ML072080208

07/24/2007 M070724C - Briefing on Palo Verde Nuclear Generating Station

ML072080208
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Site:	Palo Verde
Issue date:	07/24/2007
From:	NRC/OCM
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M070724C
Download: ML072080208 (74)

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1 2 3UNITED STATES NUCLEAR REGULATORY COMMISSION 4BRIEFING ON PALO VERDE NUCLEAR GENERATING STATION 5+ + + + +6TUESDAY 7JULY 24, 2007 8+ + + + +9The Commission convened at 2:00 p.m., Dale E. Klein, Chairman presiding.

10 11NUCLEAR REGULATORY COMMISSION 12DALE E. KLEIN, CHAIRMAN 13EDWARD McGAFFIGAN, JR., COMMISSIONER 14GREGORY B. JACZKO, COMMISSIONER 15PETER B. LYONS, COMMISSIONER 16 17 18 19 20 21 22 23 1PARTICIPANTS:

2RANDALL K. EDINGTON, Senior Vice President and Chief Nuclear 3Officer 4WILLIAM J. POST, APS Chairman of the Board, Arizona Public 5Service 6JACK E. DAVIS, President and COO, Pinnacle West, and CEO, 7Arizona Public Service 8DWIGHT MIMS, Vice President, Regulatory Affairs and Plant 9Improvement, Arizona Public Service 10JOHN HESSER, Vice President, Nuclear Engineering 11 12 13 14 15 16 17 18 19 20 21 22 23 24 P-R-O-C-E-E-D-I-N-G-S 1CHAIRMAN KLEIN: Thank you. Now we'll move on to Palo Verde.

2I'd like to thank you all for coming. I'm sure that we're going through a phase that 3will be challenging both for Palo Verde and for the NRC staff as you work through 4your programs. So we look forward to hearing your plan to get out of Column 4 5and thank you again for coming. Randy, I believe you're going to start.

6MR. EDINGTON: Thank you very much. We'll introduce at the table 7and then I have some other people supporting us in the back row that I'll introduce.

8MR. POST: I'm Bill Post. I'm Chairman of the Board of APS and also 9Chairman of the Board of our holding company, Pinnacle West Capital 10Corporation.

11MR. DAVIS: I'm Jack Davis, Chief Executive Officer of APS and 12President of our holding company, Pinnacle West Capital Corporation.

13MR. EDINGTON: Randy Edington, Senior VP and Chief Nuclear 14Officer. A little of my background. I was in multiple plants with Entergy, various 15plants on recovery. The last plant being Cooper Nuclear Station. I've been with 16Palo Verde for six months now.

17MR. MIMS: My name is Dwight Mims. I'm the Vice President of 18Regulatory Affairs and Plant Improvement. I've been in the industry for little over 1934 years now, working at TVA, Entergy for most of the time, and then NMC for 20about two years. I've been at Palo Verde now for about four months.

21MR. HESSER: I'm John Hesser. I'm the Vice President of Nuclear 22 Engineering. I've been in that position for about four months now. I have 27 years 1with Arizona Public Service and Palo Verde. I've held various positions within 2Engineering. My last eight years I've been in senior management of Work 3Management and Emergency Services.

4MR. EDINGTON: And behind us is Mike Perito, our Plant Manager.

5He's been at Palo Verde for 10 years; been in the industry about 26 years; has an 6engineering degree and his SRO license. Also, Maria Lacal. She's the Director of 7Executive Project. She was with Florida Power & Light for 26 years; has an 8engineering degree, SRO license and involved in training; has been at Palo Verde 9about three months.

10Mike Shea is the Director of ImPACT. You'll hear a lot about ImPACT 11improvement performance and cultural transformation. That's our focus effort to 12try to dig into and understand all the ground areas and Mr. Mims will talk quite a bit 13about that today. He's been at Palo Verde for 18 years, mainly in RP Training.

14He's been in his position for four months as we establish a new department for this 15effort. 16George Andrews is our Director of Performance Improvement; also has the 17corrective action program. He's been at Palo Verde 17 years; engineering degree, 18SRO certified and has also been in position for four months as we shifted a few 19people around to focus on these changes.

20And in the back helping us today is Scott Bauer. He's our Director of 21Regulatory Affairs; fourteen years at Palo Verde, another 13 years at various parts 22 of the industry mainly involved in regulatory.

1That's an example of we have a very good mix and a cross-section of 2history and new throughout this organization. We think it's one of our advantages.

3With that, I'll turn to Mr. Post for opening comments.

4MR. POST: Mr. Chairman and Commissioners, good afternoon.

5Jack, Randy, Dwight and I would like to brief you on our commitment and actions 6to improve our performance. I would like to start our presentation by answering 7the question, "How does a management team that was responsible for taking Palo 8Verde to one of the highest nuclear performance levels in the country and 9sustaining it for a decade allow it to fall into Column 4?"

10Obviously, it's something to which we've given a lot of thought. It's also 11something that has many facets. I know you are aware of the history of events at 12Palo Verde and I'll not repeat them here. Instead, I would like to address our 13assessment of the major cultural and organizational factors that contributed to our 14decline in performance and then Jack w ill discuss resources and our leadership 15changes. Please turn to page seven of the handout.

16First, our historical performance. Our high plant performance combined 17with high performance assessments, although positive at the time, contributed to 18complacency and an environment that camouflaged our growing weakness in 19personal accountability and a higher tolerance for incomplete root cause analysis; 20encouraged an attitude of pride, reduced our focus on continuous improvement 21and established a mind set that we were good enough to handle all issues as they 22 occurred.

1Next, we relied too heavily on historical and lagging performance indicators.

2We were not as attentive as we should have been to qualitative factors and non-3metric supported indications. These more subtle qualitative signals were not given 4the weight we give to our numerical metrics and as with the other things I'll 5describe today show we were too focused on the past.

6When our workload increased, we got defensive. But our historically high 7production over an extended period, we have become unfamiliar with high levels 8of emergent work. As a result, our bench strength was overestimated and we did 9not perform to our own standards.

10We rationalized that we were too good for low performance and our 11outages were not symptomatic of larger issues. Accountability declined in part 12due to this rationalization.

13And now on page eight, this was compounded by our high reliance on 14teams. Previous assessment reports had heralded our strong team structure while 15identifying the risks of over reliance. Encouraged by our performance, we 16underappreciated the warning.

17With higher workloads and declining personal accountability, dysfunctional 18teams developed and our ability to realign them was not timely and more difficult 19than we had expected.

20Turnover rates in our work force have always been low. Sean as positive, 21we did not fully appreciate the familiarity affect this had on individuals who became 22 reluctant to challenge or criticize their friends. We became overly dependent on 1each other versus strengthening the process and when combined with group 2oriented performance awards, individual accountability declined.

3Also, for the first time, the attitude changes that come with thinking about 4retirement became a factor. We had studied and built plans to deal with the 5number of retirements, but we underappreciated the personal effects on 6individuals who are not yet retiring, but starting to focus for the first time on their 7future personal retirement plan instead of solely on a plant business plan and their 8participation in it.

9This environment also produced an internal, not an external, industry-10oriented perspective. People came to see us. We were the example. Industry 11visits were rationalized to our performance instead of being used to learn from 12others. We had not kept up with the advancements in the industry.

13Finally, and probably the most importantly, our communication models had 14evolved over time and did not cover the information we needed to hear. We had 15institutionalized our communications and narrowed them to a point where we 16spent too much time on historical performance data. This was not intentional, but 17we let single points of communication develop which reduced our ability to see 18many of the things I've outlined today.

19Additionally, our oversight structure was not organized correctly and when 20combined with our medium of communication, cultural issues were not fully 21appreciated.

22 Obviously, these are just some of the lessons we've learned; however, they 1are the major cultural factors which contributed to our leadership's inability to 2identify and correct our decline in performance. We have relearned the very 3important fact that high nuclear performance is more a function of people than 4technology.

5Today, we want to outline for you all the steps, cultural and others, we are 6taking to regain our former position of excellence. Let me assure you that I am 7fully committed to doing whatever it takes to achieve this goal.

8I would now like to turn it over to our CEO, Jack Davis, who will explain the 9leadership changes we've made and our strong and unequivocal commitment to 10provide the required resources and take the necessary actions to reverse our 11decline in performance. Jack?

12MR. DAVIS: Thanks, Bill. Bill has given you a brief historical 13perspective, so I'll not dwell on the past. We are aware that we have had 14equipment problems and that latent issues still exist. We're also aware that the 15way we have handled equipment issues has not been up to acceptable standards.

16I recognize we were in denial and that the issues were broader than initially 17thought and recognize there's much more work to be done.

18I want to state up front that we are focused on Palo Verde improvement for 19the long term and that we will fully fund whatever is needed; people, materials, or 20equipment.

21As you are aware Palo Verde is a plant with multiple owners that includes 22 both investor-owned utilities and municipalities. The owners of Palo Verde have 1consistently provided the financial resources for the operation, maintenance and 2improvement of the plant.

3In fact, this fall we will complete a major improvement replacing steam 4generators and core protection calculators in each of the three units. This will 5significantly improve the safe and reliable operation of the plant.

6Palo Verde represents a major financial investment and critical energy 7resource for each of the owners, especially with increasing discussions and 8concerns regarding global warming. Bill and I and recently Randy Edington 9periodically meet with the owner CEOs to discuss Palo Verde. As you would 10expect, we all want to make sure that Palo Verde has the financial and human 11resources to succeed over the long term. We are all committed to this goal.

12As Chief Executive Officer of Arizona Public Service and the Operating 13Agent of Palo Verde, I assure you that the resources will be provided to safely and 14efficiently operate the plant. As part of the commitment to provide the proper 15resources, we have brought in new management team headed up by Randy. You 16will hear from him in a couple of minutes.

17Randy was hired in January of this year on the basis of his success in 18improving nuclear plants that have fallen to difficult situations and for his openness 19and accountability. Randy has a slide showing the team that he has put in place.

20It is a mixture of the old and the new, of fleet and single-site plants. I am sure that 21Randy will provide much more insight on each.

22 The reason I emphasize the change in management team can be gleaned 1from Bill's historical perspective. We had become insular and distant from the 2industry. We needed a fresh perspective.

3Prior to Randy's hiring, we had appointed a new Chief Nuclear Officer from 4internal management in August of 2005. It is now clear that that action was not 5broad or deep enough to deal with the equipment and cultural issues we faced.

6The new team has brought new culture and new life to the organization while 7integrating effectively with the old. He has brought an emphasis on accountability 8and a new industry perspective. He has brought new relationships and personal 9commitment to restore Palo Verde to excellence in all aspects.

10In fact, within the first few weeks of his arrival, Randy asked each individual 11management to sign a commitment to these new approaches he brings, which 12fundamentally included determination and dedication to exceed for the long term.

13And I might add, I also signed one of those commitments along with the rest of the 14management team at Palo Verde.

15You will see from Randy's presentatio n that outside input is encouraged, 16whether it's from APS's Board Members, operation oversight, management 17oversight or elsewhere. Randy and I guarantee that Palo Verde will become more 18 connected and open.

19Before I end up giving more of Randy's presentation, I should turn the 20microphone over to him. Therefore, I will conclude my remarks and let Randy 21explain the plan for the long-term plant improvement and the road we are mapping 22 out to return Palo Verde to the excellence we all expect.

1MR. EDINGTON: Thank you. We are on page 10 of the slides:

2Improving Palo Verde for the Long Term. What we'll be talking about in the next 340 minutes or so - I will talk the overall generic aspects and our site improvement 4plan that is currently underway and how we meld the old improvement plan into 5 that. 6Mr. Mims will talk about the impact effort where we're independently 7reviewing all aspects to try and understand the underlying symptoms that went into 8that, which will later feedback into our improvement plan. I'll assure you that our 9focus on the long term is very key and we ask our managers every day what do 10you want to be three, five, 10 years from now, now how do we get there.

11We are ensuring that we build a foundation that not only that we'll learn 12from these issues and ensure that we're here for a very long time. It's also based 13on very open communications and we'll try to show that throughout here and we 14encourage that.

15The next page 11 is a generic aspect. This is a drawing that I use through 16the various experiences and its representative and it's mainly intended to be a 17talking point. It's not a mathematically drawn area. You can change the slopes or 18make adjustments. There's some key points, I think, in there.

19Many plants as they go through various stages in their life and I'll start over 20on the A Column. A plant may have high performance, but its culture and its 21format and its programs and processes could be degrading for quite a while.

22 Eventually after enough items hit, the volume overcomes and it looks like the plant 1collapsed, but in reality there's been a degradation for quite a while to get to this 2point. 3Then the plant goes into Column B which is basically a denial stage. Those 4can vary from short times to a very long time. This is an area where you need to 5look very hard and say I've got to make these changes and I've got to get the 6depth and breadth right.

7Point 4 bottoms out and you start back on a recovery slope. There are 8plateaus along the way. As you build these foundations, you'll hit plateaus where 9you'll flatten out for a while and as you can see by the green on the very right, 10depending on how you worked on your foundation, your improvements and your 11awareness, you can go for quite awhile there and you can actually lose 12performance again.

13I think a very important part is the green line on top up there by the Charlie 14and Delta area. That should represent that the capacity factors may in fact 15rebound very quickly, but the plant is still not recovered. One example for Palo 16Verde would be if our capacity factors are very high. Next year our performance 17and what I am focusing on is a cultural transformation, the programs, the 18processes is a long way from being done. This takes quite a while to focus on this 19and ensure that you focus on where you want to be in the long term.

20The red line, if you would, is my attempt to represent where the regulatory 21may be. The regulatory frequently will lead the licensee in recognizing the decline 22 and frequently will also lag behind on the recovery because it is obviously -- and 1this is important for me to talk to my site, because you want to have a very 2sustained change. It's rightfully so the regulatory process looks at that.

3As the site is making the changes and they're hungry for a little positive 4reinforcement, we want to emphasize we don't necessarily get that right away that 5we have to have a sustained long-term change.

6On page 12, generally what we talk about at the site is recognize where 7we've been; respect the history and learn from it, but don't live in it. And more 8importantly emphasize where we are and where we're going and how are we 9going to get there. Where we are is a very important piece. This requires us to be 10very self critical and create a self awareness.

11Many sites have been going through denial. We've lost connection with the 12industry. The insular term was used where we're not fully aware and we're 13justifying what we do. And then focus on where we're going and lay out a clear 14vision of where we're going and talk about how to get there.

15The next page 13 is another way of saying that. History plus new plus 16change equals the new Palo Verde way. And maybe more important is the slide 17just beneath there where it says "controlled change at deliberate speed". We are 18making sure we build a solid foundation and we're going to move controlled 19change at a deliberate speed.

20Sometimes that's fast; sometimes that's a little slow. Sometimes you have 21us do your homework and your preparation as we feel like we're doing in the 22 ImPACT effort. We don't have to wait for those final areas. There are areas that 1are very clear that we need to focus on and improve right now and we feel like we 2have been doing that, but we want to make sure we have a very solid foundation 3and understanding.

4On page 14, is another theme: map and understand and then make a 5choice; choose execution, evolution or revolution. The choice I try to tell is 6conscious choice. Understand enough facts to make a conscious choice of where 7you want to go. Usually at many sites that have dropped into trouble, execution -

8the process is there, we need to understand it better and go execute it better.

9Accountability. Frequently we've lost touch with that process. Evolution is 10also another answer. As you connect with the industry, you build on the 11foundation of what you get and ultimately every once in a while there's revolution, 12you have change the whole system out.

13Along with that is risk. You need to concentrate on what that risk is and 14make sure you've thought about that to make those types of wholesale changes 15and too many of them can put you in another tailspin. So map and understand 16and make a conscious choice.

17On the next slide, page 15, I've had the opportunity to work at many plants.

18Many of those plants when you move in, you have an entire new management 19team. I think at Palo Verde one of our benefits is we have a tremendously talented 20work force that we've been able to supplement with new people to bring in a 21different area and actually get a synergistic effect.

22 If you look at the Green block, those of the same positions we had, but new 1people. John Hesser's position, although he's 27 years with Palo Verde, he's 2three or four months new in the position.

3If you look at the blue box, those are where we made a conscious choice to 4shift our organization and evolve it. We have the Vice President of Regulatory 5Affairs, Dwight Mims; Ms. Maria Lacal in the back who brings 26 years of Florida 6Power & Light experience and then the Director of Communications.

7Obviously with the site this size, the communication aspect is very critical to 8us. We've raised that up to a higher level and we brought in Terry Young from 9 INPO. 10And in the white blocks are people, same positions and same people from 11the last time. We were able to mix that quite well.

12If you move to page 16, the site's mission is "safely and efficiently generate 13electricity for the long term". We continue to emphasize safely; capitalize, 14underline over and over. Obviously in this game you must make sure you're 15safely. 16I think also important is the long term. I've mentioned it before; you'll hear it 17throughout this. Continue to set a vision of what you want to be. In fact, I've told 18my managers and I tell myself I did not do a good job unless five years after I 19leave this plant is still improving. A manager I do not consider did a good job 20unless two to three years after you leave that site, that department is still 21improving.

22 You must understand the core business and the foundation and build on 1that for the long term. I would not be here if I had not been convinced that Arizona 2Public Service was focused on the long term for Palo Verde. That was certainly 3one of the areas I focused on in my interviews.

4Long-term focus on page 17. Developing a three to five-year improvement 5plan which our plan is based on at this time. We're building upon the existing 6improvement plans. There was some good actions taken. In many cases they did 7not take us far enough. We have certainly built on those farther. We have taken 8actions and started improving on that. We are doing this ImPACT Team; 9Improved Performance and Cultural Transformation. Mr. Mims will talk about that.

10That's a very thorough, independent review to try and feed this information back 11into the existing improvement plan.

12We are looking much broader than a 95003 inspection. I said earlier depth 13and breadth. We are not just looking at fixing the symptoms. We're looking at 14building a foundation for the long term.

15And last is obtaining organizational alignment. We have 31/2 hour meetings 16every Monday with the management team; about 70 people. Technically, that's a 17day off. We talk about why we're doing things and there's teaching sessions and 18repetitive aspects. So every Monday we do that.

19We're talking to the supervisors monthly so we do a horizontal cut and bring 20those in and talk for a couple hours. We're meeting with what I call natural 21workgroups; either a group of operators or a group of system engineers and 22 talking to them. And recently, we just kicked off meeting with every single 1individual on site in mixed groups of about 35 people at a time for about 21/2 hours 2talking about what are we doing and why and why it's important to them and why 3they should be focused on the future. We're trying to bring it to a personal level.

4You move to page 18.

5This slide represents what we'll be talking about. The green is what I will 6talk about leading to the foundation and the pyramid on the right. The green on 7the left is the old improvement plans where we've gone back and try to map and 8try to make sure what we were doing and asked ourselves why was this part 9successful and why was this not.

10We have done upgrades to that and we have a very active improvement 11plan ongoing right now, but it needs more texture added to it as we work through 12the ImPACT process. I'm going to explain the current state of where we're at and 13how it's going to be available to receive the ImPACT efforts as we finish up in 14September.

15If you turn to page 19, the form is very representative and again working 16with an open communication. This is web-based. It is on the Palo Verde Web.

17Any employee can call this up, click on it. They made it what we call "Randy-18friendly". You can click on it three times and get all the information. You click on 19any block and there'll be actions underneath and I'll show you an example in just a 20minute. 21The top is safely and efficiently generate for the long term to continue our 22 mission and continue to focus on. Safety is always on top and always number 1one. We have safety in the middle of those five red blocks. That's what ties 2everything together. The five red blocks are intended to be the core foundations; 3things that will not change, but the actions behind them will change as we evolve.

4The green blocks are areas that we can bring out and put context or 5specific emphasis on. An example here will be oversight, procedures, 6engineering. These may change over the years. Each year we do an upgrade, so 7the green blocks may fluctuate, change a little. The five red never will. What is it 8that we want to emphasize? I'm going to explain the process for just one minute, 9just to try and give you a feel for how this works.

10So if you'll turn to page 20. I do apologize for the picture. There are better 11ones. There are other managers throughout that maybe I should have picked 12another one, but I wanted to use the oversight one. Again, this is a busy slide and 13the only intent is for you to understand what it's trying to do.

14You start down the left-hand side. It talks about a current state, a goal. If 15you look at actions prior to 2007, that's a hyperlink so you can click on it and see 16what we've done and see what building to this.

17The middle is the most important. Reading those gives you the top actions 18that we're going to take and there'll be tactical actions behind each of those.

19Over on the right you have performance indicators. Again, that will be a 20hyperlink that if there's specific indicators for this area you'll click on that and be 21able to look at just what it is.

22 And finally, will be effectiveness reviews. The planned ones will be here 1and the finished ones will be here, so you' ll be able to pull that and sort all that 2information out. Again, we're trying to make easy. I do want to emphasize 3anybody can get to this at any time as long as they are on the Palo Verde web 4page. We are currently showing people how to use it throughout the organization.

5I will take one minute to talk since oversight is here, and it was prevalent in 6Mr. Post's and Mr. Davis's presentation, the importance of it and how in a single 7station, single site, multi-unit station is so important to get good oversight and have 8that external influence. In here you'll see things like the Nuclear Oversight 9Committee, which was revamped with new membership in 2006 and the reporting 10relationship was changed for me directly to the Board. That is important that the 11Board get multiple information.

12Then we have the OSRC, the Offsite Safety Review Committee. That had 13been fairly low in the organization. That has been regrouped as we speak. We 14have external members. We have now assigned an external Chair. They will also 15go to the Board once a year and provide an independent presentation that's being 16written into their charter.

17The management review meetings, where we go into metrics and dig very 18deeply, those will have external members from off site. We're partnering with 19various peoples in the STARTS group to come in and we will go to there's so that 20we get, not just an internal look but an external challenge, similar to what fleets do.

21 22 And again, if you look at my members, I have a mixture of people single 1sites or fleets. So we're looking for the advantages of fleets and keeping the 2advantages of the single site.

3We'll go on into QA and rotational assignments, et cetera. That's what all 4these actions are about. If I picked on 8.3, just an example, and you clicked on 5that, the next page would be 21. Again, it's a busy slide. I'm not intending to go 6through the full details. The emphasis here is there will be a condition report on 7each area and an action on each tactical action.

8You see the "More" button at the bottom; that means there's more actions 9behind this. You can see where each item is tracked. It has an owner and a due 10date and a source document. As we work through the ImPACT, or the 11Confirmatory action Letter, these will be identified here and can be extracted at 12any time so we can monitor it. Then we go through the various progress and 13effectiveness reviews.

14Again, just one awareness is if you look at the first four items there, 15although they are due in September, we're well ahead on those. We expect to 16finish here in the next month or so. We've already done benchmarking. We've 17already assigned an external Chair. We've already identified the external 18members for the Board. We need to put that formally in place with the paperwork 19and the processes and charters behind it.

20If I move back to 22, we're back on the pyramid again. What I'd like to do is 21just take a few minutes to talk very lightly about the five major core blocks just to 22 give you a sample of what we're doing and what else we have to do. Again, I 1won't get into the specific details. If the Web was here, you could call it and look 2and see exactly what actions are behind it.

3Let's go first to plant equipment. If you look at the major equipment at this 4site, unlike many sites I've been to, the major equipment is in good shape; the 5steam generators and core protection calculators. In fact, the most major 6component that I'm looking at now is the cooling tower.

7We do have small equipment issues and a number of them. They've been 8allowed to degrade for a while. We're focusing on those. The top-10 equipment 9technical process is intended to surface those. We go to every department. We 10have them identify their issues. We have them prioritize their issues when they roll 11up. Again, this will be on the web page or is on the web page and is very visible 12for everybody. You have a chance to surface those issues and we're putting 13dedicated resources to attack the small equipment issues.

14We have a Plant Health Committee that was established last year, but has 15been revamped and continue to upgrade this year. It's very important and we've 16taken that from other plants. We are currently reviewing our engineering 17equipment programs and those are in various stages of evaluation and various 18focus assessments at this time.

19And last, we have a component design basis review under way. This is to 20focus on the latent issues. We made an initial attempt. We've adjusted it since 21then, and based on the reviews, the ImPACT will continue to upgrade that. This 22 becomes important because this will be something that's been going on for two or 1three or maybe four years and deep dives into the equipment to understand the 2latent aspect.

3If you move to the next slide, a set of actions I've put our hiring model here.

4Let's talk about people. I'm on page 24. This is our hiring model for our future.

5This is a very important model because we're focusing on living this. There are 6similar aspects to what the NRC is doing. We have senior demographics and 7we're focusing on hiring for our future. We will not hire somebody if we don't say, 8"What value will they bring." And they're going to own this plant in ten or 15 years.

9So it's very, very important that the people we bring into this organization are really 10dedicated and focused on that.

11We've raised the bar and the standards for all our initial hires. We have 12actively pursued operations and have a very strong pipeline reestablished, but we 13do have Operator pipeline issues.

14If you look at the overall methods, our initial hires, our development and 15promotions, we expect 68% of the organization to come up through the 16organization, but we actively pursue up to 20% of the people coming in on side 17streams. That's an area that Palo Verde -- we had a lot of experienced people, 18but we weren't bringing in enough external people to keep that mix going. That's 19now part of our strategies.

20We've gone into things like the legacy program and how we've hired them.

21We do a two-year training program. The maintenance group - we bring in people, 22 we partnered with local colleges to get an Associate Degree for our maintenance 1people. Also for the RP organization; we've partnered in developing Associate 2Degrees for them. It's very important that we focus on our people for the future.

3Next I'll go to safety. Safety clearly, again, holds all of this together. We 4have every department talk plant status and safety at their beginning meetings, no 5matter if they're human resources, licensing or the power plant people themselves.

6What is the plant status and what is the safety aspects associated with that?

7We're training them a lot more to do that.

8Improving risk models, knowledge and structure. Importance of that is 9obviously very clear. We've taken our organization and started reporting at a 10higher level. We're adding resources to it and we're bringing more training and 11trying to drive that out to the organization more.

12We're focusing on the behaviors of industrial safety. We have restructured; 13moved that into the Vice President of Operations and we're reorganizing that 14group. Ultimately, the last is we'll have the Independent Safety Culture 15Assessment, which Mr. Mims will talk about. Those items are being factored into 16our improvement plans.

17If you take Corrective Action Program, on the next page 26, clearly mapping 18and understanding the Corrective Action Program is important. This is an area 19that we think we are making gains, but we do feel like we have quite a bit more 20gains to do. The process was cumbersome. It's being mapped. It's being made 21more efficient. The metrics along the way are being focused on and we're 22 improving those.

1More importantly, we're providing additional dedicated resources and 2restructured that. CAP is core business. CAP will be here for quite a while and 3we will focus on that to make sure everybody is focused on it. We are establishing 4CAP as our core business.

5Last block I will talk about is knowledge and training. The words 6"knowledge" and "training" is written there on purpose. Training is a formal aspect.

7An operator on shift has the opportunity to learn something hundreds of times 8during a 12-hour shift, focusing on the knowledge and ensuring we're driving that 9knowledge in all aspects of our organization is key.

10Again, we consider this core business. We are teaching the site. We have 11commitments to teach anybody who comes in the plant a three to four week 12course on Palo Verde, no matter what organization you're in. We feel like the 13more you know about the plant, the more engaged you are with the plant. This is 14obviously a long-term effort. By the time we do the back log training that will take 15three to four years to take people who have been there and retrain them back on 16the Palo Verde basics. I'll move on to page 28.

17Again, I want to emphasize this is a representation of our business plan. It 18is made available to everybody and it is designed to receive the ImPACT 19information that will come in later and in some cases it's starting to flow and 20update on our action plans.

21With that, I would like to go to page 29 and get ready to turn it over to 22 Mr. Mims. Again, I talked about the green and the triangles and the importance of 1that. This is current. Its history is current and it's active today. The ImPACT effort 2is evaluating today, working through the issues and we'll be feeding into this as we 3speak. With that, I'd like to turn it over to Mr. Mims.

4MR. MIMS: Good afternoon. Starting on slide 30, I'll repeat a couple 5things that Mr. Edington has already said. The efforts that we're putting in 6associated with the ImPACT are broader than the 95003 inspection module. I 7think you'll be able to see it as I go through that and we're looking at the three to 8five-year horizon. We're asking ourselves and asking the people that we work with 9constantly where do you want to be in three, five years, ten years and what do we 10need to do to drive in that direction? Move to slide 31.

11This is the same slide that Mr. Edington just had up and I'm going to be 12talking primarily about the blue lower left-hand portion of that slide. I'm about to 13expand that block and talk about several elements that are internal to that block.

14We're thoroughly assessing our performance through the ImPACT process.

15This is the most in depth performance assessment that's ever been conducted at 16Palo Verde. We have about 40 to 60 people involved in that on a routine basis.

17That's been going for about three months now and we're still working.

18In addition to Palo Verde personnel, we have a number of external people.

19We have people from plants that have gone through similar issues as Palo Verde 20is going through now. We have people that are retired regulators. We have 21personal from plants that perform well and all these people work with our folks to 22 give us a balanced perspective and different perspectives on issues then perhaps 1we've seen from an internal view in the past. It keeps us objective and we're not 2just evaluating ourselves. Going to slide 32 now.

3You can see now that the blue block has been expanded out to several 4blocks and I'll be talking about most of these blocks, but let me make a couple 5points on these because this is a little bit complicated, so it's good to get a feel for 6it before I start into it.

7As Mr. Edington has said, this is the ImPACT process and we have teams 8working on these blocks. If I look at one block, historical data review which is in 9the center of the page, I'll talk specifically about them. You can see it feeds 10several other blocks, three blocks below that plus feeds a collective evaluation 11process. We'll talk about that some.

12If you look at the lower block, that's the safety culture assessment.

13Normally, I would talk about that first; however, I've reserved that to the end 14because that's the one that furthest along and I can share more information about 15the outcomes of that. So, I'll do that last today.

16If you roll up and you look - there's a little red diamond in there. That's 17where the CAL was issued and we're working through the issues associated with 18the CAL when it was issued as well as numerous other issues that we're focusing 19on from an ImPACT standpoint.

20If you roll on up to the collective evaluation and root cause evaluation, I'll be 21talking about that in just a few minutes. That's where we're starting to bring all this 22 information together for the first time from all these different assessments and 1processes and determining what the common themes are and which areas need 2to have root causes or some other assessment technique performed on them.

3If we look at the one up there that says RES and K-1 Relay, those are 4issues because it's a recirculation actuation signal in the K-1 Relay which was the 5diesel issue which both lead to us to having a yellow and a white finding 6respectively. So we went and did a re-look at those issues as well.

7All those issues feed into the integrated action plan development, which as 8Mr. Edington has described, is where everything comes back together again. Just 9out to the right of that are some NRC activities having primarily to do with the 1095003 inspection activities. We put those on there for our own awareness. We 11recognize we don't have any control and scheduling of those or anything. We just 12want to make you aware those were there.

13With that, I'll move on to the first block, which is slide 33, Historical Data 14Review. This was a substantial effort for us. Our objective was to review 15approximately six years of selected historical plant records to characterize our past 16performance and then feed that into the various elements of the ImPACT process.

17 18Six years included recent station performance at the plateau level that 19included performance when we were performing at a high level and it also 20included recent levels of performance. If we had an issue that warranted pulling 21the string back past six years, we didn't just arbitrarily stop at six years. So we'd 22 pull the string back past six years if we needed to.

1We'll talk about a couple of self assessments here, focused self 2assessments, here in a few minutes. Both of those went back past six years; one 3substantially back past six years.

4Key documents that we looked at through this were corrective action 5program documents, training program reviews, NRC correspondence, Institute of 6Nuclear Power Operations correspondence, unplanned down powers, oversight 7and self assessment reports and other documents.

8If you go to slide - I'm sorry, stay on that same slide now, but in addition to 9serving as the input to several other activities as we've already discussed as you 10can see from the arrows, we've already done some sorting and analyzing the 11information that we gathered in the database when looking at the historical 12information. That drove additional assessments right away in areas like oversight 13and activities that Mr. Edington has already talked about some, training and work 14management. Now, if you'll go to slide 34.

15This issue that we're working on here has to do with identifying, assessing 16and correcting performance deficiency review. What we are doing right there is 17we are taking a look at ourselves for the programs that we have for identifying, 18assessing and correcting performance deficiencies to see if what we're doing is 19adequate to support strong performance of the plant. We're looking at our own 20self identification process.

21We looked at root cause, we looked at audit assessments and we looked at 22 use of industry information, these are some examples of places that we examined.

1Due to gaps that we identified in this, we immediately kicked off assessments of 2the Offsite Safety Review Committee and we went to a plant that has a well 3functioning Corrective Action Program to do a benchmark as a result of these 4efforts.

5Moving now to page 35, we'll talk about attribute review. We selected two 6safety systems to do an attribute review. This is where we looked and I'll describe 7what the attributes are that we were using in just a minute. We selected the safety 8injection and emergency diesel generator systems to review. We did that based 9on risk significant and known performance deficiencies in those areas.

10We're essentially using diesel generator and safety injection as a window 11on safety system performance with the objective of learning lessons and then 12feeding those lessons into subsequent reviews that we do on other safety 13systems, whether they be related to component design basis review or other 14design type reviews that we may be doing.

15The methodology as we selected documents to review for technical 16accuracy and adequacy. We looked at changes that were made to the plant and 17we looked to see if they were translated throughout the whole process, whether 18that be programs, drawings, procedures, work instructions or licensing documents.

19We conducted some plant walk-downs on these systems to verify as-built 20configuration is consistent with design.

21As I've already mentioned, we used the output and knowledge we gained 22 from this into part of the input to the re-examination of our component design basis 1reviews that we're doing right now.

2In addition to feeding into the collective evaluation based on this review, we 3identified performance issues in areas such as design control, engineering product 4quality. And in walk-downs, we identified housekeeping problems as well. We got 5some information related to identification of latent issues and engineering 6programs. Those are some example areas where we provided input into 7additional areas where we need to do further looks.

8Moving to slide 36: Focused Assessments. In this particular case, we 9wanted to perform an assessment of selected performance deficiencies and 10associated organizational issues. So, I'll move immediately. That one shows you 11the block that we're focusing on. I'll move immediately to slide 37 and that gives 12you the initial scope that we focused on.

13Those bullets are the initial scope that we focused on for the focus 14assessment. As I mentioned, a couple of those go back further than six years.

15You can see the re-engineering '93-'94 and the 1989 diagnostic inspection. We 16used those to see if they gave us insights into the current performance or what we 17may learn from that.

18We started with this initial scope and those are essentially done. Those are 19being rolled up into the collective evaluation process right now. Another point that 20I need to make you aware of here is that this is a dynamic process. As we work 21through this and the other assessment activities that we have, any of those can 22 spawn another assessment activity as we identify problems.

1As a matter of fact, these assessments that you see up there, we either 2expanded or crated new assessments in 10 different areas at this point.

3Next slide is 38 and this is root cause and collective evaluation. This is 4where we are right now. Data from historical reviews and assessment activities 5have been sorted and analyzed to determine which need root cause evaluations or 6some other method of evaluation, like a self-assessment. That's what we're trying 7to determine right now. We're working through that piece of it.

8We want to identify the areas that are primarily driving performance 9deficiencies at Palo Verde and our sincere attempt in this area is to try and gain a 10better understanding of the underlying causes of performance issues. If you go to 11the next slide, 39.

12These are the broad based issues that roll up from the ImPACT process so 13far. They're still in the process in that they're feeding in to the root cause 14evaluation step and there has to be a good bit of background to fully define some 15of these generic statements that you see here. I'm not trying to get into the details 16of each one of those and what each one means.

17However, I can tell you from our review that it's interesting to note that if you 18take this list and you compare it with some of the elements of the confirmatory 19action letter, there's a good overlap. I can also tell you that if you take this list and 20you overlay it with what our independent safety culture performance evaluation 21team has identified, which I'll be talking about in a few minutes, there's a pretty 22 good overlap.

1We're continuing to pursue the examination of all of this information to make 2sure that we thoroughly mine all the data that we have to understand if there's 3anything else. Right now, in general what we're seeing is that these are similar 4issues to what we've found in the past.

5I guess what I want you to understand for that process is we're sincerely 6reviewing this information to gain a more in-depth understanding of what the 7underlying causes are for performance deficiencies at Palo Verde, whether that's 8latent issues, whether it's organizational issues or whether it's equipment issues.

9This is the intent of the ImPACT process overall.

10Next slide is Safety Culture Assessment. That's slide 40. I'll go directly 11from slide 40 as you see where that occurs in the diagram over to slide 41. I want 12to talk about two different aspects of safety culture assessment.

13As you're well aware, we're the first plant to go through the 95003 process 14with the new inspection procedure which substantially expands the safety culture 15assessment area. We thought it was important to us to understand this, so as 16Mr. Edington has used the term several times, we matrixed, we mapped the 17process to understand what all was there.

18Initially, we started out with SYNERGY Consulting Services after we 19mapped and understood the process. We thought it was important to expand 20beyond what we had with the SYNERGY Consulting Services to what -- we used 21the term "independent safety culture performance evaluation team".

22 What this did for us is in addition, it complements the SYNERGY process 1and it helps us evaluate performance from what I'd like to say as sort of an "in the 2field" perspective. It's a snapshot of current performance by a group of 3knowledgeable individuals that are recognized industry experts in their area and 4are very capable people in their field.

5We had about 11 people on site off and on for a period of about six weeks 6and their backgrounds vary from CEOs to Vice Presidents of Operations, to Vice 7President of Oversight. We had two Senior Reactor Operators. We had an 8Employee Concerns Program Coordinator. We had people with backgrounds in 9maintenance and in radiation protection and we had people with experience in 10safety culture issues, both from an enforcement perspective as well as an ex-11investigative person from the regulatory perspective. So we had a broad range of 12backgrounds and we feel like we've got some good information.

13They focused primarily on reviewing programs, procedures, policies, written 14communications. They also reviewed prior assessments and inspections, 15corrective action data and allegations. They observed meetings and work 16activities and had some targeted interviews.

17As I said, that complements the SYNERGY process where the SYNERGY 18is more of a comprehensive cultural survey that gives insights into attitudes, 19perceptions and behaviors. It has questions that makes room for write-in 20comments, documentation reviews, individual personnel interviews and selective 21behavioral observations. I'll be talking about each one of these a little bit more in 22 the next few slides.

1I've described two processes. I just want to make that clear. There's the 2ISCPET and the SYNERGY. Now, I'd like to move back on slide 42 to the ISCPET 3and give you some general information that came out of each one of these 4assessment processes that we did.

5First of all, some general observations that are pretty positive from the 6ISCPET. Some key ones to us is that the majority of the work force will actively 7identify nuclear safety issues. I'll give you some more about that when we get to 8the SYNERGY survey that I think will reinforce that.

9The second one is very important to us is the alternate means for raising 10concerns, primarily ECP areas, generally functions well and is trusted by the work 11force. They made a comment that was challenging to us, though, as well. They 12said getting things done at Palo Verde is hard. We hear that as we go about our 13interviews and as we work and what we know about that, and we have more to 14learn about that, is that the processes have become very cumbersome over the 15years and we've got work to do in that area to achieve improvement in that regard.

16Slide 43 are action areas that the ISCPET identified for us and for the sake 17of time I'm not going to go through each one, but I'll highlight a couple. They 18indicated we have some work to do in these areas and I'll talk about alignment.

19They told us that from -- and again, their's is a snapshot that was done at a 20particular point time in the May/early June time frame. What they told us was that 21the message regarding our current level of performance has not been driven to the 22 lowest level of our organization. At the time they did the survey, as Mr. Edington 1talked about, we were having weekly meetings with the site leadership team at the 2senior and middle manager level.

3A lot of this information is being shared and internalized by those people at 4that time about this type of an issue. Those meetings continue at this point, but 5we've also added additional meetings where were talking about similar things with 6supervisors, with mixed small work group meetings and as Mr. Edington just talked 7about we're starting a process where we're talking about those types of issues with 8every person in small groups of 30 to 35 in the work force at Palo Verde.

9We believe there's a change. It's a rapidly changing environment and we 10believe there is a change now from what was observed by that team and we still 11have a ways to go. From a safety conscious work environment standpoint, what 12they told us in that area is that while the work force will raise concerns, we're not 13always as efficient and effective as we can be in addressing those concerns. We 14need to improve in that regard from the standpoint of how we respond to those 15issues. 16They also told us that we need to communicate about the employee 17concerns program more aggressively regarding its primary role of being nuclear 18safety and the importance of getting all technical issues captured in the Corrective 19Action Program.

20Next slide, I'll go back to the SYNERGY survey and talk a little bit about 21that. The survey participation expectation is about 60% to 70%. As you can see 22 on the bottom bullet, we have 79%. The industry average is 78%. Palo Verde in 12005 had 86%. We had about 2,000 people take the survey is what that comes 2down to. There are about 195 questions on the survey, so it took a good bit of 3time; about two hours of time for each person to take the survey. I'll talk a little bit 4more about that next, so let's go ahead to 45.

5Preliminary results. Overall nuclear safety culture rating since 2005. We 6did a safety culture assessment at Palo Verde in 2005 with the same organization 7so we're able to look at that and see how we compare. It has declined by about 86.5% overall since 2005. We just completed the interview process. You do the 9survey and then you have interviews. We've just completed the interview process, 10so that information is being rolled into what the survey told us this time by 11SYNERGY because it's an independent survey and they'll come explain to us what 12that means. We don't have all the "whys" yet and we may need to do more work 13to get to understand all the "whys", but we're at that phase right now.

14While I can't tell you exactly what the "whys" are, what I can tell you is I'm 15really pleased that we had a decline in the safety culture survey from one point 16because to me that reflects ownership of our current level of performance. If we 17have the same safety culture rating and we have a declining performance the way 18we do at the present time, then we should expect that people -- if we're not in 19denial and we're owning that level performance, then we should have a degraded 20level of safety culture performance information.

21If I go to next bullet, nine organizations were identified as outliers. As I 22 said, the interviews are further characterizing that. That's based on trends both 1with respect to us and with respect to industry norms.

2Valuable insights was provided by write-in comments. We had more write-3in comments than anyone. This is one of the points I think that will reinforce that 4people are willing to identify problems because it takes time to do write-in 5comments. We have 248 pages of write-in comments, so that's a good source of 6information and some good insight and will certainly improve our understanding of 7the issues that we need to deal with.

8The other one says trend questions to assess current momentum in overall 9nuclear safety culture indicate recent improvement. There are questions that are 10tailored in the SYNERGY survey to give you an idea of change in momentum 11relative to nuclear safety culture. Someone that knows surveys better will have to 12provide you with additional explanation. I can't tell you that because I don't know 13the survey that well.

14What that's telling us is if you look at that survey indicator since the first of 15the year, there's a more optimistic view relative to improvements that are going on 16at Palo Verde and that the plant staff recognizes that things are changing. That's 17the way we're interpreting that; the way we understand it right now.

18So that completes my discussion of ImPACT and ImPACT-related issues 19and the safety culture survey which is part of ImPACT. I'd like to turn over at this 20point to Mr. Edington to discuss how our ImPACT efforts are different from 21previous improvement efforts at Palo Verde.

22 MR. EDINGTON: And we'll be wrapping up here in the next few 1slides and turning it back over you. Pretty close on time, it looks like. I noticed it's 2green up here.

3I would like to say we've covered a lot of material at a very high level very 4quickly and we want to emphasize the volume and the effort that is going 5underway on site is nowhere near as smooth and as efficient as what we're talking 6about today. There's a lot of angst. There's a lot challenges. There's a lot of 7group and rechecks as we go. It is not easy and the intent to focus on the depth 8and breadth and a true understanding of what's going on.

9Why would we be different and sustainable compared to previous plants?

10I'm on page 47. Again, the focus on the long term. This is site and company 11focus. We took an organization and we made a dedicated team of facilities to 12protect them to make sure that they don't get distracted that we can go after that 13and we brought in external expertise.

14So while doing outages, while doing other efforts, we've been able to probe 15and push this, and unlike previous efforts where we were pulled off or intermittent 16starts, we've made a dedicated effort. Dwight mentioned 40 to 60 people. That's 17the full-time effort. That's not including all the part-time people at places -- we 18have interfaces throughout.

19It's a very rigorous and broad systematic approach and it is still underway 20as we've been through the collective aspects of it. I'll try to make sure we get to 21the root causes.

22 On page 48, the ownership, the alignment and engagement. We set off to 1ensure that our employees stay as engaged and involved as we can by making it 2very visible, by bringing them in to the evaluations and next into the action plans.

3As we finish our evaluations and our issues, it's very important that the actions are 4owned throughout the organizations. We have a good mix of people throughout.

5We communicated frequently the alignment and the aspect of industry 6awareness; where we really stand. Not comparing ourselves to ourselves, but 7comparing ourselves to the industry. It's been eye opening.

8On the next page, incorporation into the Site Integrated Improvement Plan.

9We try to use a very visible tool that's very user-friendly that people can recognize.

10The owners and the due dates are prominently displayed. We have routine 11oversight that's been established and then we have a stronger review and closure 12process that is being implemented on the rigor and quality of the efforts that are 13focused on what we're doing.

14And last, I'll end it with a common theme of fixing the plant equipment, but 15it's a lot more than that. If you go back to the foundation in the pyramid, its people 16focused on equipment for the long term. What is the core business and the 17foundation and all those aspects that are underneath it. And certainly, the 18resources necessary to focus on this and ensure that we drive this for long-term 19 success.

20With that, I'd like to turn it over to Mr. Post for final closing.

21MR. POST: Mr. Chairman and Commissioners, I would like to end 22 with the theme that you've seen throughout this presentation which is that our 1Board, our leadership and all of the individuals before you are fully committed to 2the theme that you see on page 50 and that is to "safely and efficiently generate 3electricity for the long term". That ends our presentation and we would be happy 4to take any and all of your questions.

5CHAIRMAN KLEIN: Thank you very much for that good presentation.

6As you might know, the NRC is procedurally based and so we rotate which victim 7starts with questions. And so, I'm the first victim today.

8I think I probably had the advantage of having been out to your plant shortly 9after moving into the Column 4. And I guess, Randy, on page 11 you showed me 10your curve and you had done a survey which I thought was interesting. When you 11asked your people where they thought they were on that curve. Where do they 12think they are today?

13MR. EDINGTON: That's a good question. I've actually evaluated 14and adjusted that slightly since then. You can look at that curve again if you take it 15from a cultural viewpoint. If I look at it specifically from attitudes or out of denial, 16we feel that, and point four being the majority of the people are out of denial and 17focused on improvements, it's our job to get them aligned to what those 18improvements are, I believe with that in mind, we're a little past four, heading 19toward five. If you go back - and I've had time to think about this and as the 20ImPACT process - if I go back to how well I fully understand the real root causes 21and the aspects behind it, then I'm probably approaching four. As the ImPACT 22 team for that piece of it because we think we do know a lot of our issues.

1We have a lot of actions underway right now, but we are still evaluating a 2few and making sure we probe and push that. So that curve, since it is my curve, 3I've been able to adjust it a little bit.

4So the intent of the people and where they're at, I think we are through the 5denial stage and focusing on alignment and going forward. I think we have a little 6bit more work to make sure we absolutely understand the issues so we can focus 7 on those.8CHAIRMAN KLEIN: One of the things, Bill, I know you've been very 9active in INPO and a lot of activities. I guess I was surprised that you hadn't been 10more visible looking at other plants prior to sort of going down this slope. I 11assume now you're fairly active and going out and looking at others. Can you talk 12a little bit about what you're doing now?

13MR. POST: You bet, Mr. Chairman. We are very focused on other 14plants and although we had some activities to look at other plants, it was just as 15much the mind set of the process that we went through as looking at other plants 16as it was actually visiting. So as I mentioned in my comments, it wasn't that we 17hadn't attended or focused or participated in industry processes.

18It was the rationalization process we were going through where instead of 19being open-minded and learning from that process, we were more benchmarking 20ourselves against it. It really takes two things: one is the openness to participate 21in the industry in a very positive way and then second the participation itself.

22 And so I believe we're making headway on both of those paths. We 1certainly have opened up significantly, as Mr. Mims mentioned in terms of 2benchmarking the CAP Program as one example. It's critical that we do so and it's 3critical that we do so with the right attitude.

4CHAIRMAN KLEIN: I think if you look at the infamous Randy curve 5on page 11, that decline period is sort of that infamous frog that's in that pot of 6water and if you gradually turn the heat up it doesn't realize it until it's sort of too 7late; whereas if it jumps in and it's hot, it sees it right away.

8What have you learned in this process that would tell another plant earlier 9that they are going down that slippery slope? And I guess that's both for Randy 10first and then Bill second.

11MR. EDINGTON: Actually, I've said some time, not only in previous 12plants, but here trying to connect those dots and trying to make sure I understood.

13Frequently, if you have a site performance from a capacity factor and the other 14numbers that are high for a very long time, it's the cultural aspects and the 15programs and processes underneath it. You can do something and it could start a 16degradation.

17If I look here at Palo Verde we actually, in some of the re-engineering 18efforts, took away some of the control functions that allowed initially a gain of 19productivity over the empowerment, but over time as you changed people out, 20those control functions became more and more important. So they start degrading 21 on us.. 22 We have what we call a "sub-optimization" where groups were working in 1silos and they were optimizing their piece, but the overall piece was starting to fall 2apart. Once the volume hit and the emergent issues as Bill mentioned earlier, 3then you're into those connections need to be there and as you start down this 4downward path, especially if you don't have that control function in there, an 5example is control functions on your procedures, and again, people will put in 6more fixes in the individual silos, which actually will make it worse initially. The site 7isolation, I guess any time -- isolation may be the wrong term; insular. You 8actually go out, but you don't see. You can get very comfortable with your 9performance and as a nuclear industry we must constantly be very self critical, and 10constantly ask those questions.

11I believe there were signals. I believe the Nuclear Regulatory Commission 12was seeing things. I believe INPO was seeing the same things. I believe others 13were seeing it. It's just a matter of a self internalization and being aware of it and 14really focusing on it.

15So I think anytime you can go and see sites starting to work in silos or 16different groups and not getting focused on the overall results, that becomes a 17very key piece. The metrics themselves, monitoring; although if they are not self 18critical enough and if you're putting your numbers out to where you're using those 19numbers to justify the issues underneath them. It's a constant effort to go through.

20The biggest thing is to create a strong self assessment program. Create a strong 21evaluation and never get comfortable.

22 CHAIRMAN KLEIN: What do you think Bill? Are you able to take any 1lessons learned and go back to INPO and look at predictors?

2MR. POST: Yes, sir. I agree with everything Randy said and if I 3could just add a couple things to that. One is communication. One of the things 4with hindsight as we go back and look at it, we had developed single points of 5contact in terms of communications. And probably one of the most significant 6things, particularly with a single site, is to develop parallel communication paths, 7both vertically and horizontally, to ensure that you get all the information you need.

8That's not to say someone is trying to hide information. We have no one 9that I can even think of that had any intent of doing that. That wasn't the issue.

10The issue was just habit. If you do this year in and year out, the habit becomes 11embedded in both the individual and the process of communication.

12I recall a meeting I had with Dr. Mallett in November of 2005. Frankly, one 13of the most significant meetings I've had in my entire career where he was very 14open with us, very clear about particular issues and I heard things for the first time 15in meeting with him that I had heard about before, but were explained in a different 16manner. So from my standpoint, it's critical that you focus on communication and 17you ensure that you have multiple lines of communication, both vertically and 18horizontally.

19Another lesson learned, which we mentioned is the alignment of the 20Nuclear Oversight Committee. We've had a Nuclear Oversight Committee for over 21a decade, but it reported to the site. Again, there wasn't anyone trying to mis-22 communicate on any subject. It was the way things were communicated, the tone 1in which they were communicated and the emphasis placed on individual issues.

2We've realigned that Nuclear Oversight Committee and I can tell you 3already I'm seeing a different perspective in terms of the types of things that are 4communicated and the way we communicate.

5And then finally on the Nuclear Oversight Committee, and frankly, in terms 6of communication with the leadership at the site as well, we separate the time 7between as Randy mentioned the metrics, where we focus on metrics, and then at 8the end of that process to put it in a different category then just talk about how you 9feel about it.

10It's one thing to talk about the metrics and the very clear, precise messages 11they produce, but often those metrics don't get to those qualitative factors. So one 12of the things we consciously added to the Nuclear Oversight Committee is at the 13end of the process we just say, "Okay, in a different category, how do you feel 14about where we are and where we're going?"

15And so we do consciously have qualitative discussions about the feelings of 16the people in the process. I would say those are three areas that I think are very 17important and that I have already communicated to the INPO CEOs.

18MR. EDINGTON: I'd like to expand on that communications one 19 second. Bill talked about the Nuclear Oversight Committee reporting directly to 20the Board, which personally is what I would expect and I fully support. Also, the 21Offsite Review Committee as I said earlier that reports to me initially, they must 22 provide an independent report to the Board.

1The other thing that we're putting in the charter for Nuclear Oversight is 2Board members will come out and tour the plant a couple times a year, just 3individuals, not the whole Board but aspects, and we're writing in there that they 4need to visit with employees, not just management.

5So if they hear something different than what the Nuclear Oversight 6Committee, they can challenge their own Nuclear Oversight. We're trying to give 7them multiple views of information so that if they hear something, it gives them a 8better trigger point. We'll put them in front of employees and that is being 9formalized and put into the charter to ensure longer-term, sustained rigorous 10communication.

11MR. POST: Mr. Chairman, if I can just add one thing to that. You 12asked me how I communicated that to INPO. I have communicated that to the 13INPO CEOs. As you know because you were there, I've also communicated it to 14the director classes that they had for the Board of Directors that are now attending 15INPO classes and I gave them basically the same perspective that I gave to the 16 CEOs. 17I think it's important to communicate with the CEOs and I think it's also 18important to communicate to the Board of Directors.

19CHAIRMAN KLEIN: Thanks. Commissioner McGaffigan?

20COMMISSIONER McGAFFIGAN: Thank you, Mr. Chairman. When I 21first came here, which is fall of -- August of '96, we were in a crisis over Millstone.

22 That was the big deal. We had lots of other plants that were on watch lists at that 1time and we had a pretty bunch of broken processes.

2I wish I could remember the man's name. He was from your company. He 3sat me down, probably in the spring of '97 and said, "Commissioner, your problem 4isn't Millstone. Your problem is ComEd. You'll remember who he is, but he was 5very involved in INPO. I'm pretty sure he was one of the prime movers on that 6extraordinary letter sent to the ComEd Board in 1998, I believe, that resulted in the 7huge transformation of ComEd ultimately. It's the atom bomb of INPO.

8They try to talk to you guys quietly, but if it ain't getting through, you get this 9letter to your Board of Directors over the top of you. The fellow who is the chair of 10ComEd was gone. I always appreciated that. He was right. Your predecessor, 11which ever one of you he was, he was exactly right. Our problem was ComEd.

12The Millstone issues were going to take care of themselves. By that time 13they had brought in some very good people to get them straightened out. They 14made the decision to close, to not try and bring back Unit One. But it's sort of sad, 15that you, of all plants, the straightest shooter that I had in 1997 advising me a 16decade ago from the industry, I thought the most honest advice I got at that time 17came from you and you were at the top. It's just a commentary. You're talking at 18the end here with the Chairman about corporate governance and the importance 19of the safety committee reporting to the Board, not to the plant.

20Have you looked hard at whether there are any other corporate governance 21issues that you have to be thinking about? You have multiple owners and that's 22 sometimes a problem. In my experience, you have a dominant owner, so maybe 1that isn't a problem. Tell me about corporate governance.

2MR. POST: Yes, Commissioner, we have. Let me make some 3comments about it and maybe Randy can as well. You mentioned the issue of 4participants. That's a part of corporate governance as well. Part of it is looking at 5the resource commitment they make, which I will reinforce what Jack said, is that 6they've never wavered in terms of their commitment to Palo Verde even through 7very difficult times. For example, with one participant who went through 8bankruptcy and even through that process with the participation agreements we 9had, they've been very committed to Palo Verde and its performance.

10If I recall, the bankruptcy judge dealt with Palo Verde first to make sure that 11Palo Verde was protected in that process. We've never had any participants 12waiver. One of the things that we do, as Jack mentioned, is every couple of 13months Jack and I with plant leadership visit with every one of those CEOs and 14goes through a process of discussions of where we are, not unlike today; a 15process of where we've been, what we're doing and where we're going. That I 16believe adds to the governance process and its something that I think is helpful in 17terms of putting us on the right track.

18As far as other components of governance, we have looked at it from the 19standpoint of participation of the composition of the Nuclear Oversight Committee 20as well. We've added two new people on the Nuclear Oversight Committee; one 21with current operating experience, the other one very experienced in terms of 22 INPO. 1And so we've looked not only at the organizational structure, if you will, of 2nuclear oversight and governance, but also the composition of the people in that 3process because as I mentioned, as we look at many of these cultural issues and 4as the Chairman pointed out in terms of the boiled frog syndrome, the Nuclear 5Oversight Committee was a part of this process as well.

6As we went through that process because of many of the things I 7mentioned, we were not able to identify and focus on these cultural issues. We 8specifically had looked at that in terms of its composition. So I think those are 9three different areas of governance.

10We have basically looked anew at the entire process. One of the other 11things that we're cognizant of and with Randy's experience and certainly from my 12understanding of this issue through my participation with INPO, is that you want to 13make sure you don't go too far with Nuclear Oversight Committees as well. So 14you have to be very clear and very crisp over the accountability and the line 15responsibility for this process.

16So it's very important to have oversight committees. It's very important that 17they be oversight committees. We have looked at that as well to ensure that we 18don't let the pendulum go too far the other direction.

19COMMISSIONER McGAFFIGAN: Too far in the other direction 20means they start thinking they're the managers of the plant.

21MR. POST: Yes, sir. It starts to also impact the clarity and the focus 22 that you have in terms of your goals.

1COMMISSIONER McGAFFIGAN: What sort of discussions have you 2had with your INPO colleagues about how complacency set in? You've given us 3your view today as to how - but it's just so extraordinary. In some sense, 4Davis-Besse and First Energy, they were also being treated as good guys for a 5while there by everybody. Everybody assumed they were good and that was part 6of our problem. There was complacency on their part. There was complacency 7on INPO's part. There was complacency on the NRC's part.

8But this issue of avoiding complacency especially in a very successful 9industry that is continuing to set records in various performance indicators as a 10group, we can't afford any complacency in that industry. Is that coming home to 11your colleagues?

12MR. POST: Yes, sir. I believe it is. In November of last year, I gave 13a very similar presentation to the one that I gave to you today, but instead of taking 14five minutes to do it, I took 30 minutes to do it. And basically went through these 15and many other issues with all of the CEOs at the CEO conference in November.

16As you know, that's an annual meeting; one that's attended by all of the 17licensees throughout the country as well as international participants. I went in 18depth and explained the specifics about this to ensure that everyone really 19understood that these kinds of things can happen and as you go through the 20process of change, it's one thing to look back on it now and do an assessment of 21these issues, it's something else as you deal with them and go forward to identify 22 things like don't listen for what you want to hear; keep talking until you hear bad 1news; push on issues until you hear things that you don't want to know about; 2push on things until you hear bad news; do not end any conversation with your 3leadership at a plant without pushing it to the point where you hear things that are 4not going well, things that you need to improve. So from my standpoint, it's 5something that's critical.

6One of the things that I mentioned in the Director's Session is that Directors 7need to build a personal relationship with their nuclear leadership. It goes beyond 8the other areas that we manage in the electric utility business. I think it's important 9for a Director to have a personal relationship, not just a business one, but a 10personal relationship, with somebody high in their nuclear organization so they get 11a sense on an ongoing basis of actually the feeling that's existing at the plant and 12the processes.

13So I've done what I can to communicate. I also have communicated with 14the INPO Board in every single board meeting on the subject. I think it's a part of 15my responsibility to do so. Certainly, as you've heard today, we are absolutely 16committed to turning this situation around, but it's also a part of our responsibility 17to make sure we communicate it fully to the industry so no one else gets in the 18situation.

19COMMISSIONER McGAFFIGAN: Mr. Chairman, my time has gone, 20but I'm just going to make a statement. I think it was Mr. Edington who pegged us 21as a lagging cheerleader. We'd lag behind in recognizing improvements and that 22 is just our culture and I'm glad you recognize it, but we're not going to be patting 1you on the back.

2The Chairman is from Missouri, the Show Me State. You're going to have 3to show us several times probably, but you have us pegged right. That's our 4culture.5CHAIRMAN KLEIN: Sustained performance.

6MR. EDINGTON: I'm not in disagreement with it. I'm trying to make 7sure my people understand that when they feel they're improving, we've got a lot 8more to prove. So we understand that and support that.

9CHAIRMAN KLEIN: Commissioner Jaczko?

10COMMISSIONER JACZKO: I have a couple of questions I wanted to 11ask, but I want to make a couple comments first. First of all, it's certainly seems 12like you have a very comprehensive program and I appreciate your candor on a lot 13of these issues. I think one of the things that is a little bit troubling to me from the 14side of the regulator is the ability for us to be effective and identifying these 15problems early.

16I think, Randy, we've talked about this before, the idea of making that curve 17bottom out a little bit sooner. I think that would be the goal that we have on this 18side of the table to do everything we can to ensure that that happens. There's a 19lot of things that I think from what you said that seem to indicate that that's going 20to be difficult for us to do.

21I think, Mr. Post, you talked about the fact that there are a lot of lagging 22 indicators that didn't even let you know there were problem performance early on 1and certainly that was similar for us.

2The other point that you made, too, is an important one that a lot of these 3issues I think you said - and I tried to write down the quote exactly -- was that "this 4is more people than technology". As a regulator, we're very good with technology.

5We're not so good with people. That gets into a lot of areas where it's much more 6challenging for us to be effective as a regulator.

7I think it's certainly - I think there's a lot of work that you still have to do, 8obviously, but it looks like you have a good plan in place. I would certainly be 9more interested on focusing on how we can use this as an opportunity to take the 10plants that are out there right now that have indicators that look good, but are 11suffering from similar kinds of problems that Palo Verde was several years ago.

12I would just note to some extent that we're not even talking at this point 13about the entire site being in Column 4. It is only Unit Three that is in Column 4.

14So even with the current indicators that we have, two of your units are performing 15better than the third unit and that, of course, raises some questions in my mind 16about how effectively our indicators are really tracking the performance because 17clearly, I think a lot of these issues are site-wide, their people issues, their cultural 18issues. 19So I think we still have a little ways to go in terms of even our indicators 20reflecting that fully because as I said right now, Units One and Two are in a 21different place than Unit Three, being in the degraded cornerstone column.

22 There wasn't really a question in there. It's more, I think -- perhaps if you 1have thoughts and I know the Chairman asked a similar kind of question about 2how can we address other plants that may be having similar problems. I know 3you've talked about some things you've done, but if anybody else might want to 4add some things on that particular point, I would be interested in your thoughts.

5I know that we had a discussion about the elusive Holy Grail of Leading 6Indicators and it seems that that's going to be a very elusive goal and one that we 7may never achieve. But given that, how can we be effective as a regulator if what 8we're dealing with is late information and how do we began to identify these trends 9better and sooner?

10MR. EDINGTON: First off, I want to emphasize that we consider the 11whole site in Column 4 and we're acting that way.

12COMMISSIONER JACZKO: I certainly didn't want to indicate that 13you weren't and I think that certainly is appropriate. Again, recognizing that that's 14not what our licensing system says right now.

15MR. EDINGTON: We did have a discussion about the distances 16plants were years ago versus where they are now. I think the process has 17improved and does get to us quicker. The question is how do we even improve on 18that. I've done some work with INPO and others and we are getting into some 19areas that are not directly measurable.

20I can give you some of my insight, such as if a site is replacing largest 21pieces of equipment, are they still pushing $3 million to $5 million into their small 22 equipment. If you're doing a steam g enerator replacement, that's $100 millio n, but 1are you still putting $3 to $5 million in your small equipment? If you wait three or 2four years and not focus on that, then ultimately that can catch up with you.

3Your operator pipeline is another good example. Are you hiring for your 4future and allowing for that type of transition? I actually use the training and 5knowledge. Are you training - basically, do you have a passion for training? Are 6you driving that knowledge throughout the organization or have you cut back so 7much on it that it's become a checkmark type area?

8When you talk safety, safety in my opinion will degraded today if you don't 9overtly do something with it. You've got to make that personal. You've got to 10connect. It's not just getting a check mark. It's talking a common sense and that's 11what we try to do with the plant status of safety. We tried to take safety and say 12here's the plant condition today. How does that affect nuclear safety, industrial 13safety, radiological safety and safety culture?

14The safety culture is one we just recently added and it's fairly - having that 15discussion, open discussion, is a little awkward at first until you really get into it 16and start probing and pushing and it becomes more natural for us to ask those 17questions.

18Are you hiring? If you look at our hiring model that we're doing - are you 19bringing in some side stream hiring? If you've only got the organization you had 20for long time and you're not bringing a few people in like we've done to stimulate.

21So it's not that you don't have good people, but they get used to thinking a certain 22 way. 1I think a key piece is looking at the organization and then lastly I think we've 2discussed heavily the communications for multiple groups. I'm interested in what 3this plant looks like five years after I leave. Bill asked me about nuclear oversight 4when I first got here. I said if you didn't have it reporting that way, we'd invent it.

5We'd need to do it. In fact, we then added OSRC and others.

6You must have that multiple questioning levels of communication. You 7can't just get it through one source. How you codify that, that's a little different.

8I'm just giving you some of my personal insights. So some of the things that we're 9into now is trying to get into what is it that's really core that keeps a plant running 10for the long term.

11I'll be doing more work on it with others and trying to clarify it more in my 12head. That's the best insight that I can give you at this time.

13MR. DAVIS: Commissioner, if I could add something. Obviously, 14from my perspective, I get all kinds of indicators each and every month whether it's 15on nuclear, fossil, customer service, transmission, all kinds of things. You look at 16them and they may be all green or they may all be in a good area. The search for 17the ultimate predictor is very difficult, but one thing that is always predictable is 18unfiltered information.

19And so my style is not necessarily to go through the chain of command. In 20retrospect, I think Bill certainly spoke for me on that behalf that in the Palo Verde 21area we probably did too much of that.

22 Just a qualitative assessment of talking to people in a vertical and 1horizontal way unfiltered, not in the presence of management or anything else, can 2give you pretty successful information of what the temperature of the organization 3is. I don't have any recommendation of how NRC staff would do that, but 4unfiltered, unmeasured information in my estimation is very, very important.

5COMMISSIONER JACZKO: I appreciate that and I think that's 6certainly one of the strengths of our resident inspectors is their ability to do that.

7But, of course, they are also somewhat removed from the Commission and from 8certainly headquarters staff a little bit. I think that is perhaps one area - I think it's 9a useful suggestion where perhaps we can improve on making sure that the 10information is not being filtered in here. I don't necessarily get the indication that it 11is. I have some other questions if you suspect we'll do another round.

12CHAIRMAN KLEIN: On your comments on the unfiltered information, 13Commissioner McGaffigan does that in the lunchroom and the elevator all the time 14and Commissioner Lyons does that in the athletic area.

15COMMISSIONER McGAFFIGAN: I've been doing it for 11 years and 16it scares the hell out of every EDO.

17CHAIRMAN KLEIN: Commissioner Lyons?

18COMMISSIONER LYONS: By now there's already been a very good 19discussion, so I'm not sure I'll have my full time to take for questions. I do very 20much appreciate that all of you are here and joined us in this discussion. It greatly 21helped my understanding of the level of challenge that you have. I appreciate that 22 you recognize that challenge and it helped me understand the path that you intend 1to follow to get back to where you want to be.

2I also very much appreciate the openness and the candor that 3Commissioner Jaczko just referenced. That also is very important to me.

4I had planned in my questioning to focus initially on the role of INPO, but 5Bill, between your responses and questions from our Chairman and from 6Commissioner McGaffigan involving INPO, I'm guessing that we've pretty well 7covered the role or the ways in which INPO can help in your overall recovery.

8Unless you have more to add to that, I would just note that I, too, am very 9interested in the role that INPO can play and I know of your heavy involvement 10with INPO and that's certainly another resource at your disposal as you bring the 11plant back to where you want it.

12A question, maybe, for Jack. I don't know if this is a completely fair 13question, but you can tell me. I appreciate it very much that you emphasized in 14your comments that the financial resources will be there to accomplish this 15recovery and I very, very much appreciate that. There have been, though, over 16the last year or so, occasions when I know different ones of you have been invited 17to sessions with your Public Utility Commission and thinking back to some of the 18issues involving the vibrations, the concerns associated with those, the loss of 19revenue, and I certainly don't know and I don't think it ever got to the point of the 20PUC suggesting there would be any compromise in safety as you worked through 21those vibration issues, but it does occur to me that along with your commitment of 22 the necessary financial resources, there may be an impact on the overall operation 1of the site and that will involve your PUC.

2I was just curious if you have shared with the PUC given that I believe their 3very active involvement in Arizona, if you shared with them the process on which 4you're embarking, the challenges, and frankly, the possible impacts that may come 5out of it?

6MR. DAVIS: Commissioner, I'll be glad to do that. In fact, on two 7occasions, Randy and I have been summoned before the State Commission in an 8open meeting to discuss those issues as you described them. What's the impact 9of Column 4 for Unit 3? What's the estimate of the time to get things done?

10What's the complexity of getting things done?

11Both in an open forum and when Bill and I meet with Commissioners 12one-on-one in that forum, we explained to them the issue. The reason I can make 13the statement I made earlier about the funding to improve Palo Verde being there, 14to me being an engineer is just a pretty simple analysis.

15If Palo Verde isn't there, the financial impact to my company is greater than 16any expense I can think of is there. I recognize by focusing on the safety aspects 17of Palo Verde. In other words, by focusing on the safety of Palo Verde, the 18operation stuff will come naturally.

19I think our State Commission also understands that it's important that we 20make sure, we as management of the plant as the operating agent and I know the 21other participants believe this also, that we must provide the funds required 22 necessary to make sure that Palo Verde again regains the status it was at and 1operates safely and efficiently in the long term. Quite frankly, that's the only way --

2that's the right thing to do. Any other path would be detrimental to all the 3participants.

4COMMISSIONER LYONS: True. At best it would be a Band-Aid and 5not a lasting solution. I very much appreciate your response. That's a very good 6response.7MR. POST: Commissioner, can I add just a couple things to that?

8One is our State Commissioners have attended each of the quarterly public 9meetings that have been held so far. That has been very positive and I think that 10process is very helpful in being able to communicate not only the plan from the 11standpoint of the company, but from the standpoint of the NRC what your issues 12and concerns are through those public meetings. I would just reinforce that 13process as being a very positive one with the Commission.

14The other thing that you did, actually Dr. Mallett did, is he was willing to 15come to our Commission twice and testify or provide comments I should say, to 16our Commission. That was also very helpful. I know that may even be unique. I 17know it's rare. It was very nice of him to do that, but I believe both of those forums 18have been very helpful in communicating to the Commission their perspective and 19provide them a perspective on safety at Palo Verde.

20COMMISSIONER LYONS: I appreciate those comments. And 21maybe one short question for Dwight on the safety culture survey.

22 In one of your charts, it showed a decrease in the participation in the 1survey, admittedly from a very high number to still a very high number, 86 to 79.

2They're still very impressive numbers. I was a little surprise that given the current 3focus that it moved in that direction.

4Does that lead to any concerns on your part or do you still feel good that it's 5high enough that you're getting a very accurate picture of the culture at the site?

6MR. MIMS: From the standpoint of getting an accurate picture of the 7culture of the site, I think we're definitely in the range of what would be considered 8a good response for characterizing site performance. Obviously, we're not happy 9about the movement in that direction and I can't give you much of the why right 10now because I haven't seen the why information at this point. We are still 11developing that why information.

12I think the people who did participate, two hours of their time. Of course, 13we made that available to them and encouraged them to go in the phase where 14we're building up to a refueling outage which could have had some impact on that, 15but we certainly had good participation overall and with the survey response -- I'm 16sorry, with the write-in response. We certainly felt like we got a really good insight 17into how people view things.

18MR. EDINGTON: Also, the logistics of how to administer the survey 19has changed. We used to bring people in and give them that time and now you 20have to do it very independently. You've got to be - you've got to kind of hand it 21and walk away. It's a little different administration. It could affect it a few 22 percentage points, the logistics of getting it through a site that size, especially at 1the volume we were doing. These are still very good numbers for that and we had 2good participation in all groups. I think there was maybe one group that we - and 3that was more the count mechanism we used. In general, we had very good 4participation, good write-ins.

5COMMISSIONER LYONS: I certainly agree that even the second or 6the most recent somewhat lower numbers are still very impressive. The number of 7write-ins is also very impressive and I would guess that some of your most useful 8information comes from carefully thought through write-ins. I will just look forward 9over many months to come of watching and helping you measure the progress.

10MR. EDINGTON: I do understand that support. It is a journey. We 11expect to have some challenges along the way and it's not something that's done 12easily. We will continue to stay after it very aggressively.

13CHAIRMAN KLEIN: I have a clarification and since I see Bruce over 14there, I'll let him clarify it. Commissioner Jaczko brought up a point that it was only 15one unit of three that's in the Column 4. It's my understanding that it's the reason 16of your calculation system that drove it. In other words, the events at that plant 17and the calculations there. Is that correct?

18MR. MALLETT: Yes, you are correct. In fact, in our Confirmatory 19Action Letter we just issued June 21 we indicated to them and we've indicated 20verbally to Palo Verde that the underlying problems for their performance are site-21wide. We would expect them to address those issues site-wide. Did that answer 22 your question?

1CHAIRMAN KLEIN: I remember the discussion leading up to 2whether it was Column 3 or Column 4. The pendulum is swinging depending on 3which calculator you were using it seemed at the time for the frequency that drove 4 it to that column.

5MR. MALLETT: That is correct. It just happened to be Unit Three in 6equipment issues. But as far as underlying problems, it was site-wide. I think they 7recognize that.

8CHAIRMAN KLEIN: Thanks. Just one final question. Bill brought up 9an interesting observation and so this is a Randy question. One of the difficulties 10was that people are looking at retirement rather than long term. What have you 11done to turn that around?

12MR. EDINGTON: Actually, quite a bit. I've already talked about the 13group meetings, but now we have embarked on talking to every single employee 14on-site. We're bringing them in in groups of 35. Again, this message has been 15throughout the various areas. Now we're going down to a personal contact.

16We open that meeting talking about what is in it for you. What is the 17importance of this. You get into everything from the individual pride of doing a job 18well done, to the peers and the owners and the communities. And ultimately, that 19you do have a vested interest in the success of that plant for the long term 20because pension funds and all that do play into overall economic aspects.

21I think it's important to do this because we talk to employees and say we 22 understand that some of you are concerned or angry at times. Somebody got us 1here. So then we talk about that. We talk about let's funnel our energy to what's 2really important. How we got here is important from a history and to learn. What's 3more important is where we're at and where we're going from here and how we 4focus that energy.

5Again, that's going to take quite a while to do those meetings. They're 2 1/2 6hours; only 35 a time. We chose to keep it small and we'll keep pushing through 7that and make that personal contact throughout the organization. I have talked to 8the managers and the supervisors and that word is being passed this way, but 9now we're trying to take that personal message and give everybody a chance to 10express their anger, if you would, and then answer questions and let's get on with 11making this a long term plant for the long term. That's exactly how we're doing it.

12Very personal and very up close.

13CHAIRMAN KLEIN: Thanks. Commissioner McGaffigan?

14COMMISSIONER McGAFFIGAN: I had written down the same line 15of questioning, slightly different. We have at NRC and have had for several years 16the tsunami curve that describes our age demographics and it cascades 17downward as you get into the late 50's, early 60's. We've had in the Federal 18system -- in 1994 I guess it was, we had a change from the Civil Service 19Retirement System to the Federal Employee Retirement System which is a much 20more mobile system.

21Can you describe your demographics and whether there's been any 22 instability in benefits for retirees that would incentivize people to go one way or the 1other in terms of the end of their career sticking with you or going out the door?

2MR. EDINGTON: As far as changes in benefits, I'll let Bill and Jack.

3I'm familiar with the current ones we have, but not changes.

4MR. POST: We do not have and haven't had for five years or six any 5kind of an early retirement program to deal with that, but we do have the same 6tsunami curve you have. In fact, one of the challenges I think with that curve is 7certainly the slope on the right side in terms of the age and the number of people 8that can leave. There's also a gap in that curve. We've been able to attract 9younger people in bulk in terms of the older ages, but there's a gap in the middle 10which produces a significant management challenge as you go forward.

11Given the fact that there's not continuity there in all the age groups, as you 12go through the process of moving from one level of management to another level 13of management, there's going to be a scarcity of people in that 35 to 45 range that 14we need to deal with, both from a training standpoint and a supply standpoint. So 15we have exactly the same curve.

16COMMISSIONER McGAFFIGAN: Our average age is about 49 and 17stays there. The peak is between 50 and 55 and the second largest group is 18between 55 and 60, which sets you up.

19MR. POST: Our curve would be identical or similar. The numbers 20would be different, but the curve would be exactly the same.

21COMMISSIONER McGAFFIGAN: I'm not trying to get you to make 22 an announcement, but are you working on license renewal? That tends to give 1people a longer time horizon. Are you --?

2MR. EDINGTON: Yes, sir. We're in the STARS Group and we 3actually just finished one group and starting on the Palo Verde one as we speak; 4starting through the process.

5COMMISSIONER McGAFFIGAN: That's announced? That's on our 6web page somewhere?

7MR. EDINGTON: I believe it has. I think everything is formal. I know 8we talk about it.

9COMMISSIONER McGAFFIGAN: The EDO is shaking his head, but 10sometime in the first part of the next decade you're probably going to come in for 11license renewal?

12MR. EDINGTON: I think it's listed as a STARS, not a specific name.

13I believe there's a STARS slot that has it.

14CHAIRMAN KLEIN: You're an unnamed STAR.

15MR. EDINGTON: I believe so. Now I may be named. I'll probably 16hear about this.

17COMMISSIONER McGAFFIGAN: It strikes me that seeing dynamics 18at other plants that is a good thing for your employees to know that their careers 19are potentially much longer and for young people to know as they're joining your 20firm, your utility, your operating company, that they understand that this is not 21something that's going to be taken away from them. So if I made news, I'm sorry.

22 You mentioned, and I've heard it before, Randy, the operator pipeline is an 1indicator that you're not unique in using. Apparently you now have some problems 2at Palo Verde. That's an interesting indicator. People who overstaff operators 3never regret it. People who under staff operators - maybe they get into some pay 4scale, but the people who under staff operators in the operator pipeline seem to 5get themselves in a little bit more trouble.

6MR. EDINGTON: Absolutely. Again, I've never been to a plant that's 7had a challenge scenario like this and I've been to numerous of them that didn't 8have an operator pipeline issue. That could be looked at as a potential early 9indicator and that when you see that -- it's one that each site that we've talked 10about for quite a while, but it just seems to repeat over and over everywhere you 11go.12COMMISSIONER McGAFFIGAN: Thank you, Mr. Chairman.

13CHAIRMAN KLEIN: Commissioner Jaczko?

14COMMISSIONER JACZKO: I guess I should just end things on that 15note, but just a couple of questions. This is for Mr. Mims. You talked about the 16ImPACT report and some of the identified issues. You went through a list of them 17and I think you said that you had previous other root cause analysis and other 18things where you had seen some of these.

19I'm wondering if specifically these correlate to issues that were identified in 20the first two - the first 95002 that was done and then in the supplemental. I'm not 21sure if you're aware of the answer to that. If you are -

22 MR. MIMS: I think I can answer that at least in part. The issues that 1are there are there are very similar to what we identified and that's our issue that I 2think we're dealing with right now. We haven't been effective at identifying those 3issues that were identified in the first 95002. They're not letter for letter. There's 4elements of each one.

5COMMISSIONER JACZKO: But they seem comparable. I guess my 6question ultimately then is one, what's going to be different about this program 7now that will fix those and if there is something different, why wasn't it just done 8earlier in response to the NRC identifying those?

9MR. MIMS: I think we went through a list that Mr. Edington went 10through at the end that tried to point out some of those differences. The type of 11things that I see are very consistent with what we covered in that list. We're 12looking for a better understanding of what caused the issues. We've got dedicated 13teams that are working on these and we're not interrupting those teams.

14We're pulling people from the outside to work on those things so that we're 15not just examining ourselves and having our own opinions about what our 16problems are and get some objectivity into the process. We are spending a great 17deal of effort going back and looking at, for lack of a better word, a lot of old data 18and fairly current data that should help us do two things.

19One, convince us that we really do have all our problems understood and 20then in addition to that we believe that by analyzing those that we're going to get 21better understanding as to what some of the drivers are relative to maybe a depth 22 that we haven't gotten to before. All those things are things that make it different.

1I'll throw in just one or two others. We're making a substantial effort to not 2just involve the people that are doing this work in defining what's going on. When 3it comes to action plan development, when it comes to collective evaluation, we've 4gotten our plant managers, maintenance managers, radiation protection managers 5and we have them participating with us directly on those things so that there's 6better ownership broadly across the organization.

7We're making a substantial effort to communicate that to a broader cross 8section across the organization. Mr. Shea spent a portion of this past weekend in 9the control room talking to shift managers. It's hard to connect with shift 10managers. They need to know what we're doing and we need to get their input.

11We're making a substantial effort to cover all those bases. Those are things that 12make me believe that it's different.

13MR. EDINGTON: Again, to make it personal and get down to the 14core aspects. Recognizing that there were stages of denial and at times we were 15working on the symptoms and not the core piece of it. You've got to get past that 16and get into an acceptance state that we have to change the way we're doing 17business. It takes a mixture of the industry awareness, not just going and seeing, 18but going an actually seeing, I guess, is a better way; mixing in.

19We have a tremendous talented work force that now has some different 20people. They're willing to change. They're looking. I think it's a combination of 21things, but I do think frankly, that we were in stages of denial and at times we were 22 working on the symptom and not the behavior underneath it.

1I do want to emphasize that a couple of these are crosscutting issues in 2corrective action. Those don't clear in the next three months. They take awhile to 3work through it. Then when I'm satisfied, we already know you will lag a little bit 4behind me. Maybe quite a bit.

5COMMISSIONER JACZKO: Ultimately, my interest again is trying to 6get back to what we do as a regulator. I guess it frustrates me to some extent 7when part of the reason you're in Column 4 is because of a yellow finding that 8happened in 2004 and that has remained yellow for 2 1/2 years, three years 9because of some of these crosscutting issues, because some of these issues that 10were identified by our staff, were identified by inspectors, were identified by the 11good people we have out in the field. I guess the frustration comes from the 12inability to get those things corrected.

13Again, I go back - this may come down to an issue of us needing to look at 14our process and our regulatory program to make sure that it's addressing those 15effectively to begin with. In this circumstance, we had first in 95002 that inspection 16that really wasn't good; the outcome wasn't good. We came back and did a 17supplemental. At that point and clearly at that time I think you were unprepared for 18us to come back, even though there were some indications for us to come back.

19Again, it just comes down to how can we be more effective in getting these 20changes that we have identified, implemented and they're changes that we think 21would improve safety. Again, I think some frustration I have and again it comes 22 down to while I recognize that the CAL applied site-wide, it was only that we got 1that additional white finding for Unit 3 that we were able to go in and get into a 295003 for all the units.

3Today, unless I'm incorrect, the other two units are still in Column 3 and not 4in Column 4. So again, our indicators there are not reflective of what we believe 5the site performance is because we believe the site performance is more of a 6Column 4 performance, but our indicators aren't really telling us that.

7It's having to go in and do some things, I think, Mr. Davis, you talked about 8it, it's getting a sense and getting a feel, that's not necessarily built-in right now into 9our process, into our ROP because as I said it's not reflected right now in two of 10the plants. They are by all our indicators they are in Column 3.

11COMMISSIONER McGAFFIGAN: I would say just in defense of the 12reactor oversight process, we've always said it's an emerging thing, an evolving 13thing. We are trying our best at getting safety culture in. If we had had safety 14culture modules a year or two ago, maybe we would have -

15COMMISSIONER JACZKO: They're crosscutting, but the real safety 16culture things only happen when we get into a Column 4 in the 95003. That's 17where we really go in. I think it imposed the survey, if that's correct. Again, I'm not 18trying to be critical of the ROP, I'm just saying there's an opportunity for us to 19improve and to look at some things and there is a disconnect there, I think, with 20what we believe the performance is. I think the staff took the right approach and 21the right steps to make this a site-wide issue, but I think certainly there's a 22 disconnect there in what some of the indicators are saying. Certainly, I think the 1safety culture would be one area to help improve that.

2MR. DAVIS: Commissioner, if I could just make a comment there.

3Maybe this might show my naiveté. I'll admit that sometimes. When we go 4through the process of reading the letters and so forth, from day one I thought it 5was site-wide. I was surprised to find out at the end, and I know Bill and I had this 6conversation, it was only Unit Three. Randy had to tell me that because I'm talking 7to Randy and I'm going what's been identified for us is not really other than the 8specific calculations required under the ROP, but what had been identified for me 9was really a site-wide issue. It wasn't isolated in one unit.

10Even when Bill and I met with Mr. Mallett in November of '05, he didn't talk 11to us from the standpoint that this is a unit issue. He talked to us from the 12standpoint that this is a site-wide issue. I go back to my comment I made earlier, 13you can have all these indicators, but the discussions I had with Mr. Mallett back in 14November and the correspondence, all along I've been thinking this is a site-wide 15issue and only after the fact that I come to find out that in terms of the indicator, it's 16only Unit Three. That's what I think Randy is appropriately talking about. We're 17treating this site-wide.

18COMMISSIONER JACZKO: I certainly would want to reinforce that is 19the appropriate - I'll reflect my naiveté, too, that it was only yesterday when I was 20reading through some of the briefing materials that I learned that it was actually 21only Unit Three that was in Column 4 as well.

22 Again, I've always viewed these things as site-wide, and it just reinforced in 1my mind that there may be some things we want to look at to reflect that better in 2some of our indicators in a way that does capture that better.

3MR. EDINGTON: I do understand where you're coming from.

4Technically, we have one unit, but we treat it and of course work with the Nuclear 5Regulatory Commission we also treat it as a site. In fact, as we're doing this 6evaluation process and since the yellow finding was more behavior based then all 7those of those other areas which take longer to change, as we surface issues, we 8could put one of the other units by ourselves by identifying an issue that becomes 9a media area more than a practical area, but it is something that I was trying to 10make sure everybody was aware.

11Technically only one unit. We treat it the same and we may, by our work, 12surface something that would put it in there over the next six to nine months.

13COMMISSIONER JACZKO: Thank you.

14CHAIRMAN KLEIN: Commissioner Lyons?

15COMMISSIONER LYONS: I do not have further questions. It's been 16a very, very useful briefing.

17CHAIRMAN KLEIN: Thank you very much for this helpful 18presentation. Thank you all for coming in and explaining your plan. I think the 19challenge you all have now is implementing the plan and then as you noted earlier 20that we will be watching for the sustained characteristic so we may lag you for a 21while. Thank you very much. Meeting is adjourned.

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