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#REDIRECT [[W3P88-1825, Forwards Arkansas Power & Light,Louisiana Power & Light & Sys Energy Resources,Inc Proposed Operating Agreements Submitted to Sec for Review & Approval on 881007 & 11. Related Info Encl]]
| number = ML20155G438
| issue date = 10/12/1988
| title = Forwards Arkansas Power & Light,Louisiana Power & Light & Sys Energy Resources,Inc Proposed Operating Agreements Submitted to Sec for Review & Approval on 881007 & 11. Related Info Encl
| author name = Burski R
| author affiliation = LOUISIANA POWER & LIGHT CO.
| addressee name =
| addressee affiliation = NRC OFFICE OF ADMINISTRATION & RESOURCES MANAGEMENT (ARM)
| docket = 05000382
| license number =
| contact person =
| document report number = W3P88-1825, NUDOCS 8810170051
| document type = CORRESPONDENCE-LETTERS, INCOMING CORRESPONDENCE, UTILITY TO NRC
| page count = 317
}}
 
=Text=
{{#Wiki_filter:* P. O. BOX 60340 LOUISI POWE  R &AN    A/
L1GHT  317NEWBARONNE          STREET ORLEANS, LOUISIANA 70160 * (504) 595-3100 N0 bess!U October 12, 1988 W3P88-1825 A4.05 QA U.S. Nuclear Regulatory Commission ATTN:      Document Control Desk Washington, D.C. 20555
 
==SUBJECT:==
Waterford SES Unit 3 Docket No. 50-382 License No. NPF-38 LP&L/SERI Proposed Operating Agreements
 
==REFERENCE:==
W3P88-1677, dated September 9, 1988 Centlemen:
In our June 15, 1988 meeting with you and lu the July 1, 1988 submittals requesting license amendments for Systems Energy Resources, Inc. (SERI) to assume responsibility for the conduct of licensed operations at Arkansas Nuclear One and Waterford 3, many of the issues involved in such license amendments were to be handled through operat'.ng agreements between Arkansas Power & Light Company (AP&L) and SERI or Lo'aisiana Power & Light Company (LP&L) and SERI.
AP&L, LP&L and SERI submitted the propost.d operating agreements to the Securi-ties and Exchange Comraission (SEC) for FEC review and approval on October 7 and 11, 1988. This letter submits a cepy of the SEC application.
SERI has reviewed and concurs with the op3 rating agreement.
                                          -' ] 'ours very truly,  *
                                                  /
                                          /,<,/s -'    tt.4.44 W As- v
(./
ldna.Burski ger Nuclear Safety 6 Regulatory Affairs RFB/MJM/pim A t t ac h.ae n t cci      E.L. Blake, W.M. Ste\ enson, J. A. Calvo, D.L. Wigginton, R.D. Martin, NRC Resident Inspectc r's Cf fice (W3)
                                                                                            #'&O {
SBAggggi8%%g2                                                                                  ,,
P "AN EQ JAL OPPORTUNITY EMPLOYER"
 
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.                                                                                                                                                                                          l New York, New York i
October 7,            1988 t
I E
]                  Securities and Exchange Commission                                                                                                                                      ,
450 Fifth Street, N.W.                                                                                                                                                  I Washington, D.C. 20549 l'                                                                                                                                                                                        !
Ret      System Energy Resources, Inc.
3 Nuclear Operations Consolidation i
Gentlemen:
For filing with you via EDGAR pursuant to the Public Utility Holding Company Act of 1935, enclosed                                                                                                                    1 i                please find a Declaration on Form U-l and Form 13-1 of                                                                                                                  :
;                  Arkansas Power & Light Company, Louisiana Power & Light Company, and System Energy Resources, Inc. ("SERI")
)                  relating to the consolidation of.all Middle South                                                                                                                      ,
l                  Utilities, Inc. System nuclear operations in SERI.
i j                                                                                      Very truly yours, l                                                                                                                                                                                          i 1                                                                                                                                                                                          l j                                                                                      REID & PRIEST, COUNSEL of                                                                          (
4                                                                                      System Energy Resources, Inc.                                                                      l
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j                                                                                      By:
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j                  Enclosures i                  cc:    Mr. William C. Weeden                                                                                                                                            !
J                                                                                                                                                                                            F
]
1                                                                                                                                                                                            !
.i
_ _ _ _ _ _ _ . - _ _ . _ . . _ _ _      _ _ _ _ _ _ , , - . ~ . .        _ _ . _ _ _ _ _
 
File No. 70-SECURITIES AND EXCRANGE COMMISSION Washington, D.C. 20549 FORM U-l DECLARATION under THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 Arkansas Power & Light Company        Louisiana Power & Light Company 425 W. Capitol Street                  317 Baronne Street Little Rock, Arkansas      72203      New Orleans, Louisiana 70112 1
System Energy Resources, Inc.
One Jackson Place 188 East Capitol Street Jackson, Mississippi 39201 (Name of companies filing this s;atement and addresses of principal executive offices)
Middle South Utilities, Inc.
(Name of top registered holding company parent of each applicant or declarant) i J. L. Maulden, President and            J. M. Cain, President and Chief Executive Officer              Chief Executive Officer Arkansas Power & Light Company        Louisiana Power & Light Company 425 W. Capitol Street                  317 Baronne Street Little Rock, Arkansas      72203      New Orleans, Louisiana  70112 W. Cavanaugh, III, President and I
Chief Executive Officer System Energy Resources, Inc.                    ,
One Jackson Place 188 East Capitol Street Jackson, Mississippi 39201 (Names and addresses of agents for service)
 
The Commission is also requested to send copies of                                  ,
any communications in connection with this matter to:
McChord Carrico', Esq.                                        Paul B. Benham III, Esq.
Monroe & Lemann                                              Friday, Eldridge & Clark                '
201 St. Charles Avenue                                        2000 First Commercial Building New Orleans, Louisiana          70170                        Little Rock, Arkansas              72201 Robert B. McGehee, Esq.                                      Jeffrey C. Miller, Esq.
Wise Carter Child & Caraway                                  Reid & Priest 40 West 57th Street 4
Professional Association                                  New York, New York              10019 P.O. Box 651 Jacskon, Mississippi          39205 Item 1.          Descriotion of Procesed Transaction 4
(Item 1 has been completed in response to the requirements of Form U-l and Form U-13-1).
System Energy Resources, Inc. ("SERI"), a sub-sidiary of Middle South Utilities, Inc. ("MSU"), a regis-tered holding company under the Public Utility Holding Company Act of 1935 ("Act"), proposes herein to assume                                                ,
3 operating responsibility for all of the nuclear power plants of the MSU System ("System"). SERI currently has a 90% undivided ownership interest in the Grand Gulf Nuclear Project, and operates Grand Gulf Unit 1 for itself and a                                              i Mississippi electric cooperative, South Mississippi Electric Power Association ("SMEPA"), which owns a 10%
undivided interest.        Under the proposal SERI will assume all operating responsibilities for the Arkansas Nuclear                                                i One, Units 1 and 2, nuclear power plant ("ANO"), owned and operated by Arkansas Power & Light Company ("AP&L"), and                                              J i
the Waterford 3 nuclear power plant ("Waterford 3"), owned                                            ,
I and operated by Louisiana Power & Light Company ("LP&L").                                              !
l                                                                                                                l l
 
t Both AP&L and LP&L are also subsidiaries of MSU. ANO and Waterford 3 ("Plants") will continue to be owned by AP&L and LP&L, respec'tively.
The Declarants believe that consolidation of operation of the System's nuclear power plants in one organization will enha.tce efficiency of operation and reduce costs, ar3 is in accord with industry trends. It le anticipated that the consolidation of nuclear opera-tions within SERI will be concluded on or about January 1,    I a
1989.
It is proposed that SERI, under licenses to be granted by the Nuclear Regulatory Commission ("pRC"), will    !
operate the Plants as agent for, and pursuant to separate    i operating agreements with, AP&L and LP&L ("Agreements").
j          These Agreements will previde that all costs ine- red will    i I
be paid by SERI with funds directly provided by AP&L and LP&L or will be billed to AP&L and LP&L at SERI's cost        ;
i pursuant to the applicable rules and regulations of the        i Securities and Exchange Commission ("Commission") under the Act. The Agreements also provide for indemnities between SERI and AP&L and SERI and LP&L in connection with l          the service activities. Reference is made to Exhibits B-1 and B-2 hereto.                                                l l                      SERI is a corporation organized under the laws l          of the state of Arkansas. Its original formation as Middle Scuth Energy, Inc. was approved by the Commission 4
 
!                                                                                                                    l f
I                                                                                                                    !
t l                                                                                                                                                                                                  f on June 4, 1974 in Holding Company Act Release No. 18437, File No. 70-5399.                                                                                ,
l Pursua'nt to the terms of an Operating Agreement
)                  dated as of May 1, 1980 between SERI and SMEPA, SERI                                              l operates the 10% portion of Grand Gulf 1 owned by SMEPA                                            f and SMEPA pays an allocable share of Grand Gulf 1                                                  i operating expenses.                                This arrangement was approved by the Commission on October 30, 1980, in' Holding Company Act                                            l Release No. 21,770, File No. 70-6337.                                                              ;
1 SERI currently has 1,000,000 shares of auth-l j                orized common stock, no par value.                                  There are no other            '
a                                                                                                                    F l                classes of stock authorized.                                Currently, SERI has 789,350            t t
l                shares of common stock issued and outstanding.                                  MSU owns 1
;                100% of SERI's outstanding common stock, and paid $1,000 l                for each share.
1 SERI does not anticipate the need to raise any I
additional capital for this proposed transaction since it will not be financing the service activities proposed ll                herein                                however, in the event that it becomes necessary              ,
for SERI to raise additional capital, further
)                authorization will be sought from the Commission prior to 1                such action.
i                                                      SERI plans to acquire no new property to enable it to engage in its servicing activities.                                  If SERI needs j                to acquire any property or engage in any construction for i
j                the improvement of the facilities owned by AP&L or LP&L, 1
i
 
4 4
SERI will acquire such property, or engage in any con-struction, as agent for AP&L or LP&L.                            SERI will, pursuant to the Agreements, include the costs of such acquisitions                                          -
intheCostsofbperationandCostsofCapitalImprove-ments, and AP&L or LP&L will own such acquired or con-structed property.
It is proposed that, upon obtain.',ng all requi-4 site regulatory approvals, SERI will assume, pursuant to l
i the Agreements, responsibility for the operation of the Plants as agent for the owning companies. Upon approval of the arrangement, essentially all employees of the respective owning utilities based at the nuclear plants will become employees of SERI.                            In addition, essentially all nuclear support employees of LP&L and AP&L will be transferred to SERI.                  SERI currently has an employee force of almost 1,200.                  AP&L would, under the plan, traasfer l
approximately 1,100 employees to SERT, while LP&L would transfer about 850.                  Approximately 50 employees in the Nuclear Engineering Services Group of MSU System Services, Inc. would also be transferred to SERI.
The Agreements provide SERI with the power and sole authority to make any capital improvements and to operate the Plants subject to certain limitations as 1
provided in the Agreements.                    All decisions relating to public health and safety will be made by SERI.                            However,                  I the owning utility shall have the exclusive authority to                                              l
;                                                                                                            l i
I
                                                    -  ,...___.m        _          _ - , , _ - _ _ - _ _ _
 
  *  ?
t 1
l i
determine when the useful economic life of the plant has                i i
ended.                                                    -              -
The Agreements specifically r2 cognize that the              i l                  owning utility of each Plant will con'.inue to own all of l                  the output of that Plant.      Payment for SERI's operation of 1                                                                                          .
the Plants will be at cost in accordance with the Act and l
)                  the rules thereunder.      Specifically, the Agreements                  ,
-                                                                                          l propose to charge costs of operation of each of the Plants              l i                  to its respective owning utility.        Thus, costs incurred in        i the operation of Waterford 3 will be charged to LP&L, and j                  cests incurred in the operation of ANO will be charged to f                AP&L. All costs specifically related to a unit will be j                charged directly to that unit.        Some costs, principally            ;
I 4
administrative and general costs, relating to functions                  l 1                                                                                          -
l which benefit more than one unit will be allocated based                  !
]                on reasonable and equitable methods as agreed to by SERI, I                AP&L and LP&L.
1 i
t The Agreements provide for SERI and each respec-j                tive owning utility to agree by November 1 of eacn year                    l 1
l                during the term of the Agreements upon maximum amounts to be paid by each utility for the following budget year with respect to Capital Improvements and Costs of Operation.
In the Agreements, Capital Improvements mean any improve-ments, additions, modifications or replacements of property at the Plants that are properly capitalized and recorded on the owning utility's backs of account as an
 
asset under the FERC Uniform System of Accounts and are in accordance with applicable rules and regulations of any regulatory authority having jurisdiction in the matter.
The Agreements state that the word Operate and its derivatives means to possess, use, manage, control, maintain, repair, operate and decommission. Costs of Operation include all costs and expenses relating to the operation of the Plants, costs of decontamination and de-commissioning and any related taxes incurred or accrued under the Agreements and attributable to the particular Plants. The Agreements explicitly provide that all such costs will be calculated in accordance with any applicable rules and regulations of the Commission under the Act.
Pursuant to the Agreements, SERI agrees to furnish estimates of the above Costs of Operation, and Costs of Capital Improvements, expected to be owed for the next succeeding period, and the respective utility agrees to      -
deposit such amounts pursuant to a payment method outlined in the Agreements. Each Agreement also provides for SERI to act as agent for each owner in the making of contracts        '
Furthermore, each owner        I related to the owner's Plant.
agrees to pay for costs incurred under such contracts.          l l
The Agreements also contain provisions regarding      !
indemnification. The pertinent provision is S6.2, which provides for SERI to indemnify the respective owning util-ity against all actual losses, costs, liabilities and b
 
expenses (except for consequential damages as defined in the Agreements) resulting from SERI's gross negligence or willful misconduct (as defined in the Agreements).
However, if in the performance of any of its duties under
<        the Agreerents, SERI otherwise incurs any liability to any third party, any amounts paid by SERI on account of such liability will be considered a Cost of operation payable l
}        by the owning utility.
The Agreements further provide that the owning utility will indemnify and hold harmless SERI and its agents, officers, directors, shareholders and employees to
!                                                                            l the full extent permitted by law regardless of alleged or            .
]I;      actual fault or negligence of SERI against any claims for i
j I
consequential damages, death, injury or property damage to          :
any of the owning utility's employees or agents, or to              f third persons not employed by SERI, and against any other            '
claims, causes of action, damages or expenses, including              l l
l l
attorney's fees, or any other penalties arising out of or l        in the course of performance of services by SERI under the j        Agreements.
a        Item 2.      Fees, Commissigns and Exnenses The estimated fees, commissions and expenses to
;        be incurrad in connection herewith will be filed by amend-i ment.
 
Item 3. Aeolicable Statutory Provisions A. The indemnification provisions contained in the proposed Agreements described in Item 1 are subject to Section 12(b) of the Act and Rule 45 thereunder.
B. The conduct of SERI's service activities is subject to Section 13(b) of the Act and Rules 86-91, 93 and 94 thereunder. In particular, SED.I will be subject to the Uniform System of Accounts for Mutual Service Companies and Subsidiary Service companies and will be obligated to file annual reports on Form U-13-60 pursuant to Rule 94 under the Act. Declarants believe that the information set forth in this Declaration, as amended, includes substantially all of the information tnat would be required by a Form U-13-1, and that this Declaration, as amended, therefore constitutes a sufficient response to the requirements of such Form U-13-1. Any significant variations in the proposed transactions, including significant changes in SERI's organizational structure, services to be rendered or method of cost allocation, would be reported under a 60-day letter procedure prescribed by the Commission.
Item 4. Reculatory Acoroval LP&L and AP&L have applied to the NRC to amend the operating licenses of Waterford 3 and ANO to allow SERI to operate each Plant. Final Commission approval
 
                                      . g .,
f will be sought before the NRC has granted the operating license amendments.                                    ,
The Arkansas Public Service Commission ("APSC")
                                                                    ?
has previously issued to AP&L Certificates of Public        l Convenience and Necessity with regard to the operation of ANO. Concurrently with this declaration AP&L will file an application with the APSC for approval of the arrangement with SERI proposed herein. Reference is made to Exhibit D-3.
Both the Louisiana Public Service Commission    -
("LPSC") and the City of Nev Orleans ("CNO") have d right to investigate the reasonableness of contracts entered into by LP&L and tl9 charges therefor in setting rates for LP&L. Approximately 98% of LP&L's revenues are subject to LPSC jurisdiction and the remainder are subject to CNO jurisdiction. Both the LPSC and the CNO are concurrently being requested by LP&L to review the proposed arrangement with SERI for the operation of Waterford 3. Reference is made to Exhibits D-4 and D-5.
Item 5. Procedure SERI is scheduled to assume its service obliga-tions on or about January 1, 1989. Accordingly, the par-ties hereby request that the Commission's order be issued as Joon as practicable: waive a recommended decision by a hearing officer or any other responsible officer of the Commission; agree that the Staff of the Division of In-vestment Management may assist in the preparation of the
 
Commission's decision; and request that there be no wait-ing period between the date of issuance of the Commis-sion'a order and,the date on which it is to become effec-tive.
Item 6.      Exhibits and Financial Statements The following exhibits and financial statements are filed as a part of this Declaration:
A-      Not applicable.
              *B Proposed Operating Agreement between SERI and AP&L.
              *B Proposed Operating Agreement between SERI and LP&L.
C-      Not applicable.
              *D NRC License Amendment Application for.ANO 1 and 2.
              *D NRC License Amend %ent Application for Waterford 3.
              *D APSC Application.
              *D LPSC Application.
              *D CNO Application.
E-      Not applicable.
              *F-      Legal Opinions.
              **G-1  -  SERI's Articles of Incorporation, as amended and currently in effect (Exhibit 3(a) in 33-8253).
              **G-2  -  SERI's by-laws, as amended and currently in effect (Exhibit 19 to Form 10-Q for the quarter ended March 31, 1987, in 1-9067).
* To be supplied by amendment.
      **  Supplied in response to the requirements of Form U-13-1.
 
                                                                  *(**)G    SERI's balance sheet as of the latest available date and profit and loss statement for the year ended on that date.          .
N    -
Form of notice.
e (b) Financial Statements
;                            Financial Statements of MSU and its subsidiary i
{
companies have been omitted since they are not deemed material to or necessary for a proper disposition of the
;              proposed tranesetions.
Item 7.      Information as to Environmental Effects (a)    The proposed transaction subject to the l
jurisdiction of the Commission and described in response    l to the requirements of Form U-1 relates only to the j
indemnification provisions outlined Jn Item 1 and the a
approval by the Commission of SERI r      a service company l
l and has no environmental impact in and of itself.
)                            (b)    No.
J l                                                                            l
                                                                              \
l
            **    Supplied in respo.se to the requirements of Form U-13-1.
 
1 i
t I                                                                                    ,
j                                                                                          !
J SIGNATURES l
Pursuant to the requirements of the Public Util-ity Holding Company Act of 1935, the undersigned companies                        l have duly cau' sed this statement to be signed on their l      behalf by the undersigned thereunto duly authorized.                              f f
:1 Dated:  October 7, 1988    SYSTEM ENERGY RESOURCES, INC.
l t
{                                                                                          I By          /s/ Glenn E. Harder l                                              Glenn E. Harder                          i l
i                                              Vice President-                          !
1 Accounting and Treasurer                l t
1 j                                    ARKANSAS POWER & LIGHT COMPANY                      l
)                                    By        /s/ John Harton 1                                                John Harton                              ,
Vice President, Treasurer                :
and Assistant Secretary                  [
l l                                                                                          i l                                      LOUISIANA POWER & LIGHT COMPANY                    !
l By        /s/ Lleolm H. R-Istchie
:                                                Malcolm R. McLetchie                    i Senior Vice President-                  l t
Accounting and Finance                  i I
* l l
i                                                                                          .
i                                                                                          i i                                                                                          !
I 1
i i                                                                                          l
!                                                                                          I j
j J
i
 
? -
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EXHIBIT H P
I l
SECURITIES AND EXCKANGE COMMISSION                          .
(Release No. 35 ,        )                                          f Filings Under the Public Utijity Nolding Company Act of 1935 ("Act")
October      , 1988                                                  l Notice is hereby given that the following filing (s) han/have been made with the Commission pursuant to provisions of the Act and rules promulgated thereunder.
All interested persons are referred to the application (s)            ;
and/or declaration (s) for complete statements of the                ;
proposed transaction (s) summarized below.      The application (s) and/or declaration (s) and any amendment (s) thereto is/are available for public inspection through the            i l
Commission's Office of Public Reference.                              (
Interested persons wishing to comment or request        ;
a hearing on the application (s) and/or daclaration(s) should submit their views in writing by                , 1988 to the Secretary, Securities and Exchange Commission, Washington, D.C. 20549, and serve a copy on the relevant              l applicant (s) and/or declarant (s) at the address (es) specified below. Proof of service (by affidavit or, in case c    an attorney at law, by certificate) should be filed with the request. Any request for hearing shall identify specifically the issues of fact or law that are disputed. A person who so requests will be notified of
 
!I i
I        any hearing, if ordered, and will receive a copy of any j
notice or order issued in the matter. After said da,te, the application (s) and/or declaration (s), as filed or as amended, may be granted and/or permitted to become effective.
i
.        Arkansas Power & Light Company 1
Louisiana Power & Light Company j        system Enerov Resources. Inc.                    (70-          )
1 Arkansas Power & Light Comrany ("AP&L"), 425 W.      ;
Capitol Street, Little Rock, Arks:ssas 72203, Louisiana          i J
Power & Light Company ("LP&L"), 317 Batonne Street, New
;        Orleans, Louisiana 70112 and System Enalgy Resources, Inc.
j        ("SERI"), 188 East Capitol Street, One Jackson Place, Jackson, Mississippi 39201, subsidiaries of Middle South Utilities, Inc. ("Middle South"), a registered holding i                                                                          !
!        company, have filed a declaration pursuant to Sections            l 12(b) and 13(b) of the Act and Rules 45, 86-91, 93 and 94 1        thereunder.                                                      l l                                                                          l It is proposed that SERI become the nuclear i        operating company for the Middle South system.          SERI will become, pursuant to operating agreements ("Operating
)i Agreements"), the operator, but not the owner, of the
  !      nuclear stations at Arkansas Nuclear One, Units 1 and 2
("ANO") and Waterford 3 ("Waterford 3"). These stations I
i 4
will continue to be owned by AP&L and LP&L, respectively.
}        SERI will continue to own and operate for itself and South i
i
 
Mississippi Electric Power Association the Grand Gulf Nuclear Station.                                      .
The Operating Agreements will provide that all services provided by SERI will be billed to AP&L and LP&L    ,
at SERI's cost pursuant to the applicable rules and regulations under the Act. Costs incurred by SERI at each of the plants will be funded directly by the owning utility and paid by SERI, or will be allocated to the owning utility. The Operating Agreements also provide for indemnities between SERI and AP&L and SERI and IP&L in connection with the service activities. SERI will indemnify the respective owning utility against all actual losses, costs, liabilities and expenses (except conse-quential damages as defined in the Operating Agreements) resulting from SERI's gross negligence or willful mis-conduct as defined in the Operating Agreements. If SERI otherwise incurs any liability to any third party, any amounts paid by SERI to such third party will be a cost passed on to the owning utility.
It is proposed that, upon obtaining all requisite approvals, including Nuclear Regulatory              j commission approval of a licensing amendment making SERI a co-licensee for ANO and Waterford 3, SERI will assume, pursuant to the Operating Agreements, responsibility for the operation of the plants. Upon approval of the arrangement, essentially all the employees currently
 
4 assigned to the nuclear operations area of the owning utilities will become employees of SERI.                      {
Under the proposed Operating Agreeements AP&L i
!                    and LP&L will coritinue to own the entire output of ANO and  i
;                    Waterford 3, respectively, i
4 For the Commission by the Division of Investment ,
Management.
i-i f
i                                                                                ;
4                                                                                  s I
l i
l                                                                                :
1 I
i f
l 4
 
i
:                                        REID & Pazzar 40 WEST 57'" STREET NEW YOM M. N.Y. 20019 4097 d
ans so3 sooo                                                r q
wassegnovow onses                                                                usw vous omes seas se** stasaf. N.w.                                                      CABLE ADDasse *pstDAPT' I    WA;H t WOTON, D. C 90034                                                      T E LE R:76094'6781 DDFT NTN ,
adse eas eeoo                                                                  S40634    RDPT US  '
TO LEX: 440430 RP WASSI                                                      PACSIMILE' #48 6o3 Sete f    94COSMILE: 30s 444 8347                                                          DIRSCT DIAL MUMBR A      [
s 212 603-2142 New York, New York october 11, 1988
{
I 1
Securities and Exchange Commission                                                            r 1
450 Fifth Street, N.W.                                                                        i Washington, D.C.        20549 4
Ret  System Energy Resources, Inc.
File No. 70-7570 i
Gentlemen:
i For filing with you vf.a EDGAR pursuant to the                                  '
Public Utility Holding Company *Act of 1935, enclosed                                          j please find Amendment No. I to the Declaration on Form U-l                                    '
l            of Arkansas Power a Light Company ("AP&L"), Louisiana 1                Power a L At Company ("LP&L") and System Energy i
Resources, Inc. ("SERI") (File No. 70-7570) relating to                                        ,
the consolidation of all Middle South Utilities Inc, j                System nuclear operations in SERI.
i Very truly yours,                                ,
1                                                                                                              l REID 4 PRIEST, Counsel for                      :
System Energy Resources, Inc.
I l                                                              By: /s/ Jeffrev c. Miller                        !
Jeffrey C. Miller                        i l                Enclosures I
{              cc:      Mr. Wi)liam C. Weeden i                                                                                                            !
l                                                                                                              l 1
l
 
!*l
!                                                                                  File No. 70-7570                      ,
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549                                        .
FORM U-l AMENDMENT No. 1 70 DECLARATION ON FORM U-l UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 System Energy Resources, Inc.
188 East Capitol Street One Jackson Flace Jackson, Mississippi              39201 Arkansas Power & Light Company                                  Louisiana Power a Light Company 425 W. Capitol Street                                          317 Baronne Street Little Rock, Arkansas                72203                    New Orleans, Louisiana                        70112 (Name of companies filing this statement and addresses of principal executive offices)
Middle South Utilities, Inc.
(Name of top registered holding company of each applicant or declarant)
William Cavanaugh, III Pre sident and Chief Executive Of ficer System Energy Resources, Inc.
188 East Capitol Street one Jackson Place Jackson, Mississippi              39201 J. L. Maulden                                                  J. M. Cain President and Chief Executive                                  President and Chief Executive officer                                                      Officer Arkansas Power & Lt.ght Company                                Louisiana Power & Light Company 425 W. Capitol Strnet                                          317 Baronne Street Little Rock, Arkannas                72203                      New Orleans, Louisiana                      70112 (Name and addresses of agents for service)
 
,.                                                                                                              t i'
r i
l' s                        The Jammission is also requested to send                                            1 copies of any communications in connection                                          :
;                                        with this matter tot                                                    j I
i    McChord Carrico, Esq.                          Paul B. Benham, Esq.          .
(
j    Monroe a Lemann                                Friday, Eldredge a Clark                                    !
;    201 St. Charles Avenue                        2000 First Commerice,1 Building                              i New Orlaans, Louisiana            70170        Little Rock, Arkansas          72201 l
f                                                                                                              f
:    Robert B. McGehee, Esq.                        Jeffrey C. Miller, Esq.
i    Wise Carter Child a Caraway                    Reid a Priest                                              j l        Professional Association                40 West 57t.h Street                                        t i    P.O. Bcx 651                                  New York, New York        10019                              l l    Jackson, Mississippi            39205                                                                      i
/                                                                                                                '
l l
Item 6.      Exhibits and Financial Statements                              p The followir.g exhibits and financial statements                                        {
are filed as part of this Declarations                                                                r t
l                        B-1    -
Proposed Operating Agreement between                                      l
]                                    SERI and AP4I..                                                          j B-2    -
Proposed Operating Agreement between i                                    SERI and LPAL.
D-1    -
NRC License Amendment Application for ANO 1 and 2.                                                                !
D-2    -
NRC License Amendment Application for Waterford 3.                                                              l l
1 D-3    -
APSC Application.
{
D-4    -
LPSC Application.
D-5    -
CNO Application.
l
                      **G-3    -
SERI's balance sheet as of the latest i
I available date and profit and loss                                          !
statement for the year ended on that date.
supplied in response to the requirements of Form U              1.
 
i
  .'                                                                                                                    l.
,.                                                                                                                        t
''                                                                                                                        i 1                                                                                                                        I' 1
SIGNATURES
!                                                                                                                        i Pursuant to the requirements of the Public                                    :
i Utility Holding Company Act of 1935, the undersigned companies have duly caused this amendment to be signed on i
their behalf by the undersigned thereunto duly authorized.                                                !
I r
Dated:                      October 11, 1988          SYSTEM ENERGY RESOURCES, INC.                        j I
By:            /s/ Glenn E. Harder                  !
Glenn E. Harder                      [
Vice President-                      !
Accounting and Treasurer            i l                                                                                                                        l ARKANSAS P0WER & LIGHT COMPANY                      !
By:            /s/ John Harton l
John Harton                          8 Vice President, Treasurer            I and Assistant Secretary i
LOUISIANA POWER a LIGHT COMPAN'.'                    l I
By:            /s/ Malcolm H. McLetchie              t Malcolm H. McLetchie Senior Vice President-Accounting and Finance                  ,
l l
i
 
Rurn & PRInst do WEST 57'" aTREET NEW YoM M. M.Y.1o089 *4097 ese oos soon                                                  ,
i waenseevon erwies                                                                                              new venu ereses sans 40= ormaar, p w.                                                                                    cAsLa Anpasse *astnArr*
WAC E l mof0W. D. C . DOO34                                                                                Ts1JBR fles444,s4 RDPT gria
                                    .            o.                                                                  seos24    merr va TC&sn' eeo430 3 P WAsM                                                                                        PActlMILE e4s 403 este    [
pac: m La aos see s3et                                                                                          sensefstALwwwasa 212 603-2142                    ,
(
New York, New York                                !
October 11, 1988
* Securities and Exchange Commission                                                          ,
450 Fifth Street, N.W.                                                                      j Washington, D.C.. 20549 Ret  System Energy Resources, Inc.                                              l File No. 70-7570                                                          i I
Gentlemen Enclosed for filing with the Securities and                                      !
Exchange Commission ("SEC") please find one executed and                                    i two conformed copies of Form SE, dated October 11, 1988, of Atkansas Power & Light Company ("AP4L"), Louisiana                                        i Power & Light Company ("LPAL") and System Energy                                            ;
Resources, Inc. ("SERI"), together with Exhibits B-1, B-2, D-1, D-2, D-3, 0-4, D-5 and G-3 relating to Amendment No.                                    1 I to AP4L's, LPAL's and SERI'F Declaration on form U-l                                      '
("U-1") which is being filed with the SEC today and relates to che proposed consolidation of all Middle South Utilities, Inc. System nuclear operations in SERI.                                            ,
Amendment No. I to the U-1 is being iiled with you by a                                        i direct transmission to the EDGAR System, e
Please stamp and return the enclosed copy of                                    f tilis letter to acknowledge receipt of the filing.                                            l l
Ve y truly yours,                                  l 4    f  b;f          s get      C . Mi 1 't l'                          ,
Enclosures                                                                                      l cc        Mr. William C. Weeden I
G-        _ _ - __ __.- - -_____- __ ___ - __.
 
/.
t                                                                                                                CMSAPPROVAL oue someer usun; tiron octeter 31, swa 0 3. SECLlRITIES AND EXCHANGE COMMISSION                                                  .
Washlestos D.C. 20S49 FORM SE Dated _              october 11, 1988 (FORM FOR EXHIBITS UNDER THE EDGAR PILOT)
Amendment No. I to Declaration on Form U-l                                                            70 7570 g        Report, Schedule or Statement of                        Period of Report Which the Documents Are a Part                                                        SEC File No. of Form.
(if Appropriate)
Schedule or Statement
_ System Energy Resources, Inc.
202584 (Etact Name of Registrant As Specified in Charter)
Registrant Clk Number Name of Person Other than the Registrant Filing the Form, Schedu.'e or Statement                          '
The undersigned hereby files ther>llowing documents:
Attach an exhibit indet ind the exhibits not filed electronically as requi.*ed by item 601 of Regulatien S.K. the applicable Form. Schedule or Statement.
i                                                                                                                                <
SIGNATURES: Complete A or 3, na Appropriate See Generallrutructions to Form SE A. F1/ings A!.rdt on 8thalfo/the Arghirant: The Registeant has duly caused this form to be signed, thereunto duly authorized,in the City of _New Origann on the lith              day of _ october                                        . State of Louisiana
                                                                  , :9 8 ,
8                                                          ,
System Energy Resources, Inc.                          i (Name      Registrant) i 8v:          8ts .            &,b          /e
[      (Sigriature)[
Cary J. Dudenhefer (Print Name)
Assistant Secretary l
(Title)
I certify that the information set forth in this statement h true, comp 1
(Date)                                                                                                                  !
(Signatur:)
(Print the Name and Tit le of Each Person Who Signs the Form)
A2-1
 
i-4 1
l0 l*
EXHISIT INDEX
* FORM SE dated October 11, 1988 SYSTEM ENER0Y RESOURCES, INC.
[202584) 5 Proposed operating Agreement between SERI and AP4L.
5 Proposed Operating Agreement between SERI and LPAL.
D NRC Licenne Amendment Application for ANO 1 and 2.
D NRC License Amendment Application for Waterford 3.
D ADSC Application.
D LPSC Application.
D CNO Application.
G SERI's balance sheet as of the latest available date and profit and loss statement for the year ended on that date.
i l
l l
E____
 
  ,.,                                                            &Nl bl Y'      ~ d=*
  ,-e ARKANSAS NUCLEAR ONEC,    ,
OPERATING AGREEMENT This Operating Agreement is made and entered into as of                ,
1988 between System Energy Resources, Inc. (SERI) and Arkansas Power & Light Company (AP&L).
WHEREAS, both of the parties hereto are wholly owned subsidiaries of Mido i South Utilities, Inc. (MSU)        -
and, WHEREAS, AP&L is an electric utility that generates, transmits and distributes electricity primarily in the States of Arkansas and Missouri and that owns a nuclear power plant near Russellville, Arkansas, known as Arkansas Nuclear One (ANO); and                                    ,
WHEREAS, AP&L is the holder of Facility Operating License No. DPR-51 for ANO, Unit 1, and Operating License No. NPF-6 for ANO, Unit 2, issued by the NRC; and WHEREAS, AP&L desires that SERI assume operating responsibility for - but not ownership of - ANO; and WHEREAS, AP&L desires that such operating responsibility be consistent with AP&L'c obligations and responsibilities under all pertinent Arkansas and federal law; and
                                                                      .                  j
 
    .,      19317.98 l
l
    .,                                                                          i i
WHEREAS, AP&L desires to contra,ct with SERI so as to enable SERI to possens, use and operate ANO,'an.d SERI
                                                        ~
desires to undertake such responsibility, all subject to and in accordance with the terms and cond.*tions set forth herein; NOW THEREFORE, IN CONSIDERATION o." the mutual obligations set forth herein, the parties hereto agree to the following:
* ARTICLE I.
DEFINITIONS As used herein:
1.1  "Application" means the Application of AP&L (consented to by SERI) before the Nuclear Regulatory Commission to amend the Operating License so as    to authorize and reflect in the license the change from AP&L to SERI as the licenseu authorized to possess, use and operate ANO, as previously or hereafter supplemented or amended.            ;
1.2  "Arkansas Nuclear One" ("ANO") means the two-unit ("ANO-1" and "ANO-2") nuclear-powered electric generating station owned by AP&L and located on a site in southwestern Pope County, Arkansas, about six miles west-northwest of Russellville, Arkansas on*a peninsula formed by the Dardanelle Reservoir. ANO includes all the real property owned by AP&L at the site, and all buildings, st ructures, facilities and equipment located thereon. This i
1
_  .___          m
 
      . 19317.98 s
Operating Agreement delineates certain specific structures, facilities and equipment located at ANO that AP&L will continue to operate and maintain; e.g., certain switchyard breakers, transmission lines and relat '    mipment that are downstream of the generating units' maan output breakers.
1.3  "Capital Improvements" means improvements, additions, modifications or replacements of property at ANO that are properly capitalized and recorded on AP&L's books of account as assets under the FERC Uniform System of Accounts and are in accordance with applicable rules and regulations of any regulatory authority having jurisdiction in the matter.
1.4  "Consequential Damages" means incidental, indirect or special damages including, but not limited to, loss of profits or revenue, loss of use of power or property, cost of capital, cost of purchas3d or replacement power, inventory or use charges, claims of customers or third parties for service interruptions and any other incidental, indirect, or special damages of any nature.          '
1 1.5  "Costs of capital Improvements" means all costs of Capital Improvements as defined in Section 1.3 herein.                                      -
1.6  "Costs of Operation" or "Cost of Operation" means all costs of Operation, decontamination and
                                                                          )
decommissioning and any related taxes incurred or accrued
                                        -3 i
h
* j
 
  ,  19317.98 s
f
                                                                    +4 under or with respect to this Operating Agreement and attributable or allocable to ANO and properly recordable in expense accounts under the FERC Uniform System of Accounts.
These costa shall include, without limitation, any costs incurred in connection with the Operation of ANO, but                          i excluding (a) costs of Nuclear Fuel that is owned by AP&L or leased directly by AP&L from one or more third parties and (b) losses, costs, liabilities and expenses (except for Consequential Damages as defined in Section 1.4 herein) directly resulting from the Gross Negligence or Willful Misconduct of SERI. All of such Costs of Operation shall be calculated, ard allocation of such costs shall be made as the parties shall from time to time agree, and shall be made in accordance with any applicable rules and regulations of the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935, the FERC under the Federal Power Act and other regulatory authorities having jurisdiction in the matter.
1.7  "Effective Date" means the effective date of this Operating Agreement as determined pursuant to Section 8.1.
1.8  "FERC" means the Federal Energy Regulatory Commission or its successor.
1.9  "Force Majeure" means any act, delay or failure to act on the part of any state or federal l
4
 
19317.98 l:-
governmental authority, whether legislati,ve, executive, judicial or administrative, inc3uding delay or ' failure to act by any governmental authority in the issuance of permits or licenses required in connection with ANO, and the prohibiting of acts necessary to performance hereunder or the pernitting of any such acts only subject to unreasonable conditions; acts of God, damage, accidents or disruptions, including, but not limited to, fire, flood, explosion, tornado, hurricane, earthquake, windstorm, or equipment breakdown; failure or delay beyond either party's reasonable control in securing necessary financing, materials, equipment, services or facilities; forced outages or forced unit deratings; labor difficulties such as strikes,                  (
slowdowns or shortages; delays in transportation, civil unrest, disturbances, demonstrations; or any other cause beyond the affected party's reasonable control.
1.10 "Good Utility Practice" means any of the            t practices, methods and acts engaged in or approved by a significant proportion of the electrAc utility industry at the time of the reference, or any of the practices, methods and acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the J sired result at          {
a reasonable cost consistent with reliability, safety and            l expedition.
Good Utility Practice shall apply not only to          I 5-I
 
  ,  19317.98 functional parts of ANO, but also to appropriate structures, landscaping, signs, lighting and other facilities.and public relations programs reasonably designed to pvemote the public's understanding and acceptance of ANO.      Good Utility Practice is not intended to be limited to the optimum practice, method or act to the exclusion of all others, but rather to be a spectrum of prudent and acceptable practices, methods or acts.
1.11 "Gross Negligence and/or Willful Misconduct" means any act or omission by or authorized by a party's officers or Boae d of Directors that is performed, authorized or omitted consciously with prior actual knowledge or with reckless disregard of facts indicating that such conduct or omission is likely to result in actionable damages or injury to persons or property or to result in a violation of laws or regulations.
1.12 "NRC" or "Nuclear Regulatory Commission" means the United States Nuclear Regulatory Commission or its sue.:essor having responsibility for administration of the licensing and regulation of the operation of nuclear utilization facilities under the Atomic Energy Act of 1954 and amendments thereto.                        -
1.13 "Nuclear Fuel" means any source, spr.'t al nuclear or by-product material as defined in the Atomic Energy Act of 1954 and any amendments thereto, including any l
                                                      .                  j
 
  ,    19317.98
                                                                      \
ores, mined or unmined, uranium concentrates, natural or enriched uranium hexaflouride, or any other material in process containing uranium, and any fuel assemblies or parts thereof, any of which are required for the generation of electricity at ANO.
1.14 "Operate" and its derivatives means to possecs, use, manage, control, maintain, repair, operate and decommission.
1.15 "Operating License" means the Facility Operating License No. DPR-51 for ANO, Unit 1 and Operating License No. NPF-6 for ANO, Unit 2 and amendments thereto as issued from time to time by the NRC.
ARTICLE II.
SERI'S AUTHORITY AND RESPONSIBILITY WITH RESPECT TO OPERATION OF ANO 2.1  Authority for Operation. 3ERI and AP&L agree that SERI shall take all actions necessary to make Capital Improvements to ANO in accordance with Good Utility Practice and in the best interest of AP&L. SERI shall take all action necessary to Operate ANO in accordance with Good Utility Practice, and SERI is solely responsible for the manner of Operation of ANO, the manner of accomplishing the work, shall use its own methods in Operating ANO and is not subject to the control of AP&L in any respect with regard to the performance of the operation of ANO.      AP&L hereby grants i
    ,    19317.98
    ~
l
                                                                    .. I SERI the authority to take any and all action, in AP&L's name and on AP&L's behalf, necessary to obtain'and/or maintain all licenses and permits issued by'the NRC or other regulatory bodies relating to ANO and necessary to comply with all applicable regulations of the NRC and other governmental bodies having jurisdiction over any aspect of the Cost of Operation, Cost of Capital Improvements, making of Capital Improvements and/or Operation of ANO. Without limiting the foregoing delegation, SERI shall act as the agent for AP&L in all matters related to NRC licensing of ANO. Furthermore, SERI shall provide AP&L with data and assistance as may be requested by AP&L to enable AP&L to satisfactorily discharge, as the owner of ANO, its responsibilities with regard to ?.NO, including its responsibilities to its securities holders, to regulatory authorities and others. SERI shall Operate, and make Capital Improvements at, ANO in accordance with the Operating License and applicable laws and regulatory requirements and shall have sole authority, as the Operator of ANO, to make all decisions relating to public health and safety. Subject to the provisions of Sections 2.2 and 2.3 herein, in order to enable SERI fully and effectively to perform its duties hereunder, SERI shall have, and AP&L does hereby grant to SERI, the power and authority to exercise in accordance with applicable laws, the rights of AP&L under
,,    19317098 l
1 and to execute, modify, amend or terminate any contracts, including, without limitation, leases, e a s e m e n t's ,
agreements, purchase orders, licenses, permits and privileges relating to the Operation of, and making of Capital Improvements to ANO, as agent for AP&L for such contracting purposes.      SERI may perform its duties hereur. der through its employees or non-affiliated persons.            Except as provided in Section 11.5 hereof, the duties of AP&L and SERI hereunder shall be subject in all events to receipt of any further necessary consents or regulatory approvals.            Subjecj to SERI's obligations and responsibilities under this Operating Agreement, the Operating License and applicable laws and regulatory requirements, SEEI agrees that it shall comply with directions from AP&L relating to the making of Capital Improvements (including the costs thereof) of ANO.
2.2  Limitation on SERI's Authority.
Notwithstanding Section 2.1 tbove, SERI chall have no authority under this Operating Agreement without the written            l approval of AP&L, which approval shall not be unreasonably withheld, (a) to obligate AP&L to pay Costs of Capital Improvements and Costs of Operation that are either l
materially different from or in excess of the expenditures I
to be agreed upon pursuant to Section 5.1 herein, (b) to                l l
obligate AP&L to pay Costs of Capital Improvements that have            l not been approved pursuant to AP&L's policy with respect to              I j
                                                                              \
                                                                                                                          )
i 1
 
19317.98 its Board of Director's approval of capit,al expenditures, (c) to modify, amend or terminate any contracts executed by AP&L that are existing and were in effect prior to the Effective Date and that are presently or in the future will be categorized as material by AP&L, (d) to sell, encumber or otherwise dispose of any real property or any equipment or personal property comprising ANO, and/or (e) to sell or otherwise dispose of capacity and energy from ANO.
In addition, AP&L shall have exclusive authority to define the economic life and to determine when the economic life of ANO has ended and, in its sole discretion, may direct SERI, in writing, to retire and decommission ANO or to Operate ANO at reduced capacity and/or to place ANO in a safe shutdown condition, provided, however, SERI shall take such action in a manner which it determines, in its sole judgment, is consistent with public health and safety, the Operating License and applicable laws and regulations. In addition, SERI is authorized to Operate ANO at a reduced capacity or otherwise to place ANO in a safe shutdown condition at any time SERI determinos such action is necessary to comply with the Operating License and applicable laws and regulations.
All costs incurred by SERI in taking such action relating to decommissioning or shutdown of ANO shall be considered Costs of Operation or Costs of Capital Improvements, as the case may be. With respect to acquisitions by SERI, as AP&L's
 
l
,  19317.98 l
l
.-                                                                                        1 l
agent for such purpose, of Capital Improvements and other i
equipment or property, including, b u t n o t ' l i m i t'e d ,t o ,
materials, supplies and spare parts inventories, for ANO, AP&L's Chief Financial Officer shall provide SERI from time to time as necessary with instructions or guidelines as to the preferred financial structure of such acquisitions (i.e.
purchase, lease, etc.), which shall be used in implementing such acquisitions.          '
2.3  Execution; Disclosures in Third-Party Contracts. Contracto relating to the Operation of ANO,                              I including, without limitation, any contracts for Capital l
Improvements or contracts for the sale, lease or acquisition of materials, inventories, supplies, spare parts, equipment, fuel, Nuclear Fuel (excluding contracts for the financing through lease or otherwise for Nuclear Fuel) or services, shall be executed by SERI, as agent for AP&L for this purpose, or by AP&L, upon SERI's reasonable request.                        If a contract subject to Section 2.1 relates to both ANO and one or more other power plants that are Operated by SERI, such contracts ("Multi-Plant Contracts") shall be executed by AP&L at SERI's request on reasonable grounds or by SERI on behalf of AP&L and the owners of the other applicable plants. SERI further agrees that with respect to Multi-Plant Contracts, SERI will not enter into such Multi-Plant Contracts without the prior written consent of
 
19317.98 6
AP&L unless such contract contains a provision for several but not joint liability of the owners of the plants under such Multi-Plant Contracts in proportion to the costs allocated to the various power plants under such contracts.
In order to induce third parties to contract with SERI with rega.rd to the performance of SERI's obligations under this Operating Agreement, AP&L hereby expressly agrees to be bound by the terms of all contracts executed by SERI in accordance with its agency authority as described herein (including, without limitation, any provisions that limit or protect against a third party's liability, provisions granting indemnity to third parties and limitations or exclusions of warranties) to the same extent as if AP&L were an original signatory to such contract. In addition, if AP&L's signature is deemed by SERI to be necessary to induce a third-party to contract with SERI, AP&L agrees to not unreasonably refuse to execute such additional third-party agreements as SERI may request from time to time.      It is          j further agreed that the Chief Financial Officer of AP&L                l shall notify SERI in writing of the contracts or types of              l contracts related to ANO that are to be executed by SERI, in its capacity as AP&L's agent for that purpose, that J.P&L desires to review in order for AP&L to monitor and evaluate            '
the potential impact on AP&L of such contracts and to advise SERI of such impact so that SERI shall take all steps to
                                                                                  )
1
 
  . 19317.98 protect AP&L's interest.                Accordingly, SERI agrees to provide AP&L copies of such contracts within a ' reasonable time prior to SERI's proposed execution thereof.
2.4  Enforcement of Rights.
A. AP&L hereby recognizes that, except with respect to facts and circumstances existing, or litigation instituted by or against AP&L prior to the Effective Date, SERI har complete and exclusive authority with respect to the handling of the defense, prosecution and/or settlement of disputes with third parties relating in any way to ANO, provided that SERI shall obtain AP&L's written consent prior to instituting or settling any lawsuit, claim, proceeding or action relating to ANO which is of a type categorized as material by AP&L.
B. With respect to litigation relating to ANO that arises out of facts or circumstances existing prior                                    ;
to the Effective Date, AP&L shall in consultation with SERI                                    !
decide upon the appropriate manner of defending, prosecuting or settling such litigation.
C. Subject to Section 6.2, it is further agreed that to the extent SERI incurs any liability to a third party in performing its duties under this Operating Agreement, amounts paid by SERI on account of such liability and SERI'r 3xpenses in defending claims by third parties or
 
  '. 19317.98 prosecuting claims against third parties shall be considered Costs of Operation.
2.5  SERI's Responsibilities at Other Plants.
SERI's duties and responsibilities under this Operating Agreement shall not be construed to interfere with SERI's authority and responsibility to operate any other plants for which it has operating responsibility; provided, however, that SERI hereby agrees that it will not knowingly take any action or fail to take any action in connection with ANO that is inconsistent with Good Utility Practice and puts AP&L at a disadvantage to SERI or to the owners of such other plants.
ARTICLE III.
AP&L'S RESPONSIBILITY AND OBLIGATIONS 3.1  Payment. In consideration of the services rendered by SERI hereunder, and subject to the provisions of this Operating Agreement, AP&L hereby agrees to pay to SERI the Costs of Operation and Costs of Capital Improvements pursuant to Article V hereof.
3.2  Site Access and Control. In order for SERI to Operate ANO in accordance with the Operating License and other applicable regulatory requirements, AP&L grants SERI possession and use of the property constituting ANO and agrees to provide SERI, its agents, employees and contractors unrestricted access to the property constituting 19317.98 ANO, including, without limitation, the real property and s
the switchyard, facilities, equipment and personal property located on the ANO site. As required by the Operating License and applicable statutes, and NRC regulations, AP&L further agrees that SERI shall have authority to exercise complete control over the Exclusion Area as defined in the Safety Analysis Report for ANO and to determine all activities within that area.      Toward this end, AP&L hereby assigns to SERI its rights under an easement with the United States Army Corps of Engineers (No. DACWO3-2-76-322) to exercise exclusion area control with respect to certain specified Dardanelle Reservoir bed and bank properties owned by the United States Government.
3.3  Support Services from AP&L. AP&L agrees that it will cooperate with SERI in a manner so that SERI may exercise its authority and fulfill its responsibilities pursuant to this Operating Agreement.      In this connection,                                      i AP&L further agrees to provide (1) ANO switchyard, switching i
station, and transmission line services and other support in                                        :
accordance with a separate Memorandum of Understanding to be                                          ,
executed by the parties contemporaneously with the execution                                        l 1
                                                                                                              )
of this Operating Agreement, an executed copy of which is                                            t attached hereto as Exhibit A, as such exhibit may be hereafter supplemented or amended, (2) support for the ANO Emergency Plan and emergency training and drills in I
 
  '.      19317.98 1
l i
j accordance with a separate agreement to be executed by the parties contemporaneously with the execution of this Operating Agreement, an executed copy of which is attached hereto as Exhibit B, as such exhibit may be hereafter supplemented or amended, and (3) essential support for ANO in accordance with a separate agreement to be executed contemporaneously with the execution of this Operating Agreement, an executed copy of which is attached hereto as Exhibit C,  as such exhibit may be hereafter supplemented or emended. Subject to its reasonable capability and availability, AP&L agrees to provide additional services or assistance required by SERI and agreed to by AP&L in writing in connection with the Operation of ANO, including, without limitation, the following:      (1) communications access and support, (2) transportation support, (3) payroll and personnel assistance, and (4) other services as may be required in order to allow SERI to conduct safe, economic and efficient operations at ANO.
3.4  No Changes to Facilities, Procedures or Practices. So that SERI will be capable of Operating ANO in accordance with the Operating License and other applicable regulatory requirements, AP&L agrees that it will not make any changes to facilities, procedures or practices that
:      affect compliance with NRC regulations or commitments, including, but not limited to, physical changes to the i
i
 
  ,  19317.98 l
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electrical transmission or distribution facilities that directly provide an off-site power supply'to ANO without prior consultation with and written consent from SERI, which consent SERI shall not unreasonably withhold.
3.5  Offsite Power Sup212    AP&L agrees that it shall provide ANO with an assured source of offsite power in accordance with procedures to be agreed upon, from time to time, by the parties.
ARTICLE IV.
ENTITLEMENT TO CAPACIT'_AND ENERGY 4.1  Entitlement and Delivery of Capacity and Energy. AP&L, at all times during the term of this Agreement, shall be and remain the owner of, and shall be entitled to all of, the capacity and energy fram ANO.
4.2    Determination of Output. Het positivo output of ANO uhall be the gross generation of ANO, less station service requirements, and less adjustments for losses experienced.
In the event the output is negative (i.e.,
station service and losses exceed the gross generation) AP&L shall be responsible for providing necessary power at ANO during such period in accordance with Good Utility Practice and Section 3.5 herein.                        -
I
                                                              -= _        -___. .
 
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,  19317.98
                                          .                                          u ARTICLE V.        ,.
PAYMENT; AUDIT AND INSPECTION RIGHTS 5.1          ,P,aymer.t Obligation. On or before November 1 (or such other dates as may be agreed to by the parties) of each year during the term of thic Operating Agreement, (1) SERI will submit for AP&L's review and approval the total annual construction budget for ANO, the annual operating and construction programs (as used herein the term "annual operating and construction programs" shall include details of the budge'ted ccats for those programs) for ANO, and the components of SERI's five-year business plan that relate to ANO, and (2) SERI and AP&L will agree in writing upon maximum amounts to be paid, within parameters of the then-current SERI five-year business plan, by AP&L for the following budget year pursuant to this Operating Agreement with respect to (i) Costs of Capital Improvements and (ii) Costs of Operation.              AP&L and SERI recognize that mutually agreeable adjustments may be made to such maximum amounts to be paid and/or to the previously approved construction budget, operating and construction programs or the components of SERI's five-year business plan relating to ANO, from time to time during any budget year, to reflect the impact of force majeure, unforeseen circumstances, financial constraints or other events.                Without limiting AP&L's obligations under Section 6.2, AP&L agrees to pay any
 
19317.98
                                .                              a and all Costs of Operation and Costs of Capitel Improvements within such maximum amounts to be paid and consist.ent with the previously approved construction budget and operating and construction programs, but AP&L shall not be obligated to pay Costs of Operation and Costs of Capital Improvements in excess of the applicable maximum expenditure limitations or which differ materially from the types of expenditures reflected in the construction budget and operating programs previously approved by AP&L, except for any such excess or different Costs of Operation and Costs of Capital Improvements that AP&L agrees to pay. It is further agreed that SERI will keep AP&L timely informed and obtain AP&L's approval regarding projects which are reasonably anticipated to cause a material change to the components of the then-current SERI five-year business plan that relate to ANO as previously approved by AP&L.
5.2  Payment and Billing. Subject to Section 5.1 above and in accordance with procedures to be agreed upon in writing by the parties, SERI hereby agrees to furnish AP&L, at such times as may be required by AP&L, estimates of the Costs of Operation and Costs of Capital Improvements expected to be owed by AP&L for the next succeeding period.
AP&L shall promptly deposit in the bank account (s) to be established pursuant to Section 5.3 such funds as shall be adequate to pay SERI and third parties on a timely basis
 
  ~
19317.98 with respect to costs of capital Improvements and costs of Operation. In addition, AP&L will pay for cost's incurred under any contracts relating to ANO with respect to which SERI, as agent for that purpone, has approved and has directed the third party to provide direct billing to AP&L.
Payments of the Costs of Capital Improvements and Costs of Operation specified herein shall be made notwithstanding the availability or lack of availability of ANO to produce power. No payment made pursuant to this Operating Agreement shall constitute a waiver of any right of AP&L to question or contest the correctness of Costs of Capital Improvements and Costs of Operation charged to AP&L.
5.3  Bank Accounts. The parties agree that one or more special bank accounts may be established and maintained in one or more banks of AP&L's choice, in a manner that will indicate the custodial natur6 of the accounts, for the deposit by AP&L and disbursement by SERI or AP&L of Costs of Capital Improvements and Costs of Operation.
5.4  Audit and Adjustments. SERI shall maintain books and records to support the costs of Capital Improvements and Costs of Operation for such period of time as AP&L shall direct. From timo to time, AP&L may, and SERI shall permit, at AP&L's option and expense as appropriate, in accordance with any applicable Middle South Utilities System established auditing policies (excluding any such
                                    ~20-
 
t    19317.98 policy that would limit or preclude the r,ight of AP&L to conduct such audits), conduct or cause to be co'nducted by others, including regulatory authorities having jurisdiction, audits of the books and records of SERI.      Such audits shall be conducted at reasonable mutually agreed upon times, with agreement not being ur. reasonably withheld.        ,
Further, SERI shall make available to AP&L a copy of any audit reports prepared by or at the request of SERI concerning its books and records relating to the operation of ANO, and the cost of preparing such audit reports shall be a Cost of Operation payable pursuant to this Article V.
SERI shall credit AP&L with recoveries, whenever received, from third parties and shall charge or credit AP&L with any underpayments or overpaymenta of Costs of Capital                i t
Improvements and Costs of Operation, as the case may be.          '
Force Majeure shall not excuse failure by SERI to credit AP&L with third-party recoveries or overpayments of Costs of Capital Improvements and Costs of Operation owing at any time.
ARTICLE VI.
LIMITATION OF LIABILITY  INDEMNITY l
6.1  , Release and Limitation of Liability. To the fullest extent permitted by npplicable law, AP&L shall not be entitled to recover from and hereby expressly releases,          l SERI, its agents, officers, directors, shareholders or              l
 
19317.98
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i employees (except to the extent AP&L shall be entitled to share in insurance recoveries obtained by SERI hereunder) from or for any damages, claims, causes of action, loeses and/or expenses of whatever kind or nature, including, but not limited to, attorneys' fees, that are in any way, directly or indirectly, connected with SERI's Operation of ANO or for any damage thereto, whether art. sing in tort, fraud, contract, strict liability, negligence or any other theory of legal liability or as a result of fines or other penalties imposed by the NRC or other governmental autho-rity, unless such damages, claims, causes of action, losses and/or expenses (other than Consequential Damages, which      I shall not be recoverable from SERI in any event) shall have resulted from the Gross Negligence and/or Willful Misconduct of SERI.      In no event shall SERI or its agents, officers, ,
directors, shareholders or employees be liable to AP&L for any loss or damage suffered by AP&L in connection with SERI's performance under this operating Agreement in an amount I
greater than AP&L's uninsured loss or for any Consequential Damages. The duty of SERI to perform its obligations under    '
this operating Agreement in accordance with Good Utility Practice shall be construed or n.odified to the extent l
necessary to give full effect to the provisions of this Article VI.
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19317.98
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l 6.2  Indemnities.
A. SERI shall indemnify AP&L against all actual losses, costs, liabilities, fines imposed by the NRC or other regulatory body, and expenses (except for Conse-quential Damages) resulting from SERI's Gross Negligence and/or Willful Misconduct in perforning this operating Agree- i ment, but .in the event AP&L, as a result of the performance of duties pursuant to this Operating Agreement otherwise incurs any liability to any third party, any amount paid by SERI on account of such liability shall be considered Costs of Operation to be paid by AiwL pursuant to Article V.
Workers Compensation benefits payable by SERI as a result of performing this operating Agreement shall also be considered Costs of Operation to be paid by AP&L pursuant to Article V.
B. AP&L shall indemnify and hold SERI and its agents, officers, directors, :hareholders and employees harmless, to the fullest extent permitted by applicable law and regardless of alleged or actual fault, strict liability, and/or sole or concurrent negligence of SERI, against any c1sima for death, injury or property demage to any of AP&L's J
employees or agents or to third persons not employed by 1
SERI, and against any other claims, causes of action, damages or expenses, including, but not limited to, attorneys' fees, NRC fines or penalties of whatever kind or nature arising directly out of or in the course of
 
    ,                                19317.98 performance of services by SERI under this Operating Agreement, except for auch injuries or damages '(excluding Consequential Damages) which arise out of the Gross Negligence and/or Willful Misconduct of SERI and except to the extent such injuries or damages have been compensated through insurance proceeds.      It is furthe.t agreed that AP&L shall indemnify and hold SERI and its agents, officers, directors, shareholders and employees harmless, regardless of actual or alleged fault, strict li46111ty, negligence (whether sole or concurrent) or Gross Negligence and/or Willful Misconduct of SERI, against any claims for Consecuential Damages.
ARTICLE VII.
INSURANCE 7.1  With respect to ANO, SERI will provide Workers Compensation coverage in accordance with all applicable laws. SERI will also, acting for itself or acting as AP&L's agent for that purpose, provide and maintain or cause to be provided and maintained, in the nane        i of and on behalf of AP&L and SERI, as their respective interests may appear, protection through insurance or otherwise covering SERI's and AP&L's obligations to pay damages because of personal injury, death, or property 4
damage caused by other than nuclear energy hazard..
including, without limitation, protection through insurance
_ _ _ . - - - _ _ _ _ _ - - -                                                                    \
 
  ..      19317.98 or otherwise covering nuclear property an,d nuclear liability, and other insurance and financial protection in accordance with customary industry practice and as necessary    -
to comply with all applicable laws and regulations. AP&L, after consultation with SERI, shall determine the coverage limits and deductibles for any insurance policies obtained pursuant to this Agreement.
7.2 SERI will establish necessary procedures, cooperate with the insurers and otherwise comply with requirements of the insurers to maintain coverages in effect and to obtain payment of claims recoverable under such insurance applicable to ANO.
ARTICLE VIII.
TERM AND TERMINATION l
8.1 Term. This Agreement shall become effective    l
                        , 1988 and, unless sooner terminated as          i provided hereinafter, it shall remain in effect, subject to Section 8.2 below, until AHO shall have been retired and decommissioned in accordance with all applicable regulatory i
and governmental requirements and the parties hereto agree l
in writing, with agreement not to be unreasonably withheld, that all responsibilities hereunder have been fulfilled.
8.2 Termination. This operating Agreement may be  j terminated prior to the expiration of the term as set forth l
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in Section 8.1 above, subject to receipt of any and all          l 19317.98 4
necessary regulatory approvals, upon (1) agreement of the parties hereto or (2) either party giving the other party at      I least three hundred sixty-five (365) days' prior written notice of the intention to effect such termination. In addition, thin operating Agreement shall be cancelled to the entent and from the time that performance hereunder may conflict with any rule, requistion or order of the Securities and Exchange Commission adopted before or after the execution hereof. SERI agrees that any and all
;                                            licenses, permits, records, books, privileges or rights acquired by SERI relating to operation of ANO shall be            j assigned or.otherwise transferred to AP&L upon termination of this Operating Agreement.
8.3  Survival. The indemnification, release, and limitation of liability provisions contained in Article VI        t i
shall survive termination to the extent they pertain to events giving rise to such indemnification, release and            l 4
liability that occurred during the term of this Operating          l Agreement. Further, it is agreed that in no event shall l
this operating Agreement terminate unless all payments l
required to have been made by AP&L to SERI or by SERI to t
i AP&L, as the case may be, shall have been made and all necessary regulatory approval for transfer of responsibility of ANO shall have been obtained.
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19317.98 i
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* i ARTICLE IX.
                                                                '                                      F INFORMATION PROVIDED TO AP&L        -
9.1  Reports to AP&L. When required by AP&L, SERI shall provide data and/or reports to AP&L to support Costo                                  >
of Capital Improvements and Costs of Operation payable by AP&L so as te allow AP&L to comply with any applicable laws and any rules and regulations promulgated by regulatory authorities. SERI shall also comply with any other reasonable reporting requirements.
9.2  Site Access. AP&L or its designee, shall                              ,
have accens to ANO, subject to SERI's obligation to limit such acce ss pursuant to the Operating License and tha applicable rules and regulations of the NRC or other                                        j regulatory authorities.                                                                      l l
ARTICLE X i
TRANSFERS OF PERSON 1EL 10.1    Transfer. AP&L non-bargaining unit employees who are nelected by AP&L and SERI, as being necessary or appropri ate for the Operation of ANO will be transferred to                                l the employ of SERI as of the Effective Date of this Operating Agreement.      Transfers, after the initial transfer,                              I will be carried out in accordance with the then-current MSU system policy.                                                                                i SERI agrees to adopt the collective
          .argaining agreement currently in effect at ANO.        Upon the 1
 
  ..,  19317.98 stated expiration date of the current collective bargaining agreement, SERI will assume the responsibility for bargaining with the union on contract renewal. All AP&L applicable bargaining unit employees will be transferred to    !
the employ.of SERI as of the Effective Date of this Operating Agreement.
10.2  Benefit Plans. It is the objective of the s
parties hereto that SERI will assume, as of the date when an individual is transferred from the employ of AP&L to SERI, the obligations, if any, of AP&L to such employee for accrued benefits under AP&L's Employee Benefit Plans (as defined in Section 3(3) of the Employee Retirement Income Act of 1974) in effect at the time of such transfer, and        I AP&L will make appropriate provision (by the transfer of        i funds to a trustee under an Employee Benefit Plan                i established by SERI, the reservation of funds in the existing trust fund under an Employee Benefit Plan sponsored    l by AP&L or otherwise) for the payment of such accrued
)    benefits to the extent that they have been funded as of the date of such employee transfer. Consistent with that i
I objective, AP&L and SERI agree that, in determining benefits payable by SERI under any Employee Benefit Plan established by it to an employee transferred to it by AP&L, SERI shall give credit for service by such employee with AP&L as if I
1 such service had been performed by such transferred employee      l j                                    !
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.-        19317.98
                                      .                                        a for SERI unless AP&L shall make provision,for the direct payment by it of such benefits to the transferred -employee.
If AP&L decides to effect a transfer of assets and liabilities attributable to the accrued benefits of transferred AP&L employees to an Employee Benefit Plan maintained by SERI, AP&L and SERI shall determine the amount of assets to be transferred to meet the then-current accrued liabilities (determined in accordance with Section 414(1) of the Internal Revenue Code of c186 and the regulations thereunder) of such transferrad employees. The plans        and                  l documentation to achieve this objective shall be established by the Boards of Directors of AP&L and of SERI.                                  l l
ARTICLE XI.                                          l MISCELLANEOUS 11.1  confidentiality. Either party may, from time to time, come into possession of information of the other party that is confidential or proprietary (including, without limitation, Safeguards Information as defined in 10 C.F.R. Part 70). Each party having any such information which the other party has advised it is confidential or proprietary will not reproduce, copy, or disclose (except upon prompt and prior notification to the other party of the event precipitating such disclosure and upon agreement of the parties that such disclosure is required by law) any such information in whole or in part foi any purpose without
 
  .-    19317.98
                                      .                                    s the prior written consent of the other party.
* Safegaards Information relative to ANO shall be controlled'and protected in accordance with 10 C.F.R. 73.21.
11.2  Restricted Data.      SERI and AP&L agree that,      !
unless otherwise reqaired by law, they will not permit any            l person to have access to Restricted Data, as defined in 42 i        U.S.C. 52014.y, until the federal office of Personnel                t Management shall have made an investigation and report to
                                                                            ~
!        the NRC on the character, associations and loyalty of such person and the NRC shall have determined that permitting such person to have access to Restricted Data will not endanger the common defense and security, 11.3  Assignment and Successors.        This Operating Agreement shall not be assignable by either party hereto without the prior written consent of the other party and j        without first obtaining all necessary regulatory approval, j        and any attempted assignment without such consent and approval shall be void. Subject to the preceding sentence, this Operating Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns.
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i 11.4  Governino Law. The validity; interpretation i
and performance of this operating Agreement and each of its provisions shall be governed by the laws of the State of l        Arkansas.
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  .. 19317.98 1
11.5  No Delay in Payments. No disagreement or
                                                                          \
dispute of any kind between the parties concerning any          !
matter, including, without limitation, the amount of any payment due from AP&L to SERI or from SERI to AP&L, as the case may be, or the correctness of any charge made to AP&L or SERI, or any reason, eFCuse or Circumstance, including i      Force Majeure, shall permit either party to delay or            ,
withhold payment due and owing under this Operating Agreement, except that AP&L shall have the right to make any payments required of it under protest end to reserve its rights to conduct audits in accordance with Section 5.4.
11.6  Notices. Any notice, request, consent or other communication permitted or required by this operating Agreement shall be in writing and shall be deemed to have I
been given when deposit.ed in the United States mail, first class, postage pre-paid and, until written notice of a new l
address is given, shall be addressed as follows:
1 If to SERI:
1 l                      System Energy Resources, Inc.
l                      Post Office Box 23054 Jackson, Mississippi 39215 j                      Attention: President i
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,,    19317.98 If to AP&L:                .
Arkansas Power & Light Company      '
Post Office Box 551 I.ittle Rock, Arkansas  72203 Attention:    President 11.7  Amendments. This Operating Agreement may be amended only by a written instrument duly executed and delivered by both of the parties hereto and with any and all necessary regulatory approvals previously obtained.
11.8  Relationship. Nothing herein shall be construed to create a partnership or joint venture between SERI and AP&L or to impose a trust, fiduciary or partnership duty, obligation or liability upon SERI or AP&L or to create any agency relationship except as expressly granted herein.
11.9  counterparts. This Operating Agreement may      I be executed simultaneously in two or more counterparts, each        !
i of which shall be deemed an original, but all of which together shall constitute one and the same it -trument.
11.10 Force Majeure. SERI shall rot be in default in performance of its obligations or duties hereunder (other than any obligation to credit AP&L with its recoveries or overpayments of Costs of Operation owing at any time) if such failure of performance is due to Force Majeurw. AP&L shall not be in default in performance of any duties or              ;
obligations hereunder (other than any obligation to pay monies to or at the direction of SERI as provided in thia l
 
,'.      19317.98 c
Operating Agreement) if such failure of p,erformence is due to Force Majeure.                                      -
11.11 Good Utility Practice. The parties hereto shall discharge any and all obligations under this operating        ;
Agreement in accordance with Good Utility Practice.
11.12 Entire Agreement. This Operating Agreement, including Exhibits A, B, and C shall constitute the entire understanding and agreement between the parties superseding any and all previous understandings and agreements between the parties with respect to the subject matter hereof.              ;
IN WITNESS WHEREOF, the parties have executed this operating Agreement by their duly authorized representatives.
SYSTEM ENERGY RESOURCES, INC.        ARKANSAS POWER & LIGHT COMPANY BY:                                  BY:
TITLE:                                TITL3:
DATE:                              _  DATE:          _
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s EXHIBIT A TO AP&L/SERI 1
OPERATING AGREEMENT    l SWITCHYARD AND TRANSMISSION INTERFACE This Memorandum of Understanding is executed by and between Arkansas Power & Light Company, an Arkansas Corporation ("AP&L"), and System Energy Resources, Inc., an Arkansas Corporation ("SERI"), and is dated as of            ,    ,
4        1988.                                                            ,
J WHEREAS, this Agreement is being executed pursuant i
to Paragraph 3.3 of the Operating Agreement between AP&L and
)
SERI dated                , 1988 (the "Operating Agreement")
relating to operation of Arkansas Nuclear One, Units 1 and 2
("ANO");  and WHEREAS, prerequisite to amending the ANO Operat-ing Licenses so as to substitute SERI for AP&L with respect to eparation of ANO, as contemplated by the Operating Agree-      ;
ment, the NRC has requested AP&L to express a commitment to support ANO, with respect to the ANO Switchyard and Trans-mission activities; and i
WHEREAS, the parties desirc to set forth in this Memorandum of Understanding their respective commitments and i
responsibilities regarding the ANO switchyard and related transmission matters.                          -
l a                    NOW, THEREFORE, effective upon and following the Effective Date as defined in the Operating Agreement, AP&L l        and SERI undertake and agree as follows:
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      ,,    19318.70 E
A. EXCLUSION AREA CONTROL, SWITCHYARD ACCESS AND SECURITY
: 1. AP&L agrees to provide SERI unrestricted access to the real property owned by AP&L at or adjacent to the ANO site and to the switchyard, facilities, equipment and personal property located on that property.
: 2. As necessary to comply with federal regulations, SERI shall have authority to exercise complete control over APAL property and easements in the Exclusion Area,    as defined in the ANO Safety Analysis Reports (Salts), and to determine all activities within that area (including exclusion of AP&L personnel, contractors, visitors, guests and other persons from the plant and the switch-yard). To the extent practicable, SERI will oxercise this control in such a fashion that normal AP&L use and access to the switchyard will not be restrict.ed.
: 3. For the purposes of previding security, SERI shall have authority to exercise complete control over the ANO switchyard and other AP&L property in the vicinity of the switchyard. This authority includes thu authority to conduct interactions with law enforcemcnt agencies which are deemed necessary by SERI and the authority to file associated civil or criminal complaints against third parties as deemed necessary by SERI.      The parties will cooperate in good f aith as jointly de termined
    ,.      19318.70 j  9 appropriate to support prosecution of any such com-plaints.
: 4. The parties shall niaintain switchyard perimeter fence gates in a locked condition except when attended or to allow ingress or egress.
: 5. SERI will make a regular routine security patrol of the a
switchyard fence perimeter.
: 6. SERI will notify AP&L of problems requiring mainte-nance, repair or replacement c f the switchyard peri-meter fence, gates, locks, lights or other security related devices or equipment or of other conditions which may effect security.
a          7. AP&L will provide such maintenance, or effect repair or replacement, or correct the condition, in a reasonable t
time period.
l        8. SERI will provide an appropriate security response to i
j an increased threat situation including potential situations caused by needed maintenance, repair or          ,
replacement of security devices or equipment.
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: 9. Key control for the switchyard gates will be maintained      i i
L as follows3                                                  r l              a.      Each party will be allowed to possess keys to all    t i
switchyard gates, except AP&I will not possess i
keyn allowing access to the plant protected areas.
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: b. Keys will be issued only to per,sonnel with an identified need for switchyard access'.  .
: 10. Authorized personnel entering the switchyard for the performance of duties or activities which could have any direct effect on power supply to ANO, including r
routine maintenance of switchyard equipment, will ad-vise the on-duty SERI shift supervisor of entry, the purpose of entry, and anticipated duration of stay.
i Entry for performance of inspections, routine rounds or    i patrols, and other activities such as retrieving i
vehicles or equipment stored in the switchyard or to report for duty or meet work crews or other activities associated purely with use of the switchyard as a crew headquarters does not require such notification.
: 11. AP&L will not exercise its right to explore or recover minerals in any area within the exclusion area or con-voy or lease its mineral rights within the exclusion        "
J area to any third party without SERI approval. Fur-ther, AP&L will cooperate with SERI as necessary to        i assist in control of mineral exploration or recovery activities in the exclusion area.
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19318.70 B. OPERATION
: 1. SERI will make 1egular rounds of the switchyard and carry out the following activities:
: a. make observations of equipment and facilities,
: b. obtain readings of appropriate equipment para-meters,
: c. conduct other routine activities at the request of AP&L,
: d. provide AP&L with appropriate reports as to findings during these activities.
: 2. The parties will operate equipment located in the switchyard as follows:
: a. SERI will be the exclusive operator of the main      ;
generator output breakers except for maintenance activities as designated in B.3. SERI will coor-dinate the operation of these breakers with AP&L, except in emergency situations,
: b. AP&L will normally operate (or provide for the        l operation of) all 500KV, 161KV, and 22KV switch-yard breakers and associated equipment other than      l the main generator output breakers, remotely or locally, but authorized SERI personnel will 1
operate any such breakers or other equipment locally in the switchyard at AP&L request.
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..,    19318.70 c.
SERI will normally be informed,in advance of the operation of all switchyard breakers'and discon-nects to remove equipment from service.
: d. SERI will provide other operating support for the switchyard at the request of AP&L.
: 3. AP&L will operate switchyard equi'        as necessary for  '
maintenance to be performed in act      .nce with Section C below and may return equipment to service upon comple-tion of maintenance.                                        '
C. MAINTENANCE
: 1. Maintenance responsibility (including necessary repair or replacement) for the ANO Startup, Unit Auxiliary and Main output transformers will be divided as follows:
a.
AP&L will maintain the transformers with the ex-ception of related auxiliary equipment; e.g.,
cooling, instrumentation, nitrogen capping, etc.
: b. SERI will maintain the auxiliary equipment asso-ciated with these transformers; e.g., cooling, instrumentation, nitrogen capping, etc.
: 2. Upon request by SERI, AP&L will review maintenance            !
arrangements between SERI and its contractors for major      r maintenanen, repair or replacement activities with 1
 
19318070 4
respect to the main output transformers, and will pro-vide oversight of those maintenance activities.
: 3. SERI will maintain the switchyard control power batteries and their associated battery chargers, including specifically any surveillance requirements contained in the ANO Technical Specifications.            '
: 4. AP&L will maintain (including necessary repair or replacement) all other equipment located in the switchyard, including, but not limited tot
: a. 500KV breakers (including the main output          '
breakers) and related equipment;
: b. 161 KV breakers and related equipment;
: c. the 500/161-22KV bus tie autotransformer and      I related equipment;
: d. 22KV breakers and related equipment.              !
: 5. AP&L will be responsible for procuring, filling, analyzing and replacing transformer oil. Analysis      i results will be provided to SERI when requested by SERI.
: 6. Maintaining an appropriate inventory of spare parts for equipment located in the switchyard will be the respon-sibility of the company that is responsible for main-taining the equipment as specified in this Section.
19318.70 t
D. COORDINATION                          ,
  ,      1. SERI will coordinate planned plant outages with AP&L.
t i              The AP&L dispatcher and the Middle South system dis-patcher will be informed at a minimum.
: 2. AP&L will coordinate all activities which will directly i            affect power supply to ANO with SERI.      At a minimum, i
j              the operations superintendent or designee will be in-formed by the system dispatcher or AP&L dispatcher or            ;
maintenance crew during the planning of these activi-            ,
ties. Activities which cannot be planned in advance l
i 1            and the detailed conduct of planned activities will be
* coordinated with the on-duty shift supervisor.      These t
.;            activities include, but are not limited to:
: a. removal from service of any 500KV or 161KV trans-mission line terminating in the switchyard;
: b. breaker switching which can affect power supply to f
1 ANO (i.e., switching of lines identified in Item (a) above):                                          >
l            c. maintenance activities which can affect power              l
;                    supply to ANO.
{      E. REVIEW AND APPROVAL
!      1. AP&L will obtain SERI review and approval of procedure 4
4 a
changes, design changes, tests or changes in the l
i
(
i                                        !                                                                                ;
l
 
,. 19318.70 p
conduct of other activities which mi,ght affect compli-ance with regulatory requirements and/or commitments involving the ANO switchyard and associated trans-mission lines and equipment which could affect offsite power supply to ANO prior to implementing such changes or commencing such tests. Changes or tests at or be-yond the first major switching station outside of the ANO switchyard are not included unless indefinitely de-energizing one of the transmission lines serving ANO is involved.
: 2. SERI will review there proposed changes and tests in accordance with applicable commitments and regulatory requirements and will obtain prior NRC approval if required.
F. PROCEDURES SERI and AP&L will develop and implement appropriate procedures to (1) define the power transmission inter-face between AP&L and SERI, (2) delineate the responsi-bilities for the operation, maintenance, testing and security of the equipment which comprises that inter-face (as specified in this Memorandum of Understanding) and (3) define AP&L's responsibilities pursuant to federal regulations for providing power to ANO.
19310.70 G. TRAINING
: 1. SERI will provide regular trai,31ng (on a schedule jointly agreed to by AP&L and SERI) to AP&L dispatcher personnel to explain the critical need for power at ANO during emergencies, and the legal requirements asso-ciated with ANO power supply.
: 2. AP&L will make appropriate dispatcher personnel avail-able to receive training on a schedule jointly agreed to by AP&L and SERI.
H. COMPENSATION Costs incurred by SERI pursuant to this Memorandum of Understanding shall be considered Costs of Operation as defined in the Operating Agreement, and services per-4 formed by AP&L hereunder shall be without cost or charge                                                    '
to SERI.                                                  i i
I. GENERAL                                                    l This Agreement is intended to supplement the Operating Agreement. The performance of services described herein by SERI and AP&L shall be governed by the l
 
    ,  19318.70 Operating Agreement. Modifications cnr amendments to this Memorandum of Understanding must be exec.uted by an authorized officer of each party. Prior to execution of any such modification or amendment to this Memoran-dum of Understanding, SERI will review the proposed change to assure that it is in compliance with its licensing commitments and regulatory requirements applicable to nuclear power plants.      If regulatory                i approval is needed, SERI will obtain that approval prior to execution of the modification or amendment.
;            This Memorandum of Understanding and the Operating                    ,
)            Agreement are intended to be complementary, and in the event of any inconsistencies between the two documents,              !
]            the Operating Agreement shall govern.                                '
IN WITNESS WHEREOF, the parties have executed this j      Agreement.
l 1
l 1
)      J. L. MAULDEN                        Date l      President and Chief Executive                                                ,
Officer Arkansas Power & Light company i
W. CAVANAUGH, III                      Date President and Chis      secutive
:        Officer System Energy Resources. Inc.
 
6 EXHIBIT B TO OPERATING AGREEMENT EMERGENCY PLANNING SUPPORT'BY AP&L, This Agreement is made and entered into as of
                          , ,1988 between System Energy Resources, Inc.
(SERI) and Arkansas Power & Light Company (AP&L).      This Agreement is being executed pursuant to the Operating Agree-ment, dated                , 1988, between SERI and AP&L (the "Operating Agreement"), Article 3, Paragraph 3.3(2).
ARTICLE I EyMjRGENCY PLANNING EQUIPMENT AND FACILITIES 1.1  ACCESS. Paragraph 3.2 of the Operating Agreement granta SERI unrestricted access to equipment and facil-ities located on the ANO site, including, without limi-tation, equipment and facilities relied on to execute 1
the ANO Emergency Plan. In addition, in order for SERI f
to operate ANO in accordance with the Operating License h
and other applicable regulatory requirements, AP&L agrees to provide SERI, its agents, employees and con-tractors unrectricted access upon request, to specific        .
additional equipment and facilities located off the ANO      ,
i
{            site including, without limitation, access for emergen-      l cy training exercises, emergency drills and, on a first      [
l priority basis for an actual emergency.                      l i
4 1
I                                                                          ,
(
l                                                                          i l                                                                          l 1                                                                          1 l
 
    . 19318.68
                                                                                            ]
I i
I i
1.2  INVENTORY.          An inventory of the specific offsite equip-s ,                                                                                        ,
ment and facilities for which SERI will be provided the                      '
access specified in Paragraph 1.1 above, shall be main-
{
i tained by the                                        and may be revised as    '
i necessary to reflect changes in the needs of the ANO Emergency Plan or changes in the availability of the equipment and facilities.                      Such revisions shall only be made with the written concurrence of designated AP&L and SERI representatives.
ARTICLE II 1
l                              AP&L PERSONNEL SUPPORTING THE ANO i
EMERGENCY PLAN                                    l s
  ,    2.1  PERSONNEL SUPPORT.              AP&L will provide personnel to sup-1            port the ANO Emergency Plan, including, without limita-
,          tion, personnel to staff the Little Rock Control Cen-I i
ter, the Little Rock Support Centor, and the Emergency i            News Center. These personnel shall be provided by AP&L J
#                                                                                          t j
upon request by SERI to support emergency treining ex-                        3 i
ercises and emergency drills and on a first priority t
basis for an actual emergency.                                                l
}
i 2.2  PERSONNEL ROSTER.              A roster of the specific AP&L per-              !
f j          sonnel that will provide the support described in Para-                        l graph 2.1 above, shall be maintained by                                        I I
i and may be revised as necessary              i to reflect changes in the needs of the ANO Emergency                            l
.                                                                                            1 3                                                                                          1 1                                                                                          !
L.                                                                                          I
 
    .I                                                                                        19318.68 l
Plan or changes in the availability of personnel.
Such revisions shall only be made with the written concur-rence of designated AP&L and SERI representatives.          >
ARTICLE III TERMS AND CONDITIONS 3.1  This Agreement is intended to supplement the Operating Agreement by specifying services to be performed by AP&L without cost or charge to SERI, and the perfor-        '
mance of the services described herein and the rights and obligations of the parties with respect thereto shall be governed by the operating Agreement.
SYSTEM ENERGY RESOURCES,        ARKANSASPOWER&LkGHT INC.                            COMPANY t
By:                            By:
 
==Title:==
Titles I
i i                                                                                                                                                                l
)
i i
n
 
    .'                                                                          l EXHIBIT C TO OPERATING AGREEMENT e
BETWEEN SER7 AND AP&L i
ACREEMENT FOR ESSENTIAL SUPPORT This Agreement is dated as of              , 1988 and is between System Energy Resources, Inc. (SERI) and Arkansas Power & Light Company (AP&L). This Agreement is executed pursuant to Section 3.3 of the operating Agreement dated
                        , 1988 between SERI and AP&L (the "Operating Agreement").                                                          '
i d
: 1. Scope of Support Services.
1 The parties hereby agree that AP&L shall            l l      provide the following support services relative to Arkansas Nuclear one, Units 1 and 2 ("ANO") so as to enable SERI to i
j        carry out its responsibilities under the operating Agreement in an efficient and economic manner:
(A)  Technical Support. AP&L's Technical j              Support Department which reports to the Vice                      I
]              President-Fossil and Transmission Operations of AP&L 1
3              will provide support to ANO in the areas of 1
3 (1) metallurgical engineering, including material                ;
failure analysis, steam generator cleaning support, borated water corrosion analysis, etc., (2) welding engineering, (3) telecommunications support, l
4 1                                                -
3 1
 
    ',                  19318.57 i
i i
(4) equipment diagnostics, including, vibration analysis, etc., (5) piping erosion / corrosion program support, (6) nondestructive evaluation support, I
(7) MOVATS technical consulting, (8) predictive                    -
1                                                                                                t maintenance consulting, (9) electrical apparatus                    !
technical. consulting (generator bushings, transformers, j                            etc.), (10) participation in the Babcock and Wilcox Owners Group Systems and Materials Committee,
;                              (11) transformer testing and substation maintenance,                l (12) relay engineering support, (13) departmental processor operation of mini-computer planning and i
scheduling program, i                                                                                        .
l                                                    (B)  Environmental / Radiological Support.
4 AP&L's Fossil and Transmissions Operations Department I
agrees to provide continued support to ANO with respect              l i                            to environmental / radiological related services                    ;
l                          including:                (1) National Pollution Discharge          !
1                                                                                                  l Elimination System permit coordination,                              !
i a
(2) environmental / radiological monitoring and reporting I
including management of the contracts for Lake                      l
;                            Dardanelle water, sediment, plankton and fish                        !
4' t
collection and analysis, (3) Environmental Protection                l
)                            Agency interface and coordination, (4) Arkansas 1
Department of Pollution Control and Ecology interface l
I 5
1                                                                    )
 
J fs      19318.57                                                                        l e,
l'                                                                                      -
l                                                                                              ;
and coordination, (5) underground storage tank                        [
i                        management and (6) meteoroligcal data validation.                    ;
A i
j                                    (C)  Security. AP&L Corporate Services shall j
i                        continue to provide ANO with nuclear security over-                  (
t 1                        sight.                                                                I j                                    (D)    Land Management. The Technical
!                        Specifications for ANO contain Special Requirements s
j                        related to the land management of the rights-of-way of i
~
the five electric transmission lines serving ANO. AP&L
{
shall implement these Special Requirements by planting                i t
grass and clover to prevent further erosion and by                    j
;                        making further plantings of game food and cover in                    l i
cooperation with landowners and the Arkar.sas Game and Fish Commission. It is agreed that no herbicides shall I
De used for land management on transmission
!                                                                                              i rights-of-way.                                                        I
                                                                                                't
: 2. Schedule.                                                  '
This Agreement shall become effective on the              f same date as the Operating Agreement. The support described                      j 1
in Article 1 above shall continue to be made available until SERI provides AP&L with thirty (30) days' prior written notice that the support services are to be discontinued in                        l l            whole or in part. AP&L agrees to discontinue any or all of i
;            the services in accordance with the schedule or schedules of                      ('
termination to be supplied by SERI.
I l
i 3
l 4'                                                                                        __
 
5 19318.57                    '
I d
l i
: 3. Representatives.
The following representatives are designated          i j              by SERI and AP&L, respectively, for communication and liaison regarding the interim support services to be                    !
provided pursuant to this Agreement, i
5 SERI:                                                  >
i                                                                                        !
.                                                                                      I AP&L:                                            ,
i j                            4. Terms and Conditions.
6 J
This Agreement is intended to supplement the          !
l Operating Agreement by specifying services to be performed                I by AP&L, without cost or charge to SERI, and the performance              '
of the services described herein and the rights and                      l obligations of the parties with respect thereto shall be i
i governed by the operating Agreement.
i I
SYSTEM ENERGY RESOURCES, INC.        ARKANSAS POWER & LIGHT COMPANY
'l l            By:                                  By:
l
 
==Title:==
Titles                              i i
l I                                                                                      !
i                                                                                        !
s i
j                                                                                          i
 
o                                              dE ><Faib i f 65  ::1.
e WATERFORD STEAM ELECTRIC STATION, UNIT No. 3 OPERATING AGREEMENT This operating Agreement is made and entered into as of                  ,  1988 between System Energy Resources, Inc. (SERI) and Louisiana Power & Light Company (LP&L).
WHEREAS, both of the parties hereto are wholly owned subsidiaries of Middle South Utilities, Inc. (MSU) and, WHEREAS, LP&L is an electric utility that generates, transmiss and distributes electricity in the State of Louisiana and that owns a nuclear power plant near Taft, Louisiana, known as the Waterford Steam Electric Station, Unit No. 3 (Waterford 3); and WHEREAS, LP&L is the holder of Facility operating License, No. NPF-38, NRC Docket No. 50-382, for Waterford 3, issued by the NRC; and WHEREAS, LP&L desires that SERI assume operating        l responsibility fo  - but not ownership of - Waterford 3; and WHEREAS, LP&L desires that such operating responsibility be consistent with LP&L's obligations and
 
19200.05 I
i.
responsibilities under all pertinent Louisiana and federal
* 1aws and WHEREAS, LP&L desires to contract with SERI so as to enable SERI to possess, use and operate Waterford 3 as LP&L's agent, and SERI desires to undertake such                                                                                          -
responsibility, all subject to and in accordance with the terms and conditions set forth herein; NOW THEREFORE, IN CONSIDERATION of the mutual obligations set forth herein, the parties hereto agree to the following:                                                                                                                            F ARTICLE I.                                          I DEFINITIONS i
As used herein:                                                    l 1.1  "Application" means the Application of LP&L                    \
l (consented to by SERI) before the Nuclear Regulatory Commission to amend the Operating License so as to                                                                                          i
{
authorize and reflect in the license the change from LPAL to                                                                                l i
SERI as the licensee authorized to possess, use and operate                                                                                  l l
Waterford 3, as previously or hereafter supplemented or amended.
1.2  "Capital Improvements" means improvements, additions, modifications or replacements of property at Waterford 3 that are properly capitalized and recorded on LP&L's books of account as assets under the FERC Uniform System of Accounts, and that are in accordance with                                                                                          \
l l
 
s                                                                                                j
;,            19200.05                                                                                l
    ~'
l J
,              applicable rules and regulations of any regulatory authority having jurisdiction in the matter.                                                      !
1.3                      "Consequential Damages" means incidental,          l j            indirect or special damages including, but not limited to,                              !
j i
loss of profits or revenue, loss of use of power or property, cost of capital, cost of purchased or replacement power, inventory or use charges, claims of customers or                                -
J            third parties for service interruption and any other j            incidental, indirect or special damages of any nature.                                  l 1.4                    "Costs of Capital Improvements" means all costs of Capital Improvements as defined in Section 1.2
[
l          herein, t
2 1.5 4
                                                "Costs of Operation" or "Cost of Operation" j            means all costs of Operation, decontamination and I
I decommissioning and any related taxes incurred or accrued
!                                                                                                    l 3'          under or with respect to this Operating Agreement and i
attributable or allocable to Waterford 3 and properly                                    [
1 recordable in expense accounts under the FERC Uniform System                            l a
i of Accounts. These corts shall include, without limitation, l
I any costs incurred in connection with the Operation of i
Waterford 3, but excluding (a) costs of Nuclear Fuel that is j            owned by LP&L or leased directly by LP&L from one or more third parties and (b) losses, costs, liabilities and                                    I
(
}            expenses (except for Consequential Damages as defined in
(
1 Section 1.3 herein) directly resulting frem the Cross                                    i I
i                                                                                                    !
l                                                            3                                      !
4                                                                                                    ;
I                                                                                                    E E _ _ _ - _ _ --- - _      - - - - - - - _ _ -                                            -_
j
 
19200.05 s
Negligence or Willful Misconduct of SERI.                  All of such Costs of operation shall be calculated, and allocation of such                                        i costs shall be made as the parties shall from time to time agree, and shall be made in accordance with any applicable rules and regulations of the securities and Exchange                                            (
Commission under the Public Utility Holding Company Act of 1935, the FERC under the Federal Power Act and other regulatory authorities having jurisdiction in the matter,
                                                                                          '          i 1.6  "Effective Date" means the effective date of                                    ;
this operating Agreement as determined pursuant to i
Section 8.1.
l 1.7  "FERC" means the Federal Energy Regulatory                                    j Commission or its successor.
1.8  "Force Majeure'' means any cause beyond the                                    [
affected party's reasonable control.                                                            '
i 1.9  "Good Utility Practice" means any of the practices, methods and acts engaged in or approved by a                                          i significant proportion of the electric utility industry at the time of the reference, or any of the practices, methods                                      I L
and acts which, in the exercise of reasonable judgment in                                        '
light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at                                      I a reasonable cost consistent with reliability, safety and expedition. Good Utility Practice shall apply not only to functional parts of Waterford 3, but also to appropriate 4
 
19200.05 s                                                                    ,
l structures, landscaping, signs, lighting and other              i l
j          facilities and public relaticins programs reasonably designed
;          to promote the public's unde:: standing and acceptance of f
Waterford 3. Good Utility Practice is not intended to be    i 3          limited to the optimum practice, method or act to the          l l                                                                          e 4
exclusion of all others, but rather to be a spectrum of          r l                                                                          ,
t prudent and acceptable practices, methods or acts.              :
j                      1.10 "Cross Negligenee and/or Willful Misconduct"  l 1
means any act or omission by or authorized by a party's 4
1 i
officers or Board of Directors that is performed, authorized 4
j        or omitted consciously with prior actual knowledge or with reckless disregard of fsets indicating that such conduct or
]                                                              .          ;
j omission is likely to result in actionable damages or injury    I j        to persons or property or to result in a violation of laws or regulations, s
;                    1.11 "NRC" or "Nuclear Regulatory Commission"      ;
means the United States Nuclear Regulatory Commission or its    !
i l        successor having responsibility for administration of the licensing and regulation of the operation of nuclear            t
{        utilization facilities under the Atomic Energy Act of 1954      i i
and amendments thereto, i
i                      1.12 "Nuclear Fuel" means any source, special nuclear or by-product material as defined in the Atomic Energy Act of 1954 and any amendments thereto, including any j        ores, mined or unmined, uranium concentrates, natural or l
j l
1
 
19200.05 enriched uranium hexaflouride, or any other material in process containing uranium, and any fuel assemblies or parts thereof, any of which are required for the generation of electricity at Waterford 3.
1.13 "Operate" and its derivatives means to possess, use, manage, control, maintain, repair, operate and decommission.
1.14 "Operating' License" means the Facility Operating License No. NPF-38 for Waterford 3 and amendments thereto as issued from time to time by the NRC.
ARTICLE II.
SERI'S AUTHORITY AND RESPONSIBILITY WITH RESPECT TO OPERATION OF WATERFORD 3 2.1  Authority for Operation. SERI and LP&L agree that SERI shall act as the agent of LP&L to take all actions necessary to make Capital Improvements to and to Operate Waterford 3,    each in accordance with Good Utility Practice and in the best interest of LP&L. LP&L hereby grants SERI the authority to take any and all action, in LP&L's name and on LP&L's behalf, necessary to obtain and/or maintain all licenses ano permits issted by the NRC or other regulatory bodies relating to Waterford 3 and necessary to comply with all applicable regulations of the NRC and other governmental bodies having jurisdiction over any aspect of the Cost of Operation, Cost of Capital Improvements, making of Capital l
J
 
e 19200.05 Improvements and/or Operation of Waterford 3. Without limiting the foregoing delegation, SERI shall act as the agent for LP&L in all matters related to NRC licensing of Waterford 3. Furthermore, SERI shall provide LP&L with data and assistance as may be requested by LP&L to enable LP&L to satisfactorily discharge, as the owner of Waterford 3,    its responsibilities with regard to Waterford 3, including its responsibilities to its securities holders, to regulatory authorities and others. SERI shall Operate, and make Capital Improvements at, Waterford 3 in accordance with the Operating License and applicable laws and regulatory requirements and shall have sole authority, as the Operator of Waterford 3, to make all decisior : rel..cing to public health and safety. Subject to the provisions of Sections 2.2 and 2.3 herein, in order to enable SERI fully and effectively to perform its duties hereunder, SERI shall    :
have, and LP&L does hereby grant to SERI, as agent for LP&L, the power and authority to exercise in accordance with applicable laws, the rights of LP&L under, and to execute, modify, amend or terminate, any contracts, including, without limitation, leases, easements, agreements, purchase orders, licenses, permits and privileges relating to the Operation of, and making of Capital Improvements to, Waterford 3, as agent for LP&L.                                !
SERI may perform its duties hereunder through its employees, affiliated persons or          l 1
-                                                                            1
 
19200.05 non-affiliated persons.                  Except as provided in Section 11.5 hereof, the duties of LP&L and SERI hereunder shall be subject in all events to receipt of any further necessary consents or regulatory approvals.                  Subject to SERI's obligations and responsibilities under this Operating Agreement, the Operating License and applicable laws and regulatory requirements, SERI agrees that it shall comply with directions from LP&L' relating to the Operation and making of Capital Improvements (including the costs thereof)                t of Waterford 3.
2.2        Limitation on SERI's Authority.
Notwithstanding Section 2.1 above, SERI shall have no authority under this Operating Agreement without the written approval of LP&L, which approval shall not be unreasonably withheld, (a) to obligate LP&L to pay Costs of Capital Improvements and Costs of Operation that are either materially different from or in excess of the expenditures to be agreed upon pursuant to Section 5.1 herein, (b) to                    l obligate LP&L to pay Costs of Capital Improvements that have                l l
not been approved pursuant to any LP&L policy with respect to its Board of Directors' approval of capital expenditures, (c) to modify, amend or terminate any contrsets executed by LP&L that era existing and were in effect prior to the Effective Date and that are presently or in the future will be categorized as material by LP&L, and/or (d) to sell, I
i
                                                    .-                --  ~~
 
19200.05 encumber or otherwise dispose of any real property or any equipment or personal property comprising Waterford 3. In addition, LP&L shall have exclusive authority to define the economic life and to determine when the economic life of Waterford 3 has ended and, in its sole discretion, may direct SERI, in writing, to retire and decommission Waterford 3 or to Operate Waterford 3 at reduced capacity and/or to place Waterford'3 in a safe shutdown condition; provided, however, SERI shall take any such action in a manner which it determines, in its sole judgment, is consistent with public health and safety, the Operating License and applicable laws and regulations. In addition, SERI is authorized to Operate Waterford 3 at a reduced capacity or oth.rwise to place Waterford 3 in a safe shutdown conistic    t any time SERI determines such action is necessary to comply with the Operating License and applicable laws and regulations. All costs incurred by SERI in taking such action relating to decommissioning or ahutdown of Waterford 3 shall be conAidered Costs of Operation or Costs of Cepital Improvements, as the case may be. With respect to acquisitions by SERI, as LP&L's agent, of Capital Improvsments and other equipment *or property, including, but not limited to, materials, supplies and spare parts inventories, for Waterford 3, LP&L's Chief Financial Officer shall provide SERI from time to time as necessary 19200.05 with instructions or guidelines as to the preferred financial structure of such acquisitions (i.e. purchase, lease, etc.), which shall be used in implementing such acquisitions.
2.3  Execution; Disclosures in Third-Party Contracts. Contracts relating to the Operation of Waterford 3, including, without limitation, any contracts for Capital Improvements or contracts for the sale, lease or acquisition of materials, inventori es , supplies, spara parts, equipment, fuel, Nuclear Fuel (excluding contracts for the financing through lease or otherwise for Nuclear Fuel) or services, shall be executed by SERI, as agent for LP&L, or by LP&L, upon SERI's reasonable request.      If a contract subject to Section 2.1 relates to both Waterford 3 and one or more other power plants that are operated by SERI, such contracts ("Multi-Plant Contracts") shall be executed by LP&L at SERI's request, on reasonable grounds,      '
or by SERI, on reasonable grounds, on behalf of LP&L and the owners of the other applicable plants.      SERI further agrees that with respect to Multi-Plant Contracts, SERI will not enter into such Multi-Plant Contracts without the prior written consent of LP&L unless such contract contains a provinion for several but not solidary liability of the owners of the plants under such Multi-Plant Contracts in proportion to the costs allocated to the various power          i 1
I 19200.05 plants under such contracts.                      In order to induce third parties to contract with SERI with regard to the performance of SERI's obligations under this Operating Agreement, LP&L hereby expressly agrees to be bound by the terms of all contracts executed by SERI in accordance with its agency authority as described herein (including, without limitation, any provisions that limit or protect against a third party's liability, provisions granting indemnity to third parties and limitations or exclusions of warranties) to the same extent as if LP&L were an original signatory to such contract.                In addition, if LP&L's signature is deemed by SERI to be necessary to induce a third-party to contract with SERI, LP&L agrees to not unreasonably refuse to execute such third-party agreements as SERI may request from time to                                        t time.            It is further agreed that the Chief Financial Officer of LP&L shall notify SERI in writing of the contracts or i
types of contracts related to Waterford 3 that are to be                                              ;
exe.uted by SERI, in its capacity as LP&L's agent, that LP&L
                                                                                                                  )
desires to revieu in order for LP&L to monitor and evaluate                                            I the potential impact on LP&L of such contracts and to advise SERI of such impact so that SERI shall take all steps to
+
protect LP&L's interest.                  Accordingly, SERI agrees to provide LP&L copies of such contracts within a reasonable time prior to SERI's proposed execution thereof. Notwith-standing anything in this section to the contrary, no such 4
;                                                                                                                                                                                I
_ ______ _      _ _ - _ _ _          _ --          - - - -        - - - - - - - - - - -        - - - -l
 
e                                                                    j 19200.05 l
l Multi-Plant Contract shall be entered into by SERI or LP&L that is not reasonably beneficial to LP&L.                        I 2.4  Enforcement of Rights.
A. LP&L hereby recognizes that, except with respect to facts and circumstances existing, or litigation instituted by or against LP&L, prior to the Effective Date, SERI has complete and exclusive authority with respect to the handling of the defsnse, prosecution and/or settlement of disputes with third parties relating in any way to Waterford 3, provided that SERI shall obtain LP&L's written consent prior to instituting or settling any lawsuit, claim, proceeding or action relating to Waterford 3 which is of a type categorized as material by LP&L.
B. With respect to litigation relating in any way to Waterford 3 that arises out of facts or circulastances existing prior to the Effective Date, LP&L shall, after consultation with SERI, decide upon the appropriate manner of defending, prosecuting or settling such litigation.
C. Subject to Se."ion 6.2, it is further agreed that to the extent SERI incurs any liability to a third party in performing its duties under this Operating Agreement, amounts paid by SERI because of such liability and SERI's expenses in defending claims by third parties or I
 
i 19200.05 4
prosecuting claims against third parties shall be considered Costs of Operation.
2.5      SERI's Ri?>onsibilities at Other Plants.
SERI's duties and responsibilitier under this Operating Agreement shall not be construed to interfere with SERI's authority and responsibility to operate any other plants for which it has operating responsibility, provided, however, that SERI hereby agrees that it will not knowingly take any action or fail to take any action in connection with Waterford 3 that is inconsistent with Good Utility Practice and puts LP&L at a disadvantage to SERI or to the owners of such other plants.
ARTICLE III.
LP&L'S RESPONSIBILITY AND OBLIGATIONS 3.1      Payment. In consideration of the services rendered by SERI hereunder, and subject to the provisions of this Operating Agreement, LP&L hereby agrees to pay the            '
costs of Operation and Costs of Capital Improvements incurred by SERI pursuant to Article V hereof.
3.2      Site Access and Control. In order for SERI to Operate Waterford 3 in accordance with the Operating License and other applicable regulatory requirements, LP&L grants SERI possession and use of the property constituting Waterford 3 and agrees to provide SERI, its agents,                l employees and contractors unrestricted access to the l
 
s 19200.05 property constituting Waterford 3, including, without limitation, the real property and the switchyard, facilities, equipment and personal property located on the Waterford 3 site. As required by the Operating License and applicable statutes, and NRC regulations, LP&L further agrees that SERI shall have authority to exercise complete control over the Exclusion Area as defined in the Final Safety Analysis Report for Waterford 3 and to determine all activities within that area.
3.3  Support Services from LP&L. LP&L agrees that it will cooperate with SERI in a manner so that SERI may exercise its authority and fulfill its responsibilities pursuant to this operating Agreement. In this connection, LP&L further agrees to provide (1) Waterford 3 switchyard, switching station, and transmission line services and other support in accordance with a separate agreement to be executed by the parties contemporaneously with the execution of this Operating Agreement, an executed copy of which is attached hereto as Exhibit A, as such exhibit may be hereafter supplemented or amended, (2) support for the Waterford 3 Emergency Plan and emergency training and drills      3 I
in accordance with a separate agreement to be executed by          l the parties contemporaneous 1y with the execution of this          I Operating Agreement, an caecuted copy of which is attached hereto as Exhibit B, as such exhibit may be hereafter l
1 l
 
i 19200.05 supplemented or amended. LP&L agrees to provide, subject to their reasonable capability and availability, add 4tional services or assistance required by SERI and agreed to by LP&L in writing in connection with the Operation of Waterford 3, including, without limitation, the following:
(1) communications access and support, (2) transportation support, (3) payroll and personnel assistance, and (4) other services as may be required in order to allow SERI to conduct safe, economic and efficient operations at Waterford 3.
3.4  No Changes to Facilities, Procedures or Practices. So that SERI will be capable of Operating Waterford 3 in accordance with the Operating License and other applicable regulatory requirements, LP&L agrees that it will not make any changes to facilities, procedures or practices that affect compliance with NRC regulations or commitments, including, but not limited to, physical changes to the electrical transmission or distribution facilities that airectly provide an off-site power supply to Waterford 3 without prior consultation with and written consent from SERI, which consent SERI shall not unreasonably withhold.
* 3.5 Offsite Power Supply. LP&L agrees that it shall provide Waterford 3 with an assured source of offsite l
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_ _ . _ _ _ _ _ _ . -                    .        .  .        _-  . ~ ,
 
19200.05 power in accordance with procedures to be agreed upon, from time to time, by the parties.
ARTICLE IV.
OWNERSHIP OF CAPACITY AND ENERGY 4.1  Ownership of Capacity and Energy.                                          LP&L, at all times during the term of this Agreement, shall be and remain the swner of, and shall be entitled to all of, the capacity and energy from Waterford 3.
4.2  Determination of Output.                                          Net positive output of Waterford 3 shall be the gross generation of Waterford 3, less station service requirements, and less adjustments for losses experienced.      In the event the output is negative (i.e.,
station service and losses exceed the gross generation) LP&L shall be responsible for providing necessary power at Waterford 3 during such period in accordance with Good Utility Practice and Section 3.5 herein.
ARTICLE V.
PAYMENT  AUDIT AND INSPECTION RIGHTS 5.1  Payment Obligation.
On or before November 1 (or such other dates as may be agreed to by the parties) of each year during the term of this Operating Agreement, (1) SERI will submit for LP&L's review and approval the total annual construction budget for Waterford 3, the annual operating and construction programs (as used herein the term
 
l
.                                                                  i I
19200.05                                                      )
                                                                    \
      "annual operating and construction programs" shall include details of the budgeted costs for those programs).for Waterford 3,  and the components of SERI's five-year business plan that relate,to Waterford 3, and (2) SERI and LP&L will agree in writing upon maximum amounts to be paid, within parameters of the then-current SERI five-year business plan, by LP&L for the following budget year pursuant to this Operating Agreement with respect to (1) Costs of Capital Improvements and (ii) Costs of Operation. LP&L and SERI recognize that mutually agreeable adjustments may be me.de to such maximum amounts to be paid and/or to the previously approved construction budget, operating and construction      (
programs or the components of SEhI's five-year business plan relating to Waterford 3,  from time to time during any budset year, to reflect the impact of Force Majeure, unforeseen circumstances, financial constraints or other events.
Without limiting LP&L's obligations under Section 6.2, LP&L agrees to pay any and all Costs of Operation and Costs of      !
Capital Improvements within such maximum amounts to be paid
{
and consistent with the previously approved construction budget and operating and construction programs, but LP&L shall not be obligated to pay Costs of Operation and Costs of Capital Improvements in excess of the applicable maximum expenditure limitations or which differ materially from the types of expenditures reflected in the construction budget i
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19200.05 and operating programs previously approved by LP&L, except for any such excess or different Costs of Operation and Costs of Capital Improvements that LP&L agrees to pay. It is further agreed that SERI will keep LP&L timely informed and obtain LP&L's approval regarding projects which are                                          ,
reasonably anticipated to cause a material change to the components of the then-current SERI five-year business plan that relate to Waterford 3 as previously approved by LP&L.
5.2  Payment and Billing.                    Subject to Section 5.1 above and in accordance with procedures to be agreed upon in writing by the parties, SERI hereby agrees to furnish LP&L, at such times as may be required by LP&L, estimates of the costs of Operation and Costs of Capital Improvements expected to be owed by LP&L for the next succeeding period.
LP&L shall promptly deposit in the bank account (s) to be established pursuant to Section 5.3 auch funds as shall be adequate to pay SERI and third parties on a timely basis                                          l with respect to Costs of Capital Improvements and Costs of Operation.            In addition, LP&L will pay for costs incurred under any contracts relating to Waterford 3 with respect to which SERI, as agent, has approved and has directed the third party to provide direct billing to LP&L.                              Payments of the Costs of Capital Improvements and Costs of Operation specified herein shall be made notwithstanding the availability or lack of availability of Waterford 3 to j
 
i 19200.05 produce power. No payment made pursuant to this Operating Agreement shall constitute a waiver of any right of LP&L to question or contest the correctness of Costs of Capital Improvements and Costs of Operation charged to LP&L.
5.3  Bank Accounts. The parties agree that one or more special bank accounts may be established and maintained in one or more banks of LP&L's choice, in a manner that will indicate the custodial nature of the accounts, for the deposit by LP&L and disbursement by SERI or LP&L of Costs of Capital Improvements and Costs of Operation.
b.4  Audit and Adjustments. SERI shall maintain books and records to support the Costs of Capital Improvements and Costs of Operation for such period of time as LP&L shall direct. From time to time, LP&L may, and SERI shall permit, at LP&L's option and expense as appropriate, in accordance with any applicable Middle South Utilities            l System established auditing policies (excluding any such policy that would limit or preclude the right of LP&L to conduct such audits), conduct or cause to be conducted by
,                              others, including regulatory authorities having jurisdiction, audits of the books and records of SERI. Such audits shall be conducted at reasonable mutually agreed upon times, with agreement not being unreasonably withheld.
Further, SERI shall make available to LP&L a copy of any audit reports prepared by or at the request of SERI l
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19200,05 concerning its books and records relating to the Operation of Waterford 3, and the cost of preparing such audit reports shall be a Cost of Operation payable pursuant to this Article V.          SERI shall credit LP&L with recoveries, whenever received, from third parties and shall charge or credit LP&L with any underpayments or overpayments of Costs of Capital Improvements and Costs of Operation, as the case may be.
Force Majeure shall not excuse failure by SERI to credit LP&L with third-party recoveries or overpayments of Costs of Capital Improvements and Costs of Operation owing to LP&L at any time.
ARTICLE VI.
LIMITATION OF LIABILITY: INDEMNITY 6.1  Release and Limitation of Liability. To the fullest extent permitted by applicable law, LP&L shall not be entitled to recover from, and hereby expressly releases, SERI, its agents, officers, directors, shareholders or employees (except to the extent LP&L shall be entitled to                          l share in insurance recoveries obtained by SERI hereunder) from or for any damages, claims, causes of action, losses and/or expenses of whatever kind or nature, including, but not limited to, attorneys' fees, that are in any way, directly or indirectly, connected with SERI's Operation of Waterford 3 or for any damage thereto, whether arising in tort, fraud, contract, strict liability, negligence or any l
i
 
19200.05 other theory of legal liability or as a result of fines or other penalties imposed by the NRC or other governmental authority, unless such damages, claims, causes of action, losses and/or expenses (other than Consequential Damages, which shall not be recoverable from SERI in any event) shall    ,
have resulted from the Gross Negligence and/or Willful Misconduct of SERI. In no event shall SERI or its agents, officers, directors, shareholders or employees be liable to LP&L for any loss or damage suffered by LP&L in connection with SERI's performance under this Operating Agreement in an enount greater than LP&L's uninsured loss or for any consequential Damages. The duty of SERI to perform its obligations under this Operating Agreement in accordance with Good Utility Practice shall be construed or modified to the extent necessary to give full effect to the provisions of this Article VI.
6.2  Indemnities.
A. SERI shall indemnify and hold harmless LP&L, its agents, officers, directors, shareholders and employees against all actual losses, costs, liabilities, fines imposed by the NRC or other regulatory body, and
{
expenses (except for Consequential Damages) resulting from SERI's Gross Negligence and/or Willful Misconduct in performing this Operating Agreement, but in the event LP&L, its agents, officers, directors, shareholders and employees, e
19200.05 as a result of the performance of duties pursuant to this Cperating Agreement otherwise incur any liability,to any third party, any amount paid by SERI c. account of such liability shall be considered costs of operation to be paid by LP&L pursuant to Article V.
B. Except for such injuries or damages I
(excluding Consequential Damages) which arise out of the Gross Negligence and/or Willful Misconduct of SERI and except to the extent that such injuries or damages have been compensated through insurance proceeds, LP&L shall indemnify, defend and hold SERI and its agents, officers, directors, shareholders and employees harmless, to the fullest extent permitted by applicable law and regardless of alleged or actual fault, strict liability, and/or sole or concurrent navaigence of SERI, against any claims for death, injury or property damage to any of LP&L's agents, officers, directors, shareholders and employees, or to third persons not employed by SERI, and against any other claims, causes of action, damages or expenses, including, but not limited to, attorneys' fees, NRC fines or penalties of whatever kind or nature arising directly out of or in the course of performance of services by SCRI under this Operating Agreement. It is further agreed that LP&L shall indemnify and hold SERI and its agents, officers, directors, shareholders and employees harmless, regardless of actual or l
19200.05 i
i alleged fault, strict liability, negligence (whether sole or concurrent) or Gross Negligence and/or Willful Misconduct of SERI, against any r.laims for Consequential Damages.
ARTICLE VII.
INSURANCE 7.1  With respect to Waterford 3,  SERI, acting as LP&L's agent and subject to the direction of LP&L, shall provide and maintain or cause to be provided and maintained, in the name of and on behalf of LP&L and SERI, as their respective interests may appear, protection through insurance or otherwise covering SERI's and LP&L's obligations to pay damages becausa of personal injury, death 4
or property damage, including, without limitation, obligations under applicable workers compensation laws, and    l protection through insurance or otherwise covezing nuclear i
property and nuclear liability and other insurance and financial protection in accordance with custemary industry practice and as necessary to comply with all applicable laws and regulations. All insurance policies obtained pursuant j  to this Operating Agreement shall be issued, as LP&L deems 4
appropriate, with LP&L and SERI named as insureds, as appropriate to the particular coverage, and, if obtainable      \
i and economically feasible, workers compensation and all bodily injury (including death) and property damage liablity    I coverages shall be issued by the same insurance carrier (s),
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19200.05 l
LP&L, after consultation with SERI, shall det_rmine the          !
coverage limits and deductibles for any insurance policies obtained pursuant to this Agreement. Additionally, all      i insurance coverages applicable to those obligations surviving termination of this Agreement pursuant to Section 8.3 below, shall also survive said termination to the extent that such obligations so survive and to the extent that such coverages are reasonably available.
7.2  Acting as agent for and subject to the direction of LP&L, SERI will establish necessary procedures, cooperate with the insurers and otherwise comply with requirements of the insurers to maintain coverages in effect and to obtain payment of claims recoverable under such insurance applicable to Waterford 3.
ARTICLE VYII.
TERM AND TERMINATION 8.1  Term. This Agreement shall become effective 1988 or upon receipt of all necessary regulatory approvals of this operating Agreement, whichever is later, and, unless sooner terminated as provided hereinafter, it shall remain in effect, subject to Section        '
8.2 below, until Waterford 3 shall have been retired and decommissioned in accordance with all applicable regulatory and governmental requirements and the parties hereto agree
                                                                    )
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19200.05 in writing, with agreement not to be unreasonably withheld, that all responsibilities horeunder have been fulfilled.
8.2  Termination. This operating Agreement may be terminated prior,to the expiration of the term as set forth in Section 8.1 above, subject to receipt of any and all necessary regulatory approvals, upon (1) agreement of the parties hereto or (2) either party giving the other party at least three hundred sixty-five (365) days' prior written notice of the intention to effect such termination. In addition, this Operating Agreement shall be cancelled to the extent and from the time that performance hereunder may
,        conflict with any rule, regulation or order of the Securities and Exchange Commission adopted before or after the execution hereof. SERI agrees that any and all licenses, permits, records, books, privileges or rights acquired by SERI relating to Operation of Waterford 3 shall
,      be assigned or otherwise transferred to LP&L upon termination of this Operating Agreement.
8.3  Survival. The indemnification, release, and i
limitation of liability provisions contained in Article VI shall survive termination to the extent they pertain to I
events giving rise to such indemnification, release and i
~
liability that occurred during the term of this operating 1      Agreement. Further, it is agreed that in no event shall this operating Agreement terminate unless all payments
[
i i
i
 
19200.05 required to have been made by LP&L to SERI or by SERI to LP&L, as the case may be, shall have been made and all necessary regulatory approval for transfer of responsibility of Waterford 3 shall have been obtained.
ARTICLE IX.                                      t INFORMATION PROVlDED TO LP&L 9.1  Reports to LP&L. When required by LP&L, SERI shall provide data and/or reports to LP&L to support Costs 3                                                  of Capital Improvements and Costs of Operation payable by LPdL so as to allow LP&L to comply with any applicable laws and any rules and regulations promulgated by regulatory authorities. SERI shall also comply with any other reasonable reporting requirements.
9.2  Site Access. LP&L or its designee shall have access to Waterford 3, subject to SERI's obligation to limit such access pursuant to the Operating License and the                      ;
applicable rules and regulations of the NRC or other regulatory authoritien,
,                                                                              ARTICLE X                                      !
I TRANSFERS OF PERSONNEL 10.1  Transfer. LP&L employees who are selected by LP&L and SERI as being necessary or appropriate for the Operation of Waterford 3 will be transferred to the complete                ,
and direct control of SERI as of the Effective Date of this operating Agreement and shall remain under such control for I
 
s 19200.05 l                                            .
l l                                                                      l the term of this operating Agreement, unless any of their    i respective employments is terminated for any reason (it being understood that, except as expressly provided herein,  1 this Operating Agreement affords no rights to, or for the    -
benefit of, any such employees, including without limita-t tion, the right to employment for any particular term).
4 Those employees transferred to SERI shall perform services designated by SERI in accordance with SERI rules, regula-tions, and safety or health procedures, but LP&L shall
]          remain ultimately responsible to reimburse SERI for any and all compensation and benefits provided to such employees by J
SERI. Transfers, after the initial transfer, will be carried out in accordance with the then-current MSU System policy.
10.2  Benefit Plans. It in the objective of the  i i
parties hereto that SERI will assume, as of the date when an individual is transferred from the employ of LP&L to SERI, e
the obligations, if any, of LP&L to such employee for accrued benefits under LP&L's Employee Benefit Plans (as f        defined in Section 3(3) of the Employee Retirement Income t'
Act of 1974) in effect at the time of such transfer, and l
LP&L will make appropriate provision (by the transfer of funds to a trustee under an Employee Benefit Plan esta-blished by SERI, the reservation of funds in the existing 4
trust fund under an Employee Benefit Plan sponsored by LP&L, a                                                                        i
 
19200.05 or otherwise) for the payment of such accrued benefits to the extent that they have been funded as of the da.te of such employee transfer. Consistent with that objective, LP&L and i SERI agree that, in determining benefits payable by SERI under any Employee Benefit Plan established by it to an employee transferred to it by LP&L, SERI shall give credit for service by such employee with LP&L as if such service had been performed by such transferred employee for SERI unless LP&L shall make provision for the direct payment by    ;
it of such benefits to the transferred employee. If LP&L decides to effect a transfer of assets and liabilities attributable to the accrued benefits of transferred LP&L      i i
employees to an Employee Benefit Plan maintained by SERI, q
LP&L and SERI shall determine the amount of assets to be transferred to meet the then-current accrued liabilities      '
(determined in accordance with Section 414(1) of the Internal Revenue Code of 1986 and the regulations there-under) of such transferred employees. The plans and documentation to achieve this objective shall bs established    l by the Boards of Directors of LP&L and of SERI.                  I J
ARTICLE XI.
1 MISCELLANEOUS 11.1 Confidentiality. Either party may, from time to time, come into possession of information of the other i
party that is confidential or proprietary (including, i
                                        -28
 
s 19200.05 without limitation, Safeguards Information as defined in 10 C.F.R. Part 70). Each party having any such information which the other party has advised it is confidential or proprietary will,not reproduce, copy, or disclose (except upon prompt and prior notification to the other party of the event precipitating such disclosure and upon agreement of l      the parties that such disclosure is required by law) any such information in whole or in part for any purpose without the prior written consent of the other party. Safeguards
-      Information relative to Waterford 3 shall be controlled and protected in accordance with 10 C.F.R. 73.21.
11.2  Restricted Data. SERI and LP&L agree that, unless otherwise required by law, they will not permit any person to have access to Restricted Data, as defined in 42 1
U.S.C. 52014.y, until the federal Office of Personnel Management shall have made an investigation and report to    i the NRC on the character, associations and loyalty of such person and the NRC shall have determined that permitting such person to have access to Restricted Data will not endanger the common defense and security.
1 11.3  Assicnment and successors. This Operating  '
Agreement shall not be assignable by either party hereto without the prior written consent of the other party and without first obtaining all necessary regulatory approval,
,      and any attempted assignment without such consent and 1
2 i                                    '
 
19200.05 e
approval shall be void. Subject to the preceding sentence, this operating Agreement shall be binding upon and shall            l inure to the benefit of the parties and their respective            ;
j        successors and assigns.
i 11.4  Governing Law. The validity, interpretation and performance of this Operating Agreement and each of its        ;
provisions shall be governed by the laws of the State of Louisiana.                  '
11.5 No Delay in Payments. No disagreement or dispute of any kind between the parties concerning any matter, ine.luding, without limitation, the amount of any payment due from LP&L to SERI or from SERI to LP&L, es the case may be, or the correctness of any charge made to LP&L or SERI, or any reason, excuse or circumstance, including Force Majeure, shall permit either party to delay or withhold payment due and owing under this operating Agreement, except that LP&L shall have the right to make any payments required of it under protest and to reserve its rights to conduct audits in accordance with Section 5.4.
]                11.6  Notices. Any notice, request, consent or other communication permitted or required by this Operating
..t Agreement shall be in writing and shall be deemed to have been given when deposited in the United States mail, first t
i class, postage pre-paid and, until written notice of a new address is given, shall be addressed as follows:
l 1
1
 
s 19200.05 4
If to SERI:
System Energy Resources, Inc.
Post Office Box 23054 Jackson, Mississippi 39215 Attention:  President                          ,
i If to LP&L:                                      '
Louisiar.a Power & Light company 317 Baronne Street New Orleans, Louisiana    70112 Attention:  President 11.7  Amendments. This Operating Agreement may be .
amended only by a written instrument duif executed and delivered by both of the parties hereto and with any and all necessary regulatory approvals previously obtained.
11.8  Relationship. Nothing herein shall be construed to create a partnership or joint venture between SERI and LP&L or to impose a trust, fiduciary or partnership duty, obligation or liability upon SERI or LP&L or to create any agency relationship except as expressly granted herein.
]                                            11.9  Counterparts.
This Operating Agreement may I
1 be executed simultaneously in two or more :ounterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.                                    j i
11.10 Force Majeure.                                      \
SERI shall not be in default      !
I j
in performance of its obligations or duties hereunder (other than any obligation to credit LP&L with its recoveries or overpayments of Costs of Operation owing at any time) if l
      . _-  -    - _ _ _ _ _ _ _ _ _ _ _ _                                                          l
 
19200.05 such failure of performance is due to Force Majeure. LP&L i
shall not be in default in performance of any duties or            i obligations hereunder (other than any obligation to pay            l monies to or at the direction of SERI as provided in this i
i operating Agreement) if such failure of performance is due i
to Force Majeure.
t 11.11 Good Utility Practice. The parties hereto shall discharge any and all obligations under this operating Agreement in accordance with Good Utility Practice.
1 11.12 Entire Agreement. This Operating Agreement, including Exhibits A and B,  shall constitute the entire understanding and agreement between the parties superseding          i any and all previous understandings and agreements between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties have executed this Operating Agreement by their duly authorized
  !    representatives.
SYSTEM ENERGY RESOURCES, INC.
LOUISIANA POWER & LIGHT COMPANY BY:                                  BY:
TITLE:                                TITLE:
1      DATE:                                DATE:
4 4
f 4
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EXHIBIT A TO OPERATING AGREEMENT SWITCHING STATION, SWITCHYARD, TRANSMISSION AND WATERFORD 1 & 2 INTERFACE MEMORANDUM OF_ UNDERSTANDING This Memorandum of Understanding is executed by and between Lou sinna Power & Light Company ("LP&L") and System Energy Resources, Inc. ("SERI") and is dated as of
                      , 1988.
WHEREAS, this Agreement is being executed pursuant to Paragraph 3.3 of the Operating Agreement between SERI and LP&L dated                , 1988 (the "Operating Agreement");
WHEREAS, prerequisite to amending the Waterford Steam Electric Station Unit No. 5 ''W3") Operating License so as to substitute SERI for LP&L with respect to operation of W3, as contemplated by the Operating Agreement, the Nu-clear Regulatory Commission ("NRC") has requested LP&L to express a commitment to support W3 with respect to various activities; and WHEREAS, the parties desire to set forth in this Memorandum of Understanding their respective commitments and responsibilities regarding Waterford 1 and 2 Steam Electric                      l j
1
                                                        +
1 i
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l
 
o 19318.58 Station Fossil Units ("W1&2"), the W3 Switching Station, 230KV Switchyard and related transmission matters.
NOW, THEREFORE, upon and following the Effective Date as defined in the Operating Agreement, LP&L and SERI undertake and agree as follows:
1.0  ACCESS CONTROL, EXCLUSION AREA CONTROL, SECURITY, MINERAL RIGHTS
* 1.1  W3 Site, W1&2, Switching 3tati_on                    ,
1.1.1  Access Control - To comply with the requirements of the W3 Emerger.cy Plan, LP&L agrees to provide SERI unrestricted access
!                      to the real property owned by LP&L at or adjacent to the W3 site and to W1&2, and the switching station, and to facilities,    I equipment and personal property located on
;                      that property. SERI will notify the Wl&2  l ahift supervisor prior to access of H2&2.
(
Authorized personnel entering the W3 Switching Stetion for the performance of    '
duties or activities which could have ar.y direct effect on power supp v to W3 including routine maintenance of W3
(
19318.58 Switching Station equipment will advise the on-duty SERI shift superintendent of entry and anticipated duration of stay.
1.1.2  Exclusion Area Control - As necessary to comply with federal regulations, SERI shall have authority to exercise complete control over LP&L property and casements in the l
Exclusion Area, as defined in the W3 Updated Final Safety Analysis Report
("Exclusion Area"), and to determine all activities within that area (including exclusion of LP&L personnel, contractors, visitors, guests and other persons from the plant and the switching station). To the extent practicable, SERI will exercise this I
control in such a fashion that normal LP&L use and access to the switchyard will not 1
be restricted.
1.1.3  Security 1.1.3.1    General - SERI shall have 4
authority to exercise complete 1
i  19318.58 control over the W3 Switching Station and W1&2 and other LP&L property in the vicinity of the Switching Station and W1&2 for purposes of providing security.
This authority includes the authority to conduct interactions
                      'with law enforcement agencies which are deemed necessary by SERI and the authority to file associated civil or criminal complaints against third parties as deemed necessary by SER*    The parties will cooperate in good faith as jointly determined app.opriate to support prosecution of any such complaints.
1.1.3.2  Locks - The parties shall maintain W3 Switching Station and W1&2 parimeter fence gates in a locked condition except when attended or to allow ingress or egress. Key control for the W3 Switching Station gates and for W1&2 gates s
19318.58 i
will be maintained in accordance with procedures as mutually agreed      '
upon by both SERI and LP&L.
1.1.3.3  Patrols - SERI will make a regular i
routine security patrol of the W3 Switching Station fence perimeter and will make an occasional 1
security patrol of the Wi&2 fence      i perimeter.                              -
1.1.3.4 Maintenance - SERI will notify LP&L of problems requiring mainte-nance, repair or replacement of the W3 Switching Station and Wi&2 perimeter fences, gates, locks, lights or other security related        '
devices or equipment or of other 6
conditions which may affect I
security. The cost of                  ;
i enhancements which are implemented due to NRC regulatory requirements shall be considered Costs of Operation of W3. LP&L will provide such maintenance or effect      l 6
 
I
  ~                                                                l 19318.58                                                    l i
                                                                    )
o repair or replacement or correct the condition of which it receives notice in a reasonable time period.
1.1.3.5  Security Response - SERI will provide an appropriate security response to an increased threat situation including potential sit-untions caused by needed maintenance, repair or replacement of security devices or equipment.
1.2  230KV Switchyard 1.2.1  Access control - LP&L will have unrestrict-d access to the real property
,                      owned by LP&L and designated as the l  -
Waterford 230KV switchyard, facilities, equipment and personal property located on that property.
1.2.2  Exclusion Area Control - The Waterford      t 4
230KV switchyard is not in the Exclusion
:                                                                  I n
area.
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19318.58 3...
1.2.3  Security 1.2.3.1  General - SERI shall have authority to exercise complete control over the 230KV switchyard and other LP&L property in the vi-cinity of the 230KV switchyard for purposes of providing security.
This authority includes the authority to conduct interactions with law enforcement agencies that are deemed necessary by SERI and
,                                the authority to f.'le associated civil or criminal ccmplaints e
against third parties as deemed
)
necessary by SERI. The parties  t i
;                              will cooperate in good faith as jointly determined appropriate to  '
support prosecution of any such t
j                              complaints.
1.2.3.2  Locks - LP&L shall maintain 230KV switchyard perimeter fence gates in a locked condition except when attended or to allow ingress or 4
19318.58 egress. Key control for the 230KV switchyard will be maintained in accordance with procedures as mutually agreed upon by both SERI and LP&L.
1.2.3.3 Patrols - SERI will make a regular routine security patrol of the 230KV switchyard fence perimeter.
1.2.3.4 Maintenance - SERI will notify LP&L of problems requiring mainte-nance, repair or replacement of the 230KV switchyard perimeter fence, gates, locks, lights or other security related devices or equipwar.' or of other conditions that may affect security. LP&L will provide such maintenance or effect repair or replacement or correct the condition of which it receives notice in a reasonable time period.
o 19318c58 1.2.3.5  Security Response - SERI will provide an appropriate security response to an increased threat situation including potential sit-untions caused by needed maintenance, repair or replacement of security devices or equipment.
1.3 Mineral Richts - LP&L will not exercise its right to explore or recover minerals in any area within the Exclusion Area or convey or lease its mineral rights within the Exclusion Area to any third party without SERI    oproval. Further, LP&L will  '
cooperate with SERI as necessary to assist in control of mineral exploration or recovery activities in the Exclusion Area.
i 1
]                                                2.0  OPERATION j
i 2.1  Switching Station - SERI will make regular rounds of the W3 Switching Station to make observati,ns      ;
of equipment and facilities and obtain readings of 3
appropriate equipment parameters.      SERI will i
1 conduct other routine activities as requested by
 
i 19318.58 i
s.
I a
LP&L and provide LP&L with appropriate reports as to findings during these activities.
2.2  W3 Switching Station and 230KV Switchyard Operation - LP&L will normally operate equipment located in the 230KV switchyard and SERI will normally operate equipment in the W3 switching station. SERI will provide operating support for the 230KV switchyard at the request of LP&L. LP&L and SERI will evaluate the need for notification of the LP&L Control Operator and the System Control Operator and make appropriate notification, if needed, prior to operation of 2
equipment. LP&L will operate 230KV switchyard equipment as necessary for maintenance to be          i performed in accordance with Section 3.0 and may l
return equipment to service upon completion of maintenance.
1 l
2.3  Wi&2 Operation - The activities associated with j
operation of Wi&2 which are to be performed within 4
i the Exclusion Area are unrelated to operation of      ;
l              W3 and, therefore, will remain under the I                                                                    !
operational control of LP&L.
i L
l                                                                    t 19318.58 i,
3.0  MAINTENANCE L
3.1                      W3 Startup & Auxiliary Transformer - SERI will maintain (including necessary repair or re-placement) the W3 Start-up and Auxiliary transformers and associated equipment regardless of location.
I 3.2                        W3 Main Transformer - SERI will maintain (including necessary repair or replacement) the i
main output transformers. Upon request by SERA, LP&L will review maintenance arrangements between 4
SERI and its contractors for major maintenance, 4
repair or replacement activities with respect to
!                                    the main output transformers, and will provide    <
oversight of those maintenance activities.        ,
l 1
t 3.3                        Switching Station & 230KV Switchyard - LP&L will  '
i maintain (including necessary repair or re-I q
placement) all other equipment located in the switching station and 230KV Switchyard.
3.4                        Spare Parts - LP&L will be responsible for maintaining an appropriate inventory of spare parts for equipment covered by Section 3.0.
1
 
**                                                                }
19318.58 i
3.5 W1&2 Maintenance - Maintenance activities for Wi&2 are unrelated to operation of W3 and, therefore, will remain under the operational control of LP&L.
4.0  COORDINATION 4.1  Outages - SERI will coordinate planned plant outages with LP&L. The LP&L dispatcher and the system dispatcher will be informed as a minimum.
4.2  Power Supply - LP&L will coordinate with SERI all activities which will directly affect power supply  '
to W3. As a minimum, the SERI operations          r superintendent or designee will be informed by the  '
system dispatcher or LP&L dispatcher or mainte-nance crew during the planning of these activities. Activities which cannot be planned in  i advance and the detailed conduct of planned            i i
activities will be coordinated with the on-duty W3 shift superintendent or shift supervisor.
5.0  REVIEW AND APPROVAL                      -
5.1  LP&L Responsibilities - LP&L will obtain SERI review and approval of procedure changes, design      !
l
 
19318.58 a
changes, tests or changes in the conduct of other activities that might affect the safe operation of l W3, compliance with regulatory requirements and/or commitments involving the W3 Switching Station and 230KV switchyard and associated transmission lines and equipment which could affect offsite power i
supply to W3, prior to implementing such changes or commencing such tests.
5.2  SERI Responsibilities - SERI will ruview any such proposed changes and tests in accordance with applicable commitments and regulatory requirements and will obtain NRC approval if required.
l 4
60  PROCEDURES l
LP&L recognizes that it must respond to the critical    !
l          need to provide power in an emergency and will assure J
that procedures are in place to make operating and j          maintenance personnel aware of such need.
                                                                    ?
I i
j      7.0  TRAINING                                -
,          SERI will provide regular training (on a schedule agreed to by LP&L and SERI) to appropriate LP&L i
l
 
'O 19318.58 w
dispatch perLonnel to explain the critical need for power at W3 during emergencies, the legal requirements associated with W3 power supply, and legal requirements of W1&2 during W3 emergencies.
8.0  COMPENSATION I
s Costs incurred by SERI pursuant to this Memorandum of Understanding shall be considered Costs of operation as defined in the Operating Agreement, and services per-formed by LP&L hereunder shall be without cost or charge to SERI.
t
* I 9.0  GENERAL                                                  ,
l This Memorandum of Understanding is intended to          l supplement the Operating Agreement. The performance of i
services described herein by SERI shall be governed by    i the operating Agreement. Modifications or unendments    !
l to this Memorandum of Understanding must be executed by    I an authorized officer of each party. Prior to              !
execution of any such modification or enendment to this Memorandum of Understanding, SERI will review the          i proposed change to assure that it is in compliance with its licensing commitments and regulatory requirements
 
    'o 19318.58 o,
applicable to nuclear power plants. If regulatory approval is needed, SERI will obtain the approval prior i                                                                    4 l>
l, to execution of the modification or amendment. This Memorandum of Understanding and the Operating Agreement are intended to be complementary, and in the event of
!            any inconsistencies between the two documents, the 4
Operating Agreement shall govern.
1 i
IN WITNESS WHEREOF, the parties have executed this !
Memorandum of Understanding.
3 j
President and Chief Executive Officer          Date LOUISIANA POWER & LIGHT COMPANY 4
  <                                                                  t 4
W. Cavanaugh, III                              Date President and Chief Executive Officer l      SYSTEM ENERGY RESOURCES, INC.
t                                                                    i 1
l i
J i                                                                      !
I i
4
                                          -is-j
 
    'O I
EXHIBlT B To OPERATING AGREEMENT EMERGENCY PLANNING SUPPORT BY LP&L l
MEMORANDUM OF UNDERSTANDING s
1 This Memorandum of Understanding is made and entered into as of                                                    ,      1988 between System Energy Resources, Inc. (SERI) and Louisiana Power & Light Company (LP&L).                This Agreement is being executed pursuant i
+
to the Operating Agreement, dated                                                      , 1988, between SERI and LP&L (the "Operating Agreement"),                                                    '
Article 3, Paragraph 3.3(2).
,                                                              ARTICLE I EMERGENCY PLANNING EQUIPMENT AND FACILITIES
;    1.1  ACCESS.            Paragraph 3.2 of the operating Agreement                                      ;
grants SERI unrestricted access to equipment and                                                  l i
facilities located on the Waterford 3 site, including, without limitation, equipment and facilities relied on j          to execute the Waterford 3 Emergency Plan.                                            In l                                                                                                            I addition, in order for SERI to operate Waterford 3 in i
i accordance with the Operating License and other                                                    '
l applicable regulatory requirements, LP&L agrees to i
provide SERI, its agents, employees and contractors unrestricted recess, upon request, to specific
!          additional equipment and facilities located v.                                            the J
l 4
1 l
l I
3
 
    'o
    .        19318.64 Co i
Waterford 3 site, including, without limitation, access for emergency training exercises, emergency drills and, on a first priority basis for an actual emergency.
4 j            1.2  INVENTORY. An inventory of the specific offsite s
equipment and facilities for which SERI will be provided the access specified in Paragraph 2.1 above, i                shall be maintained by the                              and may
(
]                  be revised as necessary to reflect changes in the needs        ;
i of the Waterford 3 Emergency Plan or changes in the            i availability of the equipment and facilities.            Such l
revisions shall only be made with the written                  \
j                concurrence of designated LP&L and SERI                        -
          .                                                                      I reprosentatives.
[
ARTICLE 11                        '
4 LP&L PERSONNEL SUPPORTING THE WATERFORD 3                !
EMERGENCY PLAN                        i 2.1  PERSONNEL SUPPORT.            LP&L will provide personnel to support the Waterford 3 Emergency Plan, including,              '
j without limitation, personnel to staff the Corporate t                                                                                  i 1
Command Center, the Emergency News Center and to act as          i 4
Rumor Control operators. These personnel shall be                l t
provided by LP&L upon request by SERI to support 1
)                emergency training exercises and emergency drills and j
on a first priority basis for an actual emergency.                l l                                                                                  $
!                                                                                    l i                                                                                  !
1 2-l
 
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,  19318.64 O*                                                                i 2.2  PERSONNEL ROSTER. A roster of the specific LP&L personnel that will provide the support described in Paragraph 2.1 above, shall be maintained by            ;
L
                              , and may be revised as necessary to reflect changes in the needs of the Waterford 3      i Emergency Plan or changes in the availability of personnel. Such revisions shall only be made with the written concurrence of designated LP&L and SERI representatives, r
ARTICLE 111                        i TERMS AND CONDITIONS 3.1  This Memorandum of Understanding is intended to i
supplement the Operating Agreement by specifying        i, services to be performed by LP&L without cost or charge to SERI, and the performance of the services described herein and the rights and obligations of the parties with respect thereto shall be governed by the Operating l
Agreement.
SYSTEM ENERGY RESOURCES,        LOUISIANA POWER & LIGHT INC.                            COMPANY l
By                              By:                            1
 
==Title:==
Title
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  ?                                                          -
IA..
AAKANSAS POWEA & LIGHT COMPANY CAPITOL TOWER BUILDING /P. O Box 551/LITTLE ROCK. AREAN5s5 722034501) 377 3525 July 1, 1988 T GENE CAMPBELL v,ce pree.ae v . n ue\es.
SCAN 978801 U. 5. Nuclear Regulatory Comission Document Control Desk Mail Stop P1-137 washington, DC 20555 ATTN:      Mr. Dennis M. Crutchfield, Director Division of Reactor Projects Ill, IV, V and Special Projects
 
==SUBJECT:==
Arkansas Nuclear One + Units 1 & 2 Docket Nos. 50-313 and 50-360 License Nos. OPR-51 and NPF-6 SERI License Atendment Application
 
==Dear Mr. Crutchfield:==
 
Arkansas Power & Light Company (AP&L), as the licensee for Arkansas Nuclear One, Units 1 and 2 (AND-1 and AND-2), hereby submits the enclosed appiitat. ion to amend facility operating licenses Nos. DPR-51 and NPF-6. This application requests NRC approval for System Energy Resources, Inc. (SERI) to assume responsibility for operation of the AND units,                    in order to effect this change, the existing AP&L nuclear organization will be transferred, virtually intact, to SERI. Thus, essentially the same organization and staff currently responsible for operating these two units will continue those responsibilities as a part of SERI.
The application to amend the AND-1 and ANO-2 operating licenses contains tha information required to effect the requested transfer of licensed activities and to amend the operating licenses. In addition, the application contains the                    '
significant hazards consideration evaluation required by 10 C.F.R. 50.92 and                        i 50.91.        A more detailed description of the application is set forth below.                    l I
As the NRC is aware, this license amendment application is associated with the                      i consolidation of nuclear operations of AP&L, Louisiana Power and Light Company                      I (LP&L), and SERI. To ensure that complete and accurate information is submitted to the NRC, and to provide what can be called the "total picture" of the associated licensing activities germane to AP&L's application, this letter provides certain factual information and describes the similar licensing q,
                    -          --ap lf
                                            .. . .      =. . . = - u .e, . . . .o n o
 
a .' ,
1 j    Mr. Dennis M. Crutchfield                2                            July 1, 1988 f    actions plannvi by LP&L. A similar license amendment application is being
(    forwarded under separate cover by LP&L addressing SERI's assumption of operating responsibility for Waterford 3. The NRC should rely on LP&L's license amendment application for information specifically pertaining to LP&L and Waterford 3. Similarly, the NRC should rely on any submittals forwarded by  ,
SERI for information on SERI operations at the Grand Gulf Nuclear Station          t (GGNS).
A. INTRODUCTION By way of background, AP&L, SERI, and LP&L are wholly-owned subsidiaries of
]          Middle South Utilities, Inc. (MSU). AP&L is presently licensed to own and operate the ANO units. LP&L is licensed to own and operate Waterford 3. SER1 l          1s presently licensed to own and operate the GGNS, Unit 1, and to own and construct GGNS, Unit 2. For reasons discussed in the application, MSU has decided that SERI will become its system wide nuclear operating company. Under the MSU plan, SERI will assume (in addition to its existing responsibilities for GGN5) all responsibilities for the management and operation ~ but not ownership ~ of ANO 1 and ANO-2. Similarly, as discussed in LP&L's i          amendment application. SERI will assume operating responsibilities of Waterford 3. The enclosed amendment application specifically addresses SERI's assumption of responsibilities for the two ANO units.
.          B. OPERATING RESPONSIBILITIES 4
i As described in greater detail in the attached application, the transfer of operating responsibilities will be accomplished for AND by an operating l
(    agreement between the owner (AP&L) and the new operator (SERI).      This agreement will give SERI exclusive authority to make operational safety decisions and to
;          conduct licensing activities with the NRC, Under the agreement SERI's costs I          of operating AND 1 and AND 2 will be paid by AP&L, as the owner of the units, I
and AP&L will be entitled to all power generated at ANO. Although the
]          operating agreement has not been completed as of this filing, we will make it available to the NRC as soon as practicable and, in any event, prior to            '
issuance of the proposed amendment.                                                ;
C. OPERATIONAL / ORGANIZATIONAL CHANGES
]
]          AP&L, LP&L and SERI have taken a system wide approach, with strong management 1          oversight, to direct the task of consolidating management of the MSU plants. A special consolidation organization, drawing on resources and expertise from all three companies, has been specifically set up to ensure that licensing and other relevant substantive issues are addressed. One clear objective of j
consolidation activities has been to minimize disruption due to the changes, 1          and to ensure that there is no degradation to organizational performance or
:          public safety.
The above philosophy has been particularly manifest in the planning of the new SERI integrated operating organization. As discussed in the enclosure, the present application does not contemplate any major organizational changes in AP&L's nuclear organization, other than the transfer of personnel to SERI. The present nuclear organization will remain essentially in place, with a change to the lines of authority such that the Vice President Nuclear for ANO will I
 
4                                                                                                                                                                                        r o                                                                                                                                              -
            *i              Mr. Dennis M. Crutchfield                                                                          3                                                July 1, 1988          1 report directly to the President and Chief Executive Officer of SERI. The AND                                                                                            '
l                C          Nuclear Quality organization will also have direct access to the President and Chief Executive Officer of SERI on matters related to quality.
i 1
4 It is anticipated that SF.RI will in the future, after issuance of,this amendment, be considering organization changes to achieve further integration and efficiencies. However, those changes have not yet been identified and are not part of, or necessary for, the present application. Any such future changes will be governed by an internal policy that will provide appropriate 1
management controls and ensure the centinued integration of critical support j                            functions. In addition, SERI will inform the NRC in advance of planned organizational changes which involve major restructuring of line or nuclear support functions at its nuclear facilities and that are important to plant safety.                        This commitment shall remain in effect until the NRC and SERI mutually j                            agree that it is no longer required.                                                                                                                                      ,
A guiding principle of the consolidation task force has been to recognize that j                          MSU currently has three strong, successful organizations operating its plants.                                                                                            t 1
The reorganization plan therefore specifically acknowledges and maintains the special needs of each existing nuclear organization. Individual plant                                                                                                      t i
priorities and ongoing plant improvement initiatives will not be adversely                                                                                                l impacted by the consolidation.
l Additionally, and in response to an NRC staff concern regarding future                                                                                                    !
)                          operational activities, it is recognized that the operating licenses for AND-1                                                                                              -
;                          and AND*2 would not permit the transfer of spent fuel between AND and any other
(            facility eperated by SERI without specific regulatory approval.                                                                                                            '
)                          D.                          NOTIFICATIONS AND APPROVALS i                                                                                                                                                                                                      '
i While the assumption of responsibilities for ANO by SERI requires the consent                                                                                              l l                          of certain creditors and the review and/or approval of federal and state agencies other than the NRC, it is anticipated that these consents, reviews and approvals will be completed prior to the end of this year. The NRC will be kept informed of the progress of these parallel efforts and will, of course, be
)                          inforced in writing should it appear that any of these actions will not be                                                                                                  !
completed in a reasonable time.
]
j                          The consolidation task force has also been committed to keeping other relevant                                                                                              i 1                          state and local officials, and the public, informed with respect to the MSU nuclear plan. The NRC will be kept informed of these informational activities.
;                          E.                            SCHEDULE
!                        Finally, with respect to scheduling, it is our intent to submit this 1                          appitcation concurrently with the LP&L amendment application for Waterford 3.
i In order that administrative matters associated with the change (including the J                          transfers of personnel from APR to SERI) can be completed in a timely and j                          orderly f ashion, it is requested that the two amendments be issued j
simultaneously. We are, however, S W ing to implement the proposed changes as i                          soon as practicable, consistent v                                                                            Wing other necessary regulatory approvals. Therefore, we reques*                                                              .
titious review and approval.
'l
)
i
 
  *t Mr. Dennis M. Crutchfield              4                          July 1. 1982
(  This application and the proposed amendments have been reviewed and approved by the AND Plant Safety Committee and Safety Review Committee. As discussed in the application, AP&L has concluded that the proposed amendments to the AND operating licenses do not involve a significant hazards consideration.
In accordance with the requirements of 10 C.F.R. 5 170.21, the app'ropriate application fee of $150.00 is provided with this letter. A copy of this application has been forwarded to the appropriate designated state official as required by 10 C.F.R. 50.91(b).
Very truly yours, WWM T. Gene Campbell TGC:mb Attachments
(
cc: Ms. Greta Dicus, Director Division of Radiaticn Control                                              !
and Emergency Management                                                i Arkansas Department of Health                                              i 4E15 West Markham Street                                                  ;
Little Rock., Arkansas 72201
(
I 1
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I STATE OF ARKANSAS                                                  )
:                                                                                                          ) 55                                                                                                            !
}                                      COUNTY OF PULASKI                                                  )
i                                      1        T. Gene Campbell, being duly sworn, subscribe to and say that I am Vice
  ;                                      President, Nuclear for Arkansas Power & Light Company; that I have full authority to execute this oath; that I have read the document nn,2bered fCANf78621 and know the contents thereof; and that to the best of my 3
knowledge, information and belief the statements in it are true.
1                                                                                                                                                                                                                          \
I                                                                                                                                                                                                                        l 1
i AWrs.
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T. Gene Campbell
(,
i i
SUBSCRIBED AND $ WORN TO before et, a Notary Public in and for the l
County and State above named, this L
* day of                                                                  be                                              ,
9                                                                  -
i                                        1986.                                                                                                                                                                              I
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i                                                                                                                                      _
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1                                                                                                                                                                                                                              1
;                                                                                                                                                                                                                            l
 
t
  '.                                            I
(                            UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION In the Matter of                    )
                                            )
ARKANSAS POWER & LIGHT COMPANY      )                                            '
                                            )  Docket Nos. 50-313 1                                          )              50-368
;      (Arkansas Nuclear One,              )
,        Units 1 and 2) i t
i APPLICATION TO AMEND FACILITY l
OPERATING LICENSE N05. OPR-51 AND NPF-6                    P i
l i
( Arkansas Power & Light Company (AP&L) is the holder of Facility Operating License No. OPR-51 for Arkansas Nuclear One, Unit 1, and Operating License No.
.;      NPF 6 for Arkansas Nuclear One, Unit 2. The operating licenses presently 1
authorize AP&L to possess, use and operate Arkansas Fuclear One, Units 1 and 2  ,
(AND-1 and AND 2) in accordance with the terms and conditions of these          l
!      licenses.                                                                        ,
i
]      AP&L is a wholly-owned subsidiary of Middle South Utilities, Inc.    (MSU). MSU j also owns the comon stock of Louisiana Power & Light (LP&L), which is licensed l
)      by the Nuclear Regulatory Commission (NRC) to possess, use and operate the J      Waterford Steam Electric Station, Unint No. 3 (Waterford 3), and System Energy  i
)                                                                                        i o                                                          l
                          ,C
                          'i I
 
e,
    ~
      ,.                                                  2
(    Resources, Inc. (SER.::,  .t.    :r 7 licensed to possess, use and ope ate Granc Gulf Nuclear Station (GGNS), Unit 1 and to construct GGNS, Unit 2.
r M50 now plans for SERI to become its system wide nuclear operating comoany.        As ;
such, SERI, in addition to operating GGNS, Unit 1, would assume operating responsibility for.-- but not ownership of -- ANO-1, ANO 2 and Waterford 3.          ,
This assumption of operating responsibility will be accomplished by operating        !
agreements between AP&L and SERI, and between LP&L and SERI, each designating        ;
j          SERI as its agent and authorizing SERI to operate its plant or plants.        The j          assumption of operating responsibility by SERI for AND-1, ANO 2 and Waterford 3 will not impact existing plant ownership or entitlements to capacity and energy,                                                                              i i                                                                                                i I
i          Upon receipt of necessary regulatory approvals and transfer to SERI of AP&L nuclear operational personnel, SERI will succeed AP&L as operator of AND-1 and
;          AND-2. This amendment application requests that the NRC amend Operating
                                                                                                  \
License Nos. OPR-51 and NPF-6 to authorize and reflect in the licenses the change from AP&L to SERI as the licensee authorized to possess, use and operate        l
}          ANO-1 and ANO-2. 1                                                                    l Specifically, pursuant to 10 C.F.R. 5 50.90, the Licensee hereby requests that the NRC amend Operating License No. OPR 51 to change the name of the licensee 1
i        for AND-1, such that:
i i
4          1    The proposed changes to the AND-1 and AND-2 Operating Licenses to reflect
(          the establishment of SERI as the licensee responsible for the operation          i
!      N          and licensing of ANO 1 and ANO-2 are included in Attachments 1 and 2.            l Other than submittals currently pending NRC approval, this amendment application involves no additional changes to the Technical
;                Specifications for either unit, i
 
e                                                                                                        ,
4  -
3 (1) SERI, pursuant to section 104b of the Atomic Energy Act of 1954, as 4
amended (the "Act"), and 10 C.F.R. Part 50, "Licensing of Production and Utilization Facilities," is licensed to possess, use and operate ANO-1, at the designated location in Pope County, Arkansas, in accordance with the procedures and limitations set forth in the License;                                                            ,
(2) AP&L, pursuant to the Act and 10 C.F.R. Part 50, is licensed to        i r
j                                        possess ANO 1 at the designated location in Pope County, Arkansas, in accordance with the procedures and limitations set forth in the License;                                                              i I
(3) SERI, pursuant to the Act and 10 C.F.R. Part 70, is licensed to 4                                                                                                              ;
receive, passess and use at any time special riuclear material as reactor fuel, in accordance with the limitations for storage and        '
amounts required for reactor operation, as described in the Final
;                                      Safety Analysis Report, as supplemented and amended; l
1 (4) SERI, pursuant to the Act and 10 C.F.R. Parts 30, 40 and 70, is licensed to receive, possess and use at any time any byproduct, l
;                                      source and special nuclear material as sealed neutron sources for
{                                      reactor startup, set. led sources for reactor instrumentation and radiation monitoring equipment calibration, and as fission detectors in aniounts as required; I                                                                                                                l
.                                                                                                                l J
L l
 
e 4
(5) SERI, pursuant to the Act and 10 C.F.R. Parts 30, 40 and 70, is licensed to receive, possess and use in amounts as required any                                    i by product, source or special nuclear material without restriction to chemical or physical form, for sample analysis or instrument                                      i i
3 calibration or associated with radioactive apparatus or components;                              !
:                and (6) SER1, pursuant to the Act and 10 C.F.R. Parts 30 and 70, is licensed l
to possess, but not separate, such byproduct and special nuclear                                  ;
1                materials as may be produced by the operation of ANO-1,
,      Further, the Licensee hereby reques's that the NRC amend Operating License No.                              l
;      NPF 6 to change the name of the licensee for Ah0-2, such that:
:!  (                                                                                                              r l          (1) SERI, pursuant to Section 103 of the Act, as amended, and 10 C.F.R.
j                Part 50, "Licensing of Production and Utilization Facilities," is
!                licensed to possess, use and operate ANO-2, at the designated i
j                location in Pope County, Arkansas, in accordance with the procedures i
;                and limitations set forth in the License; l
i (2) AP&L, pursuant to the Act and 10 C.F.R. Part 50, is licensed to                                    l possess ANO 2 at the designated location in Pope County, Arkansas, in                            i f
accordance with the procedures and limitations set forth in the                                  l 1
License;                                                                                          1 i
1 l
i
)
1                                                                                                                    l l
 
e
!  ',;                                              5                                      :
i                (3) SER1, pursuant to the Act and 10 C.F.R. Part 70, is licensed to        -
receive, possess and use at any time special nuclear material as reactor fuel, in accordance with the limitations for storage and
!                      amounts required for reactor operation, as described in the Final    ;
i j                      Safety Analysis Report, as supplemented and amended;                  i I
(4) SERI, pursuant to the Act and 10 C.F.R. Parts 30, 40 and 70, is
;                    licensed to receive, possess, and use at any time any by-product, j                    source and special nuclear material as sealed neutron sources for
.I 1                      reactor startup, sealed sources for reactor instrumentation and      ,
1 radiation monitoring equipment calibration, and as fission detectors in amounts as required;                                              !
i 1                                                                                          ;
I (5) SERI, pursuant to the Act and 10 C.F.R. Parts 30, 40 and 70, is        !
l      (
j                      licensed to receive, possess and use in amounts as required any      j by-product, source or special nuclear material without restriction to '
chemical or physical form, for sample analysis or instrument j                      calibration or associated with radioactive apparatus or components;  i l                    and                                                                  i j
(6) SERI pursuant to the Act and 10 C.F.R. Parts 30 and 70, is licensed    :
to possess, but not separate, such by product and special nuclear    l materials as may be produced by the operation of ANO 2.
]
l l
l 1
1 i
 
i  e                            .                                                        !
l  .
6 l
1 l
( Other conforming license changes are noted in the attachments to this Application 2 Set forth below is the information in support of the                .
i      Applict. tion to Amend Facility Operating Licenses Nos. OPR 51 and NPF 6.
i l
1 I. GENERAL INFORMATION CONCERNING LICENSE AMENDMENT                            l 1
j        A. Proposed Additional Licensee:    System Energy Resources, Inc.              i i
j        B. Address:    Post Office Box 23054 Jackson, Mississippi  39215
)
i
;        C. Description of Businesc or Occupation:
i 1
SERI is a wholly owned subsidiary of MSU.      SERI, formerly Middle South Energy, j
1
(                                                                                    !
1      In:.. (MSE), was formee in 1974 to construct, finance and own base load            j 1                                                                                          >
l      generating units for the operating subsidiaries of MSU. On July 22, 1986, the l
1 i        Boards of Directors of MSU and MSE took sction to change the name of MSE to        i SERI and to authorire transferring to SERI all responsibility for the operation    !
of GGNS, Unit 1, and construction of GGNS, Unit 2.      This was accompitshed on December 20, 1966, upon receipt of the necessary regulatory approva'es.
i 1
To date, SERI's business has comprised owning and financing its ninety percent ownershi;, interest in the GGNS, and operating the plant. Prior to issuance of these license amendments, SERI will take necessary corporate action to              I 4
i authorize it to operate Waterford 3, ANO-1 and ANO 2.                              !
)                                                                                            !
!                                                                                            l 1
1 2      Conforming changes, if necessary, in insurance and indemnity agreements will be made in due course by separate corresponcence.
 
i 7
After approval of these requested amendmelts and a similar amendment to the Operating License for Waterford 3, SERJ will be responsible for the operation and maintenance of all nuclear plants in the MSU System, including ANO-1 and ANO-2. Upon receipt of necessary reDulatory approvals, SERI, as distinct from I
AP&L as the owner of the facilities, will have responsibility for and ,contrni j 1
Eer_1.he physical construction. operation, maintenance, and licensino of the
                                                                                    )
facilities.                                                                    !
l l
D. Organization and Management of Operatino Corporation SERI is a corporation organized and existing under the laws of the State of Arkansas. Its principal office is located in Jackson, Mississippi. The corporation is neither owned, controlled nor dominated by an alien, a foreign corporation, nor a foreign government.
All directors and principal officers of SERI are citizens of the United States.
3 Their names and addresses are as follows:
l Oirectors Mr. E. A. Lupberger Chairman of the Board Syster, Energy Resources Inc.
225 Baronne Street New Orleans, Louisiana 70112 Mr. William Cavanaugh, III President and Chief Executive Officer                            I System Energy Resources, Inc.                                    l Post Office Box 23054                                            ;
Jackson, Mississippi    39215
                                                                                    ]
I 3    Additional directors and officers may be named at a later date, i
 
  .                                  8 Mr. D. C. Lutken Chairman of the Board and Chief Executive Officer C      Mississippi Power & Light Company P.O. Box 1640 Jackson, Mississippi 39215-1640 Mr. J. M. Cain President and Chief Executive Officer Lcuisiana Power & Light Company New Orleans Public Services, Inc.
Post Office Box 60340 New Orleans, Louisiana 70160 Mr. J. L. Maulden President and Chief Executive Officer Arkansas Power & Light Company Post Office Box 551 Little Rock, Arkansas 72203 Dr. Joseph M. Hendrie Nuclear Engineering Consultant 50 Be11 port Lane                                                  ,
Be11 port, New York 11713, Senior Scientist, Research and Development Brookhaven National Laboratory
(                                  Officers Mr. E. A. Lupberger Chairman of the Board System Energy Resources, Inc.
225 Baronne Street New Orleans, Louisiana 70112 Mr. William Cavanaugh 111 President and Chief Executive Officer System Energy Resources, Inc.
Post Office Box 23054 Jackson, Mississippi 39215 Mr. Glenn E. Harder Vice President - Accounting System Energy Resour,es, Inc.
Post Office Box 2305c Jackson, Mississippi 35!15 Mr. Richard J. Landy Vice President - Human Resources and Administration System Energy Resources, Inc.
Post Office Box 23054
(      Jackson, Mississippi 39215
 
  .                                              9                                      I
(                Mr. Oliver D. Kingsley, Jr.
Vice President - Nuclear Operations System Energy Resources, Inc.
Post Office Box 23054 Jackson, Mississippi 39215 Mr. Ted H. Cloninger Vice President - Nuclear Engineering and Support System Erergy Resources, Inc.
Post Office Box 23054 Jackson, Mississippi 39215 Mr. Dan E. Stapp Secretary System Energy Resources, Inc.
Post Office Box 61005 New Orleans, Louisiana 70161 Upon issuance of these operating license amendments, certain officers of AP&L will become officers of SERI. The names of these officers will be anneur.ced following approval by the SERI Board of Directors.
(
E. Technical Qualifications l
The technical qualifications of SERI to carry out its responsibilities under      l 1
the Operating Licenses for ANO-1 and ANO-2, as amended, will meet or exceed the present technical qualifications of AP&L. AP&L will continue to act as the operator of ANO-1 and ANO-2, pending the amendment of the Operating Licenses.
When the amendments become effective, SERI will assume responsibility for and l
control over the physical con _struction, operation, maintenance, and licensina of the,fa,cilities. The present ANO-1 and ANO-2 nuclear organizations will be transferred essentially intact to SERI.      The technical qualifications of the -
proposed ANO-1 and AND-2 organizations therefore will be at least equivalent to those of the existing organization.
L
 
a.
*s e
]                                              10                                      1 The central objectives in planning the proposed consolidation of the AP&L and SERI organizations have been to minimize disruption to the operation of the plants and to respect the integrity of the existing, successful organizations.
Therefore, in the proposed consolidated SERI organization, each nuclear organization for the operating plants will be preserved, with the only change that the senior nuclear executive of AP&L and LP&L will report directly to the President and Chief Executive Officer of SERI. Thisorgagzationis
                                                                            ~
illustrated in Attachment 3. Thus, for ANO-1 and ANO-2, T. G. Campbell, Vice President, Nuclear, will report directly to W. Cavanaugh III, President and Chief Executive Officer of .iERI. The Nuclear Quality organization for the plar.t will also have direct access to the President and Chief Executive Officer of SERI on matters related to quality.
This approdch to the consolidation accommodates the current plant-specific structure of the AP&L and SERI orgarizations. This allows the transfer of AP&L nuclear personnel to SERI with virtually no.. organizational changes or disruotion. I+, also allows the management for each facility to retain sufficient independence to address plant-specific needs and to maintain            I l
existing piiorities and ongoing plant improvement projects.      Importently, and as discussed below, there will be in the near term no organizational or physical location changes to the existing, dedicated organization, which would include the engineering, quality assurance, and licensing organizations supporting the ANO-1 and ANO-2 plants.                                            l l
l The significant elements and advantages to the proposed SERI organization can      l be summarized as follows:                                                          l
 
.'      .                                                                                    i 11 (1) The structure provides clear lines of authority and responsibility while ensuring that essential nuclear support functions are dedicated to each project and report to a single responsible project executive.
(2) The effectiveness of project quality assurance will not be degraded.      ,
(3) The project structure will continue to provide the project executive      l the flexibility necessary for managing his resources to achieve optimal results. Ongoing plant improvement plans will not be i
impacted.                                                                !
l l
1 (4) The project structure provides the flexibility necessary to adapt to      l different procedures and methods used at each plant.      This is particularly important initially since most project nuclear activities will be transferred essentially "as is" to SERI.
(5) The effectiveness of a dedicated nuclear support organization is enhanced by identity with and sharing of the SER1 goals and objectives.
The consolidation of the SERI, LP&L, and AP&L nuclear organizations will be a long-term, evolutionary process.      For the time being, and for the purposes of the present application, only certain non-nuclear support functions, such as accounti,ng and human resources, may be combined, if it appears beneficial and appropriate to do so.      The licensees will c.ontinue to study possible organizational and programmatic changes to enhance objectives and to realize L
 
e 3                                            12 further benefits from the establishment of SERI as the single company responsible for all nuclear operations in the MSU System. Such changes will only be implemented after careful consideration. SERI will inform.NRC in advance of planned organizational changes that involve major restructuring of line or nuclear support functions at its nuclear facilities and that are important to plant safety. This commitment shall remain in effect until the        i l
NRC and SERI rutually agree that it is no longer required.                            !
F. Statement of Purposes for the License Amendments The assumption of operational responsibility for ANO-1 and ANO-2 by SERI (along with responsibility for Waterford 3 and GGNS, Unit 1) will provide benefits inherent to an integrated nuclear operating company. Some of the expected i
benefits are as follcws:
{'
l l
(1) SERI, as an operating company for multiple reactors, will have a            i 1
repository of system nu: lear operating expertise and experience.
Presently, there is a wealth of nuclear operations talent spread throughout the MSU system. Consolidation of this talent into one company should have a synergistic effect. The change will enhance the already high level of public safety and cost-effective plant operation.
(2) Consolidation of talent not only will result in a merger of expertise and experience for system-wide nuclear operational support, but it also permit the specialization of expertise in certain areas that might not otherwise be developed if each of the companies continued
(
to operate their separate facilities.
 
t
  .                                      13                                    l (3) SERI will be better able to provide a consistent vision for the philosophy of operation of the system nuclear units. A single          )
company responsible for all nuclear operations in the MSU system will allow development of a consistent philosophy which will be specifically designed for nuclear plant operations. This focused philosophy can be used to maintain excellence in all aspects of nuclear operation.                                                    i l
(4) As a result of the consolidation, there will be more effectiva communication and use of system nuclear operating experience.      For example, the system-wide nuclear operating company will allow "lessons learned" to be shared promptly, efficiently, and consistently among the units.
(
(5) Certain non-nuclear support functions will become specialized and focused on the requirements of all of the system's nuclear units and will thereby be more effective.
(6) Bringing all of the HSV nuclear units under the management of one company will provide a broader base and more competitive environment  l l
for upper management candidates who are specialized in nuclear power  '
generation.      Further, SERI, in its new role, should provide an environment in which all employees continue to be motivated toward high performance. SERI, with its expanded responsibilities, will also provide greater opportunity for career progression and thus greater opportunity to retain valued employees.
L
 
    .                                            14 (7) More specifically, as a result of this consolidation, salary structures, career path policies and procedures will be internally consistent. Since all of SERI's employees will be "nuclear employees", there will no longer exist any distinction in these areas between employees who support nuclear operations and those who do not. This will permit nuclear managers to focus entirely upon the special needs, qualifications, and requirements of nuclear employees.
Human resource and compensation policies tailored to nuclear operations will allow SERI to be competitive in the market for skilled nuclear professionals without directly influencing, or being bound by, personnel policies and procedures governing non-nuclear related personnel. The ability to attract superior nuclear talent and retain quality individuals once recruited will have a direct and positive impact on the quality of nuclear operations.
{
G. Financial Considerations As is discussed below, SERI is an "electric utility" as that term is defined by 10 C.F.R. S 50.2. Therefore, under 10 C.F.R. S 50.33(f), a full financial qualifications review of this application to amend the licenses is not necessary. By way of demonstrating that SERI is an "electric utility" and apprising the NRC of the relationships that will exist between SERI and AP&L (the facility owner), the following brief discussion is provided.
 
      .                                            15                >.
The following interrelations will be established by an operating agreement between AP&L and SERI:                                    -
: 1. SERI will not have any ownership interest in the ANO plants or facilities; however, it will have overall responsibility for plant operations. SERI will operate ANO-1 and ANO-2 in accordance with the Operating Licenses anoishall have ex,c,lusive responsi_bi.lity for making safetv decisions 4
: 2. AP&L will retain certain controls ove n llinate spending limits, such as the authority to direct that ANO-1 or ANO-2 be shut down in an orderly fashion by SERI (and in accordance witn SERI's safety judgment). This retained authority will limit SERI's spending authority, but will not encumber SERI's ability to make operational
{
safety decisions and will have no impact on safe operation of ANO-1 or ANO-2.
j l
: 3. All costs for the operation,. construction, maintenance, repair.,
decontamination and decommissioning of ANO-1 and ANO-2 incurred or accrued will be the responsibility of AP&L when incurred or accrued.
t    -
                                                                            \
Section 50.2 of 10 C.F.R. defines an "electric utility" as:
                    . . . any entity that generates or distributes C ectricity and which recovers the cost of this electricity, either directly or indirectly, through rates established by the entity itself or by a separate regulatory authority.
(                                        Investor-owned utilities, including generation and distribution subsidiaries, public utility districts,
 
  .                                              16 municipalities, rural electric cooperatives, and State and Federal agencies, including associations of any of the foregoing, are included within the meaning of electric utility.
I SERI is a generating subsidiary of MSU. SERI operates GGNS, Unit 1, and sells power at wholesale to operating companies in the Middle South System pursuant      ;
to rates established by the Federal Energy Regulatory Commission.      Upon receiving necessary regulatory approvals, it will also operate, for the benefit of their owners, Wate' ford 3, ANO-1 and ANO-2 for the generation of electricity. SERI's costs of operation for ANO-1 and ANO-2 will be recovered f rom AP&L who in turn recovers such costs through retail rates established by state regulatory authorities, and through wholesale rates established by the Federal Energy Regulatory Commission.      Hence, SERI is an "ele'tric utility" as defined in 10 C.F.R. S 50.2.
(
I AP&L is subject to the rate jurisdiction of the Arkansas and Mi g ri public service commissions, and the Federal Energy Regulatory Commission.      Therefore, AP&L also remains an "electric utility" and is committed to provide all funds necessary to continue safe operation of ANO-1 and ANO-2, to shut down ANO-1 and ANO-2 permanently, if necessary, and to maintain the units in a safe condition, all in conformance with NRC regulations.      AP&L and its sources of funds will remain the same as under the present licenses. The operatina aa_reement terms  l reaardino costs, dhcussed above, give S,ERI the,same financial,cualifications as the present licensee, AP&L.                                                    I L
l
 
1 l
l
  '.                                            17 H. Antitrust Considerations MSU's plan for SERI to operate and manage ANO-1 and ANO-2 will not. impact the existing ownership of the units or existing entitlements to power.            These proposed license amendments do not require antitrust review pursuant to Section 105 of the Atomic Energy Act and 10 C.F.R. $ 2.101(e).
        ]. Restricted Data This Application does not contain any Restricted Data or other defense information, and it is not expected that any such information will become involved in the licensed activities. However, in the event that such information does become involved, SERI agrees that it will appropriately safeguard such information and it will not permit any individual to have access to Restricted Data until the Office of Personnel Management shall'have made an investigation and report to the NRC on the character, associations and loyalty of such individual, and the NRC shall have determined that permitting such person to have access to Restricted Data will not endanger the common defense i      snd security.
II. SPECIFIC INFORMATION REGARDING RELATED ISSUES A. Emeraency Plannina l
Upon approval of the license amendments to authorize operation of ANO-1 and                      l ANO-2 by SERI, SERI will assume authority and responsibility for functions necessary to fulfill the emergency planning requirements specified in 10 C.F.R.
S 50.47(b) and Part 50, Appendix E. No changes will be made to the on-site
 
.i 18 l
aspects of the existing emergency plans for ANO-1 and ANO-2.        In addition,      I there will be no changes to the existing Emergency Planning Orgar.ization.        SERI I will add organizational components to reflect its assumption of responsibility for emergency planning.      Transition plans will be estaolished to ensure that the support described in the existing emergency plans will be maintained throughout the transition and as needed following the transition.
Appropriate action will be taken as necessary with respect to existing agreements for support from organizations and agencies not affiliated with the licensees to reflect SERI's agency relationship with the owner and SERI's responsibility for management and operation of ANO-1 and ANO-2.        This will be complished as necessary by AP&L prior to the transfer of respotisibility.
Following the transfer of operating responsibility to SERI, emeraency plannina        i support will be provided by AP&L as needed.      In essence, to the extent that      !
I personnel, resources, and facilities are not being transferred to SER1, AP&L          '
will continue to fulfill selected emergency planning functions.        These functions have been thoroughly reviewed and the required support will be assured by an agreement between SERI and AP&L.      Long-term utilization of AP&L resources in these areas will be based on cost-effectiveness and existing relationships with offsite organizations and agencies.                                l l
l 1
In sum, the proposed license amendments will not impact compliance with the em          elanning requirements. Because the effectiveness of the emergency      !
plan w)1, not be decreased, specific emergency plan and procedure changes will be submitted to the NRC within 30 days after the changes are made, pursuant to
( 10 C.F.R. S 50.54(q) and Appendix E, Section V.
 
1 I
j            19 B. General Desian Criterion 17 The amendments to authorize assumption of operating respcnsibility by SERI involve no changes in the ownership or design of the offsite power systems for ANO-1 and ANO-2, or in their operation, maintenance or testing.            Upon approval of the amendments, AP&L will continue to fulfill its current responsibilities with respect to compliance with General Design Criterion (GDC) 17.
GDC 17 specifically requires that there be an assured source of offsite power
!          to the plants. Pursuant to this requirement, SERI and AP&L will maintain and implement procedures and agreements specifying: (1) the arrangements for                -
provisjonofacontinuadcourceofoffsitepowerand(2)thearrangemcatsfor contrciling operation, maintenance, repair, and other activities with respect to the transmission lines and the switchyard, such that adequate independent sources of off site power will continue to be provided.
In essence, the written procedures and agreements will provide for the future                      ,
interface between SERI and AP&L.        First, AP&L has committed to p;oviding                    l offsite power to the units.          Second, the procedures and agreements will provide for the continuation of current arrangements for the operation and maintenance of the switchyard and associated transmission facilities.              The procedures and agreements will also specify that AP&L will obtain concurrence from SERI prior                      l to implementing any changes in this equipment.                                                      l
__. 1 ,
C. Exclusion Area 4
I
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Upon approval of the amendments providing for assumption of operating responsibility by SERI, SERI will have authority to determine all activities
                                        , _                  m, - - - < - - "--        '    ' ' ~  '
 
  .                                                                  4
(                                              20 within the AND-1 and ANO-2 exclusion areas, to the extent required by 10 C.F.R.
C  Part 100.
As stated in Chapters 2.2.2 and 2.1.2.1 of the Safety Analysis Reports (SARs) for ANO-1 and ANO-2 respectively, AP&L controls all surface rights within the exclusion area boundary of the units.        With respect to certain property owned l
by the United States Government, AP&L controls the area under an easement.
Under the operating agreement to be entered into between SERI and AP&L, AP&L will aaree to provide SERI with unrestricted access to the property constituting the ANO site, including the facilities, equipment, switchyard, anc personal property locatad on the site.
Alt,o, SERI will have authority to l
exercise complete control over the exclusion areas as designated in the SARs for the plants, and to determine all activities within those areas (including
{  all areas of the site and the switchyard). This authority will allow SERI to control ingress and egress and to order an evacuation if necessary.            To the extent practicable, SERI will, of coursa, exercise this control in such a fashion that AP&L's access to the switchyard and transmission facilities for proper operation and maintenance of the electric systems on the ANO site will not be ur. duly restricted.
As stated in the SARs, certain activities unrelated to plant operation (e.g.,
use of roads) will occur in the exclusion area.            There will be no change from the existing situation.      SERI will assume responsibility for the emergency l        plans as discussed above.
l
 
                                                                  ,        W    . ,
                                                                                      ~
D. Security                                                                          '
The proposed license amendments will not impact compliance with the physical security requirements of 10 C.F.R. Part 73. Upon assumption of operating responsibility, SERI will assume ultimate responsibility for implementation of all aspects of the present security program. Appropriate action will be taken as necessary with respect to existing agreements for support from outside organizations and agencies to reflect SERI's agency relationship with the owner and SERI's responsibility for management and operation of ANO-1 and ANO-2.
Changes to the plans to reflect this transition will not decrease the effectivenest of the plans and will be submitted to the NRC within 30 days af ter the changes are made, in accsedance with 10 C.F.R. S 50.54(p).
E. Quality Assurance The proposed license amendments will not impact compliance with the quality assurance requirements of 10 C.F.R. 50, Appendix B, nor will they reduce the commitments in the NRC-accepted quality assurance program descriptions for ANO-1 and AND-2. Upca assumption of operating responsibility, SERI will assume the ultimate responsibility for present functions associated with the ANO-1 and ANO-2 qnlity assurance programs. The organization, function and structure of the nuclear quality organization will not be affected by these license amendments. Changes to reflect this transition, which will be handled in accordance with 10 C.F.R. 50.54(a), will not reduce the commitments in the quality assurance program descriptions.
 
  '.                                                          3
  ,                                              22 F. Safety Analysis Reports
:        With the exception of areas discussed in this license amendment application, the proposed license amendments will not change or invalidate information presently appearing in the AND SARs.      Changes necessary to accommodate the proposed license amendments will be incorporated into the ANO-1 and ANO-2 SARs following NRC approval of the license amendment application in accordance with
,        10 C.F.R. 50.71(e).
G. Training The proposed license amendments will not irrpact compliance with the operator
,        requalification program requirements of 10 C.F.R 50.54 and related sections,      e l
normaintenanceoftheInstituteofNuclearPowerbperationsaccreditationfor licensed and non-licensed training. Upon assumption of operating rupsi-bility for ANO-1 and ANO-2, SERI will assute ultimate responsibilitv for implementation of present training programs. Changes to the programs to        ;
reflect this transition will not decrease the scope of the approved operator requalification program without the specific authorization of the NRC in          #
accordance with 10 C.F.R. 50.54(i),
i H. Engineering Support                                                        ;
1 Currently the engineering support for ANO-1 and ANO-2 is provided by a dedicated engineering organization that is an integral part of the nuclear organization. Because the existing nuclear organization at AP&L will transfer
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    .                                              23 1
virtually intact to SERI upon approval of these license amendments, there will be essentially no change in the engineering support provided and no change in the interface between the organizations responsible for engineering support, and maintenance and operations for each plant.        Thus there will be no degradation of the engineering support function and its integration with maintenance and operations. After issuance of the license amendments, as evolutionary changes are made to consolidate organizations within SERI, we will ensure the continued integration of the engineering support function with the        1 I
i maintenance and operation function.
III. NO SIGNIFICANT HAZARDS CONSIDERATION EVALUATION PURSUANT TO 10 C.F.R. 50.92 A. Proposed _ Change                                                            1 The preposed amendments would revise Facility Operating License No. DPR-51 and Facility Operating License No. NPF-6 for ANO-1 and ANO-2, respectively, to authorize SERI to act on behalf of AP&L, with responsibility for and control over the physical construction, operation, and maintenance of the facilities.
i B. Background SERI is a wholly-owned subsidiary of MSU.        It is presently licensed to operate the GGNS, Unit 1, and to construct GGNS, Unit 2.        Under the proposed amendments, SERI would assume all responsibilities for operating ANO-1 and
(      AND 2. Under the current operating licenses, these responsibilities are now
 
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    ,                                                24 held by AP&L, which also is a wholly-owned subsidiary of MSU.        This application is being filed simultaneously with a similar application by LP&L to transfer to SERI operatiensi responsibility for Waterford 3.
Under the terms of the proposed amendments, the operating licenses for ANO-1                    '
and ANO-2 would recognize SERI as the legal entity which will provide the                        ;
technical and managerial resources for the continued safe operation of the facilities, and as the entity with exclusive authority to make operational safety decisions. The proposed license amendments involve no change in the ownership of the facilities and no physical changes to the plants.
All of the current license conditions will remain in ef fect and the Limiting Conditions for Operation, Limiting Safety System Settings, and Safety Limits
(    t,pecified in the Technical Specifications will remain unchanged. While the emergency plan, security plan, and plant operating and emergency procedures                      :
will require administrative changes to reflect SERI's role as agent for the owner and operator of the units, no changes will be made that decrease the effectiveness of these plans and procedures.        Similarly, while the Quality                  l l
Assurance Program may require administrative changes to reflect the role of SERI, no changes will be made that reduce the commitments in that Program.          A transition plan will ensure an orderly transfer of existing emergency preparedness responsibilities to SERI.      fritten procedures and agreements maintained and implemented by SERI and AP&L will clearly ensure continued compliance with GDC 17. Similarly, in noerating agreement will ensure that i
SERI has authori,ty to determine all activities within the exclusion area.
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I I
  .                                            25 The technical qualifications of SERI to carry out its responsibilities under the Operating Licenses, as amended, will meet or exceed the present technical qualifications of AP&L. AP&L will continue to act as the operator.of ANO-1 and ANO-2, pending amendment of the Operating Licenses.      When the amendments become effective, SERI will assume responsibility for, and o ntrol over, the physical construction, operation, and maintenance of the facilities.      The present ANO-1 and ANO-2 nuclear organizations will be transferred essentially intact to SERI.
The technical qualifications of the SERI ANO-1 and ANO-2 organizations therefore will be at least equivalent to those of the existing organization.
l The assumption of operational responsibility for ANO-1 and ANO-2 by SERI (along with responsibility for Waterford 3 and GGNS, Unit 1) will provide benefits inherent to an integrated nuclear operating company.      Some of the expected benefits are as follows:
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(1) SERI, as an operating company for multiple reactors, will have a repository of system nuclear operating expertise and experience.
Presently, there is a wealth of nuclear operations talent spread throughout the MSU system. Consolidation of this talent into one company should have a synergistic effect. The change will enhance the already high level of public safety and cost-effective plant operation.
(2) Consolidation of talent not only will result in a merger of expertise and experience for system-wide nuclear operational support, but also will permit the specialization of expertise in certain areas that might not otherwise be developed if each of the companies continued
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to operate their separate facilities,                                          j l
 
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'.                                        26 (3) SERI will be better able to provide a consistent vision for the philosophy of operation of the system nuclear units. A single company responsible for all nuclear operations in the MSU system will allow development of a consistent philosophy which will be specifically designed for nuclear plant operations. This focused philosophy can be used to achieve excellence in all aspects of nuclear operation.
(4) As a result of the consolidation, there will be more effective communication and use of system nuclear operating experience. For example, the system-wide nuclear operating company will :    ow "lessons learned" to be shared promptly, efficiently, and consistently among the units.
k (5) Certain non-nuclear support functions will become specialized and focused on the requirements of all of the system's nuclear units and will thereby be more effective.
(6) Bringing all of the HSU nuclear units under the management of one company will provide a broader base and more competitive environment for upper management candidates who are specialized in nuclear power generation. Further, SERI, in its new role, should provide an environment in which all employees continue to be motivated toward high performance. SERI, with its expanded responsibilities, will also provide greater opportunity for career progression and thus greater opportunity to retain valued employees.
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* 27 (7) More specifically, as a result of consolidation, salary structures, career path policies and procedures will be internally consistent.
Since all of SERI's employees will be "nuclear employees", there will no longer exist any distinction in these areas between employees who support nuclear operations and those who do not. This will permit nuclear managers to focus entirely upon the special needs, qualifications, and requirements of nuclear employees. Human resource and compensation policies tailored to nuclear operations will allow SERI to be competitive in the market for skilled nuclear professionals without directly influencing, or being bound by, personnel policies and procedures governing non-nuclear related personnel. The ability to attract superior nuclear talent and retain quality individuals once recruited will have a direct and positive impact on the quality of ANO operations.
C. Analysis The following discussion provides a specific analysis of the proposed change against the three standards delineated in 10 C.F.R. S 50.92 and demonstrates that the proposed change involves no significant hazards consideration:
: 1. The proposed change will not increase the probability or consequences of an accident previously evaluated. The technical qualifications of SERI will be at least equivalent to those of AP&L presently.
Personnel qualifications will remain the same as those discussed in the Technical Specifications and the SARs for ANO 1 and ANO-2.
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l 28 SERI presently owns and operates GGNS, Unit 1. The employees of LP&L and AP&L presently engaged in the operation of Waterford 3, ANO-1 and ANO-2 will become employees of SERI.      The organizational. structure of SERI will provide for clear management control and effective lines of authority and communication among the organizational units involved in the management, operation, and technical support of the                    ,
facilities.
As a result of the proposed amendments, there will not be physical changes to the facilities, and all Limiting Conditions for Operation.
Limiting Safety System Settings, and Safety Limits specified in the r-Technical Specifications will remain unchanged.      With the exception of administrative changes to reflect the role of SERI, the quality
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* assurance programs, the emergency plans, security plans and training programs are unaffected. Operatingagreementswillensurecontinued)      ,
compliance with GDC 17 as well as SERI control over activities within the exclusion areas.
Therefore, the proposed changes will not increase the probability or consequences of an accident previously evaluated.
: 2. The proposed amendments will not create the possibility of a new or different kind of accident from any accident previously evaluated.
The design and design bases of ANO-1 and ANO 2 remain the same.
Therefore, the current plant' safety analyses remain complete and l
accurate in addressing the licensing basis events and analyzing plant response and consequences.
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.                                                                                          1 t
29 The Limiting Conditions for Operation, Limiting Safety Systen Settings and Safety Limits are not affetted by the proposed i
amendments. With the exception of administrative changes to reflect      ;
the role of SERI, plant operating and emergency procedures are unaffected. As such, the plant conditions for which the design basis accident' analyses have been performed are still valid. Therefore, the proposed amendments cannot create the possibility of a new or          i different kind of accident than previously evaluated.
: 3. The proposed amendments will not involve a reduction in a margin of        ,
safety. Plant safety margins are establishea through Limiting Conditions for Operation. Limiting Safety System Settings and Safety Limits specified in the Technical Specifications. Since there will be no change to the physical design or operation of the plants, there will be no change to any of these margins. The proposed amendments      '
i therefore will not involve a reduction in a margin of safety, i
l D. Conclusion Based upon the analysis provided herein, the proposed amendments will not increase the probability or consequences of an accident previously evaluated, create the possibility of a new or different kind of accident from any accident previously evaluated, or involve a reduction in a margin of safety. Therefore, the proposed amendments meet the requirements of 10 C.F.R. 50.92(c) and do not        l involve a significant hazards consideration.
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v                                                                                      i o      -
  .                                              30 ENDORSEMENT AND CONSENT AP&L, presently the sole licensee, hereby endorses and consents to this application filed under oath or affirmation by T. G. Campbell, Vice President, Nuclear, of AP&L, and the proposed assumption of operating and licensing        l 1
responsibilities for ANO-1 and ANO-2 by SERI as described above.                '
                                                  /2/?&aOL Mr.    . L. Maulden President and Chief Executive Officer Arkansas Power & Light Company l
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(    ACCEPTANCE SERI hereby consents to this application filed under oath or affirmation by T. G. Campbell, Vice President, Nuclear, of AP&L, and accepts the proposed assumption of operating and licensing responsibilities for ANO-1 and ANO-2 by SERI as described above. Upon approval and effectiveness of the proposed amendments, SERI agrees to be bound by all applicable NRC regulations, applicable license conditions (as identified in the amended license),
technical specifications, and prior licensee com=itments.
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                                                                                                  ).
(  ,                                                      Oliver D. Kingsley            /
Vice President Nuclear Operations System Energy Resources, Inc.
3                                                                                                        1 1
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8 J14 U T88051702 - 34
 
2 1
4 :achment 1 SYSTEM ENERGY RESOURCES, INC.
l ARKANSAS POWER AND LIGHT COMPANY
                                    .        DOCKET NO. 50-313 (ARKANSAS NUCLEAR ONE, UNIT 1)
FACILITY OPERATING LICENSE Amendment No. 1 License No. OPR-Si
: 1. The Atomic Energy Commission (the Commission) having found that:            ;
: a. The issuance of this license, as amended, to the Arkansas Power and Light Company ("AP&L") and System Energy Resources. Inc.
("SERI") (the licensees") complies with the standards anc requirements of the Atomic Energy Act of 1954, as amenced (the Act), and the Commission's rules and regulations set forth in 10 CFR Chapter I and all required notifications to other agencies or bodies have been duly made;
: b. Construction of Arkansas Nuclear One Unit 1 (the facility) has been substantially completed in conformity with Construction Permit No. CPPR-57, and the application, as amended, the provisions of the Act and the rules and regulations of the
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    .                Commission;
: c. The facility will operate in conformity with the application, as amended, the provisions of the act, and the rules and regulations of the Commission;
: d. There is reas>nable cssurance: (i) that the activities authorized by this operating lice.9se can be conducted without endangering the health and saftty of the public, and (ii) that such activities        '
will be conducted in compliance with the rules and regulations of      !
the Commission; j
: e. SERI is technically qualified and AP&L is financially qualified to  l engage in the activities authorized by this operating license in accordance with the rules and regulations of the Commission;
: f. AP&L has satisfied the applicable provisions of 10 CFR Part 140,    !
                      "Financial Protection Requirements and Indemnity Agreements," of the Commission's regulations *                                        '
1
          *After a transfer of AP&L nuclear personnel to SER1, SERI has succeeded AP&L      ,
as the operator of Arkansas Nuclear One, Unit 1 (the facility).                  l Consequently, SERI is authorized to act for itself and for AP&L and has          ;
exclusive responsibility and control over the physical construction, operation and maintenance of the facility. Hereinafter, the term licensees
(        refers to both AP&L and SERI.
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    .                      .                                                                                                                i
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(                            g. The issuance of this amended operating license will n n be inimical to the common defense and security or to the health and safety of the public; l
: h. Af ter weighing the environmental, economic, technical, and other beneffts of the facility against environmental costs and considering available alternatives, the issuance of Facility
,                                          Operating License No. OPR-51, as amended, is in accordance with 10                            l    l CFR Part 50, Appendix 0, of the Commission's regulations and all 4                                            applicable requirements of said Appendix D have been satisfied; and,                                                                                              l 3
: i. The receipt, possession, and use of source, byproduct and special                                  '
nuclear material as authorized by this license will be in                                          i accordance with the Commission's regulations in 10 CFR Parts 30, 40 and 70, including 10 CFR Section 30.33, 40.32, 70.23 and 70.31.                                I
: 2. Facility Operating License No. DPR-51, as amended, is hereby issued to                                  i AP&L and SERI to read as follows:
: a. This license applies to Arkansas Nuclear One, Unit 1, a i                                          pressurized water reactor and associated equipment (the facility),
;                                          owned by AP&L and operated by SERI. The racility is located in                                l    L i                                          Pope County, Arkansas and is described in the "Final Safety                                        l 4                                          Analysis Report" as supplemented c.nd amended (Amendments 1 through                                r 1
: 45) and the Environmental Report as supplemented and amended                                      l (Supplements 1 through 5).                                                                        ;
4                                    b. Subject to the conditions and requirements incorporated herein, l                                          the Con ission hereby licenses:
l 3                                          (1) SERI pursuant to Section 104b of the Act and 10 CFR Part 50,                              l "Licensing of Production and Utilization Facilities," to                                '
,                                                    possess, use, and operate the facility at the designated location in Pope County, Arkansas, in accordance with the
  ,                                                    procedures and limitations set forth in this license;                                  '
j                                            (2) apt.L. pursuant to the Act and 10 CFR Part 50, to possess the facility at the designated location in Pope County, Arkansas, i                                                    in accordance with the limitations set forth in this license;
  !                                        (3) SERI, pursuant to the Act and 10 CFR Part 7 M to receive, possess                        l j                                                    and use at any time special nuclear material as reactor fuel,
  !                                                  in accordance with the limitations for storage and amounts required for reactor operation, as described in the Finil l                                                    Safety Analysis Report, as supplemented and amended; (4) SERI, pursuant to the Act and 10 CFR Parts 30, 40 and 70, to                              l receive, possess and use at any time any byproduct, source and special nuclear caterit.1 as sealed neutron sources for reactor startup, sealed sources for reactor instrumentation
  ,                                                    and radiation monitoring equipment cali"ration, and as fission detectors in amounts .. required;
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_ _ . _ _ ~ _ , _ _              .
 
    't (5) SERI, pursuant to the Act and 10CFR Parts 30, 40 and 70, to    l
(                    receive, possess and use in amounts as required any byproduct, source or special nuclear material without            i restriction to chemical or physical form, for sample analysis or instrument calibration or associated with radioactive apparatus or components; (6) SERI, pursuant to the Act and 10 CFR Parb 30 and 70, to        l ;
possess, but not separate, such byprode:t and special nuclear materials as may be produced by the N+ cation of the facility.
                    'This license shall be deemed to contain and is subject to the c.
conditions specified in the following Commission regulations in 10 CFR Chapter I: Part. 20, Section 'i0.34 of Part 30, Section 40.41 of Part 40, Sections 50.54 and 30.59 of Part 50, and Section    ,
70.32 of Part 70; is subject to all applicable provisions of the      l Act and to the rules, regulations, and orders of the Commission        '
now or hereafter in effect; and is subject to the additional conditions specified or incorporated below:
(1) Maximum Power Level SERI is authorized to operate the facility at steady state    !
reactor core power levels not in excess of 2568 megawatts thermal,                                                        i
(              (2) Technical Specifications The Technical Specifications contained in Appendices A and B, as revised through Amendment No,        are hereby incorporated in the license. SERI sh'aT), operate the facility in accordance with the Technical Specifications.
(3) AP&La may proceed with and is required to complete the          !
modifications identified in Paragraphs 3.1 through 3.19 of the NRC's Fire Protection Safety Evaluation (SE) on the facility dated August 22, 1978 and supplements thereto.
These modifications shall be completed as specified in Table 3.1 of the Safety Evaluation Report or supplements thereto.
In addition, the licensee may proceed with and is requirad to complete the modifications identified in Supplement I to the Fire Protection Safety Evaluation R) port, and any future supplements. These modifications shall be completed by the dates identified in the supplement.
i "The original licensee authorized to possess, use, and operate the facility was AP&L. Consequently, certain historical references to AP&t remain in the license conditions.                                                          l l
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    ,                                                                                i i                                                                              l l
l (4) Physical Protection SERI shall fully implement and wintain in effect provisions    l of the following Commission approved documents, in:1uding amendments and changes made pursuant to the authod ty uf 10        '
CFR 50.54(p). These approved documents consis' of information withheld from public disclosure pursuant to 10 CFR 2.790(d):
(a) '' Arkansas Nuclear One Industrial Security Plan" dated January 11, 1979, as revised by submittals dated January 2, 1981 (Enclosure 2), and April 30, 1981.
(b)
* Arkansas Nuclear Station Safeguards Contingency Plan,"
Revision 1 dated February 26, 1980, revised by Revision 2 page changes dated April 30, 1950, and submitted pursuant to 10 CFR 73.40. The Contingency Plan shall be      j fully implemented in accordance with 10 CFR 73.40(b).
(c) "Arkansas Nuclear One Security Force Training and i                      Qualification Plan" as submitted by {{letter dated|date=September 9, 1980|text=letter dated September 9, 1980}}, as revised by pages dated February 5, 1981, and April 27, 1981. This Plan shall be followed in accordance with 10 CFR 73.55(b)(4), 60 days after        [
approval by the Commission. All security personnel, as i
required in the above plans, shall be qualified within
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two years of this approval. SERI may make changes to    l i
this plan without prior Commission approval if the          '
changes do not decrease the safeguards effectiveness of the plan. SERI shall maintain rscords of and submit reports concerning such changes in the same stanner as required for changes made to the Security Plan and Safeguards Contingency Plan pursuant to 10 CFR 50.54(p).    ;
(5) Systems Integrity                                                    i i
SERI shall implement a program to reduce leakage from systems  l  l outside containment that would or could contain highly radioective fluids during a serious transient or accident to as low as practical levels. This program shall include the following:                                                          1
: 1. Provisions establishing preventive maintenance and          i periodic visual inspection requirements, and                ;
: 2. Integrated leak test requirements fo? each system at a      I frequency not to exceed refueling cycle intervals.
]          (6) Iodine Monitorina l                SERI shall implement c program which will ensure the            !
capability to accurately determine the airborne iodine k
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concentration in vital areas under accident conditions.      The      '
program shall include the following:                                  l
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: 1. Training of personnel,                                        l
: 2. Procedures for monitoring, and                                  j
: 3. Provisions for maintenance of sampling and analysis equipment.
(7) Secondary Water Chemistry Monitorino                                  l A secondary water chemistry monitoring program shall be implemented to minimize steani generator tube degradation.
This program shall include:
: 1. Identification of a sampling schedule for the critical parameters and control points for these parameters;
: 2. Identification of the procedures used to measure the values of the critical parameters;
: 3. Identification of process sampling points;                    i l
: 4. Procedures for the recording and management of data;
: 5. Procedures defining corrective actions for off-control        !
(                        point chemistry conditions; and
: 6. A procedure identifying the authority responsible for          {
the interpretation of the data and the sequence and timing of administrative events required to initiate a corrective action.
: d. This license is effective as of the date of issuance and shall            !
expire at midnight, December 6, 2008.                                      '
FOR THE ATOMIC ENERGY COMMISSION A. Giambusso, Deputy Director i
Date of Issuance:    May 21 1974                                                      l 5
 
Attachment 2 SYSTEM ENERGY RESOURCES, INC.
ARKANSAS POWER AND LIGHT COMPANY 00CKET No. 50-368 ARKANSAS NUCLEAR ONE. UNIT 2 FACILITY OPERATINC LICENSE Amendment No. 2    !
License No. NPF-6
: 1. The Nuclear Regulatory Commission (the Commission) having found that:
A. The issuance of this license, as amended, to the Arkansas Power and Light Company ("AP&L") and System Energy Resources, Inc.
("SERl") (the licensees") complies with the standards and requirements of the Atomic Energy Act of 1954, as amended (the Act), and the Commission's regulations set forth in 10 CFR Chapter I; B. Construction of Arkansas Nuclear One, Unit 2 (the facility) has been substantially completed in conformity with Construction Permit No. CPPR-89, and the application, as amended, the provisions of the Act and the regulations of the
(              Commission; C. The facility requires exemptions from certain requirements of (1)
Sections 50.55a(g)(2) and 50.55a(g)(4) of 10 CFR Part 50, (2)
Appendices G and H to 10 CFR Part 50 and (3) Appendix J to 10 CFR Part 50 for a period of three years. These exemptions are described in the Office of Nuclear Reactor Regulation's safety evaluations supporting the granting of these exemptions which are enclosed in the letter transmitting this license amendment. These exemptions are authorized by law and will not endanger life or property or the common defense and security and are otherwise in the public interest. The exemptions are, therefore, hereby granted. With the granting of these exemptions, as amended, the provisions of the Act, and the regulations of the Commission;
        *After a transfer of AP&L nuclear personnel to SERI, SERI has succeeded AP&L as the operator of Arkansas Nuclear One Unit 2 (the facility).
Consequently, SERI is authorized to act for itself and for AP&L and has exclusive responsibility and control over the physical construction, operation and maintenance of the facility. Hereinafter, the term licensees refers to both AP&L and SERI.
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O D. There is reasonable assurance: (i) that the activities authorized C            by this operating license can be conducted without encangering the health and safety of the public, and (ii) that sucn ac*.ivities will be conducted in compliance with the regulations C# the Commission; E. SERI is technically qualified and AP&L is financially qualified to                      l engage in the activities authorized by this operating license in accordance with the regulations of the Commission; F. AP&L has satisfied the applicable provisions of 10 CFR Part 140,                        l "Financial Protection Requirements and Indemnity Agreements," of the Commission's regulations; G. The issuance of this amended operating license will not be inimical to the common defense and security or to the health and safety of the public; H. After weighing the environmental, economic, technical and other benefits of the facility against environmental and other costs and considering available alternatives, the issuance of Facility-Operating License No. NPF-6, as amended, subject to the conditions i                    for protection of the environment set forth herein, is in j                    accordance with 10 CFR Part 51 (formerly Appendix D to 10 CFR Part 50) of the Commission's regulations and all applicable requirerents have been satisfied; and I. The receipt, possession, and use of source, byproduct and special nuclear material as authorized by this license will be in accordance with the Commission's regulations in 10 CFR Parts 30, 40 and 70, including 10 CFR Sections 30.33, 40.32, 70.23 and 70.31,
: 2. Facility Operating License No NPF-6, as amended, is hereby issued to
:              APAL and SERI to read as follows:
1 i
A. This amended license applies to Arkansas Nuclear One, Unit 2, a                            i pressurized water reactor and associated equipment (the facility)                          J owned by AP&L and operated by SERI.      The facility is located in                    l ;
Pope County, Arkansas, and is described in the Final Safety                                :
Analysis Report as supplemented and amended (Amendments 20 through 47) and the Environmental Report as supplemented and l                  amended (Amendments 1 through 7).
B. Subject to the Conditions and requirements incorporated herein, a                    the Commission hereby licenses:                                                          l (1) SERI, pursuant to Section 103 of the Act and 10 CFR Part 50,                        l "Licensing of Production and Utilization Facilities," to
;                          possess, use, and operate the facility at the designated 1
location in Pope County, Arkansas in accordance with the
;                          procedures and limitations set forth in this amended license; k
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      -    = _      - _ -        -                                          . _
(      (2) AP&L, pursuant to the Act and 10 CFR Part 50, to possess the facility at the designated location in Pope County, Arkansas, in accordance with the limitations set forth in this license; (3) SERI, pursuant to the Act and 10 CFR Part 70, to truive.              l possess and use at any time special nuclear material as reactor fuel, in accordance with the limitations for storage and amounts required for reactor operation, as described in the Final Safety Analysis Report, as supplemented and amended;                                                              l (4) SERI, pursuant to the Act and 10 CFR Parts 30, 40 and 70, to          l receive, possess and use at any time any byproduct, source            j and special nuclear material as sealed neutron sources for reactor startup, sealed sources for reactor instrumentation and radiation monitoring equipment calibration, and as fission detectors in amounts as required;                              l (5) SERI pursuant to the Act and 10 CFR Parts 30, 40 and 70, to            l  !
receive, possess and use in amounts as required any                    i byproduct, source or special nuclear material without                  !
restriction to chemical or physical form, for sample analysis          l or instrument calibration or associated with radioactive              i pparatus or components; and l
(6) SERI, pursuant to the Act and 10 CFR Parts 30 and 70, to              l  l C            possess, but not separate, such byproduct and special nuclear          i materials as may be produced by the operation of the                  r facility.
                                                                                        ]
C. This amended license shall be deemed to contain and is subject to            i conditions specified in the following Commission regulations in 10            (
CFR Chapter I; Part 20, Section 30.34 of Part 30, Section 40.41 of            i Part 40, Sections 50.54 and 50.59 of Part 50, and Section 70.32 of            ,
Part 70; and is subject to all applicable provisions of the Act              i and to the rules, regulations, and ordars of the Commission now or            j hereafter in effect; and is subject to the additional conditions              j specified or incorporated below:                                              ;
(1) Maximum Power Level                                                      '
SERI is authorized to operate the facility at steady state          !
reactor core power levels not in excess of 2815 megawatts thermal. Prior to attaining this power level SERI shall        l comply with the conditions in Paragraph 2.C.(3).
(2) Technical Specifications The Technical Specifications contained in Appendices A & B, as revised through Amendment No.        are hereby incorporated      i in the license.      SERI shall operate the facility in
(              accordance with the Technical Specifications, except where otherwise stated in specific license conditions.
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I*
  . a l
l (3) Additional Conditions The matters specified in the following conditions shall be completed to the satisfaction of the Commission within the stated time periods following the issuanct of the license or within the operational restrictions indicated.                          The removal of these conditions shall be made by an amendment to the                                          l license supported by a favorable evaluation by the Commission.                                                                                      1 (a) "Fuel Performance" was deleted.
I (b) Fire Protection                                                                              i SERI shall maintain in effect and fully implement all                            l provisions of the approved fire protection program. The                              1 approved fire protection program consists of the                                      I following licensee's documents:
l Date                                              Document Final Safety Analysis Report Section 9.5.1 through Amendment 47 dated June 16, 1978 May 17, 1977                        AP&L* Letter submitting a comparison of the            l AND-2 Fire Protection Program to Branch
(                                                                                    Technical Position 9.5-1.
August 30                          AP&L Letter transmitting the Fire Hazards              l 1977                                Analysis and responses to staff questions.
September 21,                      AP&L Letter transmitting responses to ste#f            l l                                                        1977                                questions and positions.
October 26,                          AP&L Letter transmitting Fire Hazards                    l 1977                                Analysis Information and responses to staff questions and positions.
J February 3,                        AP&L Letter transmitting Fire Hazards                    l 1978                                Analysis Information February 28,                        AP&L Letter transmitting Administrative                l  I
                                              .        1978                                Controls information.
l March 31, 1978                      AP&L Letter transmittilig responses to                  l I
staff questions.                                          !
!                                                      April 12, 1978                      AP&L Letter transmitting responses to                  l
;                                                                                          staff questions and positions.
!                *The original licensee authorized to possess, use, and operate the facility was g            AP&L. Consequcntly, certain historical references to AP&L remain in the license
(            conditions.                                                                                                                        i i
i                                                                                                4                                                    i l
 
    ?
1 AP&L Letter transmitting responses to
(    April 17, 1978 April 26, 1978 staff questions and positions.
AP&L Letter transmitting responses to l
l staff questions and positions.
June 8, 1978      AP&L Letter transmitting affidavit for  l previously docketed letters.
June 13, 1978      AP&L Letter transmitting Administrative  l Controls information.
June 15, 1978      AP&L Letter transmitting Administrative  l  ,
Controls inf'ormation.
June 29, 1978      AP&L Letter transmitting Administrative  l Control information.
July 7, 1978      AP&L Letter transmitting affidavit for  l previously docketed letters.
July 7, 1978      AP&L Letter transmitting Administrative  l Controls information.
July 13, 1978      AP&L Letter transmitting affidavit for  l j                                previously docketed letters.
(c)  Less Than Four Reactor Coolant Pump Operation SERI shall not operate the reactor in operational Modes !
I and 2 with fewer than four reactor coolant pumps in
!                  operation, except as allowed by Special Test Exception 3.10.3 of the facility Technical Specifications, j            (d) "Instrument Trip 5etpoints Drift Allowance" was deleted.
(e) Fire Protection AP&L shall complete the following modifications by the  !
indicated dates in accordance with the staff's findings as set forth in the fire protection evaluation report,      ;
NUREG-0223 "Fire Protection Safety Evaluation Report."
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I
    '                                                                                l Implementation Dates for Proposed Modifications Applicable Section of huREG-0223                                                Date 3.1    Portable Radio Communication Equipment        March 31, 1979 3.2    Separation of Power Cables in Manholes
* 3.3    Protection from Water Spray
* 3.4    Protection of Redundant Cables in the MCC Room (2096-M)                          December 30, 1978 3.5    Protection of Redundant Cables in the Hallway - Elevation 372 (2109-U)                    * **
3.6    Protection of Redundant Cables in the Cable Spreading Room (2098-L)
* 3.7    Protection of Redundant Cables in the Switchgear Room (2100-Z)
* 3.8    Protection of Redundant Cables in i                    the Electrical Equipment Room (2091-BB)                                  September 30, 1978 I    C    ?.9    Protection of Redundant Cables in the Lower South Electrical Penetration Room (2111-T)                              September 30, 1978 1
3.10    Protection of Safe Shutdown Cables in the Upper South Piping Penetration Room (2084-DD)                              September 30, 1978 3.11    Protection of Redundant Reactor Protection System Cables (2136-1)                    * **
I 3.12    Fire Dampers                                  September 30, 1978  1 3.13    Portable Extinguisher for the Control Room (2199-J)                              November 15, 1978 3.14    Smoke Detectors                                          * **
3.15    Manual Hose Stations (2055-JJ, 2084-00,                              .
l                  Containment, Elev. 317' of Auxiliary                            '
Building                                              * **
                                                                                      )
3.16    Portable Smoke Exhaust Equipment              December 1, 1978 L
6                                            !
                                                                                      )
 
4
    .'.                                                                                                              l 3.17                Emergency Lighting                            December 1, 1978 3.18                Reactor Coolant Pump 011 Collection System
* 3.19                Control of Fire Doors                        March 31, 1979 3.20                Administrative Control Changes                December 1, 197E (Numbers in parentheses refer to fire zone designations in the AP&L fire hazards analysis.)
* Prior to startup following the first regularly scheduled refueling outage.
            ** Technical Specifications covering these items should be proposed not later than 90 days prior to implementation.
(f) "Overpressure Mitigating System" was deleted.
(g) Verification of Transient Analysis Code AP&L shall complete tests to verify the use of the CESEC                    l l Code during the initial startup and power ascension testing program and submit the results for Commission review and approval.
The CESEC verification test results shall include an
(                              analysis of the uncertair. ties associated with the test instrumentation and a demonstration that the test instrumentation was adequate for the intended purpose.
(h) "Main Feedwater System Modification" was deleted.
(i) Containment Radiation Monitor AP&L shall, prior to July 31, 1980 submit for Commission                    l review and approval documentation which establishes the adequacy of the qualifications of the containment                              i radiation monitors located inside the containment and                        ;
shall complete the installation and testing of these                          '
instruments to demonstrate that they meet the operability requirements of Technical Specification No.
3.3.3.6.
(j) "Environmental Qualifications of Safety Related Instrumentation" was deleted.
I (k) "Core Protection Calculator System (CPCS)" was deleted.                          )
(1) "CEA Guide Tube Surveillance Program" was deleted.
(m) "Redundant Valve Position Indication" was deleted.
        ~                      (n) "Fire Barrier Testing" was deleted.
.                                                                                                                    l l
7                                                            !
i
 
I  s (o) "Offsite Power System" was deleted.
(p) Secondary Water Chemistry Monitorino SERI shall implement a secondary water chemistry                      l monitoring program using the overall plant administrative procedure "Steam Generator Water Chemistry Monitoring, Unit II", to minimize steam generator tube degradation.        The program shall be i                              defined in specific plant procedures and shall include:            ,
: 1. Identification of sampling schedule for the critical parameters and control points for these parameters;
: 2. Identification of the procedures used to measure the values of the critical parameters;
: 3. Identification of process sampling points;
: 4. Procedure for the recording and management of data;
: 5. Procedures defining corrective actions for off control point chemistry conditions; and
)                              6. A procedure identifying the authority responsible t
(                            for the interpretation of the data, and the sequence and timing of administrative events
        \,
required to initiate corrective action.
,                  (4) SERI shall implement a program to reduce leakage from systems              l
!                        outside containment that would or could contain highly
!                        radioactive fluids during a serious transient or accident to as low as practical levels. This program shall include the
                .        following:
i l                        1. Provisions establishing preventive maintenance and periodic visual inspection requirements, and 7
: 2. Integrated leak test requirements for each system at a frequency not to exceed refueling cycle intervals.
(5) SERI shall implement a program which will ensure the capability to accurately determine the airborne iodine concentration in vital areas under accident conditions.          This program shall include the following:
: 1. Training of personnel,
: 2. Procedures for monitoring, and
: 3. Provisions for maintenance of sampling and analysis equipment.
(
8
 
vf l
l l
j                          D.      Physical Protection SERI shall fully implement and maintain in effect provisions of                                    l          ,
the following Commission approved documents, including amendments and changes made pursuant to the authority of 10 CFR $0.54(p).                                              !
These approved documents consist of information withheld from public disclosure pursuant to 10 CFR 2.790(d):
(1) "Arkansas Nuclear One Industrial Security Plan" dated January                                            i 11, 1979, as revised by submittals dated January 2, 1981                                  .
(Enclosure 2), and April 30, 1981.                                                        I l
i                                (2) "Arkansas Nuclear Station Safeguards Contingency Plan,"                                                  '
Revision 1 dated February 26, 1980, revised by Revision 2 p ae changes dated April 30, 1980, and submitted pursuant to 10 LF.* 73.40. The Contingency Plan shall be fully implemerted in accordance with 10 CFR 73.40(b).
(3) "Arkansas Nuclear One Security Force Training and                                                        I Qualification Plan" as submitted by letter dated September 9,                              i i                                                1980, as revised by pages dated February 5, 1981, and April                                !
J                                                    27, 1981. This Plan shall be followed in accordance with 10 CFR 73.55(b)(4), 60 days after approval by the Commission.
All security personnel, as required in t.he above plans, shall be qualified within two years of this approval. SERI may                          l J
make changes to this plan without prior Commission approval
(
if the changes do not decrease the safeguards effectiveness 1                                                    of the plan. SERI shall maintain records of and submit                            l reports concerning such changes in the same manner as l
required for changes made to the Security Plan and Safeguards                              +
Contingency Plan pursuant to 10 CFR 50.54(p).                                              l E. This license is subject to the following additional condition for j                                  the protection of the environment:                                                                          i Before engaging in additional construction or operational                                                    ;
activities which may result in an environmental impact that was                                              i i
  '                                not evaluated by the Commission, SERI will prepare and record an                                    l environmental evaluation for such activity. When the evaluation                                              '
indicates that such activity may result in a significant adverse                                            i l                                environmental impact that 6.6 not evaluated, or that is i                                significantly greater than that evaluated, in the Final
:                                Environmental Statement (NUREG-0254) or any addenda thereto, SERI                                    l        ,
i                                shall provide a written evaluation of such activities and obtain                                              l i                                  prior approval from the Director, Office of Nuclear Reactor                                                    l l                                  Regulation.                                                                                                  '
l                          F. This license is effective as of the date of issuance and shall l                                  expire at midnight, December 6, 2012.
Roger S. Boyd, Director L      Dat.e of Issuance:                          September 1, 1978 9
 
                                                                                                        . = *; >
f                                            A                                              O PROPOSED SERI ORGANIZATION CHART CHAIRMAN OF Tile BOARO E. A. LUPBERGER PRESIDENT AND CHIEF EXECUTIVE OFFICER W. CAVANAUGH III l            l ARKANSAS NUCLEAR    WATERFORO 3                                                          SUPPORT ONE                                                    l                    FUNCTIONS I. G. CAMPBELL J. G. DEWEASE                      I                        I GRAlm GULF GRAND GULF        NUCLEAR ENGINEERING NUCLEAR OPERATIONS            & SUPPORT s            0. U. KING 5LLY, JR.      I. H. CLONINGER NOTE: QUALITY ORGANIZATIONS FOR EACH PLANT HAVE ACCESS TO
,                                  PRESIDENT & CEO ON MATTERS RELATED TO QUALITY Attachment 3 f
 
J    ,l fxhibtf O- D-LOUISIANA POWE A & LIGHT /
317 B ARONNE STREET    . P. O. BOX 60340 g                                      NEW ORLE ANS, LOul51 AN A 70160          (504) 595 2781 UN      ggI,,
Sv5 lv J.G DIWI All stwoo vtt **ts et s e ovess an oos sa roos July 1, 1988 W3P88-1243 A4.05 QA U.S. Nuclear Regulatory Co==ission ATTN      Document Control Desk Washington, D.C. 20535
 
==Subject:==
Waterford 3 SES Docket No. 50-382 License No. NPP-38 (Change Request No. NPP-38-83)
SERI License Arendment Application for Waterford 3 Attn:        Mr. Dennis M. Crutchfield, Director Division of Reactor Projects III, IV, V and Special Projects Gentlemen:
Louisiana Power & Light (LP&L), as the licensee for Waterford 3 hereby submits the enclosed application to amend facility operating license No. NPF-38.      This application requests NRC approval for System Energy Resources. Inc. (5ERI) to assuee responsibility for operation of Waterford 3. In order to effect this change, the existing LP&L nuclear organization vill be transferred. virtually intact, to SERI. Thus, essentially the same organization and staff currently responsible for                                  l operating Waterford 3 vill continue those responsibilities as a part of                                l SERI.
The application to amend the LP&L operating license contains the information to effect the requested transfer of licensed activities.and to amend the operating license. In addition, the application contains the                                i significant hazards consideration evaluation required by 10CTR50.92 and                                j 50.91. A more detailed description of the application is set forth below.                              I As the h7C is aware, this license amendment application is associated with the consolidation of nuclear operations of LP&L. Arkansas Power & Light                          I Company (AP&L). and SERI. To ensure that complete and accurate information is submitted to the NRC and to provide what can be called the "total picture" of the associated licensing activities gemane to LP&L's application, this letter provides certain factual information and describes f      sir.ilar licensing actions planned by AP&L. A similar license amend =ent
(      application is being forwarded undet        aparate cover by AP&L addressing SERI's assumption of operating responsibilities for Arkansas Nuclear One.
Units 1 and 2 (ANO 1 and 2). The NRC should rely a AP&L's license l'>
b [' I      "AN EQUAL OPPORTUNITY EMPLOYER"
 
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A' Page 2 W3P88-1243 amendment application for information specifically pertaining to AP&L and ANO 1 and 2. Similarly, the NRC should rely on any submittals forwarded
,              by SERI for information on SERI operations at the Grand Culf Nuclear Station (CCNS).
1 A. INTRODUCTION i
By way of background, LP&L, $ERI, and AP&L are wholly-owned subsidiaries of Middle South Utilities, Inc. (MSU). LPkL is presently licensed to own
;            and operate Waterford 3. AP&L is licensed to own and operate ANO 1 and
: 2. SERI is presently licensed to own and operate CCNS, Unit 1, and to own
,            and construct CCNS, Unit 2.
I l                  Por reasons discussed in the application MSU has decided that SERI vill become its system vide nuclear operating company. Under the MSU plan, SERI will assume all responsibilities for the management and operation -
but not ownership - of Waterford 3. Similarly, as discussed in AP&L's amend-ment application, SERI will assume operating responsibilities of ANO 1 and
: 2. The enclosed acendment application specifically addresses SER1's assump-tion of responsibilities for Waterford 3.
;            B. OPERATINC RISPONSIBILITIES
(            As described in gretter detail in the attached application, the transfer of operating responsibilities will be accomplished for Waterford 3 by an operating agreement between the owner (LP&L) and the new operator (SERI).
This agreement will give SERI exclusive authority to make operational safety decisions and to conduct Itcensing activities with the NRC. Under the agree-ment, SERI's costs of operating Waterford 3 will be paid by LP&L as the owner of the unit, and LP&L will be entitled to all power generated at Water-ford 3. Although the operating agreement has not been completed as of this filing, we will make it available to the NRC as soon as practicable and, in any event, prior to issuance of the proposed amendment.
C. OPERATIONAL /ORCANIZATIONAL CRANCES LP&L, AP&L, and SERI have taken a systea-vide approach, with strong management oversight, to direct the task of consolidating management of the MSU plants. A special consolidation organisation, drawing on resources and expertise from all three companies, has been specifically set up to ensure that licensing and other relevant substantive issues are addressed. One clear objective of consolidation activities has been to minimise disruption due to the changes, and to assure that there is no degradation to organina-tional performance or public safety.
The above philosophy has been particularly manifest in the planning of the new SERI integrated operating organisation. As discussed in the enclosure, the present application does not contemplate any major
[      organisational changes in 1.P&L's nuclear organization, other than the
(      transfer of personnel to SERI. The present nuclear organization will
 
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Page 3 W3P88-1243
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remain essentially in place, with a change only to the lines of authority such that the Senior Vice President - Nuclear Operations for Waterford 3 vill report directly to the President and Chief Executive Officer of SERI. The Waterford 3 Quality Assurance Department will also have direct access to the President and              l Chief Executive Officer of SERI on satters related to quality.
It is anticipated that SERI will in the future, after issuance of this amendment, be considering organisation changes to achieve further integration and efficiencies. However, those changes have not yet been identified cod are not part of, or necessary for, the present application. Any such future changes will be governed by an internal policy that will provide appropriate management controls and assure che continued integration of critical support functions. In addition. SERI will inform the NRC in advance of planned organization changes which involve major restructuring of live or nuclear support functions at its nuclear facilities and that are important to plant i
safety. This commitment shall remain in effect until the NRC and SERI autually agree that it is no longer required.
A guiding principle of the copolidation task force has been to recognize J
that KSU currently has three strong, successful organizations operating its plants. The reorganization plan thwrefore specifically acknowledges and maintains the special needs of each existing nuclear organization. Individual                !
plant priorities and ongoing plant improvement initiatives will not be
            , adversely impacted by the consolidation.
(
Additionally, and in response to an NRC staff concern regarding future operational activities, it is recognized that the operating license for Waterford 3 would not permit the transfer of spent fuel between Waterford 3 and any other facility operated by SERI without specific regulatory approval.
D. NOTIFICATIONS AND APPROVALS While the assumption of responsibilities for Waterford 3 by SERI requires the consent of certain creditors and the review and/or approval of federal and state agencies other than the NRC it is anticipated that these consents.
reviews, or approvals will be completed prior to the end of this year. The l
NRC will be kept informed of the progress of these parallel efforts and vill, of course, be informed in writing should it appear that any of these actions will not be cumpleted in a reasonable time.
The consolidation task force has also been committed to keeping other                    i relevant state and local officials, and the public, informed with respect to the MSU nuclear plan. The NRC will be kept informed of these informational                    '
activities.
E. SCHEDULE Finally, with respect to scheduling, it is our intent to submit this application concurrently with the AP&L amendment application for ANO 1 and 2. In order that administrative matters associated with the change
 
          .                                                                                                                L
,      n Page 4 W3P88-1243 i
(including the transfers of personnel from LP&L to SERI) can be completed in a timely and orderly fashion, it is requested that the Waterford 3 amendment be issued simultaneously with that for ANO 1 and 2. We are seeking, however, to implement the proposed changes as soon as practicable, consistent with obtaining other necessary regulatory approvals. Therefore,
.,              we request your expeditious review and approval.
  .                  This application and the proposed amendment has been reviewed and approved by the Waterford 3 Plant Operations Review Committee and Safety i              Review Committee. As discussed in the application, LP&L has concluded that the proposed amendment to the Waterford 3 operating license does not                                        t involve an unreviewed safety question nor a significant hazards 4              censideration, a
4 i
Yours very truly, i                                                                                ,
AO                  -
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t clear Operations
(        JGD/MJM/pim Enclosurest NPT-38-83 j                            Piling fee - $150 a
cc:  R.D. Martin, J.A. Calvo, D.L. Wigginton, NRC Resident Inspectors l                  Office E.L. Blake W.M. Stevenson, Administrator Nuclear Energy                                        !
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W3P88-1243 9
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S.A. Alleman. N.S. Carns. D.T. Packer. P.V. Prasankumar.            ,
j                  M.J. Meisner. G.E. Wu11er. G.E. Wilson. R.W. Prados. L.W. Laughlin. '
C.E. DeDeaux. J.B. Houghtaling. R.T. Lally. Jr.. W.A. Cross.    ;
R.P. O'Neill, Records Center. Administrative Support.
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L'NITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION In the matter of                                          )
                                                                    )
Louisiana Power & Light Company                            ) Docket No. 50-382 k'aterford 3 Steam Electric Station                        )
ATTIDAVIT J.G. Dewease, being duly sworn, hereby deposes and says that he is Senior Vice President-Nuclear Operations of Louisiana Power & Light Company; that      '
he is duly authorized to sign and file with the Nuclear ReEulatory Cor=ission the attached Operating License Change Request NPT-38-83; that he is familiar with the content thereof; and that the matters set forth therein are true and correct to the best of his knowledge, information and belief.
                                              ~.
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                                                . y . D'n e a s e e5.ior Vice President-Nuclear Operations
                                              /
STATE OT LOUISIANA)
                            ) ss PARISP, OT ORLEANS )                                                              I l
Subscribed and sworn to befor me, a Notary Public n and for the Parish and State above named this        &        day of          . ao              _.
1988.
                                                                  /
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Notary Public i
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    .                                          (                            UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION In the Matter of                    )
                                              )
LOUISIANA POWER & LIGHT COMPANY    )
                                              )  Docket No. 50-382
                                              )
(Waterford 3 Steam Electric        )
Station, Unit No. 3)              )
APPLICATION TO AMEND FACILITY OPERATING LICENSE NO. NPF-38 Louisiana Power & Light Company ("LP&L") (the "Licensee") is the holder of Facility Operating License No. NPF-38 for Waterford Steam Electric Station Unit 3 (Waterford 3). The operating
[      license presently authorizes LP&L to possess, use and operate Waterford 3 in accordance with the terms and conditions of the    ;
license.                                                          >
i LP&L is a wholly-owned subsidiary of Middle South Utilities, ;
Inc.  ("MSU"). MSU also owns the common stock of Arkansas Power
          & Light Company ("AP&L"). which is licensed by the Nuclear Regulatory Commission (NRC) to possess, use and operate Arkansas Nuclear One, Units 1 and 2 ("ANO-1" and "ANO-2"), and System Energy Resources, Inc. ("SERI"), which is licensed to possess, use and operate Grand Gulf Nuclear Station ("Grand Gulf"), Unit 1 anu to construct Grand Gulf, Unit 2.
s; $ n ap6ss - S h P'
 
                                          -2~
MSU now plans for SERI to become its system-wide nuclear operating company. As sur,4, SERI, in addition to operating Grand Gulf, Unit 1, would assume operating responsibility for -- but not ownership of -- Waterford 3, ANO-1, and ANO-2.      This assumption of operating responsibility will be accomplished by operating j/
agreements between LP&L and SER7, and between AP&L and SERI, each designating SERI as its agent and authorizing SERI to operate its plant or plants.
The assumption of operating responsibility by          ,
SERI for Waterford 3, ANO-1, and ANO-2 will not impact existing plant ownership or entitlements to capacity and energy.
Upon receipt of necessary regulatory approvals and transfer to SERI of LP&L Nuclear Operations personnel. SERI will succeed LP&L as operator of Waterford 3. This amendment application
{
requests that the NRC amend Operating License No. NPF-38 to authorize and reflect in the license the change from LP&L to SERI as the licensee authorized to possess, use and , operate Waterford 3  1/
i l
1/  The proposed changes to the Waterford 3 Operating License to reflect the establishment of SERI as the licensee responsible  for the operation of Waterford 3 are included in Attachment 1. Other than submittals currently pending NRC approval, this amendment application involves no additional          i changes to the Technical Specifications,                              )
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(        Specifically, pursuant to 10 C.F.R. I 50.90, the Licensee hereby requests that the NRC amend Operating License No. NPF-38 to I
l change the name of the licensee for Waterford 3 , such that:
(1)  SERI, pursuant to section 103 of the Atomic Energy Act of 1954, as amended, ("the Act")
and 10 C.F.R. Part 50 "Domestic Licensing of            j Production and Utilization Facilities," is licensed to possess, use and operate Waterford 3 at the designated location in St. Charles Parish, Louisiana, in accordance
{
with the procedures and limitations set forth in the License;
(
(2)  LP&L, pursuant to the Act and 10 C.F.R. Part 50, is licensed to possess Waterford 3 at the designated location in St. Charles Parish,              I I
Louisiana, in accordance with the procedures            I and limitations set forth in the License; (3)  SERI, pursuant to the Act and 10 C.F.R. Part 70, is licensed to receive, possess and use at any time special nuclear material as reactor fuel, in accordance with the limitations for storage            l and amounts required for reactor operation, as described in the Final Safety Analysis Report,
(              as supplemented and amended; 1
 
I (4)  SERI, pursuant to the Act and 10 C.F.R. Parts 30, 40 and 70, is licensed to receive, I
possess, and use at any time any byproduct,-
source and special nuclear material as sealed neutron sources for reactor startup, sealed sources for reactor instrumentation and radiation monitoring equipment calibration, and as fission detectors in amounts as required; (5)  SERI, pursuant to the Act and 10 C.F.R. Parts  '
30, 40 and 70, is licensed to receive, possess and use in amounts as required any
(        byproduct, source or special nuclear i
material without restriction to chemical or physical form, for sample analysis or          !
instrument calibration or associated with      ;
radioactive apparatus or components; and (6)  SERI, pursuant to the Act and 10 C.F.R. Parts 30, 40 and 70, is licensed to possess, but not separate, such byproduct and special nuclear materials as may be produced by the operation of waterford 3.
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i                                              5-Other conforming license changes are noted in the attachments to this Application. 2/  set forth below is the information in support of the Application to Amend Facility Operating License No.
NPF-38.                                                              1 i
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              ~      Conforming changes, if necessary, in insurance and indemnity
)                    agreements will be made in due course by separate correspondence.
 
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                                                  .e
(    I. GENERAL INFORMATION CONCERNING LICENSE AMENDMENT A. Proposed Additional Licensee    System Energy Resources, Inc.
B. Address:  Post office Box 23054 Jackson, Mississippi    39215                      l i
,                C. Description of Business or Occupation i
SERI is a wholly-owned subsidiary of Middle South Utilities,      {
i
(    Inc. SERI, formerly Middle South Energy, Inc. ("MSE"), was formed in 1974 to construct, finance and own base-load generating units for the operating subsidiaries of MSU. On July 22, 1986, the Boards of Directors of MSU and MSE took action to change the name of MSE to SERI and to authorize transferring to SERI all i
!          responsibility for the operation of Grand Gulf Unit 1 and i
)          construction of Grand Gulf Unit 2. This was accomplished on December 20, 1986, upon receipt of the necessary regulatory approvals.                                                                  !
1 To date, SERI's business has comprised owning and financing
]          its ninety percent ownership interest in the Grand Gulf Nuclear Station, and operating the plant. Prior to issuance of this
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license amendment, SERI will take necessary corporate action to authorize it to operate Waterford 3 and ANO 1 and ANO 2.
1 4          After approval of this requested amendment and a similar Emandment  '
I          to the operating Licenses for ANO 1 and ANO 2, SERI will be
]          responsible for the operation and maintenance of all nuclear
[
plants in the MSU System, including Waterford 3. Upon receipt of .
necessary regulatory approvals, SERI, as distinct from LP&L as the owner of the facility, will have responsibility for and control I
over the physical construction, operation, and maintenance of        i the facility.
1 l
D. Organization and Management of Operating Corporation    ;
I'                                                                        I i
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SERI is a corporation organized and existing under the laws of the State of Arkansas. Its principal office is located in        !
l l          Jackson, Mississippi. The corporation is neither owned,              I
)
controlled nor dominated by an alien, a foreign corporation, nor a  l
]         foreign government.
i                                                                              !
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I All directors and principal officers of SERI are citizens of
,                                                                                      the United States. Their names and addresses are es follows: 3/
Directors                          ,
Mr. E. A. Lupberger Chairman of the Board system Energy Resources, Inc.                          I 1
225 Baronne Street                                    '
j                                                                                                New Orleans, Louisiana  70112 1
i                                                                                                Mr. William Cavanaugh, III l
President and Chief Executive officer i
System Energy Resources, Inc.                          -
Post Office Box 23054 Jackson, MS    39215                                    ;
i Mr. D. C. Lutken                                        !
Chairman of the Board and Chief Executive officer i
Mississippi Power & Light Company
                                '                                                                P.O. Box 1640                                          !
l                                                                                                Jackson, MS 39215-1640                                  '
1 i                                                                                                Mr. J. M. Cain President and Chief Executive Officer i                                                                                                Louisiana Power & Light Company /
!                                                                                                  New Orleans Public Services, Inc.
1 Post Office Box 60340
:                                                                                                New Orleans, Louisiana    70160 I
Mr. J. L. Maulden President and Chief Executive officer Arkansas Power & Light Company Post office Box 551 Little Rock, Arkansas    72203 1
Dr. Joseph M. Hendrie j
Nuclear Engineering Consultant i                                                                                                50 Bellport Lane Bellport, How York 11713; l                                                                                              Senior Scientist, Research and i                                                                                                  Development Brookhaven National Laboratory I
J km 3                                                                                    3/  Additional directors and officers may be named at a later l                                                                                        date.
I
 
s' e'                                                                        t Officers Mr. E. A. Lupberger Chairman of the Board
,        System Energy Resources, Inc.
225 Baronne Street New Orleans, Louisiana  70112 Mr. William cavanaugh III President and Chief Executive Officer System Energy Resources, Inc.
Post office Box 23054 4
Jackson, Mississippi 39215 Mr. Glenn E. Harder Vice President - Accounting          -
4 System Energy Resources, Inc.
Post office Box 23054 Jackson, Mississippi 39215 Mr. Richard J. Landy Vice President - Human Resources      !
)
and Administration System Energy Resources, Inc.        i Post Office Box 23054
      , Jackson, Mississippi  39215 t
Mr. Oliver D. Kingsley, Jr.          l Vice President - Nuclear Operations  l System Energy Resources, Inc.        l Post Office Box 23054
,      Jackson, Mississippi  39215 1                                              :
Mr. Ted H. Cloninger                  ,
Vice President - Nuclear Engineering  I
!        and support i
System Energy Resources, Inc.        !
i Post Office Box 23056 Jackson, Mississippi 39215
]
l Mr. Dan E. Stapp Secretary 1
System Energy Resources, inc.
Fost office Box 61005 i        New Orleans, Louisiana 70161 4
I 1
 
O 10 -
Upon issuance of the operating License amendment, certain officers of LP&L will become officers of SERI. The names of these officers will be announced following approval by the SERI Board of                    l Directors.                                                                            I E.        Technical Qualifications l
The technical qualifications of SERI to carry out its                        ;
responsibilities under the operating License for Waterford 3, as amended, will meet or exceed the present technical qualifications of LP&L. LP&L will continue to act as the operator of l
Waterford 3, pending the amendment of the Operating License.          When l
the amendment becomes effective, SERI will assume responsibility
('        for, and control over, the physical construction, operation, and
                                                                                                  )
maintenance of the facility. Th3 present Waterford 3 Nuclear operations organization will be transferred essentially intact to SERI.      The technical qualifications of the proposed Waterford 3 organization therefore will be at least equivalent to those of the existing organization.
The central objectives in planning the proposed consolidation of the LP&L and SERI organizations have been to minimize disruption to the operation of the plants and to respect the integrity of the existing, successful organizations. Therefore, in the proposed consolidated SERI organization, each nuclear organization of the operating plants will b6 preserved with the
(.      only char.ge that the senior nuclear executive of LP&L and AP&L
        .    . _ .    . . .        .    -    . _ = _ .        -. .
 
Will report directly to the President and Chief Executive Officer of SERI. This organization is illustrated in Attachment 2. Thus, for Waterford 3, J. G. Dewease, Senior Vice President - Nuclear Operations, will report directly to W. Cavanaugh III, President and Chief Executive Officer of SERI. The Nuclear Quality Assurance Department for the plant will also have direct access to the President and Chief Executive Officer of SERI on matters related to quality.
This approach to the consolidation accommodates the current plant-specific structure of the LP&L and SERI organizations.      This allows the transfer of LP&L nuclear personnel to SERI with virtually no organizational changes or disruption. It also allows f
the management for each facility to retain sufficient independence to address plant-specific needs and to maintain existing priorities and ongoing plant improvement projects. Importantly, and as discussed below, there will be in the near term no organizational or physical location changes to the existing, dedicated, organization, which would include the engineering, quality assurance, and licensing organizations supporting Waterford 3.
l l
1
 
12 -
e' The significant elements and advantages to the proposed SERI organization can be summarized as follows:
(1) The structure provides clear lines of authority and responsibility while ensuring that essential nuclear functions are dedicated to each project and report to a single responsible project executive.
(2)  The effectiveness of project quality assurance will not be degraded.
(3)  The project structure will continue to provide the project execr>        e the flexibility necessary for managing
(          his resources      a schieve optimal results.      Ongoing plant improvement plans will not be impacted.
(4)  The project structure provides the flexibility necessary to adapt to different procedures and methods used at each plant. This is particularly important initially, since most project nuclear activities will be transferred essentially "as is" to SERI.
I (5)  The effectiveness of a dedicated nuclear support organization is enhanced by identity with and sharing of                              i the SERI goals and objectives.
(
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a --  -----w-v    -            -v
 
y.w The consolidation of the SERI, LP&L, and AP&L nuclear organizations will be a long-term, evolutionary process.      For the time being, and for purposes of the present application, only certain non-nuclear support functions, such as accounting and human resources, may be combined, if it appears beneficial and appropriate to do so. The licensees will continue to study possible organizational and programmatic changes to enhance objectives and to realize furtlier benefits from the ect.ablishment of SERI as the nuclear operating company for the MSU System.      Such changes will only be implemented after careful consideration.
SERI will inform NRC in advance of planned organizational changes that involve major xestrue:uring of line or nuclear support functions at its nuclear fa:ilities and that are importe t to f  plant safety. This commitment shall remain in effect until the NRC and SERI mutually agree that it is no longer required.
F. Statement of Purposes for the License Amendment 1
I The assumption of operational responsibility for Waterford 3,    ,
by SERI (along with responsibility for ANO-1, ANO-2, and Grand Gulf) will provide benefits inherent to an integrated nuclear          I operating company. Some of the expected benefits are as follows:
(1)  SERI, as an operating company for multiple reactors, will have a repository of system nuclear operating expertise and experience. Presently, there is a wealth Is              of nuclear operations talent spread throughout the MSU
 
i system. Consolidation of this talent into one company should have a synergistic effect.      The change should enhance the already high level of public safety and cost-effective operations.
i l
(2) consolidation of talent not only will result in a merger of expertise and experience for system-wide nuclear operstions support, but also will permit the specialization of expertise in certain areas that might not otherwise be developed if each of the companies continued to operate their separate facilities.
(3) SERI will be better able to provide a consistent vision for the philosophy of operation of the system nuclear units. A single company responsible for all nuclear operations in the MSU System will allow development of a consistent philosophy which will be specifically            ,
1 designed for nuclear plant operations. This focused philosophy can be used to maintain excellence in all aspects of nuclear operation.
(4) As a result of the consolidation, there will be more effective communication and use of system nuclear operating experience.      For example, th*. system-wide nuclear operating company will allow "lessons learned" to be shared promptly, efficiently, and consistently
(    among the units.
 
(5)  Certain non-nuclear support functions will become specialized and focused on the requirements of all of the System's nuclear units and will thereby be more effective.
(6) Bringing all of the MSU nuclear units under the management of one company will provide a broader base and more competitive environment for upper management candidates who are specialized in nuclear power generation. Further, SERI, in its new role, should provide an environment in which all employees continue to be motivated toward high performance. SERI, with its expanded responsibilities, will also provide greater
(      opportunity for career progression and thus greater opportunity to retain valued employees.                                                                  I i
(7) More specifically, as a result of this consolidation, salary structures, career path policies and procedures will be internally consistent. Since all of SERI's employees will be "nuclear employees", there will no longer exist any distinction in these areas between employees who support nuclear operations and those who do not. This will permit nuclear managers to focus 1
entirely upon the special needs, qualifications, and requiroments of nuclear employees. Human resource and                                                I compensation policies tailored to nuclear operations
(        will allow SERI to be competitive in the market for 1
 
4
  .                                            o skilled nuclear professionals without directly influencing, or being beund by, personnel policies and procedures governing non-nuclear related personnel.              The ability to attract superior nuclear talent and retain quality individuals once recruited will have a direct and positive impact on the quality of nuclear operations.
G. Financial Considerations As is discussed below, SERI is an "electric utility" as that term is defined by 10 C.F.R.          $ 50.2. Therefore, under 10 C.F.R.          9 50.33(f), a full financial qualifications review of this
(  application to amend the license is not necessary. By way of demonstrating that SERI is an "electric utility" and apprising the NRC of the relationships that will exist between SERI and LP&L (the facility owner) the following brief discussion is provided.
The following interrelations will be established by an opera g g ag nem_ent between LP&L and SERI:
: 1. SERI will not have any ownership interest in the Waterford 3 plant, or facilities; however, it will have overall responsibility for plant operations.          SERI wil'1 operate Waterford 3 in accordance with the operating License and shall have exclusive responsibility for
(                      making safety decisions.
 
o'
: 2. LP&L will retain certain controls over ultimate spending limits, such as the authority to direct that Waterford 3 be shut down in an orderly fashion by SERI (and in accordance with SERI's safety judgment). This retained authority will limit SERI's spending authority, but will not encumber SERI's ability to make operational safety decisions and will have no impact on safe operation of Waterford 3.                                    '
: 3. All costs for the operation, construction, maintenance, repair, decontamination and decommissioning of I
Waterford 3 incurred or accrued will be the                  i responsibility of LP&L when incurred or accrued.
Section 50.2 of 10 C.F.R. defines an "electric utility" as:
          . . . any entity that generates or distributes electricity and which recovers the cost of this electricity, either directly or indirectly, through rates established by the ent1Ly itself or by a separate regulatory authority. Investor-owned utilities, including generation and distribution subsidiaries, public utility districts, municipalities, rural electric cooperatives, and State and Federal agencies, including associations of any of the foregoing, are included within the meaning of ' electric utility. '
L
 
SERI is a generating subsidiary of MSU. It operates Grand Gulf, Unit 1, and sells power at wholesale to operating companies in the Middle South System pursuant to rates established by the Federal Energy Regulatory Commission. Upon receiving necessary regulatory approvals, it will also operate, for the benefit of their owners, Waterford 3 and ANO 1 and ANO 2 for the generation of electricity. SERI's costs of operation for Waterford 3 will be recovered from LP&L who in turn recovers such costs through retail rates established by state and city regulatory authorities and through wholesale rates established by the Federal Energy Regulatory Commission. Hence, SERI is an "electric utility" as defined in 10 C.F.R. 6 50.2.
i LP&L is subject to the rate jurisdiction of the Louisiana      l Public Service Commission, the City Council of New Orleans and the Federal Energy Regulatory Commission.      Therefore, LP&L also remains an "electric utility" and is committed to provide all funds necessary to continue safe operation of Waterford 3, to shut down Waterford 3 permanently, if necessary, and to maintain Waterford 3 in a safe condition, all in conformance with NRC regulations.
LP&L and its sources of funds will remain the same as under the present license. The operating agreement terms regarding costs, discussed above, give SERI the same financial qualifications as the present licensee, LP&L.                        i l
l g
1
 
                                          - 19 H. Antitrust Considerations MSU's plan for SERI to operate and manage Waterford 3 will not impact the existing ownership of Waterford 3 or existing entitlements to power. Further, the proposed license amendment to designate SERI as the entity authorized to possess, use and operate Waterford 3 will not alter the existing antitrust license conditions applicable to LP&L.      Those conditions will remain applicable to LP&L.      Therefore, this proposed license amendment does not require antitrust review pursuant to Section 105 of the Atomic Energy Act and 10 C.F.R. $ 2.101(e).
I. Restricted Data This Application does not contain any Restricted Data or other defense information, and it is not expected that any such information will become involved in the licensed activities.
However, in the event that such information does become involved, SERI agrees that it will appropriately safeguard such information and it will not permit any individual to have access to Restricted Data until the Office of Personnel Management shall have made an investigation and report to the NRC on the character, associations and loyalty of such individual, and the NRC shall have determined that permitting such person to have access to Restricted Data will not endanger the common defense and security.
L
 
e n
II. SPECIFIC INFORMATION REGARDING RELATED ISSUES A. Emergency Planning Upon approval of the license amendment to authorize operation of Waterford 3 by SERI, SERI will assume authority and responsibility for functions necessary to fulfill the emergency planning requirements specified in 10 C.F.R.    $ 50.47(b) and Part 50, Appendix E. No changes will be made to the present LP&L aspects of the existing Waterford 3 emergency plan.      In addition, there will be no changes to the existing Emergency Planning Organization. SERI will add organizational components to reflect its assumption of responsibility for emergency planning.
(    Transition plans will be established to ensure that support described in the existing emergency plan will be maintained throughout the transition and as needed following the transition.
Appropriate action will be taken as necessary with respect to existing agreements for support from organizations and agencies not affiliated with the licensees to reflect SERI's agency relationship with the owner and SERI's responsibility for management and operation of Waterford 3.      This will be accomplished as necessary by LP&L prior to the transfer of responsibility, k..
 
e Following the transfer of operating responsibility to SERI, emergency planning support will be provioed by LP&L as needed.                                                            In essence, to the extent that personnel, resources, and facilities are not being transferred to SERI, LP&L will continue to fulfill selected emergency planning functions. These functions have been thoroughly reviewed and the required support will be assured by an agreement between SERI and LP&L. Long-term utilization of LP&L resources in these areas will be based on cost-effectiveness and existing relationships with offsite organizations and agencies.
In sum, the proposed license amendment will not impact compliance with the emergency planning requirements. Because the effectiveness of the emergency plan will not be decreased, specific emergency plan and procedure changes will be submitted to the NRC within 30 days after the changes are made, pursuant to 10 C.F.R. $ 50.54(q) and Appendix E, Section V.
B. General Design Criterion 17 l
l l
The amendment to authorize assumption of operating                                                                                          l responsibility by SERI involves no changes in the ownership or design of the offsite power system for Waterford 3, or in its operation, maintenance or testing. Upon approval of the amendment, LP&L will continue to fulfill its current responsibilities with respect to compliance with General Design Criterion ("GDC") 17.
N.
 
GDC 17 specifically requires that there be an assured source of offsite power to the plant. Pursuant to this requirement, SERI and LP&L will maintain and implement procedures and ag'reements specifying:  (1) the arrangements for provision of a continued source of offsite power and (2) the arrangements for controlling operation, maintenance, repair, and other activities with respe:t to the Switching Station, the transmission lines and the Switchyard, such that adequate independent sources of offsite            l power will continue to be provided.                                        i I
l The term "Switching Station" applies to the station located immediately adjacent to Waterford 3.      The purpose of this station is to connect the plant to the Waterford Switchyard by means of
( two 230 kv lines.
The term "Switchyard" applies to the 230 kv switchyard closest to Waterford 3 consisting of two buses and bays connected in the typical breaker and a half scheme.
In essence, the written procedures and agreements will provide for the future interface between SERI and LP&L. First, l
LP&L has committed to providing offsite power to Waterford 3.              '
Second, the procedures and agreements will provide for the i
continuation of current arrangements for the operation and maintenance of the Switching Station, the Switchyard and associated transmission facilities.      The procedures and agreements
(
 
                                                                                      \
will also specify that LP&L will obtain approval from SERI prior to implementing any changes to the equipment in the Switching Station, which includes the unit oil circuit breakers, switching            i disconnects, transmission lines and protective relaying which are
          .directly adjacent to the Waterford 3 protected area. In addition,          '
procedures will also specify that LP&L will obtain concurrence from SERI prior to implementing any changes to the 230 kv switchyard equipment dedicated to Waterford 3.
C. Exclusion Area Upon approval of the amendment providing for assumption of operating responsibility by SERI, SERI will have authority to                ;
(    determine all activities within the Waterford 3 exclusion area,  to        I the extent required by 10 C.F.R. Part 100.                                  l As stated in Section 2.1.2 of the Waterford 3 Final Safety Analysis Report (FSAR), LP&L owns all surface rights within the exclusion area boundary of the plant. Under the operating agreement between SERI and LP&L, LP&L will agree to provide SERI with unrestricted access to the property constituting the Waterford 3 site, including the facilities, equipment, Switching l
Station and personal property located on the site. Except as l
modified below with respect to Waterford 1 and 2, SERI shall have 1
authority to exercise complete control over the exclusion area as designated in the FSAR for the plant, and to determine all
(,    activities within that area (including all areas of the
 
i .
Waterford 3 plant and the Switching Station). This authority will allow SERI to control ingress and egress and to order an evacuation if necessary. To the extent practicable, SERI will, of course, exercise this control in such a fashion that LP&L's access to the Switching Station, transmission facilities and to Waterford 1 & 2 for proper operation and maintenance of the electric systems on the Waterford site will not be unduly restricted.
Those activities associated with the operation and maintenance of the LP&L Waterford 1 & 2 fossil generating plants, which are located in the exclusion area, are unrelated to the operation of Waterford 3 and therefore will remain under the
{ control of LP&L. Written procedures and agreements will provide for the interface between SERI and LP&L to address the operation of these facilities during emergency situations.
With respect to the activities unrelated to plant operation that will occur in the exclusion area identified in Section 2.1.2 of the FSAR, there will be no change. SERI will assume responsibility for the Emergency Plan as discussed above.      In essence, there will be no changes to the Waterford 3 Emergency Plan other than the fact that it will become the responsibility of SERI.
l l
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                                                                                        )
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D. Security
{
The proposed license amendment will not impact compliance with the physical security requirements of 10 C.F.R. Part 73. Upon          ;
assumption of operating responsibility, SERI will assume ultimate responsibility for implementation of all aspects of the present            ;
security program. Appropriate action will be taken as necessary with respect to existing agreements for support from organizations and agencier not affiliated with the licensees to reflect SERI's agency relationship with the owner and SERI's responsibility for management and operation of Waterford 3.        Changes to the plans to reflect this transition will not decrease the effectiveness of the plans and will be submitted to the NRC within 30 days after the
(      changes are made, in accordance with 10 C.F.R. I 50.54(p).
E. Quality Assurance Program The proposed license amendment will not impact compliance with the quality assurance requirements of 10 C.F.R. 50, Appendix B, nor will it reduce the commitments in the NRC accepted quality assurance program description for Waterford 3. Upon assumption of operating responsibility, SERI will assume the ultimate responsibility for present functions associated with the Waterford 3 quality assurance program. The organization, function and structure of the Waterford 3 quality assurance department will          )
not be affected by this license amendment.      Changes to reflect l
this transition, which will be handled in accordance with
 
;-                                                                          1 l
l
                                            ,-                                                                          l l
10 C.F.R. 50.54(a), will not reduce the commitments in the quality  I assurance program description.
F. Final Safety Analysis Report                            !
With the exception of areas discussed in this license amendment application, the proposed license amendment will not change or invalidate information presently appearing in the Waterford 3 FSAR. Changes necessary to accommodate the proposed license amendment will be incorporated into the Wa irford 3 FSAR following NRC approval of the license amendment application, in accordance with 10 C.F.R. 50.71(e).
G. Training The proposed license amendment will not impact compliance with the operator requalification program requirements of 10 C.F.R. 50.54 and related sections, nor maintenance of the Institute of Nuclear Power Operations accreditation for licensed and non-licensed training. Upon assumption of operating responsibility for Waterford 3, SERI will assume ultimate responsibility for implementa? ion of present training progrann.
Changes to the programs to reflect this transition will not decrease the scope of the approved operator requalification        1 1
program without the specific authorization of the NRC in            l accordance with 10 C.F.R. 50.54(i).
k                                                                          l 1
 
o H. Engineering Support Currently the engineering support for Waterford 3 is provided by a dedicated engineering organization that is an integral part of the Nuclear Operations organization. Secause the existing Nuclear Operations organization at LP&L will transfer virtually intact to SERI upon approval of this license Emendment, there will be essentially no change in the engineering support provided and no change in the interface between the organizations responsible for engineering support, and maintenance and operations at              l Waterford 3. Thus there will be no degradation of the engineering    l support function and its integration with maintenance and              )
i I
operations. Af ter issuance of the license onendment, as                !
(  evolutionary changes are made to consolidate organizations within      '
SERI, we will ensure the continued integration of the engineering i
support function with the maintenance and operation function.          '
s l
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.                            .Jf. Se 28 -
III. NO SIGNIFICANT HAZARDS CONSIDERATION EVALUATION C
PURSUANT TO 10 C.F.R. 50.92 l
A. Proposed Change                                                      j The proposed amendment would revise Facility Operating License No. NPF-38 for Waterford 3 to authorize SERI to act on behalf of LP&L, with responsibility for and control over the physical construction, operation, and maintenance of the facility.
B. Background
[            SERI is a wholly-owned subsidiary of MSU.      It is presently licensed to operate Grand Gulf Unit 1, and to construct Grand Gulf Unit 2. Under the proposed amendment, SERI would assume all responsibilities for operating Waterford 3. Under the current operating license for Waterford 3, these responsibilities are now held by LP&L, which also is a wholly-owned subsidiary of MSU.
This application is being filed simultaneously with a similar application by AP&L to transfer to SERI operational responsibility for ANO.
Under the terms of the proposed amendment, the operating license for Waterford 3 would recognize SERI as the legal entity which will provide the technical and managerial resources for the
(
 
i
* t continued safe operation of the facility, and as the entity with exclusive authority to make operational safety decisiens.
The proposed license amendment involves no change in the ownership of the facility and no physical changes to the plant.
All of the current license conditions will remain in effect and the Limiting conditions for Operation, Limiting Safety System Settings, and Safety Limits specified in the Technical Specifications will remain unchanged. While the emergency plan,          l security plan, and plant operating and emergency procedures may require administrative changes to reflect SERI's role as agent for the owner and operator of Waterford 3, no changes will be made that decrease the effectiveness of these plans and procedures.
(  Similarly, while the Quality Assurance Program may require administrative changes to reflect the role of SERI, no changes will be made that reduce the commitments in the program. A transition plan will ensure an orderly transfer of existing emergency preparedness responsibilities to SERI. Written procedures and agreements maintained and implemented by SERI and LP&L will clearly ensure continued compliance with GDC 17.
Similarly, an operating agreement will ensure that SERI has authority to determine all activities within the exclusion area.          I l
The technical qualifications of SERI to carry out its responsibilities under the operating License, as amended, will meet or exceed the present technical qualifications of LP&L.      LP&L  -
(, will continue to act as the operator of Waterford 3, pending the
 
.-                                        amendmtit of the Operating License. When the snendment becomes effective, SERI will assume responsibility for, and control over, the physical construction, operation, and maintenance'of the facility. The present Waterford 3 Nuclear Operations staff will be transferred essentially intact to SERI. The technical qualifications of the SERI Waterford 3 organization therefore will be at least equivalent to those of the existing organization.
The transfer of operational responsibility for Waterford 3 from LP&L to SERI (along with the transfer from AP&L to SERI of responsibility for ANO-1 and ANO-2) will provide benefits inherent to an integrated system-wide, nuclear operating cotapany.      Some of the expected benefits are as follows:
(1)  SERI, as an operating company for multiple reactors, S'111 have a repository of system nuclear operating expertise and experience. Presently, there is a wealth of nuclear operations talent spread throughout the Middle South electric system, consolidation of this talent into one comp 3ny should have a synergistic effect. The change will enhance public safety and cost-effective operation.
(2)  consolidation of talent not only will result in a merger of expertise and experience for system-wide nuclear operational support, but also will permit the
(.
 
r-specialization of expertise in certain areas that might not otherwise be developed if each of the companies continued to operate their separate facilities.
(3) SERI will be better able to provide a consistent vision for the philosophy of operation of the system nuclear units. A single company responsible for all nuclear operations in the MSU System will allow development of a consistent philosophy which will be specifically designed for nuclear plant operations. This focused philosophy can be used to maintain excellence in all aspects of nuclear operation.
(    (4) As a result of the consolidation, there will be more effective communication and use of system nuclear operating experience. For example, the system-wide nuclear operating company will allow "lessons learned" to be shared promptly, efficiently, and consistently among the units,                                        i I
(S) Certain non-nuclear support functions will become        l specialized and focused on the requirements of all of the System's nuclear units and will thereby be more l
effective.                                              '
k.
 
t'
,1                                          (6) Bringing all of the MSU nuclear units under the
{
management of one company will provide a broader base and more competitive environment for upper management candidates who are specialized in nuclear power generation. Further, SERI, in its new role, should provide an environment in which all employees continue to be motivated toward high performance.      SERI, with its expanded responsibilities, will also provide greater opportunity for career progression and thus greater opportunity to retain valued employees.
(7) More specifically, as a result of this consolidation, salary structures, career path policies and procedures
(        vill be internally consistent.      Since a.1 of SERI's 1
employees will be "nuclear employees", there will no longer exist any distinction in these areas between employees who support nuclear operations and those who do not. This will permit nuclear managers to focus entirely upon the special needs, qualifications, and requirements of nuclear employees. Human resource and I
compensation policies tailored to nuclear operations                      I will allow SERI to be competitive in the market for skilled nuclear professionals without directly                            I influencing, or being bound by, personnel policies and procedures governing non-nuclear related personnel.      The ability to attract superior nuclear talent and retain
(.
 
    ~
l quality individuals once recruited will have a direct and positive impact on the quality of Waterford 3 operations.
C. Analysis The following discussion provides a specific analysis of the proposed change against the three standards delineated in 10 C.F.R. 5 50.92 and demonstrates that the proposed change involves no significant hazards consideration:
: 1. The proposed change will not increase the probability or consequences of an accident previously evaluated. The
{                technical qualifications of SERI will be at least equivalent to those of LP&L presently. Personnel qualifications will remain the same as those discussed in the Technical Specifications and the FSAR.
SERI presently owns and operates Grand Gulf.                The employees of LP&L and AP&L presently engaged in the operation of Waterford 3, ANO 1 and ANO 2 will become employees of SERI.              The organiv.ational structure of SERI will provide 'or clear management control and effective lines of authority and communication among the organizational units involved in the management, operation, and technical support of the facility.
N.
 
    ~
:~
As a result of the proposed amendment, there will not be physical changes to the facility, and all Limiting conditions for Operation, Limiting Safety System Settings, and Safety Limits specified in the Technical Specifications will remain unchanged. With the exception of administrative changes to reflect the role of SERI, the quality assurance program, the emergency plan, security plan, snd training program are unaffected. Operating agreements will ensure continued compliance with GDC 17 as well as SERI control over activities within the exclusion area.
Therefore, the proposed changes will not increase the k            probability or consequences of an accident previously evaluated.
: 2. The proposed amendment will not create the possibility of a new or different kind of accident from any accident previously evaluated. The design and design bases of Waterford 3 remain the same. Therefore, the current plant safety analyses remain complete and accurate in addressing the licensing basis events and analyzing plant response and consequences.
The Limiting conditions for operation, Limiting Safety System Settings, and Safety Limits are not affected by
(,          the proposed amendment. With the exception of
 
                                                      ..                                                                                  I administrative changes to reflect the role of SERI, plant procedures are unaffected.          As such, the plant conditions for which the design basis accident analyses have been performed are still valid.          Therefore, the proposed amendment cannot create the possibility of a            ;
new or different kind of accident than previously e          .ted.
                        ,  pron; > 4 c.mo adment will not involve a reduction in a  ;
b ., r : -      l it?ety. Plant safety margins are established th        --
                                      .:1 ing Conditions for operation, Limiting 7".            ;.' Stet Settings, and Safety Limits specified in tAe .'a , an ca. Specifications. Since there uill be no 1
(            change cc the physical design or operation of the plant, thSrs will be no change to any of these margins.
                      "ha pr7 posed amendment therefore will not involve a reduction in a margin of safety.
I D,  conclusion i
Based upon the analysis provided herein, the proposed amendment will not increase the probability or consequences of an accident previously evaluated, create the possibility of a new or different kind of accident from any accident previously evaluated, l
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    .'                                                            or involve a reduction in a margin of safety. Therefore, the proposed amendment meets the requirements of 10 C.F.R. 50.92(c) and does not involve a significant hazards consideration nor    ,
1 an unreviewed safety question.                                  t l
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                                          . - . _ . . _. . . . - - - _ _ _ ~
 
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ENDORSEMENT AND CONSENT LP&L, presently the sole licensee, hereby endorses and consents to t)is application filed under oath or affirmation by J. G. Dewease, Senior Vice President - Nuclear Operations of LP&L, and the proposed assumption of operating and licensing responsibilities for Waterford 3 by SERI as dascribed above.
D. Hunter Executive Vice President -      ,
(                                            Operations Louisiana Power & Light Company l l
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ACCEPTANCE SERI hereby consents to this application filed under oath or affirmation by J. G. Devease. Senior Vice President. Nuclear Operations of LP&L. and accepts the proposed assumption of operating and licensing responsibilities for Waterford 3 by SERI as described above.      Upon approval and effectiveness of the                                                !
proposed amendments. SEk1 agrees to bi bound by all applicable NRC regulations, applicable license conditions (as identified in the amended license), technical specifications, and prior licensee commitments.
j    .
r-j                                        -
Oliver D. King ley.                                  .              !
'                                                                                                                          l
,                                                      Vice President. Nuclear                                            '
Operations System Energy Resources. Inc.
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.''                  l i
l NPT-38-83 ATTAC)IMINT 1
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UNITED STATES NUCLEAR REGULATORY COMMISSION j8          }            .
naswiNGTON, O c 20155 o          /
LOUIS!ANA POWER AND LIGHT COMPANY S YMEM LNEMY RE50ullCE53AC.
DOCKET NO._30-382 WATERFORD STEAM ELECTRIC STATION, UNIT 3 FACILITY OPERATING LICENSE License No. NPF-38
: 1. The Nuclear Regulatory Comission (the Comission or the NRC) has found that:                        g A. The applica    n for license filed by the Louisiana Power and Light Company -(licc-, :) complies with the standards and requirements of the Atomic Energy Act of 1954, as. amended (the Act), and the Comission's regulations set forth in 10 CFR Chapter I, and all required notifications to other agencies or bodies have been duly made;
: 8. Construction of the Waterford Steam Electric Station, Unit 3 C                (facility), has been substantially completed in confomity with Construction Pemit No. CPPR-103 and the application as amended, the provisions of the Act, and regulations of the Comission; C. The -facility will operate in confomity with the application, as amended, the provisions of the Act, and the regulations of the Comission (except as exempted from compliance in Sections 1.1.
and2.D.below);
D. There is reasonable assurance: (i) that the activities authorized by this operating license can be conducted without endangering the health and safety of the public, and (ii) that such activities will be conducted in compliance with the Comission's regulatinns set forth in 10 CFR Chapter I (except as exemoted from compliance in Sections 1.1. and 2.D below);
SYS"YM ENtagy REspuR.ufs, De.(SER.$)4 E.      - ; .:= : :    - :r : - o;m -      - ; is technically cualified to enonce in the activities authorized by this operating license in accoroance with the Comission's regulations set forth in 10 CFR Chapter I; LP&L F. 1 i:__. .__ has satisfied the applicable provisions of 10 CFR e
i Part 140, "Financ al Protection Requirements and Indemnity Agreements *, of the Comission's regulations;
          ./
IAf ter a transfer of LPE nuclear personnel to SEU, SEU has succeeded LPE as the operator of the Waterford Steam Electric Station.
Unit 3. Consequently, SEU is authorized to act for itself and for LPE and has exclusive responsibility and control over the Physical contruction, operation and maintenance of the Qac_ilitL_
 
i l    *.                                                                                                                                                                                                    ,
i                  .                                                                                                                                                                                        l
          .                                                                                                                                                                                                4 l
(                  G. The issuance of this license will not be inimical to the comen defense and security or to the health and safety of the public; l
H. After weighing the environmental, economic, technical, and other benefits of the facility against environmental and other costs, and after considering available alternatives, the issuance of the Facility Operating License No. NPF-38, subject to the conditions for protection of the environment set forth in the Environmental Protection "lan attached as Appendix 8, is in accordance with 10 CFR Part 51 of the Comission's regulations and all applicable requirements have been satisfied; and                                                                                                                                            l
                                  !. The receipt, possession, and use of source, byproduct, and special                                                                                                  l nuclear material as authorized by this license will be in accordance                                                                                                l with the Comission's regulations in 10 CFR Parts 30, 40 and 70, except                                                                                              i that an exemption to the provisions of 10 CFR 70.24 is granted as                                                                                                    1 J
Evaluation Report. This described exernption is        inauthorized Supplemtnt            No.108 CFR under                        to the                70.24    Safety (d) and will not endanger life or property or the comon defense and security and is otherwise                                                                                                i in the public interest.
: 2.        Pursuant to approval by the Nuclear Regulatory Comission at a meeting on March 15, 1985, the license for fuel loading and low power testing,
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4 License No. NPF 26, issued on December 18, 1984, is superseded by Facility Operating License No NPF-38 hereby issued to the Louisiana Power and Light Company Tih          ?;..~,..', to read as follows:
MD SYartM Meuy Xfswecas,Dvc.,
A. This license applies to the Waterford Steam Electric Station, Unit 3, a pressurized water reactor and assnciated equipment (the facility),
owned by Louisiana Power and Light Company,'M-- "E-                                                                                                =) The facility is located on the 1 4--                                                  = '; site in St. Charles Parish,                                                  ;
Louisiana and is described i the Louisiana Power and Light Company                                                                                                  l Final Safety Analysis Report a amended, and the Environmental Report                                                                                                ,
j                                      as amended.                                                                          gfg e, B. Subject to the conditions and requirements incorporated herein, the                                                                                                :
Coseission hereby licenses:L=M;-; ^_- .._ Lipi C- ;=y (L^El-                                                                                                        '
i 1.LP&  Pursuant  h to Section 103 of the Act and 10 CFR Part 50, to bgd 4
                              ,9                possess-a - ' :--          --
r- the facility at the desionated location in St. Charles Parish, Louisiana in accordance with the procedures t,                              and limitations set forth in this license; Is '
                                      ,2h Pursuant to the Act and 10 CFR Part 70, to receive, possess, y' ggf,, andinuse            at any time special nuclear material as reactor fuel, accordance with the limitations for storage and amounts required for reactor operation, as described in the Final 4
                                                $4fety Ana ksis Report, as supplemented and amended,?                                                                                            7 --
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_          _ .          . . _ . = _
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i-INSERT 3.2 for Waterford 3 License I
                                                                                                                    \
: 2. SERI, pursuant to Section 103 of the Act and 10 CFR Part 50, to possess,            l use and operate the facility at the designated location in St. Charles Parish, Louisiana in accordance with the procedures and limitations set forth in this license:                                                              ;
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                              % ,X fursuant to the Act and 10 CFR Parts 30, 40, and 70, to receive, C                            possess, and use at any tima any byproduct, source and special nuclear material as sealed neutron sources for reactor startup, sealed sources for reactor instrumentation and radiation monitoring equipment calibration, and as fission detectors in amounts as required; y,f.            rsuant to the Act and 10 CFR Parts 30, 40, and 70, to receive, possess, and use in amounts as required any byproduct, source or special nuclear material without restriction to chemical or physical fonn, for sample analysis or instrument calibration or l
associated with radioactive apparatus or coe. anents; and                        I (s.t.      u s'uant to the Act and 10 CFR Parts 30, 40, and 70, to possess, but not separate, such byproduct and special nuclear materials as may be produced by the operation of the facility authorized herein.
C. This license shall be deemed to contain and i's subject to the conditions specified in the Comission's regulations set forth in 10 CFR Chapter I and is subject to all applicable provisions of the Act and to the rules, regulations and orders of the Comission now or hereaf ter in effect; and is subject to the additional conditions specified or incorporated below:
(                      1. Maximum Power level .-
SERT r_            b_ -is authorized to operate the facility at reactor core power levels not in excess of 3390 megawatts themal (2001 power) in accordance with the conditions specified herein and in Attachment 1 to this license. The items identified in                      i Attachment 1 to this license shall be completed as specified.                      l Attachment 1 is hereby incorporated into this license.
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: 2. Technical $ceciffeations and Environmenti;l Protection Plan                        l l
The through Technical  $pecif14ca Ar.endment No.        ions contained in Appendix A, as revised
                                                                            , and the Environmental Protection Plan M E      ' contained in Aprendix 8, are hereby incorporated in the license.
i ''-- _ :-- shall cperate the facility in accordance with the Technical Specifications and the Environmental Protection Plan.                    ,
: 3.  ' Antitrust Conditions L b l.-  % ib__ ---- shall comply eth the antitwst conditions in Appendix C to this license.
 
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                                                  .4 I
4      Broad Rance Toxie Gas Detectors (Section 2.2.1, SSED 6')
Prior licents#s artup    following all propose      the first technical    refueling outage, specifications  for  the the Bro    Range Toxic Gas Detection System for inclusion in Appendix A to this ifcense.
: 5. Initial Inservice Inspection Program (Section 6.6, SSER 5)
By June 1,1985, the licensee must submit an initial inservice                    l inspection program for staff review and approval.
: 6. Environmental Oualificatirn (Section 3.11, SSER 81 Prior to November 30, 1985, the licensee shall environmentally qualify all electrical equipment according to the provisions of 10 CFR 50.49,
: 7. A> ;al Fuel Growth (Section 4.2, SSER 5)
Prior to entering Startup (Mode 2) after each refueling, the licensee shall either provide a report that demonstrates that the existing fuel element assemblies (FEA) have sufficient available shoulder gap clearance for at least the next cycle of operation, or identify to the NRC and implement a modified FEA design that has adequate shoulder gap clearance for at least C                    the next cycle of operation. This requireeent will apply until the NRC concurs that the shculder gap clearance provided is                      ;
adequate for the design life of the fuel.
: 8. Emergency Preparedness (Section 13.3. SSER 8)                                    ,
I In the event that the NRC finds that the lack of progress                        j in completion of the procedures in the Federal Emergency                        !
Management Agency's final rule, 44 CFR Part 350, is an                            j indication that a major substantive problem exists in                            i achieving  or maintaining preparedness,                an adequate the provisions of 10 CFR state  of emergency Section 50.54(s)              (2) will apply.
        'The parenthetical notation following the title of mary license conditions denntes the section of the Safety Evaluation Report and/or its supplements wherein the license condition is discussed.
            +The license ori::inally authorized LP&L to possess, use an4 eperate
[      the facility. Consequently, certain historical references applicable to LP&L as ths "Licensee" appear in these license condhtons.
 
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: 9. Fire Protection (Section 9.5.1. SSER 8)
C        a.
Stpr h shall maintain in effect all provisions of the approved fire protection program as described in the Final Safety Analysis Report for the f acility through Amendment 36 and as approved in the SER through Suppl.:.nent 9 subject to provisions b & c below.
Sat
: b.    '' y' = === may make no change to features of the approved
                      . fire protection program which would decrease the level of fire protection in the plant wtthout prior approval of the Comission. To make such a change ^' ' = - must submit an application for license amen &nent pdguant to 10 CFR 50.90.
SER1                                              SERZ
: c. _N:    ''r==  :: may  make  changes  to features of the approved fire protection program which do not decrease the level of fire protection without prior Comission approval, provided:
(1) such changes do not otherwise involve a change in a license condition or technical specification or result in an unreviewed safety question (see 10CFR50.59).
(2)  such changes do not result in failure to complete the fire protcetion program approved by the Comission prior to license issuance.
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SERI:s          4_- shall maintain, in an auditable form, a current record of all such changes including an analysis of the effects of the change on the fire protection program and shall make such records available to NRC j                        inspectors upon request. All changes to the approved program made without prior Comission approval sna11 be
'                        reported annually to the Dirtetor of the 0ffice nf Nuclear Reactor Regulation, together with supporting antlytes.
: d. The licensee shall provide smoke detectors in the Control Room main control panels, which are installed in accordance
;                      with NFPA 72E. prior to startup following the first refueling outage.
: e. The licensee shall complete modifications resultino from i
its spurious signal analysis prior to startup following the first refueling outage, but in any case not later than June 1, 1987.
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i                <.                                                                                    .
l <* -                                                                                                                          ,
: f.        The licensee shall provide neutron flux indication at C                                          LCP-43 which is electrically independent of the control room and cable vault prior to start-up following the first refueling outage, but in any case not later than June 1, 1987.
: g.        The licer.see shall provide a continuous fire watch in the relay room at the isolation panel from initial criticality until acceptable resolution of adverse effects, if any, of
                                                            . the loss of this panel on safe shutdown.
: 10. Post-Fuel-Loading Initial Test Program (Section 14, 55ER 10)
Any changes to the Initial Test Program described in Section 14 of the FSAR made in accordance with the provisions of 10 CFR 50.59 shall be reported in accordance with 50.59(b) within ene month of such change.
: 11. Emergency Response Capabilities (Section 22. 55ER 81 SERI      5 ' h_ _- sh:11 comply with the requirements of Supplement 1 to NUREG-0737 for the conduct of a Detailed Control Room Design Review (DCRDR).        Prior to May 1, 1985, the licensee shall submit for staff review and approval the DCRDP Sumary Report, including a description of the process used in carrying out the i                                  function and task analysit performed as a part of both the DCRDR and the Procedures Generation Package efforts.
l                                          12. Reactor Coolant System (RC3) Depressurization capability (Section 5.4.3, 55ER 8) 8y June 18, 1985, the licensee shall submit the results of confirmatery tests regarding the depressurization capability of l                                                  the auxiliary pressurizer spray (APS) systas. This information j                                                    must demonstrate that the APS system can perfom the necessary
  !                                                  depressurization to meet the steam generator single-tube                  ,
rupture accident acceptance criteria ($RP 15.6.3) with loop              '
charging isolation valve failed open. Should the test results
!                                                    fail to demonstrate that the acceptance criteria are met, the licensee must provide for staff review and apprc',al, justifica-
]                                                    tion for interim operation, and a schedule for corrective                I 1
actions.
: 13. Response to Salem ATV5 Event (Section 7.2.9. 55ER A1 4
I                                                    The Itcensee shall submit responses and implement the requirements i                                                    of Generic Letter 83-28 on a schedule which is consistent with j                                                    that eiven in the licensee's letter of May 30, 1984 j
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s                                                                        7 14      Fuel Novement in the Fuel Handling Building In the' fuel haiidling building, during Modes 1-5, no more than one fuel assembly shall be outside an approved shipping container, an approved storage rack, the fuel transfer tube                    !
(including upender), the fuel elevator, or the spent fuel handling machine.
In addition to the above fuel assembly inspection / reconstitution              ,
may take place'outside of an approved storage rack, when raquired,              l provided that the inspection / reconstitution area is borated to a              1 level at or above 1720 ppa.
: 15. Qualification of Personnel (Section 13.1.3. $$ER A)
N            %e ''---Hee shall have on each shif t operators who meet the                    '
:                                      requirements described in Attachment 2. Attachment 2 is hereby l
incorporated into this license.
: 16. Operational 0A Enhancement Program IS$ER 9)                                          l The items listed below shall be completed on the schedule indicated.
('                              a. Prior to completica of Phase III of the Waterford 3
,                                            startup test program, the Itcensee shall conduct
;                                            a comprehensive audit of the Operatinnal 0A Program                        I that will include a sumary QA document of the                              !
Operational QA Program, the definition of responsibilities and interfaces, and guidance on the location of information 1                                            on QA matters at all levels of concern.
!                                      b. Prior to completion of Phase III of the Waterford 3
.                                            startup test pregram, the licensee shall supplement
!                                            its existing QA training prog-am to incorportte specific i                                            discussion of QA problems experienced during construction i                                            and how this experience applies to operational activities.
i                                      c. Prior to completion of Phase !!! of the Waterford 3 l                                            startup test program, the licensee shall address each of the recomendations in the Task Force Support Groue (TF54) Limited Scope Audit Report of LP&L Operational f)uality Assurance Program, dated December 4,1984
!                                      d. PriortocompietionofPhase!!!oftheWaterford3 I
startue test crogram, the licenset shall complete                          i I                                            corrective actions related to the 23 NRC issues as                        I
!                                            identified in the LP&L responses,                                          i i                                                                                                                      l j
l E -- --      - - _ _ _ _ _                        -
_ _ ______ _ _                                    __ l
 
      .i s'
                                                                                                        .8 -
(                                                  17. Basemat The licensee shall comely with its comitments to. perform a basemat cracking surveillance program and additional confirma-tory analyses of basemat structural strength as described in its letter of February 25, 1985. Any significant chance to this program shall be reviewed and approved by the NRC staff prior to its implementation.
D.            The facility requires an exemption from certain requirements of Appendices E and J to 10 CFR Part 50.                      These exemptions are described in the Office of Nuclear Reactor Regulation's Safety Evaluation Report, Supplement No.10 (Section 6.1.2) and Supplement No. 8 (Section 6.2.6), respectively. These exemptions are authorized by law and will not endanger life or property or the comon defense and security and are otherwise in the public interest. These exemptions are, therefore, hereby granted pursuant tt 10 CFR 50.12. With the granting of these exemptions, the facility sill operate, to the extent authorized herein, in conformity with the application, as amended, the provisions or the Act, and the ru hs and regulations of the Comission.
SSRr E.                n:    1==            shall fully implement and maintain in effect all provisions of the Comission-approved physical security, cuard training and                                                      ,
ovalification, and safeguards contingency plans including amendrents
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;                                                            rade pursuant to provisions of the Miscellaneous Amendments and                                                      l Search Requirements revisions to 10 CFR 73.55 (51 FR 27817 and 27822) and to the authority of 10 CFR 50.90 and 10 CFR 50.54(p). The plans, which contain Safeguards Inforwtion protected under 10 CFR 73.21, i                                                              are entitled: "Waterford Physical Security Plan," with revisions submitted through March 21,1988; "Waterford Security Training and Ovalification Plan," with revisions submitted through December 16, 1983; and "Waterferd Safeguards Contingercy Plan,' with revisions submitted through January 6, 1987              Changes mate in accordance with 10 CFR 73.55 shall be implemented in accordance with the schedule set forth therein.
l l                                                                                                            SERT l                                            F.            Except as otherwiss provided in th                echnical Specifications or the 1
Enviremental Protection Plan,                                  shall report any violations of the requirements contained in Sectt3n 2.C of th4 license in the following manner. Initial notification shall be made within 24 hours to the NRC Operations Center via the Emergency Notification System with written follow-up within 30 days fn accordance with the                                                    ;
;                                                          procedures described in 10 CFR 50.73 (b), (c) and (e).                                                                  l l                                                              1.P+4                                                -
l G.              n; " c:,-- shall have and maintain financial protection of such type                                                  ;
and in such amounts as the Comission shall require in accordance with                                                  !
(                                                  Section 170 of the Atomic Energy Act of 1954, as amended, to cover public liability cla as.
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  .V ,          ,
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C                H.      This license is effective as the date of issuance and shall expire at midnight on. December 18, 2024 FOR THE NUCt. EAR REGUl.ATORY COMMISSION
                                                                                                              /W k Harold R. Denton, Director Office of Nuclear Reactor Regulation
 
==Enclosures:==
: 1. Attachment 1
: 2. Attachment 2
: 3. Appendix A (Technical Specifications) (NUREG-1117) 4    Appendix 6 (Environmental Protection Plan)
: 5. Appendix C (Antitrust Conditions)
March 16,1985 Date of Issuance:
C                                                                                                                                                                                  -
i
 
MAR 1e a..
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    .                                                                    ATTACHMENT 1 WATERFORD STEAM ELECTRIC STATION C                                    OPERATING LICENSE NPF-38 This attachment identifies items which must be completed to the Comission's satisfaction prior to startup following the first refueling outage.
* Continuous, direct position indication in the control room for the containment isolation valves for instrument line penetrations 53 and 65.
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  '[                                                                                    ATTACHMENT 2
(                                  Waterford Steam Electric Station Operating 1.icense NPF-38 Operatine Staff Experience Recuirements SER1
            -ttk shall have a licensed senior operator on each shift who has had at least six months of hot operating experience on a pressurized water reactor, including              '
at least six weeks at power levels greater than 20% of full power, and who has had startup and shutdown experience. For those shifts where such an individual is not available on the plant staff, an advisor shall be provided who has had at least four years of power plant experience, including two years of nuclear plant experience, and who has had at least one year of experience on shift as a licensed senior operator at a similar type facility. Use of advisort whe__
were licensed only at the R0 level will boevaluated erra tase-ey-catQsis.
Advisors shall be trained on plant procedures, technical specfTT~ cations an'd plant systems, and shall be examined on these tootes at a level sufficient to to assure familiarity with the plant. For each shift, the remainder of the shif t crew shall be trained in the role of the advisors. Advisors, or fully trained and qualified replacements, shall be retained until the experience levels identified in the first sentence above have been achieved. The names
                                                                    .$$$tr prior to these individuals of  any  replacement      advisors    shall  be being placed on shift. The NRC shall be notifiedcertified by/at least 30 days prior to (s        the date-t#44 proposes to release the advisors f om further servi,e.
SEAI                          -
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hTF-38-83 ATTACHMENT 2 f
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                                                                                                                                                                                                                    .T ' - 3. .
b                                                                                                                                    .
PROPOSED SERI ORGANIZATION CHART i
CHAIRMAN OF THE BOARD E. A. LUP8ERGER PRESIDENT AND CHIEF EXECUTIVE OFFICER W. CAVANAUGH III I                                                !
ARKANSAS MUCLEAR                                        WATERFORD 3                                                                                                                      SUPPORT ONE                                                                                                                                                                FUNCTIONS I. G. CAMPBELL                                    J. G. DEWEASE                                    l                                  l GRAND GULF GRAND GJLF                  NUCLEAR ENGINEERING
    ,                                                                          NUCLEAR OPERATIONS                          & SUPPORT
: 0. 9. KINGSLEY, JR.                  I. H. CLONINGER F-h NOTE: QUALITY ORGANIZATIONS FOR EACH PLANT HAVE ACCESS To                                                                                                b.
PRESIDENT & CEO ON MATTERS RELATED TO QUALITY W~
Attachment 2 c_              ___. _ _ . _ _ _ _____________ - -_- _                                . - ________ -__ __ - _ _      . _ _ _ _ - _ _ - - .        _ _ - _ _ _ _ - _ _ _ _ _ - _ - _ _ - - _ - _ _ _ _ _ _ _ - -
 
i Exhobd D-3                                    ;
: l.                                                                                            .
s--
ARKANSASPUBLICSERVICECOMMIbIbN IN THE MATTER OF THE APPLICATION                    )                            .
OF ARKANSAS POWER & LIGHT COMPANY )                                    . . . .          al0N FOR AUTHORITY TO OPERATE ITS                        )
NUCLEAR GENERATING FACILITIES,                      )              DOCKET No. 9I'/ b 'N, ARKANSAS NUCLEAR ONE, UNIT 1 AND )
UNIT 2 PURSUANT TO AN OPERATING                    )
AGREEMENT WITH SYSTEM ENERGY                        )
RESOURCES, INC.
                                                                )
APPLICATION Comes Arkansas Power & Light Company (AP&L) and files herewith its Application for authority to operate and maintain              ,
its nuclear-fueled generating facilities, Arkansas Nuclear one Unit 1 (ANO-1) and Arkansas Nuclear One Unit 2 (ANO-2) pur-suant to an operating agreement with System Energy Resources, Inc. (SERI) and in support thereof statest 1.
1                          AP&L is a corporation organized and existing                                                            i l
under the laws of the State of Arkansas and is engaged in the busibassofgenerating, transmitting and distributing electri-cal power and energy as a publi:: utility as defined in Act 324 of 1935 as amended. The principal place of business of AP&L is Suite 4000, Capitol Avenue at Broadway Street, Little Roch, Arkansas.      Its asiling address .4.s P. O.                      Box 551, Little Rock, Arkansas 72203.            The articles of incorporation,                      as amended, for AP&L are on file with the Commission and are incorporated 4
herein by reference.                        Pursuant to Rule 2.03 of the Commission's Rules of Practice and Procedure, the individuals
 
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to whom notices are to be addressed and who should be shown on                                                                    !
the official service list for AP&L are Michael B. Bemis Executive Vice President - Operations Arkansas Power & Light Company P. O. Box 551 Little Rock, AR 72203 Phone                  377-3530 and Kent Foster Mitchell, Williams, Selig & Tucker 1000 Savers Federal Building Little Rock, AR 72201 Phones 638-8811 2.
The Commission has jurisdiction over AP&L and over the subject matter of this Application pursuant to Section 41 of Act 324 of 1935, the same being Ark. Code Ann, t 23-3-201.
3.
AP&L presently owns, maintains and operates two nuclear-fueled generating units on a common site, Section 28,                                                                      l Township 8 North, Range 21 West, in Pope County, near Russell-ville, Arkansas.          On October 2, 1967, this Commission entered an order in Docket No. U-2084 granting to AP&L a certificate of convenience and necessity to construct,                                                                        operate,      and maintain an 400 megawatt (nameplate) nuclear-fueled steam electric generating unit, with step-up transformer and other related facilities, at the site in Pope County.                                                                          (A copy of this order is attached as Application Exhibit A.)                                                                        on Septem-ber 16, 1970, this
!                                          Co'Amission entered an order in Docket No.
U-2286 granting to APhL a certificate of convenience and
(                              ,,      _ _ _ . _ _ _ _ _ _    _
_ _ _ _ - - _ - - - - - - ~ - - - - - - - - - - - - - - - - - -
 
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I necessity to construct, operate, and maintain a 950 megawatt l
(nameplate) nucinar-fueled steam electric generating unit, with step-up transformer and other related facilities, at the 1
site in Pope County. (A copy of this order is attached as Application Exhibit B.)
: 4.                  Pursuant to the certificates granted by this                                      I Commission, ANO-1 was c:onsttucted and placed into commercial operation in December of 1974, and ANO-2 was constructed and placed into commercial operation in March of 1980. Both units have remained in commercial operation since the date they were originally declared to ha in commercial operation and have
.              continuously provided service to AP&L's Arkansas retail customers, except for periods when the units have been out of service for required maintenance or refueling.
: 5.                  AP&L is a wholly owned subsidiary of Middle south Utilities, Inc.                                  (MSU). MSU also owns the common stock t
of bouisiana Power & Light Company (LPSL) , which is licensed
!            by the Nuclear Regulatory Commission (NRC) to possess, use and operate the Waterford steam Electric station No. 3 (Water-ford 3) near Taft, Louisiana. In addition, MsU owns the
;              common stock of SERI, an Arkansas corporation which is 1
1 licensed te possese, use and operate the Grand Gulf Nuclear i
i Station Unit 1 (Grand Gulf 1) near Port Gibson, Mississippi.                                                                    I
: 6.                    SERI, formerly Middle South Energy, Inc. (MSE),                                      l vas formed in 1974 to construct,                                      finance, and own baseload I
!                                                                                                                                              j
{                                                                            -s-                                                              l
 
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generating units.                              On July 22, 1986, the Board of Directors of MSU and MSE took action to change the name of MSE to SERI and to authorize transferring to SERI from Mississippi Power &
Light Company all responsibility for the operation of Grand i
Gulf Unit 1 which was accomplished on December 20, 1986.                                                                                    At this time SERI owns and finances its 90% ownership interest in Grand Gulf Unit 1 and operates the plant.
: 7.            For the reasons set forth above, AP&L and MSU desire that SERI become the system-wide nuclear operating a
company for the Middle South Utilities System.                                                                                          It is therefore proposed that SERI, in addition to operating Grand Gulf Unit 1, vill assume operating responsibility for, but not ownership of, ANO-1 and ANO-2.                                                                              Payment for operation of the plants will be at cost in accordance with the provisions of l
the Public Utility Molding Company Act of 1935 and the rules of the sseurities and Exchange Commission thereunder.                                                                                      SERI
;                            will' enter into a substantially identical arrangement with j
I.P&L to assume operating responsibility for, but not ownership of, Waterford 3.
The proposed assumption of operating i
responsibility will be accomplished by the operating agreement i
i                          between AP&L and SERI authorizing SERI to operate ANO-1 and i
ANO-2.          Said operating Agreement is attached hereto as
!                          Application Exhibit                                                    C.                      The assumption of operating i
]                            responsibility by SERI for ANO-1 and ANO-2 will not impact I
4 i
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                                                                  . . . - . - - _ _ - - - - - . _ - . _ . . _ _ . _ - . - _ - - - ~ . . _ _ . _ - - - _ , ,
 
    .                                                                                        l existing plant ownership or ownership or entitlements              to capacity and energy.
: 8. The technical qualifications for SERI to carry out the operating responsibility for ANO-1 and ANO-2 will meet or exceed the qualifications of AP&L.          SERI will assupe responsibility for and control over the physical construction, operation, maintenance, and licensing of the facilities. The                  l present ANO-1 and ANO-2 nuclear organizations 'will be trans-ferred essentially intact to SERI.      Therefore, the technical qualifications of the proposed ANO-1 and ANO-2 organiza%9ns will be at least equivalent to those of the existing organi-
.            zation.
: 9. As a result of the consolidation of nuclear operations into one system nuclear operating company, the proposed plan is expected to provide significant savings to                    !
AP&L's Arkansas retail customers. specifically, it is I
i                                                                                            I profacted that after a four-year implementation period, the proposed consolidation will result in annual savings in operating and maintenance expenses for AP&L through operations 4
of ANo-1 and ANO-2 of approximately $7.6 million.                  In 1
,\
addition, AP&L will realize 36% of the operating and l          maintenance savings to be achieved by sERI through J
i consolidation at Grand Gulf 1 which are expected to amount to                  {
i approximately $2.4 million per year after the four-year                          {
'                                                                                            l implementation period.            Once implementation begins,                    j l
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l the navings will build over time as each change is made.
Though implementation costs initially will reduce the benefits, not operating and maintenance savings for all of the I
units will still be approximately $45 million during the four-year implementation period.
: 10. Additionally,        the following benefits are expected to be achieved by the proposed consolidation of            I operating responsibility for System nuclear plants into SERI
: a.      SER1, es an operating compt.ny for multiple reactors, will be a repository for System nuclear operating expertise and experience.          presently, there is a wealth of nuclear operations talent spread throughout the MSU system.
consolidation of this talent into one company should have a synergistic offact.
The change will enhance the already high level of public safety and cost effective plant opere. tion.
: b.      consolidation of talent not only will result t
in a merger of axpertise and experience for system-wide                l i
nuclear operational support, but it also should permit the specialization of expertise in certain areas that might not
;        otherwise be developed if each of the companies continue to l        operate their separate facilities.
j                          c.      A single company responsible for all nuclear a
operations in the MsU system will allow development of a consistant philosophy which will be specifically desigtsed for j
l i
 
I nuclear plant operations.                                                          This focused philosophy can be used r
to maintain excellence in all aspects of nuclear operation.
: d.        As a result of the proposed consolidation, there will be more effective communication and use of sybtem nuclear operating experience.                                                                        For example, lessons learned through the operation and maintenance of the system's nuclear-fueled generating facilities will be shared promptly, efficiently, and consistently among the units.                                                                                                                                        ,
: e.          Certain non-nuclear support functions are expected to become specialized and focused on the requirements of all of the system's nuclear units and will thereby be more 4
affective.                                                                                                                                                                            '
f.
Placing all of the MSU nuclear-fueled genera-ting facilities under the management of one company will provide a broader base and more competitive environment for                                                                                                                              !
i i
senior management candidates who are specialized in nuclear                                                                                                                              '
power generation.
The proposed consolidation shoula provide l
an environment in which all employees continue to be motivated toward high performance.
SERI will provide greater oppor-tunity for career progression and thus greater opportunity to
{                      retain valued employees.
1
: g.            The proposed consolidation will permit nuclear managers to focus entirely upon the special needs,                                                                                                                                1 qualifications, and requirements allowing SERI to be competi-                                                                                                                              I l
tive in the market for skilled nuclear professionals, I                                                                                                                                                                                                                  l l
: 11. Submitted herewith in support of this Application is the prepared direct testimony of Jerry                                  L.
Maulden, President and Chief Executive Officer of Arkansas Power & Light Companyt William Cavanaugh III, President and Chief Executive Officer of SERIt Lee W. Randall, Senior Vice President    -
Finance and Administration and Chief Financial Officer of Arkansas Power & Light Company; and Robert A.
Irvin,  a partner of McKinsey & Company,                              a management consulting firm.
WHEREFORE,    AP&L respectfully prays that this Commission enter an order granting to AP&L authority to operate ANo-1 and ANO-2 through the attached operating agreement with SERI and for all other proper relief.
Respectfully submitted, ARKANSAS POWER & LIGHT COMPANY Bye
                                '                                        e      *
* MicKael B. Basis Executive Vice President -
Operations MIICHELL, WILLIAMS, SELIG & TUCKER 1000 Savers Federal Building Little    ek, Ark                      sas  72201 By      /1W Kedi Foster Attorneys for Arkansas Power & Light company
 
STATE OF ARKANSAS)
                                  )ss.                  VERIFICATION COUNTY OF PULASKI)
I,  Michael B. Banis, Executive Vice President                -
t Operations of Arkansas Power & Light Company, on oath state that I have read the foregoing Application and the statements madu therein are true and correct to the best of my knowledge and belief.
NJ          m _Y Mich'ae[B.Bemis~
SUBSCRIBED AND SWORN to before me, a Notary Public, W                                                                l on this    7 ' day of October, 1988.                                          l l
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)                                                        cha CL Ou2.              -
Notary Q lic My Commission Expires:
l l ' l-96 I              (s E A L) 1                                                                                        ,
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j CERTIFICATE OF SERVICE I,
Xent Foster, do hereby certify that a copy of the l
foregoing Application has been mailed to Attorney General Steve Clark, 4th and Center Streets, Little Rock, Arkansas 72201, this N day of October, 1988.
1 s
W Xent' Foster D
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e..  .
                        *.                                            AI.KANSA$
                        ,                                FVBLIC SERvlet Co#H18810el FREstirft                                  At a seesten of the Pubits Service                                l Lewte N. Rebaneen. Chairman                                                                                  )
Cemetesten held in its offices.                                  ;
i J. ft. Kalone. Commst e s t oner            Justice Buildtag Capitel Crounde.                                l Robert C. Dfwnie. Ceenteetener              Little Rock Ark.. October 2. 1967.                                l IN THE MATTtt W THE APFL! CAT 100( tri AREAMSAS PCWER & LICHT COHpAlff FCE h l
A GRT1 FICA 11 CF C0lfVEN1ENCE AND 3 Mt38817Y TO CCMITRUCT MAINTAIN                ji A 2 CFERAft A NUC11AR CINERATENC              J UNIT. WITH RELATED FACILITIES. ON ll 20CX1T NO. V*2004 A SITE CN A FENIN3VLA Uff0 TMt                I DAADANELLE 525tRVOIR b;CT!Dit 28 b                                                                            i TCalNIMIF g NCETH. RAN3 21 UEST. EN)                                                              *          -
FCFE CCWTY. ARKAR$ AS NEAR RUSSE 1J.*)
VIL12, ARKANSAS.                              )
ORDRR e
On September 15, 1957 Arkansas Power & Light Ceepony filed I
en applicatten seeking a certificate of senvenience and messeetty                                              I to construst and natntain and operate an 800 megawatt (n.anspiste 1
j rattag) auclear fueled generating et.atten, t;tth stepup transferters
* and related facilities and appliances, near Russellville. Pope                                                ,
3                            County. Arkasses.
Pureuent to as order of the Counteston, meetse of hearing was i
tenued and served settint the Applicattom for hearing, which was held on Septesser 29,19.1. in sh6 hearing resa of the Comtesten.
l        ,
            , .;            Jusstse Sutidt.ng. Little Reak, Askasses.
t j                                          from the evidense and tar:Leony introduced at the hearias,
,                            sat  from    other recorde and inf ormation in the Coes. aster.'s file s.
the tema.Lasten ashes she fellmeing f andtages                                                                ,
i 1
1
: 1. The Coas.se tar. het jurisdiettoo owee St.e Applicant and j                            the subject metter of sne applis stoa.                                                                        '
: 3. Arkensas Powe* s Light Compeer proposes to seastrust.
astatata &N operate en 80C megewett (nameplate rating) muelest
              **              fueled stess enestria generatLng unit, taalugtng steput transformere i                            and etSer nessesar; reisted fastltties and app 1Lanses, at a etts ettuated on a pentneuka La the Dardanelle Reserve 1r near p.uasellville-
{                            Fore County. Araensas. The major portier, of the plant ant seleted i
j f acilittee will be leactou ta 8estten 26. Twnship 8 North, kantse 21 West. Pope 7,emty, and the ette taaludes appeestaately 1100 estes                                          1 i                            ta Sestten 23 and surrounding sostiene, sa area of aush stee being meseessry for tra unit and relates f aciliates and to meet require.
f                            sente si the Atenst Energy Ceestosten. The proposed wait wi\1 be
:                            destamed ent engineered by the techtel Corporetten, which seac6M l                            the Cessen t                            ales ouverv;tse the sonstrwetten.het esployoi          for t!.te The Leopony        purpass.representad witnesses    Sechtel Corporation u111 shar the techts! Carperettaa to en espertensed sensern wisk a matarsal seratatter and has s'estraed Sad constructed a number of ela;.ar suraser ut.ata for other tiestras utt11ttee throughout the
]                            sewnsey. Tr e Ceepeny 's t'a tne s se t genere11y reviewed the spesifice.
i t&ame, sessullistes and eneretten of verteus features of the proposed j
ucat one stated that it was eavested to be st. nest offittent gener.
I attaa want se ate systee.. the Cost ant has deteistned that there is i
)            *.
l
 
Deckst U.2006        2 an esonemis advantage in using nucletar fuel es a fuel supply for the
                                          .*            proteced unit, and has made arrangemente for a four year rupply of susteer material. The Caepent is in the prosess of preparing the messess.s applicattene for filing with the Atosts .fnergy Coastesten for a construction 11 sense, operattas perett and other nessesary permits. De Ceepony witnesses teettfied that the propeeed unit was leested on the pope County este because of tae abundanse of ses1 Lag water. free the Arkasese River Dardanelle Racervetr  e euttable gee.
graphie and foundatten son 01ttese, nearby river, rett and hishus) transportation festitties, and m arby transatselon facilities of the Ceepony. gasept for about 330 acree swud by the United statie in                    '
and adjesent to the reservett, the Ceapeny has secured options for substantially all of the messesary lands and esposts to purshese er                ;
i sondeer. these lande and to obtata ether reautred essements sad permits.
l                                                                3. he Ceepany witnessee teatt!!ad that the lesatten, destrn, sepastry and general constructies of the proposed generating unit are based upon the best econosts and engineerLas deterstnations that could be .e6de by its teshe.Leat staff af ter seneuttation with retained independent esperts. Cr 5any witnesses slee teettited as to the voeults of its lead studies showing projected leads and requiremente
!                                                        et its suatesere in 1973 and thereaf ter. The requirements of the present and future sustomers of the Ceapeny are such that the son.
!                                                        etrustten of the additional generattag unit proposed La thte app 11 1
satten to usessary in order to enable the Ceepony to meet the needs I                                                        and demands of its present sad future sustomers for ever Lastessias quantities of alastris emergy.
j                                                                t. The Company, istleutag euthertsation free t.his Ceentesten.
i                                                        plass tr file en application for a construction 11 sense with the
!                                                        Atents snergy Ceestesten which euerstees rigid sentret ever sonstrus.
I                                                        tien and operating safeguarde of all nuclear tante. As seen as the i                                                        Atenas snergy Counirates licenses and approva e are obtained se
                          '  ' ,-' , , 4 j                                                      required by Federal led, the Coopeny proposes to etset sonstruction of the propeesd generettag unit. The Ceepony settmates that the
        .                                                generetLag unit, together with its stepup transformers and other mesessary fast 11ttas and app 1 Lasses v111 be ready for opetatten en er about December 31, 1972, subjsst tc possible deley in sonstrue.
stem and delivery of materials, equipment and pupp1 Lee, i                                                                S. The Campny estimates. ' hat the sonstrusties seet of the l                                                        Proteced emerettas fest11ty will be approutmately 31&C.0CO 000, i
whLak wil be inevered during the years 1947, 1963, l'.25, 1970, 1971, i
1973, and p'est. ape 1973. T1.ese seestruetten esets wait u Jin med f sa, funda generated free the Ceepony's operettene and tres the not pre.
I                                                        seede bhtsh the Ceepeay may realite from the sale et sepital eerut.
ittee which the f.espany wLil tesue in such annante and under even
;                                                        seedittene se thLe Countation and other regulatory autnertties having
,                                                        juttadianten may hereaf ter authettaa.'
j                                                                4. he feestesten finds ghet tne publia conventense and                    4 l                                                        mesessity requires that the Caepeny sesstrust, operats and metatsin                l l
the proposed C00 segerett (nameplate rating) nuclear f ueled genar*                I
{                                                        ating stetten, stepep transformere end related f ast11ttes and
;                                                        app 1 tenses, and that it to in the pubits interest that this app 11 satten be approved.
I                                                                  IT 18, 13tLkgTORE, ORDstga 13 TAT:
k Arkanese power & Light Company be, and it to bereby. granted              l
!                                                        a sortiftsste of senvenience and necesetty to soustrust. ope ra te I
and maLatata en (30 assewatt (namepiste) nuclear fueled stese i
i
 
i
                                                                              ,        ,                                                                                                                Docket U 2044 - 3 electric generiting unit, with stepup transformer and other rela.
                                                                              ,                  facilities, at its proposed site la rope County, near t'assellville, Arkansas, as generally described and specified in the recor6 of this proceeding.
he Ceepeny is directed to file with this Commission at intervels of sia (6) aanths, beginning July 1,1968, reports of the progress made in the construction of the proposed facility.
                                  **                                                                                    This order shall be in f.;11 force and effect from and af ter data of Ltr issusase.
                                                                            ;                                          er aanza cr na comisszem
                                                                            ;                                          This 2r.d day of Octobe:r,1967.
lavis'M. Robinson, Chairman
;                                                                                                                                                                                J. M. Haloma, Cesaissioner 9
Robert C. Downie, Commaissionar
* O'76-1 6 . .u ,                              Ig, 3d / c t . .-
fr:ste Castillow, Secretary
                                                                      .s                                                                    -
r  .        .4Ndi                                                                                              -
                                      . . .. 3
                          . -          ..                          w;
* i
:        .                    .u,y';
e'          %'. . N
    . _ - _ _ . _ . _ _ .            _ _ _ _ _ . _ _ . _ _ _ _ _                              _m,  _ _ _ _ _ _ . _ , , , _ , _ . _ _ _ _                  _ _ _ _ , _ _ _ , , , _ _ ___ _ _ _ _ _ _                        _ _ . _ _ _ , . - . _ - _ ,
 
..              .s  ,      ,
      .* ..5
    .        .                                                                                                      APPLICATION EXHIBIT B A'?!.?St.S TLT* TC fJ.WJ.'I Co*2 tis: ION PRESINT:                                                4t a session of the Public Service Lewis H. Robsnson, Chairman                              commission held in its offices,                                  <
Rore.*t C. Downie, Commissioner Justice Du13 ding Capitol Grounds,                                                        I Don 3. Scith, Commissioner                              Little Rock, Ark., September 3, 197C I?! THE MATTER OF THE APPLICATION CP )
1 AMX' MEAS POYER & LIGHT COMPANY POR A )                                                                                    i C T . l:FICATE OF CONVENIEMCE AND I ECES-)
f*T'.' 70 CCNSTRUCT, MAINTAIN AND OPER-)                                                                                .
A?! A NUCLEAR GE!!ERATING UNIT, EITH )                                DOCKET HG. U-2286
                ?T* .TED FACILITIES ON THE ARKAMSAS )                                                                                      :
M*.*?*.ZAR ONE CTNERATING STATION SITE, EE0.00N 2!, 70VN3 NIP S NORTH, MANCE 21 '!IST, IN PCPE COUl*TY, AMXANSAS TEAR RU33 ELL 72LLE, AMXANSAS                                    )
ORDEM Cn July 27, 1970 Arkansas Power & Lir.ht Company filed an application seeking a certificate of convenience and necessity to construct Lnd maintain and operate a 950 mofawatt nuclear fueled steam electric generating. station, with stepup transforcers and related facilities and app 11ancas, on the A
* kansas Nuclear One gen-ereting station site near Russellville, Pope Countye Arkansas.
Tarsuant to an order of -he ccamission, notice of hearing                                          *
          . was issuti and served on July 20, ' e975, settina ;he Ap;11 cation for hear 1*.0, 'vhich was held on Scotetter 3,19?C, in the hearing rou= cf tr.e Ccamission, Justice IJaldir.g. L1LLis Mcck, Arkansas Tres the evidence and testimony introduced at the hearing, and frcm other records and information in the Cc==1ss;on's files, the commission =akes the followang finc* nts:
: 1.      The Commission han jurisdiction over the Applicant and the subject natter of the application.
: 2.      Arkansas Power & Light Company prcposer to construct,                                      *
              =aintain and operate a 950 merawatt nu: lear fueled steam electric ger.erating unit, including stepup transformers and other necessary related facilities and apt.11ances on the Arkansas 1:uclear One r.en-                                                          l erating station site. This alte is it. Section 23, Towntr.ip 8 Ncrth, Rance 21 ' Jest in Pope County, Ar.tansas and is located cr. a peninsult justina cut into the Dardanelle Reservcir created by the damming of the Arkansas P.1 var by t?.e Dardtnelle Oan. The site itself cenststs pic:arate . ....". af 130*.              acres.
of a .proxir ate'.
1..e er. tire s.itTr.e L;.tunit site si' afis located the proposed in theland ap-areL is tw            ALLry      in cider to adiate otPer Pt14ted fscilities te
              =ett the
* r.as t*rea
                                    '. =trents of ths.A:n.ic *.tarav ic...1*.sion This site
:. r . .paravet ty !.1. Cd.-Aastee. 4..a ./ En ATC fre a recit.gica*
cwn: by          *-
ar.. ;wot:rs;hical att
: c. t e t s t at e s wa: s.
                                                                        .-).
11.
int. fxca.. 1r ancat 22 a:res n-et n: a e r. : : *
* t r.rcunh e a s e-ment' fre            *e scrac cf Enginet.s. ..*.+ actpany r.-s already purchas-
    ,          ad * .1 of .se lar.t. *.% thin the tresa.d4 site.
1      .?,      ?* :s ed unit it. *.1 se de::.Pr.as ar.e e ..;1                  :; ed by Le c . el C      .*et.-          ... Bechtc; . ;11 cico ;tec-re r4t arte.4 and per-fGf c o na .-                ...    *aBencr.: . ..? t h $tatect. .. s c r.t <
* 1. ' nation-ti; kr.ot tu.        saa
: t.    . .. .. t.I fire 1. .      .s :na s:me fi - !:1t a, ,*erforming
                                              . ./.a for Arh. .is l'.:1#1r C'.e .
h e
                                                            -  t      O . GD no
 
l l
        -                                                                                                                                                  l l
l Docket No. U-2286 - fase 2                                                                        1 4  The Company's witnts.a.es reviewcd the specifications, capabilities and operation of various features of the croposed unit. A cooling tower uill be added to Unit Two to prevent the discharce of larse amounta of heated water into the Reservoir and, 2; cording to company testimony, studies have indicated that the                                                                            j s=all amour.t of additional he ated water which will be discharned Will not significantly affect the temperature of the Reservoir.                                                                            j 5  The Comoany has determined and ne find that there is an economic advantage in using nuclear fuel as a fuel supply for the proposed unit. This is hectuse even though the investment for                                                                .
I a nuclear unit is considerably in excess of that required for a fosa11 fuel unit, the fuel costs are considerably lower and these lower fuel costs offset higher carrying charges on the extra in-vestment for the nuclear unit. Also, the company's witnesses were of the opinion that the long term source of energy for electrical power Generation will be from nuclear energy. The company has made arrangements for the supply of the nuclear fuel.
: 6. The site of Arkansas Nuclear One has selected for the proposed Unit Two because: It had been previously determined that this was a f, cod site from the standpoint of transportation and foundations; onif an ancremental addition to the operating staff would be required; the site was purchased with the thought in mind t hat the ultimate development kould be at least two units; many of the auxiliary facilities, such as the service building, che=1stry labs, machine shop, etc...will be available for use in connection witn the second unit; and switchyard and transmission additions will be less than would oe required at a new site.                                                                                          ,
1 7  The Company is preparing and plans to file an applica-                                                                    i tion for a construction license with the Atomic Energy Cetmission                                                                          i which exercises finid control over construction and crerating safe-cuards of all nuclear plants. As soon at the Atomic Energy Com-
                =ission 11cer.ses and approvals are obtained as required by Federal law, the Comtany proposes to start construction of the proposed                                                                            l i
generatan4 unit. The Cc pany estinates that the generating unit,                                                                            I together with its stepup transformers and other f.ecessary facili-ties and appliances will be ready for c;eration on or about Dec-etter 31. 1975, s ui,* e c t to postiole delay in construction and de-11 vary of materials, soutpment and supplies.
: 8. Very thcrough and lengthy studies have been made with renard to the effec cr. the envir:nment of this nuclear generating                                                                          i unit. T2.0 ccmpany will be required to obtain per=1ts free various state an federal a encies, including the Arkansas Pollution Con.                                                                            l trei Co=nission, ee.cre the Atomic Energy Commission will issue a censtr6ction par =1t. The ecmpany witnesses testified that they                                                                            I were satisfied that they could stat the crateria for these permits.                                                                        l 9  The location, desi n, caracity and f.eneral construction of the pre .osed generating ur.at tre Lased upon tr.e best econe=1c ar.d in31L 3erina deter inatier.1 *..".at coul0 4e : de b.y the ccmpany's t e c e.nic al staff after consuite.-;cr. v ports.      Company witnester estif.e.I.;ttasret to &*nau  incependent tr.e ras'  - Its of its ex-    acad studies showin; prc'ected loats Ar.J requirements of its customers ir.1)76 &ns thereaf t er . The : s y trer.ents of the present and future cus t omert of the ccm;&nP a'*e  . a an that the construction of the ad=
ditional r.enaratin.1 unit proper ; in this application is .iecessary to anatie the c:mnany to coat tr a t.tsd3 and derands of its present ar.4 future customers for ever it. creasing quantities of electric energy.
: 10. The cerapany entir+ 9s -hat the constru: tion cost of the propcsed ,~eneratins facility will be approximately 1152,000,000 e.
e h
                                  - - -        -                          . . . _ _ _ - - . - - . - . , . . _ - . , . - . . . . _ _ - - _ , _ -    ._-g-
 
.                  =  =
e' a=C.
    . ::=
Docket No. U-2286 - Page 3 which will be incurred duran.1 sn.i years 1970, 1971, 1972, '.973, 1974, 1975 and 1976. These en.atruction costs will be financed f.on funds generated from the c . aper.y's operations and from the not l
proceeds which the company may realize from the sale of capital se-                            l curities which the company will Assee in such amounts and under                                i such conditions as this Commission and other regulatory authorities                            j having jurisdiction may hereafter authorise.                                                    l l
: 11. The Commission fir.is that the public convenience and                            I necessity requires that the Co=cany cor.struct, operate and maintain the proposed 950 menawatt nuclear fueled steam electric generating unit, stepup transformers and related facilities and appliances,                                ,
and that it is in the public interest that this application be ap-                              1 proved.                                                                                        '
IT 23. THEREFORE, CRDERED:
Arkansas Power & Light Company be, and it is hereby, granted a cercificate of convenience and necessity to construct, cperate, and maintain a $50 megawatt nuclear fueled steam electric generating unit, witA stepup transformer and other related f acilities and ap-pliances at its proposed site which is on the site of Arkansas huelear One in Pope County.near Mussellville, Arkansas as generally described and specified in the record of this proceeding.
The Co=pany is directed to file with this Cc==ission at in-tervals .*f six (6) months,_beginnint Juiv 1 _1971, reports of                  the progress made in the construction of sne proposad facility.
                        'nis crder hall be in full force and effect from and after date of its issuance.
2Y DRDER OF THE CCM:tISSION This 16th day of September, .J70.
Lewis M. Robinson, Chairman Robert C. Downie, Cc==1ssioner Don S. Smith, Co==1ssioner s
                  $l~:r    .a  I?t..m !o's s s ~
To==ie Cassallow, Secretary                              .
O            e            .e    4S
                                                .I I
4
                                                              .                                              1 d
 
6xhibit 0-y                        :
                                                                                            )
l BEFORE THE LOUISIANA PUBLIC SERVICE COMMISSION EZ PARTE APPLICATION OF                    DOCKET NO. U-LOUISIANA POWER & LIGHT COMPANY COFCERNING AN OPERATING AGREEMENT FOR LOUISIANA POWER
        & LIGHT COMPANY'S WATERFORD STEAN ELECTRIC STATION, UNIT NO. 3.
APPLICATION NOW COMES Louisiana Power & Light company ("LP&L" or the "Cempany"] for this, its Application requesting this Commission                    l to approve an Operating Agreement between LP&L and System Energy Resources, Inc. (SERI), by which SERI would assumo the management and the operation, but not the ownership, of LP&L's Waterford Steam Electric Station, Unit No. 3 (Waterford 3), a                      .
1 nuclear-fueled electric generating station located near Taft,                      l Loululana, and in support of this Application LP&L respectfully shows as follows:
l l
l l
 
  .        y I.
LP&L is an electric public utility organized and existing undsr the laws of the State of Louisiana with its general office and principal p2 ace of business at 142 Delaronde Street, New Orleans, Louisiana 70174, and is engaged in the manufacture, generation, transmission, distribution and sale of electricity to residential, commercial, industrial and governmental consumers in forty-three (43) of the sixty-four (64) parishes of Louisiana. LP&L furnishes electric service to approximately 570.000 customers.
II.
LP&L presently owns, Panages and operates Waterford 3, which was placed into commercial operation on September 24, 1985.
LP&L is the holder of a Facility Operating License for Waterford 3, No. NPF-38, NRC Docket No. 50-382, issued by the Nuclear Regulatory Commission ("NRC") in connection with LP&L's ownerchip and operation of Waterford 3.
III.
SERI, an Arkansas corporation with its principal office in Jackson, Mississippi, is presently licensed to, and presently does, possess, use and operate Unit No. 1 of the Grand Gulf Nuclear Station (Grand Gulf 1).
IV.
          ,      Both LP&L and SERI are wholly owned subsidiaries of Middle South Utilities, Inc. ("MSU'), which also owns all of the common i 2                            l l
 
,  !                                                                    i l
stock of Arkansas Power & Light Company ("AP&L"), an electric public utility which owns and is licensed by the NRC to possess, use and operate two (2) nuclear-fueled, electric generating units, Arkansas Nuclear One ("ANO"), Units 1 ai    2, located near Russellville, Arkansas.
V.
LP&L desires to enter into an Operating Agreement by which SERI would assume operr.hional responsibility for - but not ownership of - Waterford 3 and by which SERI would be authorized to operate - but not own - Waterford 3 as LP&L'e agent. SERI wculd not furnish electric service within Louisiana as a result of this transaction.
VI.
As such, SERI, in addition to possessing, using and operating Grand Gulf Unit 1, would assume operating                  ,
l responsibility for -- but not ownership of -- Waterford 3. This  l proposed assumption of responsibility as LP&L's agent would be accomplished by an operating agreement between LP&L and SERI in the form and substance of that attached hereto and made part hereof, marked for identification herewith as Appendix 1. This assumption of operation by SERI as LP&L's agent would not alter existing ownership or entitlement to capacity or energy from Waterford 3 or plant ownership.
1 VII.                                I Concurrent herewith, SERI and AP&L will make all necessary filings with appropriate regulatory authorities concerning a 3                                  i l
 
I l
1 similar operating agreement between SERI and AP&L with respect to AP&L's ANO units.
VIII.
On July 1, 1988, LP&L filed with the NRC an Application to Amend Facility Operating License No. NPF-38 in order to effect the required regulatory approval by the NRC for the transfer of I
operation of Waterford 3 to SERI.      A copy of that filing is    l 1
attached hereto and made part hereof, marked for identification      l l
as Appendix 2.
IX.
LP&L shows that this operating agreement is not an attempt to alter the regulatory oversight of the Louisiana Public Service Commission, as is evident from the Operating Agreement (Appendix 1) and from the fact that activities in which SERI engages with respect to the plant wou d be activities conducted      l as agent for LP&L.      Further, essantially 311 of LP&L'o nuclear operations department, which presently operates Waterford 3,
                                                                                ~
will be transferred to SERI, so that there will be no erosion of the current high standard of expertise and safety presently experienced in Waterford 3's operations.
X.
The consolidation of all nuclear operations into a systemewide nuclear operating company is expected to provide
                ,    significant savings.      Specifically, it is projected that after a four-year implementation period, the proposed consolidation will result in annual savings in operating and maintenance (0&M) 4 l
l
  .- .  . _ _    . _ _ . . _ . _ . a _. ,_
I
 
r O'
1 .
expenses for LP&L through operations of Waterford 3 of approximately $6 to $8 million.      In addition, LP&L will realize savings to be achieved through consolidation at Grand Gulf Unit 1, which are expected to represent additional OsM savings to LP&L of approximately $1 million per year after the four-year implementation period, for a total annual O&H mavings for LP&L at that time of approximately $7 to $9 million.      In addition, several million dollars in annual capital reductions should be realized fror the creation of the nuclear management corpany.
Once implementation begins the savings will build over time as each change is made. Though implementation costs initially will reduce the benefits, net o&M savings for all of the units will still be approximately $45 million during the four year implementation period.
XI.
Other benefits contemplated by consolidation of the nuclear operations and management of ANo, Grand Gulf 1 and Waterford 3 in one company, which are discussed in greater detail in the testimony attached hereto, would include:
A. Elimination of the duplication in manpower and management responsibility resulting from the diverse geographical location and separate corporate management of the four (4) nuclear units involved; B. Formation of a unified repository of systsm nuclear operating expertise and experience; 5
 
C.        Economies of scale in the acquisition of materials and personnel, for nuclear operations; and D. . Assurance of the retention and attraction of highly qualified employees in the specialized field of nuclear power generation.
XII.
LP&L recognizes the commission's authority to review the rate-making impact of this transacion at. such time as that impact may become known and measurable; however, this transaction involves such a significant portion of LP&L's operational and maintenance expenses, 98% of which expenses are Louisiana Public service commission-jurisdictional for rate-making purposes, that LP&L desires to specifically seek this commission's approval of this proposed transaction at this time.
XIII.
The direct testimony of those witnesses to be presented in            j support of this application, together with the Appendices and the Exhibits of the witnesses, are attached hereto and filed herewith as part of this Application.
WHEREFORE, . Louisiana Power & Light company prays as follows:
l            1.      That this commission promptly institute proceedings related tc the foregoing Application, so that the
      ,              commission may issue an order on this matter prior to year-end 1988; 6
l                _ - - _      -_    _
O
 
I
: 2. That, after such proceedings are had, this Commission find that the operating Agreement is in the public interest and approve the foregoing Application and approve the execution by LP&L and SERI of the Operating Agreement; and
: 3. For all other orders and decrees as may be necessatry, and for all general and equitable relief that the lav and the nature of the cese may permit.
I Thomas O. Lind Vice President - Regulatory Counsel LOUISIANA POWER & LIGHT COMPANY 317 Baronne Street New Orleans, Louisiana 70112 MONROE & LEMANN J. Wayne Anderson McChord Carrico    ,
W. Glenn Burns By:  !M            MP Suite]3300~
201 St. Charlec Avenue New Orleans, Louisiana 70170-3300-Telephone:  (504) 586-1900 ATTORNEY 8 FOR APPLICANT, LOUI8IANA POWER & LIGHT COSIPANY WITNE88ES:
James M. Cain Malcolm M. McLetchie William Cavanaugh III                                                                    l Robert A. Irvin Anticipated time of presentation:    ONE DAY l
7 1
 
.                                                                              l 4
i STATE OF LOUISIANA PARISE OF ORLEANS SEELTON G. CUNNINGHAM JR. , being duly sworn, did depose and say:
That ho is the Senior Vice-President of Louisiana Power
      & Light Company, applicant in the above proceedings; that he has read the foregoing Application and that he knows the contents thereof; that the same are true as stated, except as to matters and things, if any, stated on information and belief, and that as to those matters and things, he verily believes them to be true.
                                                    $        br _ A; b. - A .l SEELTON'G. CUNNINGHAM 4R.  '/
SWORN TO          SUBSCRIBED BEFORE ME THIS              DAY OF 0 . BER, 19 8 NOTARY PUBLIC l
ROBERT E. ROUGELOT Notary Put!!c Parish of 0 ter.ns, State et Louisttna My Comm!ssten is issued for hit.
 
s  :
i 6xhibi+ 0-5 1
BEFORE THE COUNCIL OF THE CITY OF NEW ORLEANS EI PARTE APPLICATION OF                              DOCKET NO. CD                  LOUISIANA POWER & LIGHT COMPANY CONCERNING AN OPERATING
              ' AGREEMENT FOR LOUISIANA POWER
                & LIGHT COMPANY'8 WATERFORD STEAM ELECTRIC STATION, UNIT NO. 3,                                                              l 1
APPLICATION l
l NOW COMES Louisiana Power & Light Company ("LP&L" or the                            i "Company") for this, its Application requesting this Council to review an Operating Agreement between LP&L and System Energy Resources, Inc. (SERI), by which SERI would assume the management and the operation, but not the ownership, of LP&L's Waterford Steam Electric Station, Unit No. 3 [Waterford 3), a nuclear-fueled electric generating station located near Taft, Louisiana, and further requesting this Council to thereafter state its non-opposition to LP&L's entering into such Operating mi
 
                                                                          \
..                                                                        i l
1 i
Agreement, and in support of this Application LP&L respectfully shows as follows:
I.
LP&L is an electric public utility organized and existing under the laws of the Statn of Louisiana with its general office and principal place of business at 142 Delaronde Street, New Orleans, Louisiana 70174, and is engaged in the manufacture, generation, transmission, distribution and sale of electricity to aproximately 570,000 residential, commercial, industrial and governmental consumers in forty-three (43) of the sixty-four (64) parishes of Louisiana, including the Fifteenth Ward of the City of New Orleans (Algiers).
II.
LP&L presently owns, manages and operates Waterford 3, which was placed into commercial operation on September 24, 1985.      l LP&L is the holder of a Facility Operating License for Waterford l 3, No. NPF-38, NRC Docket No. 50-382, issued by the Nuclear Regulatory Commission ("NRC") in connection with LP&L's ownership and operation of Waterford 3.
III.
SERI, an Arkansas corporation with its principal office in Jackson, Mississippi, is presently licensed to, and presently does; possess, use and operate Unit No. 1 of the Grand Gulf
      . Nuclear Station (Grand Gulf 1).
I i
2 1
 
l l
1 IV.
Both LP&L and SERI are wholly owned subsidiaries of Middle South Utilities, Inc. ["HSU"), which also owns all of the connon stock of Arkansas Power & Light Company ("AP&L"), an electric public utility which owns and is licensed by the NRC to possess, use and operate two (2) nuclear-fueled, electric generating traits, Arkansas Nuclear one ("ANO"), Units 1 and 2, located near
          .3sellville, Arkansas.
V.
LP&L desires to enter into an Operating Agreement by which SERI would assume operati7nal responsibility for - but not ownership of - Waterford 3 and by which SERI would be authorized to operate - but not own - Waterford 3 as LP&L's agent. SERI would not furnish electric service within Louisiana as a result of this transaction.
VI.
As such, SERI, in addition to possessing, using and operating Grand Gulf Unit 1, would assume operating responsibility for -- but not owne ship J of -- Waterford 3. This proposed assumption of responsibility as LP&L'r agent would be accomplished by an operating agreement between LP&L and SERI in the form and substance of thhc attached hereto and made part hereof, marked for identification herewith as Appendix 1. This
      , assumption of operation by SERI as LP&L's agent would not alter 3
 
    .. 1 existing ownership or entitlement to capacity or energy from Waterford 3 or plant ownership.
VII.
Concurrent herewith, SERI and AP&L will make all necessary filings with appropriate regulatory authorities concerning a similar operating agraament between SERI and AP&L with respect to AP&L's ANO units.
VIII.
On July 1, 1988, LP&L filed with the NRC an Application to Amend Facility Operating License No. NPF-38 in order to effect the required regulatory approval by the NRC for the transfer of operation of Waterford 3 to SERI. A copy of that filing is attached hereto and made part hereof, marked for identification                !
Es Appendix 2.                                                                l l
IX.                                          !
LP&L shows that this agreement is not an attempt to alter the regulatory ovoruight of the Council, as is evident from the Operating Agreement (Appendix 1) and from the fact that activities in which SERI engages with respect to the plant would be activities conducted as agent for LP&L. Further, essentially all of LP&L's nuclear operations department, which presently operates Waterford 3, will be transferred to SERI, so that there will be no erosion of the current high standard of expertise and safety presently experienced in Waterford 3's operations.
4
 
  .                                                                        l l
l I
X.
The consolidation of all nuclear operations into a system-vide nuclear operating company is expected. to provide significant savings. Specifically, it is projet:ted that after a four-year implementation period, the proposed consolidation will    l result in annual savings in operating and maintenance (o&M) expenses for LP&L through operations of Waterford 3 of              l approximately $6 to $8 million.      LP&L will realize savings to be l achieved through consolidation at Grand Gulf Unit 1, which are expected to represent additional o&M savings to LP&L of approximately $1 millien per year after the four-year implementation period, for a total annual O&M savings for LP&L at that time of approximately $7 to SS million.      In addition,    !
New Orletins Public Service Inc. (NOPSI) will realize 17% of the savings to be achieved through consolidation at Grand Gulf Unit 1, which are expected to amount to approximately $1 million per year for NOPSI after the four-year implementation period.
In addition, several million dollars in annual capital reductions should be realized from the creation of the nuclear management company. Once implementation begins the savings will build over time as each change is made.      Though implementation costs initially will reduce the benefits, net O&M savings for        l l
5          -
l 1
 
m I
all of the units will still be approximately $45 million during the four year implementation period.
XI.
Other benefits contemplated by consolidation of the nuclear operations and management of ANO, Grand Gulf 1 and Waterford 3 in one company, which are discussed in greater detail in the testimony attached hereto, would include:
A. Elimination of the duplication in manpower and management responsibility resulting from the diverse geographical location and separate corporate management                                                          ;
of the four (4) nuclear units involved; B. Formation of a more unified repository of system nucleer operating expertise and experience; C. Economies of scale in the acquisition of materials and personnel for nuclear operations; and                                                                            .
D. Assurance of the retention and attraction of highly                                                              ;
qualified employees in the specialized field of nuclear                                                            ;
power generation.
XII.
l Hotwithstanding the fact that this transaction involves four                                                            I (4) nuclear units and savings for every operating company in the Middle South System, and the fact that the Algiers jurisdictional portion of LP&L's non-fuei nuclear O&M expenses i
6                                                                            l
 
i I
is only two (2%) percent of LP&L's total non-fuel nuclear'O&M and a much smaller percer.tage of such expenses for the entire system, LP&L recognizes the rate regulatory authority of this council and hereby seeks a statement by it of the council's non-opposition to the Operating Agreoment.
XIII.
The direct testimony of those witnesres to be presented in support of this application, together with the Appendices and the Exhibits of the witnesses, are attached hereto and filed herewith as part of this Application.
WHEREFOR 2, Louisiana Power & Light company prays as follows:
: 1. That thic council promptly instituto proceedings related to the foregoing Application, so that the council may take action on this matter prior to          1 year-end 1988;
: 2. That, after such proceedings are had, the council of    ;
the city of New oricans find that the operating          1 Agreement is in the public interest and state its non-opposition to LP&L's execution of the Operating Agreement; and 4
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l l
l l
: 3. For all other orders and decrees as may be necessary, and for all general and equitable relief that the law and the nature of the case may permit.
Thomas O. Lind Vice Fresident - Regulatory Counsel LOUISIANA POWER & LIGHT COMPANY 317 Baronne Street New Orleans, Louisiana 70112 l
MONROE & LEMANN J. Wayne Anderson l                                  McChord Carrico i
W. Glenn Burns By:  !. b  OJb1D SuitgJ '3300 201 9;. Charles Avenue New Orleans, Louisiana 70170-3300 Telephone:    (504) 586-1900 ATTORNEYS FOR APPLICANT,              i LOUISIANA POWER & LIGHT COMPANY    !
1 WITNESSES:
James M. Cain Malcolm H. McLetchie William cavanaugh III Robert A. Irvin Anticipated time of presentation:    ONE DAY 8
 
I.
I STATE OF LOUISIANA PARISE OF ORLEANS SHELTON G. CUNNINGEAN JR., being duly sworn, did depose and say:
That he is the Senior Vice-President of Louisiana Power
          & Light Company, applicant in the above procsedingst that he has read the foregoing Application and that he knows the contents thereof; that the same are true as stated, except as to matters and things, if any, stated on information and belief, and that as to those matters and things, he verily believes them to be true.
db      . m a.
SHELTON G. CUNNINGEAN'JR. Y SWORN TO          SUBSCRIBED BEFORE ME THIS    4      DAY OF 0            BER, 19 8 d
No'TARY PUBLIC ROBERT E. ROUG LOT Notary PubHc Parish v Orte:ns, Stste of Lou!slana My ComrNssbn is issued for bfe.
 
(
l 6xe+ G-3 FINANCIAL STATEMENTS SECURITIES AND EXCHANGE COMMISSION
{
WASHINGTON, D. C.
l l
SYSTEM ENERGY RESOURCES, INC.
(fume of Company)                  )
l i
l AS OF Jt;NE 30, 1988
( Unaudited)
                                                  )
Pages 1 thru 42 I
i s
0 e
O
 
                                                                                                                              . R u
of                                                                                                                            \
SYSTEM ENERGY RESOURCES. TNC.
STATEMENT OF INCOME TWELVE MONTHS ENDED JUNE 30, 1988                                            l l
(Unaudited) r                                                                                                .
l
* l Operatine      Revenues.....................................                                            $935.216 Operating Expenses:
Operation:
Fuel...............................................                                                91,713 0ther..............................................                                                97,724 Maintenance..........................................                                                  27.959    )
De precia tion a nd decommi s s i oni ng. . . . . . . . . . . . . . . . . . . . .                      92,666 Taxe s o the r than i ncome tax es . . . . . . . . . . . . . . . . . . . . . . . .                      28,802 I n c o m e t a x e s ( No t e 2 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169.051 Total.........................................                                              507,915    l l
Operating      Income.......................................                                            427.301 i
l Other Income:                                                                                                        '
Allowance for equity funds used during                                                                              I c o n s t ru c t i o n ( No t e 1 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          522    !
Miscellaneous income and deductions - net. . . ... . .. ...                                              22.140 Income taxes and credits in lieu of income t a x e s ( No t e s 1 a n d 2 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        30.807 Total.........................................
Interest and Other Charges:
53,469 l
i L o n g - t e rm d e b t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280.967 0ther-net............................................                                                    16.081 l
Allowance for borrowed funds used during                                                                            l c o n s t r u c t i o n ( fb t e 1 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      4,310    ,
To t a l . . . . . . . . . . . . . . . . . . . . . . . . . .                                  301.358 Ne t I n c o m e . . . . . . . . . . . . . . . . . . . . . . . . . ................
                                                                                      ..................            5179.412    1 See tbtes to Financial Statements e
9 9
h    O 1
l
 
          .,                                          SYSTEM ENERGY RESOURCES, INC.
BALANCE SHEET
    .                                                                JUNE 30, 1988 (Unaudited)
ASSETS Utility Plant (f;stes 1, 5 and 7):
Electric.............................................                                                  $3,347,90 Cons t ruc t i on wo rk i n progres s . . . . . . . . . . . . . . . . . . . . . . . .                        32.r,8 Nuclea r fuel under capital l eases ( Note 9) . . . . . . . . . . .                                        166 426 Total..........................................                                                  3,5 / , ,107T Less-accumula ted depreciation and amortization. .. . ...                                                    38.708 Utility plant-net..................................
                                                                                                                    'I".'47.716 3
Other Investments:
Le t te r o f c redi t e sc row ( No te 5) . . . . . . . . . . . . . . . . . . . . .                        150,723 Decommi s s i oni n g t ru s t fund ( Note 1) . . . . . . . . . . . . . . . . . .                                3.428 Total.........................................                                                      154.151 Current Assets:
Cash.................................................                                                                  192 Temporary investments-at cost, which approximates market.............................................                                                          55.165 Tota l c a s h a nd ca s h equ i va l ents . . . . . . . . . . . . . . . . . . . .                          55,357 Bondi ng t rus t a rra ngemen t ( Note 7) . . . . . . . . . . . . . . . . . . .                              185,926 Accounts receivable:
Associated companies...............................                                                        90,603 0ther..............................................                                                          4,735 Material s a nd supplies - a t average cost. .. . . . . .. . . . .                                            40,439 P r e p a ym e n t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        6,110 Unamortized fuel expense.............................                                                            1,152
'          0ther................................................                                                            5.348 Total........................................                                                    389,720 Deferred Debits:
Suspended construction project (tbte 7)..............                                                        893,296 Future benefits related to AFOC (Notes 1 and 2)......                                                        440,667 Unamortized premium on reacqui red debt. . . . . . . . . . . . . . .                                            12,011 0ther................................................                                                            6,642 To t a l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1.352,616 70TAL.............................                                    $5,244,203 See Notes to Financial Statements 2
 
1 SYSTEM ENERGY RESOURCES, INC.
BALANCE SHEET JUNE 30, 1988 (Unaudited)                                                                              i LIABILITIES Capitalization:
Common stock, no par value; authurized 1,000,000 shares; issued and outstanding 789,350 s h a r e s ( No t e 4 ) . . . . . . . . . . . . .                                      $ 789,350 Re t a i n e d e a r n i n g s ( No t e 6 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          1.445.923 Total common sha rehol de r's equi ty. . . . . . . . . . . . . . . . . . .                                  2,235,273 Lo n g - t e rm d e b t ( No t e s 3 , 5 a n d 7 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . .                2.055,346 Total................................................                                                          4.290.619 Current Liabilities:
Currently maturing long-term debt (Notes 3, 5 and                                                  7).........              320,863 Obl iga tions unde r capi tal lease ( fbte 9) . . . . . . . . . . . . . . . . . . . . .                                      166,426                -
Accounts payable:
As s o c i a t e d c omp a n i e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              1,107 0ther......................................................                                                                  46,290 Ta x e s a c c r u e d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        10,680 Interest accrued.............................................                                                                  51,660 0ther........................................................                                                                      97 Total................................................                                                            597.123 Deferred Credits:
Accumulated de ferred i ncome taxes ( Notes 1 and 2) . . . . . . . . . . . .                                                  341,195 Accumulated deferred investment tax credits (tbtes 1 and 2)..                                                                  11,689 0ther........................................................                                                                  3,577 Total................................................                                                            356,461                ,
Commitments and Contingencies (Notes 7 and 8)                                                                                                          :
T0TAL.....................................                                                  $5,244,203 I
        . See Notes to Financial Statements l
l 1
 
SYSTEM EtiERGY RESOURCES, INC.
STATEMENT OF RElAINED EARN!iGS TWELVE MONTHS E.'lDED JUNE 30, 1983 (Unaudtted)    .
Reta ined Ea rnings , Begi nning o f period ( Note 6) . . . . . . . .                  $1,266,511 Add :
Net  income...........................................                                  179,412 Retained Earnings s En d o f p e r i o d . . . . . . . . . . . . . . . . . . . . . . . $1,445,923 m
l 4
4 t
 
SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS JUNE 30,1988      -
(Unaudited)
: 1.       
 
==SUMMARY==
OF SIGNIFICANT ACCOUNTING POLICIES Organization System Energy Resources, Inc. (SERI or the Company), formerly Middle South Energy, Inc. (MSE), is a wholly-onned subsidiary of Middle South Utilities, Inc. (MSU).      The Company was created in 1974 to finance and con-struct certain base-load generating units for the operating subsidiaries of MSU. The Company is engaged in the management, operation and maintenance of, and financing of its 90'5 ownership interest in a two-unit nuclear station located near Port Gibson, Mississippi (Grand Gulf Station). generating The Grand Gulf Station is designed as two 1250 megawatt (MW) nuclear generating units.
The Company sells capacity and energy from Unit No. 1 of the Grand Gulf Station (Grand Gulf 1) to Arkansas Power & Light Company (AP&L), Louisiana Poner & Light Company (LP&L), Mississippi Poner & Light Company (MP&L) and New Orleans Public Service Inc. (N0 PSI), collectively referred to as the "System operating companies."
E On July 28, 1986, the name of MSE was changed to System Energy Resources, Inc. and, effective December 20, 1986, the Company assumed the pri-mary responsibilities, previously assigned to MP&L, for the management, opera-
{
tion and maintenance of the Grand Gulf Station. On October 28, 1986, the Company amended its bylaws to change the location of its principal business of fices from New Orleans, Louisiana to Jacken, Mississippi.
The Company and South Mi;sissippi Electric Power Association (SHEPA) own undivided onnership interests of 90% and 10%, respectively, in the Grand              -
Gulf Station. The Compary records its investment associated with the Grand Gulf Station to the extent to which it onns and participates in the generating station.
The Nuclear Regulatory Commission (NRC) issued a full poner operat-ing licease for Grand Gulf 1 on August 31, 1984. The Company had no operating              a revenues prior to commercial operation of Grand Gulf 1. This unit began com-            p mercial operation July 1,1985. Grand Gulf 2 is presently 34% complete based or the estimated man-hours needed to complete the unit, but construction on              g p.
the unit has been suspended since 1985. See Note 7 "Comitments and Contin-              G gencies - Suspended Construction Project - Grand Gulf 2".
    '            in addition to its management and operating responsibility for the Grand Gulf Station, plans were announced on May 9, 1988, for SERI to assume management and operating responsibility for AP&L's Arkansas Nuclear One                    -
  . Generating Station and LP&L's Waterford 3. Under the proposed arrangement, which must be approved by various regulatory bodies, AP&L and LP&L will retain onnership of their respective nuclear units as well as the associated energy entitlements. All necessary regulator, approvals and corporate arrangements are expected to be complete by year-end 4988.
 
  ~.
SYSTEM ENERGY RESOl,RCES, INC.
NOTES TO FINANCIAL STATFMENTS (Continued)
JUNE 30 H88 (Unaudited)
Syuems of Accounts The accounts of the Co.r.pany are maintained in accordance with the system of accounts prescribed by the Federal Energy Regulatory Commission (FERC).
Postretirement Benefits The Company participates in an MSU Svstem postretirement plan cover-ing substantially all of its employees. The dompany's policy is to fund pen-sion costs in accordance with contribution guidelines established by the Employee Retirement income Security Act of 1974 and to fund other postretire-ment plan costs as incurred.
Income Taxes The Company joins its arent and affiliates in the filing of a con-solidated Federal income tax .                  rn. Income taxes are oilocated to the Company in proportion to its con                  Jtion to the consolidated taxable income.
In addition, the Company files a onsolidated Mississippi state income tax return with certain other System ampanies. See Note 2 "Income Taxes" for more information on the Company's Inc.ome Tax expense (credit).
Allowance for Funds Used Durino Construction In accordance with the regulatory system of accounts, the Company capitalizes, as an appropriate cost of utility plant, an allowance for funds used during construction (AFOC). Under this utility industry practice, con-struction work in progress on the balance sheet is charged and the income statement is credited for the approximate Mt composite interest cost of borroned funds and for a reasonable return on the equity funds used for con-struction. This procedure is intended to removo from the income statement the ef fect of the cost of financing the cor* *                '
                                                                    '<.n program and results in treat-ing the AFOC charges in the same mar e r ,. . .:nstruction laLJr anti material costs. As non cash items, these crF - % the income statement have no effect on current cash earnings.                After tm a operty is placed in service, the AFOC charged to construction costs is recoverable from customers through depre-ciation provisions included in ratos charged for utility service. During the first half of 1985, the Company used an accrual rate for AFOC based on a return on average comon equity of 14% plu s~ actual interest cost net of related income taxes. As a result of the FERC's decision on June 13, 1985, the 14% return on common equity rate was increased to 16% effective July 1, 1985. See Note 8, "Rate and Regulatory Matters" for information with respect to a settlement which, among other things, reduced the 16% rate of return on convnon equity to 14% retroactive to July 1,198/.
 
l
                                                                                                                    \
      .                                                                                                            l SYSTEM ENERGY RESOURCES, INC.                                              l NOTES TO FINANCIAL STATEMENTS (Continued)
JUNF. 30, 1988 (Unaudited)
AFOC attributable to Grand Gulf 1 construction cea9d accruing as of July 1,1985, the com,nercial operation date of the unit.
On Septen.ber 18, 1985, the Mississippi Public Service Commission (MPSC) issued an Ordtr Directing Suspension of Construction of Grand Gulf 2, Aich directed the Company and MP&L to suspend construction of Grand Gulf 2 as of the dats of the Order. Following the issuance of the Order, the Company suspended construction of Grand Gulf 2 and ceased accruing AFOC on the unit effective September 18, 1985. (See Note 7                          "Commitments and Cor,tingencies -
Suspended Construction Project - Grand Gulf 2" and Note 8, "Rate and Regula.
2 tory Matters Rate Activity - System Operating Companies.")
Utility,_Pjant, Depreciation and Decommissioning                                                        i Utility plant is stated at original cost. The cost of additions to Nility plant includes contracted work, direct labor and materials, allocable overheads, and AFDC. The costs of unit: of property retired are removed from utility plant and such costs plus removal costs, less salvage, are charged to accumulated depreciation. Maintenance and repairs of property and the replace-
'          ment of items determined to be less than units of property are charged to operating expenses.        Substantially all of the utility plant is subject to the lien of the Company's first mortgage bond indenture.
J Depreciation on Grand Gulf 1 was being computed on the units-of-production method for the initial twelve months of commercial operation (which began July 1, 1985) and, with FERC approval, for an additional six months.
Subsequent to December 31, 1986, depreciation is being computed on the                                  '
straight-line basis. Depreciation provisions o. average depreciable property                            ;
approximated 2.85% in 1987. No depreciation was recorded in 1984                          On Oc.tober    ,
30, 1986, the Company filed an application with the FERC proposing a 3.1%                                i straight-line depreciation rate, and the FERC initiated a proceeding, to                                j determine the appropriate straight-line depreciation rate for Grand Gulf 1.                              !
Or, April 28, 1987, a settlement in principle was achieved Mich, among other things, decreased the depreciation rate in the Unit Power Sales Agreement from
;          3.10% to 2.85%, retroat tive to January 1,1987. Such settlement was approved
,          by the FERC on September 15, 1987.
The Company is cecovering approximately $1.1 million per year for le c  plant decommissioning costs for Grand Gulf 1 and will deposit these
                .5    .n an *;et;rnal fund held by a trustee. The Company was permitted by t''    S    to e': H these amounts based on studies of the estimated costs of V anint . v. Gulf 1.
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                                                                                                                    ]
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      ~
SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 30, 1988    <
j                                            (Unaudited)
Interim Financial Statements in the opinion of the Company, the accompanying unaudited financial statements, as of June 30, 1988 and for the twelve months then ended, contain
!        all adjustments (consisting only of normal recurring accruals) necessary for a fair statement of the results for the interim period presented.        The results for the interim periods presented should not necessarily be used as a basis for estimating results of operations for a full year.
l          2.        INCOME TAXES acome tax expense (credit) for the twelve months ended June 30, 1988 is composed of the following:
(in Thousands)
Current:
Federal................................      $ 65.816 Deferred -- net:
Liberalized depreciation...............        56,860 Nuclear fuel...........................        9,899 0ther..................................        5.938
.I Total..............................      72.697 Investment tax credit adjustments -
net..................................        (269)
Recorded income tax expense........ 5138.244 Charged to operations..................      $169,051 Credited to other income...............      (30,807)
Total Income Taxes................... 5138.244 Deferred income taxes are provided for differences between book and taxable income to the extent permitted by the FERC for ratemaking purposes.
AFDC is excluded for purposes of determining taxable income.
Total income taxes and credits in lieu cf income taxes differ from the amounts computed b3 applying the statutory Federal income tax rate to income before taxes. The reasons for the differences are as follows:
SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 30, 1988            -
(Unaudited)
Twelve Months Ended June 30. 1988
                                                                                                % of Pre-Tax Amount        income (In Thousands)
Computed at statutory rate. . . . . . . . . . . . . .  $118,012        37.15 Reductions in tax resulting from:
Deprec.iation..........................                11,758        3.70 State income taxes net of Federal income tax expense..................                  5,791          1,82 0ther.................................                  2.683          .85 Total Income Taxes..................              5138.244        M The statutory rate of 37.15% is a blended rate, reflecting six months of income at a 40% federal rate and six months of income at a 34%
federal rate. This is due to the reductions provided by the Tax Reform Act of 1986.
Tha balance sheet account described as "future benefits related to AFOC" represents the tax benefits of the Company's portion of the consolidated            ;
Federal tax losses that are expected to be realized during the loss carry-forward period. Such benefits are paid to the Company when realized in the consolidated return of MSU or are realized as reductions of income tax liabili-ties arising from the commercial operatien of Grand Gulf 1. If not utilized to offset consolidated Federal taxable income, future benefits related to AFOC will expire in 1993 through 2000.
l Investment tax credits allocated to the Company have been deferred and those relating to Grand Gulf 1 are being amortized based upon the average useful life of the related property.                Unused investment tax credits at    ;
December 31, 1987 amounted to $137.9 million af ter the 35% reduction required i
by the Tax Reform Act of 1986. These credits may be applied against Federal income tax liabilities in future years.          If not used, they will expire in 1992 through 2001.
The Alternative Minimum Tax (AMT) credit at December 31, 1987 was
            $1.3 million. This AMT credit can be carried forward indefinitely and will reduce regular income tax in the future.
In December 1987 the Financial Accounting Standards Board (FASC) issued Statement of Financial Accounting Standards (SFAS) No. 96, Accounting for Income Taxes, which is effective for years beginning after December 15, 1988. Under the liability method adopted by SFAS No. 96, deferred tax l
l                                                                                                  . - - _      --
 
    ?
SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 30, 1988    .
(Unaudited) 4 balances will be based on enacted tax laws at tax rates that are expected to        ,
be in effect when the temporary differences reverse. SFAS No. 96 expands the requirement to record deferred income taxes for all temporary differences that are reported in one year for financial reporting purposes and a different year for tax purposes. This will require the recognition of deferred tax balances for certain items not previously reflected in the financial statements, such as a deferred tax liability relating to AFDC.          Under the liability method adopted by SFAS No. 96, deferred for balances will be based on enacted tax laws at tax rates that ve expected te be in effect when the temporary dif fer-ences reverse.
It is expected t,at reductions in deferred taxes resulting from the      t loner corporate federal ti.x rates will be reflected as liabilities to custo-mers since the Company's regulator may require any such savings to be passed on to the ratepayers. The impact of SFAS No. 96 on the financial position or
;                  results of operations of the Company has not yet been determined.
: 3.      LINES OF CREDIT AND RELATED BORROWINGS i
j                            The Company and a group of domestic commercial banks, with
;                  Manufacturers Hanover Trust Company and Citibank, N.A., as co-agents, are
;                parties to the U.S. Bank loan Agreement which provided SERI with $1,711 million for use in connection with the construction of the Grand Gulf Station.
The U.S. Bank Loan Agreement presently provides for a term loan due February        f 5,1989, subject to semi-annual mandatory payments of $125 million due on the first day of each March and September. A portion of these semi-annual pay-          l ments will be applied to an escrow account for the benefit of certain parties      i to the U.S. Bank Loan Agreement (LC Banks) which provided a 'etter of credit
]                  in connection with Series C of the Claiborne Count fixed rate Pollution Control Revenue Bonds (PCRB's)y, Tbc Mississippi adjustable outstanding  balance/ !
under the U.S. Bank Loan Agreement (not including requiJed escrow payments through maturity of approximately $83.9 million, as further described below)        i at June 30, 1988 was $164.8 million.        On September 1, 1988, SERI made its    !
scheduled principal payment of $125 million.                                        l l
i SERI and a group of foreign banks, with Credit Suisse First Boston        l Limited, as agent, are parties to the Foreign Bank Loan Agreement which              I provided SERI with $378 million for use in connection with the construction of the Grand Gulf Station. The Foreign Bank Loan Agreement presently provides for d term loan due February 5,1989, subject to semi-annual principal paynents of
                  $47.25 million to be made on February 5 and August 5 of each year. Tne out-standing balance under the Foreign Bank Loan Agree ent at June 30, 1988 was
                  $79.5 million. On August 5,1988, SERI made its scheduled principal install-
  !                ment payment of $47.25 million.
I
 
l SYSTE". ChERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 30, 1988 (Unaudited) l With the consent of the U.S. and Foreign Banks, SERI deferred the      !
September 1937 payment to the U.S. Banks and the August 1987 g syment to the foreign Banks, which payments were subsequently made in November 1987, in connection with these deferrals, SERI agreed not to pay any dividends on its common stock to MSU until all loans outstanding under the U.S. and Foreign Bank Loan Agreements are fully paid, the scheduled final maturities under          i
;          these agreements being in February 1989. Certain mandatory prepayment provi-sions of the U.S. and Foreign Bank Loan Agreements provide that banks holding not less than certain specified percentages of the inoebtedness under the applicable Agreement can require prepayment of the applicable loans if, among other things,      (i) any System operating company should fail to maintain acceptable retail rate relief from its respctive state or local regulatory 1          authorities recognizing as legitimate operating expenses FERC-approved costs relating to Grand Gulf 1, (ii) Grand Gulf 1 is shut down for 90 continuous days for any reason other than fuel loading and maintenance customary or common in the nuclear utility industry, o:- (iii) a law, rule, order or similar i          process is issued and unstayed and has the effect, in the reasonable judgment of banks holding a specified percentage of the applicable outstanding
;i          borrowings,      of making continued comercial        operation of Grand Gulf 1
!          impractical.      Upon the occurrence of any of the events described above, SERI i
would attempt to either obtain waivers, restructure the febt or negotiate other arrangements with the U.S. and Foreign Banks to avoid such a prepayment,      ,
i if it is so requested.        The Foreign Bank Loan Agreement also limits SERI to  '
capital expenditures not to exceed $40 million for each of the first six months and last six months of any fiscal year plus any amounts required to be expended by regulatory authorities.          Unless waived, this restriction would preclude re:umption of full construction of Grand Gulf 2 prior to 1989.
J                      In December 1984, SERI arranged for the issuance and sale of $?O6      l
!          million of Series C PCRBs. In connection therewith, the LC Banks provided a        L i
            $234 million letter of credit under a Reimbursement Agreement with SER1, and, from the net proceeds of the sale of the Series C PCRBs and other funds, in        I 4
August 1?B5, SERI repaid $234 million of the borrowings made from the LC Banks
;          under the U.S. Bank Loan Agreement.          The U.S. Bank Loan Agreement provides !
;          that future repayments to the LC Banks will be applied to reduce SERi's remain-    '
ing borrowings from them under such agreement, and that, once those borrowings have been repaid, the portion of subsequent repayments under the U.S. Bank          )
Loan Agreement allocable to the LC Banks will be placed in an escrow account        i 1          and credited pro rata in accordance with each LC Bank's original loan under the U.S. Bank 1.oan Agreement.      In the event the Reimbursement Agreement    j t          associated with the Series C PCRBs is tenninated, the escrowed funds, under certain circumstances, would be retained by the LC Banks to satisfy SERI's 1      .
liability for their providing the letter of credit or, otherwise, would 'be
}      ,  applied to the reduction of the outstanding balance under the U.S. Bank Loan j          Agreement.
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i 11 1
 
_ . - . _        = .          .. = _ -___            _  - .    . - . -
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!                                                    SYSTEM ENERGY RESOURCES, INC.
l NOTES TO FINANCIAL STATEMENTS -(Continue.1) i                                                              JUNE 30, 1988
)                                                              (Unaudited)
SERI is entitled to replace the existing letter of credit with a new                  ;
one at any time or, upon any "fixed rate dete", to terminate the letter of                          ;
credit by suspending its obligation to repurchase the Series C 2CRBs.                          The  !
next such date occurs December 1, 1988.                      Other fixed rate dates occur annually thereafter.
l The Company has separate "interest rate swap" ag*eements, each with                  i a bank, through February 1989 for $78.75 million and $63 million. The Company                      t has agreed to make semi-annual interest payments based upon an 11.5% and 11.16% fixed rate, respectively, in exchange for semi-annual interest payments by the banks based upon the London Interbank Offered Rate (LIBOR).                            These agreements serve to offset fluctuations in variable rates to be paid under the i'
j                Company's Foreign Bank Loan Agreement.                  They do not change the Company's obli-gations to the Foreign Banks for interest payn.ents of LIBOR plus 2%.
4 The Compan) is subject to limitations on the maximum amount of short-                ;
term borrowings outs: anding under both the Public Utility Holding Company Act
,                of 1935 and the terms of its bank loan acreements. The Company is currently
,                authorized by the SEC to effect short-ter.n borrowings in an aggregate amount j                outstanding at any one time of up to 10% of its capitalization as defined.
Honever, the Company's ability to borrow is subject to the availability of I
funds through bank lines and other credit sources.                      The Company is limited by j                certain of its credit ag reement's to short-term borrowings in an aggregate                          !
amount not exceeding the lesser of 5 percent of capitalization (approximately l                $232.3 million at June 30, 1988) or $200 million.                        The Company does not have  j l                any bank lines of credit currently available.                                                        l t
Additional authorized borrowings of the Company up to the authorized                  l amount can be ef fected through the System Money Pool (Money Pool), subject to j                the availability of funds which at any particular time may be limited.                          The i                Money Pool provides the means whereby Middle South System companies with avail-                      .
!                able funds can lend such funds to other participating companies in the System                        l
;                (other than MSU) having short-term borrowing needs, thereby reducing tne                            !
l                System's dependence upon external short-term borrowings.                        At June 30, 1988,  '
]                the funds available in the Money Pool for borrowing aggregated approximately                        l 4
                  $179.3 million, with System Money Pool borrowings of $18 7 million outstanding                      l l                at that date. Pursuant to its bank lean agreements, SERI is perinitted to lend                        ,
i an aggregate amount of u) to $10 million through the Money Pool. Prior to                              !
l                1987, the Company partienpated only as a lenAr/ investor with certain other                          l
      ,          companies of the Middle South System in the Money Pool. Effective January 1                            !
1937      the Mon 9y Pool arrangement was amended to allow the Compan) to borrow                      l i
funds, subject to it< maximum authorized leve' cf short-term borrowings and
    .            li.itations in its bank loan agreements.
1
(
 
SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 30. 1988      .
(Unaudited)
The short term borrowings (excluding Money Pool borrowings) and the interest rates    (dete mined by dividing applicable interest expense by the average amount borrowad) for the Company were at follows:
Twelve months ended June 30, 1988:                    (In Thousands)
Average borrowing..................    ....              $ 90,274 Maximum borrowing..................    ...              $158,000 Year-end borrowing..................    ...              $    -
Average interest rate:
During period........................
At end of                                                  9.69%
period.....................                      -
: 4.        COMMON STOCK There were no changes in the number of shares of the Company's comon stock during the tnelve months ended June 30, 1988.
: 5.        LONG-TERM DEBT The long-tere debt of the Company as of June 30, 1988 was as First Mortgage Bonds:                                  (In Thousands)
Oue 2000. 16.00%  Series.....................
Oue 2000, 15 3/8% Series..........                      $ 300,001 Oue 2000, 11% Series.........................              100,000 Due 1991, 9 7/8% Series.....................              300,000 Oue 1996, 10 1/24 Series..................
                                                                  ..  .      300,000 Oue 2016, 11 3/8%                                          250,000 Series....................
Oue 1994, 14.00% Series...............
                                                                      .      200,000 Oue 1992, 14.34% Series.....................              200,000
                                                                .....          100.000 Total...................... .....            1;750.000 Bank Notes:
U. S. bank line -
Due 1988-1989, at 110% of the sum of                              I prime and Foreign bank1.3%............................
line -                                      164,760  i Due 1988-1989, at LIBOR plus 2% ..........                79.500 l
    ,                          Tota 1............................            244,260 l
1 l
!                                                                                                      l
    .                                                                                                  1 SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)                        l JUNE 30, 1988        -                            '
(Unaudited)
Pollution Control Revenue Bonds:
Claiborne County. Mississippi-
,                                Oue 2013, at 7% adjustable / fixed rate.....          49,500            !
Due 2014, at 5.5% adjustable / fixed rate...          27,100            l
+
Due 2014, at 8.25% adjustable / fixed rate..        206,000            '
Oue 2015, at 12.5%........................            44,000            :
4 Due 2016, at 9.50%........................            90,000            !
Total............................        416,600 Unamortized discount on debt..................          (34,65,1)          !
l Total long term      debt............. 2,376,209            ;
l Less-Amount due within one year .        320,863 Long-Term Debt Excluding Acount                              !
l                                          Oue Within One Year............      12.055.346            <
The PCRB's due 2015 at 12.50% and those dus 2.s16 at 9.50% are col-lateralized by 547.2 million and 595.6 million. respectively, of non-interest j          bearing first mortgage bonds. The PCRB'r due 2013 currently at 7.00.4 (Series l            A). those due 2014 currently at 5.5% (Series B), and those due 2014 currently              ,
at  2. 25% (Series C) are secured by letters of credit which terminate in                  i December 1988, June 1989, and December 1989, respectively.                    See Note 7,  l "Commitments and Contingencies - Capital Requirements and Financing."                      l i                                                                                                      :
Sinking fund requirements and maturities for the ensuring five years        !
l for the Company's long-term debt were as follows:
l                                                      June 30, 1988
  !                                                _ Cash j                                                  Sinking
;                                                    Fund        Maturities
* j                                                    (in Thousands)
Remainder of 1988. . . . .          -        5130,088
  ;                  1989..................        553,500        5114,174 l                  1990..................        553,500            -
l                  1991..................        568,500        $300,000 j          ,
1992..................        568,500        5100,000 i
j        '
* Excludes remaining requirements for escrow payments of $126.0 million through            ;
1989 for the benefit of the LC Banks.                                                        '
I i
1 i
1                                                                                                        1
  !                                                                                                      l l                                                                                                    l d
j l
 
l SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 30, 1988                                                ,
3                                                                                                                (Unaudited)                                                                          ,
                                                                                                                                                                                                    \
i Substantially all of the Company's utility plant is subject to the                                                                                              ;
lien of its first mortgage cond indenture.                                                                                                                                  !
: 6.          RETAINED EARNINGS The provisions of certain of the Company's financing agreements and
~
its first mortgage bond indenture restrict the amount of retained earnings
)                        available for cash dividends on ' mon stock. Additionally, in connection with certain deferrals in 1987 -                                                                                            scheduled payments under the Foreign and U.S. Bank Loan Agreements, the Company agreed not to declare or pay any divi-                                                                                              ,
dends on common stock until all loans outstanding under these Agreements are                                                                                              l fully paid, the final maturities being in February 1989,                                                                                                                    i l                                    After these final maturities are paid the Company would continue to be limited in the payment of cash dividends on commo. stock by provisions of the Reimbursement Agreements for its Series A and B Pollution Control Revenue                                                                                              !
Bonds. Under these agreements, the Company is presently limited in the amount                                                                                            ;
of dividends it may pay on its capital stock (other than dividends payable                                                                                                  '
solely in shares of common stock and dividends payable in cash where, concur-rently, the Company receives a capital contribution or sells shares of its common stock) to an amount equal to its accumulated net income for the peritd i                      July 1, 1985 to the date of the payment. This amount was approximately $584.4                                                                                                >
million as of June 30, 1988. The Company has paid no dividends on its capital stock to date.                                                                                                                                                            j
;                          7.        COMMITMENTS AND CONTINGENCIES i                                                                                                                                                                                                  i General                                                                                                                                                                    l On June 24, 1988, the United States Supreme Court rendered a deci-                                                                                            I
,                        sion (June 24 Decision) that is fundamentally important to the continuing                                                                                                    -
viability of SERI as a wholesale seller of power to the System operating com-panies. In the June 24 Decision, the United States Supreme Court af firmed                                                                                              ,
I MP&L's right to recover its Grand Gulf 1 - related costs and upheld the princi-J ple of federal preomption which is necessary to serve implementation of SERI's 3
federally mandated wholesale rates through the retail rate structures of the System operating companies. For further informatics on the June 24 Decision, I
see Note 8, "Rate Matters - System Operating Companies Rate Matters - MP&L and Supreme Court Litigation."
l Notwithstanding the very f:,vorable development represented by the
;                        June 24 Decision described above, at June 30, 1988, a number of significant 1                        uncertainties continued to confront SERI, either directly, or indirectly j
through potentially adverse effects upon the ability of the System operating companies, the Company's only customers, to continue to make monthly payments
)                        to the Company for Grand Gulf I capacity and energy. These uncertainties 4
 
_~      .        _                    -  .          .
i SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 30, 1988      <
(Unaudited) i rel .a to (1) the potential adverse impact on SERI if certain findings stem-ming from a FERC audit of SERI and the Grand Gulf Station are ultimately sustained, (2) the ultimate resolution of the status of Grand Gulf 2, construc.
tion of which has been suspended, including related accounting and rate
  !                  issues, (3) the continuing controversies over the rate treatment of Grand Gulf i                  1, including a $135 million pi idence disallowance with respect to N0 PSI and, as a consequence, the potential obligation of NOP 1 to purchase all or a por-j                    tion of its outstanding General & Refunding Mortgage Bonds (G&R Bonds), and          '
a                    (4) the outcome of the Council's consideration of the municipalization of NOPSI's electric and gas properties and operations.          A discussior, of some of l                these issues and uncertainties immediately folicws.
FERC Audit of SERI The FERC has performed an audh of the Company and the Grand Gulf Station as part of its regulatory function in auditing utilities subject to its jurisdiction.        The audit report, which pertains to the period f rom the Company's inception through December 31, 1985, was issued on June 18, 1987.
In the report (as updated by FERC Staff testimony), the FEPC Staff states, 1                  among other things, that the Grand Gulf Station's AFOC is overstated by $130.4
)                  million ($101.7 million relating to Grand Gulf 1 and $28.7 million relating to i
Grand Gulf 2) because the "AFOC calculation failed to take into account all            .
cost-free capital generated by the Company expenditures and claimed on consoli-        l s
dated income tax returns". The FERC Staff recommends that the Company change          t its income tax accounting procedures and record an ac:ounting entry to charge i
  )
the alleged AFOC overstatement arising from the Company's alleged incorrect            ;
accounting against net income, recompute billings to customers since July 1,          .
1985 to reflect adjusted plant and equity balances, and refund, with interest,        '
i                the difference between the .*ecomputed billings and amounts previously charged
;                  custcmers.        Further, the FERC Staff recommends that $327.2 million of            -
                    "Recoverable Taxes" representing a significant portion of the Company's unrealized recorded income tax benefits, should be reclassified to "Accounts Receivable From Associated Ccmpanies", the net effect of which would be a
                    $255.2 million reduction of Gr:nd Gulf l's rate base on which the Company earns a refund. The Staf f recommends that the Company refund, with interest, the change in billings since July 1, 1985 due to this rate base reduction.            ,
The Company has strongly disagr?ed with the Staff's position, assert-l                ing that the Staff's position is in violation of the SEC's tax allocation                )
regulations applicable to holding company systems and contrary to the FERC's t
own accounting rules. Various parties, including the Arkansas Public Service Commission, Louisiana Public Service Comission, Mississippi Public Service Commission, and the New Orleans City Council (the Council), have intervened in this proceeding.        A hearing was held on October 4, 1988.          The matter is j
pending,
)                                                                      !
l      . __ -- -- -                            _ -.        - - - _ -                      _-        ---
 
S. STEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 30, 1988                  -
(Unaudited)                                        i If the Staff's findings are ultimately sustained, the resulting            !
charges against net income and refund requirements would have a significant i                                                            material adverse impact on the Company.        The Company estimates that as of June
:                                                          30, 1988, the impact on net income could be as high as $291 million (net of tax effect), cnd the Company could be obligated to refund $267 million, includ-ing interest, to its customers.      la addition, the Staff's proposed adjustments      :
;{                                                          would adversely impact the Company's prospective net income, earnings cover-l                                                            ages and cash flow. The Company cannot predict the ultimate outcome of the
,                                                            examination.
f i                                                            Suspended Construction Project - Grand Gulf 2 As of June 30, 1988, the Company had invested approximately $893 million in Grand Gulf 2 (including approximately $393 million of AFDC). In September 1985, following an order of the NPSC, the Company suspended construc-tion activities at Grand Gulf 2 which was approximately 34 complete based on            '
the estimated man-hours needed to complete the unit, and ceased accruing AFDC on the unit.      Since that time, the Company has limited expenditures to only 1
those activities which are absolutely necessary for suspension and demobili-zation of the unit. A special group of Middle South System officials and outside consultants completed in late November 1986 its evaluation and review 4
of Grand Gulf 2. In December 19o6, the Company's Board of Directors (with the
'                                                            MSU Board of Directors concurring) adopted the group's recommendation that              ,
suspension of construction be continued and that a further decision be made by          ;
1990 on the future status of Grand Gulf 2 in light of alternatives available            ;
at that time. During the period of suspension, the energy needs of the region            r served by the Middle South System, as well as some of the uncerta'nties sur-rounding the costs of constructing nuclear poner plants, should be further i                                                                                                                                                    t clarified.
4 While the Company believes that all of its investment to date in            j Grand Gulf 2 has been prudent, in connection with any subsequent decision with          !
respect to Grand Gulf 2, the Company will, it an appropriate time, make a                !
1                                                            determination as to the appropriate recovery of its investment. As was the              i i                                                          case with Grand Gulf 1, proc edings relati'ig to Grand Gulf 2 before the FERC            j l                                                            and, with respect to recognition in retail rates of FERC-approved rates, b' fore state and local regulatory authorities, could be protracted and                  ,
strongly contested on various grounds, including imprudence, in view of the j                                                            controversies over the Grand Gulf Station, including the adverse reaction of            ,
s various rate regulatory bodies to allocation of costs, and regulatory uncer.            L I
tainties, including rate-making, attendant to a delay in the decision as to the future of Grand Gulf 2, there can be no assurance that the full cost of l
* Grand Gulf 2 will be recovered or 6s to the timing of any recovery. In addi-
);    -
tion, during the period to 1990, certain issues could cause a decrease in the valuation of the investment in Grand Gulf 2. The Company believes, however.
that it is justified in carrying Grand Gulf 2 at its full value because the i
!                                                                                                                                                      l l
 
                    ..  . .          -  .    .        --      -  . = _
I l      '
{
!'                                        SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
:                                                  JUNE 30, 1988      -
l (Unaudited)                                    i i
d I
property currently comprising Grand Gulf 2 is of the same design as that of            '
Grand Gulf I and is being properly maintained and is therefore suitable for            i
!            its intended purpose.        Failure to obtain rate relief for all or a substantial  l portion of the cost of Grand Gulf 2 could have a material and adverse effect          !
1            upon the financial condition of the Company, MSV and posiibly the System              ;
.            operating companies, dependin                  among other things, the timing of the realization of any such loss. g upon,                                                ,
f in January 1988, the F(RC issued an order which modified its policy regarding recovery of cancelled or abandoned plant costs by utilities subject
;            to its jurisdiction.          The revised policy provides for a "50/50 sharing" of    l
!          prudently incurred costs of a cancelled plant between the owner and the rate-          :
1 payers, whereby 50 percent of the prudently incurred costs of the cancelled            I j          plant would be amortized and recovered from ratepayers over the expected life          :
:          of the plant as if it had been completed.            The currently unamortized portion !
i            of such amount would also be included in rate base, thereby allowing for a            j return thereon. The remaining 50 percent of prudently incurred costs would be          i i
written off. In May 1988, the FERC denied requests for rehearing pertaining to that portion of iti January 1988 order which adopted the "50/50 sharing"            j methodology.      Further applications for rehearing of the FERC's May order were    ,
denied, and various parties have filed petitions for review of the FERC's              l January and May orders with the D. C. Circuit.                                          i 1                          In December 1986, the FASB issued SFAS No. 90, Regulated Enterprises    '
j            - Accounting for Abandonments and Disallowances of Plant Costs, an Amenoment of SFAS No. 71. SFAS No. 90 provides that, when an abandonment of a plant or certain        disallowances of costs with respect to a newly completed plant j                                                                                                  ;
)            becomes probable, the following amounts, net of related tax benefits, would be        :
reported either by restating the appropriate prior years' financial statements          :
,j          or by charging such amounts against current income:              (1) the cost of an    j abananed plant in excess of the present value of estimated recoveries; or (2)            I the amount of a partial disallowance by regulators of a recently completed              i I
plant for ratemaking purposes. SFAS No. 90 is generally effectise for fiscal            l years beginning after December 15, 1987 with retroactive application for prior          '
I            transactions. SFAS No. 90 will not have any current effect spon the Compan in light of the decision to continue suspension of Grand Gulf 2 (ree above)y        .
The provisions of SFAS No. 90 would apply should the Company decide to abanden
    ,      Grand Gulf 2, which would result in SERI recording a loss for any uncrecovered amount.
1 Grand Gulf 1 Rate Relief
~
          ,                General. As noted above, the capacity and energy from (the Company's) share of Grand Gulf I has been allocated by the FERC to the System operating companies, and challenges still exist with respect to these alloca-tions (see "Note 8 - Rate Matters Unit power Sales Agreement and System                  I l
 
1
  '.                                                                                                        i i
SYSTEM ENERGY RESOURCES, INC.
1 NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 30, 1988      -
(Unaudited) l Agreement Rate Matters").        The financial condition of the Company signifi-                      (
cantly depends upon its receipt of payments from the System operating compan-                            l 1es, and their ability in turn to make such payments depends primarily upon                            '
the continuing effectiveness of appropriate retail              rate structures that provide for the recovery of costs associated with Grand Gulf 1. As discussed in detail below. NOPS!'s retail rate structure providing for the recovery of                          7 its Grand Gulf 1 relatged costs in still being litigated. AP&L, LP&L and MP&L all have retail rate structures currently in effect which they believe are                            !
sufficient to enable them to meet their respective Grand Gulf 1 obligations to                        ,
the Company. However, the Grand Gulf I rate structures of AP&L and MP&L, as                        ;
well as NOPS!'s Grand Gulf I cost recovery program, embody phase-in plans sur-                        l suant to which certain costs associated with Grand Gulf 1 incurred by nese companies are deferred in the early years and recovered in later years through                        ,
annual or periodic increases retail rates.          Challenges or attempts to change existing rate structures initiated by regulatory bodies or other parties could occur in the future in an attempt to thnart the implementation of higher rates                        ;
as they scheduled to become effective pursuant to the step-up provisions of these phase-in plans.                                                                                  I SFAS No. 92. In August 1987, the FASB issued SFAS No. 92, Regulated Enterprises - Accounting for Pnase-in Plans, an amendment of SFAS No. 71.
SFAS No. 92 requires, among other things, the following conditions for defer.                          '
ral of costs related to a newly completed plant: (1) the costs are deferred                            ,
pursuant to a formal plan that has been agreed to by the regulator, (2) the                              j plan specifies when recovery of costs will occur, (3) the costs deferred are                          '
scheduled for recovery within ten years of th,t date when deferrals begin, and (4) the pei,:entage increase in rates for each future year is no greater than the percentage increase in rates for each imediately preceding year. Subject                            I to the transition provisions discussed below, the new statement is generally effective beginning the first quarter of 1988 and requires that amounts defer-red under plans that do not meet the requirements of the statement be written off. SFAS No. 92 has transition rules designed to allow any affected company to delay application of the new statement and to continue deferral of costs l
under  its mett tions are  existing)
(1 phase-in the company plan provided has file a that rate bvth  of the following application              condi-to have the plan                l amended to meet the requirements of the statement or it intends to do so as                              {
soon as practicable and (2) it is reasonably possible that the regulator will                            l change the terms of the phase-in plan so that it will meet the requirement of the statement.                                                                                          l The rate phase-in plans of AP&L anw MP&L provide for the recovery of certain deferred Grand Gulf 1-related costs over periods in excess of the
    , 10-year rec wry cap established by the FASB in SFAS No. 92, Regulated Enterprises. As a result, AP&L and MP&L are in the process of seeking revi-siens to their retail rate phase-in plans in order to accelerate recovery of
                                                -.                                  .-_                                    --            ----------------_--o
 
i SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS' (Continued)
JUNE 30, 1988                                                          '
(Unaudited) previously deferred Grand Gulf 1-related costs. While the Company believes                                  ,
that the June 24 Decision clearly affirms AP&L's and MP&L's legal right to recover these costs through retail rates, the Company cannot predict the out-i come of relate proceedings before the APSC and the MPSC in terms of the ulti-                                i mate operation of the phase in plans and the future timing of recoveries of Grand Gulf 1-related costs.
The phase in plans of LP&L and NOPSI for the recovery of deferred Waterford 3 and Grand Gulf 1 related costs, respectively, satisfy the require-ments of SFAS No. 92.
l NOPSI Prudence Disallowance and Liquidity Crisis. On February 4,                                  !
1988, af ter a lengthy prudence investigation, which was vigorously contested                                !
by NOPSI, the Council adopted the February 4 Resolution thet required NOPS! to                              r write off, and not recover from its retail electric custemers, $135 million of                              f its previously deferred Grand Gulf 1- related costs in addition to the $51.2                                l million of such costs that NOPSI absorbed as part of its March 1986 Rate                                    !
Settle.unt. NOPSI is seeking relief in the court against this finding of                                    '
alleged imprudence by the Council.                          See Note 8 "Rate Matter:      -        System  1 Operating Companies - NOPSI."                                                                                !
The February 4 Resolution has had a substantial and adverse effect                                !
upon NOPSI's financial condition and cash flow.                            Specifically, the $135          !
million write-off in 1987 caused N0 PSI to suffer a net loss for the year of                                I approximately $49 million, caused the elimination of NOPSI's retained earnings                              !
and produced an accumulated deficit of approximately $34 million as of                                      l December 31, 1987 ($27.9 million at June 30, 1988). Additionally, should the                                i february 4 Resolution remain in effect, NOPSI would have its future revenues                                ;
over the period of the Rate Settlement reduced not only by the 5135 million                                  ,
disallowance but also by the loss of the accumulated carrying charges that                                  i would have been recoverable on the deferred amounts written off, which could                                l amount to an additional $165 million over that period.                                                      '
The ultimate consequences of the February 4 Resolutien, should it remain in effect, are that NOFLI's ability to obtain the requisite funds to                                  :
meet its continuing obligations, to effect long- or short term external                                      !
borrowings, to declare future dividends upon preferred on common stock (NOPS!                                i has not declared its regular April 1, July 1 or October 1 dividends on preferred stock), to meet future sinking fund requirements upon preferred                                    '
  , stock or to satisfy potential obligations to redeem all of its outstanding G&R                                1 Bonds will have been significantly and adversely affected and N0 PSI could be rendered insolvent.      In this connection, NOPSI has continued to retain                                    '
  ,  independent counsel experienced in bankruptcy matters to help evaluate the options available.
1
 
SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 30, 1988    -
(Unaudited)
NOPSI is pursuing remedies in fideral and state court against the February 4 Resolution      (see Note 8    -  "Rate Matters  -  System Operating Companies' Rate Matters - NOPS!").        To date, NOPSI has been unsuccessful in obtaining relief from the federal courts. A state court proceeding is pending.
Honever, in May 1988, the state court denied NOPS!'s request for injunctive relief during the course of the litigation.        N0 PSI appealed this denial of injunctive relief. to the Louisiana Fourth Circuit Court of Appeal, which on August 2,1988, denied NOPSI's request for expedited appeal.        NOPSI has been advised by its counsel that, without expedited treatment, a decision by the Fourth Circuit Court of Appeal coulfi take up to one year. Without expedited treatment NOPS!'s current liquidity problems will be prolonged.
In order to mitigate the negative effects upon NOPSI's financial condition and cash flow caused by tne February 4 Resolution and thereby reduce the risk of insolvency, NOPSI has adopted or is in the process of implementing a series of cash conservation and other measures. In this connection, comment-ing in April 1938, NOPSI has deferred for limited periods (in each case less than 30 days) its monthly payment to the Company under the Unit Poner Sales Agreement covering N0PS!'s monthly payment ob'igations for capacity an energy from Grand Gulf 1. N0 PSI plans to continue to defer, from time to time in the future, its monthly payments to SERI for similar periods in order to conserve cash. The f ailure of NOPSI to make any monthly payment to the Company under the Unit Poner Sales Agreement within 30 days after such payment is due could result in acceleration of the Company's bank and other indebtedness, unless waivers were obtained, the debt were restructed or other arrangements could be negotiated.
In vien of the fact that N0 PSI was not able to obtain a timely court injunction staying enforcement of the February 4 Resolution,            NOPS! was required, by the terms of its 1987 mortgage indenture, to cause an independent arbiter to deliver to the trustee for the holders of N0 PSI's $115 million of
,                                            outstanding G&D Bonds a certificate as to whether, in the independent arbi-ter's opinion, the February 4 Resolution has materially impaired or will materially impair NOPSI's ability to perform its obligations in respect of the outstanding G&R Bonds.        In a certificate dated June 24, 1988 ("Arbiter's    i Report"), the independent arbiter concluded, bast.d upon the hypothetical          l assumption that the February 4 Resolution would not be reversed by the courts      ;
and upon certain related assumptions of NOPSI's management regarding future events, that N0 PSI's projected cash flowt during certain future periods "appear to be insufficient to cover projected regularly scheduled debt service requirements when required."      N0 PSI believes that the Febrary 4 Resolution is in violation of the Federal Power Act, FERC orders with respect to the alloca-tion of Grand Gulf 1 and federal law as interpreted by the United States Supreme Court (including, most recently, the June 24 Decision), and will ulti-    i mately be so declared by the courts. However, because the Arbiter's Report indicated that the February 4 Resolution currently in effect will materially I
i
 
e e SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Coatinued)                    '
JUNE 30, 1988      -
(Unaudited)                                    ,
i impair NOPSI's ability to perform its obligations in respect of the outstand-ing G&R Bonds, any holder thereof had the option, through August 11, 1988, to require NOPSI to rede n its G&R Bonds on August 26, 1988 at a price of 100% of      i the principal amount plus accrued interest to the date of redemption.              l Given that NOPSI could not be assured that one or more bondholders would not demand redemption of their G&R Bonds and that, as a result of the February 4 Resolution, NOPS! would not have sufficient available essh              '
resources or financing capabilities to redeem any significant amount of G&R Bonds teadered for redemption on August 26, 1988, NOPSI comenced discussions with its C&R Bondholders (consisting of a limited number of institutional          t investors) in order to attempt to reduce the possibility of NOPS! having to        ;
redeem any G&R Bonds on August 26, 1988.      NOPS! no',ified tha bondholders that t if they would forbear from tendering their G&R Bunds for redemption on August 11, 1988, NOPSI would agree (subject to requisite regulatory approval) that,        l upon wri tten notice from any G&R Bondholder between November 24 and December      L 13, 1988, NOPS! will purchase, on February 10, 1989, the G&R Bonds held by          ,
such G&R Bondholder, at a price of 100% of the principal amount thereof plus        !
accrued interest to the date of purchase.      However, the bondholders would not have the right to give such notice, and HOPSI would not be required to purchase any G&R Bonds, if an independent arbiter has delivered to each bond.
holder on or prior to November 23, 1988 a certificate stating that the impair-ment of NOPSl's ability to perform its obligations in respect of the G&R Bonds, described in the Arbiter's Report, has ceased because of judicial or        :
regulatory action. in addition, a G&R Bondholder nay revoke noti;e of tender        !
given by it at any time prior to the purchase of its G&R Bonds.                      ;
While NOPSI believes that the June 24 Decision represents a ver f avorable development in terms of NOPS!'s ability to obtain ultimate reversa of the February 4 Resolution, vindicating NOPSI's position that the Council may not, through a prudence investigation, disallow NOPSI's right to recover FERC-mandated Grand Gulf 1-relatd costs, there is no assurance that one or more bondholders will not demand redemption of their G&R Boads, if this were to occur and any significant amount of G&R Bonds were tendered for redemption, there is no assurance that NOPS! would have sufficient available cash resources or financing capabilities at that time to meet its purchase obliga.
tions, in which case NOPSI could be rendered insolvent unless su:h obligations      ,
could be deferred, restructured or other atrangements negotiated.                    l Insolvency of NOPSI, should it occur, could, under certain agree        I ments relating to the Company's indebtedness, lead to acceleration of such indebtedness (but only upon further action by the recuisite percentage of the
    , Company's creditors), unless (1) waivers were obta< ned, (2) the debt were restructed or (3) other arrangements could be negotiated. Given the substan-tial amount of the Company 5 debt, it would not be able to meet its                  )
l l
l l
l
 
4 SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued) 4                                                JUNE 30, 1988    -
(Unaudited)
J j              obligations, if accelerated. Under the Company's financing agreements, the 4
System operating companies would not be responsible for the payment of 3
accelerated obligations if the Company could not meet them.        MSU, with its
!              financial resources currently limited, would not at this time be in a position to satisfy the Company's obligations, if accelerated.
Also, certain of SFI's financing a payments by the System operating companies        greements MSU          and leases or the Company  in themay  require event that SFI's obligations under such agreements are accelerate as a result of the insolvency of N0*SI, and in the event that SFl is unable to meet these obliga-tions or to otherwise satisfy these obligations through the sale of the collateral securing such obligations. In addition, insolvency of NOPSI would affect the terms of financing, including an increase in the cost of financing, or could preclude financing for other Middle South System Ccmpenies.
Municipalization of NOPS!
In connection with controversies over the cost of capacity and energy from the Grand Gulf Station and the riisputes regarding the allocation thereof among the System operating companies and their customers, various governmental bodies and officials have been investigating the possibility of condemning, expropriating, or otherwise acquiring electric utility )roperties of certain of the System operating companies. The Council of the Ctty of New Orleans (the Council) is considering the acquisition by the City of New Orleans (the City) of the electric and gas utility properties of NOPSI and the electric utility properties of LPR in Algiers, and on March 7, 1985, the Council established a public power authority for the purposes, among Others, of acquiring and operating electric power utilities in the City.        On October 16, 1987, the Council received an updated report from a team of legal, engi-neering and financial advisors with respect to the potential municipalization of NOPSI's electric utility facilities.      The updated report, which purported to not make a policy recommendation for or against municipalization, asserted, among other thing!, that municipalizatien holds the potential for producing significant savings for electric customers in the City over the 15-year period covered thereby (1988-2002) and that (although the matter was not free from doubt) in conjunction with such municipalization the "better view" is that the City would not be required to assume NOPSI's obligations with respect te as FERC allocated share of Grand Gulf 1 capacity and energy. The Alliance for Af fordable Energy, Inc. a group of local citizens, also filed a report on October 16, 1987 recome,nding that tne Council o forward with municipaliza-tion. NOPSI filed on that date a critical anal sis of the Council's consul-tants' original draf t report, which was receive by the Council in mid-April 1987. NOPSI, on the basis of its own critical analysis and studies and the advice of its can legal and engineering consultants and their review of the draft report and theupdated report, believes that the conclusions of the reports are based on legal. financial and engineering assumptions that are
 
SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 30, 1988    '
(Unaudited) unfounded, unproven or so subject to a variety of future contingencies, and that the reports are otherwise so internally flawed, that such conclusions should not be relied upon as a basis for a municipalization decision, and further believes that any attempt by the City to municipalize NOPSI's electric utility facilities in order to enable electric customers in the City to avoid
;          paying their federally allocated ". hare of Grand Gulf 1-related costs would result in extensive and complex proceedings before various regulatory authorities and the courts, all of which could take many years to resolve.
The reports further consider the possibility of also acquiring, by condemna-        ,
tion, the electric properties of LP&'. in Algiers. The matter is pending.          ;
On March 29,      1988,  the Council proposed to MSU to discuss a "f riendly buy-out" of NOPS! by the City.        HSV has indicated a willingness to consider at alternatives that the Council might propose if they are in the best intertsts of stockholders, customers, and employees.        Representatives of I
NOPSI and ASU have been meeting with members of the Council and their consul-tants to discuss these matters. Additional meetings will be scheduled in the
  ,        future. The outcome of such future oiscussions cannot be predicated at this I
time.
On May 19, 1988, the Council adopted a resolution calling for a "management audit and evaluation of (NOPSI)", expressing the Council's concern "with the degree and Status of the so called functional consolidation of NOPSI with Louisiana Power and Light Company that has reportedly occurred to date, notwithstanding the lack of appropriate regulatory approvals for f ormal consolidation, including that required by the Council", and initiating "an          1 investigation into the management and operations of NOPSI."      On June 14, 1988,
'          NOP51 received a letter from a national accounting firm, which letter set out the auditing procedures that the accounting firm, a local accounting firm and a national engineering firm plan to follow, along with an initial request for documents. This matter is pending, i
Condemnation or taking of the property, or the sale of the comon stock, of any System operating company might cause acceleration of the Company's indebtedness (but only upon further action by the requisite per-centage of the Company's creditors) unless waivers were obtained, the debt i
were restructured or other arrangements could be made.
Capital Requirements and Financino j                    The capital requirements anc the expected net financing requirements with respect to such capital requirements, estimated as of June 30, 1988, for
  ,        the years 1988-1990, are based on certain assumptions and judgments with respect to, among other things, pending regulatory and judicial proceedings, earnings, dividend policy, financing plans and access to capital markets.
                                                      -24
 
I l
}
i  .
SYSTEM ENERGY RESOURCES, INC.                              !
NOTES TO FINANCIAL STATEMENTS (Continued)                                ,
:                                                  JUNE 30, 1988      :
l                                                    (Unaudited)                                        ,
;                                                                                                        i i
,                  Among the assumptions with potential significant future impact on j        the Company's capital and net financing requirements are the following. (1)                    ;
:        The February 4 Resolution reduced NOPSI's previously granted Grand Gulf 1 rate                :
relief by $135 million due to alleged imprudence.                  The following assumes      I J;        reversal of the February 4 Resolution in 1989, reinstatement on NOPSI's books                  i 4
of an asset of $135 million previously written off and resumption of collec.                  !
l'        tion of the level of rates provided in the Rate Settlement.                In the interim,    i it is assumed that NOPSI will continue to defea payments to the Company under                  ,
i        the Unit Power Sales Agreement as described above in "NOPSI Ptbience                          !
j        Disallowance and Liquidity Crisis". (2) The deferred amounts associated with                  !
;        the implemented rate mnderation plans for the period 1988-1990 for AP&L, MP&L                  i i        and NOPS! are $206.5 million, 5204.2 million and $128.3 million, respectively.                  !
!        The recovery of previously deferred amounts associated with the implemanted                      (
)        rate moderation plan for such period for LP&L is $60.6 million. These amounts                  !
i        do not reflect any adjustments to the implemented phase-in plans to AP&L and                  ;
I      HP&L that may be required as a result of SFAS No. 92. (3) With respect to the
;        nuclear fuel leases of the Company terminating during the period, such financ-                ,
j        ing arrangements are assumed to be replaced as discussed in detail below. (4)                  '
;        In an audit of the Company, the FERC staff has challenged the accounting treat-
!        ment of certain items which, if ultimately upheld by the FERC, could have a                    ,
j        material adverse impact on the Company. It is assumed hat these audit issues                  i are resolved in the Company's f avor, if future events should vary signifi-cantly from the above assumptions, material changes in capital and external                    !
financing requirements could result.                See "Grand Gulf 1 Rate Relief," for further information with respect to certain of these issues.                                  l t
The Company's construction program contemplates expenditures (exclud-i        ing nuclear fuel expenditures assumed to be financed under lease) of approxi.                  !
mately $40.4 million in 1988 (of which $9.5 million was expended through June                  l j        30, 1988), 545.8 million in 1989 and 543.6 million in 1990 in connection with i        its 90% interest in the Grand Gulf Station. In addition, the Company will                      l l        require 5481.4 million during the period 1968-1990 to refinance maturing                      ;
i        long-term debt. The Company has nuclear fuci leases for 5165 million and for                '
i      550 million. The $165 million lease is scheduled to terminate February 28,                    ;
1        1989. The $50 militon lease may be tenninated by the lessor upon one year's                  i 1        written notice.      Also, the Company's nuclear fuel leases would terminate                  !
i        during this period if the credit lines supporting the nuclear fuel leases                      j
:        terminate as scheduled.              Fuel under lease at the termination of the Compan          l i        lease must also be purchased by the lessee upon termination of its lease. y's            It    ;
j      , is currently assumed that the existing nuclear fuel leases of the Company will                  ;
j        be replaced in 1989 and that $215 million of nuclear fuel may be financed                      ;
j        uader these new arrangements by the Company. To the extent that new nuclear                    j j      . fuel leasing arrangements are not obtained or existing arrangements are not                    ;
i        extended, additional financing requirements could result. In addition to the                    ;
above, certain of the Comoany'r pollution control revenue bonds may be
}                                                                                                        l i                                                                                                        i 1                                                                                                        !
4                                                                                                        I
!                                                                                                        I
 
SYSTEM ENERGY RESOURCES, INC.
NOTE TO FINANCI AL STATEMENTS (Continued)
JUNE 30, 1988    -
(Unaudited) required to be reacquired during the 1988-1989 in the event they cannot be remarketed. Under this circumstance, additional funds of up to $78 million may be required to reacquir? such bonds.
Certain of SERI's pullution control revenue bonds may be required to be reacquired during the 1988 1989 in the event they cannot be remarketed.
Under this circumstance, additional funds of up to $78 million may be required to reacquire such bonds. With resrect to SERI's Series C Pollution Control
;      Revenue Bonds, a portion of SERI's payments under the U.S. Bank loan Agreement is placed in an escrow account to fund the commitments of the banks providing the letter of credit. The letter of credit expires in 1989 and, in the event the Series C Pollution Control Revenue Bonds cannot be remarketed or the letter of credit is not eatended or replaced, the amounts held in escron (approximately $150.7 million at June 30, 1988) would be used to repay amounts advanced by the letter of credit banks to reacquire the Series C Pollution Control Revenue Bonds rather than returned to SERI.
In connection with MP&L's bonding order from the Mississippi Supreme Court (see hote 8 "Rate Matters - System Operating Companies Rate Matters -
MP&L Supreme Court Litigation") SERI had deposited each month into a trust at;ount for the benefit of MP&L's ratepayers an amount equal to MP&L's cash collections from its customers for its Grand Gulf 1 obligationt from June 1, 1987, until the June 24 Decision became final on August 8, 1988.              The deposited funds totalled $215.6 million (approximately $224 million with inclusion of interest earned thereon) and were returned to SERI on August 11, 1988.
SERI anticipates that, with the return of the escroned funds des-cribed above, its projected cash flow for the period 1988-1990 will enable it    ,
to satisfy its cash requirements f rom internal sources and that no additional    l funds will be required from external sources for this period. Furthermore,        l SERI may enter into arrangements for the sale and leaseback of property in        l which the proceeds from such transactions could be used to retire certain debt issues at par. Honever, a number of uncertainties continue to confront SERI and the Middle South System, and, depending upon the ultimate resolution of such uncertainties and the ef fects thereof upon SERI, SERI may be required to i      obtain funds from external sources.
SERI is proceeding, subject to receipt of any necessary regulatory    j aoproval, with arrangements for the possible redemption, purchase or other        j acquhition of all or a portion of one or more series of SERI's outstanding        ;
f t st mortgage bonds. Furthermore, the Com]any may enter into arrangements    l for the sale and leaseback of property in which the proceeds from such trans-      '
actions could be used to retire certain debt issues at par. In this connec-tion, SERI is considering possible arrangements for the sale and leaseback of    l up to $500 million of appraised value of tne Grand Gulf Station. Any such sale and leaseback arrangements will require various regulatory, corporate and other approvals.      The ,0f fered Bonds are redeemable with the proceeds of      l l
l l
 
SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 30, 1988                                            -
(Unaudited) released property at the price of 12% of their principal amount together with accrued interest to the date fixed for redemption.
Shareholder Litigation MSU and certain other Middle South System companies, inclJing the Company, and individuals are defendants in a purported consolidated class action suit. The initial complaint was filed on August 19, 1985 by a MSU shareholder (purpor*.ing to represent a class that purchased MSU common stock).
Four similar complaints were filed by MSU shareholders in August and September                  I 1985 by shareholders of MSU (purporting to represent classes wht:h purchased                    '
MSU comon stock).      The five actions were consolidated in the U.S. District Court for the Eastern District of Louisiana. The consolidated, amended and supplemental complaint alleged violations of the disclosure requirements of the Securities Exchange Act of 1934 and the Securities Act of 1933, comon laa fraud and comon law negligent misrepresent 4 tion in connection with the financial condition of MSU and prayed for compensatory and punitive damages, legal costs and fees and other proper relief against MSU, the Company, LP&L, MP&L, AP&L and NOPS!; certain of the members of MSU's Board of Directors; certain officers and former officers of MSU, the Company, LP&L, MP&L, AP&L and NOPS1; the independent auditor of MSU and certain underwriters of MSU Comon Stock. On March 14, 1986, the plaintiffs in the consolidated action filed a Motion for Class Action Determination. In April 1986, MSU and certain other Middle South System Companies and individual defendants, including the Company, filed a Motion to Dismiss or, in the alternative, o motion for
:;umary judgment. On January 12, 1987, the District Court entered a judgment granting defendantr' motions for % mary judgment and dismissed the suit. On February 6,1987. the plaintiffs '9 the conso'idated action filed a Notice of Appeal in the U.S. Court of Appeals for the Fifth Circuit.
On June 7, 1988, the Fifth Circuit rendered a decision vacating the judgment of the District Court, based, in part, in the conclusion that the District Court had not adequately explained the bases for its decision. In remanding the case to the District Court for further proceedings, the Fif th Circuit suggested that the District Court could again consider the merits of the defendants' motion for sumary judgment and determine, with the benefit of certain guidelines as to the interpretation of governing law articulated by the Fif th Circuit, whether the defendants are entitled to sumary judgment as a matter of !.a      The District Court was directed, if it makes such a deter-mination, to provide A detailed analysis supporting its conclusions that would facilita;e judicial review.        Alternatively, the Fifth Circuit noted, the District Cot et could decline to rule on the defendants' motion for sumary
(
* judgment untii further development of the case has taken place and the issues                    .
have been narrowed through the available pre-trial techniques. The matter is pending. The eventual outcome of this matter and its impact on the Company's
,    and the Middle South System's financial condition cannot be predicted at this l    time.
 
4
,                                          SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
:                                                  JUNE 30, 1988      -
,                                                  (Unaudited) i l              Unit Power Sales Agreement S                          On June 10, 1982, the Company and the System operating companies                ,
l              entered into a Unit Power Sales Agreement pursuant to which the Company agreed
;              to sell all of the capacity and energy available to it from Grand Gulf 1 and Grand Gulf 2 to LP&L, MP&L and NOPSI in accordance with percentages specified therein, which conform with the percentages set forth in the Reallocation Agreement described below.      As discussed under Note 8, "Rate and Regulatory Matters," the Unit Power Sales Agreement was, with certain modifications                  !
i              (capacity and energy from Grand Gulf 1 was allocated in the following percent-            i agest  AP&L, 36%, LP&L,14%, MP&L, 33% and NOPSI,17%), approved by the FERC              '
a in its June 13 Decision and ord] red to become effective upon the initiation of i              service of Grand Gulf 1, which occurred on July 1,1985. On remand from the i              D.C. Circuit, the June 13 Decision was reaffirmed by the FERC. In its June 13 4
Decision, the FERC did not rule on Grand Gulf 2's allocation and ordered the Company to remove the proposed Grand Gulf 2 percentage allocation f rom the Unit Power Sales Agreement.
The Unit Power Sales Agreement, as currently in effect, specifies the rates to be charged to the System operating companies for their respective            r entitlements to receive capacity and energy from Grand Gulf 1. Such rates are computed nionthly on the basis of the Company's total cost of service, which is            ;
j              based sn the Company's operating expenses, depreciation and capital costs                  l attributable to the unit for the month. Such rates are paid in consideration              l
)l              for the respective entitlements of such companies to receive such capacity and            ;
!              energy, and are payable irrenscctive of the quantity of energy delivered so 1              long as she unit remains in come, ial operation.                Generally, operating j              expenses are computed by rt ference to allocable amounts chargeable to the
!              Company's operating expense eccounts and capital costs and cepital costs are
;              computed by allowing a 14% return on the Company's comon equity funds                      l j              allocable to its investment in the unit and ddding to such amount the effec-              i tive interest and dividend cost to the Company during the billing period for              !
}              its respective long-term debt and preferred stock, if any, allocable to its                l l              investment in the unit. See Note 8        "Rate Matters - Unit Power Sales Agree-        3 4
ment" for further information with respect to litigation and proceedings witn            '
)              respect to the Unit Power Sales Agreement.
I l              Capital Funds. Availability and Reallocation Agreements                                  l 1 Under the Capital Funds Agreement, as supplemented, MSV has agreed            l
)              to supply or cause to be supplied to the Company (1) such amounts of capital              !
4      ,
as  may 35%
at least  be required  in order tototal of the Company's    maintain  equity cap capitalization      (ital at short-term excluding  an axunt equal debt) to
}              and (2) such amounts of capital as shall be required in order (a) for the j              Company to construct, owri and place in commercial operation the Grand Gulf                  I
;              Station, (b) to provide for pre operating expenses and interest charges of the 4
j                                                        .
 
      ~
SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
~
JUNE 30, 1988    .
4 (Unaudited)
!            Company, (c) to permit the continuation of such comercial operation af ter                      ,
commencement thereof and (d) to pay in full all indebtedness for borrowed money whether at maturity, on prepayment, on acceleration or otherwise,          in addition, in the supplements to the Capital Funds Agreement relating to                        l specific indebtedness being secured, MSU has agreed to make cash capital                        !
contributions to enable the Company to make payments when due on its borrowings. Given the substantial amount of the Company's debt currently                    i outstanding, in the event of an acceleration, the Company would not be able to                  ;
meet these obligations and, assuming claims or demands against MSU under the
,            Capital Funds Agreements, as supplemented were made and upheld, MSU, with its                  l
;            financial resources limited, would not at this time be in a position to                        ,
satisfy the Company's obligations,                                                              j
;                      Except with respect to the Specific Payments, the performance by                    l both MSU and the Company of their obligations under the Capital Funds Agree-ment, as supplemented, is subject to the receipt and continued effectiveness                    ;
of all governmental authorizations necessary from time to time to permit such                  I performance. Each of the supplemental agreements provides that MSU shall make                  t its payments directly to the Company, provided that upon the occurrence and                      i continuance of an event of default MSU shall make those payments which are                      ,
required for the payment of the Company's obligations with respect to indebted-
!          ness secured by supplemental agreements to the holders of such indebtedness;
]            and such payments (other t1an the Specific Payments) shall be made pro rata i          according to the amount of the respective obligations secured by the supplemen-                l tal agreements.                                                                                t
)                      Each of the Company's bank loan agreements effectively precludes the                !
Company receiving any Specific Payments in the form of cash contributions by                    ,
,          providing for mandatory debt acceleration if such contributions are received                    l under any other agreement.
The System operating companies are severally obli                    the Availability Agreement in accordance with stated percentegesAP&L  (gated  under l                                                                                17.1%,  LP&L            ,
j            26.9%, MP&L 31.3%, NOPSI 24.7%) to make payments or subordinated advances                      l 1            adequate to cover all of the operating expenses, including depreciation, of                    '
i            the Company. As discussed in Note 8 "Rate and Regulatory Matters", a separate                    I l          Unit Poner Sales Agreement has been entered into among the Company and the                        I System operating companies under which the allocation percentages for sales of f
capacity and energy from Grand Gulf 1 have been changed. However, the alloca-
)            tion percentages under the availability Agreement remain in effect and would                      l 1
govern payments made thereunder in the event of a shortful of payments by the I
System operating companies to the Company under the Unit Power Sales Agreement.
l        .
i
)
J J
 
SYSTEM ENERGY RESOURCES, INC.
          -                            NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 30, 1988      '
(Unaudited) in November 1981, the System operating companies entered into a Reallocation Agreement which would have allocated the capacity, energy and                  i i
related costs available to the Company from the Grand Gulf Station to LP&L, MP&L and N0 PSI.        These companies thus had agreed to assume all the responsi-bilities and obligations of AP&L with respect to the Grand Gulf Station under the Availability Agreement aild Power Purchase Advance Payment Agreement, with i            AP&L  relinquishing its rights to capacity and energy from the Grand Gulf Station.      Each of the System operating companies, including AP&L, honever, would have remained primarily liable to the Company and its assignees for                  l l            payments or advances under these agreements.                AP&L was obligated to make its '
share of the payments or advances only if the other System operating companies were unable to meet their contractual obligations. However, the FERC's June 13 Decision allocating a portion of Grand Gulf 1 capacity and energy to AP&t.
(See Note 8 "Rate Matters - Unit Power Sales Agreement and System Agreement Rate Matters") supersedes the Reallocation Agreement insofar as it relates to Grand Gulf 1.
1                                                                                                        i Based on the June 13 Decision of the FERC, which was reaffirmed by              !
1 the November 30 Order of the FERC, amounts that have been received the Company                l under the Unit Poner Sales Agreement have exceeded the amounts payable under the Availability Agreement, and, consequently, no payments under the Availability Agreement bythe System operating companies have ever been required.      If a System operating company or companies became unable in whole or in part to continue making payments to the Company under the Unite Power Sales Agreeiner t , and the company were unable to procure funds from other sources suf ficient to cover any potential shortfall between the amount owing 4
under the Availability Agreementand the amount of continuing payments under i
the Unit Power Sales Agreement plus other funds then available to the Company, LP&L and NOPSI could become subject to claims or demands by the Company or its j
creditors for payments or advances under the Availability Agreement or the assignments thereof. The amount, if any, which these companies would become 1
i            liable to pay or advance over and above amoun+s they currently pay under the Unit Poner Sales Agreement for capacity and energy from Grand Gulf I would j
depend on a variety of factors (especially the degree of ar.y such shortfall 2
and the Company's access to other funds).                It cannot be predicted whether any 4
such claims or demands, if made and upheld, could be satisfied, in NOPS!'s case, if any such claims or demands were upheld, the holders of NOPSI's i          outstanding G&R Bonds could, subject to certain conditions, require redemption i
of their bonds at par.
I I
The ability of the System operating companies to recover from their customers potential payments under the Availability Agreement, or under the assignments thereof, made either before or after the filing of such agreement with the FERC, would depend upon the outcome of regulatory proceedings before i
the state and local regulatory authorities having jurisdiction.                    In view of 4
1 the controversy surrounding the allocation of capacity and energy from Grana
!                                                              1 I
 
SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
      .                                  JUNE 30, 1988    '
(Unaudited)
Gulf 1 pursuant to the Unit Power ~sles Agreement, the Company would antici-pate opposition to recovery but cannot predict the outcome of such proceed-ings, should they occur.
The ability of the System operating companies to sustain payments under the Availability Agreement, and under the assignments thereof, in material amounts without substantially equivalent recovery from their custo-mers would be limited by their respective available cash resources and financing capabilities at the time,
,      Nuclear Insurance On August 22, 1988, the Price-Anderson Act ("Act") was amended and extended until the year 2002. The Act, as amended limits the public liability of a licensee for a sin                incident at its nuclear poner plant to approximately $7 billion.gle    nnlear protection Financial          for this exposure is provided by private insurance and an indemnity agreement with the NRC. In the event of a nuclear incident involving a licensed commercial nuclear poner plant in the United States that results in damages in excess of the private insurance, each reactor licensee is responsible to share in this maximum liability (therefore, licensees af a required to share in an assessment). Additionally, a 5% sar-charge per reactor would be imposed and triggered when a court determined that the combination of damages and legal costs nears the $7 billion liability limit. The maximum SERI would be required to pay in respect of each incident at a United States nuclear plant would be approximately $66 million, indexed every five years for inflation, provided not more than $10 million would be required to be paid per incident per year. SERI has a 90% undivided oanership interest in one licensed reactor. The Fiddle South System has a total of four licensed reactors.
The Company is a member-insured of Nuclear Electric Insurance limitei an industry mutual insurer, that, as of June 30, 1988, provides its members with $775 million of coverage for property damage sustained by the insured in excess of $500 million caused by radioactive contamination or other specified damage. The Company has an additional $250 million of excess property and decontamination insurance with American Nuclear Insurers and Mutual Atomic Energy Liability Underwriters, a pool of private insurance carriers, thus giving the Company a total of $1.025 billion excess property and decontamination insurance above the $500 million primary amount. The Company is also a member-insured under a primary property damage insurance program provided by Nuclear Hutual Limited, another industry mutual insurer, providing $500 million of coverage. As a member. insured with these industry
    '  mutual insurers mutuals, the Company is subject to assessments if losses exceed the accumulated funds available to the insurer. At June 30, 1988, the Company was subject to a maximum assessment for incidents occurring during a policy year of approximately $35.6 million.
                                              .31
 
SYSTEM ENERGY RESOURCES, INC, NOTES TO FINANCIAL STATEMENTS (Continued)
      .                                    JUNE 30, 1988    .
(Unaudited)
Effective October 5, 1987, the NRC amended its regulations to require nuclear poner plant licensees to obtain property insurance coverage in the minimum amount of $1.06 billion. The regulations further provide that the proceeds of this insurance shall be used to first ensure that the licensed reactor is in a safe and stable condition and can be maintained in that condi-tion so as to prevent any significant risk to the public health and safety.
Within 30 days of stabilization, the licensee is required to prepare and submit to the NRC a cleanup plan for approval. The plan is required to identify all cleanup operations necessary to decontaminate the reactor suffi-ciently to permit the resumption of operations or to commence decommissioning.
Any property insurance proceeds not already expended to place the reactor in a safe and stable condition must be used first to complete those decontamination operations that are ordered by the NRC. Property insurance proceeds subject to the decontamination priority must be payable to a separate trust establish-ed for the sole purpose of paying for costs incurred in decontaminating the reactor and removing radioactive debris. The NRC further requires that the decontamination priority and trust requirements set forth in the regulation be incorporated in on-site property damage insurance policies not later than April 4,    1990 (no extended by tne NRC on September 7, 1988) and apply uni-formly to all required on-site property damage insurance policies for nuclear power plants.
Effective as of January 1, 1988, the aggregate amount of property and decontamination exr% se insurance carried by the Company increased to 51.525 billion. With chis increase, the coverage available above the amount required by the NRC to be set aside for reactor stabilization and cleanup would be 5465 million. However, the Company is unable to predict what effect the NRC's new regulation may have at the time when insurance proceeds would be made available to it or the Trustee for the holders of the Company's First Mortgage Bonds.
Spent Nuclear Fuel Under the terms of its nuclear fuel lease, the Company is responsi-ble for the disposal of spent nuclear fuel.            The Compsny has executed a contract with the Department of Energy (D0E) whereby the DOE will furnish disposal service for the companies' spent nuclear fuel at a cost of one mill per kilowatt hour of net generation. The Company includes this one mill per kilowatt-hour as a component of its nuclear fuel expense.
: 8.          RATE MATTERS Unit Power Sales Agreement and System Agreement Rate Matters On June 18, 1982, the Company tendered for filing with the FERC, as an initial rate schedule, the Unit Power Sales Agreement under which the
 
SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)                                  .
JUNE 30, 1988      .
L (Unaudited)
Company would sell from its 90% share of Grand Gulf 1 and Grand Gulf 2 the following percentage allocations of capacity and energy: LP&L, 38.57% and 26.23%; MP&L, 31.63% and 43.97%; and NOPSI, 29.80% and 29.80%, respectively.
The rates and charges after commercial operation commenced were to be based on the cost of service of each unit.        Various parties, including the APSC, the LPV, the MPSC, the Missouri Public Service Commission, and the Council, inter-vened in the proceedings, and some of these intervenors proposed, among other                  ,
things, revised allocations of capacity and energy to the System operating companies, including an allocation of capacity and energy to AP&L.
On February 3,1984, the Administrative Law Judge (ALJ) in the Unit Poner Sales Agreement proceeding issued his initial decision. Principally, the decision recomended that the Company's request for the use of an automa-tic cost of service adjustment clause for Grand Gulf 1 be upheld, with certain                '
modifications. The ALJ also recommended a proposal made by tne LPSC, an intervenor 1 and the in  thethereof cost  proceeding, as follows:to allocate capacity AP&L, 36%;        and energy LP&L,14%;  MP&L, from      Grand 334; and    Gulf NOPSI, 17%.
On June 13, 1985, the FERC issued a decision (June 13 Decision) affirming the allocation of capacity and energy as proposed by the LPSC. In the June 13 Decision, the FERC affirmed the ALJ's decision on all issues except for rate of return, depreciation. annual amount of decommissioning expense, amortization of limited-term electric plant and use of an income tax formula. The FERC held that the Company be granted a 16.0% return on comon                  i equity instead of 16.04% as proposed by the ALJ, that the units-of-production depreciation method be alloned for up to twelve months (later extended to eighteen months) with straight-line depreciation being required thereaf ter, and that the annual amount of decomissioning expense be set at $1,113,188                      l rather than $1,236,876 as proposed by the ALJ and be accumulated in an exter-                  l nal fund. The FERC did not rule on the allocation of Grand Gulf 1,              and      ;
ordered the Company to remove the proposed Grand Gulf 2 percentage allocation                  ,
from the Unit Poner Sales Agreement.                                                          ,
For many years, the System operating companies have, through a                      !
series of agreements, engaged in the coordinated planning, construction and                    !
operation of generation and transmission facilities. On April 30, 1982, 551,                  ;
on behalf of the System operating companies, tendered for filing with the FERC                i a revised agreement, the System Agreement.          On July 29, 1982, the FERC                "
accepted the System Agreement for filing and ordered it suspended for five                      '
months from August 1, 1982.      Rates under the System A                                    [
tive, as requcited by MSU/ System Services, Inc. (SSI)            greement a service          became company,  on effec-  !
January 1,1983, subject to refund, various parties, including the Louisiana                    ;
Public Service Comission (LPSC), the MPSC, the Arkansas Public Service                          i Comission (AP5C) and the Public Service Comission of Missouri (PSCM), inter-                  !
vened in the proceeding. Some parties to this proceeding contested the method i
l I
SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 30, 1988    ,
(Unaudited) 1        .
by which the System Agreement equalized megawatts of reserve capacity among                ,
the System operating companies. An initial decision by an Al.J in this proceed.
ing recommended that the System Agreement be adopted as it was filed with the FERC with certain modifications.
The June 13 Decision of the FERC also related to the System In the June 13 Decision, the FERC generall                        '
Agreement proceeding.
the System Agreement as filed, with certain minor modifications. y approved    The FERC adopted 16.00% as the appropriate rate of return on comon equity under the
,        System Agreement rather than the 15.75% recommended by the ALJ.            In accordance    i with the June 13 Decision, SSI submitted its compliance filing with the FERC in the System Agreement proceeding. Protests to or comments on that filing have been made by several parties and are based principally on objections to the June 13 Decision. Various parties to these proceeding requested rehear-
,          ings and some parties, including AP&L, requested a stay of implementation of the June 13 Dechion from the FERC. In a series of decisions, the FERC denied all requests for rehearing and took the position it does not have the authority to authorize a refund if the June 13 Decision is overturned by the I
courts on appeal, unless the court orders a refund.                    Various parties,    !
including AP&L and MP&L, filed appeals of these orders and some parties filed i
motions for a stay of these orders with the United States Court of Appeals for              '
the District of Columbia Circuit (0.C. Circuit).
I On January 6, 1987, a three judge panel of the O.C. Circuit affirmed the FERC's June 13 Decision, including that part relating to allocation. In                ;
the January 6,1987 decision, the panel of the O.C. Circuit held, among other                !
!          things, that the FERC had authority to review and modify the allocation of poner from Grand Gulf 1 and to establish an allocation of such power which the l          FERC found to be just and reasonable under the Federal Power Act. Various                  '
parties field requests for rehearing with the 0.t.. Circuit and petitions for certiorari to the United States Supreme Court.
l                      On June 24, 1987, the O.C. Circuit reversed, in part, the June 13              t J
Decision and remanded the June 13 Decision to the FERC for reconsideration of i        its oecision to equalize the capacity costs of all System nuclear plants and                !
;          for an explanation of the criteria used to determine what constitutes "undue                ,
I          discrimination" under the Federal Poner Act and why the June 13 Decision is i          not enduly discriminatory. In reversing, in part, the June 13 Decision, the 0.C. Circuit did not change that part of its January 6,1987 decision uphold-1                                                                                                      '
ing the FERC's authority to review and modify the allocation of power from Grand Gulf 1.
As nated above, various parties filed petitions for certiorari with              :
1 the United States Supreme Court seeking review of that portion of the O.C.                  ;
Circuit's decision that affirmed the FERC's jurisdiction to allocate Grand                  !
,          Gulf 1 costs. Certain of these parties requested that the United States                      '
i 1
f                                                                                                      )
i a
 
              =  _    _  -    __    -.    -      - - .      . _.                ..
l    .
[
SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 30, 1988      ,
(Unaudited)
Supreme Court consider their challenges to FERC Jurisdiction at the same time the Court considered MP&L's appeal of the February 25 Decision. On December
;        14, 1987, the United States Supreme Court denied, without comment, these petitions for certiorari, thereby leaving in place that part of the January 6, J
1987 decisior, upholding the FERC's jurisdiction to allocate Grand Gulf 1 l        Costs.
1                  On November 30, 1987, the FERC issued its November 30 Order in response to the June 24 Remand whereby the FERC reaffirmed and reinstated the June 13 Decision, thus maintaining the previous allocation of Grand Gulf 1 capacity and energy among the System operating companies.          In issuing the i November 30 order, the FERC found that the allocation in the June 13 Decision 3
was not unduly discriminatory. Various parties file requests for rehearing of the FERC's November 30 Order, and by order dated January 29, 1988 orders have been field with the D.C. Circuit by various parties.                              !
It is not possible to predict the ultimate outcome of this matter,      l incleding possible reallocation, if any, or the effect thereof upon the          l 1
Company and thc System operating companies, including possible refunds, if any.    (
Any material modification of the allocation established by the June 13            i
  '      Decision would be the subject of further proceedings conducted in the              ,
adversely affected jurisdictions.        See ''Sys t em Operating Companies Rate  i Matters - MP&L and Supreme Court Litigation" in this section for information      ;
;l      relating t0 the June 24 Decision affinr. .g the principle of FERC allocation of    !
Grand Gulf 1 capacity and energy cost, among the System Operating Companies j        are binding upon state and local regulatcry authorities.
I 4                  The System operating companies have initiated a study, currently        ;
expected to be completed in the near future, to determine whether a more          f equitable method of allocating costs, including those relating to Grand Gulf      l 1, would be appropriate.      See "System Operating Companies' Rate Matters" in    l this section for information regarding retail rate relief obtained by the          i J        System operating companies in connection with their respective Grand Gulf 1 1        obligations (which relief was based on the allocations in the June 13              1 Decision) and related controversies.                                              !
On September 17, 1986, the LFSC filed with the FERC complaints          !
!        against the Company and 551 alleging that the 16.00% rate of return on comon      l j
equity under the Unit Power Sales Agreement and the System Agreement, respec-
  !      tively authorized by the June 13 Decision had become unjust and unreasonable rate and sought the reduction thereof. Various parties intervened in these proceedings.
On January 27, 1987, finding that the 16% return on common I        equity "may be excessive", the FERC denied tho motions of the Company and SSI to dismiss the complaint and ordered that hearings be held on the justness and l
reasonableness of such amount.        Any change ordered by the FERC would be
]        prospective only. On April 28, 1987, a tettlement in principle was achieved        '
l                                                                                        ,
i i                                                                                          !
 
i i
1  .
SYSTEM ENERGY RESOURCES, INC.
'                                            NOTES TO FINANCIAL STATEMENTS (Continued)                                            !
JUNE 30, 1988              .                                        !
(Unaudited) 1 which, among other things, reduced the rate of return on common equity in tha                            !
Unit Power Sales Agreement from 16.00% to 14.00% effective retroactively to
;                        July 1, 1987. Such settlement was approved by the FERC on September 15, 1987.
The one issue that the settlement on the Company's return on equity
;                        did not resolve is whether the Unit Power Sales Agreement should be modified                            i
!                        to include a clause which would permit an annual investig6 tion of the return                          i on equity in the Unit Power Sales Agreement with special refund procedures 1                        which are not currently provided for.                    This clause is referred to as the              l i                        "equity reopener". On April 8, 1988, the ALJ in the equity reopener proceed-                        j ing issued his decision recommending that certain parties mey file a motion                              -
I                        with the FERC in August of each year, beginning in 1989, requesting that the                            1
!                      FERC initiate proceedings investigating the rate of return on common equity in                          '
!                      the Unit Power Sales Agreement.          He also recommended that the FERC may also i                      institute proceedings under this provision during that time period. Further,
!                      he recommended that if the FERC ultimately lowers such rate of return on                                ,
I common equity, refunds, with interest, would be due from the later of (a) 60                            t days from the date of the motion filed with the FERC or (b) the date of the                            i i                        FERC order setting the matter for investigation and hearing. If the FERC ultimately approves this provision, no refunds would be required for any
,                      period prior to January 1, 1990. The matter is pending.                                                ;
System Operatino Companies' Rate Matters
[
i                                                                                                                                ,
General. As noted above, the capacity and energy from the Company's                        [
j                      share of Grand Gulf I has been allocated by the FERC to the System operating j                      companies, and challenges still exist with respect to these allocations. The                            l j                      financial condition of the Company significantl                                                        ;
  !                      payments from the System operating companies,and                y depends  upon itsinreceipt their ability            of turn to          I j                        make such payments depends primarily upon the- continuing effectiveness of                              l 1                        appropriate retail rate structures that provide for the recovery of costs 1                        associated with Grand Gulf 1.        As discussed in detail below, NOPS!'s retail                        (
,                        rate structure providing for the recovery of its Grand Gulf 1-related costs is                          !
still being litigated.        AP&L, LP&L and MP&L all have retail rate structures                        ;
i                      currently in effect which they believe are sufficient to enable them to meet                            i their respective Grand Gulf 1 obligations to the Company. However, the Grand                            i Gulf 1-related rate structures of AP&L and MP&L, as well as NOPS!'s Grand Gulf                          !
I 1-related cost recovery program, embody phase-in plans pursuant to which por-                            i
{                      tions of Grand Gulf 1-related costs incurred by these companies are deferred                            ;
in the early years and recovered in later years through annual er periodic                              !
l                      increases in retail rates. Attempts to change existing rate structures by j                        regulatory bodies or other parties could occur in the future in an 4ttempt to i      '                moderate higher rates as the step-up provisions of these phase in pians become                            ;
i                      effective. Also, the rate phase-in plans of AP&L and MP&L provide for the recovery of certain deferred Grand Gulf 1 related costs over periods in excess                          ;
1
:                                                                                                                                i f
]                                                                      ,!
 
  -. . - . - . - __-                - ____  .-      ~  -- - . - -              -_          -  --      ---
j                                                                                                              l l
i                                                SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)                        ,
!                                                        JUNE 30, 1988    -                                  ,
(Unaudited)                                      ,
l                                                                                                              I i                                                                                                              !
of the 10 year recovery cap established by the FASB in a recent accounting              !
i pronouncement, SFAS No. 92, Regulated Enterprises-Accounting for Phase in                !
4 Plans, an Amendment of SFAS No. 71. As a result, AP&L and MP&L are in the                i
;                    process of seeking revisions to their retail rate phase-in plans in order to
!                    recover previously deferred Grand Gulf 1-related costs in conformity with the            l l                    provisions of SFAS No. 92. In this connection, AP&L and certain other parties            -
to the Settlement Agreement embodying AP&L's phase-in plan have filed a joint            !
:i                    motion with the APSC to effect the appropriate modifications to AP&L's plan.            !
i MP&L has also fi'.ed with the NPSC a request to modify is phase-in plan. In              !
light o f , an. , other thirigs, the June 24 Decision clearly affirming AP&L's          !
i                    and MP&L's legal right to re.sver these costs through retail rates, AP&L and
]                    MP&L believe it will be reasonably possible to achieve revisions to their                ,
I                    phase-in plans which will be satisfactory to them, so that deferral of costs              l I
thereunder will meet the requirements of trAS No. 92.          However, such results      l l                    cannot be assured and if either AP&L or MP&L is not successful in its efforts            '
l                    to review its phase-in plan, the financial position of such company would be              l
;                    materially and adversely affected. A discussion of the proceedings relating to MP&L's and NOPSI's Grand Gulf 1-related retail rates and of the accounting            -
issues relating to the retail rate phase-in plans of AP&L and MPSL follows.
]
MP&L and Supreme Court Litigation.          On February 25,  1987, the MPSC's Final Order on Rehearing, which had established a phase-in plan
!                    granting annual rate relief to MP&L with respect to its FERC-ordered alloca-1                    tion of Grand Gulf 1-related costs, was reversed by the Mississippi Supreme
{                    Court and remanded to the MPSC for further proceedings on the grounds, among d
others, that the MPSC's decision was in error because the MPSC did not first l                    determine that MP&L's Grand Gulf 1-related expenses were prudently incurred.
Subsequently, MP&L filed an appeal of the February 25 Decision with the United States Supreme Court and also filed an application asking that Court to stay l                    the mandate of the February 25 Decision pending final disposition of the appeal.
;                                On June 1,    1987, the United States Supreme Court granted MP&L's application for a stay conditioned upon the posting of a good and sufficient bond in a manner and amount which was to be determined by the Mississippi Supreme Court.        On June 10, 1987. the Mississippi Supreme Court issued a, order setting bond which provided that MP&L file an undertaking to refund past collections from September 20, 1985 to June 30, 1987, such undertaking to be co-guaranteed by the Company and MSU. The nrder further provided that MP&L's I                    future Grand Gulf 1-related collections were to be secured by the Company 1
placing the amount of such collecti,ns into escrow in a trust account on a
,                    monthly basis until final resolution of MP&L's appeal to the United States
;'                  Supreme Court.        The bonding arrangements established by the Mississippi
]                    Supreme Court, including the Company's corporate guaranty and the escron
;                    arrangements, were implemented in September 1987. During the period that the 1
1 l                                                                  -37
 
b.*.                                                                                                                    l SYSTEM ENERGY RESOURCES, INC.
i NOTES TO FINANCIAL STATEMENTS (Continued)                                              ,
JUNE 30, 1988          ..
l j                                              (Unaudited)
I
~
stay was in effect, hP&L collected the rates approved by the MPSC in the Final                                l l        Order on Rehearing, subject to refund. As of June 30, 1988, MP&L had billed                                  l approximately 5359.8 million of Grand Gulf 1 related costs to its customers                                  l
.        and recorded expense deferrals of approximately 5624.3 million pursuant to the                                :
rate phase in plan.      As of August 1, 1988, the Company had deposited approxi-                          '
mately $215.6 million under the trust arrangement discussed above,                                          ,
j                    On June 24, 1988, the United States Supreme Court rendered the June                              !
i      24 Decision, reversing the February 25 Decision of the Mississippi Supreme                                  !
j        Court. The United States Supreme Court held that states may not 41ter                                    i FERC-ordered allocations of wholesale power by substituting their own deter-                                !
mination of what would be just and fair, and that the MPSC must therefore                                    !
recognize MP& 's Grand Gulf 1-related costs as reasonable operating expenses,                                j
:        The United States Supreme Court stated that "FERC-mandated allocations of                                    i j        poner are binding on the States, and States must treat those allocations as                                  l j        fair and reasonable when determining retail rates."                                                          j i
i
)                    In reaching its decision, the United States Supreme Court relied on                              f
!        its earlier decision in Nantahala Poner & Light Co. v. Thornburg, 476 U.S. 953                              l j        (1986). Interpretin                                                                                          l 1
Court held that (1) g FERC its onnhas decision exclusivein Nantahala, authority tothe United States determine                        Supreme the reasonable-    t to ness  of wholesale such rates,  but alsorates,    (2) *ERC's to power  allocations exclusive  jurisdiction that affect  wholesale            applies rates, not andonly(3) ;
states may not bar regulated utilities from passing through to retail                                        l
)'
consumers FERC-mandated wholesale rates.              Applying these principles to the                        l I
facts in MP&L's case, the United States Supreme Court held "tiat a state                                      t utility commission setting retail prices must allow, as reasonable operating                                l expenses, costs incurred as a result of paying a FERC determined wholesale                                  l pri:e....Once FERC sets such a rate, a state may not conclude in setting                                    j i        retail rates that the FERC approved wholesale rates are unreasonable.                              A state  '
must rather give effect to Congress' desire to give FERC plenary authority                                  !
over interstate wholesale rates, and to ensure that the states do not inter.                                !
fere with this authority.'          Thus, we conclude that the Supremacy Clause                            {
compels the MPSC to permit MP&L to recover as a reasonable operating expense costs incurred as the result of paying a FERC-determined wholesale rate for a FERC-mandated allocation of power."
i in addressing the "prudence" question relied upon in part by the                                !
Mississippi Supreme Court in reversing the Final Order on Rehearing, the                                      !
United States Supreme Court held that the Mississippi Supreme Court erred in                                  '
adopting the view that the pre-emptive effect of FERC jurisdiction turned on                                  l
!      . whether the issue of prudence was actually determined in the FERC proceedings,                                i and that since, in the Mississippi Supreme Court's view, prudence was not i
addressed at the FERC proceedings, the MPSC could later address the question, j        Rather, the United States Supreme Court held that "States may not regulate in                                ,
4        area where FERC has properly exercised its jurisdiction to determine just and l
l d
38-1
 
SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 30, 1988 (Unaudited) reasonable wholesale rates or to insure that agreements af fecting wholesale rates are reasonable." Therefore, the United States Su the MPSC may not, consistent with the Supremacy Clause,preme conductCourt held that any proceed.
ings thSt challenge the reasonableness of FERC's allocation.        Instead, the t
proper forum for such a challenge is at the FERC.
The United States Supreme Court stated that the Mississippi Supreme Court, in its Feb'ruary 25 Decision, attached considerable significance to the fact that the prudence of investing in Grand Gulf 1 by MP&L was not discussed in the proceedings at FERC. However, the United States Supreme Court noted that the question of prudence was not discussed because no party raised the issue, not because the matter was beyond the scope of FERC's jurisdiction, and that indeed the FERC had considered and rejected some aspects of the prudence review the Mississippi Supreme Court directed the MPSC to conduct. The United States Supreme Court also held that the MPSC lacks jurisdiction to reevaluate the reasonableness of the various agreements among MP&L, the Company and MSU relating to Grand Gulf 1. Furthermore, the United States Supreme Ceurt stated that "the MPSC cannot evaluate either the prudence of MSU's decision to invest in Grand Gulf and brin 0 it on line or the prudence of MP&L's decision to be a party to agreements to construct and operate Grand Gulf without traversing mattt:rs surely within FERC's jurisdiction."
On August 8, 1988, the United States Supreme Court issued its hiandate in the MP&L proceeding. As a result, the judicial determination of the MPSC's Final Order on Rehearing became final, theret, allowing MP&L there.
after to collect rates approved in the Final Order on Ruiearing not subject to refund. Further, MP&L, the Company and MSU were released from their respec-tive obligations under the various corporate undertakings filed with the Mississippi Supreme Court as part of the bonding arrangement set by that court at the direction of the United States Supreme Court, and the Company obtained the release ard return to it on August 11, 1988 of all escrow deposits previously made by the Company equivalent to MP&L's cash collections for Grand Gulf 1-related expenses from June 1, 1987 through August 1, 1988 (: mounting to approximately $224 million, including interest).
In a separate proceeding, the HPSC initiated, among other things, an investigation of the prudence of MP&L's involvement in the Grand Gulf Station. On September 16, 1986, the MPSC issued an initial Order establishing a docket for the stated purposes, among other things, of examining the pru-dence of the actions of MP&L and/or the Company relating to the construction and operation of the Grand Gulf Station and the appropriate regulatory treat.
ment of the associated costs; obtaining FERC review of the Company's rate of return on comon equity; obtaining- FERC revision and/or modification of various aspects of MP&L's Grand Gulf 1 expenses established by the FERC, inc1', ding the allocation of Grand Gulf 1 tests; inquiring generally ints the appropriateness of MP&L's general rate strucuture; and perfonning a detailed i
1 I
1 SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
:                                                    JUNE 30, 1988              -
j                                                      (Unaudited)                                                  l I                                                                                                                  l
;          audit of the books and records of the Company.                          On November 4,  1986, the    ;
i          Company filed a Motion to Dismiss this proceeding based in part on the grounds                        '
]          that the MPSC is without jurisdiction over the Company and is without subject                          j matter jurisdiction over costs associated with the Grand Gulf Station.                          At the same time. MP&L also filed with the HPSC a separate, but similar, Motion to                            i i
l        Dismfss the proceeding. The MPSC, on January 28, 1987, overruled the Motions                          :
J          to Dismiss of the Company and of MP&L. In March 1987, the MPSC stated that                            '
i          the phase of this docket pertaining to the ap>ropriateness of MP&L's present                          ;
i          rate structure (Phase VII) was a proceeding 'n which MP&L's rates could be                            ,
  ,        changed,            in rfesponse, HP&L filed for and received a preliminary injunction                !
j          from the Chan:ery Court of the First Judicial District of Hinds County, j        Mississippi which enjoined the MPSC f rom implementing Phase VII proceedings.                          '
i          However, the Chancery Court stated that such injunction would be lifted if the i          MPSC enters a new scheduling order which provides MP&L with adequate time to                            i i          file testimony and provides a prehearing conference. On April 29, 1987, the                            )
i        MPSC filed a petition with the Mississippi Supreme Court seeking to have the                            l
!          Chancery Court's action set aside and vacated. On May 6, 1987, MP&L filed a                            l j          motion with the Mississippi Supreme Court to dismiss the NPSC's petition. On                          l 1        May 20, 1987, the Mississippi Supreme Court issued an order setting aside and                          )
vacating the Chancery Court's action.
The Court remanded the procedural            j scheduling of Phase Vl! to the MPSC for entry of a new scheduling order pursuant to Mississippi law.            This matter is pending, j                              Furthermore, on February 3,1987, the MPSC issued an Order in this
;          docket directing the Company and MP&L to show cause why their Certificate of
;          Public Convenience and Necessity relating to the Grand Gulf Station should not be cancelled for the failure of the Company and MP&L to allow the MPSC to audit the books and records of the Company. The Company had objected to the MPSC auditing its books and records on jurisdictional and other grounds. On d
February 23, 1987, the Company and HP&L, in response to the Show Cause Order, filed with the MPSC separate Motions to Dismiss, Response and Reservation of
,          Rights.          These filings asked the MPSC to dismiss the show cause proceeding on jurisdictional, constitutional and other grounds.                      On March 3.1987, the MPSC allowed SHEPA to intervene in the show cause proceeding. SMEPA also filed a Motion to Dismiss and Response to the show cause order with the MP5C. The motions to dismiss filed by the Company, MP&L, and SMEPA have been overruled by the MPSC. On April 29, 1987, the Company filed a Complaint for Declaratory and Injunctive Relief in a U.S. District Court seeking a temporary restraining order, a preliminary injunction, and a permanent injunction enjoining the MPSC from all further proceedings in the docket with respect to the Company. The District Court has denied the Company's motion for temporary restraining order and permanent injunction.              The Company, in light of the District Court's
      ,    decision and in order to avoid irreparable harm that could result f rcm the threatened cancellation of the Grand Gulf Certificate, has agreed to cooperate with the NPSC staff in an audit of the books and records of the Company relating to FERC-approved Grand Gulf 1 rates.                    The Company has stated that it
;                                                                                                                                                                                                                t l*.
* i                                                                                                                                                                                                                i SYSTEM ENERGY RESOURCES, INC.
i                                                                                                                                                                                                                1 NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 30, 1988            .
(Unaudited)                                                                                          l d
)                                intends to pursue its r6 quest for declaratory and permanent injunctive relief
]                                in the federal court action. This action is pending. Also, the show cause                                                                                                      !
order of the MPSC has been rescheduled until further order of the MPSC. The I
District Court action seeking an injunction and declaratory relief is pending.                                                                                                  ;
{                                                      NOPSI.        On March 25,1986, N0 PSI accepted in writing a March 20,                                                                                  l 3
1986 settlement offer (including the various conditions thereof) from the l                                Council with respect to the general retail electric rate increase application                                                                                                  i that NOPS! had filed with the Council on May 17, 1985.
~
The Rate Settlement                                            ;
  !                              provides, among other things, for deferral and phase-in of a portion of f                                NOPSI's non-fuel Grand Gulf 1 related costs and of the related carrying i
charges on the deferred amounts and for current recovery of certain portions                                                                                                    :
4 of such costs and carrying charges,                                              in addition, under the terms of this
}                                rettlement, N0 PSI agreed to permanently absorb $51.2 million Grand Gulf 1
,                                costs which it had previously incurred and expensed.
:                                                                                                                                                                                                                r J                                                      In connection with NOPS!'s request for permanent retail electric 4
rate relief, the Council, on October 17, 1985, initiated an investigation into                                                                                                  ,
l                              all aspects of NOPSI's prudence regarding its involvement with Grand Gulf 1.
l                                The Attorney General of the State of Louisiana and the Citizens for Safe Energy, a local citizens group, intervened in this proceeding.                                                            Although NOPSI                                        ,
i                                participated in the hearings before the Courcil, it did so under a full reservation of rights in connection with its position that the Council is j                                barred by federal law from conducting such a prudence inquiry and from denying                                                                                                  ,
retail rate recovery of NOPS!'s monthly payments to SERI for the FERC-                                                                                                          i allocated Grand Gulf I costs. The Council's consultants testified in the                                                                                                        -
prudence hearings that NOPSI's involvement with Grand Gulf 1 was imprudent and                                                                                                  l that NOPSI should and could sustain further substantial disalloaances of Grand                                                                                                  i Gulf 1.related costs and could remain financially viable. N0 PSI vigorously                                                                                                    !
contested the consultants' testimony. Further, the Council's consultants, at a public hearing held on October 23, 1987 presented summary arguments to the effect that the record developed in these proceedings supported the conclusion that NOPS! had been imprudent in its involvement with Grand Gulf 1. The Council's consultants orally reconnended that N0 PSI be disalloned the recovery i
of $135 million of Grand Gulf 1-related costs in addition to the $51.2 million i
already ab', orbed by NOPSI.                                              The consultants further stated that this additional disallowance weuld permit NOPSI to remain financially viable and suggested that the previously agreed annual rate increases under NOPS!'s
]                                phase-in plan could be reduced to provide for such disallowance.
1 1                                                      On February 4, 1988, the Council adopted the February 4 Resolution adopting as its formal findings of fact and conclusions in its prudence investigation, and constituting as its final order and decision therein, and making a part of the February 4 Resolution, the Determinations and Order j                                Regarding the Prudence of the Management of NOPS! with Respect to Grand Gulf 1 1
I                                                                                                                                                                                                                  i 1
                                                                                                                .                                                                                                1 1                                                                                                              41
)                                                                                                                                                                                                                  i I
m-  ,- - - ~--- - --, ,            ,,,g------_~,        ---,-,_.---,.-.--.----_---,.--,--,--,_n.y.,                            ,,-,-.n-,  n ,-,,.n-.      -.m, - _ , - - , - - . , .    - - - , - - -
 
6 I
        .                                                                                                        f l                                                SYSTEM ENERGY RESOURCES, INC.
]                                            NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 30, 1988          .
j                                                          (Unaudited)                                            l
!              attached to the Februdry 4 Resolution.                  The February 4 Resolution required d              NOSPI to write off, and not recover from its retail electric customers. $135                      l
:              million of its Grand Gulf 1-related costs in addition to the $51.2 million of                      f such costs that NOPSI absorbed in th,t Rate 5ettlement.                      The foilowing is a    (
,              comparison of the rate increases prcvided for in the Rate Settlement to the                        l l
rate increases provided for in the February 4 Resolution, commencing in 1988:                      l Rate increases        !
Effective                      Rate Increases              Per February 4 April 9                    Per Rate Settlement            Resolution          !
l            1988..........................            $22.1 million                  $16.6 million            l
!              1989..........................            $23.4 million                  $17.3 millien            t i              1990..........................            $24.8 million                  $18.1 million            !
l            Thereafter....................            6% of $439 million            4.5% of $420.7 million    f l                                                        compounded annually
* compounded annually
* l 1                                                                                                                L i                                                                                                                !
1
* In each case until Grand Gulf 1-related c:i,ts are being fully recovered on a                    l current basis and the amounts previously deferred (under the February 4 j
!                  Resolution, less the additional $135 million of disallowance) have been
]                  fully recovered.
l                        The action of the Council has resulted in multiple state and federal                  i
;              court suits, as described below.                                                                  ;
l j                          On February 4,1988, the membars of the Council in their capacity as                    i
;              such, the Ma "Plaintiffs")yor    andinthe filed          theDirector    of Utilities Civil District  Court for  of the the City andofthe Parish          City (the Orleans, j
s              Louisiana ("State Court") against James M. Cain, in his espacity)as Presidentandl                    .
I              for declaratory and injunctive relief alleging, among other things, that the                        I
!              February 4 Resolution requires a one-time disallowance and write-of f by NOPS!                      ,
j              of the $135 million and a reduction as set forth in the February 4 Resolution                      i 4
in planned (scheduled) rate increases comencing April 9,1988 to reflect the                          I
,              $135 million disallonance. The suit asks for a judgment, among other things, 1              declaring that the February 4 Resolution is valid and enforceable and that j              f ailure by NOPSI to comply therewith will be unlawful, and restraining and enjoining the Defendants from collecting retail electric service rates in the
;              City in a manner inconsistent with the February 4 Resolution. Furthermore, a 1              suit was filed in the State Court against the Council by the Alliance for
          ,    Affordable Energy, Inc. and others on February 4, 1988 asking that the j
February 4 Resolution be amended to order at least a minimum 31% or a maximum 63.8% disallowance of Grand Gulf 1-related costs from NOPSI's electric rates, or in the further alternative that the matter be remanded to the Council and i              the Council be directed to disallow the full costs steming from NOPSI's I,
 
b                                                                                        ,
SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 30, 1988        '
(Unaudited) l (allegedly) imprudent Grand Gulf management decisions. On February 11, 1988,        ,
!        the Council filed a reconventional demand against NOPSI, thereby naming NOPSI 2
as a party to this suit.      Although NOPS! secured the removal of both State      ;
Court proceedings to the United States District Court for the Eastern District      :
of Louisiana ("District Court"), they were subsequently remanded by the
)        District Court to the State Court, where the matters are per. ding. NOPS! is vigorously defending its position in these State Court suits, and has also          r 1        initiated its own actions seeking judicial relief.                                  ;
1 NOPSI filed, on February 9,1988, a complaint in the District Court seeking injunctive relief and a declaratory judgment enjoining the Council and 4        its individual members from enforcing the February 4 Resolution and from disallowing, on grounds of alleged imprudence, the recovery of any of NOPSI's i
Grand Gulf 1-related costs in excess of the 551.2 million of such costs previously absorbed by NOPSI in connection with the Rate Settlement.        On March i      10  1988, the District Court invoked the doctrine of abstention, declined to j        ruleonNOPS!'srequest,andorderedthatNOPS!'scomplaintbedismissedwith-
:      out prejudice. On March 22, 1988, N0 PSI filed with the United States Court of Appeals for the Fif t' "Ircuit ("Fif th Circuit") motions for injunction pending
;        appeal and for expeo.6ed appeal. On April 6,1988, the Fifth Circuit denied NOPSI's request for an injunction pending appeal, but granted NOPSl's motion to expedite the appeal. Further, on June 28, 1988, NOPSI filed a letter brief with the Fifth Circuit alerting the Court that, among other things, the United States Supreme Court had rendered its June 24 Decision in litigation concern-
!      ing NOPSI's af filiated company, MP&L, and MF&L's legal right to recover from its retail customers FERC-mandated Grand Gulf 1 related costs, asserting that I        this decision is dispesitive of the merits of NOPS!'s case pending before the i      Fif th Circuit. On July 28, 1988, the Fif th Circuit affirmed the judgment of the District Court.      In its opinion, the Fif th Circuit observed that the j      United States Supreme Court in its June 24 Decision held that the "FERC" pro-
:        ceedings preempted a prudence inquiry by a state regulatory commission". The i        Fifth Circuit's opinion further noted that,              although the basis of the j        Council's prudence inquiry is somewhat dif ferent f rom that at issue in the
!        HP&L case before the United States Suprem( Court, the lan                of June 24 1        Decision seems to "foreclose the ... kind of prudence inquiry"guagaco;.ucted by the i        Council. However, the Fifth Circuit noted that the federal courts do not have        l 1
exclusive jurisdiction over this issue, and held that the District Court had          l l        not abused its discretion in abstaining from the exercise of its jurisdiction
;        and deferring to the state court proceedings. On August 26, 1988, NOPSI filed        j j        a petition for writ of certiorar<    with the United States Supreme Court.      The  i j      . matter pending.
Further, on March 7,1988, NOPSI filed a petition in the State Court l                                                                                              I seeking the State Court's review of the February 4 Resolution and a declara-          l 1      . tion by the State- Court that the February 4 Resolution is null, void and I        without effect and that        the matter be        remanded to the Council with j                                                !
4
 
o
".                                SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 30, 1988      .
i (Unaudited)                                          I i
instructions to reinstate the rate schedule previously in effect pursuant to the Rate Settlement. On March 17, 1988, NOPSI amended and su                          !
original St!,te Court petition seeking, among other things, (i)pplemented its a preliminary    i and permanent injunct'on enjoining the Council from enforcing the February 4 Resolution and ordering the Council to permit NOPSI to collect retail rates in            ,
accordance rith the Rate Settlement with the provision that the difference between the rates set forth in the Rate Settlement and those set forth in the            i February 4 Resolution would be collected subject to refund should the Council ultimately  prevail null, void and      and effect.
without  (ii) a declaration that the February 4 Resolution is            i j
preliminary injunction in the State  OnCourt.
April 15, 1988, NOPSI filed a motion for On May 5,1988, the State Court          3 denied NOPSI's motion for injunctive relief. On May 24, 1988, NOPS! filed                  l with the Fourth Circuit Court of Appeal for the State of Louisiana ("Fourth Circuit") a Motion for Expedited Appeal from the States Court's May 5 decision.            I On June 16, 1988, the Fourth Circuit denied as premature NOPSI's motion for                ;
expedited appeal on the grounds that the record of the proceedings before the State Court had not yet been lodged with the Fourth Circuit. On July 18,                  !
1988, the record of the proceedings having been lod Circuit, NOPSI renened its request for expedited appeal.gedOnwith            the Fourth    I August 2, 1988,          I the Fourth Circuit denied NOPSI's motion for expMited appeal. N0 PSI has been advised by its counsel that, without expedited treatment, a decision by the Fourth Circuit could take up to one year.            Without expedited treatment,          )
NOPSI's current liquidity problems will be prolonged. N0 PSI has implemented                ,
cash    conservation The matter            measures in order to help deal with its liquidity problems.
is pending.
l of          In compliance with the February 4 Resolution, and pending resolution NOPS!'s judicial appeals, NOPSI implemented revised tariffs, effective                l April 9,1988, designed to produce additional base revenue of $16.6 million in              !
respect of the third year of NOPSl's rate phase-in plan for the recovery of its Grand Gulf 1-related costs.
less than the annual increase provided for in the RateThis        increase is approximately $
                                                                  ,tlement.
upon NOPSI's The February 4 Resolution has had a substantial and adverse effect financial condition and cash flow. In view of the f act that NOPSI was not able to obtain a court injunction staying enforcement of the February 4 Resolution, NOPSI was required by the teries of the February 4 Resolution and applicable generally accepted accounting principles to write off $135 million of its previously deferred Grand Gulf 1 related costs and to reflect that write off, net of income taxes, as a loss in 1987. See Note 7 "Commitments and Contingencies - NOPS! Prudence Disallowance and Liquidity Crisis."
As noted above, NOPSI i3 seeking relief in the courts against this finding by the Council of alleged imprudence.              NOPSI believes that the February 4 Resolution is in violation of the Federal Power Act. FERC orders 44                                                  l l
 
e SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 30, 1988    ..
(Unaudited) with respect to the allocation of Grand Gulf 1, and federal law as interpreted by the United States Supreme Court (including, most recently, in the June 24 Decision), and wil' ultimately be so declared by the courts.
: 9.        NUCLEAR FUEL LEASE At June 30, 1988 SERI had nuclear fuel leases for $165 million and for $50 million. The $165 million lease is scheduled to terminate February 28, 1989. The $50 million lease may be terminated by the lessor upon one year's written notice. Fuel under loase at the termination of the leases must also be purchased by the lessee upon termination of its lease. it is cur.
rently assumed that the existing nuclear fuel leases will be replaced t'. ring the period 1988-1990 and that 5215 million of nuclear fuel may be firanced under this new arrangement.        To the extent that new nuclear fuel leasing arrangements are not obtained or existing arrangement > arc m extend, additional financing requirements could result.
The amount of any such additional financing requirements would be dependent upon the amount of nuclear fuel financed at the time the particular lease terminates,    in addition, certain lease payments, based upon nuclear fuel use, are treated as a cost of fuel.      Lease expense charged to ope,ations for the twelve months ended June 30, 1988 was $79.5 million. The unrecovered cost base of the leases at June 30, 1988 was $166.4 million.
: 10.        TRANSACTIONS dlTH AFFILIATES The Company sells all of the capacity and inergy from its 904 share of Grand Gulf 1 to the System operating companies of MSV under rate schedules approved by the FERC in its June 13 Decision regarding the Unit Poner Sales Agreement. Accordingly, all of the Company's operating revenues consist of billings to the System operating companies.
Pursuant to a service agreement, HP&L provided technical and advisory services to the Company for the design, construction, maintenance and speration of the Grand Gulf Station.      (See Note 1, "Sumary of Significant Accounting Poli ies.") in return, the Company paid MP&L the actual cost of rendering these services and granted to MP&L the power and authority to act on the Company's behalf ss agent, in addition, pursuant to another service agree-ment, the Company receives technical and advisory services from MSU System Services, Inc. Operating expenses included charges from MF&L and MSU System Services, Inc. for technical and advisory services totaled $27.3 million for
    , the 12 months ended June 30, 1988, i
r--
J
  's                                                                                  i SYSTEM ENERGY RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (Concluded)
JUNE 30, 1988 (Unaudited)
: 11.      QUARTERLY RESULTS (Unaudited)
Operating results for the last four quarters were as follows:
Quarter Ended                  ;
September 30,  December 31,      March 31,    June 30, 1987            1987            1988          1988 (In Thousands of Dollars)
Operating Revenues........  $224,519      $246,929        $230,842      $232,927 Operating Income..........  $105,910      $108,058        $107,566      $105,767 Net income........    $ 44,431      5 48,963        $ 40,010      $ 46,008 l
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