ML20135F434
| ML20135F434 | |
| Person / Time | |
|---|---|
| Site: | Claiborne |
| Issue date: | 12/03/1996 |
| From: | Cole R, Moore T, Shon F Atomic Safety and Licensing Board Panel |
| To: | NRC OFFICE OF THE GENERAL COUNSEL (OGC) |
| References | |
| CON-#496-18090 91-641-02-ML, 91-641-2-ML, LBP-96-25, ML, NUDOCS 9612130052 | |
| Download: ML20135F434 (187) | |
Text
hV8 UNITED STATES OF AMERICA g
p NUCLEAR REGULATORY COMMISSION ATOMIC SAFETY AND LICENSING BOARD
'95 der -3 P4 :09 Before Administrative Judges:
OfflCE OF SEPETARY 00CKEiltlG & ;ERVICE -
Thomas S.
Moore, Chairman BRANCH Richard F. Cole Frederick J.
Shon SERVED DEC 041996 Docket No. 70-3070-ML In the Matter of ASLBP No. 91-641-02-ML LOUISIANA ENERGY SERVICES, L.P.
(Special Nuclear Material License)
(Claiborne Enrichment Center)
December 3, 1996 LBP-96-25 PARTIAL INITIAL DECISION (RESOLVING CONTENTIONS J.4, K, AND Q) k 9612130052 961203 y@V PDR ADOCK 07003070 B
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TABLE OF CONTENTS I.
NEPA Need for Facility and No-Action Alternative 4
A.
Contentions J.4 and K.
4
'B.
NEPA Overview.
11 C.
Witnesses and Exhibits 18 D.
Adequacy of FEIS Treatment of Need Issue 23 1.
Applicable Standard 34 2.
Assertion of Need in the ER and FEIS 39 3.
Board Findings on Parties' Position 44 a.
Supply.
46 b.
Demand.
56 c.
Competition and Character of Market 67 d.
Price and LES' Price Competitiveness 70 4.
Board Conclusion Regarding Adequacy of NEPA Cost-Benefit'Need Analysis 90 E.
No-Action Alternative 92 II.
Financial Qualifications 107 A.
Contention Q 107 B.
Witnesses and Exhibits 107 C.
The Applicant, LES 115 D.
The Commission's Financial Qualification Regulations and the Applicable Legal Standards 120 1.
Applicability of Part 50 and Part 70 Finar.cial Qualifications Standards 128 a.
Regulatory History of Part 50 and Part 70 Financial Qualifications Provisions 130 b.
Analysis.
147 2.
Applicability of Newly Formed Entity Criteria of 10 C.F.R.
152 E.
Board Findings on the Applicant's Financial Qualifications 159 III.
Conclusion 181
-i-
i i
UNITED STATES OF AMERICA.
LBP-96-25 NUCLEAR REGULATORY COMMISSION ATOMIC SAFETY.AND LICENSING BOARD 1
Before Administrative Judges:
l i
Thomas S. Moore, Chairman Richard F. Cole
~ Frederick J.
Shon Docket No. 70-3070-ML In the Matter of ASLBP No. 91-641-02-ML j
LOUISIANA ENERGY SERVICES, L.P.
(Special Nuclear Material License)
(Claiborne Enrichment Center)
December 3, 1996 PARTIAL INITIAL DECISION (RESOINING CONTENTIONS J 4, K,
AND Q)
This partial initial decision contains our findings of fact and conclusions of law on contentions J.4, K,
and Q filed by the Intervenor, Citizens Against Nuclear Trash
(" CANT"), in this combined construction permit-operating license proceeding.
The Applicant, Louisiana Energy
- Servicbs, L.P.
("LES"), seeks a 30-year materials license to possess and use byproduct, source, and special nuclear i
material in order to enrich uranium using a gas centrifuge process at the Clariborne Enrichment Center (" CEC") it intends to build in Claiborne Parish, Louisiana.
i
- 2 The CEC is to'be constructed on a 442-acre site located some five miles northeast of the. town of Homer, Louisiana, immediately between, and. adjacent to, the two unincorporated, African-American communities of Center Springs and Forest Grove.
The design capacity of the. CEC is 1.5 million separative works units ("SWU") per year and, as originally proposed, the Applicant stated its intent to build the facility in three phases over six years, with each phase consisting of identical 0.5 million SWU per year units.
At full production, the CEC will process approximately 4,700 metric tons of UF annually, generating 870 metric tons of enriched uranium and 3,800 metric tons of depleted uranium tails.
Direct capital costs of the CEC are estimated to be
$855 million in 1990 dollars exclusive of escalation, capitalized interest, contingency, or replacement l
centrifuges.
Decontamination and decommissioning are estimated to take seven years.
Decommissioning is estimated 1
to cost $518 million in 1996 dollars of which 94% is the cost for disposition of tails.
In 1990 dollars, decommissioning is estimated to cost $409 million.
The J
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l l ;
total investment, in 1990 dollars, including direct construction, interest escalation, capitalized interest, contingency, replacement centrifuges, decontamination, and e
l decommissioning is estimated at $1.6 billion.
Because the CEC is the first private, nongovernment i
enrichment facility seeking a license in the United States, this licensing proceeding presents a number of questions of first impression.
In Part I, we address environmental l
contentions J.4, and K.
These contentions are founded upon the National Environmental Policy Act of 1969, 42 U.S.C.
S 4321 et seq.
("NEPA"), and deal with the question whether l
the Applicant's Environmental Report ("ER") and the Staff's l
Final Environmental Impact Statement ("FEIS") adequately l
l address the "need for the facility" and the "no-action alternative."
In Part II, we resolve nonenvironmental contention Q that challenoes the Applicant's financial qualifications to construct and operate the CEC.
i
i
.4 I.
NEPA Need for Facility and No-Action Alternative l
A.
Contentions J.4 and K.
Under the heading " Inadequate Assessment of Costs
- under NEPA," the Intervenor asserts in contention J.4 that:
The Environmental Report does not adequately describe or weigh the environmental, social, and economic i
impacts and costs of operating the CEC.
Moreover, the benefit-cost analysis fails to demonstrate that there is a need for the facility.
- See, e.g.,
Public Service Co.
of New Hamnshire (Seabrook Station, Units 1 and 2), ALAB-422, 6 NRC 33, 90 (1977) (in a power i
production licensing case, "need for power" is "a shorthand expression for the ' benefit' side of the cost-benefit balance which NEPA mandates").
On the whole, the costs of the project far outweigh the benefits of the proposed j
action.
BASIS: NEPA requires the N 2 to fully assess the impacts of the proposed licensing action, and to weigh its costs and benefits.
LES' Environmental Report contains a brief " benefit-cost analysis" that is improperly slanted in favor of I
the benefits of the project, and contains little discussion of the potentially significant impacts and j
their environmental and social costs.
ER S 8.0.
The discussion is inadequate I
with respect to the following issues:
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4.
Section 1.2 of the ER, which purports to discuss the need for the j
CEC, provides no such information.
It briefly outlines the suppliers of enriched uranium to the United States in 1988, and provides an unexplained table j
of world enriched uranium needs from 1990 and 2010, but gives no current or projected information on uranium supply.
j This is not surprising, since it is j
commonly known that existing U.S.
j enrichment capacity is more than j
adequate to meet projected domestic q.
needs through 2010.
Sag, 22, l
GAO/RCED-89-170BR, Uranium Enrichment:
Some Imracts of Procosed Lecislation on DOE's Program.
LES vaguely states that i
LES should get a license without delay in order to avail itself of a " critical i
opening" in the uranium market that is
]
expected to begin in 1996 "because U.S.
customers have terminated their 7
commitments for over 40 percent of their l-enrichment requirements scheduled to be j
supplied by the Department of Energy j
during the late 1990's."
A generalized statement of LES' marketing hopes for the 1990's does not constitute a demonstration'that additional enriched uranium production capacity is needed.
LES should be required to evaluate exiating and projected production i
capacity both in the U.S. and abroad, and to evaluate existing and projected enriched uranium demand in the United i
States.
(Footnotes omitted).
CANT's contention K, entitled "No Discussion of No-Action Alternative," states that:
1 4 The ER violates NEPA because it does not contain an adequate discussion of alternatives to the proposed action.
BASIS:
NEPA, as implemented by 10 C.F.R.
S 51.[45), requires that environmental reports must include, inter alia, a discussion of
" alternatives available for reducing or avoiding adverse environmental effects."
LES' ER fails to satisfy this requirement in the critical respect that it does not discuss the no-action alternative.
Given the significant environmental costs of this project and the fact that LES has not demonstrated a need for the facility, this alternative should have been analyzed in detail.
(Footnotes omitted).
In opposing the admissibility of contention J.4 before the Licensing Board, the Applican; argued that "the f
1 economics of the proposed facili y is not within the scope of the ER and need not be addre.tssed under NEPA" and that i
i "the economic wisdom of its proposed venture is simply not an environmental issue germane to the NEPA analysis."
LBP-91-41, 34 NRC 332, 351 (1991).
The NRC Staff did not oppose i
the admission of the contention.
The Board admitted contention J.4, ruling that it " raises a litigable issue" that involves the legal question of "[w] hat, if any, consideration must be given to the need for the facility in fulfilling NEPA responsibilities?"
Id.
The Staff also did not oppose the admission of contention K in the context of considering the Applicant's NEPA cost-benefit analysis, but the Applicant argued that there is no explicit. regulatory requirement that the ER address the no-action alternative and that the applicable Staff regulatory guidance does not state that an assessment of the no-action alternative must be included in the ER.
The Board admitted contention K finding that "a genuine dispute exists with LES on the need to discuss the no-action alternative."
Id. at 353.
Although CANT's contentions J.4 and K are phrased only in terms of challenges to the Applicant's ER, these contentions necessarily encompass the Staff's environmental impact statement ("EIS") as well.
As the Applicant states,
"[a}t bottom, Contention J.4 involves disagreement as to (1) whether LES and the NRC are required to consider 'need' for the CEC in the ER and FEIS respectively, and, if some consideration is required, (2) the appropriate focus of that determination (including the proper definition of 'need' in this context)."
Applicant's Proposed Findings of Fact and 1
Conclusions of Law (May 26, 1995) at 39 [ hereinafter App.
P. F. ].
Similarly, at bottom, contention K involves a i
d disagreement as to whether the treatment of the no-action alternative in the ER and FEIS is adequate.
j As the Commission has declared, "[w]hile all
^
environmental contentions may, in a general sense, ultimately be challenges to the NRC's compliance with NEPA, factual aspects of particular issues can be raised before the DES [ Draft Environmental Statement] is prepared.
As a practical matter, much of the information in an Applicant's ER is used in the DES."
Duke Power Co.
(Catawba Nuclear Station, Units 1 and 2), CLI-83-19, 17 NRC 1041, 1049 (1983).
This being so, the Commission held that contentions cannot be deferred until the draft or final EIS is issued by the Staff but must, where possible, be formulated and filed based upon the Applicant's ER.
Id.
Accordingly, contentions like Intervenor's J.4 and K that assert deficiencies in the Applicant's ER also necessarily include the same general deficiency that remains applicable with respect to the EIS.
Sag 10 C.F.R.
S 2.714 (b) (2) (iii).
And here, of course, the Applicant and the Intervenor in their eridentiary presentations on these contentions included evidence on all aspects of the issues.
I Further, as we stated in LBP-96-7, 43 NRC 142, 144 (1996) with respect to other Intervenor contentions in this i
proceeding, the Subpart G rules of practice for the conduct of formal adjudicatory hearings provide in 10 C.F.R.
S 2.732 that the applicant has the burden of proof in the proceeding.
Thus, in order for the applicant to prevail on each contested factual issue, the applicant's position must be supported by a preponderance of the evidence.
Philadelphia Electric Co.
(Limerick Generating Station, Units 1 and 2), ALAB-819, 22 NRC 681, 720 (1985); Pacific Gas and Electric Co.,
(Diablo Canyon Nuclear Power Plant, Units 1 and 2), ALAB-763, 19 NRC 571, 577 (1984).
Egg 1 Charles H.
- Koch, Jr.,
Administrative Law and Practice S 6.44 (1985).
Where environmental and NEPA issues are involved, however, care must be taken in applying the Commission's general burden of proof rule.
This is because the NRC, not the Applicant, has the burden of complying with NEPA.
- Catawba, CLI-83-19, 17 NRC at 1049.
But the label of a contention as an environmental or NEPA contention does not automatically allocate the burden of proof.
Rather, it is the subject matter of the contention that determines upon whom the burden technically falls.
Thus, because the Commission's regulations require the Applicant to file an ER (ege 10 C.F.R.
S 51.60) and prescribe its contents (age 10 C.F.R.
S 51.45), the Applicant has the burden on contentions, or those portions of contentions like J.4 and K, asserting deficiencies in the ER.
Sgg Consumers Power Co.
(Midlana Plant, Units 1 and 2) CLI-74-5, 7 AEC 19, 31 (1974).
Egg generally United States Enercy Research and Development Administration (Clinch River Breeder Reactor Plant), CLI 13, 4 NRC 67, 77 (1976).
Similarly, because the Staff ultimately is responsible for preparing the EIS required by NEPA (Etg 10 C.F.R.
SS 51.80, 51.97(c)), the Staff generally has the burden on contentions, or those portions of contentions like J.4 and K, that allege deficiencies in the EIS.
Further, because the Staff, as a practical matter, relies heavily upon the Applicant's ER in preparing the EIS, should the Applicant become a proponent of a particular challenged position set forth in the EIS, the Applicant, as such a proponent, also has the burden on that matter.
Sag Public Service of New Hampshire (Seabrook Station, Units 1 and 2), ALAB-471, 7 NRC 477, 489 n.8 (1978).
l l
l Finally, overlying all NEPA issues in this proceeding are the additional obligations that the Commission has placed upon the Licensing Board in the hearing notice.
First, the Commission instructed us to determine whether the i
Staff's environmental review conducted pursuant to 10 C.F.R.
1 Part 51 was adequate.
Second, it charged us with i
determining whether the agency had complied with the i
requirements of section 102 (2), (A), (C), and (E) of NEPA.
Lastly, the Commission directed us independently to consider l
the cost-benefit balance among the conflicting factors i
l contained in the record of the proceeding.
Sen 56 Fed.
j Reg. 23,310 (1991).
Sgg also 10 C.F.R.
S 51.105.
Although obviously related, these obligations placed upon us by the Commission to ensure the agency's compliance with NEPA are independent of the parties' burdens with respect to the i
Intervenor's environmental contentions.
l l
B.
NEPA Overview i
Because the Intervenor's contentions are footed on the i
l requirements of NEPA, a brief review of that Act is necessary to any analysis of these contentions.
As the regulations of the Council on Environmental Quality state
"[t] he National Environmental Policy Act - (NEPA) is our basic national charter for protection of the environment.". 40 C.F.R.
5 1500.1.
Section 101 of NEPA " declares a broad national commitment to protecting and promoting environmental quality," Robertson v.
Methow Valley Citizens Council, 490 U.S.
332, 348 (1989), and sets forth the Act's basic " substantive goals for the Nation," Vermont Yankee Nuclear Power Coro.
v.
NRDC, 435 U.S.
519, 558 (1978), that the federal government should "use all practicable means and measures" to protect environmental values.
42 U.S.C.
S 4331 (a).
Section 101(b) of the Act then provides that "it is i
the continuing responsibility of the Federal Government to use all practicable means, consistent with other essential considerations of national policy" to, inter alia, avoid environmental degradation, " attain the widest range of beneficial uses of the environment without degradation...
or other undesirable and unintended consequences," and j
" preserve important historic, cultural, and natural aspects of our national heritage."
42 U.S.C. S 4331(b).
To attain these sweeping substantive goals, section 102 of the Act contains a set of " action-forcing" procedures.
l 13 -
Kleone v.
Sierra Club, 427 U.S. 390, 409 & n.18 (1976).
Egg Calvert Cliffs' Coordinatina Committee v.
AEC, 449 F.2d 1109, 1113 & n.7 (D.C. Cir. 1971).
The section directs that j
"to the fullest extent possible" all federal agencies shall
" utilize a systematic, interdisciplinary approach" in environmental planning and "in decisionmaking which may have an impact on man's environment."
42 U.S.C.
S 4332 (2) (A).
To ensure that environmental considerations become part of the decisional calculus, section 102 (2) (B) instructs agencies to " identify and develop methods and procedures which will ensure that presently unquantified environmental amenities and values may be given appropriate consideration in decisionmaking along with economic and technical considerations."
42-U.S.C.
S 4332 (2) (B).
As the court stated in Calvert Cliffs', 449 F.2d at 1113,
"(elnvironmental amenities" will often be in conflict with " economic and technical considerations."
To
" consider" the former "along with" the latter must involve a balancing process.
In some instances environmental costs may outweigh economic and technical benefits and in other instances they may not.
But NEPA mandates a rather finely tuned and " systematic" balancing analysis in each instance.
l In order to effectuate this NEPA balanc*
- malysis, section 102 (2) (C) requires that all agencies include in every recommendation or report on proposals for legislation and other major Federal actions significantly affecting the quality of the human environment, a detailed statement by the responsible official on --
(i) the environmental impact of the proposed action, (ii) any adverse environmental effects which cannot be avoided should the proposal be implemented, (iii) alternatives to the proposed
- action, (iv) the relationship between local short-term uses of man's environment and the maintenance and enhancement of long-term productivity, and (v) any irreversible and irretrievable commitments of resources, which would be involved in the proposed action should it be implemented.
42 U.S.C.
S 4332 (2) (C).
In addition to the discussion of alternatives in the detailed statement set forth in section 102 (2) (C) (iii), the requirement for a thorough study and a detailed description of alternatives was given further emphasis by Congress in NEPA section 102 (2) (E) (formerly section 102 (2) (D)) that all federal agencies, to the fullest extent possible, " study, develop, and describe appropriate alternatives to recommended courses of action in any
.. - ~.. - _ - -...-.
! l proposal which involves unresolved conflicts concerning l
alternative uses of available resources."
42 U.S.C.
S 4332 (2) (E).
Indeed, the study and description of alternatives is the " linchpin" of the environmental impact statement process.
Monroe County Conservation Council. Inc.
v.
Volpe, 472 F.2d 693, 697-98 (2d Cir. 1972).
As explained s
by the court in NRDC v.
Callaway, 524 F.2d 79, 92-93 (2d Cir. 1975) (citation omitted).
It is absolutely essential to the NEPA process that the decisionmaker be provided with a detailed and careful analysis of the relative environmental merits and demerits of the proposed action and possible alternatives, a
requirement that we have characterized as "the linchpin of the entire impact statement."
Indeed the development and discussion of a wide range of-alternatives to any proposed federal action is so important that it is i
mandated by NEPA when any proposal
" involves unresolved conflicts concerning alternative uses of available resources."
This requirement is i
independent of and of wider scope than the duty to file the EIS.
1 Thus, NEPA's requirement of a " detailed statement,"
including the development and description of alternatives i
mandated by sections 102 (2) (C) and (E), serves a number of purposes.
First, it requires the agency to compile a
.- 1 reviewable environmental record demonstrating the agency has i
made a good faith effort to consider the environmental values NEPA seeks to safeguard, Minnesota PIRG v.
Butz, 541 F.2d 1292, 1299 (8th Cir. 1976), cert. denied, 430 U.S.
922' (1977); Trout Unlimited v.
Morton, 509 F.2d 1276, 1282 (9th 1
Cir. 1974); Silva v.
Lynn, 482 F.2d 1282, 1284 (1st Cir.
1973); Monroe County, 472 F.2d at 697, and taken a hard look at the environmental consequences of its action.
Robertson, i
490 U.S.
at 350; NRDC v.
Morton, 458 F.2d 827, 838 (D.C.
Cir. 1972).
Second, the detailed statement serves as an environmental full disclosure law providing agency decisionmakers, as well as the President, the Congress, the CEO, and the public the environmental cost-benefit information that Congress thought they should have about each qualifying federal action.
Minnesota PIRG, 541 F.2d at 1299; Trout IMlimited, 509 F.2d at 1282; Silva, 482 F.2d at 1285; Morton, 458 F.2d at 833; Alabama ex rel. Baxlev v.
Corns of Enoineers, 411 F. Supp. 1261, 1267
(.N.D. Ala.
1976).
Sgg Robertson, 490 U.S.
at 349.
Third, and perhaps most importantly, "the requirement of a detailed statement helps insure the integrity of the process of decision by
l l
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j
-precluding stubborn problems or serious criticism from being
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Silva, 482 F.
2d at 1285.
The EIS l
1 l
f accomplishes this by " gather [ing] in one place a discussion
?
e j
of the relative impact of alteratives so that the reasons l
for the choice of alternatives are clear."
Minnesota PIRG, 541 F.2d at 1300.
Although the action forcing' procedures of NEPA "are almost certain to affect the agency's substantive decision, i
it is now well settled that NEPA itself does not mandate particular results, but simply prescribes the necessary process."
Robertson, 490 U.S.
at 350.
Thus, NEPA is designed to lead the mule to water, but NEPA cannot make it drink.
Egg Strycker's Bav Neighborhood council. Inc.
v.
Karlen, 444 U.S.
223, 227-28 (1980); Vermont Yankee, 435 U.S. at 558; calvert Cliffs', 449 F. 2d at 1115.
As the
)
i Supreme Court stated in Robertson, 490 U.S. at 350-51 (citations and footnote omitted) :
If the adverse environmental effects of the proposed action are adequately identified and evaluated, the agency is not constrained by NEPA from deciding that other values outweigh the environmental costs.
.Other statutes may impose substantive environmental obligations on federal agencies, but
l NEPA merely prohibits uninformed --
i rather than unwise -- agency acticn.
i In other words, "[t]he project when finished may be a j
complete blunder -- NEPA insists that it be a knowledgeable
)
I blunder."
Matsumoto v.
Brinecar, 568 F.
3d 1289, 1290 (9th Cir. 1978).
C.
Witnesses and Exhibits Consistent with the Commission's burden of proof rule and in accordance with the stipulation of the parties, the Applicant presented its_ case first, followed by the Intervenor, and then the Staff.
In support of its position on Intervenor's contentions J.4 and K, the Applicant presented the testimony of Michael H. Schwartz and Peter G.
LeRoy.
(Schwartz-LeRoy fol. Tr. 383).
Mr. LeRoy, the Licensing Manager of the CEC, was responsible for compiling the information on the need for the CEC facility in the Applicant's ER that is part of the license application.
He also was responsible for compiling the information in the j
l
- Applicant's responses to the Staff's requests for additional information on the need for the facility and for the l
Applicant's response to the public comments on the draft EIS 1
i 1
for the CEC.
(;bi. at 1-2).
l l
l '
l l
l Mr. Schwartz is employed by Energy Resources International, Inc.
("ERI"), an organization specializing in 4
technical and economic consulting, nuclear fuels planning l
and procurement, and resource and market analysis.
ERI also 1
publishes the annual Nuclear Fuel Cycle and Price Reoort.
l lid. at 2-4).
Mr. Schwartz has earned a-bachelor of science and a master of science degree in nuclear engineering and he l
l has taken graduate level courses in finance, economics, and l
l management.
Lld. Attach. 2).
In his current position with j
ERI and in his previous position as a senior consultant with 1
Pickard, Lowe, and Garrick, Inc., Mr. Schwartz has been i
involved in the complete range of nuclear fuel procurement I
i and market analysis related activities including analysis of the domestic and international markets for uranium enrichment services.
Specifically, he has been involved with preparation of market price projections, development of utility nuclear fuel procurement plans, preparation of client bid specifications for nuclear fuel cycle materials i
and services, development of evaluation guidelines for l
vendor proposals, performance of commercial evaluations of i
i vendor proposals, and development of recommendations for l
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! f clients in support of contract negotiations.
CLi. at 3).
Mr. Schwartz has also~ published extensively in his areas of interest.
Lld., Attach. 2).
3 The prefiled direct testimony of Mr. LeRoy and Mr.
i i
I Schwartz on contentions J.4 and K was admitted pursuant to a
)
pretrial stipulation of the parties and without any further objection at the hearing.
(Tr. 383).
The Applicant did not i'
offer these witnesses as experts and, because of the stipulation on admissibility and the fact that neither the Intervenor nor the Staff raised any further objection, the Board at trial did not rule on the qualifications of Mr.
LeRoy or Mr. Schwartz a s experts.
Obviously, as the LES official responsible cor compiling the information in the Applicant's ER, Mr. LeRoy is qualified to testify on that l
information and the related submittals to the NRC.
As a practical matter, horever, Mr. LeRoy provided little testimony and shed little light on the matters involved in i
these contentions.
Further, although not offered as an expert witness by the Applicant, we find that Mr. Schwartz is qualified by knowledge and experience to testify as an l
i i
i l
1 expert on the issues involved in contention J.4 concerning i
the need for the CEC facility.1 In support of its contentions J.4 and K, the Intervenor presented the testimony of David E. Osterberg, a partner in I
I 2 Pursuant to a stipulation of the parties, the following Applicant exhibits were admitted into evidence relating to these contentions:
Applicant's Exhibit 10, LES letter to NRC dated April 30, 1992 (with Attachment A containing responses to NRC request for additional information concerning need for the facility) (App. Ex. 10);
Applicant's Exhibit 11, LES letter to NRC dated July 23, 1992 (with Attachment A containing response to NRC request for additional information concerning the no-action alternative) (App. Ex. 11); Applicant's Exhibit 12, LES letter to NRC dated May 1, 1992 (with Attachments A, B,
D, G,
I, J,
and L containing non-proprietary responses to NRC request for additional information concerning LES' financial qualifications) (App. Ex. 12); Applicant's Exhibit 13, LES letter to NRC dated May 1, 1992 (with Attachments C and E containing proprietary responses to NRC request for additional information concerning LES' financial qualifications) (App. Ex. 13); Applicant's Exhibit 14, LES letter to NRC dated December 22, 1994 (with Attachment E containing proprietary revised version of LES Project Financial Plan) (App. Ex. 14); Applicant's Exhibit 17, LES letter to NRC dated March 29, 1994 (with Attachments A and B containing responses to request for additional information concerning LES' ER and the draft EIS) (App. Ex. 17).
(Tr.
706).
The Applicant also introduced Intervenor's E::hibit I-DO-33, Attachment D to LES letter to NRC dated December 22, 1994 (nonproprietary update of LES Project Financial Plan) (I-DO-33).
(Tr. 706).
Additionally, Applicant's Exhibit 1(h), the CEC Environmental Report (App. Ex. 1(h)),
j was previously admitted into evidence pursuant to a stipulation of the parties during the Phase I hearings.
(Tr. 31).
! the firm of Osterberg and Sheehan, Public Utility Economists, of Scappoose, Oregon, and Osterberg Consulting of Mt. Vernon, Iowa.
(Osterberg at 1 fol. Tr. 451 and Ex.
A).
Mr. Osterberg has earned bachelor of arts and master of arts degrees in economics and earned a master of science degree in agricultural economics, and one in water resources management.
He taught economics as an instructor at the University of Wisconsin-Green Bay and as an assistant professor of economics and business at Cornell College in l
Iowa.
Currently, he is an adjunct professor in the Department of Geography at the University of Iowa.
For 12 l
years until 1995, Mr. Osterberg also served as a l
representative in the Iowa General Assembly.
During his l
tenure in the Iowa House of Representatives, he served, in 1991-1992, as Chairman of the Committee on Energy and Environmental Protection and, in 1987-1990, as Chairman of i
the Committee on Agriculture.
While in the legislature he also was a member of the Iowa Energy Policy Council and the Agricultural Energy Management Council.
(Osterberg at 1-2 fol. Tr. 451 and Ex. A).
As a consulting economist, Mr.
Osterberg has testified as an expert witness for various J
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' i clients before regulatory commissions in Florida, Illinois, l
Indiana, Iowa, New York, South Carolina, South Dakota and i
He also has worked for the Nebraska Energy 1
]
office and the Omaha Public Power District and participated a
in'an energy study for the State of Missouri.
(Osterberg at 2-3 fol. Tr. 451 and Ex. A).
He also has written and spoken i-extensively in-his areas of interest.
(Osterberg fol. Tr.
451 Ex. A).
The prefiled direct testimony of Mr. Osterberg was admitted pursuant to a pretrial stipulation of the parties j
and without further proper objection at the hearing.
(Tr.
i 451).
The Intervenor offered Mr. Osterberg's testimony as j
his expert opinion on contention J.4 and K and as that of an 1
1 1
j expert in energy economics.
(Tr. 447, 450).
We find that I
^
Mr. Osterberg is qualified by knowledge, experience, I
training, and education to testify as an expert on the issues involved in these contentions, and that he is qualified to testify as an expert in energy economics.
The Applicant states, however, that "[t] he Board declined Intervenor's request for a ruling on Mr.
Osterberg's expert status" and suggests that Mr. Osterberg
= - - _ -
was not qualified as an expert to testify on all the matters addressed in his testimony.
(App.
P.F.
at 53-55).
Although the Applicant's statement that the Board declined to rule on Mr. Osterberg's qualifications is literally true as far as it goes, the Applicant's statement ignores the context of our ruling.
The Board did not rule upon Mr. Osterberg's qualifications because there was simply no need to make such i
a ruling in light of the parties' prior stipulation of admissibility of Mr. Osterberg's prefiled direct testimony on the full range of matters involved in contentions J.4 and 2
K.
Even assuming that an objection to the qualifications of i
Mr. Osterberg might have been entertained in light of the parties' pretrial stipulation to the admissibility of his i
i prefiled direct testimony that covered the full range of i
matters involved in contention J.4 and K, after the
}
Intervenor's tender of Mr. Osterberg, the Applicant did not l
state a proper objection or request voir dire on any or all I
of Mr. Osterberg's qualifications to testify as an expert on the matters involved in these contentions.
Rather, the i
Applicant merely indicated it would let its " cross-
1 0
1 h
I i
examination speak for itself as to the level of that I
expertise in this proceeding." (Emphasis added).
(Tr. 451).
]
i The Applicant, of course, properly may bring out on J
cross-examination the lack of factual basis for an expert's opinion on a matter; however, the elicitation of such testimony goes to the weight to be accorded any particular expert opinion and not (as the Applicant's comment at the hearing seemingly indicates) to the qualification of the expert to give his opinion.
Sag Fed.
R. Evid. 702, 703 &
705 and advisory committee's notes.
Because the parties' pretrial stipulation on admissibility stands as a bar to any objection, and, in any event, the Applicant failed at the hearing to make an objection that was proper in either form or substance to challenge Mr. Osterberg's qualifications, there was.no reason for the Board to make any ruling.
Thus, contrary to the implication of the Applicant's proposed finding, the Board's ruling had nothing to do with any supposed lack of qualifications of Mr. Osterberg as an expert witness on the matters involved in these contentions.
Although the Applicant's cross-examination showed that Mr.
Osterberg could not, for example, recite from memory the
_. _. _ - - _ _ _. _ _ _ _.._.____._._____ _ _ __._._ _ _ current price range for uranium ore or fuel fabrication (Tr.
463-64), such matters are not directly relevant to these contentions and the Applicant's cross-examinat. ion did not demonstrate that Mr. Osterberg was not qualified, for l
example, by education, or training, or experience, to l
l testify as an expert on the economic and other issues l
involved in these contentions.2 Instead, we find Mr.
l l
Osterberg to be a credible, soundly grounded economist whose direct testimony on these contentions is amply documented' and well supported with materials from the professional and l
trade literature, and all his testimony is deserving of l
serious consideration and substantial weight.)
i 2In this regard, we note that Mr. Osterberg testified that the standard tools for economic analysis are applicable for evaluating the need and economic viability of the CEC, and, while there are additional factors that must be i
considered with a nuclear facility, the supply, demand, and price of the product are relevant to every market.
(Tr.
t 482-83, 516, 518).
Similarly, the Applicant's witnesses on the Intervenor's financial qualifications contention, stated in their prefiled direct testimony that free-market assumptions apply to the enrichment services market.
l (Doudiet-Arnold at 19 fol. Tr. 563).
2 Pursuant to a stipulation of the parties, the i
following Intervenor exhibits were admitted into evidence on
(
these contentions:
Intervenor's Exhibit I-DO-19, Energy j
Information Administration, U.S. Dep't of Energy, World (continued...)
i l
l
-,n-
-,an---
r 2(... continued)
Nuclear Outlook 1994, DOE /EIA-0436(94), Dec. 1994 at ix-xi, 7-10, 39-40, 57 (I-DO-19); Intervenor's Exhibit I-DO-20, Energy Information Administration, U.S. Dep't of Energy, World Nuclear Capacity and Fuel Cycle Recuirements 1993, DOE /EIA-0436(93),'Nov. 1993, at ix-xi, 33 (I-DO-20);
Intervenor's Exhibit I-DO-21, "The New Birth of Urenco,"
Nukem Market Renoit, June 1994, at 4-13 (I-DO-21);
Intervenor's Exhibit I-DO-22, " Interview," Nukem Market Report, June 1994, at 14-20 (I-DO-22); Intervenor's Exhibit I-DO-23, " Outlook on USEC," Special Report, Nuclear Fuel, Oct. 11, 1993, at 1-17 (I-DO-23); Intervenor's Exhibit I-DO-24, Charles H. Montange, The Federal Uranium Enrichment Program and the criteria and Full Cost Recoverv Recuirements of Section 161 of the Atomic Energy Act, 2 J. Min.
L.
Pol'y 1, 21-25 (1986-87) (I-DO-24); Intervenor's Exhibit I-DO-25, Energy Information Administration, U.S.
Dep't of Energy, Monthly Enercy Review, Nov. 1994, at 103-107 (I-DO-25); Intervenor's Exhibit I-DO-26, Energy Information Administration, U.S. Dep't of Energy, Annual Energv Outlook 1994 With Projections to 2010, DOE /EIA-0383 (94), Jan. 1994, at 7, 172-178 (I-DO-26); Intervenor's Exhibit I-DO-27, "Should Investors Be Concerned About Rising Nuclear Plant Decommissioning Costs?," Shearson Lehman Brothers, Electric Utilities Commentary, Jan.
6, 1993, at Executive Summary, 1-28 (I-DO-27); Intervenor's Exhibit I-DO-28, Energy Information Administration, U.S.
Dep't of Energy, Monthly Enerov Review, Aug. 1994, at 1-14, 112, 137-38 (I-DO-28); Intervenor's Exhibit I-DO-29, Committee on Future Nuclear Power Development, National Research Council, Nuclear Power:
Technical and Institutional Ootions for the Future, 1992, at 2-3, 30-43 (I-DO-29); Intervenor's Exhibit I-DO-30, Charles M.
Studness, " Stranded What, Exactly?,"
Public Utilities Fortnightly, Dec.
1, 1994, at 40-42 (I-DO-30); Intervenor's Exhibit I-DO-31, " Portland GE Says Closing Trojan was Least-cost Decision," Eublic Utilities Fortnightly, Feb. 15, 1993, at 11-12 (I-DO-31); Intervenor's Exhibit I-DO-32, Chat.les E.
Bayless, "Less is More:
Why Gas Turbines will Transform Electric Utilities," Public (continued...)
1
d e
i d
I i
i
^
The Starf presented the testimony of Merri L. Holn in support of its position on contentions J.4 and K.
(Horn re J.4, Horn re K fol. Tr. 500).
Ms. Horn is an environmental 1
engineer in the Enrichment Branch, Division of Fuel Cycle Safety and Safeguards, Office of Nuclear Material Safety and Safeguards and is the Environmental Project Manager for the CEC license application.
(Horn re J.4, Attach. 1 fol. Tr.
500).
Pursuant to the pretrial stipulation of the parties, and without any further objection at the hearing, Ms. Horn's prefiled direct testimony regarding these contentions was admitted.
(Tr. 500).4 3(... continued)
Utilities Fortnightly, Dec.
1.
1994, at 21-25 (I-DO-32);
Intervenor's Exhibit I-DO-33, Attachment D to LES letter to NRC dated December 22, 1994 (nonproprietary update of LES Project Financial Plan) (I-DO-33); Intervenor's Exhibit I-l DO-34, United Statec General Accounting Office, Uranium Enrichment: Congressional Action Needed to Revitalize the Procram, GAO/RCED-88-18, Oct. 1987, at 21-23 (I-DO-34);
Intervenor's Exhibit I-DO-35, answers of Northern States Power Company to MPUC [ Minnesota Public Utilities Commission] Information Requests on Greystone, at 00474
)
(answer to question 12) (I-DO-35).
(Tr. 452).
'In accordance with the same stipulation, the following Staff exhibit relating to these contentions was admitted.
into evidence:
NRC Staff's Exhibit 2, NUREG-1484, " Final (continued...)
i
i D.
Adequacy of FEIS Treatment of Need Issue CANT's contention J.4 challenges the sufficiency of the treatment in the Applicant's ER and the Staff's FEIS f
of the need for the facility.
Among other things, the contention asserts that the Applicant has failed to demonstrate a genuine need for the facility by showing that additional enriched uranium production capacity is needed.
Arguing in the alternative that the Commission's regulations do not require it to address the need for the facility at all in its ER, the Applicant also takes the additional position that its treatment of the need for the CEC in the Environmental Report, as supplemented by LES' responses to Staff requests for information, is a legally sufficient evaluation of the need issue.
(Schwartz-LeRoy at 4, 6-9 fol. Tr. 383; App.
P.F.
at 39-41, 55).
The Applicant also f
claims that the Staff has appropriately considered the need issue in its FEIS.
(Schwartz-LeRoy at 12 fol. Tr. 383; App.
P.F.
at 127-28).
Similarly, the Staff asserts that the
'(... continued)
Environmental Impact Statement for the Construction and j
Operation of CEC, Homer, Louisiana" (1994) (Staff Ex. 2).
(Tr. 501).
_._____m__
30 -
Applicant's treatment of the need issue in the ER is sufficient and that the Staff has adequately considered the need issue in the FEIS.
(Horn at 3-6 fol. Tr. 500).
NRC Staff's Proposed Findings of Fact and Conclusions of Law In the Form of a Partial Initial Decision Regarding Contentions B,
J, K,
and Q (May 26, 1995) at 46 [ hereinafter Staff's P.F.].
Because the Staff's discussion of the issue.of the need for the CEC in the FEIS is based upon, and parallels, the information provided by the Applicant in the ER and LES' supplemental responses to the Staff's requests for information, we need not separately address the adequacy of the Applicant's treatment of the need issue in the ER.5 5Although conceding that the Commission's regulations require that the Applicant's ER contain a cost-benefit analysis of the proposed action and include sufficient data to aid the Commission in the development of its independent analysis, the Applicant and the Staff nevertheless resort to a superficial literalism to argue that because the word "need" does not appear in the Commission's regulations prescribing the contents of the environmental report, there is no requirement that it address the need for the facility in its ER.
(Schwartz-LeRoy at 8-9 fol. Tr. 383; App.
P.F.
at 41; Horn at 3 fol. Tr. 500; Staff P.F.
at 45).
It is, however, clear that 10 C.F.R.
S 51.45(c) requires the Applicant to include in its ER a cost-benefit analysis of j
the proposed facility.
In the words of the regulation, that analysis must " consider [] and balance []" the various
)
environmental effects or costs of the proposal against the I
(continued...)
J
. ~ -.
_ -. _ ~
, 1 5(... continued) various " environmental, economic, technical and other
]
benefits" of the project.
As the Intervenor's contention correctly indicates, the "need" for the CEC is simply a catchword for the principal or primary benefit of the 4
proposed facility that goes on the benefit side of the cost-i benefit ledger.
As should hardly need explication, a cost-i benefit analysis, or a benefit-cost analysis, cannot be performed consistent with the Commission's regulations and section 102 (2) of NEPA without weighing the benefits or need j
for the project on one side of the equation with the costs l
or environmental effects of the project on the other side.
Egg Calvert Cliffs', 449 F.2d. at 1113.
This self evident and seemingly simple proposition has j
long been recognized in agency reactor licensing decisions.
As the Appeal Board stated, I
[t] he demand for electricity is of course the justification for building any power plant.
Satisfaction of that demand is the principal beneficial factor weighed against the environ-mental costs in striking the balance the National Environmental Policy Act requires.
In other words, "' [n] eed for power' is a shorthand expression for the
' benefit' side of the cost-benefit j_
balance which NEPA mandates for a j
proceeding considering the licensing of i
a nuclear plant.'"
Public Service Co. of Oklahoma (Black Fox Station, Units 1 4
and 2), ALAB-573, 10 NRC 775, 804 (1979) (quoting Rochester Gas and Electric Corp. (Sterling Project, Unit 1), ALAB-502, j
8 NRC 383, 388 n.11 (1978) quoting Public Service Co. of New j-Hampshire (Seabrook Station, Units 1 and 2), ALAB-422, 6 NRC l
33, 90 (1970)).
Accord Public Service Co. of Indiana (Marble Hill Nuclear Generating Station, Units 1 and 2),
(continued...)
J
m a
i l
e,
J l
4 4
5(... continued)
ALAB-459, 7 NRC 179, 184 (1978); Duke Pow.tr Co.
(Catawba Nuclear Station, Units 1 and 2), ALAB-355, 4 NRC 397, 405 (1976); Niagara Mohawk Power Corp. (Nine Mile Point Nuclear Station, Unit 2), ALAB-264, 1 NRC 347, 352 (1975).
Egg Vermont Yankee Nuclear Power Corp. (Vermont Yankee Nuclear Power Station), ALAB-179, 7 AEC 159, 175 (1974).
Equally without merit is the Applicant's assertion that the agency's power reactor precedents requiring the applicant to demonstrate the need for the facility are inapplicable to the LES enrichment facility.
According to the Applicant, this is so because reactor licensees historically have operated in a regulated, monopolistic utility market whereas LES seeks to market its enrichment services in an unregulated, non-monopolistic market in which existing capacity can be displaced regardless of whether the capacity needs to be replaced or supplemented.
(Schwartz-LeRoy at 14 fol. Tr. 383; App.
P.F.
at 44).
But the Commission's regulations implementing NEPA require the applicant of a proposed facility -- regardless of the type j
of facility -- to establish the need for the facility so that that asserted. benefit -- regardless of whether the need is great or small -- can be weighed against the project's environmental costs in the required cost-benefit analysis.
Whether the uranium enrichment market or the electric utility market is regulated or not, or monopolistic or not, j
is completely irrelevant to that portion of the NEPA cost-benefit anal.y is that requires weighing the need for the facility against the environmental costs of the project.
The Intervenor's expert, Mr. Osterberg, was quite correct when he testified that "just because it is in a different kind of market doesn't mean need is not a question."
(Osterberg Tr. 519).
Also without merit is the Staff's additional argument' j
that its regulatory guidance regarding the Commission's l
environmental regulations does not require the Applicant to address the need for the CEC in its ER.
In her prefiled (continued...)
l
l 5(... continued) direct testimony, the Staff Environmental Project Manager for the LES license review referred to Regulatory Guide 4.9,
" Preparation of Environmental Reports for Commercial Uranium Enrichment Facilities" (1975) and testified that " Regulatory Guide 4~.9
. does not discuss any requirement for applicants to provide information or discuss need for the facility.
However, the regulatory guide, at section 1.2
'Need for Facility' lists several items which an applicant is encouraged to describe or discuss in an environmental report."
(Horn re J.4 at 3 fol. Tr. 500).
Even though regulatory guidance is just that, advisory not obligatory, and regulatory guides are not substitutes for regulations, such guides nevertheless "present [] the
-Staff's view of how to comply with the regulatory requirements."
LBP-96-7, 43 NRC at 147.
In this instance, noting (at p.1) that its purpose "is to provide assistance to applicants for the development of environmental reports dealing with the construction, operation, and decommissioning of uranium enrichment facilities,"
Regulatory Guide 4.9 states in S 1.2, entitled "Need for Facility," that "[t]he degree of enrichment and quantities of separative work that will be provided for domestic use should be described.
A 20-year projection of national and foreign requirements for the services should be supplied."
)
Id. at 4.9-6.
Thus, in clear and unmistakable terms, Regulatory Guide 4.9 states that the Applicant should address in its ER the need for the facility and it calls for the Applicant to describe that need in terms of a 20-year projection of " requirements for the services,"
i.e.,
need for SWUs.
Because the word " requirement" means "something that is needed," no other reading of the Staff guidance is reasonable.
Sag Webster's Third New International Dictionary 1929 (1971).
In the face of these unequivocal statements in Regulatory Guide 4.9 that the Applicant should address the need for the facility in its Environmental Report --
(continued...)
1 l
i i 1
Therefore, we turn to the ultimate question in contention J.4 of whether the treatment of the need for the facility issue in the FEIS is adequate.
1.
Applicable Standard The commission's regulations implementing section 102(2) of NEPA, 10 C.F.R.
Part 51, also contain an Appendix A entitled " Format for Presentation of Material in Environmental Impact Statements."
Section 1(a) of the Appendix sets forth the matters that generally must be addressed in an environmental impact statement, including item 4 labeled " Purpose of and need for action."
A similarly titled section 4 of the Appendix then provides that (t] he statement will briefly describe and specify the purpose of [and] the need for the proposed action.
The alternative of no action will be discussed.
In the case of nuclear power plants, consideration will be given to the potential impact of conservation 5(... continued) statements that represent the Staff's view of how to comply with the Commission's regulations -- the Staff's testimony quoted above, at best, makes no sense and, at worst, is disingenuous.
Most importantly, however, this kind of Staff testimony is completely unhelpful to the Licensing Board in resolving the matters before it.
[ measures in determining the demand for power and consequent need for additional generating capacity.
Further, the Commission regulations prescribing the contents of the draft and final environmental impact statements, 10 C.F.R.
SS 51.70(b), 51.90, state, respectively, that the l
Staff should use the format set forth in Appendix A in j
l preparing environmental impact statements.
Those same regulations also provide, in language similar to that l
detailing the cost-benefit analysis that must be included in an applicant's environmental report, that the cost-benefit analysis contained in draft and final environmental impact statements "will, to the fullest extent practicable, quantify the various f actors considered" and "[t] o the extent that there are important qualitative considerations or factors that carqot be quantified, these considerations or factors will be discussed in qualitative terms."
10 C.F.R.
S 51.71(d).
Egg 10 C.F.R.
S 51.90.
Egg also Baxlev, l
411 F.
Supp. at 1268-69; Vermont Yankee, ALAB-179, 7 AEC at I
174-76.
Thus, the Commission's regulations specifically direct that the Staff's FEIS address the need for the CEC.
r Labeling this requirement as the "need" for the proposed facility is merely a shorthand expression to describe the principal beneficial factor that is to be weighed against the various costs of the proposal in striking the cost-benefit balance required by NEPA and the l
Commission's implementing regulations.
Sea supra note 5.
l Therefore, whatever the principal benefit provided by the CEC, it must be addressed in the FEIS as the need for the i
i facility and, "to the fullest extent practicable," the i
benefit must be quantified.
And, contrary to the suggestion in the Intervenor's contention J.4, the Applicant is not limited to establishing the need for the CEC by showing that additional capacity for enriching uranium is essential to meet current or future demand -- although such a showing is certainly one obvious way of demonstrating the benefit of the facility.
- Rather, because the need for the proposed facility is definitionally the primary benefit against which the various costs of the project are weighed in the cost-benefit analysis and NEPA does not dictate any substantive outcome for the cost-benefit balancing process, the principal benefit of the j
project does not have to arise to any minimum level or meet any other prescribed standard.'
In other words, whatever i
'Having been introduced by the Staff to Regulatory Guide 4.9 (Egg supra note 5), we note an additional troubling matter with obvious relevance to the need for the facility issue and the ultimate cost-benefit analysis in the Staff's EIS.
In Chapter 8, entitled " Benefit-Cost Analysis," the Staff regulatory guidance states that:
This Chapter should demonstrate through l
a benefit-cost analysis of the proposed plant why in the applicant's judgment the aggregate benefits outweigh the aggregate costs.
Even though the NRC will independently prepare a benefit-cost analysis of the proposed plant in its Environmental Statement, the applicant should perform its own analysis to aid the NRC in its evaluation.
The applicant should note that the major obiective of the precaration of the environmental report is to demonstrate that the aggregate benefits outweigh the aogregate costs for the pronosed plant.
Reg. Guide 4.9 at 4.9-25 (emphasis supplied).
Although representing the Staff's view of how to comply with the Commission's regulations, this Staff guidance seemingly is at odds with the very purpose of the-National Environmental Policy Act and the Commission's implementing regulations.
As indicated, NEPA calls for a forthright and objective analysis of the various costs and benefits of a proposed project.
NEPA is an environmental full disclosure law and as such it does not dictate any preconceived result for that analysis, much less mandate a result requiring the benefits j
(continued...)
i i
'(... continued) to outweigh the costs.
Sag supra p. 16.
Similarly, the Commission's implementing regulations do not call for such a l
preconceived result for the cost-benefit analysis preformed in the Applicant's ER.
Indeed, far from preordaining a j
specific outcome for that analysis, the regulations require the Applicant to provide in its ER " sufficient data to aid i
the Commission in its development of an independent analysis," 10 C.F.R.
S 51.45(c), and instruct the Applicant that "[t] he information submitted pursuant to.
this section should not be confined to information supporting the proposed action but should also include adverse information."
10 C.F.R.
S 51. 4 5 (e).
The Staff's view of the Commission's regulations set out in Chapter 8 of Regulatory Guide 4.9 is disquieting and l
brings to mind the Appeal Board's admonition in Florida Power & Light Co.
(St. Lucie Nuclear Power Plant Unit No.
2), ALAB-435, 6 NRC 541, 544 (1977).
Although in St. Lucie the Appeal Board was concerned with an alternative site analysis in a construction permit proceeding, the general l
thrust of its remarks bear repeating here:
We regret the necessity of having to state that the record of this case does not instill confidence in us that the staff always acts with that degree of care which would demonstrate its commitment to t 'le vigorous enforcement of NEPA's commands regarding alternative l
site inquires.
At different times in this proceeding the staff appeared to treat compliance with NEPA as a hurdle in the path of, rather than a prerequisite to, the issuance of a nuclear power plant license.
Manifestly, the staff's attitude toward environmental questions should be parallel to its generally commendable (continued...)
r
- the benefit of the proposed facility and whether that benefit is great or small, it must be addressed and, if practicable, quantified in the FEIS as the need for the facility.
2.
Assertion of Need in the ER and FEIS Here, as the Intervenor's contention asserts, the Applicant's ER, under the heading of "Need for Facility,"
merely states the yearly production capacity of the CEC of 1.5 million SWUs per year and asserts that this amounts to 15% of the requirements of domestic nuclear power plants.
'(... continued) stance in the safety area.
There, the staff quite properly treats an applicant's statements as those of a decidedly interested party.
l Accordingly, the staff reviews them with a trained, dispassionate and skeptical eye.
Where the environment is concerned, the same sort of review should be the norm.
Lest we be misunderstood, we harbor no i
i bias for or against any particular outcome of the staff's review of environmental matters.
But a staff conclusion that an applicant's proposal passes muster is valuable only to the extent it represents the results of l
vigorous probing for possible shortcomings.
Where that has been done, there is much more reason to trust the validity of the conclusion. 6 NRC at 544 (footnotes omitted).
The ER then lists the suppliers of enriched uranium to the United States in 1988 and sets out a table of world enrichment services requirements tor the years 1991 to 2010 prepared by ERI in 1990.
(App. Ex. 1(h) at 1.2-1; Table 1.2-1).
In response to NRC Staff requests for additional information, the Applicant amended its ER to include ERI's 1991 mid-range projections for the years 1991 to 2030 of world enrichment services requirements and nuclear power growth, ERI's forecast of world enrichment capacity in the year 2000, and a graph depicting LES' estimation of the uncommitted SWUs market in the United States from 1992 to 2000.
(App. Ex. 10 at A-1; Tables 1, 2,
3; Graph 1).
Additionally, the Applicant asserted that:
The fundamental case for the CEC is that it can and will compete on economic grounds, allowing U.S.
electric utilities a competitive source of supply so
- hat they can in turn achieve the lowest cost reliable supply of electricity to their rate payers.
This is achieved primarily because the centrifuge process uses only a small fraction of the electric power required by the competing diffusion plants.
Also, its relatively benign environmental impact assures that this cost advantage will, if anything, grow in the future as environmental restrictions on enrichment plants and on l
\\ the electric power sources which supply them come under increasingly severe restrictions.
A competitive domestic market will also act as a self-regulating mechanism to keep the DOE operations, whether managed by DOE or a successor corporation, operating as efficiently as possible.
The successful introduction of a world-class technology to the United States will also provide a more complete perspective when future decisions to add or replace capacity must be made on a national basis.
(App. Ex. 10 at A-3 to A-4).7 In the FEIS, the NRC Staff adopts the Applicant's assertion of need for the CEC.
It states that "[b]ecause existing world enrichment capacity is adequate to meet demand for the foreseeable future, the need for this facility lies primarily in the need for an additional market j
l competitor in the U.S., rather than in a need to increase world or U.S.
enrichment capacity."
(Staff Ex. 2 at 1-
- 5) (citation omitted).
As support, the Staff first reiterates ERI's 1991 demand forecast that, by the year
'The Applicant repeats this same formulation of the need for the CEC in a number of additional responses to j
Staff requests for information on the no action alternative (App. Ex. 11 at A-2) and on financial qualifications (App.
Ex. 12, Attach. D at 5; App.-Ex. 13 Attach. E at 5; App.
Ex. 14, Attach. E at E-5).
)
2000, requirements for enriched uranium in the United States are expected to increase slowly.
It next states thnt premature reactor shutdowns affecting demand cannot be quantified at this time and it then lists the Applicant's estimates of the uncommitted SWU market in the U.S.
through the year 2000.
Finally, it recounts the Applicant's belief that the market provides an entry opportunity for LES to compete against the United States Enrichment Corporation
("USEC").
In conclusion, the Staff asserts that the CEC could be an effective competitor because the USEC's gaseous diffusion plants ("GDPs") are old and need maintenance and upgrades, use 50 times the electricity per SWU as the CEC, and may face increases in the cost of power due to required environmental upgrades on the plants supplying electricity.
(Id.)
After setting out the above described discussion of th-need for the CEC, the FEIS closes with a brief description of the United States-Russian weapons to plowshares agreement whereby the United States will purchase low enriched uranium
(" LEU") blended down from high enriched uranium ("HEU") from dismantled nuclear weapons.
According to the FEIS, the w
=.
. ~ -.. - _ _.. -
i i
0 j
43 -
I I
i agreement requires-the United States to purchase the i
1 equivalent of 92.1 million SWUs over the 20-year period from l
1994 to 2013 with 10%, or approximately 1.8 million SWUs per j-year, supplied from 1994 to 1998 and 90%, or.approximately 5.5 million SWUs per year, supplied from 1999 to 2013.
The k
Staff states that the Russian LEU supplied from 1999 to 2013 i
is about 3.7 times larger than the coincident CEC output and i
l j
represents about 15% of projected world demand, more than i
1 3
50% of projected U.S.
demand, and almost half of all i
uncommitted world demand.
(Id. at 1-5 to 1-7).
i-1 j
Although not included in its main discussion of need in the FEIS, the Staff states in an introductory summary to the 1
I FEIS:
1 It should be noted that the enrichment j
market in the future will continue to be highly competitive.
.Although the i
exact timing and impacts of the Russian i
supplies and other potential competition are uncertain, they are likely to result in downward pressure on U.S.
and world SWU prices.
The potential price-I depressing effect of the Russian LEU 1
introduces an additional uncertainty l
concerning the economic feasibility of the. CEC in the proposed time period.
j CB1. at xviii).
1 i
I h
I f
i
- 44 3.
Board Findings on Parties' Positions At the evidentiary hearing on CANT's contention J.4, 4
the Applicant. repeated its formulation of the need for the i
CEC (Schwartz-LeRoy at 12-13 fol. Tr. 383) and presented j
additional supply, demand, price, and market information in support of its. position.
(Id. at 14-55).
In a nutshell, l
the Applicant asserted that, even though current and future enrichment capacity exceeds demand, the CEC will be able to produce its full capacity of 1.5 million SWUs per year at a price falling within ERI's future price forecasts and, therefore, can compete on the basis of price to capture 15%
i of the demand for enrichment services in the U.S.
from current producers.
The Staff took the position that the l
l FEIS adequately describes the need for the CEC (Horn re J.4 4
at 4-5 fol. Tr. 500).
The Intervenor, on the other hand, i
J-l challenged the Appli7 ant's supply, demand, price, and market i
4 information and the Applicant's claim that LES would bring j
price competition to the market.
(Osterberg at 4-25 fol.
l Tr. 451).
i
}
Initially,uit bears repeating that the CEC will use 4
i gas centrifuge technology licensed by Urenco and that the i
4 T
e 9
m e
y-v
.....-.~.
1 I facility has a design capacity of 1.5 million SWU per year.
i Also we note that pursuant to the provisions of the proprietary " Agreement of Limited Partnership of Louisiana Energy Services, L.P."
(" Partnership Agreement"), the CEC, l
as a practical matter, cannot market its enrichment services outside the United States (I-DO-44 Art. IX S 9.2(c), Art. V f
a l
SS 5.1, 5.2 (a) & (d), 5.3 (a), Schedule B; Osterberg Tr. 821-1 I
22; I-DO-23 at 13) and, in any event, the Applicant intends only to market its services in the U.S.
(Schwartz-LeRoy at 27 fol. Tr. 383).
Further, because of the manner in which commerce for the various components of the nuclear fuel cycle developed, uranium enrichers perform a service on customer-owned uranium hexafluoride but the enricher retains the depleted uranium tails.
This enrichment service, again because of an historical anachronism, is measured in terms of the work or effort required to enrich the material to the desired level, called a separative work unit or SWU.
- Thus, when examining the supply component of the enrichment market, the principal focus historically has been on the capacity to provide en_ichment services or SWUs.
With the advent of transactions such as the purchase by the Uni'.ed
w a
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a J
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.-,n n.
_n a
j States of large quantities of Russian LEU derived from blended down weapons HEU, however, the enriched uranium is purchased by weight and a conversion to SWUs is necessary in order to make symmetrical comparisons.
With this background we first address the issues of supply and demand for enrichment services.
The Applicant and the Staff do not assert that the CEC is needed to meet current or future demand.
Nonetheless, these fundamental market forces are relevant to their assertions that the principal benefit against which the costs of the facility are weighed is the CEC's ability to bring price competition to the enrichment services market, thereby permitting the CEC's utility customers to achieve the lowest cost electric rates.
a.
Sucoly.
Currently, the four major producers of enrichment services are
(' ) the United States Enrichment Corporation with GDPs in Paducah, Kentucky, and Portsmouth, Ohio; (2) Eurodif with a GDP in France; (3) Urenco with gas centrifuge facilities in Germany, the United Kingdom, and the Netherlands; and (4) Russia with gas centrifuge facilities.
(I-DO-23 at 4; I-DO-20 at 33 Table 16;
i 1 Schwartz-LeRoy at 14 fol. Tr. 383).
In addition, Japan, the People's Republic of China, Brazil, Argentina, and Pakistan have modest capabilities to produce enriched uranium; at present, however, these capacities, with the possible exception of a small amount in the People's Republic of China, are either solely for internal use or are not economically competitive on the world market.
(Schwartz-LeRoy at 14, 31 fol. Tr. 383; I-DO-23 at 4).
According to the 1992 amendment to its ER, which included an undated table of worldwide enrichment capacity j
compiled by ERI, worldwide enrichment capacity stood at 43.7 million SWUs per year in 1990.
Of that figure, 19.2 million SWUs per year were listed as the capacity of what were then i
the Department of Energy's Paducah (11.3 million) and i
Portsmouth (7.9 million) GDPs.
ERI forecasts that, in the year 2000, there would be 49.1 million SWUs per year of worldwide capacity with the same 19.2 million SWUs per year capacity from the domestic GDPs.
(App. Ex. 10 at Attach. A Table 3).
At the hearing, the Applicant did not introduce into the evidentiary record ERI's latest 1994 nuclear fuel cycle
- 48 supply, demand, and price report containing its complete market forecasts-See supra p.
19.
See also ::-DO-19 at 57, Table 31 note c.
Instead, the Applicant's wicness, Mr.
Schwartz, testified that in 1995 worldwide enrichment capacity was approximately 42 million SWUs per year which he labeled as being " generally consistent" with ERIs 1990 estimate of 43.7 million SWUs per year.
He forecast that, c
by the year 2000, there is an upper end potential for 51 million SWUs per year from worldwide production facilities.
(Schwartz-LeRoy at 16-17 fol. Tr. 383).
According to Mr.
Schwartz, capacity increases by Urenco and Russia could result in an additional 6.5 million SWUs per year by that time and the People's Republic of China, Japan, and other minor suppliers have the potential to add another 1.5 million SWUs per year. Chi, at 20, 21).
In varic sly qualifying his estimates and forecasts, the Applicant's expert noted, first, that 15% of ERI's projected 51 million SWUs per year capacity in the year 2000 was made up of relatively high cost portions of GDP capacity in the United States and France.
With respect to the U.S.
facilities, he predicted that, because only 6.5 million of
l the Portsmouth plant's 7.9 million SNUs per year capacity is considered economically competitive, the USEC would decide either to place the plant on stand-by or retire it by the l
year 2000.
(1d. at 21).
He indicated in other testimony,
)
however, that the UShc has me.de public announcements that it has no current plans to close either of the GDPs anytime soon and that the President and CEO of USEC has been-j.
reported in the trade press as saying the expected life of j
j the GDPs was another 15 years.
Chi at 18, 51).
In i
addition, he noted that 25% of ERI's projected world capacity figure was located in Russia and, therefore, was vulnerable to political and economic uncertainties.
Further, he stated that the Russian capacity was subject to 4
i trade restrictions in Western Europe and the United States.
Specifically, he mentioned the enormously complex Russian Suspension Agreement and its 1994 Amendment that restrict
}
the amount of Russian uranium that can enter the United I
States.
CBl. at 17, 21, 43-45).
In addition to the enrichment production capacity he described, Mr. Schwartz indicated that up to 9 million more SWUs per year could became available to commercial markets
- 50 from blended down Russian and American HEU.
In this regard, he asserted that the agreement for the United States Enrichment Corporation, as the Executive Agent for the United States, to purchase 500 metric tons of Russian weapons HEU over 20 years could, under current schedules, result in the delivery to the USEC of enriched uranium equivalent to 2 million SWUs per year over the next five years which could rise to as much as 7 million SWUs over the following 15 years.
Lld, at 41-43).
Similarly, he indicated that sales from the stockpiles of the United States could amount to 300 metric tons of HEU reaching the market as LEU, which is equivalent to a total of 47 million SWUs or about 3 million SWUs per year.
(Id. at 53).
In summary, he forecast that, excluding production from the USEC's Portsmouth plant, but including Russian and American HEU-derived supply, "the resulting supply of enrichment services should be sufficient to meet expected levels of demand during the next 20 years." LLd. at 21-22).
With respect solely to enrichment capacity of the United States, Mr. Schwartz, consistent with ERI's earlier estimate included 37 the Applicant's ER, asserted that the i
,.. _,...__ -. - capacity of USEC's two GDPS was 19.2 million SWUs per year with 11.3 million of that at Paducah and 7.9 million at Portsmouth.
He reiterated that a portion of the USEC capacity was not economically competitive and also stated that USEC currently has contract commitments for some 4 million SWUs per year to customers outside the United States.
Nonetheless, he concluded that, because ERI's mid and high range forecasts for demand in the United States called for no more than 9.5 million and 11 million SWUs per year, respectively, during the next 20 years, current USEC enrichment capacity was sufficient to meet such demand I
through the year 2010.
(Id. at 27-28).
The Intervenor's expert, Mr. Osterberg, testified that it was generally acknowledged that the supply of SNUs was greatly in excess of any reasonable need for this product.
(Osterberg at 5 fol. Tr. 451; Tr. 483).
Specifically, he relied upon the then-latest December 1994 estimates of the Department of Energy's independent statistical and analytical agency, the Energy Information Administration
("EIA"), reporting that " [t] he current worldwide enrichment capacity of 46.7 million SNU is more than enough td meet the
1 expected demand" (I-DO-19 at xi; Osterberg at 5 fol. Tr.
l 451) and the 1993 EIA estimate that placed worldwide enrichment capacity at 46.1 million SWU stating that, i
"[c]learly, with capacity far in excess of annual requirements, the enrichment services market is highly competitive."
(I-DO-20 at xi; Osterberg at 5-6 fol. Tr.
l 451).
Mr. Osterberg also referenced other sources such as (1) a June 1994 Nukem Market Reoort article on Urenco that stated the world's four major SWU suppliers alone had a j
capacity of 45 million SWUs per year versus a globa1 demand on the order of 34 million SWUs per year and concluded "{i]n j
short, the market appears destined to remain oversupplied for a very long time" (I-DO-21 at 9; Osterberg at 6 fol. Tr.
451); and (2) an October 11, 1993 Nuclear Fuel special report on USEC stating that Urenco's managing director, speaking at the 1993 enrichment conference, placed existing worldwide enrichment capacity at about 45 million SWUs per year with the four major producers accounting for 43 million SWUs per year, but with a demand of 34 million SWUs per i
year.
(I-DO-23 at 2, 4)
These figures led the publication to conclude that " overcapacity is the dominant fact'of life l
. for enrichers in the 1990s, making enrichment services a buyer's market."
Cbl. at 2; Osterberg at 6 fol. Tr. 451).
The Intervenor's expert also asserted that worldwide enrichment production capacity was expanding, not contracting, but he emphasized that this expansion in various countries does not imply that there is any economic justification for expanding SWU capacity in general, i
l Rather, almost all of the expansion was directed by specific l
national policy considerations within each county because, unlike the United States, most of these countries d.o not have enough enrichment capacity to serve their domestic demand.
(Osterberg at 7 fol. Tr. 451).
In particular, he pointed to the announced expansion of Japanese and Urenco capacity as increasing EIA's capacity estimates from 46.1 million SNUs in 1992 to 47.1 million SWUs in 1995.
(Osterberg at 6 fol. Tr. 451; I-DO-20 at 33).
Further, he claimed that Russia's effective capacity recently has grown j
as it has converted military SNU production to domestic l
purposes and he cited this factor as partially accounting for the 10% capacity differences between EIA's higher estimates and ERI's lower ones.
(Osterberg at 7 fol. Tr.
s
. 451; Tr. 523-25).
Finally, CANT's expert expressed optimism that the Russian HEU purchased by the United States under the weapons to plowshares agreement would come onto the market and he stated that it was unreasonable to conclude otherwise.
(Tr. at 521-22).
1 The estimates of the Applicant and the Intervenor of current and future worldwide enrichment capacity do not precisely correspond.
Nonetheless, their respective estimates and forecasts are not widely divergent and there is no significant disagreement that current and future j
i supply exceeds demand requirements.
Further, in assessing those forecasts, we recognize that because forecasts look into the future on the basis of the information available today, they provide no absolute answers.
Rather, they must be judged on their reasonableness.
Here, the estimates or forecasts of ERI relied tJon by the Applicant or those of EIA relied upon by the Intervenor are not unreasonable.
Therefore, based upon those forecasts, we find that the current and future worldwide supply of enrichment production capacity and the supply of enriched uranium available to the commercial market exceeds, and will continue to exc.eed well
l I l t
into the future, worldwide demand requirements.
We find l
that the same situation pertains to the supply situation within the United States.
On the record before us, we do, however, find unreasonable Mr. Schwartz's caveat to his worldwide supply forecast that if any of the major sources of enrichment services are interrupted, then the expected level o-f world demand would exceed supply.
(Schwartz-LeRoy at 22 fol. Tr.
383).
Even giving no consideration to the testimony of Mr.
i
)
Osterberg, Mr. Schwartz's own testimony on future supply stands in direct contravention of his caveat, which was not supported with any other significant evidence establishing l
the likelihood or reasonableness of such a scenario.
Further, it seems apparent that the 1996 enactment.of the USEC Privatization Act, Pub.
L. No. 104-134, 110 Stat 1321 (1996), provides additional assurance that LEU derived from Russian weapons HEU will reach the commercial market, albeit on a slightly delayed but more generous schedule.
That Act also appears to pave the way for some of DOE's existing i
stockpiles of enriched uranium to reach the commercial market in the near and intermediate term and with respect to
i I
l l the long term, it authorizes future commercial sales of such DOE material in a way that limits the material's adverse impacts on uranium mining, conversion, and enrichment industries in the United States.
See 42 U.S.C.
S 3112.
b.
Demand.
Outside of military applications and use i
in small quantities as fuel for research reactors, the only 4
)
use for enriched uranium is as fuel for nuclear reactors in order to produce electricity.
Therefore, in gauging the demand component of the market for enriched uranium, the determinative factors are the number of nuclear reactors j
l that are currently operating and those expected to'be i
operating in the future.
As a general rule of thumb, a typical 1,000 megawatt reactor requires approximately l
100,000 SWUs per year of enrichment services.
l l
In its ER, the Applicant included a table listing ERI's 1990 projectad world enrichment requirements from 1990 to 2010 forecasting, inter alia, that, in the years 1995, 2000, 2005 and 2010, world SWU demand would be about 30 million, 33 million, 37 million, and 40 million SWUs per year, respectively.
ERI's 1990 forecast listed SWU demand for the 1
i United States in the years 1995, 2000, 2005, and 2010 as 9.5 3
l
- million, 8.5 million, 8.7 million, and 10.2 million, respectively.
(App. Ex. 1(h) at Table 1.2-1).
Although at the hearing the Applicant did not introduce into evidence ERI's latest 1994 nuclear fuel cycle report containing its complete market forecasts, the Applicant's expert, Mr.
Schwartz, testified that the current world SWU demand was about 28 million SWUs per year.
He stated that ERI's latest mid range forecast projected that SWU demand would grow slightly between 1995 and 2000, increasing to about 31 million by 2010 and approach 32 million SWUs per year by 2015.
He gave ERI's current low range SWU demand forecast for the years 2000, 2010 and 2015 as 27 million, 26 million, and 22 million SWUs per year, respectively, and the high range forecast for these years as 31 million, 38 million, and 42 million SWUs per year respectively.
Regarding the SWU requirements of the United States, the Applicant's expert testified that current U.S. demand was 9.5 million SNUs per year.
He further stated that ERI's mid range forecast projected that demand was not expected to exceed 9.5 million SWUs through the year 2010, after which demand will decline.
In ERI's high range forecast, demand was not
. - _. ~ _. - - -
i
- a i
i a
expected to exceed 11 million SWUs per year.
In contrast, l
l ERI's low range demand forecast for the United States showed
)
a decline into the future.
(Schwartz-LeRoy at 22-23, 25-26; l
27 fol. Tr. 383; Tr. 393, 432).
Mr. Schwartz explained that ERI's 1990 SWU world demand forecast set out in the Applicant's ER for the years 2000, 2005, and 2010 was approximately 13%, 18% and 22% higher, respectively, than ERI's current mid range forecast.
He attributed ERI's overestimation of demand to the very
]
significant reduction in the prospects for Russian expansion of its nuclear power program that came to light in the West in the 1990s along with the recession in Europe during the early 1990s that led to a reduction in electricity production and reduction in the nuclear role.
(1d. at 26; Tr. 433-34).
Mr. Schwartz testified that because ERI does not currently see any substantial nuclear generating growth in those parts of the world, accurate forecasting today depends upon the extent to which existing plants will continue to operate.
(Tr. at 434).
Mr. Schwartz explained that ERI's world SWU forecasts are based upon three corresponding projections of nuclear t
... _ _ _ _. electric generation capacity representing low, mid, and high range nuclear power growth scenarios to take into account j
the uncertainties involved in long term predictions of economic and political climates around the world.
(Schwartz-LeRoy at 23-24 fol. Tr. 383).
He stated that ERI's worldwide mid case growth forecast shows an average nuclear growth capacity rate of 1.0% through the year 2010, dropping to about 0.3% thereafter as the effects of' plant l
l retirements begin.
This same forecast shows no growth of nuclear capacity in the United States through the year 2010, followed by a decline of 2.4% per year as older plants L
retire.
The mid case forecast for the United States assumes i
that, in the next 7 to 15 years, 6 nuclear power plants will retire prior to the expiration of their operating licenses.
Mr. Schwartz asserted that ERI's mid case growth forecast is consistent wi.h current trends and he considers it the most likely scenario at the present time.
(Schwartz-LeRoy at 24, 54 fol. Tr. 383; Tr. 432).
ERI's high case growth forecast I
I for nuclear generation is generally consistent with announced utility schedules for identified nuclear plants in the mid term and projects an annual growth rate of
i l
1 I
l approximately 2.2% on a world basis through the yea'r 2015, which is twice the growth rate of-ERI's mid case growth forecast.
The high case forecast for the United States shows life extension for some reactors beyond their original licenses and, in later years, some new reactors.
(Schwartz-LeRoy at 25 fol. Tr. 383; Tr. 416-17).
ERI's worldwide low case growth forecast indicates a future lack of support for the nuclear option by most countries, including the United States, which results in no annual growth on a world basis through 2010 followed by a decline of 2.6% per year.
Under 1
this scenario, the addition of new nuclear generation
)
capability beyond those units already nearing completion, is limited to Japan, Korea, and France and, in the United States, it is assumed that 7 plants will shut down l
l prematurely over the next 8 years.
(Schwartz-LeRoy at 25 fol. Tr. 383; Tr. 432).
Because the demand for SWUs is directly dependent on tile number of reactors requiring nuclear fuel services, the Intervenor's expert also testified regarding the nu'mber of l
nuclear reactors likely to be operating in the future and 9
the various factors that needed to be taken into account in various demand projections.
According to Mr. Osterberg, estimates of the number of nuclear reactors likely to require enrichment services have suffered from extreme optimism, starting with the 1973 Atomic Energy Commission estimate that by the year 2000 nuclear reactors would total 1,200,000 megawatts, more than ten times what we will see in that year.
(Osterberg at 7-8 fol. Tr. 451; I-DO-24 at 22).
He testified that he had never seen an estimate for how many nuclear power plants are going to exist or how many SWUs are going to be needed that was too low.
Rather, such estimates are always too high.
(Tr. 791).
Mr. Osterberg introduced EIA's 1994 nuclear ca'pacity estimates and noted that these forecasts had been revised i
downward over time.
(I-DO-19; Osterberg at 8 fol. Tr. 451).
He noted that EIA's 1994 forecasts reduced its previous year's 1993 high case capacity projection for the year 201(
by 17 Gigawatts Electric ("GWe").
Unlike ERI's forecasts, the EIA presents only low and high case scenarios.
EIA's then-latest December 1994 low case forecast projects that worldwide nuclear capacity will increase slightly from 338.1 GWe in 1993 to 354.7 GWe in the year 2010, representing an annual growth rate of 0.3%, while its high case projection goes from 338.1 GWe to 410.3 GWe in the year 2010, representing an annual growth rate of 1.1%.
(I-DO-19 at ix-x; Osterberg at 8 fol. Tr. 451).
Mr. Osterberg testified that EIA's 1994 low case projection failed to take into account the 1994 year-end action of the Tennessee Valley Authority ("TVA") to halt construction of three nuclear units, so that EIA's low case estimates are high by approximately 3.6 GWe.
With respect to the United States, EIA's 1994 forecast projects that nuclear capacity will decline slightly from 99.0 GWe in 1993 to 90.7 GWe in the year 2010 in its low case and from 99.0 GWe in 1993 to 94.7 GWe in the year 2010 in its high case.
Again, however, EIA's domestic forecast did not take into account TVA's action halting three units.
(I-DO-19 at x; Osterberg at 9 fol. Tr. 451).
The Intervenor's expert indicated that EIA's nuclear capacity estimates also remain too high because they do not properly take into account the early retirement of currently operating nuclear reactors.
For the same reason, he stated f
that ERI's worldwide SNU estimates remain too high even l
i i
4
, 4 though in its 1994 forecast ERI reduced its estimate almost 40 million SWUs per year for the 1994-2005 period.
He i
leveled the same criticism at ERI's domestic SWU demand that i
continues to rise over time.
(Osterberg at 11 fol. Tr.
I 451).
Noti-his agreement with Wall Street financial 4
1 analysts' predictions in 1993 that over the next several to ten years up to 25 operating nuc3 car reactors could close 2
1 prematurely (I-DO-27 at 1), Mr. Osterberg cited the following factors that led him to conclude domestic nuclear q
plant closings will be substantial and higher than ERI l
predicts: (1) continued high operating and maintenance l
("O&M") costs for nuclear plants that since 1987 have
{:
exceeded the costs for coal fired plants that are nuclear i
technology's main competitor.
(Osterberg at 12 fol. Tr.
451; I-DO-19 at 39-40; I-DO-28 at 4); (2) changes in historic utility regalation that have forced utilities to
~
demonstrate how they can produce energy services most cheaply (Osterberg at 13 fol. Tr. 451; I-DO-19 at 7, 9); (3) direct competition for utilities from practices like retail wheeling that could lead to stranded investments in nuclear plants with high O&M costs (Osterberg at 14 fol. Tr. 451; I-
t 4
l a d
DO-30); and (4) specific events in the life of a nuclear plant such as the need to replace a steam generator.
a (Osterberg at 15-16; I-DO-28 at 8; I-DO-31).
Finally, the Intervenor's expert testified that, for the foreseeable future, new domestic electric generating demand will be met 4
}
by small to medium size gas turbine units, not new nuclear 4
or even coal baseload units, and that efficiency (i.e.,
producing "negawatt" hours not kilowatt hours) will be responsible for a large share of the energy services in the future.
(Osterberg at 17-18 fol. Tr. 451; I-DO-32).
Like the forecasts of SWU supply of the Applicant and the Intervenor, their estimates and forecasts of (1) nuclear generation capacity and rates of growth or decline, and (2)
SWU demand, do not precisely correspond.
Indeed, because of the manner in which the witnesses for the Applicant and the Intervenor presented their demand estimates and forecasts, their respective projections cannot be directly compared.
What is clear, however, is that their estimates and forecasts are not widely divergent and there is no significant disagreement that current and future demand requirements for SWUs are far less than the production
I capacity for enriched uranium and equivalent SWUs from, I
inter alia, down-blended HEU.
Once again, we cannot find that either the estimates or forecasts relied upon by the Applicant or the Intervenor are unreasonable.
For present purposes it is sufficient to find, as we do, that current i
and future worldwide demand requirements for SWUs are substantially less and will continue to be substantially less well into the future than the worldwide production capacity for enriched uranium and supply of SWU equivalents.
Further, we find that the current and future demand 8
requirements for SWUs within the United States are substantially less and will continue to be substantially less well into the future than domestic production capacity for enriched uranium and the supply of SWU equivalents.
We note that in resolving this market demand question j
and this contention, it 's not necessary to choose among the various premature nuclear plant closing scenarios forecast by the experts for the Applicant and the Intervenor -- the most pronounced area of disagreement between them.
The Applicant's high case forecast for the United States
~
l includes life extension for some reactors and some new I
i L
i i
i !
reactors in the later years.
Its mid case forecast, which d
Mr. Schwartz found most likely, and its low case forecast include 6 plant closings over the next 7 to 15 years and 7 plant closings over the next 8 years, respectively.
The
~
1
)
i Applicant's expert also mentioned a 1994 forecast of 8 to 10 1
I plant closings over the next 4 to 6 years by former NRC j
Commissioner Asselstine, who is currently a senior vice 1
i president of Lehman Brothers.
(Tr. 432-33).
The
)
Ir.ce rvenor, on the other hand, relies upon a 1993 forecast j
by other analysts at then Shearson Lehman Brothers who
]
estimated up to 25 plant closings in the next 10 years.
(I-1 I
DO-27 at 1).
Although we are a bit dubious of Mr. Schwartz's claim that ERI's forecasts are "quite consistent" (Tr. 433) with
)
l those of former Commissioner Asselstine, what is clear is i
that there is general agreement there will be a significant number of premature nuclear plant closings in the United States in the coming years.
Indeed, even under the Applicant's concededly unlikely high case forecast where there are no plant closings, demand does not exceed supply.
Nor would that situation change under any of the other 1
. - - i l
l likely permutations mentioned by the witnesses.
Obviously, if the Intervenor's forecast ultimately proves correct, the l
I already significant and substantial excess supply of SWUs over demand will only be further exacerbated.
c.
Comoetition and Character of Market.
As should hardly be surprising in a market where supply greatly exceeds demand requirements, the market for SWUs is very highly competitive.
The Applicant's expert as well as the expert witness for the Intervenor both agree on the general degree of competition in the market for enrichment services and the character of the market itself.
The Applicant's expert, Mr. Schwartz, testified that the market for enrichment services "very much is an international market."
(Tr. 398).
He also unequivocally stated that the international market for enrichment services today "is ve) highly competitive."
(Tr. 399).
Consistent with this testimony, Mr. Schwartz also testified that USEC's customers in the United States include about 85% of American utilities with requirements of 8 million SWUs per year as well as a predominant share of up to 3.5 million SWUs per i
year of the requirements of Japan, South Korea, and Taiwan.
_.-_ ___. _ ~.
i i i He stated that USEC also had customers in France, Germany, Mexico, Sweden, Switzerland, Spain, and Yugoslavia that j
I account for about 750,000 SWUs per year.
(Schwartz-LeRoy at-16 fol. Tr. 383).
The Applicant's expert predicted that over the long term he expected USEC would be able to retain about 75% of its foreign business.
(Tr. 413).
Further, he testified that 15% of the demand in the United States currently was met by suppliers other than USEC and he forecast that, by the year 2000, USEC will retain only 45 to 75% of its United States utility business, losing that market share to Urenco, Eurodif, Russia, and LES.
(Tr. 396-97).
Finally, he noted that Urenco had been able to compete in the United States " [v] ery ef f ectively. "
(Tr. 431).
Similarly, the Intervenor's expert, Mr. Osterberg, testified that although in the past DOE maintained a monopoly position as world supplier of SWUs, that situation has completely changed so that today the SWU market is i
competitive and worldwide.
(Osterberg at 23 fol. Tr. 451).
Among other things, he referenced a 1987 Report of the I
General Accounting Office concluding that the enrichment f
services market was international (I-DO-34 at 21) and a June l
?
{
l l
l
-_ - - _ _~
! 1994 Nukem Market Report article about Urenco that stated
"[cl ompetition in the global SWU market is becoming fierce as the nuclear fuel market continues to contract" (I-DO-21 at 8) and quoted Dr. Klaus P.
Messer, the Chief Executive of l
Urenco, as declaring that "[t] he current enrichment market is so limited that if you want to expand, you have to take business away from another enricher."
(Id. at 9; Osterberg at 23-24 fol. Tr. 451).
1 Further, that article recites that Urenco has 9% of the global market, USEC 43%, Eurodif 23%, Russia 21%, and a few minor players account for 4%.
(I-DO-21 at 9).
In his testimony, Mr. Osterberg criticized the Applicant's i
discussion in its ER amendments and the Staff's discussion i
in the FEIS on the need for the facility because they assume there is a domestic market of SWUs that needs additional competition when, in fact, the market for SWUs is international and already very competitive.
(Osterberg at 5 fol. Tr. 451).
He asserts that because the market is international and depends on both the supply of all current I
producers of SWUs and the various alternatives to new SWU 4
production, events outside the United States wi]l greatly impact the LES project.
Thus, he testified there is no such thing as an exclusively domestic market because domestic utilities that need to purchase enrichment services do not limit their purchases to the United States, but buy
)
worldwide.
According to Mr. Osterberg, the worldwide enrichment market is highly competitive and will continue to be so for the foreseeable future.
CEd. at 24-25; I-DO-21 at 9).
On the basis of the record before us, we find that the enrichment services market is international and fiercely competitive.
Further, we find that the market will remain very highly competitive for the foreseeable future.
d.
Price and LES' Price Competitiveness.
Although the expert witnesses for the Applicant and the Intervenor generally agree that the supply of SWUs exceeds demand requirements and that the SWU market is international and very highly competitive, they disagree on the effect these economic factors will have on LES' entry into the market as a SWU supplier that, in the Applicant's words, "can and will compete on economic grounds, allowing U.S.
electric utilities a competitive source of supply so that they can in
_ turn achieve the lowest cost reliable supply of electricity to their ratepayers."
(App. Ex. 10 at A-3).
Stated otherwise, on the question whether LES will bring r'eal price competition to the SWU market as an additional domestic supplier -- which is the asserted benefit to be weighed against the various costs of the facility in the NEPA required cost-benefit analysis -- they are in substantial l
disagreement.
The Applicant's expert testified that ERI's projections of future enrichment market prices for term contracts use a methodology that combines uncommitted requirements with uncommitted supply in accordance with clearing price economic considerations to obtain long-term, cost-based prices.
ERI's methodology separates each supplier's facilities into production capacity increments; production-l l
cost-based prices ar3 then estimated in discounted cash flow analyses that account for all production costs and assume a return on capital investment.
The estimated production costs of each supplier are used in a production-cost-based clearing price model to project market prices.
I
1 l Using this method, Mr. Schwartz testified that ERI forecasts that, for 1996 to 1998, average enrichment. prices, in 1994 dollars, will be in a range between $92 and $105 per SWU and, for 1999 to 2001, average enrichment prices will be in a range between $98 to $113 per SWU.
After 2000, ERI projects market prices will remain relatively flat in a range between $100 to $115 per SWU.
(Schwartz-LeRoy at 29-32 fol. Tr. 383).
On cross-examination, Mr. Schwartz revealed that ERI's price range forecast for the years after 2000 included the production of the CEC and, if the production of the CEC were not included, ERI's forecast price would be $2 to $3 higher or between $103 to $118 per SNU.
(Tr. 386-87, 442).
Mr. Schwartz also testified that the pricing agreement for Russian down-blended HEU provides that for 1994 the enrichment component of the LEU purchased by the USEC is priced at $82.10 per SNU.
(Schwartz-LeRoy at 42 fol. Tr.
383).
Further, he stated that the USEC's marginal cost of production was $55 per SWU.
He indicated that USEC pays a cost of several dollars per SWU for implementing the disarmament policy of the United States at the current agreement price.and predicted a future offset from the U.S.
government so that ultimately USEC's blended price of a mix that also included American and Russian HEU would be about
$70 per SWU.
(Tr. 388; 400).
Mr. Schwartz asserted that, if the price offered by LES falls into ERI's forecast price range, LES should be competitive.
(Schwartz-LeRoy at 34 fol. Tr. 383).
He testified that the fact that there is excess supply capacity in the enrichment services market is not pertinent to determining the need for the CEC.
He stated that the objective of utilities purchasing enrichment services is to minimize their fuel costs and maximize the security of supply, so another supplier in the United States offering services on a competitive basis would be welcome.
.(Id. at 28).
Similarly, he asserted that the marketing of Russian i
HEU in the United States is not a problem with respect to LES' ability to compete even if all of the Russian material is sold into the market.
(Tr. 427).
In like vein, Mr.
LeRoy testified that LES' current projections and financial model analyses indicate that LES can reasonably expect to be competitive in the enrichment services market within ERI's
1 1
l
\\ '
I I
forecast price ranges and still cover its construction and operation costs.
(Schwartz-LeRoy at 37-39 fol. Tr. 383).
The Applicant's witnesses for the financial qualifications contention also testified that LES seeks to capture 17% of the enrichment services market in the United I
States by selling the full 1.5 million SWUs per year output of the CEC.
(Doudiet-Arnold at 12 fol. Tr. 563).
These witnesses stated that the $816 million hard construction costs of the CEC (in 1992 dollars) would be financed using a debt to equity ratio of between 60/40 to 70/30 with 60 to 70% of the funds borrowed from international banks and the remaining 30 to 40% equity raised from the limited partners of the LES partnership.
The Applicant's witnesses indicated that the financing would be for a 10-year term and they forecast an 8M to 9% interest rate.
(Li. at 14, 17, 28; Tr.
654, 656).
In this regard, Mr. Schwartz asserted that the LES would be able to compete, even though it was carrying the capital costs of a new facility, because the operating costs of the CEC centrifuge facility are extremely low compared to gaseous diffusion plants.
(Tr. 424).
He then indicated,
1 4
i l
l '
)
without defining his terms, that "[ilts production costs are approximately 25 percent of the production - -excuse me --
the operating costs of its competitors."
(Tr. 425).
The Applicant's expert stated that because centrifuge enrichment producers have most of their costs on the " capital side" as opposed to the " operating side" it gives such producers much more flexibility to meet market pricing than enrichers using GDPs.
(Tr. 508; 416; 424; 513).
On cross-examination, however, he testified that such flexibility does not mean that LES could produce SWUs at lower prices because the total production costs of the CEC and gasepus diffusion producers, which include both the capital and the operating costs, are comparable.
Rather, Mr. Schwartz agreed that such flexibility meant that centrifuge enrichment producers i
can offer lower prices but they will be paying their investors les as a consequence.
(Tr. 513-14).
Further, he testified that LES could sell SWUs into the market at prices as low as $60 per SWU and cover all of its operating costs and debt before its profit component goes to zero.
(Tr.
424).
_._..__..-__._..._.______._..__m__.______
l The Applicant's expert also asserted that a new entrant into the enrichment services market does not need to sell substantially below the market price to enter the market.
According to Mr. Schwartz, this is so because the level of competition that exists today, unlike ten years ago, has resulted in pricing being much closer to the cost of production than in the past so that margins are now smaller.
(Tr. 508).
Mr. Schwartz said that an existing supplier could drop its price in an attempt to keeps competitors out but it could not do that for all of its sales because the supplier must cover its fixed cost.
He stated that a supplier can compete for a particular transaction and win it with lower prices but a supplier cannot continuously do that for all transactions.
(Tr. 509).
l With regard to the particular competitors now in the
\\
i enrichment market, Mr. Schwartz asserted that the European competitors will not revert to standard competitive tactics and drop their prices to preclude LES from entering the 1
market because there is a currency exchange rate risk for them and he "would expeet that there will be a limit to how i
much they are willing to tie up with U.S.
business to w.
i P control that risk."
'(Tr. 414-15).
With respect to the USEC, Mr. Schwartz testified that, based on history, he did j
not expect it to act to keep LES out of the market.
(Tr.
415).
He indicated that, in the past when prices were much I,
higher than today, USEC's predecessor, DOE, dropped its i
prices very drastically in the face of competition from the then new market entrants, Eurodif and Urenco, but those i
r producers were, nevertheless, able to compete.
(Tr. 430).
He stated that he did not "see a situation where the current
)
market competitors are going to drop their prices I
substantially below where they are today to keep LES from J
competing."
(Tr. 430-31).
1 Finally, Mr. Schwartz testified that based on what ERI had seen over the last ten years, each increment of competition is very important and it is the willingness of services that iadividual suppliers to go after enrichment keep prices from rising.
(Tr. 416).
He stated that a new competitor would not cause prices to be lowered further; instead, prices would be maintained at the levels he predicted, thereby forestalling future price increases
)
caused by the lack of competition.
(Tr. 401-02).
l
i I The Intervenor's expert testified that, in a market with an oversupply of SWU capacity and a shrinking demand, it is possible for a very low cost producer to find a share of the market.
(Osterberg at 19 fol. Tr. 451).
He emphasized, however, that a new producer has to have j
substantially lower costs to get into one of these markets.
(Tr. 493-94).
Mr. Osterberg asserted that LES is unlikely to fill the role of a very low cost producer because, even assuming the CEC's low production costs, LES will be carrying the heavy capital costs of an undepreciated plant.
(Osterberg at 19 fol. Tr. 451).
In this regard, he contrasted the CEC with current SWU producers, all of which i
carry lesser capital costs because their plants are older and are partially or fully depreciated.
Mr. Osterberg noted that the Russians will continue to ha the low cost producer of SWUs and that Urenco, which uses similar Lechnology to that proposed by LES, can produce more cheaply from partially depreciated plants in Europe than the CEC.
He stated that Eurodif will likely continue to compete using its older gaseous diffusion plant and the USEC plants, which are quite old and substantially depreciated, will continue
- to be competitive as they do not carry a large burden of I
capital costs that must be amortized.
CLd. at 20).
As one of Intervenor's exhibits shows, Eurodif's GDP began l
operating in 1982, while Urenco's three European plants started up between 1975 and 1985, and USEC's Paducah and Portsmouth GDPs were completed in 1951 and 1956, respectively.
(I-DO-23 at 3-4).
Mr. Osterberg further testified it is a fundamental economic principle that the already constructed plants of LES' competitors can be expected to continue to produce as long as something above marginal costs is being covered.
Consequently, it is not low operating and maintenance costs that dictate whether the CEC has the ability to compete successfully, it is the CEC's total costs -- including paying its lenders for its construction costs -- that will determine the CEC's bility to compete because it has not yet been constructed.
Mr. Osterberg concluded that logic dictates that, even with low operating and maintenance costs, the CEC is unlikely to be a successful competitor with producers that do not have such heavy capital costs.
s (Osterberg at 20-21 fol. Tr. 451).
Similarly, Mr. Osterberg stated that LES' claim that the level of demand and supply will not affect LES' position as a competitor overlooks the fact that the CEC will not exist until LES constructs it.
According to Mr. Osterberg, because supply and demand are so far apart in the enrichment market, LES will not get the opportunity to construct the CEC because the project is too risky to attract lenders at a rate of return low enough for the project to proceed.
(Tr.
528-29, 536-37, 543-44.
Sgg also I-DO-44, Ex. D at D-4).
In that regard, he asserted that LES estimated interest rate was unreasonably low.
(Tr. 537, 539).
Because supply and demand in the relevant market are so far out of kilter, he indicated that hypothetical questions that assume the construction of the CEC and then seek to measure the impact make an assumption that does not make economic sense.
(Tr.
529-30).
Mr. Osterberg testified there were several answers to
.the question of the amount of price competition LES would bring to the enrichment services market.
(Tr. 531).
He stated that, on the one hand, "LES is saying that it isn't going to make it very much more competitive at all with the i
.- -..-~ _
- ~...
' prices staying about the same as they are."
(Tr 530).
He asserted that LES' own projections show that LES' entry into the market will have very'little effect on price (Tr. 539-
- 40) and he stated that a $3 differential in LES' forecast range of $100 to $115 per SWU in the years after 2000 on an estimate that is six years out "is kind of like [ pocket]
change."
(Tr. 531).
1 Mr. Osterberg stated, on the other hand, there is also the possibility of a big competitive effect if prices are driven down substantially by the entry of a new supplier at f
a time when there is already excess supply in the market.
l (Tr. 531).
According to the Intervenor's expert, the assumptions that go into the pricing model determine which of these two scenarios will occur.
Because of the number of assumptions that must be made in predicting price, he stated that it is much harder t.
predict than predicting just supply or demand.
Mr. Osterberg said that to forecast t
l price, it is necessary to first predict supply as well as demand and also predict the behavior of the other market participants on the supply curve.
He stated that, here, the B
market behaviors of USEC, Eurodif, Urenco and the Russians
1
^
1 l
6 i all play a part in forecasting price and it is difficult to predict their behaviors.
l Mr. osterberg declared that this difficulty in predicting competitor behavior translates into another of the risk factors he believes will preclude the facility from ever being built in this market.
(Tr. 531-34, 540-42, 545).
To illustrate the size of the risk, he pointed to the 22% differential between ERI's 1990 and 1994
~
i demand forecasts for the year 2010.
He noted that while I
predicting demand is easier than predicting price, a
similarly sized error in the price forecast would have a l
Very, very large negative effect on LES.
(Tr. 540-41).
Additionally, he disagreed with ERI's pricing model i
assumption that USEC and the other producers would allow LES i
to take away a portion of the market without fighting.
(Tr.
540, 495-96).
Mr. Osterberg testified, however, that if prices were significantly driven down by LES' entry into the market, LES may not be able to pay off its lenders.
(Tr. 530, 533).
Indeed, he concluded it was not only possible that LES would not survive, but if prices were driven down far enough, other producers would fail as well.
(Tr. 530, 532).
l 1 Finally, with respect to currency exchange risks influencing foreign producers behavior toward LES, Mr. Osterberg i
testified that currency exchange rate risks can be easily I
and readily taken care of using the foreign exchange markets 5
and, therefore, such risks are not significant.
(Tr. 546-48).
4 It is apparent from the record before us that the central benefit of the CEC identified by the Applicant in its ER and the Staff in the FEIS is that LES will bring real 4
price competition to the enrichment market as a domestic supplier.
Indeed, price competition is the quintessence of economic competition and, as the record in this proceeding also demonstrates, that asserted benefit is quantifiable.
Yet here, neither the Applicant nor the Staff has quantified the effect of such price competition on the enrichment services mark t "to the fullest extent practicable," as i
required by the Commission's regulations.
10 C.F.R.
- 51. 4 5 (c), 51. 71 (d).
Egg supra p.
35.
Therefore, it is necessary that the FEIS include a quantification of this asserted benefit of the CEC so that factor can be weighed against the various costs of the facility in striking the
J i
l l.
k required cost-benefit balance.
As the record as a whole shows, however, when this asserted benefit of the CEC is
. quantified, in order for it to withstand scrutiny as a i.
" benefit," a significant qualification must be appended.
4 j
The Applicant's expert, Mr. Schwartz, testified that if the price offered by LES fell into ERI's projected l
competitive market price range, then LES should be competitive.
Similarly, Mr. LeRoy testified that, according to LES' current projections and financial model analyses, LES can reasonably expect to be competitive in the i
3-enrichment services market within the market price range i
provided by Mr. Schwartz and ERI.
But being able to be competitive within a forecast price range is not equivalent i
~
to bringing real price competition to the current and future t
enrichment market -- the asserted benefit of the CEC.
i i
As we have already found, the enrichment market is an I
international one and fiercely competitive among four major i
producers with enrichment capacity and SWU equivalents far aj l
exceeding current or future forecast demand.
Moreover, that l
demand is essentially inelastic.
(Osterberg Tr. 491).
This i
J combination of factors leads us to conclude, contrary to the
~
1 1
4 i t
Applicant's assertion, that excess supply over demand in the enrichment market is highly pertinent to determining the 4
benefit the CEC will provide.
These market factors have led 1
4 to what the Applicant's witness himself characterized as, 1
j and we already have found is, a very highly competitive l
market.
And, in order to bring real price competition to 1
such a market, LES must bring to it significantly lower'
)
\\
costs that translate into significantly lower prices.
LES cannot merely be competitive with the already established producers within the forecast price range and get into the j
market.
Although Mr. Schwartz testified that the CEC's centrifuge technology gives them low operating costs and this, in turn, gives LES market pricing flexibility, he also conceded that LES' total costs of producing SWUs, which i
includes operating and capital cost, were comparable with gaseous diffusion enrichers.
This last point is important because, as the Interventor's expert economist correctly points out, the Applicant must borrow a large amount of capital to finance construction of the CEC.
With the current and future enrichment services market forecast showing significant
_- _._ _, oversupply, the proposed facility presents substantial investment risks (i.e.,
lending risks) thereby raising the investment return (i.e.,
interest rate) the project must provide to attract financing.
This, in turn, raises the proposed project's costs thereby lessening the likelihood that the CEC will bring real price competition to the enrichment market.
Indeed, contrary to the Applicant's proposed findings i
that paint Mr. Osterberg as taking numerous incompatible positions with respect to the effect of LES' entry into the enrichment services market (App.
P.F.
at 117-22), his testimony, in context, is not contradictory.
Rather, Mr.
Osterberg correctly points out that there is not a single answer to the question of the effect of LES' entry into the i
i market because the answer depends upon the assumptions made l
l in the pricing model, including predicting the competitive t
behavior of all the market competitors.
As already I
i i
~
indicated, Mr. Osterberg disagreed with a number of the Applicant's price model assumptions and stated that the j
uncertainty surrounding these assumptions translates into such significant investment risks that the CEC will not be l
I
.. -.. ~ _.. - -
- -. - ~ - -
-.= -.
- - ~.
f,
u built in the present market.
But even without accepting the l
Intervenor's view, the Applicant's own price projections show the exceedingly minimal impact the CEC will have on
)
price competition in the enrichment services market.
i The Applicant's expert testified that ERI forecast that average enrichment prices, in 1994 dollars, for 1999 to 2001 will be in the range of $98 to $113 per SWU and this forecast did not include any of the CEC's production.
After the year 2000, Mr. Schwartz testified that ERI forecast that average enrichment prices will remain relatively flat in the range of $100 to $115 per SWU and this forecast included CEC's production.
He revealed on cross-examination that in the years after 2000 ERI's forecast price would be $2 to $3 l
j higher without CEC's production included.
As the Intervenor's expert economist pointed out, however, this mathematical differer.tial in the modeled price is very small in the context of a price model that is forecasting a $15 price range six years out.
We agree with his characterization that such a difference is " pocket change"
)
in light of the inherent uncertainties in forecasting price 4
that many years in the future.
Further, because of the w
e.-
c y-
- -p,-
~
g w--
. ~. _.. _ _
1 <
j already fiercely competitive nature of the current and future enrichment market, we do not find credible the Applicant's assertions that the market price differential could be greater than $2 to $3 because of the lack of competition without the CEC.
Furthermore, we find that the Applicant's price model, which models supply, demand, and the competitive behavior of the other market participants on the supply curve, makes assumptions about the behavior of the other market participants that are unrealistic and not credible.
For example, the Applicant asserts that, based on the history of USEC's predecessors, USEC will not act aggressively to keep LES from entering the market.
But the USEC was established-l by Congress in the Energy Policy Act of 1992 specifically i
1 for the purpose of operating "as a business enterprise on a profitable and efficient basis," 42 U.S.C.
S 2297 (a) (1), and l
is charged with setting the price for its services on a basis "that will allow it to attain the normal business objectives of a profitmaking corporation."
42 U.S.C.
S 2297c-1(a).
To assume that the less than businesslike practices of the old Atomic Energy Commission and DOE in t
(
_. ~ -. -..
I I
i i
I selling enrichment services will continue relative to LES and a new market entrant,' flies in the face of the USEC's Congressional mandate.
Rather, we find that the special report on USEC published in Nuclear Fuel, which was ade.itted into evidence pursuant to the stipulations of the parties, e
Intervenor introduced as an exhibit, reflects more i
accurately how USEC will operate.
In that report, William l
Timbers, the head of USEC, is reported as indicating that 1
"the new corporation will operate with many fewer employees than DOE had and will aggressively market SWU and other services.
Unlike DOE, he says, which relied on a one-size-fits-all contract, the USEC aims to tailor its contracts to 1
individual customer's needs."
(I-DO-23 at 2).
- Further, that report states:
i
}
Timbers proclaimed the difference i
between the USEC and its predecessor
]
would be as die.inct as night and day.
{
He said the USEC would offer as many l
contract arrangements as needed to meet j
customers' needs and that it would have prices as competitive as any other I
{
company in the field.
"USEC is in business to make a profit and satisfy its customers," said Timbers.
"At USEC, customer satisfaction is ' Job 1.'"
4 I
(ld, at 8).
i f
f c
i
! f Similarly, we can give little credence to the Applicant's assertion that the European producers will not
]
revert to standard competitive practices to keep LES from i
entering the market and taking their respective market 1
}
shares because currency exchange risks limit those competitors' willingness to compete for American business.
?
Not only is the currency exchange risk easily taken care of l
by using the foreign exchange markets, but the Applicant's 4
i own witness forecast that by the year 2000, USEC, which i
currently has an 85% share of American enrichment requirements, will retain only 45% to 75% of its market share, loosing it to Eurodif, Urenco, Russia and LES.
Performing the simple mathematics associated with the Applicant's projection demonstrates the currency exchange l
i risk is not a significant deterrent to European producers seeking to fill American demand requirements.
Similarly, this forecast refutes the proffered notion that domestic i
utilities would rather not deal with foreign producers.
4.
Board Conclusion Regarding Adequacy of NEPA Cost.-
Benefit Need Analysis.
Based upon the record before us, we conclude that the f
actual benefit of the CEC is not accurately represented by
_. _ _ =. __
l 1 the Applicant in the ER and the Staff in the FEIS and the discussion of need in the FEIS is inadequate.
Specifically, we find that contrary to the conclusion of the ER and the FEIS, the CEC merely will be a fifth producer whose total costs of producing SWUs are comparable to the other market competitors in an already very highly competitive market where the current and future supply of SWUs far exceeds current and future demand.
Consequently, rather than bringing the benefit of significant price competition to the enrichment services market as an additional domestic supplier, the evidence before us clearly shows that, when quantified, the CEC will have little, if any, effect on i
price competition in the enrichment services market.
Therefore, pursuant to 10 C.F.R.
S 51.102, the discussion in the FEIS on the need for the facility is hereby supple ented by our decision on this contention and the underlying adjudicatory' record.
San. Philadelphia Electric Co.
(Limerick Generating Station, Units 1 and 2),
ALAB-819, 22 NRC 681, 706 (1985).
Further, the benefit of i
i competition as we have described it above, is the benefit that must be weighed against the various costs of the i
i
1 project in the NEPA mandated cost-benefit analysis.
We reiterate, however, that NEPA is a procedural environmental full disclosure law and it does not dictate any particular substantive outcome as a result of the cost-benefit i
l analysis.
In addition to the foregoing findings on contention J.4, we have carefully considered all of the other arguments, claims and proposed findings of the parties on i
this contention and find that they are without merit or that they are not material to this contention.
E.
No-action Alternative On its face the Intervenor's contention K challenges the adequacy of the Applicant's ER for failing to include any discussion of the no-action alternative.'
As we i
'In response to the Intervenor's contention as initially framed, both the Applicant and the Staff argue that the Commission's regulations do not require the Applicant to include any discussion of the no-action alternative in the environmental report.
Although the Commission's regulation prescribing the contents of the environmental report does not explicitly direct that the Applicant's ER address the no-action alternative, (any more than that same regulation contains an explicit direction that the ER address the need for the facility, see supra note 5), that is the clear import of the regulation and the most reasonable reading of it.
Specifically, 10 C.F.R.
S (continued...)
- 8(... continued) 51.60 requires that a license applicant for the construction and operation of a uranium enrichment facility must prepare an environmental report containing the information specified in 10 C.F.R.
S 51.45.
In turn, that regulation requires the environmental report to discuss
[allternatives to the proposed action.
The discussion of alternatives shall be sufficiently complete to aid the Commission in developing and exploring, pursuant to section 102 (2) (E) of NEPA,
" appropriate alternatives to recommended courses of action in any proposal which involves unresolved conflicts concerning alternative uses of available resources." To the extent practicable, the environmental impacts of the proposal and the alternatives should be presented in comparative form.
10 C.F.R.
S 51. 4 5 (b) (3 ).
The study and discussion of alternatives is the linchpin of the EIS process and it is well settled under NEPA that "[i] n concidering proposed government action, which significantly affects the quality of our environment, the decision-makers should have placed before them during the decision-making process a complete statement of the effect of the proposed action including the comparative effect of no action at all."
Matsumoto, 568 F.2d. at 1290.
Egg Calvert Cliffs', 449 F.2d. at 1114.
Indeed, the Commission's regulations implementing NEPA state that, among the alternatives the FEIS must address is the alternative of no action.
Part 51, App. A; 10 C.F.R.
- 51. 70 (b), 51.90.
Egg also 49 Fed. Reg. 9352, 9353 (1984).
Because NEPA and the Commission's implementing regulations require the Staff to address the no-action alternative in the FEIS, and the Commission's regulations, in turn, require (continued...)
previously explained, however, the contention also is deemed 1
to challenge the sufficiency of the. Staff's treatment in the FEIS of that same alternative.
See supra pp.
7-8.
In the FEIS, the Staff's discussion and analysis of the no-action alternative is set forth on three-quarters page in
+
~
five brief paragraphs.
(Sig Staff Ex. 2 at 4-77).
- First, j
the Staff indicates that the no-action alternative is the 1
denial of the NRC license so the impacts, both positive and j
4 negative, discussed in the previous 76 pages of chapter 4 of j
1 i
the FEIS regarding the various environmental consequences of 4
the project would be eliminated and the site is assumed to I
i revert to its former use.
Second, it states that, J
l environmentally, the continuation of logging on the site at I
the same rate as before would allow soil erosion, surface i
water contamination, and an imbalance of biological diversity.
Third, the Staff states that, socioeconomically, i
j l
- (... continued)
I the Applicant to discuss in the ER the alternatives to the proposed action that will help the Staff to develop and i
explore the alternatives that must be discussed under section 102 (2) (E) of NEPA, section 51.45(b) necessarily requires the Applicant to address the no-action alternative in its ER.
The arguments of the Applicant and the Staff to the contrary are without merit.
1
i the impact of the no-action alternative would perpetuate the depressed economic conditions in the area and the region would continue to depend upon its current commercial, industrial, and agricultural base.
Fourth, it indicates that, statewide, the impact of the no-action alternative is the failure to obtain, largely through multiplied effects, 450 jobs per year during construction and 600 jobs per year during operation.
Fifth, and' finally, the Staff states that, nationally, the impact of the no-action alternative is that there would be no change in the pressure on other enrichment suppliers to maintain competitive positions, the loss.of an additional domestic supplier, and the loss of the opportunity to substitute an energy efficient process for
{
the older gaseous diffusion process.
(Staff Ex. 2 at 4-77).
The Staff reiterates these same points in a five sentence discussion of the no action alternative in the introductory summary.
(ld. at xviii).
Further, at the beginning of chapter 2 of the FEIS the Staff, in three sentences, reiterates that the no-action alternative is the denial of the LES license application and consequently LES could either sell or lease the site for agricultural, timbering,
4 :
or other industrial uses, in which case Parish Road 39 transversing the property would not need to be relocated, I
(Id. at 2-1).
The Staff asserts that its treatment of the no-action alternative is sufficient because the no-action alternative merely refers to the situation where no license is issued and the CEC is not built, so neither the benefits nor the impacts are realized.
(Horn re K at 3-4 fol. Tr. 500; Staff P.F.
at 79).
Similarly, the Applicant argues that the Staff has addressed adequately the issue because the no-action alternative is merely the converse of the cost-benefit 1
i analysis.
According to the Applicant, the no-action alternative would involve simply reversing the cost-benefit analysis, such that the benefits of going forward with the project become costs of no-action and the costs associated with the project became benefits.
(Schwartz-LeRoy at 58-59 fol. Tr. 383; App.
P.F.
at 125).
i 1
The Intervenor, on the other hand, asserts that where, l
1 as here, there is no demonstrable need for the facility, the no-action alternative becomes even more important.
According to the Intervenor, if the CEC is not built, the I
i
- potential adverse environmental effects on air, groundwater, surface water, and other natural resources will be eliminated and an additional 120,000 tons of toxic, radioactive tailings will not be added to the waste inventory because the down-blending of HEU, whether foreign or domestic, does not result in any more toxic wastes.
j Thus, the Intervenor argues that the FEIS is inadequate because the Staff should have reviewed and weighed in its cost-benefit analysis all of the individual impacts that would not be incurred if the CEC were not built.
- Finally, the Intervenor states that because the Staff failed even to recognize the negative impacts of the CEC on the neighboring com.nunit ie s, it is not surprising that the Staff analysis of the no action alternative is entirely deficient.
(Osterberg at 27-28 fol. Tr. 451).
[ CANT's] Proposed Findings of Fact and Conclusions of Law Rf Jarding Contentions J.4 and K, Need and No Action (May 26, 1995) at 34-35 [ hereinafter CANT P.F.].
i We must judge the adequacy of the Staff's treatment of the no-action alternative in the FEIS by the rule of reason.
Citizens Against Burlington, Inc.
v.
Busey, 938 F.2d. 190,
l,
195 (D.C. Cir. 1991); Morton 458 F.2d. at 837.
Egg Seabrook, ALAB-471, 7 NRC at 486.
Here, we could scarcely be accused of exaggeration for calling the Staff's treatment of the no-action alternative minimal.
In this regard, we note the sharp contrast between the Staff's treatment of the no-action alternative for the licensing of the LES facility and the Federal Aviation Administration's ("FAA") treatment of the no-action alternative for the approval of an as described in the expansion of the Toledo Express Airport Citizens Acainst Burlinoton case.
In that case, the court issue as "whether the FAA has complied with NEPA framed the statement that in publishing an environmental impact discussed in death two alternatives:
approving the and not approving expansion of the Toledo Express Airport, 938 F.2d. at the expansion of the Toledo Express Airport."
194 (emphasis added).
Whatever other description is attached to the Staff's treatment of the no-action alternative, it most assured?.y is not "in depth."
In its sparse discussion, the Staff correctly this alternative is the denial of a license.
recognizes that The Staff then states that as a consequence of not building
M i
- 99 _
1 1
the CEC the " impacts, both positive and negative, discussed i
i in this chapter would be eliminated."
(Staff Ex. 2 at 4-f f
77).
Presumably, the Staff means that neither the benefits flowing from the construction and operation of the CEC would be realized nor the various costs imposed by the i
construction and operation of the facility would occur.
But nowhere in its brief analysis of the no-action alternative does the Staff follow its own lead and even mention, much i
less address, the numerous avoided environmental impacte to, inter alia, surface and ground water and air quality from no': building the facility.
Most surprisingly, the avoided impact of not generating depleted uranium tails is not even mentioned.
In this regard, we note that tails accumulation and disposal cannot simply be dismissed by assuming that tails not generated by the CEC woul ' be produced by some other f acility.
For example, if domestic utilities import enriched uranium from foreign suppliers instead of purchasing from the CEC, the tails may have an environmental impact on the global commons, but the Commission's environmental regulations do not apply to such foreign environmental effects.
See 10
i
- 100 -
i i
C.F.R.
S 51.10(a).
(Tr. 489).
Similarly, if domestic l~
utilities use blended down HEU that is forecast to come onto t
the market, no new tails or significantly smaller quantities 1
of tails are generated.
Yet the FEIS is completely silent l
on this subject.
Such avoiced environmental impacts, l
however, are the grist for the mill of the no-action 4
i alternative.
Rather than discussing the numerous avoided 4
t d
]
environmental impacts of the no-action alternative and comparing that alternative to the proposed project, the 4
i l
Staff confines its discussion to the negative consequences of logging if the site reverted to its former use and the negative socioeconomic effects of perpetuating the depressed economic conditions in the area from not creating jobs, if the facility is not constructed.
But these matters are, at most, incidental to the no-action alternative and the comparison of that alternative to the proposed project.
The no build option starts with the status quo, i.e.,
the natural and human environment as it exists before the project.
Whether that environment is subjectively good, bad, or somewhere in between is not the principal focus of l
I
i i
i
- 101 -
t the analysis of the no-action alternative, which concerns
)
the avoided environmental consequences of not building the project.'
We will not speculate on why the Staff chose to ignore the avoided environmental impacts that must be addressed in an analysis of the no-action alternative and addressed only the supposed negative environmental and socioeconomic consequences of not building the project.
By not identifying and analyzing the former, however, the effect of the no build alternative cannot properly be
'Moreover, even if we assume for the sake of argument that'the items included in the Staff's brief discussion in
~
i the FEIS move to the forefront of a no-action alternative l
analysis, the negative effects of not building the project nevertheless must be accurately and objectively stated.
Most importantly, such effects still must be addressed along
{
wi*h a full discussion of the avoided environmental impacto.
Here, for example, the Staff's description of the effects of l
logging on the site does not fairly correspond with the discussion of the botanical communities on the site and the time progression of forest growth from timbering operations contained in chapter 3 of the FEIS.
See Staff Ex. 2 at 3-70 to 3-76.
Nor does the Staff's discussion of the negative environmental effects of logging mention either that 61% of the tract was clear cut in 1990 or that 94% of the tract had been timbered in the past ten years cud. at 3-75 to 3-76, 4-8), matters that seemingly have some relevance to the weight to be given such a negative impact.
- 102 -
compared to the proposed project thereby fatally undermining the very purpose of the no-action alternative."
Finally, it is apparent from the Staff's treatment of the negative socioeconomic effects of not building the CEC in its discussion of the no-action alternative that the Staff places considerable importance upon the creation of construction and facility operating jobs in its final cost-benefft analysis.
Although the Intervenor questioned the propriety of the Staff's inclusion of secondary benefits in "Further, and contrary to the Applicant's assertion, the no-action alternative cannot be dismissed as nothing more than a simple reversal of the costs and benefits of the project.
For purposes of an appropriate analysis of the no-action alternative under NEPA, every benefit of the proposed project does not automatically become a cost imposed by the lack of the project any more than every cost can be turned into a benefit.
There is no simple one-to-one correlation as the Applicant asserts.
Because the avoided environmental impacts are the focus of the no-action alternative, a significant winnowing of the various impacts is necessary to a proper analysis.
Thus, not only is the Applicant's characterization inaccurate, but the purpose of the FEIS is to place before the NRC decision-makers "a complete j
statement of the effect of the proposed action including the l
comparative effect of no-action at all."
Matsumoto, 568 F.2d. at 1290, That purpose is not met by merely giving the decision-makers a formula for mental gymnastics.
Nor is that purpose met by a post hoc rationalization that the benefits of the project outweigh the costs so the no-action alternative can be ignored.
NEPA requires that the I
comparative cost-benefit analysis precede the agency decision, not vice versa.
- 103 -
the cost-benefit analysis as part of its challenge to the Staff's treatment of the need for the facility issue, we believe that issue is most appropriately addressed here.
I In its brief discussion of the no-action alternative, the Staff states that the no build option will perpetuate the depressed economic conditions in the area by failing to obtain, including multiplied effects, 450 jobs per year t
during construction and 600 jobs per year during full operations.
In its cost-benefit analysis following the no-action alternative discussion, the Staff concludes that the LES facility presents a large net benefit.
(Staff Ex. 2 at i
4-77).
The Staff reaches this conclusion based almost entirely upon the construction and operations jobs created by the facility, the economic multiplier effect of those jobs, and the tax revenues generated by the facility.
(;Bl.
at 4-77 to 4-84).
"be Intervenor argues, however, that a l
i line of agency adjudicatory decisions, including Seabrook, ALAB-471, 7 NRC at 509 n.58 and Yermont Yankee, ALAB-179, 7 AEC at 177, hold that the secondary benefits of increases in local employment and tax revenues cannot be included on the benefit side of the equation in striking the ultimate NEPA
- 104 -
cost-benefit balance for a particular facility.
For their part, the Applicant and the Staff both have ignored completely the Intervenor's argument by failing to address it.
The agency precedents that the Intervenor cites, as well as a number of additional Appeal Board and Licensing Board decisions, gee Illinois Power Co.
(Clinton Power Station, Unit Nos. 1 and 2), ALAB-340, 4 NRC 27, 49 (1976);
Arizona Public Service Co. (Palo Verde Nuclear Generating Station, Units 1, 2 and 3), ALAB-336, 4 NRC 3, 4 (1976);
Public Service Co. of New Hampshire (Seabrook Station, Units 1 and 2), ALAB-349, 4 NRC 235, 269 (1976); Duke Power Co.
(Cherokee Nuclear Station, Units 1, 2 and 3); LBP-76-18, 3 NRC 627, 642 n.3 (1976); Gulf States Utilities Co.
(River Bend Station, Units 1 and 2), LBP-75-50, 2 NRC 419, 446 1
(1975); Virginia Electric and Power Co.
(Surry Power Station, Units 3 and 4), LBP-74-68, 8 AEC 506, 528 (1974);
Georgia Power Co.
(Vogtle Nuclear Plant, Units 1, 2,
3 and 4), LBP-74-39, 7 AEC 895, 915 (1974), clearly provide that increased local employment and tax revenues are in the nature of transfer payments resulting in offsetting costs
- 105 -
and benefits.
These cases conclude that as secondary I
benefits these items should not be included on the benefit side in striking the ultimate NEPA cost-benefit balance for a facility.22 We have been unable to find any decisions questioning this consistent line of holdings or the underlying rationale of these cases.
Indeed, as is evident from the Appeal i
Board's decision in Vermont Yankee, ALAB-179, 7 AEC at 177, the underlying basis for this line of authority rests upon the Staff's treatment and analysis of secondary benefits in the Vermont Yankee FEIS and its exclusion of such secondary i
l l
benefits from the benefit side of the final cost-benefit i
analysis.
In light of these numerous agency precedents I
going back over 30 years requiring the exclusion of the l
secondary benefits of increased employment and tax revenues l
from the benefit side of the NEPA cost-benefit analysis, the 1
Staff now can change course to include such secondary benefits only if it fully explains in the FEIS why the 22This line of cases recognizes that such factors should be noted in the EIS only for informational purposes in describing the socioeconomic impact.
See Seabrook, ALAB-471, 7 NRC at 509 n.58; Vermont Yankee ALAB-179, 7 AEC l
at 177.
l l
t i
s
- 106 -
agency's previous position was in error and why it is advancing a new position.
Sag Citizens Awareness Network.
Inc.
v.
NRC, 59 F.3d 284, 291 (1st. Cir. 1995).
But the FEIS contains no such explanation.
Thus, in accordance with the Commission's instructions to us in the hearing notice, seg supra p.
11, we find that the Staff's cost-benefit analysis in the FEIS incorrectly includes and heavily relies upon such secondary benefits or, alternatively, its cost-benefit analysis is inadequate for not explaining why it is now deviating from prior agency practice by including such j
secondary benefits in its ultimate cost-benefit analysis.
In light of our findings on contentions J.4, K,
and the Staff's ultimate cost-benefit analysis and, on the basis of the record before us, we cannot independently supplement or reanalyze the no-action alternative or independently balance anew the various costs and benefits of the proposed CEC project.
Rather, at this point that task is most appropriately done by the Staff.
The Staff, of course, may remedy the foregoing deficiencies in the FEIS in the manner I
it deems most appropriate.
We suggest, however, that the Staff consider filing a supplement to the FEIS.
i l
l I
- 107 -
II.
Financial Qualifications A.
Contention Q The Intervenor's contention Q asserts that "LES has not demonstrated that it is financially qualified to build and operate the CEC."
As the basis for the contention, the Intervenor claimed that two of the partners in the project had committed only to fund the venture phase and intend to leave the partnership after a license is obtained.
The Licensing Board admitted the contention finding that the Intervenor had asserted sufficient facts to show that a dispute with the Applicant exists.
LBP-91-41, 34 NRC at i
358.
{
B.
Witnesses and Exhibits Consistent with the Commission's burden of proof rule j
and in accordance with the stipulation of the parties, the Applicant presented its case first, followed by the Intervenor, and then the Staff.
In support of its position on CANT's contention Q, the Applicant presented the testimony of James T. Doudiet and W.
Howard Arnold.
(Doudiet-Arnold fol. Tr. 563).
- 108 -
l Mr. Doudiet is President of J.
T.
Doudiet Associates, I
l i
l Inc., of Minneapolis, Minnesota, a consulting firm that i
specializes in advising entities involved in various aspects of the electric and gas utility industries on strategic, financial, and regulatory issues.
(Id. at 1).
Mr. Doudiet l
earned a MBA degree from the University of California, Berkeley, where the subject of his master's thesis was the financing of the nuclear fuel cycle.
He has twenty-three years experience as a utility financial executive and three l
l years experience as an investment banker serving from 1985-1988 as the Managing Director, Corporate Utility Finance, I
l Dean Witter Reynolds, Inc., New York, New York.
CBd. at 2; 1
i l
Attach. 1).
He was retained by the Applicant to advise LES on various matters concerning the financing of the CEC l
project and he assisted in the development of the LES financing plan for the construction, operation, and decommissioning of the CEC.
Chi. at 1).
Dr. Arnold is President of LES and is responsible for i
the licensing and operation of the CEC and obtaining financing for the construction and operation of the CEC.
cud. nt 3).
He earned his Ph.D. in experimental physics at
-109 -
l l
Princeton University and over approximately thirty-four i
years held a variety of engineering, senior management, and executive positions with various Westinghouse divisions and i
affiliated companies.
Chi. Attach. 2)
In these positions he managed a number of large projects comparable or greater in size than the CEC and was responsible for preparing construction and equipment cost estimates and completing those projects within the budgets.
Cbl. at 3).
The prefiled direct testimony of Mr. Doudiet and Dr.
Arnold on contention Q was admitted pursuant to a pretrial stipulation of the parties and without any further objection at the hearing.
(Tr. 563).
The Applicant did not offer these witnesses as experte and, because of the stipulation on admissibility and the fact that neither the Intervenor nor the Staff raised any further objection, the Board did not rule at the hearing on the qualifications of Mr. Doudie or Dr. Arnold as experts.
Nevertheless, we find that Mr.
Doudiet is qualified by knowledge, experience, training, and education to testify as an expert on the issues involved in contention Q on the financial qualifications of LES to const ruct and operate the CEC.
Similarly, we find that Dr.
- 110 -
I Arnold is qualified by knowledge and experience to testify as an expert on the icsues involved in contention Q.22 l
In support of its contention Q, the Intervenor again 1
presented the testimony of David E. Osterberg, a consulting economist.
(Osterberg fol. Tr. 715).
Having previously 22 Pursuant to a pretrial stipulation of the parties, the following Applicant exhibits were admitted into evidence i
relating to contention Q: Applicant's Exhibit 15, Letter from Dr.
K.P.
Messer, Chief Executive, Urenco Ltd., Marlow Bucks, England to Mr. Richard B.
Priory, Claiborne Energy Services, c/o Duke Power Company, Charlotte, N.C (App.
Ex. 15);
Applicant's Exhibit 21, First Amendment to Agreement of Limited Partnership of Louisiana Energy
- Services, L.P.
(non-proprietary) (App. Ex. 21); Applicant's Exhibit 22, First Amendment to Agreement of Limited Partnership of Louisiana Energy Services, L.P.
(proprietary)
(App. Ex. 22) [ hereinafter Amended Partnership Agreement];
Applicant's Exhibit 26, Diagram of LES Ownership and LES Limited Partners (App. Ex. 26).
(Tr. 706,765)
The Applicant also introduced Intervenor's Exhibit I-DO-36, Attachment N to LES letter to NRC dated May 1, 1992 (LES Financial Information, non-proprietary dated May 1, 1992)
(I-DO-36); Intervenor's Exhibit I-DO-37, Attachment H to LES letter to NRC dated May 1, 1992 (Graystone Corporate Financial Information, proprietary, dated May 1, 1992)
(I-DO-37); Intervenor's Exhibit I-DO-38, Attachment M to LES letter to NRC dated May 1, 1992 (Urenco Investments, Inc.
Financial Information, non-proprietary, dated May 1, 1992)
(I-DO-38); Intervenor's Exhibit I-DO-39, Attachment K to LES letter to NRC dated May 1, 1992 (Fluor Corporation, 1991 Annual Report) (I-DO-39); Intervenor's Exhibit I-DO-40, Agreement of Limited Partnership of Louisiana Energy
- Services, L.P.,
non-proprietary (I-DO-40); Inte rvenor 's Exhibit I-DO-44, Agreement of Limited Partnership of Louisiana Energy Services, L.P.,
proprietary (I-DO-44)
[hereinaf ter Partnership Agreement).
(Tr. 706-707).
- 111 -
discussed his qualifications in regard to contentions J.4 and K, we need not replow that ground.
See supra pp. 21-23.
The prefiled direct testimony of Mr. Osterberg on contention Q was admitted pursuant to a pretrial stipulation of the parties and without further proper objection at the hearing.
(Tr. 715).
Mr. Osterberg filed both a non-proprietary text and a proprietary text of his direct testimony.
The proprietary version was received into evidence as Attachment A to his prefiled direct testimony and has remained under seal.
(Tr. 983).
The Intervenor offered Mr. Osterberg's prefiled direct testimony as his expert opinion on contention Q and as that of an expert on energy economics.
(Tr. 709, 713).
Even assuming that an objection to the qualifications of Mr.
Osterberg might have been entertained in light of the pretrial stipulatior of the parties on the admissibility of 1
his prefiled direct testimony covering the full range of matters involved in contention 0, the Applicant did not interpose a proper objection to that Intervenor offer.
Nor did the Applicant seek voir dire to challenge Mr.
Osterberg's qualifications as an expert witness.
Rather, as
~ _ _ _. _....
i
- 112 -
it did with respect to Mr..Osterberg's testimony on contentions J.4 and K, the Applicant stated that "we will let our examination speak for itself as to his status as an expert."
(Tr. 714).
We find that Mr. Osterberg is qualified by knowledge, experience, training, and education to testify as an expert on the issues involved in contention C and that he is qualified to testify as an expert on energy economics.
Although the Applicant's extremely brief cross-examination of Mr. Osterberg showed that he had never financed an energy project of the size of the CEC, directed investments in energy projects, or spoken to investors about the CEC (Tr.
715-716), these three matters certainly do not demonstrate that Mr. osterberg was not qualified by knowledge, experience, education, or training to testify as an expert on the economic and other issues involved in contention Q.
Indeed, as we indicated at the time, the Applicant's cross-examination could, at most, be taken as aimed at the l
credibility of the Mr. Osterberg's expert testimony and not l
l his qualifications to offer his expert opinion on the matters involved in contention Q.
Further, the parties e
- 113 -
pretrial admissibility stipulation barred any such objection and, in any event, the Applicant failed at the hearing to make an objection that was proper in either form or substance to challenge Mr. Osterberg's qualifications as an expert.
Similarly, the Applicant's attempt in its proposed findings (App.
P.F.
at 136) to challenge Mr. Osterberg's
]
1 expertise on the range of matters involved in contention Q comes too late.
And contrary to the thrust of the j
Applicant's proposed findings (App.
P.F.
at 135-36), we do
.not find that the Applicant's earlier cross-examination of i
Mr. Osterberg with respect to contentions J.4 and K undermines in any way his testimony on contention 0 and our previous findings in that regard are equally applicable here.
With respect to his testimony on contention Q, we find Mr. Osterberg to be a credible, soundly grounded economist whose testimor is deserving of serious consideration and substantial weight."
" Pursuant to a pretrial stipulation of the parties, the following Intervenor exhibits were admitted into evidence relating to contention Q: Intervenor's Exhibit I-DO-41, Duke Power Company, " Louisiana Energy Services, L.P..
A Report to the North Carolina Utilities Commission" (June 20, 1990) (I-DO-41); Intervenor's Exhibit I-DO-42, Partial (continued...)
- 114 -
The Staff presented the testimony of Robert S. Wood in support of its position on contention Q.
(Wood fol. Tr.
721).
Mr. Wood is a senior financial policy analyst, Advanced Project Directorate, Office of Nuclear Reactor i
Regulation.
(Id. at 1).
At the NRC, he is responsible for l
reviewing and evaluating the financial qualifications of i
1 license applicants and Commission licensees.
Cbl. Attach.
1).
Pursuant to the pretrial stipulation of the parties, and without any further objection at the hearing, Mr. Wood's j
prefiled direct testimony was admitted.
(Tr. 721).
As the
)
agency's primary Staff regulator in the area of financial
" (... continued)
Transcript, Louisiana Public Service Commission, Baton Rouge, Louisiana, April 26, 1990 (I-DO-42); Intervenor's Exhibit I-DO-43, Attachment F to LES letter to NRC dated May 1,
1992 (LES Financial Model, proprietary) (I-DO-43);
Intervenor's Exhibit I-DO-45, Table prepared by David E.
Osterberg of 1/3 CEC build out, proprietary (I-DO-45);
Intervenor's Exhibit I-DO-46, Office of Technology Assessment, U.S.
Congress, Agino Nuclear Power Plants:
Managina Plant Life and Decommissioning, Sept. 1993, at 74-80 (I-DO-46); Intervenor's Exhibit I-DO-47,
" Electric Utilities Financial Ratios Revised," Standard & Poor's Creditweek, Nov.
1, 1993 at 41 (I-DO-47).
(Tr. 828).
The Intervenor also relied upon Intervenor's Exhibit I-DO-35 that was previously admitted regarding contention J.4.
(Tr. 452)
Additionally, the Intervenor relied upon Intervenor's Exhibits I-DO-36 through 40 and I-DO-44 that vere previously introduced by the Applicant and admitted.
(Tr. 706-707).
l
- 115 -
4 qualifications, we find that he is qualified to testify on the Staff's determination and view of the Ap,51icant's financial qualifications to construct and operate the CEC.
C.
The Applicant, LES i
Louisiana Energy Services, L.P.
is the partnership formed to design, license, construct, own, and operate the CEC.
LES is a Delaware limited partnership consisting ei four general partners, who manage and control the business and have a very limited equity investment, and seven limited i
partners, who have invested equity but have no management control of the business.
The four LES general partners are (1) Urenco Investments Inc.; (2) Claiborne Fuels, L.P.;
(3)
Claiborne Energy Services, Inc.; and (4) Graystone j
Corporation The overall management, operation, and control of the business is vested in the management committee of the four LES gene al partners with the following voting rights:
(1) Urenco Investment, Inc., 47%; (2) Claiborne Fuels, L.P.,
12%; (3) Claiborne Energy Services, Inc., 33%; and (4)
Graystone Corporation, 8%.
(I-DO-33 at D-1 to D-3).
The Partnership Agreement, however, contains a number of special voting provisions relating to the inclusion and exclusion of
.x.-
- 116 -
management committee members on certain issues and voting l
l percentages on various matters.
(I-DO-44 Art. V SS 5.2, 5.3, Schedule B).
l l
The partnership financial interest, i.e.,
the equity 1
j interest and capital contribution responsibilities, of each of the four LES general partners for the venture phase of the project is as follows:
(1) Urenco Investments, Inc.
l 3.33%; (2) Claiborne Fuels, L.P.
0.88%; (3) Claiborne Energy Services, Inc. 2.37%; and (4) Graystone Corporation 0.54%-.
i l
The four LES general partners have no capital contribution requirements after the venture phase for the construction of the project.
(I-DO-33 at D-3, D-12 to D-13; I-DO-44 at t
Arts. XI, XIII).
Each of the four.LES general partners, however, is t
itself either a first or second tier wholly owned subsidiary of another corporation or a limited partnership whose sole l
general partner, in turn, is a second tier wholly owned 1
[
subsidiary of another corporation.
Specifically, LES I
general partner Urenco Investments, Inc., is a Delaware Corporation that is a wholly owned subsidiary of Urenco, t
Ltd., a foreign corporation formed under the laws of the 5
4 2
- 117 -
i j
United Kingdom.24 LES general partner Claiborne Fuel, L.P.,
4 t
is a Delaware limited partnership whose sole general partner 1
is Claiborne Fuels, Inc., a California corporation, that is f
a wholly owned subsidiary of Fluor Daniel, Inc., also a j
California corporation that, in turn, is a wholly owned 4
l j
subsidiary of Fluor Corporation, a publicly held Delaware corporation.
LES general partner Claiborne Energy Services, l
j Inc., is a Louisiana corporation that is a wholly owned 3
subsidiary of Duke Power Company, a publicly held North j
Carolina corporation.
Finally, LES general partner j
i Graystone Corporation is a Minnesota corporation that is a wholly owned subsidiary of the NRG Group, Inc., a second 4
)
j Minnesota corporation that, in turn, is a wholly owned
)
s 1
24Urenco, Ltd. is owned in equal shares by three i
limited companies formed under English law: (1) l International Nuclear Fuels Ltd., that is a wholly owned by j
British Nuclear Fuels plc, which, in turn, is wholly owned by the Government of the United Kingdom; (2) Ultra-Centrifuge Nederland Ltd., that is wholly owned by Ultra-j Centrifuge Nederlands NV, a Netherlands corporation, which i
is 99% owned by the Government of the Netherlands with the remaining 1% owned by four Dutch companies; and (3) Uranit UK Ltd., that is wholly owned by Uranit GmbH, a German corporation, which is owned equally by two other German companies, PreussenElektra AG and RWG AG.
--. _ - -. - -.... ~.
k l
i
- 118 -
1
]
subsidiary of Northern States Power Company, a publicly held Minnesota corporation.
(I-DO-33 at D-2; App. Ex. 26).
a The seven LES limited partners and their respective partnership interest and capital responsibilities are (1)
Louisiana Power and Light Company, 4.10%; (2) Urenco (Investments US) Ltd., 16.21%; (3) GnV Gesellschaft for nukleare Verfahrenstechnik mbH ("GnV"), 16.21%; (4) UCN Deelnemingen B.V.,
16.21%; (5) Claiborne Energy Services, j
Inc. (also a general partner), 23.82%; (6) Le Paz, Inc.,
6.19%; and (7) Micogen Limited III, Inc., 10.16%.
(I-DO-33
)
at D-3 to D-4; App. Ex. 26).
1 l
Similar to the LES general partners, the seven LES l.
limited partners are all first or second tier wholly owned j
subsidiaries of other corporations.
Specifically, LES limited partner Louisiana Power and Light Company is a i
j wholly owned subsidiary of Entergy Corporation, a publicly 2
held Florida holding company.
LES limited partner Urenco (Investments US) Ltd., is a corporation formed under English i
i law and a wholly owned subsidiary of Urenco Ltd., the i
English parent corporation of LES general partner Urenco Investments, Inc.
LES limited partner GnV is a corporation
- 119 -
formed under the laws of the Federal Republic of Germany and a wholly owned subsidiary of Uranit UK Ltd., a limited i
company formed under English law that, in turn, is a wholly owned subsidiary of the German corporation Uranit GmbH.
See supra note 14.
Uranit UK Ltd., is one of the owners of Urenco Ltd., the parent corporation of LES general partner Urenco Investments, Inc.
LES limited partner UNC Deelneminger B.V., is a Netherlands corporation and a wholly owned subsidiary of Ultra-Centrifuge Nederland Ltd.,
a limited company formed under English law that, in turn, is a wholly owned subsidiary of the Netherlands corporation Ultra-Centrifuge Nederlands NV.
Egg supra note 14.
Ultra-Centrifuge Nederland Ltd.,
is one of the owners of Urenco Ltd., the parent corporation of LES general partner Urenco Investments, Inc.
LES limited partner Claiborne Energy Services, Inc., is elso an LES general partner and is a Louisiana corporation and a wholly owned subsidiary of Duke Power Company.
LES limited par ner Le Paz, Inc., is a Minnesota corporation and a wholly owned subsidiary of LES general partner Graystone Corporation that, in turn, is a second tier subsidiary of Northern States Power Company.
1
- 120 -
Egg supra pp. 117-118.
Finally, LES limited partner Microgen Ltd. III, Inc., is a California corporation and a wholly owned subsidiary of Fluor Daniel, Inc., that, in j
1 turn, is a first tier subsidiary of Fluor Corporation, j
Fluor Daniel, Inc.,
is also the parent corporation of Claiborne Fuels, Inc., the sole general partner of the Claiborne Fuels Limited Partnership, which is a LES general partner.
(I-DO-33 at D-2 to D-3; App. Ex. 26).
Thus, of the seven LES limited partners, only Louisiana Power and Light Company has no ties to any LES general partner.
I D.
The Commission's Financial Qualification Regulations and the Applicable Legal Standards The Commission's hearing notice in this combined construction permit-operating license proceeding for a 30-year materials license for the CEC states that among the
" matters of fact and law to be considered are whether the application satisfies the standards set forth in 10 C.F.R.
[S]
40.23."
56 Fed. Reg. at 23,310.
Among the provisions of section 70.23 is subsection (a) (5) governing the financial qualifications of applicants for special nuclear material licenses.
That subsection provides:
i i
- 121 -
i (a) An application for a license will be f
approved if the Commission determines
{
that:
(5) Where the nature of the proposed activities is such as to require l
consideration by the Commission, that the applicant appears to be financially qualified to engage in the proposed activities in i
accordance with the regulations in this part[.)
I Further, in the regulation prescribing the contents of Part 70 license applications, the Note following 10 C.F.R.
l t
S 70.22 (a) (8) states, "[w] here the nature of the proposed I
activities is such as to require consideration of the j
applicant's financia' qualifications to engage in the proposed activities in accordance with the regulations of this chapter, the Commission may request the applicant to submit information with respect to his financial qualifications."
Having directed in the hearing notice that the Applicant must satisfy the standards of 10 C.F.R.
S 70.23, the commission necessarily determined that the licensing of an enrichment facility requires consideration l
of the Applicant's financial qualifications to construct and operate the CEC."
Thus, in the context of this proceeding, "In any event, the Staff reviewed the Applicant's (continued...)
1
(
- 122 -
J the Commission's financial qualification regulations require I
a demonstration by LES that it " appears to be financially 1
qualified" to construct and operate the CEC.
1 The generality of this standard raises the obvious question, what must LES demonstrate to comply?
Nothing in Part 70 itself provides a definitive answer.
There are, however, other provisions in the agency's regulations regarding financial qualifications for licensing facility construction and operation.
Specifically, 10 C.F.R.
S 50.40(b), like 10 C.F.R.
S 70.23 (a) (5), states that in determining if it should issue a construction permit the Commission should consider whether "[t]he applicant is technically and financially qualified to engage in the proposed activities in accordance with the regulations in this chapter."
Further, 10 C.F.R.
S 50.33 (f), in
)
l prescribing the conte..ts of Part 50 license applications for construction permits and operating licenses, requires j
25 (... continued) financial qualifications, determining that the construction and operation of an enrichment facility requires such review.
(Wood at 3 fol. Tr. 721; Staff Ex. 1 at 13-2 to 13-5).
-. - ~. -
i i
i
- 123 -
6 applicants to include the following financial qualifications
]
)
information in their applications:
Except~for an electric utility applicant for a license to operate a utilization facility of the type described in S 50.21(b) or S 50.22, information sufficient to demonstrate to the Commission the financial qualification of the applicant to carry out, in accordance with regulations in this chapter, the activities for which the permit or license is sought.
As applicable, the following should be provided:
(1) If the application is for a construction permit, the applicant shall submit information that demonstrates that the applicant possesses or has reasonable assurance of obtaining the funds necessary to cover estimated construction costs and related fuel cycle costs.
The applicant shall submit estimates of the total construction costs of the facility and related fuel cycle costs, and shall indicate the source (s) of funds to cover these costs.
(2) If the application is for an operating license, the applicant shall submit information that demonstrates the applicant possesses or has reasonable assurance of obtaining the funds necessary to cover estimated operation l
costs for the period of the license.
The applicant shall submit estimates for total annual operating costs for each of the first five years of operation of the facility.
The applicant shall also l
indicate the source (s) of funds to cover these costs.
An application to renew or extend the term of an operating license i
j
- 124 -
4 must include the same financial
]
information as is required in an i
application for an initial license.
i (3) Each application for a construction. permit or an operating l
license submitted by a newly-formed entity organized for the primary purpose of constructing or operating a facility must also include information showing:
(i) The legal and financial relationships it has or proposes to have 4
with its stockholders or owners; i
(ii) [Their] financial ability to
]
meet any contractual obligation to the I
entity which they have incurred or proposed to incur; and j
(iii) Any other information j
considered necessary by the Commission i
to enable it to determine the applicant's financial qualification.
4 Further, in Appendix C to Part 50, the Commission has provided extensive additional guidance relative to these requirements.
That Appendix provides in pertinent part; This appendix is intended to apprise applicants for licenses to construct production or utilization facilities of t)3 types described in S 50. 21 (b) or S 50.22, or testing facilities, of the general kinds of financial data and other related information that will demonstrate the financial qualification of.the applicant to carry out the activities for which the permit is sought.
The kind and depth of information described in this guide is not intended to be a rigid and absolute requirement.
In some instances, additional pertinent material
- 125 -
may be needed.
In any case, the applicant should include information other than that specified, if such information is pertinent to establishing the applicant's financial ability to construct the proposed facility.
It is important~to observe also that both S 50.33 (f) and this appendix distinguish between applicants which are established organizations and those which are newly-formed entities organized primarily for the purpose of engaging in the activity for which the permit is sought.
Those in the former category will normally have a history of operating experience and be able to submit financial statements reflecting the financial results of past operations.
With respect, however, to the applicant which is a newly formed company established primarily for the purpose of carrying out the licensed activity, with little or no prior operating history, somewhat more detailed data and supporting documentation will generally be necessary.
For this reason, the appendix describes separately the scope of information to be included in applications by each of these two classes of applicants.
Additionally, with respect to newly formed entities --
a category into which LES certainly falls -- that apply for construction permits, Appendix C states they should submit the same information as established organizations concerning construction cost estimates.
Part 50, App. C.II.
1 l
126 -
]
A.1.
See App.
C.I.A.1.
In submitting information on the source of construction funds, however, Appendix C states l
that newly formed entities should specifically identify the source or sources upon which the applicant relies for the funds necessary.to pay the cost of' constructing the facility, and the amount to be obtained from each.
With respect to each source, the application should describe in detail the applicant's legal and financial relationships with its stockholders, corporate affiliates, or others (such as financial institutions) upon which the applicant is relying for financial assistance.
If the sources of funds relied upon include parent companies or other corporate affiliates, information to support the financial capability of each such company or affiliate to meet its commitments to the applicant should be set forth in the application.
This information should be of the same kind and scope as would be required if the parent companies of affiliates were in l
fact the applicant.
Ordinarily, it will be necessary that copies of agreements or ontracts among the companies be submitted.
Part 50, App, C.II.A.2.
If these Part 50 financial qualification provisions are applicable in the context of this Part 70 proceeding, then the information that an applicant such as LES needs to i
supply to demonstrate its financial qualifications to
~ - - _.
l i
- 127 -
construct and operate the CEC is readily apparent.
For its part, however, LES asserts that'the Commission's Part 70 financial qualifications standard is less prescriptive than the Part 50 standard generally because (1) Part 70 does not contain the same specifications; and (2) financial qualifications regulations play a secondary role in assuring safety for Part 70 facilities.
Egg Memorandum of Applicant j
LES Regarding the Standard Under the Atomic Energy Act for Assessing Applicant's Financial Qualifications (Apr. 21,
)
1995) at 5-7, 18 [ hereinafter LES Memorandum].
The Staff, on the other hand, argues that while Appendix C to Part 50 i
should be used as a guide in determining the financial qualifications of an applicant, not all of its provisions i
are suitable.
In particular, the Staff takes issue.with the application of the provisions in Appendix C dealing with newly formed entities, asserting that a newly formed entity only needs to show that its corporate affiliates have the capability of providing construction funds and not, as stated in Appendix C, that the corporate affiliates have committed to provide the funds to the applicant.
(Wood at 4, 7 fol. Tr. 721).
Egg NRC Staff Memorandum Regarding
l
- 128 -
l l
Legal Standard for Assessing Financial Qualification (Apr.
l 21, 1995) at 20-21 [ hereinafter Staff Memorandum).
The Intervenor, in contrast, declares that the provisions of Part 50 regarding financial qualifications, including Appendix C, provide the definitive guidance for determining whether LES is financially qualified pursuant under Part 70.
l Sgg [ CANT) Response Memorandum Regarding the Legal Standard l
l for Assessing the Applicant's Financial Qualifications to Construct and Operate the [ CEC] (May 1, 1995) at 4-10.
1.
Applicability of Part 50 and Part 70 Financial Qualifications Standards In asserting that the Part 50 financial qualification requirements are not directly applicable, the essence of i
LES' argument is relatively straightforward.
According to LES, comparing the language of the Note following i
1 section 70.22 (a) (8) with that of section 50.33 (f) makes it l
clear that the former has none of the specificity of the latter.
This lack of specificity in Part 70, in turn, evidences a Commission intent to have financial qualifications under these two Parts treated differently, with Part 70 having much less rigorous requirements.
r
- 129 -
The problem with this assertion is that, given the close identity of subject matter between the two provisions and the near identicality of language of 10 C.F.R S 70.23 (a) (5) and 10 C.F.R.
S 50.40 (b) setting forth the i
standard for granting licenses under the two Parts, the
).
l Applicant's argument does not account sufficiently for the ambiguity that is inherent in their difference in language.
Indeed, the very general language in the Note following section 70.22 (a) (8) cries out for additional clarification or interpretation.
Pursuant to the general interpretational rule that statutory or regulatory provisions that relate to the same subject matter should be construed in pari materia, agg 2B Sutherland Stat. Const. SS 51.01, 51.03 (5th ed.
1992, section 50. 33 (f), as the other agency regulatory provision dealing with financial qualifications, is the likely_ source for obtaining insight about how to interpret the general language of the Note following section 70.22 (a) (8).
Moreover, an obvious source for attempting to resolve this ambiguity about how the general standard in the Note following section 70.22 (a) (8) should be interpreted vis
~
a vis the more specific requirements of section 50.33(f) is
i I
- 130 -
the history of both sets of financial qualification regulations.
)
i i
a, Reaulatory History of Part 50 and Part 70 Financial i
Qualifications Provisions.
The Commission's financial j
l qualification regulations are rooted in section 182(a) of the Atomic Energy Act of 1954, as amended.
That section authorizes the Commission to obtain information concerning the financial qualifications of applicants for Commission licenses and vests the Commission with discretion to determine by rule or regulation what information is appropriate.
42 U.S.C.
S 2232 (a).
See New England Coalition on Nuclear Pollution v.
NRC, 582 F.2d 87, 93 (1st.
Cir. 1978).
As originally promulgated in 1956, the Commission's Part 70 regulations establishing procedures and criteria for issuing licenses to rossess and use special nuclear material and for Commission allocation of such then government-owned
)
material required applicants to include financial qualifications information in their applications.
See 21 Fed. Reg. 764, 766 (1956).
In the original provision
_._._..______..m._
t
- 131 -
i prescribing the contents of license applications, the Note I
following then 10 C.F.R. S 70.22 (a) (8) stated:
Where the quantity of material l
requested, or the nature of the proposed activities, is such as to require consideration of the following factors, the Commission will request the applicant to submit information with respect to his financial qualifications (1) to engage in the proposed activities in accordance with the regulations in this chapter, (2) to assume responsibility for the payment of Commission charges for use, consumption or loss of special nuclear material and (3) to undertake and carry out the proposed use of special nuclear material for a reasonable period of time.
4 Id. at 766.
In addition, then 10 C.F.R.
S 70.23 (e) governing the approval of license applications, stated that an application will be granted if the Commission determines,
[w] here the quantity of material requested, or the nature of the proposed activities are such as to require consideration of these factors by the Commission, that the applicant appears to be financially qualified to assume responsibility for the payment of Commission charges for use, consumption or loss of special nuclear material and to engage in the proposed activities in accordance with the regulations in this part.
l
- 132 -
Id.
Unfortunately, but not atypical of that era, the Commission did not accompany the issuance of the original regulations with a statement of consideration amplifying or explaining the meaning or parameters of 10 C.F.R.
S 70.23 (e).
In 1967 the current Part 70 financial qualifications regulations, 10 C.F.R.
SS 70.22 (a) (8) & Note, 70.23 (a) (5),
were adopted.
See supra pp. 120-121.
The current regulations merely lack the language from the initial regulations concerning the applicant's ability to assume responsibility for the payment of Commission charges, which reflect changes in the law allowing the private ownerchip of such material.
32 Fed. Reg. 4055, 4056 (1967).
Egg 31 Fed.
Reg. 14,881, 14,882 (1966).
Once again, however, in making these changes the Commission provided no supplementary l
information concerning the meaning or scope of the regulation.
Moreover, si'ce the issuance of the Part 70 financial qualifications regulations in 1967, there have been no adjudicatory decisions addressing the nature of the information required of an applicant or explaining the meaning of the requirement that the applicant " appears to be 1
- 133 -
financially qualified to engage in the proposed activities."
10 C.F.R.
S 70.23 (a) (5).
Although there is no direct Commission explanation of the meaning of the Part 70 financial qualifications regulations, the Commission's Part 50 financial qualification regulations were originally enacted, and then amended the first time, almost simultaneously with the Part 70 regulations.
Those regulations and all their subsequent amendments, in combination with the criteria and procedures followed by the Atomic Energy Commission in applying the original financial qualifications regulations (as explained in the agency's written submission to Congress), demonstrate convincingly the scope and meaning of the regulations.
Two weeks before the promulgE* ion of the original Part 70 financial qualifications rule, the Commission issued the original Part 50 financial qualifications rule.
Although j
that Part 50 rule was first in time it nevertheless included a provision tying it to the later issued Part 70 rule.
Much like its Part 70 counterpart (see supra p.
131), the initial Part 50 financial qualifications rule, 10 C.F.R.
provided that a license application shall state:
- 134 -
The financial qualifications of the applicant to engage in the proposed activities in accordance with the regulations in this chapter.
If the application is also for [a] special nuclear material license pursuant to the regulatione in Part 70 of this chapter, information should be included with respect to the applicant's financial qualifications to assume responsibility for the payment of Commission charges for special nuclear material.
21 Fed. Reg. at 75h 357 (1956).
Again, much like its Part 70 counterpart, the initial Part 50 financial qualifications rule governing the approval of license applications, 10 C.F.R.
S 50.40(b), stated that the Commission should consider whether "[t] he applicant is technically and financially qualified to engage in the proposed activities in accordance with the regulations in this chapter."
Id. at 358.
Indeed, a side-by-side comparison of the original Part 70 and Part 50 regulations setting forth the standard for granting licenses under those Parts shows that there was no real difference in the critical language of the regulations.
Thus, necessarily, there should not be any difference in the original meaning of these provisions.
The original 10 C.F.R.
S 70.23 (e) stated that a license I
i
- 135 -
i i
l application will be approved if the Commission determines i
that the applicant appears to be financially i
qualified to engage in the proposed activities in accordance with the regulations in this part.
The original 10 C.F.R.
S 50.40(b), on the other hand, stated that in determining if it should issue a license the Commission should consider whether (t]he applicant is financially qualified to engage in the proposed activities in accordance with the regulations in this chapter.
When the commission amended the Part 70 financial qualification regulations in 1967 to reflect the changes in the law allowing private ownership of special nuclear material, it also amended the Part 50 financial qualifications rule as part of the same rulemaking.
32 Fed.
Reg. at 4055-56.
In 10 C.F.R.
S 50.33 (f), the Commission deleted the reference to Part 70 special nuclear material licenses and the applicant's financial qualifications to assume responsibility for the payment of Commission charges to reflect the changes in the law allowing private ownership of special nuclear material.
See 31 Fed. Reg. at 14,882
l
- 136 -
i L
(proposed rule).
These changes, however, had the effect of making the Part 70 and Part 50 financial qualifications rules essentially indistinguishable from each other.
l In late 1966 when the Commission had under consideration these proposed changes to its Part 70 and Part 50 financial qualification rules, the Congressional Joint Committee on Atomic Energy, through its Executive Director, wrote to the Director of Regulation of the Atomic Energy Commission inquiring about the " provisions in the AEC's regulations dealing with the financial qualifications of applicants for licenses."
Letter from John T.
Conway, Executive Director, Joint Committee on Atomic Energy, Congress of the United States, to Harold W.
Price, Director of Regulation, U.S.
Atomic Energy Commission, Washington, D.C.
(Nov. 28, 1966) reprinted in Licensing and Regulation of Nuclear Reactors:
l Hearings before the Joint Committee on Atomic Energy, Part l
90th Cong. 1st. Sess. 347, Appendix 12 (1967) [ hereinafter l
Hearings].
The first of the Joint Committee's three l
l questions asked "[w] hat criteria and procedures are used by I
the Commission in determining whether an applicant is 1
financially qualified to engage in the proposed activities in l
- 137 -
accordance with the Commission's regulations?"
Id.
In his written response to that question the Director of Regulation i
l informed the Congress that:
The assessment of a license applicant's financial qualifications to engage in the proposed activity in accordance with the Commission's regulations is based upon the review of financial information which we require the applicant to submit and such checks of independent sources of financial information on the applicant as appear warranted in any particular case.
Essentially, the issues explored are whether the applicant has adequate financial resources to design, construct and operate the licensed facility.
While the detailed analysis of financial. qualifications will vary, depending upon the circumstances of the
)
particular case, the principal matters examined in the case of a construction permit include --
(a) A review to determine the reasonableness of the applicant's estimates of costs to construct the proposed facility.
j (b) Analysis of the applicant's plan for financing the cost of the facility; identification of the sources of funds relied upon, e.g.,
external sources such as borrowing and stock subscriptions, or internal sources such as earnings or depreciation reserves.
(c) Analysis of the applicant's certified financial statements and supporting schedules to assess his current financial condition in relation to this financing plan.
- 138 -
4 (d) In those cases in which external sources are relied upon for all or part of the required funds, documentary or other evidence relating to contractual arrangements or commitments for such financing, and sometimes the contracts themselves, are also reviewed.
(e) Where the applicant is a newly formed entity, the review particularly covers the capitalization of the organization and the reliability of sources of capital funds needed to construct the facility.
On the basis of these reviews and analyses, conclusions are drawn as to whether there is reasonable assurance that the required funds are or will be available to the applicant in accordance with his financing plan.
With respect to an application for an operating license, the review covers the applicant's current financial statements, with particular reference to current and projected earnings, from which conclusions are drawn as to whether there is reasonable assurance that funds j
will be available to pay the anticipated operating costs of the facility.
Id. at 348.
The Director of Regulation's response went on to i
explain that the AEC's then current financial qualification regulations (see supra pp. 131, 134) did not prescribe detailed criteria or standards for judging the applicant's financial qualifications because of the variability of factors involved in each case.
He noted, however, that the AEC had under consideration at that time the feasibility of
i 1
1 l
- 139 -
i i
l setting forth in the regulations general standards that must 4
3 be met-and a description of the kinds of documents and i
information to be furnished in various types of cases, such
{
as those involving applicants that are newly formed entities.
Hearings at 348.
j j
Finally, and most significant here, the' Director of i
Regulation responded to the Joint Committee's third question about-the criteria and procedures the Commission proposed to i
i j
follow in determining the financial qualifications of i
licensees that contract with the Commission for special nuclear material.
He indicated that in the past, when all i
l special nuclear material ("SNM") was government-owned, the material was furnished under contract, a lease agreement, or a supply agreement and, in the future, the Commission also would use a sales contract.
The Director of Regulation then stated that "[t] he determination of the financial qualifications of licensees to pay Commission charges for SNM has been based essentially on the same principles of 4
~
financial analysis referred to under question 1, and this policy is expected to continue in the future regardless of the particular contractual arrangement involved."
Id. at
. _.. ~... _ _ _ _ _. _. _. _ __. _ _. _. -.
- 140 -
l
.349.
In other words, the Director informed Congress that the Commission used the same criteria and procedures in determining the financial qualifications of a Part 70 applicant under then 10 C.F.R.
S 70.23 (e) as it used in i
determining the financial qualifications of a Part 50 applicant under then 10 C.F.R.
S 50.40(b).
In light of the i
nearly identical operative language in the Part 70 and Part i
50 financial qualifications regulations, the Commission's use of the same principles for determining compliance with the two provisions is hardly surprising.
Thereafter, as predicted by the Director of Regulation in his response to the Joint Committee, the Commission proposed an amendment to its Part 50 financial qualifications j
regulations dealing with the information an applicant must submit as part of the license application.
8423 (1967).
While not ltering 10 C.F.R.
S 50.40(b), the I
i proposed amendment expanded section 50.33 (f) to require each application to state:
l Information sufficient to demonstrate to the Commission the i
financial qualifications of the applicant to carry out, in accordance with the regulations in this chapter, the activities for which the permit or l
- 141 -
license is sought.
If the application is for a construction permit, such information shall show that the applicant possesses the funds necessary to cover estimated construction costs and related fuel cycle costs or that the applicant has reasonable assurance of obtaining the necessary funds, or combination of the two.
Id.
The proposed regulation also contained a similar requirement with regard to an operating license.
In addition, the proposed amendment included an Appendix C to Part 50 entitled "A Guide for the Financial Data and Related Information Required to Establish Financial l
i Qualifications for Facility Construction and Operating Licenses."
Id.
The proposed Appendix C recognized two classes of applicants:
those that were "an established operating business" and those that were "in effect, an instrumentality for the construction and/or operation of the facility as the agent of other principals (usually a new formed entity)."
Id. at 8424.
Besides requiring applicants i
for construction permits to submit detailed, specific cost estimates for every major plant feature and component and estimates of yearly construction expenditures, it also I
i required them to list their anticipated sources of funds for 1
- ~
- - ~ ~..
i
- 142 -
I i
each year's construction costs and to demenstrate the capability or reasonable assurance of each source to provide i
the required funds.
1d.
The proposed Appendix C also had markedly different requirements for established operating businesses and newly formed entities.
For applicants that F
were newly formed entities, the proposed Appendix provided that:
documentary support shall be submitted to completely define the legal and financial l
relationships with the corporate l
affiliates (usually parent companies) or others (such as banks) upon whom the applicant is relying for financial l
assistance.
This documentary support l
applies to both the construction and operation of the facility and includes such matters as stock subscription l
agreements with sponsoring affiliates, l
loan commitments or agreements, guaranty I
agreements by affiliates, and similar information to support stability of operations.
Id.
Further the proposed Appendix provided that "[i]f the applicant is, in effect, an agent of others, financial qualifications of each " sponsor" or " principal" to meet its l
legal obligations shall be demonstrated in the same manrter as if it were the applicant.
Id.
)
l 1
..=._
- 143 -
shortly after issuing the proposed amendments to its Part 50 financial qualifications regulations, the Commission withdrew them.
32 Fed. Reg. 10,816 (1967).
As it subsequently explained, the proposed amendments to Appendix C were withdrawn because the commission concluded that it would call for substantially more information in scope and detail than is likely to be necessary, particularly in the case of operating utilities with a history of financial stability.
In rewriting the guide we are attempting to bring into sharper focus and detail the difference in the kind and detail of information to be required of an applicant with an operating history as distinguished from the applicant which is a newly formed entity...
Public Service Co. of New Hampshire (Seabrook Station, Units 1 and 2), CLI-78-1, 7 NRC 1, 10-11 (1978) (quoting letter from the Director of Regulation, Atomic Energy Commission, to Executive Director, Joint Committee on Atomic Energy (Aug.
25, 1967)).
A year later the Commission promulgated the amendments to its Part 50 financial qualifications regulations.
33 Fed.
Reg. 9704 (1968).
The text of 10 C.F.R. S 50.33 (f) remained identical to that of the earlier proposed rule (see supra pp.
- 144 -
140-141), but Appendix C was modified to remove much of the detail from the original version.
Compare 32 Fed. Reg. at 8423-24 with 33 Fed. Reg. at 9704-05.
The amendment, however, did not alter the language of 10 C.F.R.
S 50.40(b).
In issuing the new Part 50 financial qualification regulation, the Commission noted in the statement of consideration that section 182(a) of " [t] he Act and the Commission's regulations reflect that the fundamental purpose of the financial qualifications provision of that section is the protection of the public health and safety and the common defense and security."
33 Fed. Reg. at 9704.
It further stated that "[allthough the Commission's safety determinations required for the issuance of facility licensea are based upon extensive and detailed technical review, an applicant's financial qualifications can also contribute to his ability to meet his responsibilities on safety matters Id.
In the final version of Appendix C, as in the initial s
proposed text, the Commission emphasized the important distinction, for purposes of determining the financial qualifications of applicants, between those that are
- 145 -
established organizations and those that are newly formed special purpose entities organized to engage in the licensed activity.
Although worded more generally than in the proposed version, the final telt of Appendix C retained the requirement that newly formed entities relying upon corporate parents or other corporate affiliates for construction funding must make a more detailed showing of not only the sources of funds but also the reliability and commitment of those sources to provide the funds for construction.
With the exception of amendments removing the original provisions relating to operating licenses, the text of Appendix C relating to the showing necessary to establish the financial qualifications of Part 50 construction permit applicants has remained unchanged since its issuance in 1968."
After the Commission amended 10 C.F.R.
S 50.33(f) and adopted Appendix C in 1968, the Part 50 financial
" Sea 49 Fed. Reg. 35,747 (1984); 50 Fed. Req. 18,852 I
(1985).
It should be noted that Appendix C was w.'thdrawn in I
its entirety for a brief period when the Commission eliminated financial qualifications review of electric utilities for both construction permit and operating licenses.
Egg 47 Fed. Reg. 13,750 (1982).
After a court challenge, the Commission reinstated Appendix C without the provisions relating to operating licenses.
Egg 49 Fed. Reg.
at 35,753.
I i
- 146 -
qualifications regulations remained unchanged until 1982.
At that time, the Commission amended the regulations to add an i
t exception to 10 C.F.R.
SS 50.33 (f) and 50.40(b) that the l
t t
financial qualifications provisions did not apply to electric
^
4 l
utility applicants.
47 Fed. Reg. 13,750, 13,754 (1982).
l Additionally, the Commission made "certain editorial j
modifications to S 50.33 (f) to improve its clarity."
46 Fed.
i I
{
i l
Reg. 41,786 (1981) (proposed rule).
Chief among these i
clarifying modifications was the addition of what is now l
subsection (f) (3) incorporating the thrust of the provisions I
from Appendix C relating to newly formed entities organized I
i primarily for the purpose of constructing and operaticq n
}
facility.
47 Fed. Reg. at 13,754.
After a court challenge, 4
i j
the Commission again amended the regulations to reinstate the i
applicability of financial qualifications review for electric utility applicants raeking construction permits under Part 4
l 50.
49 Fed. Reg. at 35,752-54 (1984)."
i i
t
" Subsequently, the Part 50 financial qualifications regulation also were amended with respect to various i
references to decommissioning funding.
See 53 Fed. Reg.
24,018, 24,049 (1988).
I l
- 147 -
b.
Analysis.
We have spelled out the provisions of the Commission's Part 70 and Part 50 financial qualifications regulations and this lengthy history because these materials i
provide the context in which 10 C.F.R. S 70.23 (a) (5) must be read and define the scope and meaning of that provision.
As the language and history of the Part 70 and Part 50 rules graphically illustrate, these financial qualification regulations essentially began as twins.
Although the paths of the regulations have diverged somewhat since 1967, the essence of the Part 70 and Part 50 regulations with respect to construction financing and the standard the Commission must apply in granting a license under these Parts has not significantly changed since the initial issuance of the regulations.
At that time, because the critical language of i
the provisions was nearly identical, the provisions had the same basic meaning.
Indeed, as the Director of Regulation's 1
response to a Congressional inquiry indicated, the Commission's financial qualification reviews of Part 70 and Part 50 license applicants applied the same principles under both regulations at that time.
4 4
4
- 148 -
Pursuant to those initial financial qualifications criteria and procedures, an applicant was required to show that it was financially qualified to construct a proposed facility by demonstrating that there was reasonable assurance the required funds are or will be available to it in accordance with its financing plan.
To demonstrate such reasonable assurance, the applicant needed to show the construction cost estimates for the project and identify the external and internal sources of funds to cover those costs.
In those instances in which the applicant relied upon external sources of funds, the applicant needed to produce documentary or other evidence of its contractual arrangements or commitments for the funding.
Finally, in those instances in which the applicant was a newly formed entity, the applicant also needed to show the capitalizatior, of the newly formed entity and the re~iability of its sources of construction funds.
Hearings at 348.
i Because there has been no significant change in the critical language of the Commission's Part 70 financial qualifications regulations since their adoption, the same criteria that the Atomic Energy Commission initially applied d
+-
__-._..____._..__.____...___._..m__
- 149 -
in determining under both Part 70 and Part 50 whether an applicant was financially qualified are still fully applicable today in determining under 10 C.F.R. S 70.23 (a) (5) whether an applicant appears to be financially qualified to engage in the proposed activities.
Thus, the history of the Commission's'Part 50 and Part 70 financial qualifications requirements fully supports a parallel construction of those regulations in terms of the showing necessary to establish that-an applicant " appears to be financially qualified" under section 70.23 (a) (5).
As this history also demonstrates, there is no basis for the Applicant's additional assertion in support of its "less prescriptive" interpretation for Part 70 that, in contrast to reactor facilities licensed under Part 50, financial qualifications regulations play a secondary role in assuring safety for Part 70 facilities.
As we already have detailed, the critical language of the Part 70 and Part 50 financial qualifications standards is substantially the same and since i
their inception the two standards have had substantially the same meaning.
The Applicant, on the other hand, has i
presented no reasoned basis that leads us to conclude the d
4
. ~ - _ -
- - -. - -._-...---- ~.- -
... ~.
1
- 150 -
1 j
Part 70 standard is a lesser one than the Part 50 standard.
J At the time the Commission amended its'Part 50 financial qualifications regulations and adopted Appendix C in 1968, it stated that the fundamental purpose of the financial 1
j qualifications provision of the Atomic Energy Act and the Commission's regulations is "the protection of the public health and safety and the common defense and security."
33 I
Fed. Reg. at 9704.
This fundamental purpose is equally involved regardless of whether the financial qualifications review is conducted under Part 70 or Part 50.
Certainly, the i
j concerns about safety and national security that arise here relative to the licensing of the first privately owned uranium enrichment facility in the United States do not, on i
their face, suggest that a significantly less comprehensive e
j showing should suffice to establish LES' financial l
qualificatio- "
i In support of its argument for a diminished financial qualifications showing under Part 70, LES suggests that in determining if an applicant is financially qualified i
to construct the proposed uranium enrichment facility "the issue is whether, assuming the project moves to 4
construction, the applicant has submitted information that l
provides reasonable assurance that the applicant can obtain the necessary funds, and therefore appears to be financially (continued...)
a 4
.. ~
l
- 151 -
I
" (.... continued) qualified."
LES Memorandum at 18.
According to the Applicant, the question of whether the facility will be built is essentially irrelevant since failure to build it has no public health and safety consequences.
Id.
To accept this assertion would seriously distort the Commission's financial qualifications regulations.
By
" assuming" construction, we would ignore the financial qualifications requirement of 10 C.F.R.
S 70.23 (a) (5) that "the applicant appears to be financially qualified to engage in the proposed activities."
Because the proposed activities here are the construction and operation of a uranium enrichment facility, to assume construction, as the Applicant would have it, not only begs the question under the regulation, it assumes the answer.
The Commission's financial qualification regulation is written in the present tense and, although it necessarily is future oriented, it requires a prelicensing showing that an applicant is currently financially qualified to construct and operate the proposed project.
We add that accepting the Applicant's argument not only would seriously distort the Commission's financial qualifications regulatione, but would represent a radical departure from past practice under the agency's financial qualifications regulations.
Because there are no comparable provisions in Part 70 to those in Part 50 that establish construction completion deadlines, seg 10 C.F.R.
S 50.55 (a),
accepting the Applicant's argument in the context of the 30-l year Part 70 license is tantamount to providing a newly j
formed special purpose entity a 30-year window to determine 1
whether to build the facility and a 30-year unreviewed j
window to shop for construction financing.
In contrast to existing regulations that require a showing of a real, legal nexus between a newly formed special purpose entity and its anticipated sources of construction funds prior to licensing, acceptance of the Applicant's reading of the Commission's regulations would make the prelicensing review (continued...)
4
- 152 -
2.
Applicability of Newly Formed Entity Criteria of 10 C.F.R.
Part 50, Appendix C The Staff takes the position (which the Applicant also 4
supports") that the provisions of Part 50 may be used as guidance but the standard regarding newly formed entities i
should not be applied.
The Staff claims Appendix C must be read in the context of the Commission's Part 50 financial qualifications standard, 10 C.F.R.
S 50.33 (f), that requires f
1 an applicant for a construction permit to show that it
" possesses or has reasonable assurance of obtaining the funds
" (... continued) of an applicant's financial qualifications a meaningless paper exercise.
"Like the Staff's arguments, the Applicant's argument, at bottom, simply ignores the fundamental premise of the Commission's financial qualifications regulations that newly formed special pu pose entities are different from established organizations that have an operating history.
The Atomic Energy Commission recognized that distinction in the criteria it applied in determining the financial qualifications of applicants under the original Part 70 and Part 50 regulations (see suora, pp. 137-138).
Subsequently, it incorporated that distinction into Appendix C and then years later that distinction was put into the regulations.
See supra, p.
146.
In short, newly formed entities have no track record and, therefore, they require a different and greater degree of scrutiny to determine whether they are financially qualified.
.m
____.1_
- 153 -
j necessary to cover estimated construction costs."
According to the Staff, the Commission in Seabrook, CLI-78-1, 7 NRC at 18, interpreted the Part 50 reasonable assurance standard to mean that an " applicant must have a reasonable financing plan i
in light of relevant circumstances" and'further stated that the standard "does not mean a demonstration of near certainty l
that an applicant will never be pressed for funds."
From this definition, the Staff argues that because the applicant only needs to show a reasonable assurance of obtaining construction funds, not a certainty of obtaining them, a
newly formed entity only needs to show that its corporate i
affiliates have the capability of providing construction i
funds and not, as is stated in Appendix C, that the corporate affiliates have committed to provide the funds to the applicant.
(Wood at 4, 7 fol. Tr. 721).
Staff Memorandum at 1
20-21.
Even assuming, as the Staff asserts, that Appendix C is to be used only as a guide in determining the meaning of the 1
Part 70 financial qualifications standard so that the Appendix C criteria with respect to newly formed entities are not directly applicable, the Staff's argument, nevertheless,
__.__ _ ~._.
- 154 -
is without merit.
Initially, we note that if, as the Staff asserts, Appendix C is to be used as guidance, it is not i
apparent why it should not be applied uniformly and consistently rather than, as the Staff has done, picking and choosing among equally applicable provisions.
In addition, the Staff's misreading of the Commission's Seabrook decision undercuts its argument.
Although the Commission explored the meaning of the reasonable assurance requirement in the Part 50 financial qualifications regulations in Seabrook, that decision involved established organizations, i.e.,
the Public l
Service Company of New Hampshire and several other New England utilities, not a newly formed special purpose entity l
without an operating record -- a distinction the Commission noted no less than five times in its decision.
Indeed, under the Staff's reasoning and reading of Seabrook, the provicions of Appendix C regarding a newly formed entity are so much waste ink in that even a newly formed entity seeking a reactor construction permit under Part 50 and relying on construction funding from corporate affiliates would not need to show that the corporate affiliates had made commitments to provide construction funds n
i
- 155 -
i i
i to the applicant.
In seabrook, however, the Commission did not address, much less render superfluous, the provisions of Appendix C concerning newly formed entities and the distinction between such entities and established organizations.
In short, Seabrook is simply inapposite to this question.2o The Staff's additional argument that, inter alia, the regulatory history of the Commission's financial qualification regulations is irrelevant because it predates the Seabrook decision" conveniently ignores the fact that the Commission adopted the requirements of 10 C.F.R.
S 50.33 (f) (3) dealing with newly formed entities and reinstated Appendix C a number of years after it handed down Seabrook.
See infra, n.
21, 2eMoreover, even if we accept the Staff's definition of reasonable assurance, i.e. a reasonable financing plan in light of relevant circumstances, we nevertheless would apply the Appendix C criteria because an applicant's status as a newly formed special purpose entity relying on corporate affiliates for construction funding is a highly relevant J
circumstance that must be factored into any decision on the applicant's financial qualifications.
" Reply of the NRC Staff Regarding Legal Standard for Assessing Financial Qualifications (May 1, 1995) at 3.
l
.~
4
- 156 -
Indeed, a comparison of the criteria that the Atomic Energy Commission used in reviewing an applicant's financial qualifications under the original Part 70 and Part 50 regulations (see suora pp. 137-38; Hearings at 346) with the proposed and final version of Appendix C of Part 50 (see supra p. 142, 126; 32 Fed. Reg. at 8424; 33 Fed. Reg. at i
9705) shows that the Commission merely incorporated those same criteria into Appendix C.
Thus, even though Appendix C is applicable as a guide to the Part 50 financial qualifications regulations and, by its terms, is not applicable to Part 70, as a practical matter, Appendix C is little more than a refinement of the criteria that the Atomic Energy Commission applied equally to applicants under the original Part 70 and Part 50 financial qualifications rules.
This is most obvious with respect to the Appendix C provisions concerning ne'ly formed entities, which are a combination of the original criteria dealing with external sources of funds and those dealing with newly formed entities.
In Appendix C, however, the commission has refined the focus of the showing such applicants must make to demonstrate they are financially qualified.
Accordingly, we l
1 i
1
- 157 1
I have no hesitancy concluding that the Appendix C provisions dealing with newly formed entities also directly reflect the showing required of Part 70 applicants.
In any event, we 4
find it appropriate to apply them because the same concerns that prompted the Commission to differentiate between newly formed entities and established organizations under the Part 50 financial qualifications regulations apply equally to Part 70 applicants.
Therefore, as set out in Appendix C, a newly formed entity, in addition to providing estimates of its costs, must "specifically identify" the source or sources upon which it relies for construction funds and the amount to be obtained from each source.
It must also fully detail its
" legal and financial relationship" with its corporate l
affiliates and any financial institutions upon which it relies for funding, In those instances in which the newly formed entity relies upon corporate affiliates for construction funding, it must also demonstrate "the financial capability of each such company or affiliate to meet its 1
commitments to the applicant" and, " [o] rdinarily, it will be necessary that copies of agreements or contracts among the j
l i
1
)
l
- 158 -
companies be submitted."
Part 50, App.
C. II. A. 2. 22 When an applicant that is a newly formed entity makes this showing, it has demonstrated that there is a reasonable assurance that funds will be available to construct the facility in accordance with its financial plan and it has met the standard of 10 C.F.R.
S 70.23 (a) (5).
22Any doubt about the meaning of these Appendix C provisions is erased by the wording of the provisions of the proposed version of the Appendix, which required newly formed entities to provide " documentary support to completely define the legal and financial relationships with the corporate affiliates," and stated that " [t] his documentary support includes such matters as stock subscription agreements with sponsoring affiliates, loan commitments or agreements, guaranty agreements by affiliates, and similar information to support stability of 4
operations."
32 Fed. Reg. at 9424.
The proposed Appendix also provided that newly formed entities needed to demonstrate the financial qualifications of each corporate affiliate "to meet it legal obligations" to the applicant.
Id.
Moreover, the importance of the Appendix C provisions dealing with :he capability and commitment of corporate affiliates to provide construction funding to newly formed entities is highlighted by the Commission's adoption of the gist of these Appendix C criteria into 10 C.F.R.
S 50.33 (f) (3) in 1982 when Appendix C was briefly dropped from the financial qualifications regulations.
Sec 47 Fed.
Reg. at 13,754.
Subsequently, the Commission again included these identical criteria regarding corporate affiliate capability and commitment for providing construction funding when it reinstated Appendix C in 1984.
Egg 49 Fed. Reg.
at 35,753.
Thus, these Appendix C criteria explain the meaning of section 50.33 (f) (3).
- 159 -
E.
Board Findings on the Applicant's Financial Qualifications Although the parties introduced a great deal of testimony and other evidence on the financial qualifications issue, very little of it is directly relevant to meeting the applicable legal standard.
The Applicant's financial plan states that the hard construction costs of the CEC are projected to be $816 million in 1992 dollars.
(I-DO-33 at D-11).23 Neither the method by which the Applicant estimated the CEC construction costs or the reasonableness of the Applicant's cost estimates are disputed.
(&ra Doudiet-Arnold at 14-15 fol. Tr. 563).
The plan further states that construction will be financed by LES with term debt from international lending banks and equity contributions from LES limited partners.
(I-DO-33 at D-12).
The Applicant's i
expert, Mr. Doudiet, testified that he believed the debt l
would be financed by bank loans of about 10 years duration 23To put the hard construction costs in perspective in relation to total project costs without using proprietary i
information (compare App. Ex. 14 at E-11 to E-12), the Staff's FEIS states that the total cost of the project including construction, interest, escalation, capitalized interest contingency, replacement centrifuges, decontamination, and decommissioning is estimated at $1.6 billion in 1990 dollars.
(Staff Ex. 2 at 2-2).
- 160 -
and he strongly doubted LES would employ any bond indenture to raise construction funds.
(Tr. 656-57).
He indicated LES expected to pay an interest rate of 8.5 to 9%.
(Doudiet-Arnold at 17 fol. Tr. 563.
But age I-DO-44, Ex.,D at D-4).
Although the precise debt-equity ratio for the project is considered proprietary (App. Ex. 14 at E-13), Mr. Doudiet testified that LES would borrow somewhere between 60 to 70 percent of the construction costs and the LES limited partners would contribute somewhere between 30 to 40% of those costs.
(Tr. 654).
Additionally, the Applicant's financial plan states that the CEC project has four phases: the venture phase; the i
construction phase; the operation phase; and the decontamination and decommissioning phase.
The venture phase began with the inception of the LES partnership and the general and limited partners have contributed, each in proportion to its respective interest in the partnership, a total of $31.7 million.
(I-DO-33 at D-10).
See supra pp.
116, 118.
Although the Applicant considers the dollar breakdown of its venture phase costs proprietary, the venture phase capital contributions cover the costs associated with
i
- 161 -
i' obtaining engineering services from Urenco for the reference i
design of the CEC and all administrative, licensing, and l
l marketing costs.
(I-DO-33 at D-10 to D-11).
According to I
i the Applicant's financial plan, the objectives of the venture l
phase are to (1) complete sufficient engineering to file and support the NRC license application; (2) obtain an NRC license; (3) negotiate satisfactory fixed price contracts for i
the construction of the facility and the supply of j
centrifuges; (4) secure required financing; and (5) market the initial production capacity of the facility through long term SWU sales agreements.
(12. at D-10).
Both Mr. Doudiet and Dr. Arnold testified that, to date, LES has concentrated on objectives (1) and (2) and, upon receipt of an NRC I
license, LES will renew activities associated with objectives (3), (4), and (5).
(Doudiet-Arnold at 26 fol. Tr. 563).
l These witnesses also stated that proceeding beyond the l
venture phase for LES is conditioned upon the fulfillment of j
these objectives and that the venture phase will conclude upon a decision to proceed to the construction stage by the l
i
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- 162 l
LES general partners.
(Id. at 24; 27; App. Ex. 22 S 13.1
{
l at 7; I-DO-40 Art. XIX).24 l
l Although the Applicant's financial plan states that the construction process for the CEC will be continuous starting with 14 cascades and a capacity of 0.
million SWUs and I
expanding to meet the needs of the market place up to the licensed capacity of 1.5 million SWUs (I-DO-33 at D-10), Dr.
Arnold testified that LES is currently considering another option.
Under that alternative, the decision to proceed with construction might not be made unless the full 1.5 million SWU capacity of the CEC is committed.
This approach would collapse the construction phase and the operations phase into i
one so that the operations phase would not commence until the entire facility was completed, instead of operating each unit i
of one-third plant capacity as it was finished to help raise construction funds.
(Doudiet-Arnold at 25-26 fol. Tr. 563; Tr. 761; I-DO-33 at D-11 to D-12).
1 l
24Under the provisions of the Partnership Agreement, as amended, once the partners decide to take up the matter, the l
partners also can agree to continue the partnership in the event they decide not to proceed to the construction phase.
(
(I-DO-40 Art. XIX S 19.1; App. Ex. 22 S 13.1 at 7).
l l
__m t
- 163 -
l In their testimony, the Applicant's witnesses portrayed l
l l
how LES hoped the financial plan would work and, therefore, l
how the Applicant believed it was financially qualified to construct the CEC:
An NRC license is a necessary, but not L
sufficient project precondition.
Upon l
receipt of an NRC license, LES will be in j
a position to market the planned output.
l The projected SWU cost will be competitive in the marketplace and thus it is reasonable to assume that LES will be successful in its marketing.
Upon successful marketing, LES will be in a j
position to seek and obtain project funding. This funding will consist of two parts:
equity and debt. The equity will be committed to by existing and possibly new partners as a precondition to raising the debt.
The favorable economics of the l
project, as well as the financial well-being of the partners, lead to the conclusion that it is reasonable to assume equity will be raised.
Once equity is in place, potential lenders will review the project economics in light of the receipt of an NRC license, j
the firm contracts for enrichment l
services and the certainty of I
construction and equipment costs.
Assuming these eventualities, the project j
economics are such that it is reasonable j
to conclude that sufficient debt will be I
committed to.
(Doudiet-Arnold at 8-9 fol. Tr. 563) 1 i
i I
f i
- 164 -
Although the Applicant's financial plan for funding the construction and operation of the CEC clearly demonstrates optimism, it is equally clear that LES has not made the l
l showing required of a newly formed special purpose entity under the Commission's financial qualifications regulations.
Specifically, and as we discuss in more detail below, the I
I Applicant has not demonstrated that LES has the assets to fund the construction of the CEC nor has it shown any commitments from the corporate affiliates of the LES general f
or limited partners to provide the equity portion of the construction funds identified in the project financial plan.
{
i Further, LES has not even identified, much less fully detailed, the legal and financial relationship it has entered I
into with the financial institutions upon which it relies for the debt portion of the construction funds identified in the CEC financial plan.
Havi ng failed to make this required showing, the Applicant has not demonstrated that there is reasonable assurance that funds will be arallable to construct the facility, and LES has failed to establish by a j
i
- 165 -
l l
preponderance of the evidence that it appears to be financially qualified to build the CEC."
There is no dispute on the record of this proceeding that LES does not currently have the funds necessary to cover the estimated construction costs of the proposed CEC.
(Osterberg at 4 fol. Tr. 715; Doudiet Tr. 568-69).
LES is a development-stage enterprise with few marketable assets.
While the cash, land, and office furniture on the Applicant's balance sheet have value, the deferred start-up costs for the CEC have little or no value for anyone other than LES or its "Although the Staff's witness, Mr. Wood, testified that the Staff found the Applicant was financially qualified to construct and operate the CEC (Wood at 6 fol. Tr. 721),
his testimony demonstrated that the Staff reached that conclusion by applying what we already have found was an erroneous interpretation of the Commission's financial qualifications regulations.
(Ld. at 4, 7).
Egg suora pp.
152-55.
Nevertheless, Mr. Wood testified that " [o] ne of the good aspects of this project" was that, because construction of the CEC was planned as a turn-key construction project, it appeared to him that there would be no incentive to cut corners on construction and, thus, there would be no safety concern, which, after all, was the underlying purpose of the financial qualifications regulations.
(Tr. 725, 723).
It is not readily apparent to the Board how a turn-key project by itself lessens any safety concern.
Rather, it would appear that the incentive for a turn-key contractor that has l
underestimated the project (or a financially unqualified l
turn-key contractor) has the same incentive to cut corners as the financially unqualified license applicant that is involved in building the project.
i
l l
l l
- 166 -
partners.
(Osterberg at 4-5 fol. Tr. 715; I-DO-36).
Similarly, it is undisputed that none of the four LES general partners or the seven LES limited partners have the funds necessary to cover the estimated construction costs of the proposed facility.
(Osterberg at 5 fol. Tr. 715; Doudiet Tr.
- 564, 566, 568, 571-72; I-DO-37; I-DO-38).
None of the LES general and limited partners are entities of worth (Osterberg at 5 fol. Tr. 715) and each is itself a special purpose company established for the CEC venture.
(Doudiet Tr. 567, 571, 696).
As previously indicated, each of the four LES general partners and the seven LES limited partners is either a first or second tier wholly owned subsidiary of another corporation or, in the case of LES general partner Claiborne
- Fuels, L.P.,
a limited partnership whose sole general partner is a second tier wholly owned subsidiary of another corporation.
See supra pp. 116-20.
Even though none of the LES general or limited partners are corporations of financial worth, the Applicant's financial plan indicates that the seven LES limited partners l
will provide the 30 to 40 percent equity funding for the l
cu.1truction of the CEC.
(App. Ex. 14 at E-12 to E-13; i
l
- 167 -
Doudiet Tr. 654).
The Applicant's witnesses testified that, at the appropriate time at the conclusion of the venture phase, the financially substantial corporations at the top of the respective corporate affiliate chains of each of the LES limited partners. Staff Ex.. at 13-3 to 13-4) would determine whether to fund the limited partners and then the various limited partners could have the necessary funds to contribute to the equity portion of the CEC construction funds.
(Arnold Tr. 575; 676-77).
If any LES limited partners decide not to provide equity contributions for construction, the Applicant's witnesses stated that the Partnership Agreement contemplates that the "Urenco affiliates"26 would provide the funding or, alternatively, 26Dr. Arnold stated that by "Urenco affiliates" he meant "the sum total of the entities involved in Urenco" (Tr. 639) and, specifically, LES general partner, Urenco Investments, Inc., its parent corporation, Urenco, Ltd., and the three LES limited partners, Urenco (Investments US)
Ltd., GnV, and UNC Deelnemingen B.V.
and their respective parent corporations.
(Tr. 641).
Egg supra pp. 116-17, 118-j 19.
Although the Applicant's witnesses stated that the Partnership Agreement " contemplated" that Urenco would provide substitute equity funding, the Agreement places a ceiling on the interest Urenco Investment Inc., and its affiliates may acquire in the venture.
In light of the First Amendment to the Agreement, the existing interests of Urenco Investment Inc., and its affiliates seemingly (continued...)
4
- 168 -
LES would seek new partners and equity.
(Doudiet-Arnold at
?
28 fol. Tr. 563).
There is no dispute, however, that none of i
the corporate affiliates of any LES general or limited I
partner has made a commitment of any kind to fund the equity contribution for construction of any of the LES general or
)
j' limited partners.
(Osterberg at 7-8 fol. Tr. 715; Doudiet Tr. 575-76, 579-80, 582-83, 619-33).
Further, the Partnership Agreement does not require or obligate any LES general or limited partner to contribute any funds beyond the i
venture phase of the project to finance any part of the cons t ruct ion. 27 (I-DO-44 Art. XI; Arnold Tr. 640, 692).
26 (... continued)
)
precludes any substantial additional substitute funding.
(I-DO-44, Art. XI S 11.1 ( f ), Art. XII S 12.2, Art. XV S 15.2 (a) ; App. Ex. 22 SS 11.1 at 4-6, 15. 2 (b) at 10-11).
2'Although the Partnership Agreement does not obligate any LES general or limited partner to contribute any funds j
bevond the venturc phase to fund the construction of the project, the Agreement does prescribe the conditions under which the general and limited partners that are corporate affiliates of public utilities may leave the partnership and still receive reimbursement for their interests at the end of the venture phase.
It also prescribes the time when any general partner may withdraw without receiving reimbursement for its interest.
The Agreement also contains restrictions on the persons to whom any partnership interest may be transferred.
(I-DO-44, Arts. XIII, XV; App. Ex. 22 S 13.4 at 8, S 15.1(b) at 9; S 15.2 at 9-12).
(continued...)
- 169 -
Similarly, it is undisputed that none of the corporate affiliates of any LES general or limited partner is a partner under the terms of the LES Partnership Agreement.
(Doudiet Tr. 584).
The Applicant's financial plan also states that 60 to 1
70% of the construction funds will be financed by LES with I
term debt from international project lending banks.
(I-DO-33 at D-12; Doudiet Tr. 654).
The Applicant's witnesses testified that, at the appropriate time after the other objectives of the venture phase are completed, LES will seek financing from lenders "similar in size and expertise to major energy / project lending banks such as Citibank, Chemical Bank, Barclays Bank and Union Bank of Switzerland."
(Doudiet-Arnold at 31 fol. Tr. 563).
Mr. Doudiet stated, however, that none of the LES general or limited partners 2'(... continued)
In this latter regard, we note that in his testimony the NRC Staff witness stated that in the event a LES general partner sold its interest in the CEC a license application amendment or a license amendment would be required.
(Wood at 8 fol. Tr. 721).
Equally true, however, is the fact that if the corporate parent of any LES general partner sold its subsidiary owning the LES partnership interest no license application amendment or license amendment would be necessary under the Commission's regulations.
- 170 -
have relationships with any lending institutions and that only the corporate affiliates of the LES general and limited partners have any such relationships.
(Doudiet Tr. 572-71).
Moreover, Mr. Doudiet testified that LES did not yet know the type of financing package it would pursue and whether it
-would seek project financing or corporate credit financing.
(Doudiet Tr. 647-48).
In sum, based on the record before us, we find, that (1) the Applicant, LES, is a new:y formed entity organized primarily for the purpose of constructing and operating a uranium enrichment facility pursuant to Part 70 of the Commission's regulations; (2) neither the Applicant nor any of the general or limited partners comprising the LES limited partnership have the financial ability, individually or jointly, to fund the S816 million (in 1992 dollars) construction costs o' the CEC or 30 to 40% of that amount as the equity portion of the construction costs pursuant to the Applicant's financial plan; (3) none of the corporate affiliates of the LES general and limited partners with the financial ability to furnish construction funding have provided the LES general and limited partners with funding
- 171 -
commitments, agreements, or contracts of any kind that would permit the LES general and limited partners to fund the equity portion of the construction costs of the CEC;" and "Although none of the corporate affiliates of the LES general or limited partners have made any construction funding commitments that meet the requirements of the Commission's regulations, the Applicant's witnesses repeatedly emphasized that these companies had spent over
$30 million on the venture phase of the project and thus they were serious about continuing the project.
(Doudiet-Arnold at 25 fol. Tr. 563; Tr. 676-77).
But such venture phase contributions do not demonstrate any commitment by the corporate parents and affiliates of the LES general and limited partners to contribute the equity portion of the construction funds for the project.
As the very name
" venture" phase connotes, it is an exploratory undertaking of uncertain outcome and, here, none of the venture phase participants are obligated to provide any further capital beyond that phase.
(I-DO-44 Arts. XI, XIII).
Certainly,
$31.7 million is not a trifling sum but each of the individual contributions of the various participants is a significantly smaller amount and the total venture capital expenditure must be put in the context of a proposed project with estimated total costs of approximately $1.6 billion, j
Thus, these venture capital expenditures do not demonstrate a commitment by the corporate parents and affiliates of the LES general and limited partners to fund the equity portion of the construction of the project.
Indeed, the evidence convincingly shows that two of the venture phase participants have no intention of participating past the venture phase.
Duke Power Company, 1
the parent corporation of LES general and limited partner i
Claiborne Energy Services, Inc. (that together have over a 25% interest in LES), stated in a written report to one of its state regulators, the North Carolina Utilities i
Commission, its intention to sell or redeem the large majority of its share in LES, perhaps retaining only a small (continued...)
l l
i
- 172 -
l i
l l
(4) the Applicant neither has specifically identified the financial institutions nor detailed any loan agreements, l
t commitments, Cnr other contractual arrangements with the lending banks upon which it will rely for the debt portion of the construction funds for the CEC as stated in the LES financial plan.
Accordingly, we conclude that the Applicant has not demonstrated it is financially qualified to construct the CEC as required by the Commission's regulations.
28 (... continued) interest.
(I-DO-41 at 6).
Similarly, LES limited partner, Louisiana Power and Light Company, the wholly owned subsidiary of Entergy Corporation and holder of a 4.10%
interest in LES, represented to one of the Commissioners sitting as a hearing examiner for the Louisiana Public Service Commission that it would cash out its interest at the conclusion of the venture phase.
(I-DO-42 at 46).
While the Applicant's witnesses sought to downplay this evidence, stating the obvious literal truth that Duke Power j
Company had not represen~ed that it would " abandon" the project (Doudiet-Arnold at 23 fol. Tr. 563) and that it was possible Louisiana Power and Light Company might reevaluate its position (Tr. 753), these representations by utility companies to their state regulators clearly show that neither the parent corporation of Claiborne Energy Services, Inc., nor Louisiana Power and Light will fund construction of the CEC.
Moreover, the Applicant's witnesses testified l
that'LES would seek additional partners if the current I
limited partners did not provide sufficient equity for
(
construction funding but LES presented no evidence of additional participants in the project, t
~
- 173 -
In making these findings, we note that one recurrent theme of the Applicant's witnesses-was that, because the LES general and limited partners were all affiliates of other substantial corporations and the funding for the CEC could j
come from those companies, the distinction between the LES general and limited partners and their corporate affiliates was merely a convenience for the organizations and was not important for purposes of determining the financial qualifications of the LES partnership and its general and limited partners."
(Doudiet Tr. 572-73, 578, 613).
For l
example, Mr. Doudiet testified that "my personal view is that whether something is directly owned by the ultimate parent or has three levels of subsidiaries, from the standpoint of what we are interested in here (i.e.,
financial gualifications],
"Indeed, even though the LES general and limited partners and their respective corporate parents and other i
corporate affiliates are separate corporations and these parent and affiliate corporations are not members of the LES l
limited partnership, in their testimony, Mr. Doudiet and Dr.
Arnold generally do not distinguish among these different entities but lump them all together.
(Eee Tr. 613-17).
In doing so, the Applicant's witnesses use terms like LES partners, partners, affiliates, and entities to include the LES general and limited partners and their respective corporate parents and affiliates even though such meaning is literally incorrect.
Portions of the Partnership Agreement suffer from the same imprecision in language.
l l
l t
l
_ _ - - - - -. ~... ~. - -. _ - _ - _. -.
~.
- - ~..
l
[
- 174 -
really has not a great bearing on it."
(Tr. 578).
- Further, he stated.that "as a financial analyst, I often, in looking at partnership structure like this, do not make a distinction between the limited or general partners and the ultimate parents, because for financial purposes, the top line of the ultimate parents is where the financial resources come from."
(Tr. 613).
Contrary to the assertions of the Applicant's witnesses, l
l however, the status of the LES general and limited partners I
as first or second tier wholly owned subsidiaries of other corporations is highly relevant under the Commission's financial qualifications regulations.
Each of the LES general and limited partners, like the LES partnership l
itself, is a newly formed entity organized for the purpose of constructing and operating the CEC.
As such, none of these special purpc e entities, unlike established organizations, have any operating history and financial track record by i-i which their stability and financial qualifications can be objectively judged.
For this reason, when newly formed special purpose entities rely upon corporate affiliates for i
i i
construction funding, the Commission's financial j
i i
1
i 4
l
- 175 -
qualifications regulations require such entities to demonstrate both the financial capability of the corporate affiliates to contribute the construction funds and commitments by the corporate affiliates to provide the funds."
The financial capability of a corporate affilioce to contribute construction funding without a concomitant l
l 1
"Indeed, this regulatory requirement of a funding commitment is merely an implicit recognition that under general principles of corporate law a subsidiary corporation is independent of its parent corporation or other corporate affiliates.
Thus, absent contracts or other legally l
enforceable commitments between a subsidiary and its parent j
l or corporate affiliates, there is no obligation or l
responsibility on the part of the parent or affiliate i
corporations to support the activities of a subsidiary.
4 Similarly, the subsidiary has no recourse against its parent or corporate affiliates to force support for its activities.
l Additionally, here, under the provisions of the Partnership Agreement, the parent and other corporate affiliates of the LES general and limited partners are not responsible for the l
indebtedness or obligations of the LES partnership.
(I-DO-l 44 Art. IV S 4.2).
Thus, by arguing that the Applicant need only show the financial capability of the parents or other corporate affiliates to contribute construction funding and that it need not demonstrate any commitment by them to provide the funds, LES would like "to have its cake and eat it too."
The Applicant seeks to shield the parents and other corporate affiliates from any obligation to provide construction funding, but still holds out the financial stature of those corporations to demonstrate the financial qualifications of the LES general and limited partners -- an approach prohibited by the Commission's financial I
qualifications regulations.
m i
- 176 -
i I
commitment to provide the funds, is no more useful in
[
i l
. objectively judging the financial qualifications of a LES l
general or limited partner than a commitment to provide the funds from a corporate affiliate financially incapable of contributing the construction funding.
Thus, far from being a matter of little significance as the Applicant's witnesses assert, the corporate relationship between newly formed special purpose entities and their corporate affiliates is of central importance under the commission's financial qualifications regulations."
A second recurrent theme of the Applicant's witnesses was that, at the appropriate time at the close of'the venture "In like vein, Mr. Doudiet asserted that lending institutions would consider the LES general and limited partners "one and the same" as their financially substantial corporate parents and affiliates.
(Tr. 573).
Mr. Doudiet conceded, however, that it is LES and the LES general l
partners that will be liable to a lender for any debt, that a lender has no recourse against any parent corporation or l
other corporate affiliate of the LES general partners, and that these factors affect the interest rate LES would have to pay in borrowing funds.
(Tr. 701-02).
For these obvious reasons, commercial lenders, much like the Commission in judging the financial qualifications of a newly formed special purpose entity under the financial qualifications regulations, look to the financial capability of affiliated
{
companies only to the extent such entities have committed to guarantee the loan or otherwise legally committed themselves to a project.
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(
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l phase, the corporate affiliates of the LES limited partnera i
I would decide whether to fund them for the construction phase.
l Once a decision to proceed was made, the LES limited partners I
would then be funded by their corporate affiliates with the i
equity portion of the construction costs and LES would then j
be able to attract debt financing and be financially qualified to construct the CEC. 22 As we have already detailed in our discussion of the applicable legal standard, however, the Commission's regulations require the Applicant to demonstrate its financial qualifications to construct the l
CEC prior to licensing, not at some future time convenient to the Applicant's determination whether to build the plant.
32In this regard, the Applicant states that the "Intervenor also acknowledges that once the substantial parent corporations have committed equity to the project, l
'one would be able to go to financial institutions and get a commitment for debt financing.'"
(App.
P.F.
at 151 quoting Tr. 795).
The Applicant's assertion is sinply incorrect.
The alleged quotation from page 795 of the transcript does l
not appear on that page and our computer search of the l
hearing transcripts indicates there is no such quotation in l
the record.
With the exception of the subject of the i
sentence, the quoted words can be pieced together from two paragraphs appearing on that page but the Applicant has not l
included any ellipses in its quotation.
Most important, the Applicant's assertion mischaracterizes the Intervenor's testimony and ignores the four conditions Mr. osterberg indicated were necessary to obtain debt financing.
We trust l
the Applicant's error was inadvertent.
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Thus, because the relevant time period for a financial qualifications determination is the present, future speculative contingencies do not satisfy the Commission's regulations.
To obtain a license, LES must demonstrate the
)
commitments of the corporate affiliates of the LES partners l
to fund the equity portion of the facility construction costs.
Additionally, the Applicant must identify the financial institutions from which it intends to borrow the debt portion of the construction costs and detail its loan i
commitments."
t l
l "Because the Applicant has not identified its lenders l
or detailed its loan commitments as required by the Commission's regulations, we need not specifically address the Applicant's assertions, under its erroneous interpretation of the financial qualifications regulations, l
that LES has reasonable assurance of attracting debt l
financing due to the asserted viability of the project.
In this regard, we note, however, that even under the l
Applinant's erroneous legal standard, LES has failed to demonstrate that the e is reasonable assurance of obtaining debt financing.
No one has better summarized the uncertainty of securing debt financing for construction and the uncertainty of building the CEC in the current market than Dr. Klaus P.
Messer, the Chief Executive Officer of Urenco, Ltd. -- a 47% stakeholder in LES through its various subsidiaries and corporate affiliates and the company supplying the technology and the centrifuges for the CEC.
In an interview appearing in the Nukem Market Reoort that l
was admitted into evidence pursuant to the stipulation of the parties, Dr. Messer was asked about obtaining financing (continued...)
i
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1
"(... continued) for the project and candidly responded as follows:
NUKEM:
Are you confident of aettina the financial support for the LES plant I
should you decide to build it?
MESSER: No, we are not.
This is due to the unknown effect the Russian HEU will have on the market.
The USEC will be i
paying about $82 per SNU.
If the U.S.
utilities have access to a substantial amount of material at such low prices, it will hurt us.
We also don't know how the matching agreement will work out.
Obviously, this puts USEC in a very advantageous and, I would say, unfair position, relative to the other enrichers, because it potentially lets USEC become a large trader of cheap Russian SWUs.
I don't know if LES is viable under these circumstances.
The financial backing will only be available if we can sell in the U.S.
from a new U.S.
plant at acceptable prices.
(I-DO-22 at 18).
Even more revealing, was his response about building the CEC in the current market:
NUKEM: Is there any point where you would give up on LES?
MESSER: We would never consider that because we don't have to.
Why should we?
We would never give up an option if we can keep it at no cost.
Market circumstances may change tomorrow and we may decide to build immediately.
What (continued...)
l
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i our finding that the Applicant has not aemonstrated that it is financially qualified to construct the CEC in
"(... continued) if there is a political chance in Russia and the HEU deal just disappears?
The world would urgently need cheap l
enrichment quickly and with a high degree of security of supply.
(Id).
Although the Applicant introduced a subsequent letter from Dr. Messer in an attempt to explain his interview, nothing in that letter changes the essential import of Dr.
l Messer's original remarks.
(App. Ex. 15).
In light of the current and future market forecast for enrichment services, the other significant risk factors impacting the viability l
of the project, and Dr. Messer's assessment that he is not confident the project will obtain debt financing, the Applicant has presented no assurance, much less reasonable assurance, that LES can obtain the necessary debt financing.
In any event as we already have explained, under the correct legal standard for judging the Applicant's financial qualifications, the Commission is entitled to know the identity and details of the financing commitments for the debt funding before granting a 30-year license for the CEC.
Under the commission's regulations, the importance of a prelicensing review of the identity and commitment of the sources of debt financine_ takes on an added dimension in the licensing of the first private enrichment facility in the l
United States because of the obvious national security interests involved. The necessary result of the Applicant's l
erroneous interpretation of the Commission's financial qualifications regulations, however, is essentially to cede to LES, its general and limited partners, and their various parent and affiliate corporations, unreviewed discretion regarding the source and conditions of debt financing over the 30-year term of the license.
The Commission's financial qualifications regulations do not authorize any such result.
1
i 1
i i
181 -
l i
accordance with the Commission's regulations'is without l
i prejudice to the Applicant acting to amend its financial plan t
l to conform to the requirements of the Commission's l
regulations.
Further, because we find that the Applicant is l
1 not financially qualified to construct the CEC, we do not reach the question of whether LES is financially qualified to operate the facility.
In addition to the foregoing findings on contention Q, we have carefully considered all the other arguments, claims and proposed findings of the parties on this contention and find that they are either without merit, immaterial or unnecessary to this decison.
l l
l III.
Conclusion For the reasons detailed in Part I, we conclude that the Staff's treatment of the need for the facility in the FEIS is inadequate and that the FEIS must be amended as set forth in l
l Part I.D.4.
To that extent, the Intervenor's contention J.4 is sustained.
Additionally, for the reasons detailed in Part 1.E.,
we conclude that the Staff's treatment of the no-action alternative in the FEIS and its cost-benefit analysis in the 1
{
FEIS is inadequate and that the FEIS must be amended consi,s-
- 182 -
tent with the Board's decisions.
Thus, the Intervenor's contention K is sustained.
Finally, we conclude in Part II.E. that the Applicant has not demonstrated that LES is financially qualified to construct the Claiborne Enrichment Center within the meaning of 10 C.F.R. S 70.23 (a) (5).
Therefore, the Intervenor's' contention O is sustained.
Pursuant to 10 C.F.R.
S 2.760 of the Commission's Rules of Practice, this Partial Initial Decision will constitute the final decision of the Commission on these contentions forty (40) days from the date of its issuance unless a petition for review is filed in accordance with 10 C.F.R-.
S 2.786, or the Commission directs otherwise.
Within fifteen (15) days after service of this Partial Initial Decision, any party may file a petition for review with the Commission on the grounds specified in 10 C.F.R S 2.786 (b) (4).
The filing of a petitior for review is mandatory in order for a party to have exhausted its administrative remedies before seeking i
judicial review at the appropriate time..
Within ten (10) days after service of a petition for review, any party to the proceeding may file an answer supporting or opposing Commission review.
The petition for review and any answers i
)
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shall conform to the requirements of 10 C.F.R. S 2.786 (b) (2)-
(3).
It is so ORDERED.
)
THE ATOMIC SAFETY AND LICENSING BOARD at0 )
N'k Tilomas S.
Moore, Chairman ADMINISTRATIVE JUDGE C
b a
Richard F.
Cole i
ADMINISTRATIVE JUDGE
\\j s
Frederic S
T ADMINISTRATIV JUDGE December 3, 1996 Rockville, Maryland
?
UNITED STATES OF AMERICA j_
NUCLEAR REGULATORY COMMISSION i
l i
In the Matter of LOUISIANA ENERGY SERVICES, L.P.
Docket No.(s) 70-3070-ML (Claiborne Enrichment Center l
SNM License)
CERTIFICATE OF SERVICE I hereby certify that copies of the foregoing LB PID (LBP-96-25) DTD 12/3/96 have been served upon the following persons by U.S. mail, first class, except as otherwise noted and in accordance with the requirements of 10 CFR Sec. 2.712.
l-Administrative Judge Office of Commission Appellate Thomas S. Moore, Chairman Adjudication Atomic Safety and Licensing Board i
U.S. Nuclear Regulatory Commission Mail Stop - T-3 F23 Washington, DC 20555 U.S. Nuclear Regulatory Commission j
l Washington, DC 20555 l
Administrative Judge Administrative Judge Richard F. Cole Frederick J. Shon l
Atomic Safety and Licensing Board Atomic Safety and Licensing Board i
Mail Stop - T-3 F23 Mail Stop - T-3 F23 U.S. Nuclear Regulatory Commission U.S. Nuclear Regulatory Commission Washington, DC 20555 Washington, DC 20555 Eugene Holler, Esq.
Janice E. Moore, Esq.
Diane Curran, Esquire l
Office of the General Counsel Harmon, Curran & Spielberg Mail Stop 15 B18 2001 S Street, N.W., Suite 430 U.S. Nuclear Regulatory Commission Washington, DC 20009 Washington, DC 20555 l
Robert G. Morgan Roland J. Jensen Licensing Manager l
President LES - c/o Duke Engineering and l
Lousiana Energy Services, L.P.
Services, Inc.
l 2600 Virginia Avenue, N.W., Suite 608 PO Box 1004 l
Washington, DC 20037 Charlotte, NC 28201 i
~ - -. =. ~..
l 3
]
Docket No.(s)70-3070-ML LB PID (LBP-96-25) DTD 12/3/96 s
l J. Michael McGarry, III, Esq.
Nathalie M. Walker, Esq.
Counsel for LES Robert B. Wiygul, Esq.
Winston & Strawn Sierra Club Legal Defense Fund, Inc.
1400 L Street, N.W.
400 Magazine Street, Suite 401 Washington, DC 20005 New Orleans, LA 70130 Ronald Wascom Deputy Assistant Secretary Office of Air Quality & Rad. Protection Dept. of Environmental Quality P.O. Box 82135 Baton Rouge, LA 70884 Dated at Rockville, Md. this 2
4 day of December 1996
/b ]
1&L/
Offic~e of the' Secretary of the Commission i
.-