit. 42 U.S.C. 5 2 !39(a). Having found that section li.B.3 requires licenseeb to submit all proposed schedules for the Staff's approval, the qu2stion before us then becomes: Are the Staff approvals referenced in Apper.Jix il defacto license amendments, as the Intervenors claim? Contrary to the assumption made by the Licensing Board, we do not find that all such approvals are de facto license amendments.

1 We begin by look.ing at the legislative history of the AEA. That history, j unfortunately, does not clarify what constitutes a license amendment within the meaning of section 189a. But it does make clear that Congress wished to provide hearing rights for only "certain classes of agency action," not all.28 As initially proposed, the AEA did not contain any hearing rights provision.2" A later draft proposed a hearing opportunity to parties " materially interested in any J

' agency action.'"5 But this provision was found "too broad, broader than it was l intended to be,"J' and led to section 189a's very specific list of Commission actions warranting hearing rights. If a form of Commission action does not fa'l l

y within the limited categories enumerated in section 189a, the Commission need l not grant a hearing.32 j in evaluating whether challenged NRC authorizations effected license amend- l ments within the meaning of section 189a, courts repeatedly have considered the j same key factors: did the challenged approval grant the licensee any " greater j operating authority,"33 or otherwise " alter the original terms of a license"?" If so, hearing rights likely were implicated. For example, in Citizens Awareness 27 The Stsf informed the licensing Board that it was conWering anending Appendis H to specify "the circumstances under which the changes to a previously approved withdtawal schedule can be made," NRC Staff  !

Resptmse to intervenors' Mouon for Summary Disposition (Mar. 7.1994). attached Afhdavit at 9. The staff has I

>et to propose an anrndnrnt to the rule.  !

28.Ln lais obhpo Mathers for fem a y MC. 751 F.2d 1287, t 313 (D C. Cir.1984)(Slo)(referencing remarin of Sen. thekenk>oper,100 Cong Hec. 10.171 (1954),r<h'g en bunc un urher grounds. 789 F 2d 26, cert. demed.

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479 U.S 923 (1986).

"Scr il R. 8862,83d Cong.,2d Sess. I189 (1954), reprmied m I Atomic Energy Comm'n tegniauve thstory j of the Atomic Energy Act nf 1954 C'tegislative lhstory") at 105. 167 68 (1955).  !

'"l1 R. 9757. 83d Cong.,2d Sess. 4181 (1954), reprmied m i legislauve thstory at 541,625.

3' 100 Cong. Hec. 10.171 (1954)(sen. Pastore's remark), reprmied ut 3 legislauve thsuny at 3175. 3 32 I SID. 751 f.2d at i315.

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/n re Three Mds 11tand Alert. 771 F 2d 720,729 (3d Cir.1985). ce , denied. 475 U.S 1082 (1986) ,

34 I Slo. 751 F.2J at 1364

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Network, lne, v. NRC, 59 F.3d 284, 295 (1st Cir,1995) (CAN), the decision upon which the Intervenors most rely, the court found that the challenged NRC approval " undeniably supplement /cd/" the original license. The agency had per-mitted the licensee to dismantle major structural components, an activity that the court found unauthorized by the original license and agency rules. Similarly, in another case, where the NRC Staff extended the duration of a low-power license, a reviewing court viewed the Staff approval to be a license amendment changing a term of the license, and therefore triggering an opportunity for a hearing under section 189a.25 The Intervenors correctly claim that "[ilt is the determination that an action is a license amendment, not the significance of the amendment, that triggers Section 189a hearing rights." Intervenors' ilrief at 7. They abo accurately have distilled the existing case law on NRC license amendments to conclude that any l

agency action permitting a licensee to go beyond " existing license authority" i is a license amendment within the meaning of the Atomic Energy Act. Id.

13ut nowhere do we find support for the Intervenors' sweeping premise that any

" action for which NRC approval is required prior to implementation already is a license amendment." Id. at 2. This generalization suggests - erroneously -

that any time the NRC Staff grants prior approval, the Staff is permitting actions that will exceed existing licensing authority.

Applicable case law i .. ades several examples of NRC approvals that did not trigger section 189a hearing rights. See, e.g., Massachusetts v. NRC, 878 F.2d 1516 (1st Cir.1989)(NRC authorization of plant restart, which followed Staff's review of forty-seven ordered moJifications, was not a license amendment); In re Three Mile Island Alert, Inc., 771 F.2d 720,729-30 (3d Cir.1985)(decision lifting license suspension and authorizing restart under stipulated conditions was not a license amendment), cert. denied, 475 U.S.1082 (1986); SLO, 751 F.2d at 1314 (lifting a license suspension "does nothing to alter the original terms of a license" and is not a license amendment). Where the NRC approval does not permit the licensee to operate "in any greater capacity" than originally prescribed and all relevant safety regulations and license terms remain applicable, the NRC approval does not " amend" the license. See Kelley v. Selin, 42 F.3d 1501,1515 i (6th Cir.), cert. denied, i15 S. Ct. 2611 (1995); Massachusetts v. NRC, 878 F.2d  !

at 1521-22. Only those actions falling "beyond the ambit of the prescriptive j authority granted under the license" necessitate a license amendment. CAN, 59 l F.3d at 295.  !

liere, any changes to the material specimen withdrawal schedule that conform l to the ASTM standard referenced in Appendix H will not alter the Perry license, ,

and will not permit the Licensee to operate in any greater capacity than the  !

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" Sin, 751 F.2d at 1314-15.

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l original license prescribes. To so conclude, we look to the actual terms of the Perry operating license. There we find that the technical specifications direct Cleveland Electric to conduct all testing and surveillance of material specimens according to Appendix 11. Appendix II,in turn, requires all withdrawal schedules to meet an applicable ASThi standard.

l This means in effect that the Perry license specifies an NRC-approved methodology - the ASTM standard - to be used in developing either an

initial or a revised schedule. The ASThi standard establishes specific technical

criteria for determining where in the reactor vessel to place surveillance capsuk

s, how many capsules should be used, and how often capsules should be removed for testing. By effectively incorporating the ASTM standard, the Perry license provides delineated parameters for Cleveland Electric to use in calculating an appropriate withdrawal schedule.

As long as its withdrawal schedule meets the applicable ASTM standard, Cleveland Electric is not exceeding operating authority already granted in its Perry operating license. The ASTM standard anticipates that during the course

, of a nuclear power plant's life the withdrawal schedule may need to be revised; the standard allows and provides for such changes. The terms of the Perry license thus already provide for - already authorii.e - some possible schedule

, changes. Any revised schedule that conforms to the ASTM standard can be said to be " encompassed within delineated categories of authorized conduct." CAN, 59 I' 3d at 294.

The Perry operating license no longer contains the actual current material specimen withdrawal schedule. A mere adjustment in the schedule, then, does not necessarily alter or violate the " terms of the license," which require only that the licensee meet 10 C.F.R. 50, Appendix II, no more and no less.

It is true that before the withdrawal schedule was removed from the Perry technical specifications, any change to the schedule would have required a license amendment. But there is no statutory or regulatory requirement that every operational detail listed in the USAR be subject to a technical specification."

Moreover, the Intervenors explicitly did not contest the transfer of the schedule to the Perry USAR.

That the Staff may wish to verify in advance that a proposed revision conforms to the required technical standard does not make Staff approval a license amendment. By merely ensuring that required technical standards are met, the Staff's approval does not alter the terms of the license, and does not grant the Licensee greater operating authority. Such a review indeed enforces license requirements. As an enforcement policy matter, the Staff may wish to police some licensee-initiated changes before they go into effect. To insist - as

" See forstand General Mectric Ca (Trojan Nuclear Plano ALAlb531. 9 NRC 263. 273 0979) 328

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the Intervenors do- that the NRC Staff may never require prior approval for any change or activity without effecting some sort of major licensing action, would frustrate the agency's ability to monitor licensees and enforce regulations."

As we already have noted, not every change that occurs at a nuclear power plant, even if significant, represents a license amendment. See, e.g., SLO, 751 F.2d at 1314. Again, the key consideration should be: Did the agency action

" supplement" the existing operating authority prescribed in the license? See l CAN, 59 F.3d at 295; see also P & R Temmer v. FCC,743 F.2d 918,928 (D.C. 1 Cir.1984) (because FCC "merely required the broadcaster to operate within the terms of its authoritation, its actions could not be regarded as a license modification"). l He Intervenors state that they merely seek "to participate in the regulatory process."3" They have not been denied that opportunity Appendix 11 was pro-mulgated under appropriate notice-and-comment rulemaking procedures. The Intervenors had the opportunity to raise concerns about the adequacy and ap-propriateness of the ASTM standard, and about any other item in Appendix H. In addition, line items cannot be removed from the technical specifications without a license amendment, which offers another opportunity for public par-ticipation. If the Intervenors believed that the nature and significance of the material specimen withdrawal schedule was such that it needed to remain in the Perry technical specifications - as a specific term of the Perry license - the l Intervenors could have raised that argument in this proceeding. They instead l concurred with the NRC Staff that there is no statutory or regulatory requirement that the withdrawal schedule remain in the Perry license.

Here may be other opportunities to challenge changes in the withdrawal schedule. As the NRC Staff states in its brief, where a proposed change to a withdrawal schedule does not conform" to rne required ASTM standard, " prior Commission approval and a license amendfaent," with its attendant notice and

""lMl embers of the pubhc cannot be allowed to hugate before die Co/ansssion any and allissues that occur to them without denminhmg tir regulatory process." Bruorte v. NRC 725 F.2d 1380,1382 (D C. Cir.1983). See aho American Cylmder Manufacturers Commerree v. Department of Tramportatwn, $18 F.2d 24. 2128 (2d Cir.1978)

(American C.vimder)(Departnrnt of Transportanon " approvals." cerufying whether cyhnder rnanufacturers met safety specificauona," reflect nrrely a method for pohcing tiawfully adoptedi regulanons"). The Administrative Procedure Act's broad defimtion of " license" under 5 U.5 C. (( 551(8).(9), does not encompass reviews that serve nrrely to confirm compliance with exisung license requirenrnts See American Cylmder 578 F.2d at 27.

Saintervenors' Answer to NRC Staff Responw to intervenors' Motmn for Summary Dispositiin and Licensees' Cross Motion for Summary Dnposidon (Apr. 5,1994) at 5.

"The Comnunion notes that a change to the withdrawal schedule that does not conform to ',he ASTM standard referenced in Appenda H presumably would confhet with the Perry technical specification requirenrnt that the "teactor senel niatenal surveillance specirnens shall be removed and examined . . as required by 10 C F R. 50, Append H " Such a change to the I:SAR that conRicts with the technical specifications would require a heense unendment pursuant to 10 C.F R. 4 50.59(c)(7), regardless or whether an unreviewed safety queshon is involved.

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opportunity for hearing, [would] be required." Staff Brief at 20.*' in addition, the intervenors may have the opportunity to raise enforcement concerns about the Perry withdrawal schedule through the 10 C.F.R. 9 2.206 petition process.

As a final matter, we note that the Staff approval Appendix 11 calls for is not the type of determination that lends itself readily to an adjudicatory hearing.

Under Appendix H, the Staff evaluates a proposed withdrawal schedule in terms of objective, technical, preestablished criteria. Such assessments fall well within the NRC Staff's technical expertise and its regulatory oversight role. See, e.g.,

Union of Concerned Scientists v. NRC, 735 F.2d 1437,1451 (D.C. Cir.1984)

(assessing results of licensee's preoperational testing, to ensure results meet objective " acceptance criteria,"" falls squarely within the NRC Staff's technical expertise"), cert. denied, 469 U.S. I 132 (1985). Confirming compliance with a self-implementing, detailed, industry standard does not call into play the various common reasons for requiring an adjudicatory hearing under Subpart G of 10 C.F.R. Part 2, such as the need to weigh various parties' observations or the utility of cross-examination.

IV. CONCLUSION AND ORDER For the reasons stated in this Decision, the Commission hereby reverses and meates the Atomic Safety and Licensing Board order LBP-95-17.

It is so ORDERED.

For the Commission JOHN C, liOYLE Secretary of the Commission Dated at Rockville, Maryland, j this 6th day of December 1996.

• 'see aho Staff Afhdavit at 8, artshed to NRC Staff Response to Intervenors' Motion for Sununary Disposioon

(" Staff Re ponse")(Mar 7.1994); NRC Staff's Reply Bnef at 3-4, Staff Hnef at 16.17 n.28. Staff kesponse at 27, 28 29.

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i j Atomic Safety l and Licensing l Boards issuances ATOMIC SAFETY AND UCENSING BOARD PANEL B. Paul Cotter, Jr.,* Chief Administrativo Judge James P. Gleasor\

• Deputy Chlet Administrative Judge (Executive) l Frederick J. Shon,* Deputy Chief Administrative Judge (Technical)

{

l l Members I Dr. George C. Anderson Dt Richard F. Foster Marshall E. Miller i Chartes Bochhoefer* Ot David L. Hetrick Thomas S. Moore

• l Peter B. Bloch* Ernest E. Hill Dr. Peter A. Morris i G. Paul Bollwerk til* Dt Frank F. Hooper Thomas D. Murphy

• Ot A. Dixon Callihan Dr. Charles N. Kelber* Dr. Richard R. Parizek Dr. James H. Carpenter Dt Jerry R. Kline* Dt Hany Rein l Dr. Richard F. Cole

• Dt Peter S. Lam

• Lester S. Rubenstein

! Dr. Thomas E. Elleman Dt Jarnes C. Larnb 111 Dr. David R. Schink l Dr George A. Ferguson Dt Emmeth A. Luebke Dt George F. Tidey

Dt Harry Foreman Dr. Kenneth A. McCollom l l

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• Permanent panel members i

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Cite as 44 NRC 331 (1996) LBP-96-25 UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION ATOMIC SAFETY AND LICENSING BOARD Before Administrative Judges:

Thomas S. Moore, Chairman Richard F. Cole Frederick J. Shon in the Matter of Docket No. 70-3070-ML (ASLBP No. 91-641-02-ML)

(Special Nuclear Material License)

LOUISIANA ENERGY SERVICES, L.P.

(Claiborne Enrichment Center) December 3,1996 In this Partial Initial Decision in the combined construction permit-operating license proceeding for the Claiborne Enrichment Center, the Licensing Board resolves in favor of the Intervenor environmental contentions J.4 and K con-cerning the adequacy of the NRC Staff's treatment in the final environmental impact statement of the need for the facility and the no-action alternative and contention Q concerning the Applicant's financial qualifications to construct the proposed facility.

RULES OF PRACTICE: PURDEN OF PROOF The NRC, not the Applicant, has the burden of complying with NEPA. Duke Power Co. (Catawba Nuclear Station, Units I and 2), CLI-83-19,17 NRC INI, IN9 (1983). But the label of a contention as an environmental or NEPA contention does not automatically allocate the burden of proof. Rather, it is the subject matter of the contention that determines upon whom the burden technically falls.

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l NEPA: CONSIDERATION OF ALTERNATIVES l The study and description of alternatives is the " linchpin" of the environ-mental impact statement process. Monroe County Conservation Council, Inc. v. l Volpe,472 F.2d 693,697-98 (2d Cir.1972).

4 NEPA: ENVIRONMENTAL INIPACT STATEMENT l l

NEPA's requirement of a " detailed statement" serves a number of purposes.  !

. First, it requires the agency to compile a reviewable environmental record j demonstrating the agency has made a good faith effort to consider the envi-l ronmental values NEPA seeks to safeguard and taken a hard look at the envi.

ronmental consequences of its action. Second, the detailed statement serves as an environmental full disclosure law providing agency decisionmakers, as well 2-as the President, the Congress, the Council on Enviroa. mental Quality, and the public the environmental cost-benefit information that Congress thought they should have about each qualifying federal action. Third,"the requirement of a detailed statement helps insure the integrity of the process of decision by pre-l cluding stubborn problems or serious criticism from being swept under the rug."

Silm v. Lynn. 482 F.2d 1282,1285 (1st Cir.1973).

NEPA: PROCEDURES i

Although the action-forcing procedures of NEPA "are almost certain to affect i the agency's substantive decision, it is now well settled that NEPA itself does not mandate particular results, but simply prescribes the necessary process."

Robertson v. Methow Valley Citizens Council,490 U.S. 332,350 (1989).

l REGULATIONS: INTERPRETATION (10 C.F.R. 6 51.45(c))

It is clear that 10 C.F.R. 651.45(c) requires the Applicant to include in its Environmental Report (ER) a cost-benefit analysis of the proposed facility.

In the words of the regulation, that analysis must " consider [] and balance []"

] the various environmental effects or costs of the proposal against the various l " environmental, economic, technical and other benefits" of the project. The "need" for the facility is simply a catchword for the principal or primary benefit of the proposed facility that goes on the benefit side of the cost-benefit ledger.

A cost-benefit analysis cannot be performed consistent with the Commission's regulations and section 102(2) of NEPA without weighing the benefits or need for the project on one side of the equation with the costs or environmental effects of the project on the other side, 332

REGULATIONS: INTERPRETATION (10 C.F.R. PART 51, APPENDIX A)

The Commission's regulations specifically direct that the Staff's final envi-ronmental impact statement address the need for the proposed facility. See 10 C.F.R. Part 51, Appendix A; 10 C.F.R. Il 51.70(b),51.90.

NEPA: NEED FOR FACILITY

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Labeling the regulatory requirement as the "need" for the proposed facihty is j

merely a shorthand expression to describe the principal beneficial factor that is to be weighed against the various costs of the proposal in striking the cost-benefit balance required by NEPA and the Commission's implementing regulations.

I NEPA: NEED FOR FACILITY j i

Whatever the principal benefit provided by the proposed facility, it must be addressed in the final environmental impact statement as the need for the facility and, "to the fullest extent practicable," the benefit must be quantified.

NEPA: NEED FOR FACILITY Because the need for the proposed facility is definitionally the primary benefit against which the various costs of the project are weighed in the cost-benefit analyses and NEPA does not dictate any substantive outcome for the cost-benefit balancing process, the principal benefit of the project does not have to arise to

- a.iy minimum level or meet any other prescribed standard.

REGULATIONS: INTERPRETATION (10 C.F.R. I 51.45(b))

Because NEPA and the Commission's implementing regulations require the Staff to address the no-action alternative in the final environmental impact statement, and the Commission's regulations, in turn, require the Applicant to discuss in the ER the alternatives to the proposed action that will help the Staff to develop and explore the alternatives that must be discussed under section 102(2)(E) of NEPA, section St.45(b) necessarily requires the Applicant to address the no-action alternative in its environmental report.

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l NEPA: CONSIDERATION OF ALTERNATIVES

'Ihe adequacy of the Staff's treatment of the ro-action alternative in the final environmental impact statere: nt must be judged by the rule of reason Citi: ens AgainJi Nurlington, /nC. V. UMief, 938 F.2d 190.195 (D.C. Cir.1991).

FINANCIAL QUALIFICATIONS: M ATERIALS LICENSE Pursuant to the general interpretational rule that statutory or regulatory provisions that relate to the same subject matter should be construed in pari materia (see 2B Sutherland Stat. Const. (5 51.01, 51.03 (5th ed,1992)).10 C.F.R. 9 50.33(f). as the other agency regulatory provision dealing with financial qualifications, is the likely source for obtaining insight about how to interpret the general language of the Note following 10 C.F.R.170.22(a)(8).

FINANCIAL QUALIFICATIONS: MATERIALS LICENSE The history of the Commission's Part 50 and Part 70 financial qualifications requirements fully supports a parallel construction of those regulations in terms of the showing necessary to establish that an applicant " appears to be financially qualified" under 10 C.F.R. 5 70.23(a)(5).

TAllLE OF CONTENTS

1. NEPA NEED FOR FACILITY AND NO-ACTICN ALTERNATIVE . , . . . . 336 A. Contentions J.4 and K , . 336 B. NEPA Overview . . . 339 C. Witnesses and Exhibits . . . 342 D. Adequacy of FEIS Treatment of Need Issue. . . 346

1. Applicable Standard. . . 347

2. Assertion of Need in the ER and FEIS . 350

3. Board Findings on Parties' Positions . , .. 351

a. Supply . . , . . 352

b. Demand . . . . . . 356

c. Competition and Character of Market . 360

d. Price and LES' Price Competitiveness . . 362

4. Board Conclusion Regarding Adequacy of EPA Cost Benefit Need Analysis . . 369 E. No-Action Alternative 370

11. FINANCIAL QUALIFICATIONS 375 334 l

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l A. Contention Q. . . . . 375 B. Witnesses and Exhibits . . 375 C. The Applicant, LES . 378 D. The Commission's Financial Qualification Regulations and the Applicable Legal Standards 380

1. Applicability of Part 50 and Part 70 Financial Qualifications Standards . .. 384

a. Regulatory llistory of Part 50 and Part 70 Financial Qualitications Provisions . .. . 384

b. Analysis . . . 391

2. Applicability of Newly Formed Entity Criteria of 10 C.F.R. Part 50, Appendix C. 393 E. Board Findings on the Applicant's Financia!

Qualifications .. . 396

!!!. CONCLUSION , . . . . 404 1%RTIAL INITIAL DECISION (Resolving Contentions J.4, K, and Q)

His Partial Initial Decision contains our findings of fact and conclusions of law on contentions J.4, K, and Q filed by the Intervenor, Citizens Against Nu-clear Trash (" CANT"), in this combined construction permit-operating license proceeding. The Applicant, Louisiana Energy Services L.P. ("LES"), seeks a 30-year materials license to possess and use byproduct, source, and special nu-clear material in order to enrich uranium using a gas centrifuge process at the Clariborne Enrichment Center (" CEC") it intends to build in Claiborne Parish, Louisiana.

The CEC is to be constructed on a 442-acre site located some 5 miles northeast of the town of flomer, Louisiana, immediately between, and adjacent to, the two unincorporated, African-American communities of Center Springs and Forest Grove. The design capacity of the CEC is 1.5 million separative works units ("SWUs") per year and, as originally proposed, the Applicant stated its intent to build the facility in three phases over 6 years, with each phase consisting of identical 0.5 million SWU per year units. At full production, the l CEC will process approximately 4700 metric tons of UF, annually, generating )

870 metric tons of enriched uranium and 3800 metric tons of depleted uranium j tails.

l Direct capital costs of the CEC are estimated to be $855 million in 1990  !

dollars exclusive of escalation, capitalized interest, contingency, or replacement centrifuges. Decontamination and decommissioning are estimated to take 7 )

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1 years. Decommissioning is estimated to cost $518 million in 1996 dollars of which 94% is the c6st for disposition of tails. In 1990 dollars, decommissioning is estimated to cost $409 million. The total investment, in 1990 dollars, in-ciuding direct construction, interest escalation, capitalized interest, contingency, replacement centrifuges, decontamination, and decommissioning is estimated at

$1.6 hillion.

Because the CEC is the first private, nongovernment enrichment facility seek-ing a license in the United States, this licensing proceeding presents a number of questions of first impression. In Part 1, we address environmental contentions J.4 and K. These contentions are founded upon the National Environmental Policy Act of 1969,42 U.S.C. 9 4321 et seq. ("NEPA"), and deal with the ques-tion whether the Applicant's Environmental Report ("ER") and the Staff's Final Environmental Impact Statement ("FEIS") adequately address the "need for the facility" and the "no-action alternative." In Part 11, we resolve nonenvironmental contention Q that challenges the Applicant's financial qualifications to construct and operate the CEC.

1. NEPA NEED FOR FACILITY AND NO-ACTION ALTERNATIVE A. Contentions J.4 and K Under the heading " inadequate Assessment of Costs Under NEPA," the Intervenor asserts in contention J.4 that:

The Environmental Report does not adequately describe or weigh the environnrntal.

social, and economic impacts and costs of operating the CEC. Moreover, the bencht cost analysis fails to deuxmstrate that there is a need for the facihty. See, e g., Public Service Co. of New flampshire (Seabrook Station, Umts I and 2), ALAB-422,6 NRC 33,90 (1977)

(in a ptmer production hcensing caw, "need for power" is "a shonhand expression for the

'benetic' side of the cost beneht balance which NEPA mandates"). On the whole, the costs of the project far outwe;gh the benefits of the proposed action.

HAStS: NEPA requires the NRC to fully assess the impacts of the proposed heensing action, and to weigh its costs and benefits. LE',' Environnwntal Report contains a brief

" benefit cost analysis" that is improperly slanted in favor of the benefits of the project, and contains httle discussion of the potentially significant impacts and their environmental and social costs. ER i 8.0. The discussion is inadequate with respect to the following issues:

4. Section 1.2 of the ER, which purports to discuss the need for the CEC, provides no such information. It briefly outhnes the supphers of enriched uranium to the United States in 1988, and provides an unexplained table of world enriched uranium needs from 1990 and 2010 but gives no current or projected information on uranium supply. This is not surprising, since it is commonly known that existing U.S. enrichment capacity is more than adequate to meet projected donestic needs through 2010. See, e g, GAO/RCED-89170BR, 336

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Uranium Enrichment Some impacts of Proposed Legislation on IK)E's Program LES vaguely states that LES should get a hcense without delay in order to avad itself of a "cntical opening" in the uranium market that is expected to begin in 1996 "because U.S. customers have terminated their commitments for over 40 percent of their enrichment requirenwnts scheduled to be supplied by the Departnwnt of Energy during the 1.ue 1990's." A generalized statenwnt of LES' marketmg hopes for the 1990's does not constitute a demonstration that additional enriched uranium production capacity is needed LES should be required to evaluate existing and projected production capacity both in the U.S. and abroad, and to evaluate existmg and projected ennched uranium demand in the United States. [fbotnotes omitted l CANTS contention K, entitled "No Discussion of No-Action Alternative,"

states that:

The ER violates NEPA oecause it does not contain an adequate discussion of alternatives to l

the proposed action.

BASIS: NEPA, as implemented by 10 C.F R l$1 I451, requires that environmental l reports must include, inter aha, a discussion of " alternatives available for reducing or avoiding  ;

adverse environmental effects." LES' ER fails to satisfy this requirement in the critica! l respect tlut it does not discuss (l'e no-action alternative. Given the sigmficant environmental costs of this project and the fact that LES has not demonstrated a need for the facility, this attemative should have been analyzed in detail (fbotnotes onutted l In opposing the admissibility of contention J.4 before the Licensing Board, l the Applicant argued that "the economics of the proposed facility are not within 1 the scope of the ER and need not be addressed under NEPA" and that "the economic wisdom of its proposed venture is simply not an environmental issue germane to the NEPA analysis." LBP-91-41, 34 NRC 332, 351 (1991). The i NRC Staff did not oppose the admission of the contention. The Board admitted contention J.4, ruling that it " raises a litigable issue" that involves the legal question of "[w] hat, if any, consideration must be given to the need for the facility in fulfilling NEPA responsibilities?" Id. The Staff also did not oppose the admission of contention K in the context of considering the Applicant's NEPA cost-benefit analysis, but the Applicant argued that there is no explicit regulatory requirement that the ER address the no-action alternative and that the applicable Staff regulatory guidance does not state that an assessment of the no-action alternative must be included in the ER. The Board admitted contention K finding that "a genuine dispute exists with LES on the need to discuss the no-action alternative." Id. at 353.

Although CANTS contentions J.4 and K are phrased only in terms of challenges to the Applicant's ER, these contentions necessarily encompass the Staff's environmental impact statement ("EIS") as well. As the Applicant states,

"[ alt bottom, Contention J.4 involves disagreement as to (1) whether LES and the NRC are required to consider 'need' for the CEC in the ER and FEIS ,

respectively, and, if some consideration is required, (2) the appropriate focus of I l

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that determination (including the proper definition of 'need' in this context)."

Applicant's Proposed Findings of Fact and Conclusions of Law (May 26,1995) l l

at 39 [ hereinafter App. P.F.L Similarly, at bottom, contention K involves a 1 1 disagreement as to whether the treatment of the no-action alternative in the ER and FEIS is adequate.

As the Commission has declared,

[wlhile all environmental contentions may, in a general sense, ultimately be challenges to the NRC's compliance with NEPA, factual aspects of particular inues can be raised before the DES [ Draft Environmental Statementl is prepared. As a practical matter, much of the information in an Apphcard's ER is uwd in the DES.

, Duke Power Co. (Catawba Nuclear Station, Units I and 2), CL183-19,17 NRC 1041,1G49 (1983). This being so, the Commission held that contentions cannot be deferred until the draft or final EIS is issued by the Staff but must, i where possible, be formulated and filed based upon the Applicant's ER. Id.

Accordingly, contentions like Intervenor's J.4 and K that assert deficiencies in the Applicant's ER also necessarily include the same general deficiency that remains applicable with respect to the EIS. See 10 C.F.R. 5 2.714(b)(2)(iii). And here, of course, the Applicant and the Intervenor in their evidentiary presentations on j these contentions included evidence on all aspects of the issues. '

Further, as we stated in LBP-96-7,43 NRC 142,144-45 (1996), with respect to other Intervenor contentions in this proceeding, i the Subpart G rules of practice for the conduct of formal adjudicatory heanngs provide in 10 C.F.R. I 2.732 that the applicant has the burden of proof in the proceeding. Thus, in order for the applicant to prevail on each contested factual issue, the applicant's position must be supported by a preponderance of the evidence. I'hiladetphia Electric Co. (Limerick j Generating Station. Units I and 2), ALAB-819,22 NRC 681,720 (1985); Pacific Gas and j Electric Co. (Diablo Canyon Nuclear Power Plant Units I and 2), ALAH 763,19 NRC 571, 577 (1984). See I Charles II. Koch. Jr., Administrariw 12nv and Practice 1 6.44 (1985).

Where environmental and NEPA issues are involved, however, care must be taken in applying the Commission's general burden of proof rule. This is because the NRC, not the Applicant, has the burden of complying with NEPA.

Catawba, CLI 83-19,17 NRC at 1049. But the label of a contention as an environmental or NEPA contention does not automatically allocate the burden of proof. Rather, it is the subject matter of the contention that determines upon -

whom the burden technically falls. Thus, because the Commission's regulations require the Applicant to file an ER (see 10 C.F.R.151.60) and prescribe its contents (see 10 C.F.R.151.45), the Applicant has the burden on contentions, or those portions of contentions like J.4 and K, asserting deficiencies in the ER.

See Consumers Power Co. (Midland Plant, Units I and 2), CL174-5,7 AEC 19, 31 (1974). See generally United States Energy Research and Development 338 I

l 1

Administration (Clinch River Breeder Reactor Plant), CL1-76-13,4 NRC 67,77 (1976). Similarly, because the Staff ultimately is responsible for preparing the EIS required by NEPA (see 10 C.F.R. 55 51.80,51.97(c)), the Staff generally has the burden on contentions, or those portions of contentions like J.4 and K, that allege deficiencies in the EIS. Rrther, because the Staff, as a practical matter, relies heavily upon the Applicant's ER in preparing the EIS, should the 1 Applicant become a proponent of a particular challenged position set forth in the EIS, the Applicant, as such a proponent, also has the burden on that matter.

See Public Service Co. of New Hampshire (Seabrook Station, Units I and 2),

ALAB-471,7 NRC 477,489 n.8 (1978).

Finally, overlying all NEPA issues in this proceeding are the additional 4 obligations Gat the Commission has placed upon the Licensing Board in the j hearing notice. First, the Commission instructed us to determine whether the i

, Staff's environmental review conducted pursuant to 10 C.F.R. Part 51 was

, adequate. Second, it charged us with determining whether the agency had complied with the requirements of section 102(2)(A), (C), and (E) of NEPA.

Lastly, the Commission directed us independently to consider the cost-benefit balance among the conflicting factors contained in the record of the proceeding.  ;

See 56 Fed. Reg. 23,310 (1991). See also 10 C.F.R.151.105. Although obviously related, these obligations placed upon us by the Commission to ensure 4

the agency's compliance with NEPA are independent of the parties' burdens I with respect to the Intervenor's environmental contentions. j

11. NEPA Overview Because the Intervenor's contentions are footed on the requirements of NEPA,  ;

a orief review of that Act is necessary to any analysis of these contentions. As J the regulations of the Council on Environmental Quality state, "[t]he National Environmental Policy Act (NEPA) is our basic national charter for protection of the environment." 40 C.F.R. I 1500.1. Section 101 of NEPA " declares a broad national commitment to protecting and promoting environmental quality,"

Robertson v. Methow Valley Citi: ens Council,490 U.S. 332,348 (1989), and sets forth the Act's basic " substantive goals for the Nation," Vermont rankee Nuclear Power Corp. v. NRDC, 435 U.S. 519, 558 (1978), that the federal government

, should "use all practicable means and measures" to protect environmental values.

42 U.S.C.14331(a). Section 101(b) of the Act then provides that "it is the continuing rgonsibility of the Federal Government to use all practicable means, consistent with other essential considerations of national policy" to, inter alia,

avoid environmental degradation, " attain the widest range of beneficial uses of the environment without degradation . . or other undesirable and unintended 4

consequences," and " preserve important historic, cultural, and natural aspects of our national heritage." 42 U.S.C. 6 4331(b).

339

l To attain these sweeping substantive goals, section 102 of the Act contains a set of " action forcing" procedures. Kleppe v. Sierra Club,427 U.S. 390,409

& n.18 (1976). See Calvert Cliffs' Coordinating Committee v. AEC,449 F.2d l

1109,1113 & n.7 (D.C. Cir.1971). The section directs that "to the fullest i

extent possible" all federal agencies shall " utilize a systematic, interdisciplinary approach" in environmental planning and "in decisionmaking which may have an impact on man's environment." 42 U.S.C. 6 4332(2)(A). To ensure that environmental considerations become part of the decisional calculus, section 102(2)(B) instructs agencies to " identify and develop methods and procedures i

which will ensure that presently unquantified environmental amenities and values may be given appropriate consideration in decisionmaking along with l economic and technical considerations." 42 U.S.C.14332(2)(B). As the court stated in Calvert Cligs',449 F.2d at i113,

"[e]nvironmental amenitics" will often be in conflict with " economic and technical consider- )

ations." To " consider" the former "along with the latter must involve a balancing prosess.

In some instances ensironmental costs may outweigh economic and technical benefits and in other instances they nuy not. But NEPA mandates a rather finely tuned and " systematic" balancing analysis in each instance.

In order to effectuate this NEPA balancing analysis, section 102(2)(C) requires that all agencies include in every recommendation or report on proposals for legislanon and other major Federal actions significantly affecting the quality of the human environment. a detailed statenrnt by the responsible otticial on - i

0) the environmental impact of the proposed action.

(ii) any adverse environmental effects which cannot be avoided should the proposal be implemented, (iii) alternatives to the proposed action.

(iv) the relationship between local short-term uses of man's environment and the nuuntenance and enhancenwnt of long term productisity, and (v) any irreversible and irretrievable commitments of resources, which would be involved in the proposed action should it be implemented.

42 U.S.C. 5 4332(2)(C). In addition to the discussion of alternatives in the detailed statement set forth in section 102(2)(C)(iii), the requirement for a thorough study and a detailed description of alternatives was given further emphasis by Congress in NEPA section 102(2)(E)(formerly section 102(2)(D))

that all federal agencies, to the fullest extent possible, " study, develop, and describe appropriate alternatives to recommended courses of action in any proposal which involves unresolved conflicts concerning alternative uses of 340

l l

available resources." 42 U.S.C.14332(2)(E). Indeed, the study and description j of alternatives is the " linchpin" of the environmental impact statement process. l Alonroe County Consenation Council, Inc. v. Volpe,472 F.2d 693,697-98 (2d Cir.1972). As explained by the court in NRDC v. Callaway,524 F.2d 79,92-93 (2d Cir.1975)(citation omitted):

It is absolutely essential to the NEPA process that the decisionmaker be provided with a d, tailed and careful analysis of the retative environmental merits and demerits of the proposed uction and possible alternatives, a requirement that we have characterized as "the hnchpin of the entire impact statement." Indeed the development and discussion of a wide range of alternatives to any proposed federal action is so imponant that it is mandated by NEPA when any proposal " involves unresobed conflicts concerning alternative uses of available resources." This requirement is independent of and of wider scope than the duty to file the I EIS.

Thus, NEPA's requirement of a " detailed statement," including the develop-ment and description of alternatives mandated by sections 102(2)(C) and (E),

serves a number of purposes. First, it requires the agency to compile a re-i viewable environmental record demonstrating the agency has made a good faith I effort to consider the environmental values NEPA seeks to safeguard, Afinnesota PIRG v. Butz,541 F.2d 1292,1299 (8th Cir,1976), cert. denied. 430 U.S. 922 (1977); Trout Unlimited v. Aforton,509 F.2d 1276,1282 (9th Cir.1974); Silm

v. Lynn,482 F.2d 1282,1284 (1st Cir.1973); Afonroe County,472 F.2d at 697, and taken a hard look at the environmental consequences of its action. Robert-son, 490 U.S. at 350; NRDC v. Aforton, 458 F.2d 827, 838 (D.C. Cir.1972).

Second, the detailed statement serves as an environmental full disclosure law providing agency decisionmakers, as well as the President, the Congress, the CEQ, and the public the environmental cost-benefit information that Congress thought they should have about each qualifying federal action. Afinnesota FIRG, 541 F.2d at 1299; Trout Unlimited,509 F.2d at 1282; Silva,482 F.2d at 1285; Aforton, 458 F.2d at 833; Alabama ex rel. Baxley v. Corps of Engineers, 4l1 F. Supp.1261,1267 (N.D. Ala.1976). See Robertson, 490 U.S. at 349. Third, and perhaps most importantly, "the requirement of a detailed statement helps insure the integrity of the process of decision by precluding stubborn problems or serious criticism from being swept under the rug." Silva,482 F.2d at 1285.

The EIS accomplishes this by " gather [ing) in one place a discussion of the rel-ative impact of alteratives so that the reasons for the choice of alternatives are clear." Afinnesota FIRG,541 F.2d at 1300.

Although the action-forcing procedures of NEPA "are almost certain to affect the agency's substantive decision, it is now well settled that NEPA itself does not mandate particular results, but simply prescribes the necessary process."

Robertson,490 U.S. at 350. Thus, NEPA is designed to lead the mule to water, but NEPA cannot make it drink. See Strycker's Bay Neighborhood Council, 341

Inc. v. Karlen, 444 U.S. 223,227-28 (1980); Vermont Yankee,435 U.S. at 558; Calvert Cliffs', 449 F.2d at i115. As the Supreme Court stated in Robertson, ,

490 U.S. at 350-51 (citations and footnote omitted):  !

If the adverse environmental effects of the proposed action are adequately identified and evaluated. the agency is not constrained by NEPA from deciding that other values outweigh the environmental costs. . Other statutes may impose substantive environmental obliga-tions on federal agencies, but NEPA merely prohibits umnformed - rather than unwise -

agency action.

In other words, "[tlhe project when finished may be a complete blunder -

NEPA insists that it be a knowledgeable blunder." Alatsumoto v. Brinegar,568 F.2d 1289,1290 (9th Cir.1978).

C. Witnesses and Exhibits Cor.sistent with the Commission's burden of proof rule and in accordance

, with the stipulation of the parties, the Applicant presented its case first, followed by the Intervenor, and then the Staff. In support of its position on Intervenor's contentions J.4 and K, the Applicant presented the testimony of Michael H.

. Schwartz and Peter G. LeRoy. (Schwartz-LeRoy fol. Tr. 383.) Mr. LeRoy, the Licensing Manager of the CEC, was responsible for compiling the information on the need for the CEC facility in the Applicant's ER that is part of the

, license application. He also was responsible for compiling the information in the Applicant's responses to the Staff's requests for additional information on the need for the facility and for the Applicant's response to the public comments on the draft EIS for the CEC. (Id. at 1-2.)

Mr. Schwartz is employed by Energy Resources international, Inc. ("ERI"),

an organization specializing in technical and economic consulting, nuclear fuels planning and procurement, and resource and market analysis. ERI also publishes the annual Nuclear Fuel Cycle and Price Report. (Id. at 2-4.) Mr.

Schwartz has earned a bachelor of science and a master of science degree in nuclear engineering and he has taken graduate level courses in finance, economics, and management. . (Id., Attach. 2.) In his current position with ERI and in his previous position as a senior consultant with Pickard, Lowe, and Garrick, Inc., Mr. Schwartz has been involved in the complete range of nuclear fuel procurement and market analysis related activities including analysis of the domestic and international markets for uranium enrichment services.

Specifically, he has been involved with preparation of market price projections, development of utility nuclear fuel procurement plans, preparation of client bid specifications for nuclear fuel cycle materials and services, development of evaluation guidelines for vendor proposals, performance of commercial 342

= _ .. .

l l

evaluations of vendor proposals, and development of recommendations for clients in support of contract negotiations. (Id. at 3.) Mr. Schwartz has also

, published extensively in his areas of interest. (Id., Attach. 2.)

The prefiled direct testimony of Mr. LeRoy and Mr. Schwartz on contentions J.4 and K was admitted pursuant to a pretrial stipulation of the parties and without any further objection at the hearing. (Tr. 383.) The Applicant did not offer these witnesses as experts and, because of the stipulation on admissibility and the fact that neither the Interv2nor nor the Staff raised any further objection, the Board at trial did not rule on the qualifications of Mr. LeRoy or Mr.

Schwartz as experts. Obviously, as the LES official responsible for compiling ,

the information in the . Applicant's ER, Mr. LeRoy is qualified to testify on l

that information and the related submittals to the NRC. As a practical matter, however, Mr. LeRoy provided little testimony and shed little light on the matters involved in these contentions. Further, although not offered as an expert witness by the Applicant, we find that Mr. Schwartz is qualified by knowledge and l experience to testify as an expert on the issues involved in contention J.4 concerning the need for the CEC facility.! l 4

In support of itS contentions J.4 and K, the Intervenor presented the testimony l of David E. Osterberg, a partner in the firm of Osterberg and Sheehan, Public Utility Economists, of Scappoose, Oregon, and Osterberg Consulting of Mt.

Vernon, Iowa. (Osterberg at I fol. Tr. 451 and Exh. A.) Mr. Osterberg has earned bachelor of arts and master of arts degrees in economics and earned a master of science degree in agricultural economics, and one in water resources management. He taught economics as an instructor at the University of Wisconsin-Green llay and as an assistant professor of economics and business at l Cornell College in Iowa. Currently, he is an adjunct professor in the Department of Geography at the University of Iowa. For 12 years until 1995, Mr. Osterberg also served as a representative in the Iowa General Assembly. During his tenure in the Iowa House of Representatives, he served, in 1991-1992, as Chairman i

j l I

Pursuant to a shpulanon of the parues, the followmg Appheant eshibits were admitted into evidence relating to l these contenuons- Applicant's Exhibit 10. LES letter to NRC dated Apnl 30.1992 (with Attachment A conuumng responses to NRC request for addauonal information concermng need for the facihty)(App. Exh.10K Appheant's Exhibit 11. LES letter to NRC dated July 23.1992 (with Attachment A contaimng response to NRC request for additional informauon concerning the no-action alternauve)(App. Exh.11); Applicant's Exhibit 12. LES letter to NRC dated May 1.1992 (with Attachments A, B. D. G, I. J. and L contaimng nonproprietary responses to NRC request for midstional information concerning LES' hnancial quahhcauons)(App lish 12); ApplicanCs Exhibit

13. LES letter to NRC dated May I.1992 (with Anachments C and E contaimng proprietary responses to NRC request for additional informanon concennng LES' nnancial quahncations)(App. Exh.13t Appbcant's Exhibit

14. LES Ictter to NRC dated December 22.1994 (with Attachment E centaming propnetary reviwd verson of LES Project Financial Plan)(App. Exh.14) Appheant's Exhibit 17. LES letter to NRC dated March 29,1994 (with Attachments A and B containing responses to request for addiuonal information conecrmng LE.s' ER and the draft EIS)(App Exh,17). (Tr. 706.) The Apphcant also introduced Intervenor's Exlubit 1-Do-33. Attachment D to LES teuer to NRC dated December 22.1994 (nonpropnetary update of LES Project l'inancial Plan)(1-Do-33).

(Tr 706.) Additionally. Apphcan(s Exlubit 1(h). the CEC Environmental Report (App Exh.1(h)), was previously adnutted into evidence pursuant to a stipulation of the parties dunng the Phase I heanngs. (Tr. 31.)

343

of the Committee on Energy and Environmental Protection and, in 1987-1990, as Chairman of the Committee on Agriculture. While in the legislature he also was a member of the Iowa Energy Policy Council and the Agricultural Energy hianagement Council. (Osterberg at 1-2 fol. Tr. 451 and Exh. A.) As a consuhing economist, h1r. Osterberg has testified as an expert witness for various clients

, before regulatory commissions in Florida, Illinois, Indiana, Iowa, New York.

South Carolina, South Dakota, and Tennessee. He also has worked for the Nebraska Energy Office and the Omaha Public Power District and participated in an energy study for the State of hiissouri. (Osterberg at 2-3 fol. Tr. 451 and Exh. A.) He also has written and spoken extensively in his areas of interest.

(Osterberg fol. Tr. 451 Exh. A.)

The prefiled direct testimony of hir. Osterberg was admitted pursuant to a pretrial stipulation of the parties and without further proper objection at the hearing. (Tr. 451.) The Intervenor offered hir. Osterberg's testimony as his expert opinion on contentions J.4 and K and as that of an expert in energy economics. (Tr. 447, 450.) We find that hir Osterberg is qualified by knowledge, experience, training, and education to testify as an expert on the issues involved in these contentions, and that he is qualified to testify as an expert in energy economics.

. The Applicant states, however, that "[t]he Board declined Intervenor's request for a ruling on hir. Osterberg's expert status" and suggests that hir. Osterberg was not qualified as an expert to testify on all the matters addressed in his testimony. (App. P.F. at 53-55.) Although the Applicant's statement that the Board declined to rule on hir. Osterberg's qualifications is literally true as far as it goes, the Applicant's statement ignores the context of our ruling.

The Board did not rule upon Mr. Osterberg's qualifications because there was simply no need to make such a ruling in light of the parties' prior stipulation of admissibility of hir. Osterberg's prefiled direct testimony on the full range of matters involved in contentions J.4 and K. Even assuming that an objection to the qualifications of hir. Osterberg might have been entertained in light of the parties' pretrial stipulation to the admissibility of his prefiled direct testimony that covered the full range of matters involved in contentions J.4 and K, after the Intervenor's tender of Mr. Osterberg, the Applicant did not state a proper objection or request voir dire on any or all of hir. Osterberg's qualifications to testify as an expert on the matters involved in these contentions. Rather, the Applicant merely indicated it would let its " cross-examination speak for itself as to the level of that e.tpertise in this proceeding." (Emphasis added.) (Tr.

451.)

The Applicant, of course, properly may bring out on cross-examination the lack of factual basis for an expert's opinion on a matter; however, the elicitation of such testimony goes to the weight to be accorded any particular expert opinion and not (as the Applicant's comment at the hearing seemingly indicates) to the 344

qualification of the expert to give his opinion. See Rd. R. Evid. 702, 703, &

705 and advisory committee's notes. Because the parties' pretrial stipulation on admissibility stands as a bar to any objection, and, in any event, the Applicant failed at the hearing to make an objection that was proper in either form or substance to challenge Mr. Osterberg's qualifications, there was no reason for the Board to make any ruling.

Thus, contrary to the implication of the Applicant's proposed finding, the Board's ruling had nothing to do with any supposed lack of qualifications of Mr. Osterberg as an expert witness on the matters involved in these contentions. l Although the Applicant's cross-examination showed that Mr. Osterberg could not, for example, recite from memory the current price range for uranium

)

i ore or fuel fabrication (Tr, 463-M), such matters are not directly relevant to these contentions and the Applicant's cross-examination did not demonstrate i that Mr. Osterberg was not qualified, for example, by education, or training, or

]

experience, to testify as an expert on the economic and other issues involved in these contentions.2 Instead, we find Mr. Osterberg to be a credible, soundly grounded economist whose direct testimony on these contentions is amply l documented and well supported with materials from the professional and trade l literature, and all his testimony is deserving of serious consideration and substantial weight,2 2

in this regard, we note that Mr Osterberg tesutied that the vandard tools for econonue analysis are applicable-for evaluaung the need and econonne viabihty of the CEC, and, wtule there are ad(huonal factors that nmt be considered with a nuclear facahry, the supply, demand and price of the product are relevant to every nurket. (Tr.

482-83, 516, 518 ) Smularly, the Applicant's witnesses on die intervenor's financial quahlicauona contenuon. l stated in their pretiled direct testimony that free-rnarket assumpoons apply in the enrichment services market. l

~

fDoudiet-Arnold at 19 fol. Tr. 563 )

3 Punuani to a supulanon of the parues, the following latervenor exhib ts were adnutted into evidence on these cunenuons. Intervenor's Exhibt I.Do-19, Energy informauon Adnunistrauon, U.S. Dep't of Energy, World Nuclear Oustook 199J, t)OE/EIA N36(94), Dec.1994, at in xi, 7 10, 39-40, 57 (1-Do-19); intervenor's Exhibit 1 DO-20. Energy Informauon Adnunistration, U.S. Dep't of Energy World Nuclear Capatny and fuel CNcle Requirements 1993. DOE /FIA N16(93), Nov.1993, at ioni, 33 tl-Do 20), Intervenor's Exhibit I-DO-21, "The New Birth of Urenco" Nukem Market Report, June 1994 at 4-13 (l DO-21); intervenor's Exhibit I DO-22.

" Interview," Nukem Market Report. June 1994. at 14-20 (1-Do-22) Intervenor's Exhibit 1-Do-23, " outlook on USEC." Special Report, Nuclear Fuel, Oct. II,1993, at 1 17 (1 DO-23h Intervenor's Exhibit l DO-24, Charles H Mantange The Federal Uramum Enrichment Progrum and she Criteria and Full Cost Recovery Reymrements of Secrum 161 of the Atomic Energy Act, 21 Min. L & Pol'y 1, 2125 (1986-87) (I-DO-24), Intervenor's ExNbit I Do-25 Energy Informacon Adnunistrauon, U S. Dep't of Energy, Monthly Energy Review, Nov.1994, at 103-07 (1-DO 25); intervenor's Exhibit 1-DO-26. Energy Informauon Admimstrauon, U.S. Dep's of Energy, Annual Enerry Ouilook 1994 wuh Protectwas to 2010. DOE /EIA-0383(94), Jan.1994, at 7,172 78 (1-Do-26);

intervenor's Exkbit 1-Do-27, "Should Investors Be Concerned About Rising Nuclear Plant Decommissioning Costs?' Shearson lehman Brothers, Electne Uuhues Commentary, Jan 6,1993, at Execuuve Summary,128 (1 DO-27h Intervenor's Exhibit I-Do-28, Energy informauon Administrauon, U.S Dep't of Energy Monthly Energy Revsew. Aug 1994, at 1 14.112,137-38 tl-DO-28L Intervenor's Exkbit 1-DO-29. Conumttee on Future Nuclear Power Development, Nauanal Research CounciE Nuclear Power: Technical and Institutional Opswnr for the future.1992, at 2-3, 38-43 (I DO-29x Intervenor's Exhibit 1-DO 30. Charles M. Studness, " Stranded what, Exactly?' Pubhc Ut:luies Fortnightiv. Dec. I,1994, at 40-42 (1-Do40); intervenor's Exhibit I-DO-31.

" Portland GE Says Closing Trojan was teast-Cost Decision." Pubhc Unknes Forrnightly, Feb, 15,1993. at 11-12 (1-DO-31), Intenenor's Extuht 1-DO 32, Charles E. Bayless, "less is More: Why Gas Turbines will Transform Electric Uuhties," Public Unidies Formightly. Dec.1,1994, at 21-25 (1-Do-32); intervenor's Exhibit 1-DO-33, fContsnued) 345

Re Staff presented the testimony of hierri L. Horn in support of its position on contentions J.4 and K. (Horn re J.4, Horn re K fol. Tr. 500.) Ms. Iforn is an environmental engineer in the Enrichment Branch, Division of Fuel Cycle Safety and Safeguards, Office of Nuclear Material Safety and Safeguards, and is the Environmental Project Manager for the CEC license application. (Horn re i

J.4, Attach. I fol. Tr. 500.) Pursuant to the pretrial stipulation of the parties, and l

without any further objection at the hearing, Ms. Horn's prefiled direct testimony l

regarding these contentions was admitted. (Tr. 500.)4 '

D. Adequacy of FEIS Treatment of Need issue CANT's contention J.4 challenges the sufficiency of the treatment in the Applicant's ER and the Staff's FEIS of the need for the facility. Among other things, the contention asserts that the Applicant has failed to demonstrate a genuine need for the facility by showing that additional enriched uranium production capacity is needed. Arguing in the alternative that the Commission's regulations do not require it to address the need for the facility at all in its ER, the Applicant also takes the additional position that its treatment of the need for the CEC in the ER, as supplemented by LES' responses to Staff requests for information, is a legally sufficient evaluation of the need issue. (Schwartz-LeRoy at 4,6-9 fot Tr. 383; App. P.F. at 39-41,55.) The Applicant also claims that the 4 Staff has appropriately considered the need issue in its FEIS. (Schwartz-LeRoy i at 12 fol. Tr. 383; App. P.F. at 127-28.) Similarly, the Staff asserts that the l Applicant's treatment of the need issue in the ER is sufficient and that the Staff has adequately considered the need issue in the FEIS. (Horn at 3-6 fot Tr. 500.)

NRC Staff's Proposed Findings of Fact and Conclusions of Law in the Form of a Partial Initial Decision Regarding Contentions B. J, K, and Q (May 26,1995) at 46 [ hereinafter Staff's P.F.]. Because the Staff's discussion of the issue of the need for the CEC in the FEIS is based upon, and parallels, the information provided by the Applicant in the ER and LES' supplemental responses to the Staff's requests for information, we need not separately address the adequacy of the Applicant's treatment of the need issue in the ER.5 nerefore, we turn to 1

Attachrtent D to LES letter to NRC dated December 22.1994 (nonproprietary update of LEs Project Financial Plan)(1-Do-33). Intervenor's Exhibit I D434. United states General Accounung Office, Uranium Enrichment.

Congressional Actiam Needed to Revuah:e the Program. GAo/RCED-88-18. oct.1961, at 21-23 (l-Do-34h intervenor's Exhibit I-Do'35, answers of Northern states Power Cornpanv to MPUC [ Minnesota Public Uuhues Comnunion] Information Requests on Greystone, at 00474 (answer to quesuon 12)(1-DG35). (Tr. 452.)

4 in accordance with the same supulation, the following Stafr eslubit relaung to these contentions was adtrutted into evidence: NRC staff's Exhibit 2, NUREG-1434. 'Enal Environnental impact statement for the Construction and Operanon of CEC Homer. Louisiana"(1994)(staff Exh. 2t (Tr. 501.)

5 Although conceding that the Comnunion's regulanons require that the Appheant's ER contain a cost-benelit analysis of the proposed acuan and include sufheient data to aid the Comnunion in the development of its independent analysis. the Apphcant and the Staff nevertheless resort to a superficial hterahsm to argue that became fContinued) 346

i the ultimate question in contention J.4 of whether the treatment of the need for the facility issue in the FEIS iS adequate.

L Applicable Standard The Commission's regulations implementing section 102(2) of NEPA,10 C.F.R. Part 51, also contain an Appendix A entitled " Format for Presentation of Material in Environmental Impact Statements," Section 1(a) of the Appendix sets forth the matters that generally must be addressed in an environmental impact statement, including item 4, labeled " Purpose of and need for action."

A similarly titled section 4 of the Appendix then provides that

[tlhe staternent will briefly describe and specify the purpose of land] the need for the proposed action. The alternative of no action will be discussed. In the case of nuclear power plants, the word "need" does not appear in the Conutussion's regulations prescribing the contents of the environnwntal report, there is no requirenwns that it address the need for the facility in its ER. (SchwartoLxRoy at 8-9 fol. Tr.

383. App. P F, at 41; Horn at 3 fol. Tr. 500 Staff P F. at 45.) h is. however, clear that 10 C.F R. 4 5145(c) requires the Apphcant to include in its ER a cost-beneht analysis of the proposed fxthty in the words of the regulanon. that analysis rnust "considert J and balance!1" the vanous environmental effects or costs of the proposal against the vanous "environnental, econonuc, techmcal and other benchts" of the project. As the Intervenor's contention correctly indicates, the "need'* for the CEC is simply a catchword for the pnncipal or pnmary beneht of the proposed facihty that goes on the beneht side of the cost beneht ledger. As should hardly need expheation. a cost-beneht analysis or a benefit-coat analysis, cannot be performed consistent with the Conumssion's regulauons and secuon 102(2) of NEPA witimut weighing the benebts or need for the project on one side of tir equauon with the costs or environmental effects of the project on the other side. See Calverr ChBC, 449 F.2d at 1113.

This self evident and seenungly simple proposinon has long been recognized in agency reactor heensag decisions As the Appeal Hoard stated.

[tlhe demand for electricity is of course the jusuficanon for building any power phint Sausfacuan of that demand is the principal bencheial factor weighed against the environnrntal costs in stnlung the balance the Nanonal Environnental Policy Act requires. In other words, "1niced for power' is a shorthand expression for the *beneht' side of the cost-benent balance which NEPA marutates for a proceeding considering the hcensing of a nuclear plant."'

Pubhc Service Ca of Oklahoma (Black Iba Station. Umts I and 2). ALAB-573.10 NRC 775, 8ot (1979)

(quoung Rocherter Gas and E!ccinc Corp. (Sterbng Power Project, Nuclear Unit No.1), AIAB-502,8 NRC 383, 388 n.11 (1978) quonng Pubhc Service Ca of New Humpihire (Seabrook Stauon, Umts I and 2). Al.AB-422,6 NRC 33,90 (1977).) Accord PuNic Serwcc Ca ofIndwaa tMarble Hill Nuclear Generating Stauon, Umts I and 2). ALAB-459,7 NRC 179,184 (1978), Duke Power Ca (Catawba Nuclear Stanon. Umts I and 2), ALAB-355, 4 NRC 397,405 (1976).Nwgura Mohawt Powrr Corp. (Nine Mile Point Nuclea. Station, Unit 2), ALAB-264, 1 NRC 347,352 (19751 See Vermont Yunice Nuclear Power Corp. tVermont Yankee Nuclear Power Stauon).

ALAB-l?9,7 AEC 159,175 (1974L Equally without rnerit is the Applicant's asseruon that the agency's power textor precedents requiring the applicant to demonstrate the need for the facihty are inapplicable to the LES ennchnent facility According to the l

Appheant, this is so because reactor heensees lustorically have operated in a regulated, monopohstic uulity market j whereas LES seeks to market its ennchment services in an unregulated, nonmor.opohstic market in wiuch esisung capacity can be displaced regardless of whether the capacity needs to be replaced or supplenented. (Schwartz-teRoy at 14 fol. Tr. 383. App. P.F. at 44.) But the Comnussion's regulations implementing NEPA require the applicant of a proposed facihty - regardless of the type of facility - to estabhsh the need for the facility no that that asserted beneht - regardless of whether the need is great or small- can be weighed against the project's environnwntal costs in the required cost-beneht analysis Whether the uranium ennchment rnarket or the electric uuhty market ts regulated or not, or nonopohsue or not, is corr.pletely irrelevant to that poruon of the NEPA (Connnued) 347 l

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consideration will be gnen to the potential impact of conservation measures in determining the dernand for power and consequent need for additional generating capacity.

Further, the Commission regulations prescribing the contents of the draft and final environmental impact statements, 10 C.F.R. 69 51.70(b), 51.90, state, respectively, that the Staff should use the format set forth in Appendix A in preparing environmental impact statements. Those same regulations also provide, in language similar to that detailing the cost-benefit analysis that must be included in an applicant's environmental report, that the cost-benefit analysis contained in draft and final environmental impact statements "will, to the fullest extent practicable, quantify the various factors considered" and "[t]o the extent that there are important qualitative considerations or factors that cannot be quantified, these considerations or factors will be discussed in qualitative terms." 10 C.F.R. 9 51.71(d). See 10 C.F.R. 6 51.90. See also Barley, 411 F.

Supp at 1268-69; Vermont Yankee, ALAB-179, 7 AEC at 174-76. Thus, the Commission's regulations specifically direct that the Staff's FEIS address the i need for the CEC. I Labeling this requirement as the "need" for the proposed facility is merely l a shorthand expression to describe the principal beneficial factor that is to be j weighed against the various costs of the proposal in striking the cost-benefit l

balance required by NEPA and the Commission's implementing regulations.

i See supra note 5. Herefore, whatever the principal benefit provided by the l l

cost-beneht analysis that requires weighing the need for tiie facihty against the ennronmental costs of the project.

The Imervenor's espert. Mr. osterberg was quite correct when he testitied that "just because it is in a different kind of market doesn't mean need is not a question." (osterberg Tr. 519 )

Also without nwrit is the Staff's addinonal argument that its regulatory guidance regaring the Comnussion's environnwntal regulations does not require the Applicant to address the need for the CEC in its ER. In her prehled direct tesumony, the Staff Environnwntal Project Manager for the LES license review referred to Regulatory Guide 4 9, " Preparation of Environmemal Reports for Commercial Uramum Enrichment l'acibues" (1975) and tesuhed that " Regulatory Guide 4 9. . does not discuss any requirenwnt for apphcants to provide informanon or discuss need for the facthly. Ilowever, the regulatory guide, at secuon 1.2 'Need for Facihty' lists several items uhich an i apphcant is encouraged to describe or discuss in an environmemal report." (Horn re 14 at 3 fol. Tr. 500 ) l Even thougi' regulatory guidance is just that, advisory not obbgatory. and regulatory guides are not substitutes for regulations, such guides nevertheless "presentll the Staff's view of how to comply with the regulatory requirenwnts " ISP-96-7. 43 NRC at 141 in ttus instance, noung (at 1) that its purpow "is to provide assistance to applicants for the devek t ment of ennronmental reports deahng with the construction operation, and decomnussiomng of uranium enrichment facihties." Regulatory Guide 4 9 states in secuon 1.2. enutled "Need for Facihty," that "It}he degree of enrichment and quanuues of separause work that will be provided for domesue use should be described. A 20-year projecuon of nauonal and foreign requirements for the services should be supphed." 1d. at 4 9-6. Thus, in clear and unmistakable terms. Regulatory Guide 4 9 states that the Applicant should address in its ER the need for the facihty and it calls for the Apphcant to describe that need in terms of a 20 year projection of " requirements for the services," i.e., need for sWUs. Because the word " requirement

• nwans "sonrthing that is . . needed." no other reading of the Staff guidance is rea,onable. See webster's Tliird New Internanonal Dscrkmary 1929 (l91l).

In the face of these unequivocal statements in Regulatory Guide 4 9 that the Applicant diould address the need for the facihty in its ER - statements that represent the Staff's view of how to conply with the Commission's regulanons - the Staff's tesumony quoted above, at best. makes no sense and, at worst. is disingenuous. Most importantly, however, this kind of Staff tesumony is completely unhelpful to the licensing Board in resolving the matters before it.

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CEC, it must be addressed in the FEIS as the need for the facility and, "to the I fullest extent practicable," the benefit must be quantified, l And, contrary to the suggestion in the Intervenor's contention J,4, the

)

Applicant is not limited to establishing the need for the CEC by showing that additional capacity for enriching uranium is essential to meet current or l future demand - although such a showing is certainly one obvious way of demonstrating the benefit of the facility. Rather, because the need for the proposed facility is definitionally the primary benefit against which the various costs of the project are weighed in the cost-benefit analysis and NEPA does j not dictate any substantive outcome for the cost-benefit balancing process, the l principal benefit of the project does not have to arise to any minimum level or l meet any other prescribed standard? In other words, whatever the benefit of the l

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6 He og been inueduced by the StafY to Regulatory Guide 4 9 (see supra note Sh we note an ad&tional troubbng matter with obsious relevance to the need for the facility issue and the ulumate cost.beneta analyus m the Staff's l EIS. In Chapter 8, enutled "Benetit-Cost Analyus," the Staff regulatory guidance states that: l This Chapter should &tnonstrate through a beneht-cost analyus of the propou:d plant why in the appheant's judgment the aggregate benehts outweigh the aggregate costt Even though the NRC will independently prepare a bencht-cost analysis of the proposed plant in its Environmental Statement. the appheant should perform its own analyus to aid the NRC m its evaluauon I The upptwant should note that the major objettsve of the preparanon of the envuronmen:al report n l to demonstrate that the aggregate benefurs outwengh the oggregate costs far the propond plant l

Reg Guide 4 9 at 4 9-25 (emphasis supphed). Although represen6ng the Staffs view of how to comply with l the Comnusson's regulauens thn Staff guidance seemmgly is at odds with the scry purpose of the Nadonal Enuromnental Pohey Act and the Comtpudgle@g regulauous.

As mdicated. NLPA calls for a forthright and objeenve an.dyus of the various costs and benchis of a proposed project. NLPA is an environrnental full disclosure law and as such it does not dictate any preconceived result for that analyus much less mandate a result requinng the benents to outweigh the costs See supru p. 341.

Sinularly, the Comnussion's implenrnting regulauons do not call for such a preconcened result for the cost-beneht analyus preforned in the Appheant's ER. Indeed, far from preord.uning a specine outcome for that l analyus, the regulacons require the Appheant to proude m in LR "sufhcient data to and the Conumnion m its I development of an independent analyus." 10 C F R. 4 5145fc). and instruct the Appheant that "[tlhe information subnutted pursuani to . . this secuon should ma be conhned to informanon supporting the proposed acuon but should alw mclude adverse informanon" 10 C F R I 5145(e)

The Staff's new of the Comnuuion's regulauons set out in Chapter 8 of Regulatory Guide 4 9 is dnquienng and brings to rrund the Appeal Board's admomuon in Flanda /%er & laht Co. (St. Lucie Nuclear Power l Plant, Umt 2) ALAB-435,6 NRC 541,544 (1977) Although in St luir the Appeal Board was concerned with l an alternanve site analysis in a construc6on permit proceeding, the general thrust of its renkirks bear repeaung l here: l We regret the necenity of having to state that the record of this case does not msull conhdence l in us that the staff always acts with that degree of care which would demonstrate its comnutment to the vigorous enforcement of NEPA's commands regarding alternate ute ingwres Al &fferent umes in this procee&ng, the staff appeared to treat comphance with NEPA as a hurdle in the path of, rather than a prereqwute to, the inuance of a nuclear power plant hcense. Manifestly, the staff's attitude toward environmental questions should be parallel to its generally commendable stance in the safety l area. There, the staff quite properly treats an apphcant's statemenu as those of a decidedly interested l party. Accord ogly, the staff reviews them with a tramed dnpasuonate and skepucal eye. Where the l enuronnrnt is coocerned, the same sort of review should be the norm. l ixst we be misunderstood. we harbor no bias for or against any particular outcome of the staff's l review of environmental matters. But a staff concluuon that an apphcant's proposal passes muster is l valuable only to the ex:ent it represents the results of vigorous probmg for possible shortconungt Where l that has been done, there is much nmre reason to trust the vah&ty of the conclusion. 6 NRC at 544 i (footnotes onutted).

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proposed facility and whether that benefit is great or small, it must be addressed and, if practicable, quantified in the FEIS as the need for the facility.

2. Assertion of Need in the ER and FEIS Here, as the Intervenor's contention asserts, the Applicant's ER, under the heading of "Need for Facility," merely states the yearly production capacity of the CEC of 1.5 million SWUs per year and asserts that this amounts to 15% of the requirements of domestic nuclear power plants. The ER then lists the suppliers of enriched uranium to the United States in 1988 and sets out a table of wor!d enrichment services requirements for the years 1991 to 2010 prepared by ERI in 1990. (App. Exh.1(h) at 1.2-1, Table 1.2-1.) In response to NRC Staff requests for additional information, the Applicant amended its ER to include ERI's 1991 mid-range projections for the years 1991 to 2030 of world enrichment services requirements and nuclear power growth, ERI's forecast of world enrichment capacity in the year 2000, and a graph depicting LES' estimation of the uncommitted SWUs market in the United States from 1992 to 2000. (App. Exh.10 at A-1, Tables I,2, and 3, Graph 1.) Additionally, the Applicant asserted that:

The fundamental case ft ; the CEC is that it can and will compete on economic grounds, allowing U.S. electric utilities a competitive source of supply so that they can in turn achieve the lowest cost reliable supply of electricity to their rate payert This is achieved pnmanly because the centrifuge process uses only a small fraction of the electric power required by the compet.ing diffusion plants. Also, its relatively benign environmental impact assures that this cost advantage will if anything. grow in the future as environmental restrictions on enrichment plants and on the electric power sources which supply them come under increasingly severe restrictions.

A compeutive domestic market will also act as a self-regulating mechanism to keep the DOE operations, whether managed by IX)E or a successor corporation, operating as etticiently as possible. The successful introduction of a world class technology to the l'nited States will also provide a more complete perspecuve when future decisions to add or replace capacity must be made on a national basis.

(App. Exh.10 at A-3 to A-4.)'

In the FEIS, the NRC Staff adopts the Applicant's assertion of need for the CEC. It states that "[bjecause existing world enrichment capacity is adequate to meet demand for the foreseeable future, the need for this facility lies primarily in the need for an additional market competitor in the U.S., rather than in a need to increase world or U.S. enrichment capacity." (Staff Exh. 2 at 1-5 1

The Apphcant repeats this same formulation of the need for the CLC in a number of additional responws to Staff requests for information on the no-action alternauve (App. Exh. I t at A 2) and on financial quahficauona (App. Exh 12, Anach. D at 5 App Exh.13. Attach. E at 5; App Exh.14. Attach. E at E-5).

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- .-. _ ~. -. .-

(citation omitted).) As support, the Staff first reiterates ERI's 1991 demand 1 forecast that, by the year 2000, requirements for enriched uranium in the United I States are expected to increase slowly. It next states that premature reactor I shutdowns affecting demand cannot be quantified at this time and it then lists l the Applicant's estimates of the uncommitted SWU market in the U.S. through the year 2000. Finally, it recounts the Applicant's belief that the market provides an entry opportunity for LES to compete against the United States Enrichment Corporation ("USEC"). In conclusion, the Staff asserts that the CEC could be an effective competitor because the USEC's gaseous diffusion plants ("GDPs")

are old and need maintenance and upgrades, use 50 tiraes the electricity per SWU as the CEC, and may face increases in the cost of power due to required l environmental upgrades on the plants supplying electricity. (/d.)

l After setting out the above described discussion of the need for the CEC, l

the FEIS closes with a brief description of the United States-Russian weapons i to plowshares agreement whereby the United States will purchase low enriched uranium (" LEU") blended down from high enriched uranium ("HEU") from dismantled nuclear weapons. According to the FEIS, the agreement requires the United States to purchase the equivalent of 92.1 million SWUs over the 20-year j period from 1994 to 2013 with 10%, or approximately 1.8 million SWUs per  ;

year, supplied from 1994 to 1998 and 90%, or approximately 5.5 million SWUs per year, supplied from 1999 to 2013. The Staff states that the Russian LEU l supplied from 1999 to 2013 is about 3.7 times larger than the coincident GC l o stput and represents about 15% of projected world demand, more than 50% of I projected U.S. demand, and almost half of all uncommitted world demand (/d.

at 1-5 to I-7.)

Although not included in its main discussion of need in the FEIS, the Staff I states in an introductory summary to the FEIS:

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It should be noted that the enrichment market in the future will continue to be highly competitive. . Although the exact timing and impacts of the Russian supplies and other I potential competition are uncertain, they are likely to result in downward pressure on U.S. l and world SWU pnces. The potential price-depressing effect of the Russian LEU introduces l an additional uncertainty concerning the economic feasibility of the CEC in the proposed j time penod.

(/d. a; Wii.)

3. Board Findings on Parties' Positions At the evidentiary hearing on CANT's contention J.4, the Applicant repeated its formulation of the need for the CEC (Schwartz-LeRoy at 12-13 fol. Tr.

383) and presented additional supply, demand, price, and market information j in support of its position. (/d. at 14-55.) In a nutshell, the Applicant asserted 351

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that, even though current and future enrichment capacity exceeds demand, the l CEC will be able to produce its full capacity of 1.5 million SWUs per year at a price falling within ERI's future price forecasts and, therefore, can compete on the basis of price to capture 15% of the demand for enrichment services in the U.S. from current producers. The Staff took the position that the FEIS adequately describes the need for the CEC. (Horn re J.4 at 4 5 fol. Tr. 500.)

The Intervenor, on the other hand, challenged the Applicant's supply, demand, price, and market information and the Applicant's claim that LES would bring price competition to the market. (Osterberg at 4-25 fol. Tr. 451.)_ l Initially, it bears repeating that the CEC will use gas centrifuge technology licensed by Urenco and that the facility has a design capacity of 1.5 million SWUs per year. Also we note that pursuant to the provisions of the propri-etary " Agreement of Limited Partnership of Louisiana Energy Services, L.P."

(" Partnership Agreement"), the CEC, as a practical matter, cannot market its enrichment services outside the United States (1 DO-44 art. IX, 5 9.2(c); art. V, 50 5.1,5.2(a) & (d), 5.3(a), Schedule B; Osterberg Tr. 821-22; l-DO-23 at 13) I and, in any event, the Applicant intends only to market its services in the U.S. '

(Schwartz-LeRoy at 27 fol. Tr. 383.) Further, because of the manner in which commerce for the various components of the nuclear fuel cycle developed, ura-nium enrichers perform a service on customer-owned uranium hexatluoride but the enricher retains the depleted uranium tails. This enrichment service, again because of an historical anachronism, is measured in terms of the work or effort required to enrich the material to the desired level, called a separative work unit or SWU Thus, when examining the supply component of the enrichment market, the principal focus historically has been on the capacity to provide enrichment services or SWUs With the advent of transactions such as the purchase by the United States of large quantities of Russian LEU derived from blended-down  :

weapons HEU, however, the enriched uranium is purchased by weight and a '

conversion to SWUs is necessary in order to make symmetrical comparisons.

With this background we first address the issues c' upply and demand for enrichment services. The Applicant and the Staff do not assert that the CEC is needed to meet current or future demand. Nonetheless, these fundamental market forces are relevant to their assertions that the principal benefit against l which the costs of the facility are weighed is the CEC's ability to bring price l competition to the enrichment services market, thereby permitting the CEC's I utility customers to achieve the lowest-cost electric rates.

i

a. Supply Currently, the four major producers of enrichment services are (1) the United States Enrichment Corporation with GDPs in Paducah, Kentucky, and Portsmouth, Ohio; (2) Eurodif with a GDP in France; (3) Urenco with gas 352

e centrifuge facilities in Germany, the United Kingdom, and the Netherlands; and (4) Russia with gas centrifuge facilities. (I DO-23 at 4; l-DO-20 at 33.

Table 16; Schwartz LeRoy at 14 fol. Tr. 383.) In addition, Japan, the People's Republic of China, Brazil, Argentina, and Pakistan have modest capabilities to produce enriched uranium; at present, however, these capacities, with the '

possible exception of a small amount in the People's Republic of China, are

either solely for internal use or are not economically competitive on the world market. (Schwartz-LeRoy at 14,31 fol. Tr. 383; l-DO-23 at 4.)

According to the 1992 amendment to its ER, which included an undated table of worldwide enrichment capacity compiled by ERI, worldwide enrichment capacity stood at 43.7 million SWUs per year in 1990. Of that figure,19.2 million SWUs per year were listed as the capacity of what were then the Department of Energy's Paducah (11.3 million) and Portsmouth (7.9 million) i GDPs. ERI forecasts that, in the year 2000, there would be 49.1 million SWUs per year of worldwide capacity with the same 19.2 million SWU per year capacity from the domestic GDPs. (App. Exh.10, Attach. A. Table 3.)

At the hearing, the Applicant did not introduce into the evidentiary record ERI's latest 1994 nuclear fuel cycle supply, demand, and price report containing its complete market forecasts. See supra p. 342. See also I-DO-19 at 57, Table 31 note c. Instead, the Applicant's witness, Mr. Schwartz, testified that in 1995 worldwide enrichment capacity was approximately 42 million SWUs per year which he labeled as being " generally consistent" with ERI's 1990 estimate of 43.7 million SWUs per year. He forecast that, by the year 2000, there is an upper-end potential for 51 million SWUs per year from worldwide production facilities. (Schwartz-LeRoy at 16-17 fol. Tr. 383.) According to Mr. Schwartz, capacity increases by Urenco and Russia could result in an additional 6.5 million I SWUs per year by that time and the People's Republic of China, Japan, and other minor suppliers have the potential to add another 1.5 million SWUs per year. (/d. at 20,21.)

In variously qualifying his estimates and forecasts, the Applicant's expert noted, first, that 15% of ERI's projected 51 million SWU per year capacity in l the year 2000 was made up of relatively high-cost portions of GDP capacity in the United States and France. With respect to the U.S. facilities, he predicted that, because only 6.5 million of the Portsmouth plant's 7.9 million SWU per year capacity is considered economically competitive, the USEC would decide either to place the plant on stand-by or retire it by the year 2000. (/d. at 21.) He indicated in other testimony, however, that the USEC has made public announcements that it has no current plans to close either of the GDPs anytime soon and that the President and CEO of USEC has been reported in the trade press as saying the expected life of the GDPs was another 15 years. (/d. at 18, 51.) In addition, he noted that 25% of ERI's projected world capacity figure was located in Russia and, therefore, was vulnerable to political and 353

economic uncertainties. Further, he stated that the Russian capacity was subject to trade restrictions in Western Europe and the United States. Specifically, j

he mentioned the enormously complex Russian Suspension Agreement and its 1994 Amendment that restrict the amount of Russian uranium that can enter the United States. (/d. at 17, 21,43-45.)

In addition to the enrichment production capacity he described, Mr. Schwartz indicated that up to 9 million more SWUs per year could became available to commercial markets from blended-down Russian and American HEU. In this regard, he asserted that the agreement for the USEC, as the Executive Agent for the United States, to purchase 500 metric tons of Russian weapons HEU over 20 years could, under current schedules, result in the delivery to the USEC of enriched uranium equivalent to 2 million SWUs per year over the next 5 years which could rise to as much as 7 million SWUs over the following 15 years. (/d.

at 41-43.) Similarly, he indicated that sales from the stockpiles of the United States could amount to 300 metric tons of HEU reaching the market as LEU, which is equivalent to a total of 47 million SWUs or about 3 million SWUs per year. (1d. at 53.) In summary, he forecast that, excluding production from the USEC's Portsmouth plant, but including Russian and American HEU-derived supply,"the resulting supply of enrichment services should be sufficient to meet expected levels of demand during the next 20 years." (Id. at 21-22.)

With respeet solely to enrichment capacity of the United States, Mr. Schwartz, consistent with ERI's earlier estimate included in the Applicant's ER, asserted that the capacity of USEC's two GDPs was 19.2 million SWUs per year with 11.3 million of that at Paducah and 7.9 million at Portsmouth. He reiterated ,

that a portion of the USEC capacity was not economically compet Ive and also I stated that USEC currently has contract commitments for some 4 million SWUs per year to customers outside the United States. Nonetheless, he concluded that, because ERI's mid- and high-range forecasts for demand in the United States called for no more than 9.5 million and 1I million SWUs per year, respectively, during the next 20 years, current USEC enrichment capacity was sufficient to meet such demand through the year 2010. (/d. at 27-28.)

The Intervenor's expert, Mr. Osterberg, testified that it was generally ac-

)

knowledged that the supply of SWUs was greatly in excess of any reasonable i need for this product. (Osterberg at 5 fol. Tr. 451; Tr. 483.) Specifically, he relied upon the then-latest December 1994 estimates of the Department of Energy's independent statistical and analytical agency, the Energy Information i Administration ("EIA"), reporting that "[tlhe current worldwide enrichment ca-pacity of 46.7 million SWU is more than enough to meet the expected demand" (1-DO-19 at xi; Osterberg at 5 fol. Tr. 451) and the 1993 EIA estimate that placed 1

worldwide enrichment capacity at 46.1 million SWU stating that, "[c]learly, with capacity far in excess of annual requirements, the enrichment services market is highly competitive." (1-DO-20 at xi; Osterberg at 5-6 fol. Tr. 451.) Mr.

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Osterberg also referenced other sources such as (1) a June 1994 Nukem Afarket Report article on Urenco that stated the world's four major SWU suppliers alone had a capacity of 45 million SWUs per year versus a global demand on the or-der of 34 million SWUs per year and concluded "[ijn short, the market appears destined to remain oversupplied for a very long time"(1 DO-21 at 9; Osterberg at 6 fol. Tr. 451); and (2) an October i1,1993 Nuclar Fuel special report on USEC stating that Urenco's managing director, speaking at the 1993 enrichment confern ce, placed existing worldwide enrichment capacity at about 45 million SW'i per year with the four major producers accounting for 43 million SWUs per year, but with a demand of 34 million SWUs per year. (I DO-23 at 2,4.)

These figures led the pt.blication to conclude that " overcapacity is the dominant fact of life for enrichers in the 1990s, making enrichment services a buyer's market." (/d. at 2; Osterberg at 6 fol. Tr. 451.) l The Intervenor's expert also asserted that worldwide enrichment production l capacity was expanding, not contracting, but he emphasized that this expansion in various countries does not imply that there is any economic justification for expanding SWU capacity in general. Rather, almost all of the expansion was i directed by specific national policy considerations within each county because, l unlike the United States, most of these countries do not have enough enrichment capacity to serve their domestic demand. (Osterberg at 7 fol. Tr. 451.) In particular, he pointed to the announced expansion of Japanese and Urenco capacity as increasing EIA's capacity estimates from 46.1 million SWUs in 1992 to 47.1 million SWUs in 1995. (Osterberg at 6 fol. Tr. 451; I DO-20 at l 33.) Further, he claimed that Russia's effective capacity recently has grown as it has converted military SWU production to domestic purposes and he cited this factor as partially accounting for the 10% capacity differences between EIA's higher estimates and ERI's lower ones. (Osterberg at 7 fol. Tr. 451; Tr. 523-25.)

Finally, CANT's expert expressed optimism that the Russian HEU purchased by the United States under the weapons to plowshares agreement would come onto the market and he stated that it was unreasonable to conclude otherwise.

(Tr. at 521-22.)

'Ihe estimates of the Applicant and the Intervenor of current and future worldwide enrichment capacity do not precisely correspond. Nonetheless, their respective estimates and forecasS are not widely divergent and there is no significant disagreement that current and future supply exceeds demand requirements. Further, in assessing those forecasts, we recognize that because forecasts look into the future on the basis of the information available today, they provide no absolute answers. Rather, they must be judged on their reasonableness. Here, the estimates or forecasts of ERI relied upon by the Applicant or those of EIA relied upon by the Intervenor are not unreasonable.

Therefore, based upon those forecasts, we find that the current and future worldwide supply of enrichment production capacity and the supply of enriched 355 k

i uranium available to the commercial ma4et exceeds, and will continue to exceed ,

well into the future, worldwide demand requirements. We find that the same l situation pertains to the supply situation within the United States.

On the record before us, we do, however, find unreasonable hir. Schwartz's caveat to his worldwide supply forecast that if any of the major sources of entidment services are interrupted, then the expected level of world demand would exceed supply. (Schwartz-LeRoy at 22 fol. Tr. 383.) Even giving no consideration to the testimony of hir. Osterberg, hfr. Schwartz's own testimony

on future supply stands in direct contravention of his caveat, which was not I supported with any other significant evidence establishing the likelihood or reasonableness of such a scenario. Further, it seems apparent that the 1996 l

enactment of the USEC Privatization Act, Pub. L. No. 104-134,110 Stat 1321 i (1996), provides additional assurance that LEU derived from Russian weapons HEU will reach the commercial market, albeit on a slightly delayed but more generous schedule. That Act also appears to pave the way for some of DOE's existing stockpiles of enriched uranium to reach the commercial market in the near and intermediate term and with respect to the long term, it authorizes ,

future commercial sales of such DOE material in a way that limits the material's l adverse impacts on uranium mining, conversion, and enrichment industries in the United States. See 42 U.S.C. 6 2297h 10.

b. Demand Outside of military applications and use in small quantities as fuel for research reactors, the only use for enriched uranium is as fuel for nuclear reactors in order to produce electricity. Therefore, in gauging the demand component of the market for enriched uranium, the detenninative factors are the number of nuclear reactors that are currently operating and those expected to be operating in the future. As a general rule of thumb, a typical 1000-megawatt reactor j requires approximately 100,000 SWUs per year of enrichment services.

In its ER, the Applicant included a table listing ERI's 1990 projected world enrichment requirements from 1990 to 2010 forecasting, inter alia, that, in the years 1995, 2000, 2005, and 2010, world SWU demand would be about 30  !

mil' in, 33 million 37 million, and 40 million SWUs per year, respectively.  ;

ERi% 1990 forecast listed SWU demand for the United States in the years 1995, 2000, 2005, and 2010 as 9.5 million, 8.5 million, 8.7 million, and 10.2 million, respectively. (App. Exh.1(h), Table 1.21.) Although at the hearing the Applicant did not introduce into evidence ERI's latest 1994 nuclear fuel cycle report containing its complete market forecasts, the Applicant's expert, hir.

Schwartz, testified that the current world SWU demand was about 28 million SWUs per year. He stated that ERI's latest mid-range forecast projected that SWU demand would grow slightly between 1995 and 2000, increasing to about 356 i

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l 31 million by 2010 and approach 32 million SWUs per year by 2015. He gave ERI's current low-range SWU demand forecast for the years 2000, 2010. and 2015 as 27 million,26 million, and 22 million SWUs per year, respectively, and the high-range forecast for these years as 31 million, 38 million, and 42 million SWUs per year, respectively. Regarding the SWU requirements of the United States, the Applicant's expert testified that current U.S. demand was l

9.5 million SWUs per year. He further stated that ERI's mid-range forecast projected that demand was not expected to exceed 9.5 million SWUs through the year 2010, after which demand will decline. In ERI's high-range forecast,

' l demand was not expected to exceed i1 million SWUs per year. In contrast, ERI's low range demand forecast for the United States showed a decline into the future. (Schwartz-LeRoy at 22-23,25-26,27 fol. Tr. 383; Tr. 393,432.)  ;

hir. Schwartz explained that ERI's 1990 SWU world demand forecast set out l in the Applicant's ER for the years 2000,2005, and 2010 was approximately i 13%,18%, and 22% higher, respectively, than ERI's current mid-range forecast.

He attributed ERI's overestimation of demand to the very significant reduction in the prospects for Russian expansion of its nuclear power program that came to  !

light in the West in the 1990s along with the recession in Europe during the early i 1990s that led to a reduction in electricity production and reduction in the nuclear l role. (Schwartz-LeRoy at 26 fo!. Tr. 383; Tr. 433-34.) hir. Schwartz testified l that, because ERI does not currently see any substantial nuclear generating i growth in those parts of the world, accurate forecasting today depends upon the )

extent to which existing plants will centinue to operate. (Tr. 434.) i hir. Schwartz explained that ERI's world SWU forecasts are based upon three corresponding projections of nuclear electric generation capacity representing low , mid , and high-range nuclear power growth scenarios to take into account the uncertainties invol ed in long term predictions of economic and political l climates around the world. (Schwartz-LeRoy at 23-24 fol. Tr. 383.) He stated l that ERI's worldwide mid-case growth forecast shows an average nuclear growth l l capacity rate of 1.0% through the year 2010, dropping to about 0.3% thereafter as the effects of plant retirements begin. This same forecast shows no growth I of nuclear capacity in the United States through the year 2010, followed by a l decline of 2.4% per year as older plants retire. The mid-case forecast for the United States assumes that, in the next 7 to 15 years, six nuclear power plants will retire prior to the expiration of their operating licenses. hir. Schwartz asserted that ERI's mid-case growth forecast is consistent with current trends and he considers it the most likely scenario at the present time. (Schwartz-LeRoy at 24, 54 fol. Tr. 383; Tr. 432.) ERI's high-case growth forecast for nuclear generation is generally .nnsistent with announced utility schedules for identified nuclear plants in the nddierm and projects an annual growth rate of

, approximately 2.2% on a world basis through the year 2015, which is twice the growth rate of ERI's mid-case growth forecast. The high-case forecast for  ;

I 357 1 1

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the United States shows life extension for some reactors beyond their original licenses and, in later years, some new reactors. (Schwartz-LeRoy at 25 fol. Tr, 383; Tr. 41617.) ERI's worldwide low-case growth forecast indicates a future lack of support for the nuclear option by most countries, including the United

- States, which results in no annual growth on a world basis through 2010 followed by a decline of 2.6% per year. Under this scenario, the addition of new nuclear generation capability beyond those units already nearing completion is limited to Japan, Korea, and France and, in the United States, it is assumed that seven plants.will shut down prematurely over the next 8 years. (Schwartz-LeRoy at 25 fol. Tr. 383; Tr. 432.)

Because the demand for SWUs is directly dependent on the number of reac-tors requiring nuclear fuel services, the Intervenor's expert also testified regard-ing the number of nuclear reactors likely to be operating in the future and the various factors that needed to be taken into account in various demand projec-tions. According to Mr. Osterberg, estimates of the number of nuclear reactors likely to require enrichment services have suffered from extreme optimism, start-ing with the 1973 Atomic Energy Commission estimate that by the year 2000 nuclear reactors would total 1,200,000 megawatts, more than ten times what we will see in that year. (Osterberg at 7-8 fol. Tr. 451; I-DO-24 at 22.) He testified

. that he had never seen an estimate for how many nuclear power plants are going to exist or how many SWUs are going to be needed that was too low. Rather, such estimates are always too high. (Tr. 791.)

Mr. Osterberg introduced EIA's 1994 nuclear capacity estimates and noted that (hese forecasts had been revised downward over time. (I-DO-19; Osterberg  ;

at 8 fol. Tr. 451.) He noted that EIA's 1994 forecasts reduced its previous l year's 1993 high-case capacity projection for the year 2010 by 17 Gigawatts i electric ("GWe"). Unlike ERI's forecasts, the EIA presents only low- and high, case scenarios. EIA's then-latest December 1994 low-case forecast projects that I worldwide nuclear capacity will increase slightly from 338.1 GWe in 1993 to 354.7 GWe in the year 2010, representing an annual growth rate of 0.3%, while  ;

its high-case projection goes from 338.1 GWe to 410.3 GWe in the year 2010, 'l representing an annual growth rate of 1.1% (I.DO-19 at ix x; Osterberg at i 8 fol. Tr. 451.) Mr. Osterberg testified that EIA's 1994 low-case projection failed to take into account the 1994 year-end action of the Tennessee Valley Authority ("TVA") to halt construction of three nuclear units, so that EIA's low-case estimates are high by approximately 3.6 GWe. With respect to the United States EIA's 1994 forecast projects that nuclear capacity will decline slightly from 99.0 GWe in 1993 to 90.7 GWe in the year 2010 in its low case and from 99.0 GWe in 1993 to 94.7 GWe in the year 2010 in its high case. Again, however, EIA's domestic forecast did not take into account TVA's action halting three units. (I DO-19 at x; Osterberg at 9 fol. Tr. 451.)

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l The Intervenor's expert indicated that EIA's nuclear capacity estimates also remain too high because they do not properly take into account the early retirement of currently operating nuclear reactors. For the same reason, he

stated that ERI's worldwide SWU estimates remain too high even though in its 1994 forecast ERI reduced its estimate almost 40 million SWUs per year for the 1994-2005 period. He leveled the same criticism at ERI's domestic SWU demand that continues to rise over time. (Osterberg at i1 fol. Tr. 451.) Noting his agreement with Wall Street fmancial analysts' predictions in 1993 that over the next several to 10 years up to twenty-five operating nuclear reactors could close prematurely (I-DO-27 at 1), Mr. Osterberg cited the following factors that led him to conclude domestic nuclear plant closings will be substantial l and higher than ERI predicts

(1) continued high operating and maintenance I

("O&M") costs for nuclear plants that since 1987 have exceeded the costs for I coal-fired plants that are nuclear technology's main competitor (Osterberg at 12 fol. Tr. 451; I-DO-19 at 39-40; l-DO-28 at 4); (2) changes in historie utility i regulation that have forced utilities to demonstrate how they can produce energy services most cheaply (Osterberg at 13 fol. Tr. 451; I-DO-19 at 7,9); (3) direct competition for utilities from practices like retail wheeling that could lead to stranded investments in nuclear plants with high O&M costs (Osterberg at 14 fol. Tr. 451; I-DO-30); and (4) specific events in the life of a nuclear plant such as the need to replace a steam generator (Osterberg at 15-16; I-DO-28 at 8; I-3 DO-31.) Finally, the Intervenor's expert testified that, for the foreseeable future,

new domestic electric generating demand will be met by small- to medium-size gas turbine units, not new nuclear or even coal baseload units, and that efficiency j (i.e., producing "negawatt" hours not kilowatt hours) will be responsible for a i

large share of the energy services in the future. (Osterberg at 17-18 fol. Tr. 451; I DO-32.)

Like the forecasts of SWU supply of the Applicant and the Intervenor, their estimates and forecasts of (1) nuclear generation capacity and rates of growth or i decline and (2) SWU demand do not precisely correspond. Indeed, because of j the manner in which the witnesses for the Applicant and the Intervenor presented 4

their demand estimates and forecasts, their respective projections cannot be directly compared. What is clear, however, is that their estimates and forecasts are not widely divergent and there is no significant disagreement that current and future demand requirements for SWUs are far less than the production capacity for enriched uranium and equivalent SWUs from, inter alia, down-blended HEU. Once again, we cannot find that either the estimates or forecasts relied upea by the Applicant or the Intervenor are unreasonable. For present purposes it is sufficient to find, as we do, that current and future worldwide demand requirements for SWUs are substantially less and will continue to be substantially less weli into the future than the worldwide production capacity i

for enriched uranium and supply of SWU equivalents. Further, we find that the s

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current and future demand requirements for SWUs within the United States are substantially less and will continue to be substantially less well into the future than domestic production capacity for enriched uranium and the supply of SWU equivalents.

We note that in resolving this market demand question and this contention, it is not necessary to choose among the various premature nuclear plant closing scenarios forecast by the experts for the Applicant and the Intervenor - the most pronounced area of disagreement between them. The Applicant's high-case forecast for the United States includes life extension for some reactors and 1 some new reactors in the later years. Its mid-case forecast, which hir. Schwartz l found most likely, and its low-case forecast include six plant closings over the next 7 to 15 years and seven plant closings over the next 8 years. respectively.

The Applicant's expert also mentioned a 1994 forecast of eight to ten plant closings over the next 4 to 6 years by former NRC Commissioner Asselstine, who is currently a senior vice president of Lehman Brothers. (Tr. 432-33.) The Intervenor, on the other hand, relies upon a 1993 forecast by other analysts at then Shearson Lehman Brothers who estimated up to twenty-five plant closings in the next 10 years. (I-DO-27 at 1.)

Although we are a bit dubious of hir. Schwartz's claim that ERI's forecasts 1 are "quite consistent" (Tr. 433) with those of former Commissioner Asselstine, )

w hat is clear is that there is general agreement there will be a significant number

)

of premature nuclear plant closings in the United States in the coming years, i Indeed, even under the Applicant's concededly unlikely high-case forecast where there are no plant closings, demand does not exceed supply. Nor would that situation change under any of the other likely permutations mentmned by the ,

witnesses. Obwously, if the Intervenor's forecast ultimately proves correct, the already significant and substantial excess supply of SWUs over demand will )

only be further exacerbated.

c. Competition and Character of Market As should hardly be surprising in a market where supply greatly exceeds demand requirements, the market for SWUs is very highly competitive. The Applicant's expert as well as the expert witness for the Intervenor both agree on the general degree of competition in the market for enrichment services and the character of the market itself.

'Ihe Applicant's expert, hir. Schwartz, testified that the market for enrichment services "very much is an international market." (Tr. 398.) He also unequivo-cally stated that the international market for enrichment services today "is very highly competitive." (Tr. 399.) Consistent with this testimony, hir. Schwartz also testified that USEC's customers in the United States include about 85% of American utilities with requirements of 8 million SWUs per year as well as a 360 t

predominant share of up to 3.5 million SWUs per year of the requirements of Japan, South Korea, and Taiwan. He stated that USEC also had customers in France, Germany, Mexico, Sweden, Switzerland, Spain, and Yugoslavia that ac-count for about 750,000 SWUs per year. (Schwartz-LeRoy at 16 fol. Tr. 383.)

The Applicant's expert pre:licted that over the long term he expected USEC would be able to retain c' ; t 75% of its foreign business. (Tr. 413.) Further, he testified that 15% of the demand in the United States currently was met by suppliers other than USEC and he forecast that, by the year 2000, USEC will retain only 45 to 75% of its United States utility business, losing that market share to Urenco, Eurodif, Russia, and LES. (Tr. 396-97.) Finally, he noted that

)

Urenco had been able to compete in the United States "[vjery effectively." (Tr.

431.)

Similarly, the Intervenor's expert, Mr. Osterberg, testitied that although in the past DOE maintained a monopoly position as world supplier of SWUs, that situation has completely changed so that today the SWU market is competitive and worldwide. (Osterberg at 23 fol. Tr. 451.) Among other things, he referenced a 1987 Report of the General Accounting Office concluding that the enrichment services market was international (I DO-34 at 21) and a June 1994 Nukem Market Report article about Urenco that stated "[clompetition in the global SWU market is becoming fierce as the nuclear fuel market continues to contract"(I-DO-21 at 8) and quoted Dr. Klaus P. Messer, the Chief Executive of Urenco, as declaring that "[t]he current enrichment market is so limited that if you want to expand, you have to take business away from another enricher."

(Id. at 9; Osterberg at 23-24 fol. Tr. 451.)

i Further, that article recites that Urenco has 9% of the global market, USEC i 43%, Eurodif 23%, Russia 21%, and a few minor players account for 4%.

(I-DO 21 at 9.) in his testimony, Mr. Osterberg criticized the Applicant's discussion in its ER amendments and the Staff's discussion in the FEIS on the need for the facility because they assume there is a domestic market of SWUs that needs additional competition when, in fact, the market for SWUs is international and already very competitive. (Osterberg at 5 fol. Tr. 451.) '

He asserts that because the market is international and depends on both the supply of ell current producers of SWUs and the various alternatives to new SWU production, events outside the United States will greatly impact the LES project. Thus, he testified there is no such thing as an exclusively domestic market because domestic utilities that need to purchase enrichment services do not limit their purchases to the United States, but buy worldwide. According to Mr. Osterberg, the worldwide enrichment market is highly competitive and will continue to be so for the foreseeable future. (/d. at 24-25; I-DO 21 at 9.)

On the basis of the record before us, we find that the enrichment services market is international and fiercely competitive. Further, we find that the market will remain very highly competitive for the foreseeable future.

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d. Price and LES' Price Competitiveness Although the expert witnesses for the Applicant and the Intervenor generally agree that the supply of SWUs exceeds demand requirements and that the SWU market is international and very highly competitive, they disagree on the effect these economic factors will have on LES' entry into the market as a SWU supplier that, in the Applicant's words, "can and will compete on economic grounds, allowing U.S. electric utilities a competitive source of supply so that they can in turn achieve the lowest cost reliable supply of electricity to their ratepayers." (App. Exh.10 at A-3.) Stated otherwise, on the question whether LES will bring real price competition to the SWU market as an additional domestic supplier - which is the asserted benefit to be weighed against the various costs of the facility in the NEPA-required cost-benefit analysis - they are in substantial disagreement.

Ti.e Applicant's expert testified that ERI's projections of future enrichment market prices for term contracts use a methodology that combines uncommit-ted requirements with uncommitted supply in accordance with clearing price economic considerations to obtain long-term, cost-based prices. ERI's method-ology separates each supplier's facilities into production capacity increments; production-cost-based prices are then estimated in discounted cash flow analyses that account for all production costs and assume a return on capital investment.

The estimated production costs of each supplier are used in a production-cost-based clearing price model to project market prices.

Using this method, Mr. Schwartz testified that ERI forecasts that, for 1996 to 1998, average enrichment prices, in 1994 dollars, will be in a range between

$92 and $105 per SWU and, for 1999 to 2001, average enrichment prices will be in a range between $98 and $113 per SWU. After 2000, ERI projects market prices will remain relatively flat in a range between $100 and $115 per SWU.

(Schwartz-LeRoy at 29-32 fol. Tr. 383.) On cross-examination, Mr. Schwartz revealed that ERI's price-range forecast for the years after 2000 included the production of the CEC and, if the production of the CEC were not included, ERI's forecast price would be $2 to $3 higher or between $103 and $118 per SWU. (Tr. 386-87, 442.)

Mr. Schwartz also testified that the pricing agreement for Russian down-blended HEU provides that for 1994 the enrichment component of the LEU purchased by the USEC is priced at $82.10 per SWU. (Schwartz-LeRoy at 42 fol. Tr. 383.) Further, he stated that the USEC's marginal cost of production was

$55 per SWU. He indicated that USEC pays a cost of several dollars per SWU for implementing the disarmament policy of the United States at the current agreement price and predicted a future offset from the U.S. government so that ultimately USEC's blended price of a mix that also included American and Russian HEU would be about $70 per SWU. (Tr. 388, 400.)

362 A

1 Mr. Schwartz asserted that, if the price offered by LES falls into ERI's forecast price range, LES should be competitive. (Schwartz-LeRoy at 34 fol.

Tr. 383.) lie testified that the fact that there is excess supply capacity in the

' l enrichment services market is not pertinent to determining the need for the i CEC. He stated that the objective of utilities purchasing enrichment services is i to minimize their fuel costs and maximize the security of supply, so another l supplier in the United States offering services on a competitive basis would be i

. welcome. (/d. at 28.) Similarly, he asserted that the marketing of Russian llEU l 1

in the United States is not a problem with respect to LES' ability to compete

, even if all of the Russian material is sold into the market. (Tr. 427.) In like vein, Mr. LeRoy testified that LES' current projections and financial model analyses indicate that LES can reasonably expect to be competitive in the enrichment i services market within ERI's forecast price ranges and still cover its construction  !

and operation costs. (Schwartz-LeRoy at 37-39 fol. Tr. 383.) )

He Applicant's witnesses for the financial qualifications contention also j testified that LES seeks to capture 17% of the enrichment services market in the j United States by selling the full 1.5 million SWU per year output of the CEC. l (Doudiet-Arnold at 12 fol. Tr. 563.) These witnesses stated that the $816 million )

hard construction costs of the CEC (in 1992 dollars) would be financed using a debt-to-equity ratio of between 60/40 and 70/30 with 60 to 70% of the funds borrowed from international banks and the remaining 30 to 40% equity raised from the limited partners of the LES partnership. The Applicant's witnesses indicated that the financing would be for a 10-year term and they forecast an 8.5 to 9% interest rate. (/d. at 14,17, 28; Tr. 654, 656.)  ;

In this regard, Mr. Schwartz asserted that the LES would be able to compete, i

even though it was carrying the capital costs of a new facility, because the i i operating costs of the CEC centrifuge facility are extremely low compared to l gaseous diffusion plants. (Tr. 424.) He then indicated, without defining his terms, that "[ijts production costs are approximately 25 percent of the production ,

- excuse me - the operating costs of its competitors." (Tr. 425.) The Applicant's expert stated that because centrifuge enrichment producers have l most of their costs on the " capital side" as opposed to the " operating side" it gives such pnxlucers much more flexibility to meet market pricing than enrichers using GDPs. (Tr. 508, 416, 424, 513.) On cross-examination, however, he testified that such flexibility does not mean that LES could produce SWUs  !

at lower prices because the total production costs of the CEC and gaseous diffusion producers, which include both the capital and the operating costs, are comparable. Rather, Mr. Schwartz agreed that such flexibility meant that centrifuge enrichment pmducers can offer lower prices but they will be paying

their investors less as a consequence. (Tr. 513-14.) Further, he testified that LES could sell SWUs into the market at prices as low as $60 per SWU and 363 l

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cover cll of its operating costs and debt before its profit component goes to zero.

l (Tr. 424.)

l The Applicant's expert also asserted that a new entrant into the enrichment services market does not need to sell substantially below the market price to enter the market. According to Mr. Schwartz, this is so because the level of competition that exists today, unlike 10 years ago, has resulted in pricing being much closer to the cost of production than in the past so that margins are now i smaller. (Tr. 508.) Mr. Schwartz said that an existing supplier could drop its price in an attempt to keep competitors out but it could not do that for all of its sales because the supplier must cover its fixed cost. He stated that a supplier can compete for a particu:ar transaction and win it with lower prices but a supplier cannot continuously do that for all transactions. (Tr. 509.)

With regard to the particular competitors now in the enrichment market, Mr.

Schwartz asserted that the European competitors will not revert to standard competitive tactics and drop their prices to preclude LES from entering the i market because there is a currency exchange rate risk for them and he "would  !

expect that there will be a limit to how much they are willing to tie up with U.S. business to control that risk." (Tr. 414-15.) With respect to the USEC, Mr. Schwartz testified that, based on history, he did not expect it to act to keep LES out of the market. (Tr. 415.) He indicated that, in the past when prices were much higher than today, USEC's predecessor, DOE, dropped its prices I very drastically in the face of competition from the then new market entrants.

Eurodif and Urenco, but those producers were, nevertheless, able to compete.

(Tr. 430.) He stated that he did not "see a situation where the current market  !

competitors are going to drop their prices substantially below where they are I today to keep LES from competing." (Tr. 430-31.) '

Finally, Mr. Schwartz testified that based on what ERI had seen over the last 10 years, each increment of competition is very important and it is the l

willingness of individual suppliers to go after enrichment services that keep '

prices from rising. (Tr. 416.) He stated that a new competitor would not cause prices to be lowered further; instead, prices would be maintained at the levels I he predicted, thereby forestalling future price increases caused by the lack of f competition. (Tr. 401-02.)

The Intervenor's expert testified that, in a market with an oversupply of SWU capacity and a shrinking demand, it is possible for a very low-cost producer to find a share of the market. (Osterberg at 19 fol. Tr. 451.) He emphasized, however, that a new producer has to have substantially lower costs to get ,

into one of these markets. (Tr. 493-94.) Mr. Osterberg asserted that LES is unlikely to fill the role of a very low-cost producer because, even assuming the CEC's low production costs, LES will be carrying the heavy capital costs of an undepreciated plant. (Osterberg at 19 fol. Tr. 451.) In this regard, he contrasted the CEC with current SWU producers, all of which carry lesser 364 l

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1 capital costs because their plants are older and are partially or fully depreciated.  !

hit. Osterberg noted that the Russians will continue to be the low-cost producer of SWUs and that Urenco, which uses similar technology to that proposed by LES, can produce more cheaply from partially depreciated plants in Europe than the CEC. He stated that Eurodif will likely continue to compete using its ,

older gaseous diffusion plant, and the USEC plants, which are quite old and j substantially depreciated, will continue to be competitive as they do not carry a large burden of capital costs that must be amortized. (/d at 20.) As one of Intervenor's exhibits shows, Eurodif's GDP began operating in 1982, while  :

Urenco's three European plants started up between 1975 and 1985, and USEC's l Paducah and Portsmouth GDPs were completed in 1951 and 1956, respectively.

(1-DO-23 at 3-4.)

hit. Osterberg further testified it is a fundamental economic principle that the already constructed plants of LES' competitors can be expected to continue to produce as long as something above marginal costs is being covued. j Consequently, it is not low operating and maintenance costs that dictate whether 1 the CEC has the ability to compete successfully, it is the CEC's total costs -

including paying its lenders for its construction costs - that will determine the j CEC's ability to compete because it has not yet been constructed hir. Osterberg j concluded that logic dictates that, even with low operating and maintenance I costs, the CEC is unlikely to be a successful competitor with producers that do j not have such heavy capital costs. (Osterberg at 20-21 fol. Tr. 451.)

J 4

Similarly, hir. Osterberg stated that LES' claim that the level of demand and 1 supply will not affect LES' position as a competitor overlooks the fact that the l CEC will not exist until LES constructs it. According to h1r. Osterberg, because supply and demand are so far apart in the enrichment market, LES will not get the opportunity to construct the CEC because the project is too risky to attract

tenders at a rate of return low enough for the p;oject to proceed. (Tr. 528-29, 1

536-37, 543-44. See also I-DO-44, Exh. D at D-4.) In that regard, he asserted l that LES' estimated interest rate was unreasonably low. (Tr. 537,539.) Because l supply and demand in the relevant market are so far out of kilter, he indicated l that hypothetical questions that assume the construction of the CEC and then seek to measure the impact make an assumption that does not make economic sense. (Tr 529-30.)

hir. Osterberg testified there were several answers to the question of the amount of price competition LES would bring to the enrichment services market.

(Tr. 531.) He stated that, on the one hand, "LES is saying that it isn't going to make it very much more competitive at all with the prices staying about the same as they are." (Tr. 530.) He asserted that LES' own projections show that LES' entry into the market will have very little effect on price (Tr. 539-40) and he stated that a $3 differential in LES' forecast range of $100 to $115 per SWU 365 l

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in the years after 2000 on an estimate that is 6 years out "is kind of like [ pocket l change." (Tr. 531.)

hir. Osterberg stated, on the other hand, there is also the possibility of a I big competitive effect if prices are driven down substantially by the entry of a new supplier at a time when there is already excess supply in the market. l

(/d.) According to the Intervenor's expert, the assumptions that go into the l pricing model determine which of these two scenarios will occur. Because of l the number of assumptions that must be made in predicting price, he stated that it is much harder to predict than predicting just supply or demand. hir.

Osterberg said that to forecast price, it is necessary to first predict supply as l well as demand and also predict the behavior of the other market participants on the supply curve. He stated that, here, the market behaviors of USEC, Eurodif, l Urenco, and the Russians all play a part in forecasting price and it is difficult to predict their behaviors. htr. Osterberg declared that this difficulty in predicting competitor behavior translates into another of the risk factors he believes will preclude the facility from ever being built in this market. (Tr. 531-34, 540-42,545.) To illustrate the size of the risk, he pointed to the 22% differential between ERI's 1990 and 1994 demand forecasts for the year 2010. He noted that while predicting demand is easier than predicting price, a similarly sized error in the price forecast would have a very, very large negative effect on LES.

(Tr. 540-41.) Additionally, he disagreed with ERI's pricing model assumption that USEC and the other producers would allow LES to take away a portion of the market without fighting. (Tr. 540, 495-96.)

hlr. Osterberg testified, however, that if prices were significantly driven down by 1.ES' entry into the market, LES may not be able to pay off its lenders. (Tr.

530, 533.) Indeed, he concluded it was not only possible that LES would not survive, but if prices were driven down far enough, other producers would fail as well. (Tr. 530,532.) Finally, with respect to currency exchange risks influencing foreign producers' behavior toward LES, hir. Osterberg testified that currency exchange rate risks can be easily and re dily taken care of using the foreign exchange markets and, therefore, such risks are not significant. (Tr. 546-48.)

It is apparent from the record before us that the central benefit of the CEC identified by the Applicant in its ER and the Staff in the FEIS is that LES will bring real price competition to the enrichment market as a domestic supplier.

Indeed, price competition is the quintessence of economic competition and, i l

as the record in this proceeding also demonstrates, that asserted benefit is quantifiable. Yet here, neither the Applicant nor the Staff has quantified the effect of such price competition on the enrichment services market "to the fullest extent practicable," as required by the Commission's regulations. 10 C.F.R. Ql 51.45(c), S t.71(d). See supra p. 348. Therefore, it is necessary that the FEIS include a quantification of this assened benetit of the CEC so that factor can be weighed against the various costs of the facility in striking the 366 r

\

required cost-benefit balance. As the record as a whole shows, however, when

, this asserted benefit of the CEC is quantified, in order for it to withstand scrutiny as a " benefit," a significant qualification must be appended.

The Applicant's expert, Mr. Schwatz, testified that if the price offered by LES fell into ERI's projected competitis e market price range, then LES should

, be competitive. Similarly, Mr. LeRoy testified that, according to LES' current 4

projections and financial model analyses, LES can reasonably expect to be i competitive in the enrichment serviaes market within the market price range 4 provided by Mr. Schwartz and '"'I. L5: beMg able to be competitive within a forecast price range is not equivalent to bringing real price competition to the current and future enrichment market - the asserted benefit of the CEC.

3 As we have already found, the enrichment market is an international one and fiercely competitive among four major producers with enrichment capacity and j SWU equivalents far exceeding current or future forecast demand. Moreover, t

that demand is essentially inelastic. (Osterberg Tr. 491.) This combination of factors leads us to conclude, contrary to the Applicant's assertion, that excess supply over demand in the enrichment market is highly pertinent to determining the benefit the CEC will provide. These market factors have led to what the Applicant's witness himself characterized as, and we already have found is, a l very highly competitive market. And, in order to bring real price competition to 4

such a market, LES must bring to it significantly lower costs that translate into significantly lower prices. LES cannot merely be competitive with the already established producers within the forecast price rnnge and get into the market.

Although Mr. Schwartz testified that the CEC's centrifuge technology gives them low operating costs and this, in turn, gives LES market pricing flexibility, he also conceded that LES' total costs of producing SWUs, which includes operating and capital cost, were comparable with gaseous diffusion enrichers.

This last point is important because, as the Interventor's expert economist

, correctly points out, the Applicant must borrow a large amount of capital to finance construction of the CEC, With the current and future enrichment services l'

market forecast showing significant oversupply, the proposed facility presents substantial investment risks (i.e., lending risks), thereby raising the investment return (i.e., interest rate) the project must provide to attract financing. This, in turn, raises the proposed project's costs, thereby lessening the likelihood that the CEC will bring real price competition to the enrichment market.

indeed, contrary to the Applicant's proposed findings that paint Mr. Osterberg as taking numerous incompatible positions with respect to the effect of LES' entry into the enrichment scrnees market (App. P.F. at i17-22), his testimony, in context, is not contradictory. Rather, Mr. Osterberg correctly points out that ther- is not a single answer to the question of the effect of LES' entry

, into the market because the answer depends upon the assumptions made in the

, pricing model, including predicting the competitive behavior of all the market i

. 367 a

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competitors. As aheady indicated, Mr. Osterberg disagreed with a number of the Applicant's price model assumptions and stated that the uncertainty l surrounding these assumptions translates into such significant investment risks

that the CEC will not be built in the present market. But even without I accepting the Intervenor's view, the Applicant's own price projections show l the exceedingly minimal impact the CEC will have on price competition in the enrichment services market.

The Applicant's expert testified that ERI forecast that average enrichment j prices, in 1994 dollars, for 1999 to 2001 will be in the range of $98 to $113 per SWU and this forecast did not include any of the CEC's production. After 4 the year 2000, Mr. Schwartz testified that ERI forecast that average enrichment prices will remain relatively flat in the range of $100 to $115 per SWU and this forecast included CEC's production. He revealed on cross-examination that, in the years after 2000, ERI's forecast price would be $2 to $3 higher without CEC's production included. As the Intervenor's expert economist pointed out, however, this mathematical differential in the modeled price is very small in the context of a price model that is forecasting a $15 price range 6 years out. We agree with his characterization that such a difference is " pocket change" in light of the inherent uncertainties in forecasting price that many years in the future.

Further, because of the already fiercely competitive nature of the current and future enrichment market, we do not find credible the Applicant's assertions that the market price differential could be greater than $2 to $3 because of the lack of competition without the CEC.

Furthermore, we find that the Applicant's price model, which models supply, demand, and the competitive behavior of the other market participants on the supply curve, makes assumptions about the behavior of the other market participants that are unrealistic and not credible. For example, the Applicant asserts that, based on the history of USEC's predecessors, USEC will not act aggressively to keep LES from entering the market. But the USEC was established by Congress in the Energy Policy Act of 1992 specifically for the purpose of operating "as a business enterprise on a profitable and efficient basis,"

42 U.S.C. Q 2297(a)(1), and is charged with setting the price for its services on a basis "that will allow it to attain the normal business objectives of a profitmaking corporation." 42 U.S.C. Q 2297c-1(a). To assume that the less than businesslike practices of the old Atomic Energy Commission and DOE in selling enrichment services will continue relative to LES and a new market entrant, flies in the face of the USEC's congressional mandate. Rather, we find that the special report on USEC published in Nuclear fuel, which was admitted into evidence pursuant to the stipulations of the parties, reflects more accurately how USEC will operate.

In that report, William Timbers, the head of USEC, is reported as indicating that "the new corporation will operate with many fewer employees than DOE had and will aggressively market SWU and other services. Unlike DOE, he says, 368

which relied on a one-size-fits-all contract, the USEC aims to tailor its contracts to individual customer's needs." (1-DO-23 at 2.) Further, that report states:

Tirnbers proclairned the ditference between the USEC and its predecessor would be as distinct as night and day. Ile said the USEC would offer as many contract arrangenw:nts as needed to meet customers' needs and that it would have prices as competitive as any other company in the field. "USEC is in busmess to make a profit and satisfy its customers." said Timbers. "At USEC, customer satisfaction is ' Job 1."

(/d. at 8.)

Similarly, we can give little credence to the Applicant's assertion that the European producers will not revert to standard competitive practices to keep LES from entering the market and taking their respective market shares because currency exchange risks limit those competitors' willingness to compete for American business. Not only is the currency exchange risk easily taken care of by using the foreign exchange markets, but the Applicant's own witness forecast that by the year 2000 USEC, which currently has an 85% share of American enrichment requirements, will retain only 45% to 75% of its market share, losing it to Eurodif, Urenco, Russia, and LES. Performing the simple mathematics associated with the Applicant's projection demonstrates the currency exchange risk is not a significant deterrent to European producers seeking to fill American demand requirements. Similarly, this forecast refutes the proffered notion that domestic utilities would rather not deal with foreign producers.

4. Board Conclusion Regarding Adequacy of NEl% Cost Benefit Need Analysis Based upon the record before us, we conclude that the actual benefit of the CEC is not accurately represented by the Applicant in the ER and the Staff in the FEIS and the discussion of need in the FEIS is inadequate. Specifically, we find that contrary to the conclusion of the ER and the FEIS, the CEC merely will be a fifth producer whose total costs of producing SWUs are comparable to the other market competitors in an already very highly competitive market where the current and future supply of SWUs far exceeds current and future demand.

Consequently, rather than bringing the benefit of significant price competition to the enrichment services market as an additional domestic supplier, the evidence before us clearly shows that, when quantified, the CEC will have little, if any, effect on price competition in the enrichment services market.

'lherefore, pursuant to 10 C.F.R. 5 51.102, the discussion in the FEIS on the need for the facility is hereby supplemented by our decision on this contention and the underlying adjudicatory record. See Philadelphia Electric Co. (Limerick Generating Station, Units I and 2), ALAB-819, 22 NRC 681, 369 l

706 (1985). Further, the benefit of competition as we have described it above is the benefit that must be weighed against the various costs of the project in the NEPA-mandated cost-benefit analysis. We reiterate, however, that NEPA is a procedural environmental full disclosure law and it does not dictate any particular substantive outcome as a result of the cost-benefit analysis.

a in addition to the foregoing findings on contention JA, we have carefully considered all of the other arguments, claims, and proposed findings of the parties on this contention and find that they are without merit or that they are not material to this contention.

E. No Action Alternative On its face the Intervenor's contention K challenges the adequacy of the Applicant's ER for failing to include any discussion of the no-action alternative 8 As we previously explained, however, the contention also is deemed to challenge the sufficiency of the Staff's treatment in the FEIS of that same alternative. See supra pp. 337-38.

In the FEIS, the Staff's discussion and analysis of the no-action alternative is set forth on three-quarters of a page in five brief paragraphs. (See Staff Exh, 2 at 4-77.) First, the Staff indicates that the no-action alternative is the denial of the NRC license, so the impacts, both positive and negative, discussed in the previous 76 pages of chapter 4 of the FEIS regarding the various environmental sin response to the Intervenor's contenbon as initially framed. both the Applicant and the Staff argue that the Comrr.ission's regulations do not require the Applicant to include any discussion of the no-action alternauve in the environnental report. Although the Commission's regulauon presenbing the contents of the environnrntal report does not exphcitly direct that the Apphcant's ER address the no acuon alternauve, (any nue than that same regulation contains an exphcit direction that the ER address the need for the facility, ser supra note SL that is the clear import of the regulauan and the nmst reasonable reading of ir. Specihcally,10 C.ER. 5 5160 requires that a licenac appbcant for the construction and operauon of a uramum ennchnwnt facihty must prepare an envimnmental report contaming the informuuon specified in 10 C F R. I 5145. In turn, that regulanon requires the environmental report to discuss (allternauves to the proposed acuon The discussion of alternauves shall be sufficiently complete to aid the Commission in devek>pmg and expkinng. pursuant to secuon 102(2XE) of NEPA, "appropnate alternatives to recomnended courses of accon m any proposal which involves unresolved conflicts

< concerning alternative uses of available resources." To the extent pracucable, the envimnmental impacts of the proposal and the alternatives should be presented in comparative form.

10 C F R. 5 51.4kbX3).

The study and discumon of alternatives is the hnchpin of the EIS process and it is well settled under NEPA th.t "lijn considenng proposed governrnent action, which significantly affects the quahty of our environment, the decision-makers should have placed before them dunng the decision-malung process a complete statement of the effect of the proposed accon includmg the comparanve effect of no accon at all" Matsumotg 568 F 2d at

=

1290. See Caherr Ch/fs',449 F 2d at 1114 Indeed, the Comnussion's regulations implementing NEPA state that among the alternatnes the IT.!S must address is the alternatne of no accon. 10 C ER. Part 5l. Appendix A; 2

10 C.ER. il 51.70(b), 3190. See ale 49 Ird. Reg 9352. 9353 (1984), Because NEPA and the Comnussion's implemenung regulauons reqmre the staff to address the no-acuon alternative in the FEIS, and the Comnuuion's regulauons, in turn, require the Apphcant to discuss in the ER the alternatives to the proposed action that will help the Staff to develop and explore the ahernauves that must he discussed under section 102(2XE) of NEPA, secuan 5145(b) necessarily requires the Appheant to address the no acuon ahernative in its ER The arguments of the Applicant and the Staff to the contrary are without ment.

370 1

7.

1

consequences of the project would be eliminated and the site is assumed to revert to its former use. Second, it states that, environmentally, the continuation of logging on the site at the same rate as before would allow soil erosion, surface water contamination, and an imbalance of biological diversity. Third, the Staff states that, socioeconomically, the impact of the no-action alternative would nerpetuate the depressed economic conditions in the area and the region would continue to depend upon its current commercial, industrial, and agricultural base.

Fourth, it indicates that, statewide, the impact of the no-action alternative is the failure to obtain, largely through multiplied effects,450 jobs per year during construction and 600 jobs per year during operation. Fifth, and finally, the Staff states that, nationally, the impact of the no-action alternative is that there would be no change in the pressure on other enrichment suppliers to maintain competitive positions, the loss of an additional domestic supplier, and the loss of the opportunity to substitute an energy-efficient process for the older gaseous diffusion process. (Staff Exh. 2 at 4-77.) The Staff reiterates these same points in a five-sentence discussion of the no-action alternative in the introductory summary. (/d. at xviii.) Further, at the beginning of chapter 2 of the FEIS the Staff, in three sentences, reiterates that the no-action alternative is the denial of the LES license application and consequently LES could either sell or lease the site for agricultural, timbering, or other industrial uses, in which case Parish Road 39 transversing the property would not need to be relocated. (Id. at 2-1.)

The Staff asserts that its treatment of the no-action alternative is sufficient because the no-action alternative merely refers to the situation where no license is issued and the CEC is not built, so neither the benefits nor the impacts are realized. (Horn re K at 3-4 fol.Tr. 500; Staff P.F. at 79.) Similarly, the Applicant argues that the Staff has addressed adequately the issue because the no-action alternative is merely the converse of the cost-benefit analysis. According to the Applicant, the no-action alternative would involve simply reversing the cost-benefit analysis, such that the benefits of going forward with the project become costs of no action and the costs associated with the project became benefits.

(Schwartz-LeRoy at 58-59 fol. Tr. 383; App. P.F. at 125.)

The Intervenor, on the other hand, asserts that where, as here, there is no demonstrable need for the facility, the no-action alternative becomes even more important. According to the Intervenor, if the CEC is not built, the potential adverse environmental effects on air, groundwater, surface water, and other natural resources will be eliminated and an additional 120,000 tons of toxic, radioactive tailings will not be added to the waste inventory because the down.

blending of HEU, whether foreign or domestic, does not result in any more toxic wastes. 'Ihus, the Intervenor argues that the FEIS is inadequate because the Staff should have reviewed and weighed in its cost-benefit analysis all of the individual impacts that would not be incurred if the CEC were not built. Finally, the Intervenor states that because the Staff failed even to recognize the negative 371 l

1 impacts of the CEC on the neighboring communities, it is not surprising that the Staff analysis of the no. action alternative is entirely deficient. (Osterberg at 27-28 fol. Tr. 451.) [ CANT's] Proposed Findings of Fact and Conclusions of Law Regarding Contentions J.4 and K. Need and No Action (May 26.1995) at 34-35 [ hereinafter CANT P.F.1 We must judge the adequacy of the Staff's treatment of the no-action alternative in the FEIS by the rule of reason. Citi: ens Against Burlington, Inc. v. Busey, 938 F.2d 190,195 (D.C. Cir.1991); Morton, 458 F.2d at  !

837. See Seabrook, ALAB-471, 7 NRC at 486. Here, we could scarcely be accused of exaggeration for calling the Staff's treatment of the no-action j alternative minimal. In this regard, we note the sharp contrast between the l Staff's treatment of the no-action alternative for the licensing of the LES facility and the Federal Aviation Administration's ("FAA") treatment of the no-action alternative for the approval of an expansion of the Toledo Express Airport as described in the Citi: ens Against Burlington case. In that case, the court framed the issue as "whether the FAA has complied with NEPA in publishing an environmental impact statement that discussed in depth two alternatives:

approving the expansion of the Toledo Express Airport, and not approving the expansion of the Toledo Express Airport." 938 F.2d at 194 (emphasis added).

Whatever other description is attached to the Staff's treatment of the no-action alternative, it most assuredly is not "in depth."

In its sparse discussion, the Staff correctly recognizes that this alternative is the denial of a license. The Staff then states that as a consequence of not building the CEC the " impacts, both positive and negative, discussed in this chapter would be eliminated." (Staff Exh. 2 at 4-77.) Presumably, the Staff means that neither the Fenefits flowing from the construction and operation of the CEC would be reanzed nor the various costs imposed by the construction and operation of the facility would occur. But nowhere in its brief analysis of the no-action alternative does the Staff follow its own lead and even mention, much less address, the numerous avoided environmental impacts to, inter alia, surface and groundwater and air quality from not building the facility.

Most surprisingly, the avoided impact of not generating depleted uranium tails is not even mentioned. In this regard, we note that tails accumulation and disposal cannot simply be dismissed by assuming that tails not generated by the CEC would be produced by some other facility. For example, if domestic utilities import enriched uranium from foreign suppliers instead of purchasing from the CEC, the tails may have an environmental impact on the global commons, but the Commission's environmental regulations do not apply to such foreign environmental effects. See 10 C.F.R. 6 51.10(a). (Tr. 489.) Similarly, if domestic utilities use blended-down HEU that is forecast to come onto the market, no new tails or significantly smaller quantities of tails are generated.

372 1

i Yet the FEIS is completely silent on this subject. Such ave;ded environmental impacts, however, are the grist for the mill of the no-action alternative, i Rather than discussing the numerous avoided environmental impacts of the I no-action alternative and comparing that alternative to the proposed project, the Staff confines its discussion to tne negative consequences of logging if the site reverted to its former use and the negative socioeconomic effects of perpetuat-

)

ing the depressed economic conditions in the area from not creating jobs, if the {

faci!ity is not constructed. But these matters are, at most, incidental to the no- l action alternative and the comparison of that alternative to the proposed project. l The no-build option starts with the status quo, i.e., the natural and human envi-ronment as it exists before the project. Whether that environment is subjectively good, bad, or somewh,:re in between is not the principal focus of the analysis of the no-action alternative, which concerns the avoided environmental conse-quences of not building the project.' We will not speculate on why the Staff )

chose to ignore the avoided environmental impacts that must be addressed in an 1 analysis of the no-action alternative and addressed only the supposed negative environmental and socioeconomic consequences of not building the project. By not identifying and analyzing the former, however, the effect of the no build i alternative cannot properly be compared to the proposed project, thereby fatally undermining the very purpose of the no-action alternative.*

Finally, it is apparent from the Staff's treatment of the negative socioeco-nomic effects of not building the CEC in its discussion of the no-action alterna-tive that the Staff places considerable importance upon the creation of construc- l tion and facility operating jobs in its final cost-benefit analysis. Although the Intervenor questioned the propriety of the Staff's inclusion of secondary benefits

'Moreover, even if we assume for the sake of argument that the items included to the staff's brief discumon in the rEIS move to the forefront of a no-acuon alternative analysis, the negauve effects of not building the project nevertheless must be accurately and objectively stated. Most importantly, such effects soll must be addreswd along with a full dncussion of the avoided environrnental impacts Hue, for example, the Staff's desenpuon of the effects of logging on the site does not fairly correspomi with the discussion cef the botanical commumbes on the site and the ame progression of forest growth from umbering operations cont.uned in chapter 3 of the IEIS.

See Staff Exh. 2 at 3 70 to 3-76. Nor does the Staff's discu.wion of the negauve environmental effects of loggmg nennon esther that 61% of the tract was clear cut in 1990 or that M% of the tract had been umbered in the past 10 years Ud at 3 75 to 3-76,4-8), matters that scenungly have some relevance to the weight to be given such a negauve impact.

• F'urther, and contrary to the Apphcant's asseruca. the no-accon alternauve cannot be disnussed as nothing more than a simple reversal of the cous and benetit, of the project. Fur purposes of an appropriate analpis of the no-achon alternative under NEPA. every bene it of the proposed project does not autornaucally become a cost imposed by the lack of the project any more ton every cost can be turned mto a benetit. There is no simple one-to-one correlanon as the Apphcant asserts. ne,:ause the avoided environmental impacts are the focus of the j no-accon alternauve. a sigmticant winnowing of the various impacts is necessary to a proper analysis. Thus, not only as the Apphcant's characterizauon inaccurate, but the purpose of the IE!S is to place before the NRC decision-nmkers "a complete staternent of the effect of the pmposed accon including the comparative effect of no-action at all" Matamoro, 568 F.2d at 1290. That purpose is not met by merely giving the decisiot.-makers a formula for mental gymnastics. Nor is that purpow met by a post hoc runonalizauon that the benefits of the project outweigh the cows no the no-acuon alternauve can be ignored. NI.PA requires that the comparauve cost.benchi i analysis precede the agency decision, not vice versa.

4 373 l

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-, 2 - i---

in the cost-benefit analysis as part of its challenge to the Staff's treatment of the need for the-facility issue, we believe that issue is most appropriately addressed here.

In its brief discussion of the no-action alternative, the Staff states that the a

no-build option will perpetuate the depressed economic conditions in the area by failing to obtain, including multiplied effects, 450 jobs per year during

, construction and 600 jobs per year during full operations. In its cost-benefit analysis following the no action alternative discussion, the Staff concludes that '

the LES facility presents a large net benefit. (Staff Exh. 2 at 4-77.) The Staff reaches this conclusion based almost entirely upon the construction and l operations jobs created by the facility, the economic multiplier effect of those l jobs, and the tax revenues generated by the facility. (Id. at 4-77 to 4-84.) l

The Intervenor argues, however, that a line of agency adjudicatory decisions, I including Seabrook, ALAB-471, 7 NRC at 509 n.58, and Vermont Yankee, l ALAB-179, 7 AEC at 177, hold that the secondary benefits of increases in local employment and tax revenues cannot be included on the beneht side of the equation in striking the ultimate NEPA cost-benefit balance for a particular facility. For their part, the Applicant and the Staff both have ignored completely the Intervenor's argument by failing to address it.

The agency precedents that the Intervenor cites, as well as a number of additional Appeal Board and Licensing Board decisions, see Illinois Power Ca (Clinton Power Station, Units I and 2), ALAB-340, 4 NRC 27, 49 (1976);

Arizona Public Service Co. (Palo Verde Nuclear Generating Station, Units 1,2, and 3), ALAB-336,4 NRC 3,4 (1976); Public Service Co. of New Hampshire (Seabrook Station, Units I and 2), ALAB-349,4 NRC 235,269 (1976); Duke Power Co. (Cherokee Nuclear Station, Units 1, 2, and 3); LBP-76-18, 3 NRC 627,642 n.3 (1976); G.df States Utilities Co. (River Bend Station, Units I and e

2), LBP-75-50,2 NRC 419,446 (1975); Virginia Electric and Power Co. (Surry Power Station, Units 3 and 4), LBP-74-68, 8 AEC 506, 528 (1974); Georgia  ;

Power Co. (Alvin W. Vogtle Nuclear Plant, Units I,2,3, and 4), LBP-74-39,7

! AEC 895,915 (1974), clearly provide that increased local employment and tax

! revenues are in the nature of transfer payments resulting in offsetting costs and benefits. These cases conclude that as secondary benefits these items should t

not be included on the benefit side in striking the ultimate NEPA cost-benefit l balance for a facility."

We have been unable to find any decisions questioning this consistent line of holdings or the underlying rationale of these cases. Indeed, as is evident from the Appeal Board's decision in Vermont Yankee, ALAB-179,7 AEC at 177, the "This hne of caws recognizes that such factors should be noted in the EIS only for inforrnaconal purposes in

! describing the socioeconomic irnpact. See Scubrook. ALAB-478,7 NRC at 509 n.58, Verm<mt Nakee. ALAB.

179,7 AEC at 177.

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t underlying basis for this line of authority rests upon the Staff's treatment and analysis of secondary benefits in the Vermont Yankee FEIS and its exclusion of l

such secondary benefits from the benefit side of the final cost-benefit analysis. In light of these numerous agency precedents going back over 30 years requiring the exc usion of the secondary benefits of increased employment and tax revenues l from the benefit side of the NEPA cost-benefit analysis, the Staff now can change l course to include such secondary benefits only if it fully explains in the FEIS why the agency's previous position was in error and why it is advancing a new position. See Citizens Awareness Network. Inc. v. NRC, 59 F.3d 284, 291 (1st Cir.1995). But the FEIS contains no such explanation. Thus, in accordance with the Commission's instructions to us in the hearing notice, see supra p. 339, we find that the Staff's cost-benefit analysis in the FEIS incorrectly includes and heavily relies upon such secondary benefits or, alternatively, its cost-benefit analysis is inadequate for not explaining why it is now deviating from prior agency practice by including such secondary benefits in its ultimate cost-benefit analysis.

In light of our findings on contentions J.4, K, and the Staff's ultimate cost-benefit analysis and on the basis of the record before us, we cannot independently supplement or reanalyze the no-action alternative or independently balance anew the various costs and benefits of the proposed CEC project. Rather, at this point that task is most appropriately done by the Staff. The Staff, of course, may remedy the foregoing deficiencies in the FEIS in the manner it deems most appropriate. We suggest, however, that the Staff consider filing a supplement to the FEIS.

IL FINANCIAL QUALIFICATIONS  ;

A. Contention Q The Intervenor's contention Q asserts that "LES has not demonstrated that it u financially qualified to build and operate the CEC." As the basis for the contention, the Intervenor claimed that two of the partners in the project had comm.vd only to fund the venture phase and intend to leave the partnership after a license is obtained. 'Ihe Licensing Board admitted the contention, finding that the Intervenor had asserted sufficient facts to show that a dispute with the Applicant exists. LBP-91-41,34 NRC at 358.

B. Witnesses and Exhibits Consistent with the Commission's burden of proof rule and in accordance with the stipulation of the parties, the Applicant presented its case first, followed 375 i

by the Intervenor, and then the Staff. In support of its position on CANT's contention Q, the Applicant presented the testimony of James T. Doudiet and W. Iloward Arnold. (Doudiet-Arnold fol. Tr. 563.)

Mr. Doudiet is President of J. T. Doudiet Associates, Inc., of Minneapolis, Minnesota, a consulting firm that specializes in advising entities involved in various aspects of the electric and gas utility industries on strategic, financial, and regulatory issues. (Id. at 1.) Mr. Doudiet earned an MBA degree from the University of California, Berkeley, where the subject of his master's thesis was the financing of the nuclear fuel cycle. He has 23 years experience as a utility financial executive and 3 years experience as an investment banker serving from 1985-1988 as the Managing Director, Corporate Utility Finance, Dean Witter Reynolds, Inc., New York, New York. (Id. at 2, Attach.1.) He was retained by the Applicant to advise LES on various matters concerning the financing of the CEC project and he assisted in the development of the LES financing plan for the construction, operation, and decommissioning of the CEC. (Id. at 1.)

Dr. Arnold is President of LES and is responsible for the licensing and operation of the CEC and obtaining financing for the construction and operation of the CEC. (/d. at 3.) He earned his Ph.D. in experimental physics at Princeton University and over approximately 34 years held a variety of engineering, senior management, and executive positions with various Westinghouse divisions and affiliated companies. (/d. Attach. 2.) In these positions he managed a number of large projects comparable or greater in size than the CEC and was responsible for preparing construction and equipment cost estimates and completing those projects within the budgets. (Id. at 3.)

The prefiled direct testimony of Mr. Doudiet and Dr. Arnold on contention Q was admitted pursuant to a pretrial stipulation of the parties and without any further objection at the hearing. (Tr. 563.) The Applicant did not offer these witnesses as experts and, because of the stipulation on admissibility and the fact that neither the Intervenor nor the Staff raised any further objection, the Board did not rule at the hearing on the qualifications of Mr. Doudiet or Dr. Arnold as experts. Nevertheless, we find that Mr. Doudiet is qualified by knowledge, experience, training, and education to testify as an expert on the issues involved in contention Q on the financial qualifications of LES to construct and operate the CEC. Similarly, we find that Dr. Arnold is qualified by knowledge and experience to testify as an expert on the issues involved in contention Q.'2 12 Pursuant to a pretrial supulauon of the parues, the following Applicant exhibits weie adnutted into evidence relaung to contention Q: Apphcant's Exhibit 15. Letter from Dr. K. P Messer. Chief Execuuve. Urenco Ltd..

Marlow Bucks. England. to Mr. IUchard B. Pnory, Claiborne Energy services, clo Duke Power Company, Charloue, N C. (App. Exh.15). Appheant's Exhibit 21. First Anrndrnent to Agreement of Unused Partnerslup of touisiana Energy Services. LP. (nonpropnetary)(App. Esh. 21x Apphcant's Extubit 22. First Amendment to Agreerrrnt of Unused Partnership of Louiuana Energy Services. LP. (propnetary)(App Exh. 22) theremafter Arnended Partnership Agreement l, Applicant's Exhibit 26. Diagram of LES Ownerslup and LES Linuied Partners (Contmued) 376

In support of its contention Q, the Intervenor again presented the testimony of David E. Osterberg, a consulting economist. (Osterberg fol. Tr. 715.) Having previously discussed his qualifications in regard to contentions J.4 and K, we need not replow that ground. See supra pp. 343-44. The prefiled direct testimony of Mr. Osterberg on contention Q was admitted pursuant to a pretrial stipulation of the parties and without further proper objection at the hearing. (Tr. 715.) Mr.

Osterberg filed both a nonproprietary text and a proprietary text of his direct testimony. The proprietary version was received into evidence as Attachment A to his prefiled direct testimony and has remained under seal. (Tr. 983.)

The Intervenor offered Ntr. Osterberg's prefiled direct testimony as his expert opinion on contention Q and as that of an expert on energy economics. (Tr. 709, 713.) Even assuming that an objection to the qualifications of Mr. Osterberg might have been entertained in light of the pretrial stipulation of the parties on the admissibility of his prefited direct testimony covering the full range of matters involved in contention Q, the Applicant did not interpose a proper objection to that Intervenor offer. Nor did the Applicant seek voir dire to challenge Mr.

Osterberg's qualifications as an expert witness. Rather, as it did with respect to Mr. Osterberg's testimony on contentions J.4 and K, the Applicant stated that "we will let our examination speak for itself as to his status as an expert." (Tr.

714.)

We find that Mr. Osterberg is qualified by knowledge, experience, training, and education to testify as an expert on the issues involved in contention Q and that he is qualified to testify as an expert on energy economics. Although the Applicant's extremely brief cross-examination of Mr. Osterberg showed that he had never financed an energy project of the size of the CEC, directed investments in energy projects, or spoken to investors about the CEC (Tr. 715-16), these three matters certainly do not demonstrate that Mr. Osterberg was not qualified by knowledge, experience, education, or training to testify as an expert on the economic and other issues involved in contention Q.

Indeed, as we indicated at the time, the Applicant's cross-examination could, at most, be taken as aimed at the credibility of Mr. Osterberg's expert testimony and not his qualifications to offer his expert opinion on the matters involved in contention Q. Further, the parties' pretrial admissibility stipulation barred l

l (App. Exh. 26) (Tr. 706, 7651 The Appheant also introduced Intervenor's Exhibit I-DO-36, Attachment N to l LES letter to NRC dated May 1.1992 (LEs Financial informacon. nonproprietary dated May 1,1992) (1-Do- l 36), Intervenor's Exhibit I-Do-37. Attachnent H to LLS letter to NRC dated May 1.1992 (Graystone Corporate l Financial informauon. proprietary, dated May 1.1992)(1-Do-37); Intenenor's Exhibit 1-Do-38. Attachment M to l LES letter to NRC dated May 1.1992 (Urenco invesunents. Inc.. Financial Informanon. nonpropnetary, dated May )

1.1992)(1-Do-38); intervenor's Exhibit I-Do 39. Anachment K to LES letter to NRC dated May 1,1992 (Fluor Corporation.1991 Annual Report)(1-DO-39); intervenor's Exhibit I-DO-40. Agreement of Limited Partnership of Louimina Energy Services. LP., nonproprietary (1-DO-40), Intervenor's Exhibit 1-Do-44. Agreenrnt of Limited Partnenhip of Louisiana Energy services. L P., propnetary (1-Do-44)(bereinafter Partnerdup Agreement]. (Tr.

706-07.)

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l any such objection and, in any event, the Applicant failed at the hearing to l- make an objection that was proper in either form or substance to challenge Mr.

Osterberg's qualifications as an expert. Similarly, the Applicant's attempt in its proposed findings (App. P.F. at 136) to challenge Mr. Osterberg's expertise on the range of matters involved in contention Q comes too late. And contrary to the thrust of the Applicant's proposed findings (App. P.F. at 135-36), we do not find that the Applicant's earlier cross-examination of Mr. Osterberg with respect to contentions JA and K undermines in any way his testimony on contention Q, and l our previous findings in that regard are equally applicable here. With respect to his testimony on contention Q, we find Mr. Osterberg to be a credible, soundly grounded economist whose testimony is deserving of serious consideration and substantial weight." l The Staff presented the testimony of Robert S. Wood in support of its position  !

on contention Q. (Wood fol. Tr. 721.) Mr. Wood is a senior financial policy analyst, Advanced Project Directorate, Office of Nuclear Reactor Regulation.

(/d. at 1.) At the NRC, he is responsible for reviewing and evaluating the financial qualifications of license applicants and Commission licensees. (/d., l Attach. l.) Pursuant to the pretrial stipulation of the parties, and without .

any further objection at the hearing, Mr. Wood's prefiled direct testimony was l admitted. (Tr. 721.) As the agency's primary Staff regulator in the area of l financial qualifications, we find that he is qualified to testify on the Staff's determination and view of the Applicant's financial qualifications to construct and operate the CEC, l

l C. The Applicant, LES l l

Louisiana Energy Services, L.P., is the partnership formed to design, license, constru::t, own, and operate the CEC. LES is a Delaware limited partnership l consisting of four general partners that manage and control the business and have a very lirnited equity investment and seven limited partners that have invested equity but have no management control of the business. The four LES general partners are (1) Urenco investments, Inc.; (2) Claiborne Fuels, U Pursuant to a pretrial supulation of the parues. the following Intervenor extubits were adnutted mto evidence relating to contention Q- Intervenor's Exhibit I-DO-41. Duke Power Company. "1.ouisiana Energy Services. LP.:

A Report to the North Carohna Uuhties Commission"(June 20.1990)(1-IX 41); intervenor's Exhibit 1-DO-42.

Parual Transcnpt. Lotussana Pubhc Service Comnunion. Baton Rouge, Louisiana. April 26,1990 (I-Do-42); ,

intervenor's Exlubit I-DO.43. Attachment F to LES letter to NRC d.ned May 1.1992 (LES Financial Model. l propnetary) (1-Do-43); intervenor's Exhibit 1-DO-45. Table prepared by David E. osterberg or 1/3 CEC bund out, propnetary 0-tXh45). Intervenor's Exlubit 1-Do-46. office of Technology Assessment. U S Congress. Asmg

% lear Pmver Planw Manasmg Plant Life and Decununinwnmn, Sept i993, at 7440 (l-DO-46). Intervenor's Exhibit I tX147

• Electric Uuhues I:inancial Rauos Revised." Standard & Poor's Credaweek. Nov.1.1993, at 41 O t&47). (Tr. 828 ) The Intervenor aho relied upon intervenor's Exlubit I-rXA35 that wu previously admitted regardmg contenuon J.4 (Tr 452 ) Addauonally. the Intervenor rehed upon Intervenur's Exhibits l-DO-36 throug.h

-40 and I-DO-44 that were previously introduced by the Apphcant and adnutted. (Tr. 70407 )

378 l

l I

~. . - - - . . ~- . . _ - - - - .. . - - - - ,

L.P.; (3) Claiborne Energy Services, Inc.; and (4) Graystons i orporation. The overall management, operation, and control of the business is vested in the management committee of the four LES general partners with the following  ;

voting rights: (1) Urenco Investments Inc., 47%; (2) Claiborne Fuels, L.P., '

12%; (3) Claiborne Energy Services, Inc., 33%; and (4) Graystone Corporation, l 8%. (1-DO 33 at D-1 to D-3.) The Partnership Agreement, however, contains a number of special voting provisic>..s relating to the inclusion and exclusion of management committee members on certain issues and voting percentages on various matters. (I DO-44 art. V, 56 5.2, 5.3, Schedule B.)

'Ihe partnership financial interest, i.e., the equity interest and capital contri-  ;

bution responsibilities, of each of the four LES general partners for the venture '

4 phase of the project is as follows: (1) Urenco Investments, Inc., 3.33%; (2) l Claiborne Fuels, L.P.,0.88%; (3) Claiborne Energy Services, Inc., 2.37%; and I (4) Graystone Corporation,0.54%. The four LES general partners have no cap-ital contribution requirements after the venture phase for the construction of the project. (I-DO-33 at D-3, D-12 to D-13; I-DO-44 arts. XI, XIII.)

i Each of the four LES general partners, however, is itself either a first- or second-tier wholly owned subsidiary of another corporation or a limited partner-ship whose sole general partner, in turn, is a second-tier wholly owned subsidiary of another corporation. Specifically, LES general partner Urenco Investments, l Inc., is a Delaware Corporation that is a wholly owned subsidiary of Urenco Ltd., a foreign corporation formed under the laws of the United Kingdom." LES general partner Claiborne Fuel, L.P., is a Delaware limited partnership whose  ;

sole general partner is Claiborne Fuels, Inc., a California corporation that is a I wholly owned subsidiary of Fluor Daniel, Inc., also a California corporation )

that, in turn, is a wholly owned subsidiary of Fluor Corporation, a publicly held j Delaware corporation. LES general partner Claiborne Energy Services, Inc., is a Louisiana corporation that is a wholly owned subsidiary of Duke Power Com-pany, a publicly held North Carolina corporation. Finally, LES general partner Graystone Corporation is a Minnesota corporation that is a wholly owned sub-sidiary of the NRG Group, Inc., a second Minnesota corporation that, in turn, is a wholly owned subsidiary of Northern States Power Company, a publicly held Minnesota corporation. (I-DO-33 at D-2; App. Exh. 26.)

The seven LES limited partners and their respect - partnership interest and capital responsibilities are (1) Louisiana Power and Light Company,4.10%; (2)

" Urenco Ltd. is owned in equal diares by three linuted compames formed under English law, 0) hiternational Nuclear Ibels Ltd.. which is a wholly owned by Snush Nuclear Ibeh plc. which. in turn, is wholly owned by the Governnrnt of the Umted Kingdom; Q) Uhra-Centnruge Nederland Ltd.. which is wholly owned by Ultra.

Centnfuge Nederlands NY, a Netherlands corporunon, which is 99% owned by the Government of the Netherlamis with the remmmng 1% owned by four Dutch compames; and 0) Uranit UK Ltd., which is wholly owned by Uranit GmbH. a German corporation, which is owned equany by two other German compames, PreussenElektra AG and RWG AG.

379

Urenco (Investments US) Ltd.,16.21%; (3) GnV Gesellschaft fiir nukleare Ver-fahrenstechnik mbfl ("GnV"),16.21%; (4) UCN Deelnemingen B.V.,16.21%;

(5) Chiborne Energy Services, Inc. (also a general partner), 23.82%; (6) Le Paz. :nc.,6.19%; and (7) Micogen Limited III, Inc.,10.16%. (1-DO-33 at D-3 to D-4; App. Exh. 26.)

Similar to the LES general partners, the seven LES limited partners are all first- or second-tier wholly owned subsidiaries of other corporations. Specif-ically, LES limited partner Louisiana Power and Light Company is a wholly owned subsidiary of Entergy Corporation, a publicly held Florida holding com-pany. LES limited partner Urenco (Investments US) Ltd., is a corporation formed under English law and a wholly owned subsidiary of Urenco Ltd., the English parent corporation of LES general partner Urenco Investments, Inc. LES limited partner GnV is a corporation formed under the laws of the lideral Republic of Germany and a wholly owned subsidiary of Uranit UK Ltd., a limited company formed under English law that, in turn, is a wholly owned subsidiary of the Ger-man corporation Uranit Gmbfl. See supra note 14. Uranit UK Ltd. is one of the  !

owners of Urenco Ltd., the parent corporation of LES general partner Urenco l Investments, Inc. LES limited partner UCN Deelneminger B.V. is a Nether-I lands corporation and a wholly owned subsidiary of Ultra-Centnfuge Nederland l Ltd., a limited company formed under English law that, in turn, is a wholly owned subsidiary of the Netherlands corporation Ultra-Centrifuge Nederlands NV. See id. Ultra-Centrifuge Nederland Ltd. is one of the owners of Urenco i Ltd., the parent corporation of LES general partner Urenco Investments, Inc, I LES limited partner Claiborne Energy Services, Inc., is also an LES general i

partner and is a Louisiana corporation and a wholly owned subsidiary of Duke l Power Company. LES limited partner Le Paz, Inc., is a Minnesota corporation I and a wholly owned subsidiary of LES general partner Graystone Corporation, which, in turn, is a second tier subsidiary of Northern States Power Company.

See supra p. 379. Finally, LES limited partner Microgen Ltd. III, Inc., is a Cal-ifornia corporation and a wholly owned subsidiary of Fluor Daniel, Inc., which, in turn, is a first tier subsidiary of Fluor Corporation. Fluor Daniel, Inc., is also the parent corporation of Claiborne Fuels, Inc., the sole general partner of the Claiborne Fuels Limited Partnership, which is a LES general partner. (1 DO-33 at D-2 to D-3; App. Exh. 26.) Thus, of the seven LES limited partners, only Louisiana Power and Light Company has no ties to any LES general partner.

D. The Commission's Financial Qualification Regulations and the Applicable Legal Standards The Commission's hearing notice in this combined construction permit-operating license proceedmg for a 30-year materials license for the CEC states that among the " matters of fact and law to be considered are whether the 380

application satisfies the standards set forth in 10 C.F.R. . [6]70.23 " 56 Fed. Reg. at 23,310. Among the provisions of section 70.23 is subsection (a)(5) governing the financial qualifications of applicants for special nuclear material licenses. That subsection provides:

(a) An application for a license will be approved if the Commission determines that:

)

(5) Where the nature of the proposed activities is such as to require consideration by the Commission, that the applicant appears to be financially qualified to engage in the proposed activities in accordance with um regulations in this part[.)

Further, in the regulation prescribing the contents of Part 70 license applications, j the Note following 10 C.F.R. 6 70.22(a)(8) states, "[w]here the nature of l the proposed activities is such as to require consideration of the applicant's j financial qualifications to engage in the proposed activities in accordance with the regulations in this chapter, the Commission may request the applicant to submit information with respect to his financial qualifications." Having directed in the hearing notice that the Applicant must satisfy the standards of 10 C.F.R. 5 70.23, the Commission necessarily determined that the licensing of an enrichment facility requires consideration of the Applicant's financial qualitications to construct and operate the CEC.u Thus, in the context of this proceeding, the Commission's financial qualification regulations require a demonstration by LES that it " appears to be financially qualified" to construct and operate the CEC.

l The generality of this standard raises the obvious question, what must LES l demonstrate to comply? Nothing in Part 70 itself provides a definitive answer.

There are, however, other provisions in the agency's regulations regarding finan-cial qualifications for licensing facility construction and operation. Specifically, i 10 C.F.R. 6 50.40(b), like 10 C.F.R. 9 70.23(a)(5), states that in determining if I it should issue a construction permit the Commission should consider whether

"[t]he applicant is technically and financially qualified to engage in the pro- l posed activitics in accordance with the regulations in this chapter." Further,10 i C.F.R. Q 50.33(f), in prescribing the contents of Part 50 license applications for construction permits and operating licenses, requires applicants to include the following financial qualifications information in their applications:

Except for an electric unlity applicant for a license to operate a utilization facility of the type described in (50.21(b) or 150.22, information sufficient to demonstrate to the Commission the financial quahfication of the applicant to carry out, in accordance with d in any event the staff reviewed the Apphtant's financial quahticahons, deterrruning that the construccon and operauen of an enrichment facility requires such review. tWood at 3 fol. Tr 721; Staff Exh. I at 13-2 to ILS.)

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regulanons in this chapter, the activities for which the permit or license is sought. As j applicable, the following should be provided:

(1) If the application is for a construction permit, the apphcant shall submit information that demonstrates that the applicant possesses or has reasonable assurance of obtaining the funds necessary to cover estimated construction costs and related fuel cycle costs. The applicant shall submit estimates of the total conuruction costs of the facility and related fuel cycle costs, and shall indicate the source (s) of funds to cover these costs.

(2) 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 applicant shall also indicate the source (s) of funds to coser these costs.

An app.tication to renew or extend the term of an operating license must include the same financial information as is required in an application for an initial license.

i (3) Each application for a construction permit or an operating license subnutted by a 4

newly-formed entity organized for the primary purpose of constructmg or operating a facility must also include information showing:

(i) The legal and financial relationships it has or proposes to have with its stockholders or owners; (ii) [Their] financial ability to meet any contractual obligation to the entity which they have incurred or proposed to incur; and (iii) Any other information considered necessary by the Commission to enable it to determine the applicanfs financial quahlication.

Further, in Appendix C to Part 50, the Commission has provided extensive  !

additional guidance relative to these requirements. That Appendix provides in pertinent part:

This appendix is intended to apprise apphcants for licenses to construct production or utilization facilities of the types described in 6 50.21(b) or 150 22, or testing facilities, of the general kinds of financial data and other related information that will demonstrate the j financial qualification of the applicant to carry out the activities for which the permit is ,

sought The kind and depth of information described in this guide is not intended to be l a rigid and absolute requirement. In some instances, additional pertinent material may be j needed. In any case, the apphcant should include information other than that specified, if such information is pertinent to establishing the apphcant's financial ability to construct the proposed facility.

It is important to observe also that both 150.33(f) and this appendix distinguish between applicants which are established organizations and those which are newly-formed entities organized primarily for the purpose of engaging in the activity for which the permit is sought.

Those in the former category will normally have a history of operating experience and be able to submit financial statements reflecting the financial results of past operations. With respect, however, to the applicant which is a newly formed company established primarily for the purpose of carrying out the licensed activity, with little or no prior operating his.tarv, somewhat more detailed data and supporting documentation will generab t,e necessary ist 4 this reason, the appendit describes separately the scope of information to be included in applications by each of these two classes of applicants.

1 1

382

. . Additionally, with respect to newly formed entities - a category into which 5

LES certainly falls - that apply for construction permits, Appendix C states they should submit the same information as established organizations concerning construction cost estimates.10 C.F.R. Part 50, Appendix C.II.A.I. See Appen-dix C.I.A.I. In submitting information on the source of construction funds, however, Appendix C states that newly formed entities should specifically idenufy the source or sources upon which the appheant rehes for the funds necessary to pay the cost of constructing the facihty, and the amount to be obtained from each. With respect to each source. the application should describe in detail the apphcant's legal and financial relationships with its stockholders. corporate aftiliates, or others (such as financial institutions) upon which the applicant is relying for financial assistance. If the sources of funds rehed upon include parent companies or other corporate affiliates, ,

information to support the financial capability of each such company or affiliate to meet its '

commitments to the appheant should be set forth in the application. This information should be of the same kind and scope as would be required if the parent companies of affiliates were

< in fact the appheant. Ordinanly, it will be necessary that copies of agreements or contracts among the companies be subustted.

q 10 C.F.R. Part 50, Appendix C.ILA.2.

If these Part 50 financial qualification provisions are applicable in the context ,

of this Part 70 proceeding, then the information that an applicant such as LES l needs to supply to demonstrate its financial qualificatior,s to construct and operate the CEC is readily apparent. For its part, however, LES asserts that the Commission's Part 70 financial qualifications standard is less prescriptive I i than the Part 50 standard generally because (I) Part 70 does not contain the l same specifications; and (2) financial qualifications regulations play a secondary role in assuring safety for Part 70 facilities. See Memorandum of Applicant l

LES Regarding the Standard Under the Atomic Energy Act for Assessing Applicant's Financial Qualifications (Apr. 21,1995) at 5-7,18 [ hereinafter LES Memorandum]. The Staff, on the other hand, argues that while Appendix C to Part 50 should be used as a guide in determining the financial qualifications of an applicant, not all of its provisions are suitable. In particular, the Staff takes issue with the application of the provisions in Appendix C dealing with newly formed entities, asserting that a newly formed entity only needs to show that its corporate affiliates have the capability of providing construction funds and not, as stated in Appendix C, that the corporate affiliates have committed to provide the funds to the applicant. (Wood at 4,7 fol. Tr. 721.) See NRC Staff Memorandum Regarding Legal Standard for Assessing Financial Qualification (Apr. 21,1995) at 20-21 [ hereinafter Staff Memorandum). The Intervenor, in contrast, declares that the provisions of Part 50 regarding financial qualifications, including Appendix C, provide the definitive guidance for determining whether LES is financially qualified pursuant to Part 70. See [ CANT] Response l Memorandum Regarding the Legal Standard for Assessing the Applicant's  !

383

. Financial Qualifications to Construct and Operate the [ CEC) (May 1,1995) at 4 10.

1. - Applicability of Part 50 and Part 70 Financial Qualifications Standards In asserting that the Part 50 financial qualifications requirements are not directly applicable, the essence of LES' argument is relatively straightforward.

According to LES, comparing the language.of the Note following section 70.22(a)(8) with that of section 50.33(f) makes it clear that the former has none of the specificity of the latter. This lack of specificity in Part 70, in turn, evidences a Commission intent to have financial qualifications under these two Parts treated differently, with Part 70 having much less rigorous requirements.

The problem with this assertion is that, given the close identity of subject l

matter between the two provisions and the near identical language of 10 C.F.R 6 70.23(a)(5) and 10 C.F.R. 6 50.40(b) setting forth the standard for granting licenses under the two Parts, the Applicant's argument does not account sufficiently for the ambiguity that is inherent in their difference in language.

Indeed, the very general language in the Note following section 70.22(a)(8) cries out for additional clarification or interpretation. Pursuant to the general interpretational rule that statutory or regulatory provisions that relate to the same subject matter should be construed in pari materia, see 2B Sutherland Stat. Const. I il51.01,51.03 (5th ed.1992), section 50.33(f), as the other agency regulatory provision dealing with financial qualifications, is the likely source for obtaining insight about how to interpret the general language of the Note following section 70.22(a)(8). Moreover, an obvious source for attempting to resolve this ambiguity about how the general standard in the Note following section ,

' 70.22(a)(8) should be interpreted vis a vis the more specific requirements of section 50.33(f)is the history of both sets of financial qualifications regulations.

a. Regulatory History of Part 50 and Part 70 Financial Qualifications Provisions The Commission's financial qualifications regulations are rooted in section 182(a) of the Atomic Energy Act of 1954, as amended. That section authorizes the Commission to obtain information concerning the financial qualifications of applicants for Commission licenses and vests the Commission with discretion to determine by rule or regulation what information is appropriate. 42 U.S.C.

5 2232(a). See New England Coalition on Nuclear Pollution v. NRC, 582 F.2d 87,93 (1st Cir.1978).

384

, As originally promulgated in 1956, the Commission's Part 70 regulations establishing procedures and criteria for issuing licenses to possess and use special nuclear material and for Commission allocation of such then government-owned material required applicants to include financial qualifications information in their applications. See 21 Fed. Reg. 764,766 (1956). In the original provision prescribing the contents of license applications, the Note following then 10 C.F.R. 9 70.22(a)(8) stated:

Where the quantity of material requested, or the nature of the proposed activities, is such as to require consideration of the following factors, the Commission will request the l applicant to subnut information with respect to his financial quahhcations (1) to engage in the proposed activities in accordance with the regulations in this chapter, (2) to assume i responsibihty for the payment of Commission charges for use. consumption or loss of special nuclear material and (3) to undertake and carry out the proposed use of special nuclear material for a reasonable period of time.

Id. at 766. In addition, then 10 C.F.R. 6 70.23(c), governing the approval of license applications, stated that an application will be granted if the Commission determines,

[w}here the quanury of material requested, or the nature of the proposed activities are such t as to require consideration of these factors by the Conurussion, that the applicant appears to be financially quahfied to assume responsibthty for the payment of Comnussion charges for use, consumption or loss of special nuclear material and to engage in t5 prortosed activities

, in accordance with the regulations in this part.

Id. Unfortunately, but not atypical of that era, the Commission did not accom-pany the issuance of the original regulations with a statement of consideration amplifying or explaining the meaning or parameters of 10 C.F.R. l73.23(e).

In 1967 the current Part 70 financial qualifications regulations,10 C.F.R.

Ol 70.22(a)(8) & Note,70.23(a)(5), were adopted. See supra p. 381. The current regulations merely lack the language from the initial regulations concerning the applicant's ability to assume responsibility for the payment of Commission charges, which reflect changes in the law allowing the private ownership of such material. 32 Fed. Reg. 4055, 4056 (1967). See 31 Fed. Reg.14,881, i

14,882 (1966). Once again, however, in making these changes the Commission

( provided no supplementary information concerning the meaning or scope of the regulation. Moreover, since the issuance of the Part 70 financial qualifications regulations in 1967, there have been no adjudicatory decisions addressing the nature of the information required of an applicant or explaining the meaning of the requirement that the applicant " appears to be financially qualified to engage in the proposed activities." 10 C.F.R. 6 70.23(a)(5).

Although there is no direct Commission explanation of the meaning of the Part 70 financial qualifications regulations, the Commission's Part 50 financial 385

1 l

qualifications regulations were originally enacted, and then amended the first time, almost simultaneously with the Part 70 regulations. Those regulations and all their subsequent amendments, in combination with the criteria and procedures followed by the Atomic Energy Commission in applying the original financial  ;

qualifications regulations (as explained in the agency's written submission to '

Congress), demonstrate convincingly the scope and meaning of the regulations.

Two weeks before the promulgation of the original Part 70 financial qualifi-cations rule, the Commission issued the original Part 50 financial qualifications rule. Although that Part 50 rule was first in time it nevertheless included a pro-vision tying it to the later-issued Part 70 rule. Much like its Part 70 counterpart (see supra p. 385), the initial Part 50 financial qualifications rule,10 C.F.R.

6 50.33(f), provided that a license application shall state-l The financial qualifications of the applicant to engage in the proposed activities in accordance with the regulations in this chapter. If the application is also for fal special nuclear material hcense punuant to the regulations in Part 70 of this chapter,information should be included with respect to the applicant's financial quahtications to assume responsibthty for the payment of Commission charges for special nuclear material.

21 Fed. Reg. at 355, 357 (1956). Again, much like its Part 70 counterpart, the initial Part 50 financial qualifications rule governing the approval of license applications,10 C.F.R. 5 50.40(b), stated that the Commission should consider whether "[t}he applicant is technically and financially qualified to engage in the proposed activities in accordance with the regulations in this chapter." Id. at 358.

Indeed, a side-by-side comparison of the original Part 70 and Part 50 l regulations setting forth the standard for granting licenses under those Parts shows that thac was no real difference in the critical language of the regulations.

Thus, necessarily, there should not be any difference in the original meaning of these provisions. The original 10 C.F.R. Q 70.23(e) stated that a license 1 application will be approved if the Commission determines that j the applicant appears to be financially quahfied . . to engage in the proposed activities in accordance with the regulations in this part.

The original 10 C.F.R. Q 50.40(b), on the other hand, stated that in determining if it should issue a license the Commission should consider whether

[Ilhe apphcant is . . financially quahtied to engage in the proposed activities in accordance with the regulations in this chapter. j When the Commission amended the Part 70 financial qualifications regula.

tions in 1967 to reflect the changes in the law allowing private ownership of 386 l

i

special nuclear material, it also amended the Part 50 financial qualifications rule as part of the same rulemaking. 32 Fed. Reg. at 4055-56. In 10 C.F.R.

6 50.33(f), the Commission deleted the reference to Part 70 special nuclear mate-rial licenses and the applicant's financial qualifications to assume responsibility for the payment of Commission charges to reflect the changes in the law allow.

ing private ownership of special nuclear material. See 31 Rd. Reg. at 14,882

, (proposed rule). These changes, however, had the effect of making the Part 70 and Part 50 financial qualifications rules essentially indis:inguishable from each other.

In late 1966 when the Commission had under consideration these proposed changes to its Part 70 and Part 50 financial qualifications rules, the Congressional Joint Committee on Atomic Energy, through its Executive Director, wrote to the Director of Regulation of the Atomic Energy Commission inquiring about the

" provisions in the AEC's regulations dealing with the financial qualifications of applicants for licenses." Letter from John T. Conway, Executive Director, Joint Committee on Atomic Energy, Congress of the United States, to Harold W.

Price, Director of Regulation, U.S. Atomic Energy Commission, Washington,

, D.C. (Nov. 28, t 966) reprinted in Licensing and Regulation ofNuclear Reactors:

Hearings before the Joint Committee on Atomic Energy, 90th Cong.1st Sess.

347, pt. I, Appendix 12 (1967) [ hereinafter Hearings]. He first of the Joint Committee's three questions asked "[w] hat criteria and procedures are used by the Commission in determining whether an applicant is financially qualified to engage in the proposed activities in accordance with the Commission's regulations?" Id. In his written response to that question the Director of Regulation informed the Congress that:

The assessment of a license applicant's financial qualifications to engage in the proposed 1 activity in accordance with the Commission's regulations is based upon tiv review of 4 financial information w hich we require the applicant to submit and such checks of independent r,ources of financial information on the applicant as appear warranted in any particular case.

Essentially, the issues explored are whether the apphcant has adequate financial resources to design, construct and operate the licensed facihty.

I While the detailed analysis of financial quahlications will vary, depending upon the circumstances of the particular case, the principal matters examined m the case of a construction permit include -

(a) A review to determine the reasonableness of the apphcant's estimates of costs to construct the proposed facility.

(b) Analysis of the applicant's plan for financing the cost of the facility; identification of the sources of funds relied upon. e g., external sources such as borrowing and stock subscriptions, or internal sources such as earnings or depreciation reserves.

(c) Analysis of the applicant's certified financial statements and supporting schedules to assess his current financial condition in relation to this financing plan.

(d) in those cases in which external sources are relied upon for all or part of the required funds, documentary or other evidence relating to contractual arrangements or commitments for such financing, and sometimes the contracts themselves, are also reviewed.

387 h.

(c) Where the applicant is a newly formed entity, the review particularly covers the capitalization of the organization and the reliability of sources of capital funds needed to construct the facility.

On tbc basis of these reviews and analyses, conclusions are drawn as to whether there is icasonable assurance that the required funds are or will be available to the appheant in accordance with his financing plan.

With respect to an application for an operating license. the review covers the applicant's current financial statements, with particular reference to current and projected earnings, from which conclusions are drawn as to whether there is reasonable assurance that funds will be available to pay the anticipated operating costs of the facility.

Id. at 348. The Director of Regulation's response went on to explain that the AEC's then current financial qualifications regulations (see supra pp. 385, 386) did not prescribe detailed criteria or standards for judging the applicant's financial qualifications because of the variability of factors involved in each case. He noted, however, that the AEC had under consideration at that time the feasibility of setting forth in the regulations general standards that must be met and a description of the kinds of documents and information to be furnished in various types of cases, such as those involving applicants that are newly formed entities. Hearings at 348.

Finally, and most significant here, the Director of Regulation responded to the Joint Committee's third question about the criteria and procedures the Commission proposed to follow in determining the financial qualifications of licensees that contract with the Commission for special nuclear material. He indicated that in the past, when all special nuclear material ("SNM") was government-owned, the material was furnished under contract, a lease agreement, or a supply agreement and, in the future, the Commission also would use a

- sales contract. The Director of Regulation then stated that "[t]he determination of the financial qualifications of licensees to pay Commission charges for SNM has been based essentially on the same principles of financial analysis referred to under question 1, and this policy is expected to continue in the future regardless of the particular contractual arrangement involved." /d. at 349. In other words, the Director informed Congress that the Commission used the same criteria and procedures in determining the financial qualifications of a Part ~io spplicant under then 10 C.F.R. 5 70.23(e) as it used in determining the financial qualifications of a Part 50 applicant under then 10 C.F.R. 9 50.40(b).

In light of the nearly identical operative language in the Part 70 and Part 50 financial qualifications regulations, the Commission's use of the same principles for determining compliance with the two provisions is hardly surprising.

Thereafter, as predicted by the Director of Regulation in his response to the Joint Committee, the Commission proposed an amendment to its Part 50 financial qualifications regulations dealing with the information an applicant

! must submit as part of the license application. 32 Fed. Reg. 8423 (1967). While 388 l

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not altering 10 C.F.R. 6 50.40(b), the proposed amendment expanded section 50.33(f) to require each application to state:

, Information suf6cient to demonstrate to the Commission the financial quah6 cation.s of the applicant to carry out, in accordance with the regulations in this chapter, the activities for which the permit or license is sought. If the application is for a construction permit, such information shall show that the apphcant possesses the funds necessary to cover estimated construction costs and related fuel cycle costs or that the applicant has reasonable assurance of obtaining the necessary funds, or combination of the two.

, /d. The proposed regulation also contained a similar requirement with regard to an operating license.

) In addition, the proposed amendment included an Appendix C to Part 50 entitled "A Guide for the Financial Data and Related Information Required to Establish Financial Qualifications for Facility Construction and Operating Licenses." Id. The proposed Appendix C recognized two classes of applicants:

those that were "an established operating business" and those that were "in effect, an instrumentality for the construction and/or operation of the facility as the agent of otbc principals (usually a new formed entity)." Id. at 8424. Besides requiring applicants for construction permits to submit detailed, specific cost estimates for every major plant feature and component and estimates of yearly construction expenditures, it also required them to list their anticipated sources of funds for each year's construction costs and to demonstrate the capability or reasonable assurance of each source to provide the required funds. Id. The 4

proposed Appendix C also had markedly different requirements for established operating businesses and newly formed entities. For applicants that were newly formed entities, the proposed Appendix provided that:

documentary support shall be submitted to completely dehne the legal and financial relation-ships with the corporate afnliates (usually parent companies) or others (such as banks) upon whom the applicant is relying for 6nancial assistance. This documentary support applies to both the construction and operation of the facihty and includes such matters as stock sub-

scription agreements with sponsoring af61iates, loan commitments or agreements, guaranty 3

agreements by affiliates, and sinular information to support stabihty of operations.

Id. Further, the proposed Appendix provided that "[ilf the applicant is, in effect, an agent of others, financial qualifications of each " sponsor" or " principal" to meet its I: gal obligations shall be demonstrated in the same manner as if it were the applicant. . . " /d.

Shortly after issuing the proposed amendments to its Part 50 financial 3

qualifications regulations, the Commission withdrew them. 32 Fed. Reg.10,816 (1967). As it subsequently explained, the proposed amendments to Appendix C were withdrawn because the Commission 389

concluded that it would call for substantially more information in scope and detail than is hkely to be necessary, particularly in the case of operatmg utilities with a history of financial stability.

In rewriting the guide we are attempting to bring into sharper focus and detail the difference in the kind and detail of infonnation to be required of an applicant with an operating history as distingunhed from the applicant which is a newly fonned entiiy.

Public Service Co. of New Hampshire (Seabrook Station, Units 1 and 2), CLI-78-1,7 NRC 1,10-11 (1978) (quoting letter from the Director of Regulation, Atomic Energy Commission, to Executive Director, Joint Committee on Atomic Energy (Aug. 25, 1967)).

A year later the Commission promulgated the amendments to its Part 50 financial qualifications regulations. 33 Fed. Reg. 9704 (1968). The text of 10 C.F.R. 9 50.33(f) remained identical to that of the earlier proposed rule (see supra pp. 388-89), but Appendix C was modified to remove much of the detail from the original version. Compare 32 Fed. Reg. at 8423-24 with 33 Fed.

. Reg. at 9704-05. The amendment, however, did not alter the language of 10 C.F.R. 6 50.40(b). In issuing the new Part 50 financial qualifications regulation, the Commission noted in the statement of consideration that section 182(a) of "[t]he Act and the Commission's regulations reflect that the fundamental purpose of the financial qualifications provision of that section is the protection of the public health and safety and the common defense and security." 33 Fed. Reg. at 9704. It further stated that "[a]lthough the Commission's safety determinations required for the issuance of facility licenses are based upon extensive and detailed technical review, an applicant's financial qualifications can also contribute to his ability to meet his responsibilities on safety matters."

Id In the final version of Appendix C, as in the initial proposed text, the Com-mission emphasized the important distinction, for purposes of determining the financial qualifications of applicants, between those that are established organi- l zations and those that are newly formed special-purpose entities organized to engage in the licensed activity. Although worded more generally than in the proposed version, the final text of Appendix C retained the requirement that l newly formed entities relying upon corporate parents or other corporate affili- l ates for construction funding must make a more detailed showing of not only l the sources of funds but also the reliability and commitment of those sources to l provide the funds for construction. With the exception of amendments remov-ing the original provisions relating to operating licenses, the text of Appendix C relating to the showing necessary to establish the financial qualifications of 390

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Part 50 construction permit applicants has remained unchanged since its issuance in 1968.i6 1

After the Commission amended 10 C.F.R. 5 50.33(f) and adopted Appendix C  ;

in 1968, the Part 50 financial qualifications regulations remained unchanged until 1982. At that time, the Commission amended the regulations to add an exception to 10 C.F.R. Il50.33(f) and 50.40(b) that the financial qualifications provisions did not apply to electric utility applicants. 47 Fed. Reg. 13,750, 13,754 (1982). l Additionally, the Commission made "certain editorial modifications to 5 50.33(f) I to improve its clarity " 46 Fed. Reg. 41,786 (1981)(proposed rule). Chief among these c!arifying modifications was the addition of what is now subsection (f)(3) incorporating the thrust of the provisions from Appendix C relating to newly l formed entities organized primarily for the purpose of constructing and operating a facility. 47 Fed. Reg. at 13,754. After a court challenge, the Commission again amended the regulations to reinstate the applicability of financial qualifications review for electric utility applicants seeking construction permits under Part 50.

49 lid. Reg. at 35,752-54 (1984)."

b. Analysis We have spelled out the provisions of the Commission's Part 70 and Part 50 financial qualifications regulations and this lengthy history because these materials provide the context in which 10 C.F.R. 6 70.23(a)(5) must be read and define the scope and rneaning of that provision. As the language and history of the Part 70 and Part 50 rules graphically illustrate, these financial qualification regulations essentially began as twins. Although the paths of the regulations have diverged somew hat since 1967, the essence of the Part 70 and Part 50 regulations with respect to construction financing and the standard the Commission must l apply in granting a license under these Parts has not significantly changed l since the initial issuance of the regulations. At that time, because the critical language of the provisions was nearly identical, the provisions had the same basic meaning. Indeed, as the Director of Regulation's rc.ponse to a congressional inquiry indicated, the Commission's financial qualifications reviews of Part 70 and Part 50 license applicants applied the same principles under both regulations at that time. ,

16 5cc 49 fed Reg. 35.747 (1984K 50 Fed. Reg. I8.852 (1985), h should be noted that Appendix C was anhdraw n in its entirety for a bnef penod when the Comminion chnunated hnancial quahhcations review of electnc uulities ror both construcuon pernut and operaung heenws See 47 led. Reg 13.750 0 982) Aher a court challenge.

the Comminion reinstated Appendix C without the provisions relaung to operaung heenses See 49 led. Reg. at 35,753 U Subsequently. the Pan 50 nnancial quahncauona regulauon also were amended with respect to various teferences to decomnussioning funding. See 53 led Reg 24.0l8,24.(M9 (1988).

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Pursuant to those initial financial qualifica' ions criteria and procedures, an applicant was required to show that it was financially qualified to construct a proposed facility by demonstrating that there was reasonable assurance the required funds are or will be available to it in accordance with its financing plan. To demonstrate such reasonable assurance, the applicant needed to show

' the construction cost estimates for the project and identify the external and internal sources of funds to cover those costs. In those instances in which the applicant relied upon external sources of funds, the applicant needed to produce documentary or other evidence of its contractual arrangements or commitments for the funding. Finally, in those instances in which the applicant was a newly formed entity, the applicant also needed to show the capitalization of the newly formed entity and the reliability of its sources of construction funds. Hearings at 348.

, Because there has been no significant change in the critical language of

! the Commission's Part 70 financial qualifications regulations since their adop.

l tion, the same criteria that the Atomic Energy Commission initially applied in determining under both Part 70 and Part 50 whether an applicant was finan-cially qualified are still fully applicable today in determining under 10 C.F.R. 6 70.23(a)(5) whether an applicant appears to be financially qualified to engage in the proposed activities. Thus, the history of the Commission's Part 50 and Part 70 financial qualifications requirements fully supports a parallel construc-tion of those regulations in terms of the showing necessary to establish that an

applicant " appears to be financially qualified" under section 70.23(a)(5).

l As this history also demonstrates, there is no basis for the Applicant's ,

additional assertion in support of its "less prescriptive" interpretation for Part 70 )

that, in contrast to reactor facilities licensed under Part 50, financial qualifications l regulations play a secondary role in assuring safety for Part 70 facilities. As we already have detailed, the critical language of the Part 70 and Part 50 financial qualifications standards is substantially the same and since their inception the two standards have had substantially the same meaning. The Applicant, on the other hand, has presented no reasoned basis that leads us to conclude the Part 70 standard is a lesser one than the Part 50 standard. At the time the Commission amended its Part 50 financial qualifications regulations and adopted Appendix C in 1968, it stated that the fundamental purpose of the financial qualifications provision of the Atomic Energy Act and the Commission's regulations is "the protection of the public health and safety and the common defense and security." 33 Fed. Reg. at 97N. This fundamental purpose is equally involved _

regardless of whether the financial qualifications review is conducted under Part 70 or Part 50. Certainly, the concerns about safety and national security that arise here relative to the licensing of the first privately owned uranium

- enrichment facility in the United States do not, on their face, suggest that 392 l

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a significantly less comprehensive showing shou d suffice to establish LES' financial qualifications.'8

2. Applicability of Newly Formed Entity Criteria of 10 C.F.R. Part 50, Appendix C The Staff takes the position (which the Applicant also supports") that the l provisions of Part 50 may be used as guidance but the standard regarding newly formed entities should not be applied. The Staff claims Appendix C must be read in the context of the Commission's Part 50 financial qualifications standard,10 i C.F.R. 6 50.33(f), which requires an applicant for a construction permit to show that it " possesses or has reasonable assurance of obtaining the funds necessary to

cover estimated construction costs." According to the Staff, the Commission in Seabrook, CLI-78-1,7 NRC at 18, interpreted the Part 50 reasonable assurance standard to mean that an " applicant must have a reasonable financing plan in light of relevant circumstances" and further stated that the standard "does not mean a demonstration of near certainty that an applicant will never be pressed for funds." From this definition, the Staff argues that because the applicant only 18 1n support of its argunent for a anunidied hnancial qualificauons showing under Part 70. LES suggests that in deternuiung if an applicant is hnancially quahlied to construct the proposed uranium enrichment facihty "the issue is whether, assunung the project moves ta construction, the apphcant has subnutted informahon that provi&s reasonable auurance that the apphcant can obtain the necewary funds. and therefore appears to be financially quahhed " tis Memorandum at 18. According to the Applicant. the question of whether the facihty wtll be built is essenually irrelevant since failure to build it has no public health and safety consequences. /J.

To accept this assertion would senously dntort the Comnunion's hnancial quahlicauons regulations. By "assunung" construcuan, we would ignore the hnancial quahhcations requirement of 10 CE R. I 70 2L)t5) that "the appheant appears to be hnancially quahhed to engage in the proposed acuvities" Decause the proposed ,

acovtues here are the construcuon and operation of a uranium enrichrnent facihty, to assume construction, as the I Apphcant would have it, not only begs the question under the regulabon it assumes the answer. The Commiasion's l linancial quahhcations regulanon is written in the present tense and, although it necessanly is future onented st requires a prelicenmig showing that an applicant is currently hnancially quahhed to construct and operate the ]

proposed project l

We add that accepong the Apphcant's argument not only would senously &stort the Comnussion's hnancial l quahhcanons regulauons, but would represent a radical departure from past practice under the agency's haancial l

quahficauons regulations. Because there are no comparable provisions in Part 70 to those in Part 50 that estabinh 1 construction compleuon deadhnes, ser 10 C.F.R. 6 50.55(a), accepung the Applicant's argunent in the context of l the 30' year Part 70 heense is tantamount to providing a newly formed special-purpose enury a 30. year window to i deternune whether to buihl the facihty and a 30 year unreviewed window to shop for construcuon hnancing in contrast to existing regulations that require a showing of a real, legal neaus between a newly formed special-purpose entity and its anticipated sources of construcuan funds prior to hcensing acceptance of the Apphcant's readmg of the Comnunion's regulauons would make the prekeensing review of an appheant's hnancial quah6 cations a meaningless paper exercise.

" tike the staff's argunents, the Apphcant's argurnent, at bottom, simply ignores the fundamental prenuse of the Conunission's hnancial quahrications regulanons that newly formed special-purpose entines are different from established orgamzations that have an operating history, The Atomic Energy Commission recogruzed that dinuncuon in the entena it opphed in determining the Anancial qualincauons of appheants under the onginal Part 70 and Part 50 regulauons (see supru. pp. 3874n Subsequently, it incorporred that distincuon into Appendix C and then years latet that disancuon was put into the regulations. See supra. p. 391. In short. newly formed entities have no track record and, therefore. they require a different and greater degree of scrunny to deternune whether they are hnancially qualihed.

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needs to show a reasonable assurance of obtaining construction funds, not a certainty of obtaining them, a newly formed entity only needs to show that its corporate affiliates have the capability of providing construction funds and not, as is stated in Appendix C, that the corporate affiliates have committed to provide the funds to the applicant. (Wood at 4,7 fol. Tr. 721.) Staff Memorandum at 20-21. 1 Even assuming, as the Staff asserts, that Appendix C is to be used only as a l guide in determming the meaning of the Part 70 financial qualifications standard so that the Appendix C criteria with respect to newly formed entities are not directly applicable, the Staff's argument, nevertheless, is without merit. Initially, I we note that if, as the Staff asserts, Appendix C is to be used as guidance, it is not apparent why it should not be applied uniformly and consistently rather than, l as the Staff has done, picking and choosing among equally applicable provisions. l In addition, the Staff's misreading of the Commission's Seabrook decision l undercuts its argument. Although the Commission explored the meaning of the reasonable assurance requirement in the Part 50 financial qualifications regulations in Seabrook, that decision involved established organizations, i.e., i the Public Service Company of New Hampshire and several other New England l utilities, not a newly formed special. purpose entity without an operating record  !

- a distinction the Commission noted no less than five times in its decision. I Indeed. under the Staff's reasening and reading of Seabrook, the provisions of Appendix C regarding a newly formed entity are so much waste ink in that even a newly formed entity seeking a reactor construction permit under Part 50 and relying on construction funding from corporate affiliates would not need to show that the corporate affiliates had made commitments to provide construction funds '

to the applicant. In Seabrook, however, the Commission did not address, much l less render superfluous, the provisions of Appendix C concerning newly formed entities and the distinction between such entities and established organizations.

In short, Seabrook is simply inapposite to this question.20 The Staff's additional argument that, inter alia, the regulatory history of the Commission's financial qualifications regulations is irrelevant because it predates the Seabrook decision ' conveniently ignores the fact that the Commission 2

adopted the requirements of 10 C.F.R. 5 50.33(f)(3) dealing with newly formed entities and reinstated Appendix C a number of years after it handed down Seabrook. See supra note 2I.

Indeed, a comparison of the criteria that the Atomic Energy Commission used in reviewing an applicant's financial qualifications under the original Part 20 Moreover, ewn if we accept the staff's dehrution of reasonable assurance. i e.. a reasonable nnancing plan in hght of relevant circumstances. we nevertheless would apply the Appendix C cr tena because an applicanf t status as a newly formed special-purpose enoty relying on corporate aftihates for construcuon funding is a highly relevant circumstance that must he factored into any decision on the apphcanCs 6nancial quah6 canons.

21 Reply of the NRC Staff Regarding legal standard for Assening Financial Quah6 cations (May 1.1995) at 3.

394

70 and Part 50 regulations (see supm pp. 387-88; Hearings at 346) with the proposed and final versions of Appendix C of Part 50 (see supm pp. 389, 383; 32 Fed. Reg. at 8424; 33 Fed. Reg. at 9705) shows that the Commission merely incorporated those same criteria into Appendix C. Thus, even though Appendix C is applicable as a guide to the Part 50 financial qualifications regulations and, by its terms, is not applicable to Part 70, as a practical matter, Appendix C is little more than a refinement of the criteria that the Atomic Energy Commission applied equally to applicants under the original Part 70 and Part 50 financial qualifications rules.

This is most obvious with respect to the Appendix C provisions concerning

, newly formed entities, which are a combination of the original criteria dealing with external sources of funds and those dealing with newly formed entities. In Appendix C however, the Commission has refined the focus of the showing such applicants must make to demonstrate they are financially qualified. Accordingly, we have no hesitancy concluding that the Appendix C provisions dealing with newly formed entities also directly refiect the showing required of Part 70 applicants. In any event, we find it appropriate to apply them because the same concerns that prompted the Commission to differentiate between newly formed entities and established organizations under the Part 50 fiiiancial qualifications regulations apply equally to Part 70 applicants.

Derefore, as set out in Appendix C, a newly formed entity, in addition to providing estimates of its costs, must "specifically identify" the source or sources upon which it relies for construction funds and the amount to be obtained from each source. It must also fully detail its " legal and financial relationship" with its corporate affiliates and any financial institutions upon which it relies for funding. In those instances in which the newly formed entity relies upon corporate affiliates for construction fundi,ig, it must also demonstrate "the financial capability of each such company or affiliate to meet its commitments to the applicard" and, "[olrdinarily, it will be necessary that copies of agreements or contracts among the companies be submitted." 10 C.F.R. Part 1 50, Apperdix C.II.A.2.22 When an applicant that is a newly formed entity makes i

22 Any doubt about the mearung of these Appendix C provnions is ermed by the worang of the provisions of I the proposed version of the Appenan. which regturcJ newly formed enuties to provide " documentary support l

. to completely dehne the legal and 6nancial relationships with the corporate af6 hates." and stated that "{tlhis j documentary support . . includes such maners as stock subscripuun agreements with sponsonng afhliates, loan conurutments or agreements guaranty agreements by afhhates and similar informacon to support stabihty of operations" 32 fed. Reg at 8424. The proposed Appendix also provided that newly formed enunes needed to demonstrate the financial quahncations of each corporate afhliate "to nret its legal obligauons" to the apphcant. M Moreover the importance of the Appendix C provisions deahng with the capabihty and commument of corporate afhliatts to provide construction funsng to newly formed enuues is highbghted by the Conunission's adoption of the giu of these Appendix C cnteria into 10 CF R. 6 50.334fX3)in 1982 when Appenas C was trefly dropped from the hnancial quahticauons regulations. Sec 47 red. Reg at 13,754 Subwquently the Comnunion again included these identical criteria regardmg corporate artiliate capabihty and commitment for provieng construct.on funang when it reinstated Appendix C in 1984 Sec 49 Fed. Reg. at 35.753. Thus, these Appendix C cntena expl.un the meaning of section 50.33(rX3).

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this showing, it has demonstrated that there is a reasonable assurance that funds will be available to construct the facility in accordance with its financial plan and it has met the standard of 10 C.F.R. 6 70.23(a)(5).

F. 11oard Findings on the Applicant's Financial Qualifications Although the parties introduced a great deal of testimony and other evidence on the financial qualifications issue, very little of it is directly relevant to meeting the applicable legal standard. The Applicant's financial plan states that the hard construction costs of the CEC are projected to be $816 million in 1992 dollars.

(1-DO-33 at D-11.)23 Neither the method by which the Applicant estimated the CEC construction costs nor the reasonableness of the Applicant's cost estimates l

is disputed. (See Doudiet Arnold at 14-15 fol. Tr. 563.) The plan further states that construction will be financed by LES with term debt from international i

lending banks and equity contributions from LES limited partners. (1-DO-33 at D-12.) The Applicant's expert, Mr. Doudiet, testified that he believed the debt would be financed by bank loans of about 10 years duration and he strongly doubted LES would employ any bond indenture to raise construction funds.

(Tr. 656-57.) Ile indicated LES expected to pay an interest rate of 8.5 to 9%.

(Doudiet-Arnold at 17 fol. Tr. 563. But see I DO-44, Exh. D at D-4.) Although l the precise debt / equity ratio for the project is considered proprietary (App. Exh.

14 at E-13), Mr. Doudiet testified that LES would borrow somewhere between 60 and 70% of the construction costs and the LES limited partners would contribute somewhere between 30 and 40% of those costs. (Tr. 654.)

Additionally, ^= Applicant's financial plan states that the CEC project has four phases: ' venture phase, the construction phase, the operation phase, and the decontm nation and decommissioning phase. The venture phase began with the incepti.. of the LES partnership and the general and limited partners have contributed, each in proportion to its respective interest in the partnership, a total of $31.7 million. (1-DO-33 at D-10.) see supra pp. 379-80. Although the Applicant considers the dollar breakdown of its venture-phase costs proprietary, the venture-phase capital contributions cover the costs associated with obtaining engineering services from Urenco for the reference design of the CEC and all administrative, licensing, and marketing costs. (1-DO-33 at D-10 to D-11.) According to the Applicant's financial plan, the objectives of the venture phase are to (1) complete sufficient engineering to file and support the NRC license application; (2) obtain an NRC license; (3) negotiate satisfactory fixed-2)To put the hard construcuan conts in perspectne in relation to total project costs mthout using propnetary information (compara App. Exh.14 at E.i t to E-12), the staff's IEls states that the total cost of the project including construction, interest. escalation, capitahzed interest conungency, repluement centnfuges.

decontamination. and decomnussiomng is esumated at $1.6 bilhon in 1990 dollars (staff Exh. 2 at 2 2 )

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price contracts for the construction of the facility and the supply of centrifuges; (4) secure required financing; and (5) market the initial production capacity 1 of the facility through long-term SWU sales agreements. (/d. at D-10.) Both Mr. Doudiet and Dr. Arnold testified that, to date, LES has concentrated on

)

objectives (1) and (2) and, upon receipt of an NRC license, LES will renew l activities associated with objectives (3), (4), and (5). (Doudiet-Arnold at 26  ;

fol. Tr. 563.) Dese witnesses also stated that proceeding beyond the venture '

phase for LES is conditioned upon the fulfillment of these objectives and that the venture phase will conclude upon a decision to proceed to the construction '

stage by the LES general partners. (/d. at 24, 27; App. Exh. 22 013.1 at 7; i 1-DO-40 art. XIX).24  !

Although the Applicant's financial plan states that the construction process ,

for the CEC will be continuous starting with fourteen cascades and a capacity

{

of 0.5 million SWUs and expanding to meet the needs of the marketplace up I to the licensed capacity of 1.5 million SWUs (I-DO-33 at D-10), Dr. Arnold testified that LES is currently considering another option. Under that alternative, the decision to proceed with construction might not be made unless the full 1.5 million SWU capacity of the CEC is committed. This approach would collapse the construction phase and the operations phase into one so that the operations ,

phase would not commence until the entire facility was completed, instead of  !

operating each unit of one-third plant capacity as it was finished to help raise construction funds. (Doudiet-Arnold at 25-26 fol. Tr. 563; Tr. 761; I DO-33 at ,

D-Il to D-12.) l In their testimony, the Applicant's witnesses portrayed how LES hoped the financial plan would work and, therefore, how the Applicant believed it was financially qualified to construct the CEC:

An NRC license is a necessary, but not sufficient project precondition. Upon receipt of an NRC license, LES will be in a position to market the planned output. The projected SWU j cost will be competitive in the marketphce and thus it is reasonable to assume that LES will be successful in its marketing. Upon riuccessful marketing. LES will be in a position to seek and obtain project funding. This funding will consist of two pvts; equity and debt.

The equity will be committed to by existing and possibly new partners as a precondition to raising the debt. The favorable economics of the project. as well as the financial well-being of the partners, lead to the conclusion that it is reasonable to assume equity will be raised.

Once equity is in place, potential lenders will review the project economics in light of the receipt of an NRC license, the firm contracts for enrichment ser ices and the certainty of 24 Under the provisions of the Partnerstup Agreement ar. amended, once the partners decide to take up the matter. l the partners also can agree to cononue the partnership in the event they decide not to proceed to the construcuon '

phase. U-Do-40 art. XIX i19.l; App. Exh. 22 4131 at 7.)

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construction and equipment costs. Assunung these eventuahties, the project economics are d

such that it is reasonable to conclude that sufficient debt will be comnutted to.

(Doudiet-Arnold at 8-9 fol. Tr. 563.)

Although the Applicant's financial plan for funding the construction and operation of the CEC clearly demonstrates optimism, it is equally clear that LES has not inade the showing required of a newly formed special-purpose entity under the Commission's financial qualifications regulations. Specifically, and as we discuss in more detail below, the Applicant has not demonstrated that LES has the assets to fund the construction of the CEC nor has it shown any i commitments from the corporate affiliates of the LES general or limited partners to provide the equity portion of the construction funds identified in the project i financial plan. Further, LES has not even identified, much less fully detailed, the legal and financial relationship it has entered into with the financial institutions upon which it relies for the debt portion of the construction funds identified in the CEC financial plan. Having failed to make this required showing, the applicant has not demonstrated that there is reasonable assurance that funds will be available to construct the facility, and LES has failed to establish by a l preponderance of the evidence that it appears to be financially qualified to build the CEC."

There is no dispute on the record of this proceeding that LES does not i

currently have the funds necessary to cover the estimated construction costs of

{

the proposed CEC. (Osterberg at 4 fol. Tr. 715; Doudiet Tr. 568-69.) LES is a j development-stage enterprise with few marketable assets. While the cash, land, and office furniture on the Applicant's balance sheet have value, the defelred startcp costs for the CEC have little or no value for anyone other than LES or its partners. (Osterberg at 4-5 fol. Tr. 715; I-DO-36.) Similarly, it is undisputed that none of the four LES general partners or the seven LES limited panners have i the funds necessary to cover the estimated construction costs of the proposed 3

facility. (Osterberg at 5 fol. Tr. 715; Doudiet Tr. 564, 566, 568, 571-72; 1 DO-37; l-DO-38.) None of the LES general and limited partners are entities of worth (Osterberg at 5 fol. Tr. 715) and each is itself a special-purpose company established for the CEC venture. (Doudiet Tr. 567, 571, 696.) As previously M

Although the Staff's witness. Mr. wood, tesufied that the Staff found the Apphcant was 6nancially quahfied to construct and operate the CEC (Wood at 6 fol. Tr. 721), his tesumony demonstrated that the Staff reached that conclusion by applying what we already have found was an erroneous interpretanon of the Comrrassion's haancial qualincauons regulations- (/J. at 4. 7.) See supra pp. 393M Neverthelen, Mr. Wood tesuhed that

"[olne of the good aspects of this project' was that, because construction of the CEC was planned as a turn-key construcuan project, it appeared to him that there would be no incenove to cut corners on construction and. thus, thrre would be no safety concern, which, after all. was the underlying purpose of the 6nancial quahfications regulauona. (Tr. 725, 723 ) It is not readily apparent to the Board how a turn-key project by itself leuens any safety concern. Rather. It would appear that the incentive for a turn-key contractor that has underesunated the project (or a haancially unquahhed turn-key contractor) has the same incenove to cut corners as the financially unquahtied licena applicant that is involved in building the project.

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indicated, each of the four LES general partners and the seven LES limited partners is either a first- or second-tier wholly owned subsidiary of another corporation or, in the case of LES general partner Claiborne Fuels, L.P., a limited partnership whose sole general partner is a second-tier wholly owned subsidiary of another corporation. See supra pp. 379-80.

Even though none of the LES general or limited partners are corporations of financial worth, the Applicant's financial plan indicates that the seven LES limited partners will provide the 30 to 40% equity funding for the construction of the CEC. (App. Exh.14 at E-12 to E-13; Doudiet Tr. 654.) The Applicant's witnesses testified that, at the appropriate time at the conclusion of the venture phase, the financially substantial corporations at the top of the respective corporate affiliate chains of each of the LES limited partners (Staff Exh. I at 13-3 to 13-4) would determine whether to fund the limited partners and then the various limited partners could have the necessary funds to contribute to the equity portion of the CEC construction funds. (Arnold Tr, 575,676-77.) If any LES limited partners decide not to provide equity contributions for construction, the Applicant's witnesses stated that the Partnership Agreement contemplates that the "Urenco affiliates"26 would provide the funding or, alternatively, LES would seek new partners and equity. (Doudiet-Arnold at 28 fol. Tr. 563.) There is no dispute, however, that none of the corporate affiliates of any LES general or limited partner has made a commitment of any kind to fund the equity contribution for construction of any of the LES general or limited partners.

(Osterberg at 7-8 fol. Tr. 715; Doudiet Tr. 575-76, 579-80, 582-83, 619-33.)

Further, the Partnership Agreement does not require or obligate any LES general or limited partner to contribute any funds beyond the venture phase of the project to finance any part of the construction.27 ([.90 44 art. XI; Arnold Tr. MO, 26 Dr. Arnold stated that by "Urenco aftihates" he nwant "the sum total of the enuties involved in Urenco" (Tr.

639) and, specifically, LES general partner, Urenco lavestnrnts, Inc., its parent corporauon. Urenco Ltd., and the three LEs hnuicd partners, Urenco (Investnwnts Us) Ltd. OnV, and UNC Deelnenungen D V. and their respecove parent corporations. (Tr. 641.) See supra pp. 379,380. Although the Apphcant's witneues stated that the Partnership Agreenent "conternplated" that Urenco would provide substitute equity funding, the Agreenwnt places a ceiling on the interest Urrnco Investnrnts, Inc., and its aftiliates rnay acquire in the venture. In hght of the First Anwndment to the Agreernent, the exisung interests of Urenco investnwnts. Inc., and its aftihates seemingl) preclude any substantial addiuonal subsuture funding (1-DO-44 art. XI (ll 1(fl. art. XII i12.2, art.

XV i15 2(a), App. Exh. 22 l 11.1 at 4-6, i15.2(b) at 10-113 27 Although the Partnership Agreenent does not obligate any LES general or hnuted partner to contnbute any funds beyond the venture phaw to fund the construction of the project, the Agreenent does presenhe the conditions under which the general and hnuted partners that are corporate affibates of public uuhties may leave the partnenhip and soll receive reimbunenwnt for their interests at the end of the venture phase. It also presenbes the time when any general partner may withdraw without receiving reimbursenwnt for its interest. The Agreenunt also conuuns restnctions on the persons to whom any partnership interest may be transferred. (1-Do-44 arts. Xtil XV; App. l Esh 22 l 13.4 at 8 I15.l(b) at 9, i15.2 at 912.)

l In this latter regard, we note that in his tesdmony the NRC 5taff witness stated that, in the event a LES general piutner sold its interest in the CEC, a heense apphcanon amendment or a heense amendarnt would be required.

(wood at 8 fol. Tr. 721 ) Equally true. however,is the fact that,if the corporate parent of any LES general partner sold its subsidiary owrung the LES partnenhip inerest, no heeme apphcation amendment or beense amendment would be necessary under the Comnussion's regulations.

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l 692.) Similarly, it is undisputed that none of the corporate affiliates of any LES l general or limited partner is a partner under the terms of the LES Partnership Agreement. (Doudiet Tr. 584.)

The Applicant's financial plan also states that 60 to 70% of the construction i funds will be financed by LES with term debt from international project lending l

banks. (1-DO-33 at D-12; Doudiet Tr. 654.) The Applicant's witnesses testified that, at the appropriate time after the other objectives of the venture phase are completed, LES will seek financing from lenders "similar in size and expertise to major energy / project lending banks such as Citibank, Chemical Bank, Barclays Bank and Union Bank of Switzerland." (Doudiet-Arnold at 31 fol. Tr. 563.) Mr.

Doudiet stated, however, that none of the LES general or limited partners have relationships with any lending institutions and that only the corporate affiliates of the LES general and limited partners have any such relationships. (Doudiet Tr. 572-73.) Moreover, Mr. Doudiet testified that LES did not yet know the type of financing package it would pursue and whether it would seek project financing or corporate credit financing. (Doudiet Tr. 647-48.)

In sum, based on the record before us, we find that (1) the Applicant, LES,is a newly formed entity organized primarily for the purpose of constructing and operating a uranium enrichment facility pursuant to Part 70 of the Commission's regulations; (2) neither the Applicant nor any of the general or limited partners comprising the LES limited partnership have the financial ability, individually or jointly, to fund the $816 million (in 1992 dollars) construction costs of the CEC or 30 to 40% of that amount as the equity portion of the construction costs pursuant to the Applicant's financial plan; (3) none of the corporate aftiliates of the LES general and limited partners with the financial ability to furnish construction funding have provided the LES general and limited partners with funding commitments, agreements, or contracts of any kind that would permit the j

LES general and limited partners to fund the equity portion of the construction -

costs of the CEC;28 and (4) the Applicant has neither specifically identified the l

2N Although none of the corporate aflibates of the LES general or hmired partners have inade any construction j rundmg comnutnrnts that nret the requuenrnts of the Comnunion's regulations, the Apphcant's witnesses I repeatedly emphasized that these compames had spent over $30 nulhon on the venture phase of the project and )

thus they were serious about conunuing the project. (Doudiet-Arnold at 25 fol. Tr. 563. Tr 676-77.) But such  ;

venture-phase contnbutions do not demonstrate any comnutment by the corporate parents and afhhaies of the LES general and hnuted partners to contnbute the equay poruon of the construction funds for the project. As the  ;

very name " venture" phase connotes. it is an exploratory undertaking of uncertain outcome and, here, none of the venture-phase parucipants are obligated to provide any further capital beyond that phase. (1-DO-44 arts. XI, XtIt)

Certainly $31.7 nulhon is not a tnthng sum, but exh of the individual contnbunons of the vanous participants is a sigm6cantly smaller amount and the total venture capital expenditure must be put in the context of a proposed project with estimated total costs of approximately $16 bilhon. Thus. these senture capital expenditures do not demonstrate a conunitment by the corporate parents and affihates of the LES general and hmited partners to fund the equity portion of the construction of the project indeed, the evidence convincingly shows that two of the venture phase parucipants have no intention of l

parucipaung past the venture phase. Duke Power Company, the parent corporation of LFS general and hmited partner Cl.uborne Energy Services. Inc. (that together have over a 25% interest in LESt stated in a wntten report (Contmud) l

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financial institutions nor detailed any loan agreements, sommitments, or other contractual arrangements with the lending banks upon which it will rely for the debt portion of the construction funds for the CEC as stated in the LES financial l

l plan. Accordingly, we conclude that the Applicant has not demonstrated it is j financially qualified to construct the CEC as required by the Commission's regulations.

In making these findings, we note that one recurrent theme of the Applicant's witnesses was that, because the LES general and limited partners were all i

affiliates of other substantial corporations and the funding for the CEC could i

come from those companies, the distinction between the LES general and l limited partners and their corporate affiliates was merely a convenience for the l l organizations and was not important for purposes of determining the financial '

, qualifications of the LES partnership and its general and limited partners?

(Doudiet Tr. 572-73, 578, 613.) For example, Mr. Doudiet testified that "my  ;

personal view is that whether something is directly owned by the ultimate parent '

or has three levels of subsidiaries, from the standpoint of what we are interested ,

in here [i.e., financial qualifications), really has not a great bearing on it." (Tr. l 578.) Further, he stated that "as a financial analyst, I often, in looking at l

partnership structure like this, do not make a distinction between the limited or i general partners and the ultimate parents, because for financial purposes, the top line of the ultimate parents is where the financial resources come from." (Tr.

613.)

Contrary to the assertions of the Applicant's witnesses, however, the status of the 1 ES general and limited partners as first- or second-tier wholly owned subsidiaries of other corporations is highly relevant under the Commission's ihancin! qualifications regulations. Each of the LES general and limited part-neis, like the LES partnership itself, is a newly formed entity organized for the to one of its state regulators, the North Carolina Uuhties Commission. its intenuon to sell or redeem the large i nuyority of its share in LES perhaps retaining only a small interest. (1-Do-41 at 6 ) Sinularly. LES hnuted I partner. Imuisiana Power and Light Company. the wholly owned subsidiary of Entergy Corporation and holder of a 410% interest in LF1 represented to one of the Comnussioners situng as a heanng esanuner for the Louisiana Public service Commission that it would cash out its interest at the conclusion of the venture phase. (1-DO-42 at 46.) While the Applicant's witnesses sought to downplay this evidence. staung the obvious literal truth that Duke Power Company had not represented that it would " abandon" the project (Doudiet-Arnold at 23 fol. Tr.

563) and that it was possible Louisiana Power and ught Company nught reevaluate its position (Tr. 753) them representations by uuhty comparues to their state regulators clearly show that neither the parent corporation of Claiborne Energy Services. Inc.. nor Louisiana Power and Light mil fund construction of the CEC. Moreover, the Apphcant's witnesses tesufied that LES would scelt additional partners if the current hnuted partneri d d not provide sufficient equity for construction funding but LES presented no evidence of addiuonal participants in the ect.

p* Indeed. even though the LES general and bnuted partners and their respecuve corporate parents and other corporate affshates are separate corporations and these parent as affiliale corporations are not members of tir LES bnuted partnership, in their tesununy. Mr. Doudiet and Dr Arnold generally do not distinguish among these different enunes but turnp them all together. (See Tr. 61Fli.) In doing so. the Applicant's witnesses use terms hke LES partners partners. afhliates, and entities to include the LES general and knuted partners and their respective corporate parents and affiliates even though such neaning is hterally incorrect. Portions of the Partnership Agreement suffer from the same imprecision in language 401

purpose of constructing and operating the CEC. As such, none of these special-purpose entities, unlike established organizations, have any operating history and financial track record by which their stability and financial qualifications can be objectively judged. For this reason, when newly formed special. purpose entities rely upon corporate affiliates for construction funding, the Commission's financial qualifications regulations require such entities to demonstrate both the financial capability of the corporate affiliates to contribute the construction funds and commitments by the corporate affiliates to provide the funds.3" The financial capability of a corporate affiliate to contribute construction funding without a concomitant commitment to provide the funds, is no more useful in objectively judging the financial qualifications of a LES general or limited partner than a commitment to provide the funds from a corporate affiliate financially incapable of contributing the construction funding, Thus, far from being a matter of lit-tle significance as the Applicant's witnesses assert, the corporate relationship between newly formed special-purpose entities and their corporate affiliates is of central importance under the Commission's financial qualifications regula-tions?

A second recurrent theme of the Applicant's witnesses was that, at the ap-propriate time at the close of the senture phase, the corporate affiliates of the LES limited partners would decide whether to fdnd them for the construc-tion phase, Once a decision to proceed was made, the LES limited Partners ,

would then be funded by their corporate affiliates with the equity portion of I the construction costs and I.ES would then be able to attract debt financing and l

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Y Indeed. tius regulacry requiremen of a funding comnutnrnt is merely un impheit recogmuon that under genreal I pnnenples of corporate law a subudiary corporacon is independent of its parent corporauon or other corporate l afbliates. Thus, absent contracts or other legally enforceable commitments between a subsidiary and its parent l or corporde afhhaies, there is no ohhgation or responc bihty on the part of the parent rr aftihac corporauons to support the acuvities of a subsidiary Smularly, the subsisary has no recoune against its parent or corporate afhhares to force support for its acunties, Addiuonally, here, under the provisions of the Partnership Agreenent, the parent and other corporate af6haies of the LES general and linuted partners are not responuble for the indebtedness or obhgations of the LES partnenhip. (1-DO-44 art IV,14 2.)

Thas, by argtung that the Applicant need only show the hnancial capabihty of the parents or other corporate aftiharts to contnbute construccon funding and that it need not demonstrate any commitment by them to prende the funds, LES would hke "to hase its cake and eat it too." The Apphcant seeks to shield the parents and other corporate affihates from any obhgation to pro,ide construcuan funding, but soll holds out the hnancial stature of those corporauons to demonstrate the financial quahtications of the LEs general and hnuted partners - an a h prohibited by the Comnussion's hnancial quahticauons regulations.

In hke vein, Mr. Dou&ct asserted that len&ng insututions would consider the LES general and hnuted partners "one and the same* as their financially substanual corporate parents and affiliates (Tr 573 ) Mr Dou4et conceded, however, that it is LES and the LES general partners that will be hable to a lender for any debt, that a lender has no recounc against any parent corporation or other corporate affihate of the LES general partners, and that these factors affect the interest rate 115 would have to pay in borrowing funds. (Tr. 70142.) For these obvious reasons, comnercial lenders, much hke the Comnussion in judging the financial quahticauona of a newly formed special-purpose enuty under the financial quahfications regulations, look to the hnancial capabihty of afhhated compan es only to the estent such entiues have comnutted to guarantee the loan or otherwise legally conurutted themselves to a project 402

he financially quahtied to construct the CEC.32 As we have already detailed in our discussion of the applicable legal standard, howeser, the Commission's regulations require the Applicant to demonstrate its financial qualifications to construct the CEC prior to licensing, not at some future time convenient to the Applicant's determination whether to build the plant. Thus, because the relevant time period for a financial qualifications determination is the present, future l speculative contingencies do not satisfy the Commission's regulations. To obtain l a license, LES must demonstrate the commitments of the corporate affiliates of the LES partners to fund the equity portion of the facility construction costs.

Additionally, the Applicant must identify the financial institutions from which it i

intends to borrow the debt portion of the construction costs and detail its loan

, commitments? l l

Our finding that the Applicant has not demonstrated that it is financially '

qualified to construct the CEC in accordance with the Commission's regulations 32 1n this regard. the Apphcant states that the "Intervenor also acknowledges that once the substanual parent corporuuons have comnutted equity to the project. "one would be able to go to financial insututions and get 4 a comnutment for debt financing.'" (App. PT, at 151 quonng Tr. 795 ) The Appucant's auertion is umply intorrect. The alkged quotation from page 795 of the transenpt does not appear on that page and our computer search of the heanng transcripts indicates there is no such quotauon in the record. With the excepuon of the subject of the sentence, the quoted words can be pieced together from two paragraphs appearmg on that page but the Applicant has not included any ellipws in its quotauon. Most important. the Appheant's a.nertion mischaractenzes the Intervenor's tesumut y and ignores the four conditions Mr. osterberg indicated were neceuary to obtain debt hnancing. We trust the Applicant's error was inadvertent.

"Because the Appheant has not idenufied its lenders or detaileJ tts loan cornnutnwnts as required by the Comnuwion's regulations we need not specifically address the Applicant's anwruons, under its erroneous interpretation of the hnancial quahhcauona regulations. that LES has reasonable a.uurance of attracting debt hnancing due to the anerted viabihty of the project. In this regard. we note, howeser, that even under the Appheant's erroneous legal standard, LES has failed to demonstrate that there is reasonable assurance of obtaining debt financing. No one has better summanzed the uncertamty of secunng debt financing for construction and the uncertainty of building the CEC in the current market than Dr. Klaus P. Messer. the Cluef Execuuve officer of Urenco Ltd - a 47% stakeholder in LES through its various subudiaries ano corporate aftiliates and the company supplymg the technology and the centnfuges for the CEC in an mNrview appeanng in the %Aem Matarr Arport that was adnusted into evidence pursuant to the stipulation of the parties. Dr. Meswr was asked about obtainmg financing for the project and candidly responded as follows NUKEM. Are you confident of gettmg the fmancial supportfor the US plant shouM you decide to bustd it' MEsSER: No. we are not This is due to the unknown effect the Russian HEU will have on the market The USEC will be paying about s32 per SWU If the U S uulities have access to a substanual amount of material at such low pnces, it will hur+ us.

We also don't know how the matching agreement will work out. obviously, this puts USEC in a very advantageous and, I would say, unfair position. telauve to the other ennchers, because it potentially lets USEC become a large trader of cheap Russian SWUs. I don't know if LES is viable under these circumstances The financial backing will only be available if we can sell in the U.S. from a new U S.

plant at acceptable pnces.

(1-Do-22 at 18.) Even more reveahng, was his response about buildmg the CEC in the current market.

NUKEM is there any point where you would gise up on LES?

M ESSER. We would never consider that because we don't have to. Whv should we? We would never give up an option if we can keep it at no cost. Market circumstances snay change tomorrow and we may decide to build immediately nhat of there ss a polnical thange in Rusna and the HEU dealjust disappears? The world would urgently need cheap ennehment quickly and with a high degree of secunty of supply.

(Contmued) 403 4

is without prejudice to the Applicant acting to amend its financial plan to conform to the requirements of the Commission's regulations. Further, because we fimd that the Applicant is not financially qualified to construct the CEC, we do not reach the question of whether LES is financially qualified to operate the facility. In addition to the foregoing findings on contention Q, we have carefully considered all the other arguments, claims, and proposed findings of the parties on this contention and find that they are either without merit, immaterial,' or unnecessary to this Decision.

IIL CONCLUSION For the reasons detailed in Part I, we conclude that the Staff's treatment of i the need for the facility in the FEIS is inadequate and that the FEIS must be amended as set forth in Part I.D.4. To that extent, the Intervenor's contention J.4 is sustained. Additionally, for the reasons detailed in Part I.E. we conclude that the Staff's treatment of the no-action alternative in the FEIS and its cost-benefit analysis in the FEIS is inadequate and that the FEIS must be amended consistent with the Board's decisions. Thus, the Intervenor's contention K is sustained. I Finally, we conclude in Part !!.E that the Applicant has not demonstrated that )

LES is financially qualified to construct the Claiborne Enrichment Center within  ;

the meaning of 10 C.F.R. 6 70.23(a)(5). Therefore, the Intervenor's contention l Q is sustained. I Pursuant to 10 C.F.R. 5 2.760 of the Commission's Rules of Practice, this Partial Initial Decision will constitute the final decision of the Commission on l these contentions forty (40) days from the date of its issuance unless a petition for review is filed in accordance with 10 C.F.R. 5 2.786, or the Commission directs otherwise. Within fifteen (15) days after service of this Partial Initial Decision, any party may file a petition for review with the Commission on the j grounds specified in 10 C.F.R Q 2.786(b)(4). The filing of a petition for review i l

UJ) Although the Applicant introduced a subsequent letter from Dr. Messerin an attempt to explain tus interview, nothing in that letter changes the eswntial import of Dr. Messer's original remarks. (App. Exh.15.) In light ,

of the current and future market forecast for enrichnwnt services, the other sigmlicant risk factors impactmg the l viabihty of the project, and Dr Messer's assessnwar that he is not conndent the project will obtain debt Snancing. i ilm Appbcant has presented no assurance. trasch less reasonable assurance, that LES can obtain the necessary debt unancing in any event as we already have explained, under Ltw correct legal standard for judgmg the Appheant's Snancial quahtications, the Commisuon is enntled to know the idenury and details of the hnancing commitnwnts for the debt l funding before granting a Dycar heense foi the CEC. Under the Comnussion's regulations. the importance of a '

preficensmg review of the idenuty and comnutment of the sources of debt Anancing takes on an added dirnension <

in the beenung of the first pnvate enrichment facihty in the Uruted states because of the obvious naconal secunty I interests involved. The necessary result of the Appbcant's erroneous interpretation of the Comnuwon's 6nandal quah6 cations regulations, however, is essentially to cede to t.ES, its general and hmited partners, and their vanous parent and afhhate corporauona, unreviewed discretion regarding the source and condauons of debt hnancing over the Mycar tenn of the license. The Comnussion's financial quahticauons regulations do net authorize any such result.

404

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l is mandatory in order for a party to have exhausted its administrative remedies before seeking judicial review at the appropriate time. Within ten (10) days after service of a petition for review, any party to the proceeding may file an ,

answer supporting or opposing Commission review. The petition for review and I any answers s'nall conform to the requirements of 10 C.F.R. 0 2.786(b)(2)-(3).

, it is so ORDERED.

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Tile ATOMIC SAFETY AND LICENSING BOARD i

Thomas S. Moore, Chairman 4

ADMINISTRATIVE JUDGE Richard F. Cole 1 ADMINISTRATIVE JUDGE I Frederick J. Shon ADMINISTRATIVE JUDGE December 3,1996 Rockville, Maryland l

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l Cite as 44 NRC 406 (1996) LBP-96-26 UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION ATOMIC SAFETY AND LICENSING BOARD I

l Before Administrative Judges:

i Charles Bechhoefer, Chairman  ;

[ Thomas D. Murphy 1 i Frederlek J. Shon l

i I In the Matter of Docket No. 72-18-ISFSI (ASLBP No. 97 720-01-ISFSI) i NORTHERN STATES POWER COMPANY (Independent Spent Fuel Storage Installation) December 3,1996 l

l In a proceeding involving a proposed license for an independent dry-cask spent fuel storage installation, the Atomic Safety and Licensing Board grants the Applicant's motion to suspend the proceeding, pending resolution in state court of a state agency's determination concerning site suitability. The Licensing Board also denies a cross motion to dismiss the application without prejudice.

The Board imposes quarterly reporting requirements on the Applicant during the suspension period.

STATE REGULATORY REQUIREMENTS: INTERPRETATION In a situation where a particular course of action by an Applicant is being l challenged under state law, whether or not that action is a violation of state law l is not a question for which a Licensing Board is an appropriate arbiter but rather is a question for state authorities to determine.

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l MEMORANDUM AND ORDER l (Motion to Suspend Proceeding) I Pending before us is the November 13,1996 motion of Northern States Power Company (NSP) to suspend this proceeding, which involves a proposed offsite independent spent fuel storage installation (ISFSI). For reasons set forth below, we are granting this motion, subject to specific reporting requirements that we are imposing on NSP.

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1. IIACKGROUND l

This proceeding involves NSP's application for an independent spent fuel i storage installation, intended as a dr,-cask storage facility, located in Goodhue County, Minnesota. In response to a notice of opportunity for a hearing, published in the Federal Register of September 17, 1996, seven entities filed l petitions for leave to intervene. On October 24,1996, we issued a Memorandum I and Order outlining standards for intervention, setting forth dates for the filing of supplements to the intervention petitions, including proposed contentions, and responses, and scheduling the initial prehearing conference to begin on Tuesday, December 17, 1996, in St. Paul, Minnesota. LBP.96-22,44 NRC 138.

One of the Petitioners for intervention - the State of Minnesota Environmen- l tal Control Board (MEQB) - on October 14, 1996, submitted its intervention l

petition. That petition recited that the MEQB "has authority over power plant siting, transmission line routing, wind power systems, environmental review, i and other matters"- and specifically "the siting of r. dry cask storage facility" ]

in Goodhue County, Minnesota. It stated that NSP cannot under Minnesota law site a dry-cask storage facility without a site certificate from the MEQB, and j that on October 2,1996, the MEQB denied NSP's application for such a site l certificate for the proposed away-from-reactor ISFSt. l The MEQB attached to its petition the MEQB Resolutions and Findings of Fact, Conclusions, and Orders that it had adopted on October 2, and concluded that "[aln order from the NRC issuing a materials license for a dry cask storage facility in Goodhue County would not by itself authorize construction of such a facility since the MEQB has denied a site certificate for the facility." MEQB l Intervention Petition at 2. According to NSP, and as reflected in the October 2 MEQB Order, the MEQB also determined that the sites identified by NSP in its application to the NRC are not comparable to the onsite ISFSI at the Prairie Island facility and that no site in Goodhue County can be comparable to the onsite ISFSI.

One of the other intervention Petitioners - the Prairie Island Indian Com-munity (PIIC), which submitted its petition on October 15, 1996 - filed an 407

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I appeal to the Minnesota Court of Appeals of the October 2,1996 MEQB order.

In addition, according to NSP, the PIIC is seeking a stay pending appeal of the MEQB orders.

II. DESCRil'flON OF MOTION The asserted purpose of NSP's suspension motion is to hold this proceeding in abeyance pending resolution in state courts of the PIIC appeal of the MEQB order. NSP anticipates that the appeal to the Court of Appeals will be resolved i by May 31,1997, but adds that, in the event an appeal is taken from the Court of Appeals and accepted by the Minnesota Supreme Court, NSP would seek to have the suspension extended.

J NSP assigns three principal reasons why suspension is appropriate. First, 1 suspension would save the Board's resources that would be expended to review and rule on contentions and conduct further proceedings, if necessary. Second, l suspension would save the resources of state agencies and other Petitioners in reviewing and analyzing the application, preparing contentions, attending hearings and other forms of participation. Finally, suspension is said to alleviate some of the anxiety of residents near the plant and proposed alternate sites. Because the Minnesota Court of Appeals could resolve the ur. certainties surrounding development of an away-from-reactor ISFSI, suspension pending that decision is assertedly beneficial.

1 III. POSITION ON MOTION OF PARTIES l AND PETITIONERS I in response to NSP's motion, we have received responses from Florence ,

l Township, the NRC Staff, the City of Lake City, the Prairie Island Coalition, the Minnesota Environmental Quality Board, the City of Red Wing, the Minnesota Department of Public Service, and the Prairie Island Indian Community (PIIC).

Only the PilC opposed the motion. Florence Township (supported by the Prairie Island Coalition) moved either to dismiss without prejudice NSP's application or, alternatively, to grant NSP's suspension motion, with a regrest to provide 60 days' notice prior to resumption of this proceeding. The NRC Staff responded to the Florence Township motion to dismiss.

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I IV. ANAIXSIS I

%e position of various parties or Petitioners (other than NSP or the NRC Staff) on the motion depends in large part on their position with respect to the i offsite ISFSI. The only Petitioner that is opposed to the motion to suspend -

the PilC - seeks, according to its intervention petition, to avoid the storage of further wastes on the Prairie Island site, logically by storing those wastes at an away-from reactor site. It thus seeks completion of these proceedings, with a view of NRC approving the license for the away-from-reactor ISFSI as j expeditiously as possible. It claims that, by seeking suspension, NSP is acting '

contrary to state law.

On the other hand, Florence Township, which is now seeking dismissal (albeit without prejudice) as its preferred alternative (although accepting suspension as a less-desired alternative) is adamantly opposed to the away-from-reactor storage .

site selected by NSP. Its intervention petition recites, inter alia, that Florence l Township is the unit of government with jurisdiction over the proposed ISFSI site and that " Florence Township will suffer injury-in-fact if the NRC licenses an ISFSI in Florence Township." 1 The NRC Staff offered no objection to our granting NSP's suspension motion.

It added that it has suspended its own review of NSP's application, and has required NSP to file quarterly status reports. But the Staff provided both l jurisdictional and merits bases for our not accepting Florence Township's motion '

to dismiss.

Taking into account the views expressed by all parties and Petitioners, we find the balance of equities to favor granting the suspension sought by NSP, coupled with the notice requirements sought by Florence Township. Most Petitioners favor that course of action, at least as an alternative. The inconsistency with )

state law, primarily relied on by the PilC as a basis for not suspending, is a matter that NSP must certainly take into account. If NSP is violating state law, it will have to bear the consequences (under state law) of such violation. But whether or not a violation is in fact occurring is not a question of which we are i I

an appropriate arbiter. That is a question for state authorities to determine.

On the other hand, dismissal (as sought by Florence Township, with support from the Prairie Island Coalition) would not appear to serve a beneficial purpose. j Apart from the jurisdictional questions raised by the Staff, which we will not touch upon at this juncture, dismissal would entail additional expenditure of resources by all parties and Petitioners. A new Federal Register notice would have to be prepared, Petitioners would again have to file intervention requests (including information supporting standing), time limits would have to be l reestablished, and we would have to review and act upon those requests. Because l both NSP and the Staff support Florence Township's standing, we would expect l l

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that it could establish its standing with very little, if any, modification to its intervention petition.

For all of these reasons, we are granting NSP's motion to suspend. As part of this suspension, the prehearing conference currently scheduled for December 17-19 :n St. Paul, Minnesota, is being cancelled. As Florence Township has requested, we will provide 60 days from the end of suspension for the Petitioners to make such modifications as they deem necessary to their intervention petitions and to file their contentions. Thereafter, we will schedule a prehearing conference to consider the matters we would have considered at the December 17-19,1996 conference.

We are directing NSP to file quarterly status reports with the Board and parties or Petitioners, on the same dates as NSP files status reports with the NRC Staff. Although the same reports will probably suffice, the reports to the Board and parties or Petitioners should review the status of the state coun litigation upon which the suspension request was founded.

V. ORDER For the foregoing reasons, and based upon a consideration of the filings of all of the parties and Petitioners, it is, this 3d day of December 1996. ORDERED:

1. NSP's Motion to Suspend Proceeding, dated November 13,1996, is hereby granted.

2. Florence Township's Motion to Dismiss Proceeding Without Prejudice is hereby denied.

3. The prehearing conference hereby scheduled for December 17-19, 1996, in St. Paul, Minnesota, is hereby cancelled, to be replaced by a similar conference following resumption of the proceeding.

4. After NSP notifies the Board and parties or Petitioners that it is prepared to resume the proceeding, the Board will provide at least 60 days for the amending of petitions for leave to intervene and filing of contentions.

5. NSP is directed to file quarterly status reports with the Board and par-ties or Petitioners, on the same dates that it files its status reports with the NRC l

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I Staff. De report filed with the 130ard and parties or Petitioners should review the status of the state court litigation.

THE ATOht!C SAFETY AND LICENSING BOARD i

Charles Bechhoefer, Chairman ADh11NISTRATIVE JUDGE Thomas D. hturphy  :

ADh11NISTRATIVE JUDGE l Frederick J. Shon ADhtINISTRATIVE JUDGE Rockville, hfaryland December 3,1996 l l

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l Directors' Decisions Under l 10 CFR 2.206 i

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, Cite as 44 NRC 413 (1996) DD-96-22 UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION 1

OFFICE OF NUCLEAR REACTOR REGULATION Frank J. Miraglia, Jr., Acting Director 1

4 in the Matter of Docket No. 50-219 1

GENERAL PUBLIC UTILITIES NUCLEAR CORPORATION (Oyster Creek Nuclear Generating Station) December 11,1996 i

The Acting Director of the Office of Nuclear Reactor Regulation denies pe-titions dated May 11 and June 14, 1996, filed with the Nuclear Regulatory Commission (NRC) by Mr. William decamp, Jr., on behalf of Oyster Creek Nuclear Watch (Petitioner) requesting the NRC to investigate statements made by GPU Nuclear Corporation (GPU) in the April 1996 publication Neighbor-hood Update (the Licensee's news magazine) and during sworn testimony on March 7,1996, before the Lacey Township Zoning Board of Adjustment and take appropriate disciplinary action. The statements are that GPU and the Com-i mission agree that a Licensee amendment request that involves the movement of spent fuel from the Oyster Creek Nuclear Generating Station spent fuel pool to the storage facility while the plant is at power "is not a safety issue but a

procedural one" and that it is unsafe to operate the Oyster Creek reactor without l full core offload capacity. The Petitioner asserte that the statements are false, referencing language in an NRC Bulletin stating that the NRC Staff determined 4 that the Licensee's proposal involved an unreviewed safety question and that

the NRC ruled in February 1985 in 10 C.F.R. Part 53 that reactors may safely j be run without full-core offload capacity.

3 OPERATING LICENSE: AMENDMENTS

. When the NRC receives an amendment application, it is required to follow specific procedures set forth in 10 C.F.R. 6 50.91.

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TECHNICAL ISSUE DISCUSSED: FULL-CORE RESERVE While a full-core reserve capability is not an NRC licensing or safety requirement, maintenance of full-core reserve would enhance safety to some extent, and would also be needed to prevent extended reactor outages in the event a core must be discharged in order to inspect the reactor pressure vessel and perform other routine and unscheduled maintenance operations.

DIRECTOR'S DECISION UNDER 10 C.F.R. 5 2.206 I. . INTRODUCTION By letters dated May iI and June 14, 1996, Mr. William decamp, Jr.,

requested on behalf of Oyster Creek Nuclear Watch (the Petitioner) that the U.S. Nuclear Regulatory Commission (NRC or Commission) take action to investigate statements made by GPU Nuclear Corporation (GPU) in the April 1996 publication Neighborhood Update (the Licensee's news magazine) and during sworn testimony on March 7,1996, before the Lacey Township Zoning Board of Adjustment (the Zoning Board). The Petitioner asserts that the l statements are false. The Petitioner further requests that NRC take appropriate

! disciplinary action against GPU management. ' Die Petitioner's requests are

( ' being treated as petitions pursuant to section 2.2% of Title 10 of the Code of l Federal Regulations (10 C.F.R. 5 2.206).

The specific statements of concerns are (1) the statement in the Neighborhood Update that GPU and the Commission agree that a license amendment request that involves the movement of spent fuel from the Oyster Creek Nuclear i Generating 9ation spent fuel pool to the storage facility while the plant is at power "is not a safety irsue but a procedural one" and (2) a sworn statement by Mr. Barton, who was the Director of the Oyster Creek Nuclear Generating Station, before the Zoning Board that it is unsafe to operate the Oyster Creek reactor without full core ofiload capacity, ' Die Petitioner, furthermore, requests that if no special situation is found that prevents Oyster Creek from operating without full ofiload capacity, the Commission take appropriate disciplinary action against GPU management for making a false statement under oath.'

3 The Petitioner is not asserting dut the IJcenwe has provided falw information to the Nuclear Regulatory Comnussion. A bcensee's obhgation to ensure the congleteness and accuracy of its conununicauons with the Comrnission is set forth in 10 C.F R. 4 50 9(a). This regulation requires, in part, that [ilnformation provided to the Comnuseion by an applicant for a heen.w or by a beensee or informauon requireu by statute or by the Commission's regulanons, orders. or bcense conditions to be nuuntained by the apphcant or the beenwe shall be cornplete and accurate in all matenal respects.*

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lbr the reasons stated below, I am denying the relief requested by the Petitioner.

II. DISCUSSION A. GPU Statement That the Movement of the Fuel Raises a Procedural Issue, Not a Safety Issue As a basis for the request regarding the first concern that the statement in the Neighborhood Update is untrue, Petitioner referenced the following execrpts from NRC Bulletin 96-02 (NRCB 96-02), " Movement of Ileavy Loads Over Spent Fuel, Over Fuel in the Reactor Core, or Over Safety-Related Equipment,"

of April i1,1996:

The NRC staff audited both the initial and updated 10 CER. 50.59 evaluations performed by the Licensee [GPt1 Nuclearl and determined that the proposed cask movement activities represent an unreviewed safety question that should be submitted to the NRC for review and approval pursuant to the requirements of 10 CER. 50.59 and 50.90 . Accordingly, as defined in 10 CER. 50 59(c), if an actisity is found to involve an unresiewed safety question, an application for a license amendment must be filed with the Commission pursuant to 10 CER. 50.90.

GPU met with the NRC Staff on November 19, 1993, to discuss plans for using the reactor building crane to move spent fuel out of the spent fuel pool in a transfer cask for transpof tation to the dry cask storage facility during power operations at Oyster Creek. During the discussions, the NRC Staff raised concerns regarding the use of the crane and its ability to meet the heavy load criteria of NUREG-0612, " Control of Heavy Loads at Nuclear Power Plants." j GPU indicated that this special application of the crane would be evaluated pursuant to 10 C.F.R. 6 50.59.2 NRC stated that it would conduct an audit of the 50.59 evaluation.

In April 1995, GPU informed NRC that the section 50.59 evaluation for use of she crane to move the transfer cask was complete. On May 2 and 3, June 12, and October 12 and 13,1995, the NRC Staff conducted onsite audits and met with GPU at Oyster Creek regarding the use of the crane. On November 2,1995, )

in a telephone call between the NRC Staff and Mr. Keaten, Vice President and 2

Section 5059 provides, in part. that a licenwe may make changes in the facility or proc. dures as denned in the safety analyus report withor't pner Commission approval unless the proposed change involves a change in the technkal speciacations or an unreviewed safety quesuon. The regulation, furthemwre, requires the hcensee to prepare and maintain a written safety evaluauen addressing the issue of whether the proposal involves an unreviewed safety quesuon. A proposal is deemed to involve an unrevwwed safety quesuon if (1) it involves an trw:rease in the protiabihty or consequences of an accident previously evaluated, or (2) creases the posubihty of a new or different kind of accident from any accident prevmusly evaluated, or O) involves a reduccon in a nurgin i of safety as deAned in the basis for any technical speciacation.

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l Director, Technical Functions, GPU, the NRC Staff advised GPU that the Staff's con frus regarding the use of the non single failure-proof crane to move the 100-tui trcosfer cask while the plant was at power had not been resolved by its section 50.59 evaluation. Specifically, the Staff was concerned that the activity )

involved the movement of loads heavier than previously considered in the final l

safety analysis report (FSAR) and, therefore, might reduce the margin of safety, I and that a load drop in the reactor building might result in consequences greater than previously evaluated in the FSAR and, therefore, may pose an unreviewed safety question.

Consequently, Mr. Keaten advised the Staff that GPU was considering a plant modification, including reactor building crane upgrades, that would address the Staff's concerns.

'Ihe NRC Staff inspected the Licensee's updated section 50.59 evaluation which considered the reactor building crane upgrades. The NRC Staff's inspections included sending a team to Oyster Creek. The Staff concluded that its safety concerns had been addressed and resolved. The NRC Staff also determined that the Licensee's planned movement of spent fuel to the dry storage facility during plant operation was safe and in accordance with all license requirements. Notwithstanding the technical acceptability of the Licensee's methodology and analysis in the updated section 50.59 evaluation, NRC Staff determined that since the possibility of an unreviewed safety question (USQ) had been involved before the Licensee made modifications to upgrade the reactor building crane, GPU must submit a license amendment application for the proposed cask movement activities. At the public meeting on February 29, 1996, GPU was mformed by the NRC Staff that an amendment was required.

When the NRC receives an amendment application, it is required to follow j specific procedures set forth in 10 C.F.R. 5 50.91.)

Accordingly, the Staff finds, after its review and evaluation of the Licensee's proposed action, that there are no safety issues preventing the adoption of the proposal, but procedures require amendment approval before the proposal can be implemented,

11. GPU Statement Concerning Safe Operation and Full Core Discha"e Capability As basis tur the Petitioner's request concerning GPU statements about safety and full-core discharge capability, the Petitioner sets forth excerpts from Mr.

)

3 Section 5o91 requires the Comnnsion to use speci6ed procedures when it receives an appbcanon requesung an amendment to an operaung bcense including procedures that concern consulung the state in which the rm:ihty is located and procedures concerning providing nou6 canon to die public or the tjcenwe's anwndment. the Commission's hndings or deternunanons regarding the amendment, and opportumty ror a heanng.

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l Barton's testimony of h1 arch 7,1994, before the Zoning Board, and states that J

"the NRC ruled in Rbruary 1985 in 10 C.F.R. Part 53 that reactors may safely '

be run without full-core oftload capacity "4 He Petitioner quoted in a letter and enclosed, underlined in red [italici:ed below), copied portions of h1r. Barton's testimony as follows:

If we do not install the dry spent fuel storage modules by 1996, the plant would not hase the capacity of totally off. loading fuel from the reactor to the in-plant spent fuel pools.

(transcript pp. 94 95)

In order to operase safely me should be able to remose thisfuelfrom the reactor and store 1 it in the spent storage pool . (transcript p. 95)

Without dry storage and without the abdity to remove this fuel from the reactor, the plant j would not be able to operate. (transcript p. 95) hir. Barton's full testimony in context with the Petitioner's extracted quotes is as follows:

The fall of 1996 is a critical time for plant operations. If we do not install the dry spent l fuel storage modules by 1996, the plant would not have the capabihty of totally off-loading fuel from the reactor to the in-plant spent fuel pool. This is not a desirable operating configuration, should the plant need to conduct internal inspections of the reactor vessel that would require fuel to be removed from the reactor. In order to operate safely we should be able to remove this fuel from the reactor and store it in the spent fuel stnrage pool inside the plant, and after 1996 we will not hase the flexibility to do that. Without dry storage and without the abihty to remose all the fuel from the reactor, the plant would not be able to operate. (transcript p. 95)

Taken in context, it appears that what hir. Barton is stating is that he is concerned with operations management due to the inability to have full-core ofiload capability and that having full-core ofiload capability can in certain situations enhance safety. The plant has the capacity to complete one more refueling operation before they will not be able to operate without dry storage capability as hir, Barton stated. The Commission has stated a similar view with regard to the issue of maintaining full core reserve storage capability:

While a full core reserse capabdity is not an NRC licensing or safety requirement, mainte.

nance of full core reserve would enhance safety to some extent, and would also be needed to prevent catended reactor outages in the event a core must be discharged in order to in-spect the reactor pressure vessel and perform other routine and unwheduled maintenance 8

operations d

ihe Comnussion has stated that a full-core reserve capability is not an NRC safety requirement. 50 itd. Peg 5548. 5549 (1985).

5 The NRC's Statenwnts of Consderabon concertung the anwndnent of 10 C.F R. Parts I and 53 enutled. "Cnteria and Procedures for Deternuning the Adequacy of Available Spent Nuclear ruel Storage Capacity." 50 fid. Reg.

5543, 5549 (1935).

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'Ihe December 6,1993 Zoning Board hearing testimony of hlr. Gordon Bond.

Director of Nuclear Analysis and Fuel for GPU Nuclear, also supports the view that the concern is with operations management. When asked whether it is important to maintain full-core discharge capability, Mr. Bond responded as follows:

We believe it is It's not required by federat Regulations, but we believe it's prudent to allow sufficient raerve capacity in our pool to be able to oftload the core any time that we may have to. Fur example, you may want to do sonw inspecuons mside the sessel, and to do that you'll need to remove all of the fuel. (transcnpt p. 32)

Accordingly, the Staff finds that the statements and remarks of Mr. Barton in their context are not false or misleading.

V. CONCLUSION The NRC Staff has reviewed the statements made by GPU in the April 1996 Neighborhood Update (the Licensee's news magazine) and the testimony of GPU managers before a local zoning board and concluded that the assertions raised by the Petitioner are without merit and that there is no basis to take any action against GPU. Accordingly, the Petitioner's requests are denied.

A copy of this Director's Decision will be filed with the Secretary of the Commission for the Commission to review as stated in 10 C.F.R. 5 2.2%(c).

This Decision will become the final action of the Commission 25 days after issuance unless the Commission, on its own motion, institutes a review of the Decision within that time.

FOR THE NUCLEAR REGULATORY COMhtlSSION Frank J. Miraglia, Jr., Acting Director Office of Nuclear Reactor Regulation Dated at Rockville, Maryland, this iIth day of December 1996.

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Cite as 44 NRC 419 (1996) DD-96-23 UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION i

I OFFICE OF NUCLEAR REACTOR REGULATION I

Frank J. Miraglia, Jr., Acting Director l

In the Matter of Docket No. 50-245 (License No. DPR-21)

NORTHEAST NUCLEAR ENERGY COMPANY (Millstone Nuclear Power Station, Unit 1) December 26,1996 j By a petition dated August 21,1995, and supplemented on August 28,1995, from htr. George Galaris and We the People, Inc. (Petiticners), Petitioners raised issues regarding the htillstone Nuclear Power Station, Unit 1 (htillstone Unit 1), operated by Northeast Nuclear Energy Company (NNECO or Licensee), j Petitioners asserted that the Licensee has knowingly, willingly, and flagrar,tly  !

operated hiillstone Unit 1 in violation of License Amendments No. 39 and No. 40. Specifically, Petitioners assert that NNECO has offloaded more fuel i assemblies into the htillstone Unit I spent fuel pool (SFP) during refueling outages than permitted under these license amendments. Petitioners also asserted that License Amendments No. 39 and No. 40 for hiillstone Unit I are based on material false statements made by the Licensee in documents submitted to the NRC.

Based on their assertions Petitioners requested a variety of actions. Petition-ers requested institution of a proceeding under 10 C.F.R I 2.202 to suspend the j license for the hiillstone Unit I facility for a period of 60 days after the unit is brought into compliance with the license and the design basis and to revoke the operating license for the hiillstone Unit I facility until it is in full compliance with the terms and conditions of its license. Petitioners also requested that, be-fore reinstatement of the license, a detailed independent analysis of the offsite dose consequences of the total loss of SFP water be conducted.

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In a Partial Director's Decision issued on Decec '-r 20, 1996, the Acting Director of the Office of Nuclear Reactor Regulation nm, i that Petitioners had asserted wrongdoing on the part of the Licensee and that the NRC Staff has not yet completed its review of this issue.

However, as the NRC Staff had completed its technical assessment of core ofiloading practices at hiillstone Units I, 2, and 3 and Seabrook Unit 1, the Acting Director considered it appropriate to issue a Partial Director's Decision

~ discussing this issue and describing actions taken by the NRC which, in part, address Petitioners' requests.

PARTIAL DIRECTOR'S DECISION UNDER 10 C.F.R. 5 2.206 L INTRODUCTION On August 21, 1995, hir. George Galatis and We the People, Inc. (Peti-tioners), filed a petition with the Executive Director for Operations of the U.S.

Nuclear Regulatory Commission (NRC) pursuant to section 2.206 of Title 10 of the Code of Federal Regulations (10 C.F.R. Q 2.206). A supplement to the pe-tition was submitted on August 28,1995. These two submittals will hereinafter be referred to as the " petition."

The petition raised three issues regarding the hiillstone Nuclear Power Station, Unit 1 (hiillstone Unit 1), operated by Northeast Nuclear Energy Company (NNECO or Licensee). First, Petitioners asserted that the Licensee has knowingly, willingly, and flagrantly operated hiillstone Unit 1 in violation of License Amendments No. 39 and No. 40. Specifically, Petitioners assert that NNECO has offloaded more fuel assemblies into the hiillstone Unit i spent fuel pool (SFP) during refueling outages than permitted under these license amendments. Second, Petitioners asserted that License Amendments No. 39 and No. 40 for hiillstone Unit I are based on material false statements made by the Licensee in documents submitted to the NRC. Third, the license amendment proposed by the Licensee in a letter dated July 28,1995, regarding offloading of the entire core of spent fuel assemblies at hiillstone Unit I should be denied and the Licensee should be required to operate in full conformance with License Amendment No. 40.

On the basis of these assertions, the Petitioners requested that the NRC institute a proceeding under 10 C.F.R, 6 2.202 to suspend the license for the hiillstone Unit I facility for a period of 60 days after the unit is brought into compliance with the license and the design basis and to revoke the operating license for the Millstone Unit I facility until it is in full compliance with 420 l

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the terms and conditions of its license. Petitioners also requested that before reinstatement of the license, a detailed independent analysis of the offsite dose consequences of the total loss of SFP water be conducted and that the NRC take enforcement action against NNECO pursuant to 10 C.F.R. 6150.5 and 50.9.

Finally, Petitioners requested that the license amendment sought by NNECO be denied.

By letter dated October 26, 1995, the NRC informed the Petitioners that the petition had been referred to the Office of Nuclear Reactor Regulation pursuant to 10 C.F.R. 6 2.2% of the Commission's regulations for preparation of a response. The NRC also informed the Petitioners that the NRC Staff would take appropriate action within a reasonable time regarding the specific concerns raised in the petition. Additionally, the Petitioners were informed that their request with regard to issues associated with the requested license amendment

. (i.e., Petitioners' third issue) was not within the scope of section 2.206 and thus was not appropriate for consideration under section 2.206. See Pacific Gar and Electric Co. (Diablo Canyon Nuclear Power Plant, Units I and 2), CLI-81-6, 13 NRC 443 (1981).' Therefore, this issue will not be addressed in this or any subsequent Director's Decision.

Petitioners' supplement of August 28,1995, provided additional information.

A portion of the Petitioners' supplemental letter of August 28,1995, contained assertions relating to the third issue. Specifically, regarding h1illstone Unit 3, the Petitioners asserted that there is a material false statement in a submission used to support a previous license amendment and that there is an unanalyzed condition in the Updated Final Safety Analysis Report (UFSAR) with regard to system piping not being analyzed for the full-core-ofiload normal end-of-cycle event. Also, with regard to Seabrook Station Unit 1, Petitioners asserted that there are Technical Specification violations related to criticality analysis and gaps in Boratlex material. As the third issue is outside the scope of section l 2.206, these assertions will not be addressed in this or subsequent Director's Decisions. However, the Staff is reviewing these assertions and the Staff's findings will be forwarded to the Petitioners by separate correspondence.

Petitioners' supplemental letter also provided additional information on the first issue. Specifically, the Petitioners asserted that the licensees for h1illstone Units 2 and 3 and Seabrook Unit I also performed full-core oftloads in violation I

lYtauoners' concerus related to the beense anwndnrnt were considered by the NRC Staff dunng the license anendnwnt review process. A heense arnendnrnt was issued by the NRC Starf on Noventer 9.1995. A nurnber of Petpioners. including We the People. Inc.. sought to intervene in the bcense anrndment proceeding. Two Petitioners, includmg We the People. Inc., were found to have standing to intervene and were adnutted to the proceeding subject to the filing of at least one adnussible contention Based upon confternanon by counsel for these IYotioners that no contenuon would be tiled, the Atonuc safety and Licensing Board ternunated the proceedmg on April 15.1996 i

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l of their licenses. These assertions will be addressed in this Partial Director's Decision. i Petitioners' issues I and 2 assert wrongdoing on the part of the Licensee.

The NRC Staff has not yet completed its review of possible wrongdoing on the part of the Licensee and will address this issue in a subsequent Director's Decision.

The NRC Staff has, however, completed its technical assessment of core oftloading practices at hiillstone Units 1, 2, and 3 and Seabrook Unit I and these areas are discussed below. As explained below, the NRC Staff has taken actions that, in part, address the Petitioners' requests.

II. DISCUSSION A. Requests to Revoke and Suspend the Operating License for hiilistone Unit 1 l

The Petitioners based their requests on their issues that the Licensee has 4 knowingly, willingly, and flagrantly operated hiillstone Unit I in violation of License Amendments No. 39 and No. 40 and that License Amendments No.

39 and No. 40 for hiillstone Unit I are based on material false statements.

Specifically, the Petitioners stated that the Licensee conducted full-core ofiloads as a routine practice when its licensing-basis analyses assumed one-third core oftloads as the normal refueling practice. In their August 28 supplemental letter, the Petitioners asserted that the licensees for hiillstone Units 2 and 3 and Seabrook Unit I also performed full-core ofiloads in violation of their licenses.

The Petitioners further contend that the Licensee's actions subjected the public to an unacceptable risk. As previously noted, the wrongdoing aspects of the Licensee's actions will not be addressed in this Director's Decision. However, the technical aspects associated with core oftloading practices will be addressed in the following paragraphs. For perspective, the NRC Staff's conclusions are prefaced by an abbreviated history of this issue.

On October 18,1993, the Licensee issued Licensee Event Report (LER) 93-

11. The LER stated that the Licensee had made inappropriate assumptions in the analysis that was performed in support of License Amendment No. 40 for hiillstone Unit 1. Specifically, the normal refueling analysis assumed a one-third core oftload when Unit I routinely performed full-core refueling ofiloads.

Following issuance of LER 93-11, the Licensee conducted refueling outage (RFO) 14 in 1994. The Licensee used a waiting period between the one-third core oftload and the full-core ofiload during RFO 14 to ensure that the SFP bulk temperature remained within the temperature design parameters identified in LER 9311 and the UFSAR.

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• l On April 22, 1994, the NRC issued Inspection Report (IR) 50-245/94-01, I 50-336/94-01, and 50-423/94-01. The NRC Staff's review of LER 93-11 was I included in this inspection report. The NRC Staff found that the Licensee for I Millstone Unit I had historically removed all of the fuel assemblies to the SFP i

during refueling outages. The NRC Staff noted that this operating practice was not consistent with the spent fuel analysis design basis assumptions in the l UFSAR. Therefore, the NRC Staff concluded that the Licensee had failed to maintain spent fuel analysis design assumptions in plant operating practices.

However, because the violation was a Licensee-identified Severity Level IV l 4

violation meeting the criteria set out in section VII.B of the NRC Enforcement '

Policy,2 a Notice of Violation was not issued. The purpose of this policy regarding NRC discretion for citing violations is to encourage and support

, licensee initiatives for self-identification and correction of problems.3 i Iiom July 10 through July 14, 1995, the NRC Staff conducted a safety l inspection of several previously identified technical issues at Millstone Units I, j 2, and 3, including the Licensee's refueling offload practices that were reviewed previously. The results of the inspection were documented in NRC IR 50-t 245/95-28,50-336/95-28, and 50-423/95-28 issued on September 1,1995. The Staff noted that during RFOs 12,13, and 14, the Licensee performed full-core offloads at Millstone Unit 1. The Staff concludei that these outages may have been performed outside the design basis of Millstone Unit I.. The Saff also concluded that the Licensee did not completely and accurately describe in its submittals for License Amendnnts No. 39 and No. 40 the refueling activities as they were actually conducteu ^he Licensee was routinely performing full-core ofiloads during refueling out ges, but the amendment submittals stated that "nurmal" refueling offloads were one-third core ofiloads. Enforcement action associated with the Staff's findings will be taken, as appropriate, upon final resolution of the Petitioners' contentions regarding possible i.;,'ngdoing.  !

On July 28,1995, the Licensee requested a license amendment to use full-core  ;

oftload , as the normal refueling practice at Millstone Unit 1. The Licensee pro-  !

posed plan + modifications to support this license amendment. The Staff granted the Licensee's amendment request on November 9,1995. The NRC's approval of the Licensee's request was based on design changes, procedure revisions, and I enhanced administrative controls that did not exist during prior refueling activ- l ities, in the cover letter forwarding the granted license amendment, the Staff noted that NNECO's design and operational practices for full-core offloads were more conservative than N'tC recommenaations and industry standards.

2" General statement of Pohey and Procedure for NRC Enforcenent Actions," at that ume contained in Appendia C to 10 C.F R. Part 2, 3

1he NRC Staff, in response to Peuuoners' requert is evaluaung posuble wrongdomg associated with this viohuon and wil! reassess the appropriateness of exercising enforcement dncretion when the NRC susff's review ,

is complete.

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i On November 4,1995, the Licensee shut down Millstone Unit I for the planned 50-day RFO 15. The Licensee for Millstone Unit I has not yet restarted l

the plant from this shutdown. l In part, in response to the concerns the Petitioners raised, from October 24 to November 10,1995, the NRC Staff performed an inspection at Millstone Unit I to ensure the Licensee's planned refueling operation would be done safely and in

, accordance with its license, design basis, and plant procedures. The inspection was continued from March 4 to 14,1996. The results of this Millstone Unit I inspection were documented in NRC IR 50-245/95-82, issued July 10, 1996. j The NRC Staff concluded that the Licensee could safely ofiload fuel for RFO I

15. However, the inspection identified design control q stions related to the SFP cooling system. Consequently, the Staff concluded that additional Licensee i efr or ts were needed to identify and correct deficiencies related to the Licensee's l

SFP cooling systems and their operation. Two areas of concern involved the  !

Licensee's failure (1) to conduct adequate safety evaluations in accordance with 10 C.F.R. 5 50.59 and (2) to take adequate design control measures in accordance with Appendix B of 10 C.F.R. Part 50. These items were cited as apparent violations. NRC is considering enforcement action associated with the Staff's j findings.

At a public meeting on December 5,1995, the NRC's Acting Inspector General stated that, based on an investigation conducted by his office, refueling j activities at Millstone Unit I may not have been conducted consistent with the i Millstone Unit 1 UFSAR.4 i On December 13, 1995, pursuant to 10 C.F.R. 5 50.54(f), the NRC required that NNECO provide the NRC with additional information to describe the actions taken to ensure that futu" g ; ration of Millstone Unit I will be conducted in accordance with the terr,.2 d conditions of the Millstone Unit I operating license, the Commission's regulations, and the Millstone Unit 1 UFSAR. NRC concerns related to past refueling activities at Millstone Unit I were a major impetus for this request. The December 13,1995 letter required this information to be submitted before the plant's restart.

In January 1996, the NRC placed the Millstone facility on NRC's " Watch List" as a Category 2 facility. Plants in this category have been identified as having weaknesses that warrant increased N9.C attention. The NRC Staff based its actions on the numerous problems idertified by both the NRC and the Licensee and the repeated failure of the Licensee's corrective action programs to prevent recurrence of these problems.

On February 20, 1996, the Licensee shut down Millstone Unit 2 when both trains of the high-pressure safety injection (HPSI) system were declared 4

The rewlta of the invesugauon were documented on Decernber 21,1995. in othee of Inspector General Event inquiry, "NRC Failure to AJequately Regulate - Millstone Umt 1." Case No. 95 T't.

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i inoperable due to the potential to clog the HPSI discharge throttle valves during the recirculation phase following a loss-of-coolant accident. He Licensee for Millstone Unit 2 has not yet restarted the plant from this shutdown.

. On February 22, 1996, the Licensee issued "ACR 7007 - Event Response Team Report," which describes the underlying causes for numerous inaccuracies contained in Millstone Unit l's UFSAR. The 7007 Report also acknowledged that because of the nature of the identified causes, the potential existed for the '

presence of similar configuration management problems at the Haddam Neck Plant and Millstone Units 2 and 3. In response to the 7007 Report and on the basis the NRC's own inspections of Millstone Unit 2 indicating problems such as those described in the 7007 Report, the NRC issued a letter on March 7,1996, to NNECO, pursuant to 10 ( L 5 50.54(f), requiring that the type

, of information requested for Millstone mt 1 on December 13, 1995, also be provided for Millstone Unit 2. This information had to be submitted before the plant's restart. In addition, although the NRC's inspection history did not indicate that similar problems existed at Millstone Unit 3 end Haddam Neck l Plant, the NRC issued a separate letter on March 7,1996, pursuant to section 50.54(f) requiring the Licensee to address the applicability of the conclusions of the 7007 Report to these plants.

Following the March 7 letters, the NRC conducted a special inspection at 4 Millstone Unit 3 that identified design and other deficiencies similar to those i reported in the 7007 Report. On March 30,1996, the Licensee for Millstone l Unit 3 shut down the plant after it was determmed that containment isolation I valves for the auxiliary feedwater turbine-driven pump were inoperable because the valves did not meet NRC requirements. The Licensee for Millstone Unit 3 has not yet restarted the plant from this shutdown.

In a letter dated April 4,1996, to the Licensee pursuant to section 50.54(f),

the NRC stated that an NRC special inspection team found programmatic issues and design deficiencies at Millstone Unit 3 that were similar to those at Millstone Units 1 and 2. Thus, by this letter, the NRC required information for Millstone Unit 3 that was similar to that previously required for Millstone Units I and 2. l This information had to be submitted before the plant's restart. l On April 8,1996, the NRC Staff held the informal public hearing that the l Petitioners requested. Information gained at this hearing was considered in the preparation of this Partial Director's Decision and will be considered in the i' preparation of the Final Director's Decision.

On May 21,1996, pursuant to section 50.54(f), the NRC issued a letter to n Licensee requiring specific information regarding design and configuration deficiencies identified at each of the Millstone units, as well as a detailed description of the Licensee's plans for completion of the work required to respond to the NRC's previous letters.

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By letters dated June 20 and July 2,1996, the Licensee responded to the NRC's letter of May 21,1996. In its letters, the Licensee informed the NRC that Millstone Unit 3 would be the first Millstone unit that the Licensee planned to restart. The Licensee also described its configuration management plan (CMP) that is intended to provide reasonable assurance that the future operation of Millstone Unit 3 will be conducted in accordance with its design basis.

In June 1996, at the direction of the Commission, the Staff informed the Licensee that the Millstone facility had been designated a " Watch List" Category 3 facility. Plants in this catepry have been identified as having significant weaknesses that warrant keeping the plant shut down until the Licensee can demonstrate to the NRC that adequate programs have been established and implemented to ensure substantial improvement in the plant. This designation also requires the NRC Staff to obtain the Commission's approval before restart of the facility.

During an August 12,1996 meeting with the Licensee, the Staff informed the Licensee that the NRC Staff believed NNECO should establish an independent corrective action verification program to provide additional assurance that the Licensee has effectively corrected its configuration management problems at all Millstone units. The NRC concluded that the Licensee's CMP was not sufficient to ensure the correction of the problems noted at the Millstone units, given the Licensee's history of poor performance in ensuring complete implementation of the corrective action for both known degraded and nonconforming conditions and past violations of NRC requirements.

In response to the Staff's comments in the August 12 meeting, in a letter dated August 13,1996, the Licensee submitted its plac for conducting an independent review of the results of the Licensee's CMP regarding establishment of adequate design bases and design controls. I On August 14, 1996, the NRC issued a Confirmatory Order Establishing an Independent Corrective Action Verification Program (Effective immediately) for Millstone Units 1, 2, and 3 (ICAVP Order). The NRC issued the order because of the Licensee's history of poor performance in ensuring complete im-plementation of corrective actions for both known degraded and nonconforming conditions and past violations of NRC requirements. In addition, the magnitude and scope of the design and configuration deficiencies identified at the Millstone units indicated ineffective implementation of oversight programs, including the NRC-approved quality assurance program. Thus, the NRC ordered the Licensee to obtain the services of an organization independent of the Licensee and its design contractors to conduct a multidisciplinary review of Millstone Units 1,2, and 3. The ICAVP is to provide independent verification that, for the selected systems, the Licensee's CMP has identified and resolved existing problems, doc-umented licensing and design bases, and established programs, processes, and procedures for effective configuration management in the future.

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Additionally, on the basis, in part, of the UFSAR compliance deficiencies found at Millstone Units I,2, and 3, on October 9,1996, pursuant to section 50.54(f), the NRC issued leners to all operating reactor licensees. The letters l required licensees to submit information to provide confidence and assurance l that licensees are operating and maintaining their plants within the design l bases and that any design-basis deviations are reconciled in a timely manner.

Specifically, the NRC Staff required licensees to describe their configuration management processes, provide their rationale for concluding that the design-basis requirements have been translated into procedures, provide their rationale for concluding that the plant configuration and performance are consistent with the design bases, describe their processes for identifying and correcting design-basis problems, and provide their assessment of the effectiveness of their current programs.

On the basis of its review and inspections of the Millstone Unit i SFP issues, the NRC Staff has concluded that the design of the SFP and related systems at Millstone Unit I was adequate to protect public health and safety during full-core offloads.5 The Staff concluded that the probability of reaching boiling ,

conditions in the SFP when there has been a full-core oftload would be low. I At Millstone Unit I, the systems that have an SFP cooling capability (i.e., SFP cooling system (SFPCS) and shutdown cooling system (SDCS)) are designed to receive power from two separate and independent emergency buses that can receive power from either of two onsite power supplies following a loss of normal power. The independence of the systems reduces the probability of an event capable of causing a sustained loss of SFP cooling. Assuming the SFP cooling function is lost despite this feature, there would be a substantial period of time available in which to restore cooling before boiling occurs because of the large volume of water in the SFP and the reactor cavity during refueling otaages. In the unlikely event that boiling occurs, the adverse safety impact of a Soiling SFP is relatively low because the safety systems subject to adverse environmental conditions from SFP boiling would not have a necessary function when irradiated fuel has been transferred from the reactor sessel to the SFP. The water lost because of boiling can be replaced by the condensate system, which is a seismic Category I safety-related makeup source, or from the fire protection system.

In addition to the design features previously discussed, to support its license amendment request of July 28,1995, to conduct full-core offloads as the normal refueling practice at Millstone Unit 1, the Licensee further upgraded its SFP 5

Baed on its inspecuon and L.icenwe subminals, the NRC staff has idenufied some instances wtrn the Licenwe prematurely perforned full-core ofnoads at Millstone Unit 1. Ak. hough the safety sigmticance of these of00 ads was low, diere is a regulatory concern asociated with thn pracuce and the NRC staff ta considenng enforcement action with regard to it.

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I cooling capability by installing a cross-connect between the SDCS and the SFPCS. This modification provided a redundant train of shutdown cooling for use during full-core offloads.

The Petitioners' supplemental letter of August 28, 1995, contained three allegations regarding core oftloading practices at other facilities. The Petitioners noted that the allegations were given to Mr. Galatis and that he had no firsthand knowledge of the veracity of the allegations and did not, himself, allege the conditions exist or existed. However, Mr. Galatis contended that, considering the source, the allegations would appear to have substantial merit. These allegations l are addressed in the following paragraphs.

The Petitioners asserted that, at Millstone Unit 2, the Licensee engaged in violations of its Technical Specifications by oftloading more than one-third of the core into the SFP during normal end-of-cycle refueling outages.

On the basis of the NRC Staff's review of Licensee documentation, the NRC Staff found that the Licensee routinely, with justified exceptions, conducted one- I third core offloads for the Millstone Unit 2 refueling outages in accordance with its licensing basis.

The Petitioners asserted that, at Millstone Unit 3, the Licensee also engaged in full-core offloads during normal refueling outages in violation of the applicable license amerv! ment.

The Staff found that License Amendment No. 60, dated March 31,1991, was the applicable license amendment for current SFP storage issues. The Licensee requested this amendment in a letter dated November 30,1990. In this letter, the Licensee stated that, although the design basis had assumed that normal refueling outages would use partial-core offloads, for Millstone Unit 3, a full-core discharge is the actual normal refueling practice. The design-basis analyses limited the allowed number of full-core discharges to six for the 40-year life of the plant. The Licensee stated that, if it decides to continue offloading a full core as a normal event, the design basis would be changed before it exceeded the design-basis limit of six full-core offloads. The Staff did not object to the Licensee's use of full-core offloads when License Amendment No. 60 was issued.

The Staff notes that the practice at Millstone Unit 3 is inconsistent with the original design-basis assumptions regarding norrnal RFO offloads. As was the case with Millstone Unit 1, the Licensee was routinely performing full-core RFO offloads when the design basis assumed that partial-core offloads would be the normal RFO offload. Since the plant was analyzed for at least six full-core offloads and the lh'ensee has not exceeded this number of full-core offloads, the safety significance of this issue is low. The Staff, on a generic basis, is considering the appropriate actions for licemees that have been conducting full-core offloads as their routine refueling practice when their design basis assumptions for normal fuel offloads were based on partial RFO offloads. He 428

Staff will take appropriate action for Millstone Unit 3 once it makes this generic determination.

The Petitioners asserted that Seabrook Unit 1, which is operated by the North Atlantic Energy Service Corporation, was also operated in violation of the terms of its operating license by discharging the full core to the SFP during routine refueling outages.

The NRC Staff found that all RFOs at Seabrook Unit I have involved discharge of the entire core to the SFP. Neither the Seabrook Unit I operating license nor the plant Technical Specifications contain a limit on the fraction of the core that may be discharged to the SFP during refueling. The UFSAR originally did not ctate which type of oftload would be performed routinely. However, the UFSAR did contain heat load assumptions. Before the first two RFO offloads, the Licensee verified that these assumptions would not be exceeded during the RFO. Before the third refueling outage, under the provisions of section 50.59, the UFSAR was revised to explicitly state that full-core discharge is routinely performed as part of a normal refueling. On the basis of its review, the Staff found that the Licenace for Seabrook Unit I has conducted its core oftloads in accordance with the facility's design basis.

The Petitioners requested suspension and revocation of the operating license for Millstone Unit 1. As previously discussed, the relative safety significance of the full-core ofiloads performed at Millstone Unit I is low. Ilowever, all three Millstone units have been found to have significant design-basis deficiencies.

The NRC has issued letters to NNECO for each Millstone facility requiring that certain information pertaining to actions taken to address design configuration issues be submitted to the NRC and requesting its submittal before the restart of the facilities. Additionally, the NRC has issued the ICAVP O. der to the Licensee requiring an independent verification of its broad cenfiguration management corrective actions before restarting of any Millstone units.

These actions taken by the NRC are relevant to the issues raised by the Petitioners regarding adherence by the Licensee to its licensing basis. Further, ,

the actions taken are much broader than those requested by Petitioners in that Petitioners' requests were limited to the SFP design basis at Millstone  ;

Unit 1. Thus, the NRC's actions to date constitute a partial grant of the i Petitioners' requests regarding suspension and revocation of the operating license for Millstone Unit 1.

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B. Request to Perforan a Detailed Independent Analysis of the Offsite Dose Consequences of the Total Loss of Spent Fuel Pool Water The risk of accidents in spent fuel storage pools beyond the design basis was examined in WASH-1400.6 In this study, it was concluded that the risks associated with the spent fuel are orders of magnitude below those involving the reactor core because of the simplicity of the SFP.

His issue was reexamined in the late 1980s because (1) spent fuel was being stored on site instead of being reprocessed and (2) some laboratory studies provided evidence of the possibility of fire propagation between assemblies stored in an air-cooled environment. The dose estimate portions of the study were performed by the Brookhaven National Laboratory. The results of this reexamination were published in NUREG-1353.2 The NRC Staff concluded that SFP accidents beyond the design basis did not warrant additional regulatory action because of the large inherent safety margins in the design and construction of the SFP.

Additionally, because of SFP safety questions that were first reported to the NRC Staff in November 1992 by two engineers who formerly worked under contract for the Pennsylvania Power & Light Company, the NRC again revisited this issue. The principal safety concern the Staff reviewed involved the potential for a sustained loss of SFP cooling and the potential for a substantial loss of spent fuel coolant inventory that could expose irradiated fuel.'

The NRC Staff completed its work under the task action plan in July 1996.

The Staff forwarded the cesults of its review to the Commission on July 26, 1996/ In the report, the Staff concluded that existing SFP structures, systems, and components provide adequate protection for public health and safety.

Protection is provided by several layers of defense involving accident prevention (e.g., quality controls on design, construction, and operation), accident mitigation (e.g., multiple cooling systems and multiple makeup water paths), radiation protection, and emergency preparedness. The Staff has reviend and approved design features addressing each of these areas for spent fuel storage for each operating reactor. In addition, the limited risk analyses available for spent fuel i storage suggest that current design features and operational constraints catae I issues related to SFP storage to be a small fraction of the overall risk associated with an operating light-water reactor.

• U S. Nuclear Regulatory Comnussion (USNRC), " Reactor safety Study - An Assessment or Accident Rhk in l U S. Comnrreial Nuclear Power Plants." WASH-1400, october 1975. I 7

U S. Nuclear Regulatory Commisuon (UsNRC). " Regulatory Analysis for the Resoluuan of Genenc Issue 82,

'Beyond Design 'lasis Accidents in spent Nel Pools.'" NUREG.1353. Apnl 1989 '

'~rask Acuan Plan for Spent Fuel Storage Pool Safety"

' Memorandum to the Commission from J. Taylor, "Resoluuon of Spent Fuel Storage Pool Achon Plan issues."

dated July 26.19%

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l Re NRC's actions to date in evaluating SFP accidents beyond the design basis constitute a partial grant of the Petitioners' request to perform analyses of such accidents.

C. Request for Enforcement Action Pursuant to

10 C.F.R. il 50.5 and 50.9

he NRC Staff is still considering the Petitioners' assertions that the Licensee knowingly, willfully, and flagrantly operated Millstone Unit 1 in violation of License Amendments No. 39 and No. 40 and submitted material false statements j to obtain License Amendments No. 39 and No. 40, which will be addressed in a subsequent Director's Decision.

III. CONCLUSION Re Staff has completed its technical review of the full-core offload issue at Millstone Units 1,2, and 3, and Seabrook Unit 1. The Staff has concluded i that Millstone Unit I could safely offload a full core. The Staff also found

that Millstone Unit 3 and Seabrook Unit I could safely oftload full cores.

I Additionally, the Staff found that Millstone Unit 2 was not routinely performing full-core ofiloads as asserted by the Petitioners. However, the Staff followup of spent fuel pool issues raised by the Petitioners led, in part, to the identification of a broad spectrum of configuration managernent concerns that must be corrected before the restart of any Millstone unit.

The three Millstone units are currently shut down and the NRC Staff has issued a Confirmatory Order establishing an ICAVP for each Millstone unit to ensure that the plant's physical and functional characteristics are in conformance with its licensing and design basis. The ICAVP shall be performed and completed for each unit, to the satisfaction of the NRC, before restart of any unit. To this extent, Petitioners' requests for suspension and revocation of the Millstone Unit i operating license are granted. In addition, the Staff has evaluated spent fuel accidents beyond the design bases and, to this extent, Petitioners' request to perform analyses of such accidents is granted.

A copy of this Partial Director's Decision will be placed in the Commission's Public Document Room, the Gelman Building,2120 L Street, NW, Washington, D.C., and at the local public document room located at the Learning Resources Center, Three Rivers Community-Technical College, 574 New London Turn-pike, Norwich, Connecticut, and at the temporary local public document room located at the Waterford Library, ATrN: Vince Juliano,49 Rope Ferry Road, Waterford, Connecticut.

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A copy of this Partial Director's Decision will also be filed with the Secretary

- of the Commission for review in accordance with 10 C.F.R. Q 2.206(c) of the l Commission's regulations. This Partial Decision will become the final action of the Cornmission (for Petitioners' requests 1,2, and 3) 25 days after its issuance, unless the Commission, on its own motion, institutes review of the Decision I within that time. j i

FOR TliE NUCLEAR REGULATORY COMMISSION Frank J. Miraglia, Jr., Acting Director Office of Nuclear Reactor l Regulation l Dated at Rockville, Maryland,

this 26th day of December 1996.

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