01-29970. Niagara Mohawk Power Corporation, et al., (Nine Mile Point Nuclear Station, Unit Nos. 1 and 2); Supplemental Order Regarding Approval of Transfer of Licenses and Approving Conforming Amendment

I

Niagara Mohawk Power Corporation (NMPC) is the exclusive owner and operator of Nine Mile Point Nuclear Station, Unit 1 (NMP-1), and in regard thereto, holds Facility Operating License No. DPR-63. NMPC is also part-owner and exclusive operator of Nine Mile Point Nuclear Station, Unit No. 2 (NMP-2), and in connection therewith, is a holder of Facility Operating License No. NPF-69. The other co-owners of NMP-2 and holders of the license are New York State Electric & Gas Corporation (NYSEG), Rochester Gas and Electric Corporation (RG&E), Central Hudson Gas & Electric Corporation (CHGEC), and Long Island Lighting Company (LILCO, which is doing business as Long Island Power Authority). NMP-1 and NMP-2 (the facilities) are located at the licensees' site in Oswego County, New York.

II

By application dated February 1, 2001, Constellation Nuclear, LLC, on behalf of its indirect subsidiary Nine Mile Point Nuclear Station, LLC (NMP LLC), and NMPC, NYSEG, RG&E, and CHGEC requested the consent of the U.S. Nuclear Regulatory Commission (NRC or Commission) to a proposed direct transfer of the licenses for NMP-1 and NMP-2, to the extent held by the foregoing applicants, to NMP LLC. The application was supplemented by submittals from Constellation Nuclear, LLC, dated March 1, March 16, March 29, April 5, April 27, May 30, and June 7, 2001 (collectively herein referred to as the Application). The Application also requested the approval of conforming license amendments to reflect the direct transfer of the licenses. The Application further requested consent to certain indirect transfers of the licenses, to the extent such would occur following the direct transfers resulting from (1) a planned realignment or restructuring of the Constellation Energy Group (CEG), Inc., of which NMP LLC is a part, and the establishment of a new intermediate parent company of NMP LLC referred to as New Controlled, and (2) the acquisition by Virgo Holdings, Inc. (Virgo), an indirect subsidiary of The Goldman Sachs Group, Inc., of an equity interest in NMP LLC and up to a 17.5% voting interest in New Controlled, coupled with the distribution of the remaining voting shares of New Controlled, all of which would be held by CEG, Inc., up to the time of distribution, to the existing public shareholders of CEG, Inc., leaving Virgo with the largest single voting interest in NMP LLC's ultimate parent company.

The Application provided that in connection with the direct transfers, NMP LLC would assume title to NMP-1 following approval of the proposed license transfers, and would assume the 82% ownership interest in NMP-2 currently held by NMPC (owner of a 41% interest), NYSEG (18% interest), RG&E (14% interest) and CHGEC (9% interest). LILCO is not involved in the direct transfer of NMP-2 and, therefore, will remain a licensee with respect to its 18% ownership interest. In addition, NMP LLC would become responsible for the operation of both NMP-1 and NMP-2. The Application stated that NMP LLC would also assume the decommissioning responsibility of the current owners of NMP-1 and NMP-2 transferring their interests in the facilities to NMP LLC. NMP LLC would provide decommissioning funding assurance through the use of decommissioning trusts coupled with parent company guarantees.

The Application proposed conforming license amendments that would replace references to NMPC, NYSEG, RG&E, and CHGEC in the licenses with references to NMP LLC, as appropriate, and make other administrative changes to reflect the proposed direct transfer.

The Commission published a notice of the request for approval and an opportunity for a hearing in the Federal Register on April 2, 2001 (66 FR 17584). The Commission received no comments or requests for hearing pursuant to the notice. The NRC staff approved the proposed direct and indirect license transfers by an Order dated June 22, 2001. That Order, which contained several conditions of approval, was based in part on the premise that the NMPC, RG&E, CHGEC and NYSEG interests would be transferred concurrently.

By a submittal dated September 10, 2001, Constellation Nuclear, LLC, NMPC, CHGEC and RG&E stated that due to certain delays in receiving other necessary regulatory approvals, their interests in the NMP-1 and NMP-2 licenses may need to be transferred to NMP LLC prior to any transfer of NYSEG's interest in NMP-2. The September 10, 2001, submittal was supplemented by a letter dated September 26, 2001, from Constellation Nuclear, LLC, and NMPC, and a letter dated September 28, 2001, from J.E. Silberg, counsel to Constellation Nuclear, LLC. These letters are collectively referred to as the Supplemental Application. The Supplemental Application requested NRC consent to the direct transfer approved by the June 22, 2001, Order occurring in two phases, i.e., the NMPC, CHGEC, and RG&E transfers would occur first, followed by the NYSEG transfer.

The Supplemental Application also requested approval of a conforming license amendment for NMP-2 to reflect the first phase of a two-phase direct transfer of the interests in NMP-2. The amendment would delete references to NMPC, CHGEC, and RG&E to reflect the transfer of their interests to NMP LLC, but leave NYSEG on the license.

Approval of the two-phase completion of the previously approved direct transfers involving NMP-2 and corresponding conforming license amendment to reflect the completion of the first phase was requested pursuant to 10 CFR 50.80 and 50.90. The NRC staff determined that the Supplemental Application relates only to schedular matters and did not involve any material changes to the underlying basis for the transfer approval Order dated June 22, 2001. Therefore, the Supplemental Application was within the scope of the April 2, 2001, Federal Register notice cited above and did not require renoticing or a new opportunity for a hearing.

Pursuant to 10 CFR 50.80, no license, or any right thereunder, shall be transferred, directly or indirectly, through transfer of control of the license, unless the Commission shall give its consent in writing. After reviewing the information submitted in the Supplemental Application and other information before the Commission, the NRC staff has determined that its previous findings set forth in the Order dated June 22, 2001, remain valid notwithstanding that the transfers may occur in two phases, namely, NMP LLC is qualified to hold the licenses for NMP-1 and NMP-2 to the same extent the licenses are now held by NMPC, CHGEC, RG&E and NYSEG, and that the transfer of the licenses, as previously described herein, is otherwise consistent with applicable provisions of law, regulations, and orders issued by the Commission, subject to the conditions described herein. The NRC staff has further found that the Supplemental Application for the proposed license amendment to reflect the first phase of a potential two-phase transfer complies with the standards and requirements of the Atomic Energy Act of 1954, as amended (the Act), and the Commission's rules and regulations set forth in 10 CFR chapter I; the facility will operate in conformity with the Supplemental Application, the provisions of the Act, and the rules and regulations of the Commission; there is reasonable assurance that the activities authorized by the proposed license amendment can be conducted without endangering the health and safety of the public and that such activities will be conducted in compliance with the Commission's regulations; the issuance of the proposed license amendment will not be inimical to the common defense and security or to the health and safety of the public; and the issuance of the proposed license amendment will be in accordance with 10 CFR part 51 of the Commission's regulations and all applicable requirements have been satisfied. These findings are supported by a safety evaluation dated October 30, 2001.

III

Accordingly, pursuant to sections 161b, 161i, and 184 of the Atomic Energy Act of 1954, as amended, 42 U.S.C. §§ 2201(b), 2201(i), and 2234, and 10 CFR 50.80, it is hereby ordered that the direct NMP-2 license transfer previously approved by the June 22, 2001, Order, from NMPC, CHGEC, RG&E and NYSEG, to NMP LLC may occur in two phases, as described above, subject to the following conditions:

(1) NMP LLC shall, prior to the completion of each direct transfer, have provided to the Director of the Office of Nuclear Reactor Regulation satisfactory documentary evidence that NMP LLC has obtained the appropriate amount of insurance required of licensees under 10 CFR Part 140 of the Commission's regulations.

(2) On the closing date(s) of the transfer of the NMPC, RG&E, CHGEC, and NYSEG interests in NMP-1 and NMP-2 to it, NMP LLC shall: (1) Obtain from the transferors then transferring their interests all of their accumulated decommissioning trust funds for NMP-1 and NMP-2, respectively, and (2) receive [a] parent company guarantee[s] pursuant to 10 CFR 50.75(e)(1)(iii)(B) (to be updated annually) in a form acceptable to the NRC and in [an] amount[s] which, when combined with the decommissioning trust funds for NMP-1 and NMP-2 that have been transferred, equals or exceeds the total amounts for NMP LLC's then resulting total ownership share of NMP-1 and NMP-2, respectively, pursuant to 10 CFR 50.75(b) and (c).

(3) The master decommissioning trust agreement for NMP-1 and NMP-2, at the time any subject direct transfer is effected and thereafter, is subject to the following:

a. The decommissioning trust agreement must be in a form acceptable to the NRC.

b. With respect to the decommissioning trust funds, investments in the securities or other obligations of CEG Inc., New Controlled, or their affiliates, successors, or assigns, are and shall be prohibited. Except for investments tied to market indexes or other non-nuclear sector mutual funds, investments in any entity owning one or more nuclear power plants are and shall be prohibited.

c. The decommissioning trust agreement must provide that no disbursements or payments from the trusts, other than for ordinary administrative expenses, shall be made by the trustee unless the trustee has first given the NRC 30 days prior written notice of the payment. The decommissioning trust agreement shall further contain a provision that no disbursements or payments from the trusts shall be made if the trustee receives prior written notice of objection from the Director of the Office of Nuclear Reactor Regulation.

d. The decommissioning trust agreement must provide that the agreement cannot be amended in any material respect without 30 days prior written notification to the Director of the Office of Nuclear Reactor Regulation.

e. The appropriate section of the decommissioning trust agreement shall state that the trustee, investment advisor, or anyone else directing the investments made in the trusts shall adhere to a “prudent investor” standard, as specified in 18 CFR 35.32(a)(3) of the Federal Energy Regulatory Commission's regulations.

(4) NMP LLC shall take all necessary steps to ensure that the decommissioning trusts are maintained in accordance with the Application, the requirements of the June 22, 2001, Order (amended by this Order herein), and the related safety evaluation.

(5) At the time any subject direct transfer is effected, NMP LLC shall enter or shall have entered into an intercompany credit agreement with Constellation Energy Group (CEG), Inc., or New Controlled, whichever entity is the ultimate parent of NMP LLC at that time, in the form and on the terms represented in the Application. Should New Controlled become the ultimate parent of NMP LLC following the direct transfer of the licenses to NMP LLC, NMP LLC shall enter or shall have entered into a substantially identical intercompany credit agreement with New Controlled at the time New Controlled becomes the ultimate parent; in such case, any existing intercompany credit agreement with CEG, Inc. may be canceled once the intercompany credit agreement with New Controlled is established. Except as otherwise provided above, NMP LLC shall take no action to void, cancel, or modify any intercompany credit agreement referenced above, without the prior written consent of the Director of the Office of Nuclear Reactor Regulation.

(6) NMPC shall inform the Director of the Office of Nuclear Reactor Regulation of the date(s) of the closing of the direct transfers no later than two business days prior to such respective date(s). If all of the direct and indirect transfers of the licenses approved by the June 22, 2001, Order, as supplemented by this Order are not completed by June 30, 2002, this Order and the June 22, 2001, Order shall become null and void with respect to those transfers not so completed, provided, however, upon written application and for good cause shown, such date may in writing be extended.

It is further ordered that, consistent with 10 CFR 2.1315(b), a license amendment that makes changes, as indicated in Enclosure 2 to the cover letter forwarding this Supplemental Order, to conform the operating license for NMP-2 to reflect the subject first phase of the direct license transfers, is approved. If NMPC, RG&E, and CHGEC transfer their interests in NMP-2 to NMP LLC and NYSEG does not concurrently transfer its interest in NMP-2, the amendment shall be issued and made effective at the time NMPC, RG&E, and CHGEC transfer their interests in NMP-2 to NMP LLC.

It is further ordered that, to the extent any of the conditions of the June 22, 2001, Order, and conditions contained in the conforming license amendments approved by that Order, are inconsistent with the conditions contained in this Supplemental Order and conditions contained in the amendment approved by this Supplemental Order, all such inconsistent conditions of the June 22, 2001, Order, and all such inconsistent conditions contained in the conforming license amendments approved by that Order, are hereby modified to be consistent with the conditions contained in this Supplemental Order and conditions contained in the license amendment approved by this Supplemental Order. License amendments for NMP-1 and NMP-2, as approved by the June 22, 2001, Order, and as modified herein, or the license amendment as approved by this Supplemental Order, shall be issued as appropriate and made effective at the time the corresponding license transfers occur.

This Supplemental Order is effective upon issuance.

For further details with respect to this Supplemental Order, see the Supplemental Application transmitted by letters dated September 10, 26, and 28, 2001, the associated supplemental safety evaluation dated October 30, 2001, and the Order and its associated safety evaluation both dated June 22, 2001. All of these documents are available for public inspection at the Commission's Public Document Room at One White Flint North, 11555 Rockville Pike (first floor), Rockville, MD, and are accessible electronically through the ADAMS Public Electronic Reading Room link at the NRC Web site http://www.nrc.gov.

Dated at Rockville, Maryland, this 30th day of October, 2001.

For the Nuclear Regulatory Commission

Samuel J. Collins,

Director, Office of Nuclear Reactor Regulation.