[Federal Register Volume 62, Number 145 (Tuesday, July 29, 1997)]
[Notices]
[Pages 40549-40551]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-19930]
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NUCLEAR REGULATORY COMMISSION
[Docket No. 50-443 (License No. NPF-86)]
North Atlantic Energy Service Corporation and Great Bay Power
Corporation; (Seabrook Station, Unit No. 1)
Exemption
I.
Great Bay Power Corporation (Great Bay) is the holder of a 12.1324-
percent ownership interest in Seabrook Station, Unit No. 1 (Seabrook).
Its interest in Seabrook is governed by License No. NPF-86 issued by
the U.S. Nuclear Regulatory Commission (the Commission or NRC),
pursuant to Part 50 of Title 10 of the Code of Federal Regulations (10
CFR part 50), on March 15, 1990, in Docket No. 50-443. Under this
license, only North Atlantic Energy Service Corporation (North
Atlantic), acting as agent and representative of 11 joint owners listed
in the license, has authority to operate Seabrook. Seabrook is located
in Rockingham County, New Hampshire. The license provides, among other
things, that it is subject to all rules, regulations, and orders of the
NRC now or hereafter in effect.
II.
Great Bay was established in 1994 as a successor to EUA Power
Corporation, which had filed for reorganization under Chapter 11 of the
U.S. Bankruptcy Code. Great Bay is a non-operating, 12.1324-percent co-
owner of Seabrook and sells its proportionate share of power from
Seabrook on the wholesale electricity market. In January 1997, Great
Bay became a wholly owned subsidiary of BayCorp Holdings, Ltd.
(BayCorp).
By letter dated May 8, 1996, North Atlantic requested, for itself
and as agent for the joint owners of Seabrook, approval of the indirect
transfer of control of Great Bay's interest in Operating License NPF-86
through the formation of a holding company above Great Bay. In
connection with its review of the requested action, the NRC staff
determined that Great Bay does not
[[Page 40550]]
meet the definition of ``electric utility'' as provided in 10 CFR 50.2.
As a non-electric utility, Great Bay must meet the requirements of 10
CFR 50.75(e)(2) for assurance for decommissioning funding. In Great
Bay's case, a surety method would be required to supplement Great Bay's
existing external sinking fund.1 On January 22, 1997, the
Commission issued a 6-month temporary exemption from the requirements
of 10 CFR 50.75(e)(2) to North Atlantic and Great Bay, thereby allowing
Great Bay an opportunity to obtain a surety method, and to allow the
Commission to approve, without further delay, the indirect transfer of
control permitting Great Bay to become a wholly owned subsidiary of
BayCorp, which restructuring the staff believed would likely enhance
Great Bay's financial viability.
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\1\ New Hampshire statutes provide for the establishment of a
Nuclear Decommissioning Financing Fund (the Fund) in the office of
the State Treasurer for each nuclear electric generating facility in
the state. New Hampshire statutes also provide for the establishment
of a Nuclear Decommissioning Financing Committee (NDFC) with the
responsibility to review the adequacy of the Fund periodically and
to establish or revise the funding schedule. Each joint owner is
required by the Seabrook Joint Ownership Agreement to pay monthly at
least their respective ownership share of decommissioning costs into
the Fund as established by the NDFC funding schedule.
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On February 21, 1997, Great Bay requested reconsideration of the
staff's finding that Great Bay does not meet the NRC's definition of
``electric utility,'' and on June 4 and 16, 1997, Great Bay submitted
supplemental financial information to support its request. Also
included in the June 4 submittal was a request that the NRC consider
granting an extension to the temporary exemption as an alternative to
reconsidering at this time whether Great Bay is an electric utility
under the NRC's definition.
III
``Electric utility'' is defined at 10 CFR 50.2 as ``* * * any
entity that generates or distributes electricity and which recovers the
cost of this electricity, either directly or indirectly, through rates
established by the entity itself or by a separate regulatory
authority.'' As required by 10 CFR 50.75, an entity that is not an
electric utility must provide a financial assurance mechanism for
decommissioning funding purposes in the form of prepayment, or an
external sinking fund coupled with a surety method or insurance, the
value of which may decrease by the amount being accumulated in the
external sinking fund. Electric utilities do not have to obtain a
surety instrument to compensate for balances in the external sinking
fund that are below the total estimated cost of decommissioning.
In determining originally that Great Bay is not an electric
utility, the staff took note of the fact that Great Bay sells most of
its share of power from Seabrook on the spot market at market-based
rates. As Great Bay notes, the Federal Energy Regulatory Commission
(FERC) has ``accepted'' Great Bay's tariffs providing for market-based
rates without regard to whether sales of power are through contracts of
varying lengths or on the spot market. However, the FERC has not
``established'' rates based on a traditional ratemaking process that
provides for the recovery of reasonable and prudently incurred costs as
an underlying objective. It is upon this traditional ratemaking process
that the NRC's definition of electric utility is based.
There is no distinction between long-term and short-term sales in
connection with the definition of electric utility, as Great Bay
correctly points out in its February 21 submittal. To the extent the
staff previously has suggested that there is any such distinction
bearing on whether Great Bay met the definition of electric utility,
the staff takes this opportunity to clarify that the definition of
electric utility hinges solely upon whether or not an entity sells
power at rates based on and established through a traditional
reasonable and prudent cost-of-service ratemaking process. Although, as
Great Bay argues, FERC may ``accept'' market-based tariffs consistent
with FERC's statutory responsibilities to ensure that rates are just
and reasonable, the FERC's fulfillment of its responsibilities does not
necessarily mean that the particular electricity seller involved
thereby meets the NRC's definition of electric utility.
Great Bay has cited the staff's earlier statements concerning the
status of Great Bay as an electric utility immediately following
bankruptcy proceedings involving its predecessor EUA Power Corporation.
Although at one time the staff believed Great Bay to be an electric
utility, upon further analysis the staff has concluded that if Great
Bay or its predecessor did not sell power at rates established by FERC
through a traditional cost-of-service ratemaking process, that fact
alone would have compelled a finding that Great Bay was not an electric
utility. Thus, although the staff's recent reasoning for its original
conclusion that Great Bay is not an electric utility did not focus on
whether in fact rates were being established through a traditional
cost-of-service ratemaking process, the staff's analysis now compels
the same conclusion.
Great Bay states that it recovers the cost of the electricity it
sells. Although the staff agrees that Great Bay has provided evidence
that it can generate sufficient cash to pay for its share of Seabrook-
related expenses, Great Bay has not indicated that it will recover full
costs, including non-cash costs. The NRC's definition of electric
utility, again, is based on cost recovery as a result of the action of
a independent rate-setting authority, such as FERC, rather than merely
a positive cash flow resulting from then favorable market conditions.
Great Bay has provided evidence that it will continue to be able to
fund its proportionate share of operating costs and decommissioning
funding for Seabrook for the next 5 years. After reviewing Great Bay's
current and projected financial statements submitted on June 4, 1997,
the staff concludes that it appears Great Bay will be able to generate
cash flow in excess of that needed to fund its proportionate share of
operating costs and decommissioning funding obligations. Great Bay has
projected operating income and cash flow based on what appear to be
reasonable projections of the spot market price of power from Seabrook
through 2001. The projections indicate that Great Bay very likely will
be able to meet its operating and decommissioning cost obligations for
Seabrook through 2001 and likely will have excess cash to meet many
unforeseen contingencies. However, Great Bay's present unfunded
decommissioning liability for its share of Seabrook is approximately
$47.2 million 2 which is in excess of Great Bay's present
working capital of about $30 million.3 Thus, in the near
term, a permanent shutdown, and possibly an extended temporary
shutdown, of Seabrook would mean that Great Bay would have difficulty
meeting its operational and decommissioning funding obligations for
Seabrook.
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\2\ Great Bay's share of currently estimated decommissioning
costs is approximately $53.9 million, and Great Bay has already paid
approximately $6.7 million into the decommissioning fund.
\3\ As part of the EUA Power bankruptcy settlement, Eastern
Utility Associates (EUA), the former parent of Great Bay's
predecessor, EUA Power, has guaranteed a maximum of $10 million at
the time of decommissioning to make up for any shortfall in Great
Bay's payments for its decommissioning obligation.
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In response to the January 22, 1997, temporary exemption, Great Bay
initiated efforts to find available and economically feasible
decommissioning funding assurance arrangements. In its
[[Page 40551]]
June 4, 1997, submittal, Great Bay reported that underwriting
specifications had been prepared and issued to the insurance market by
AON Risk Services. Subsequently, on July 7, 1997, Great Bay reported
upon the status of the efforts to locate a suitable assurance
arrangement. Great Bay reported that a surety bond does not appear to
be available, and the only insurance mechanism available to Great Bay
at the present time is for Great Bay to prefund its entire outstanding
decommissioning obligation. Great Bay asserts that because there is no
pool of similarly situated entities requiring decommissioning funding
assurance, arrangements such as surety bonds for such entities are
unavailable. Great Bay asserts further that prefunding the entire
obligation would put Great Bay at an undue competitive disadvantage.
Great Bay appears to have made a good faith effort to secure a
surety bond at reasonable cost but has been unsuccessful in this effort
so far, and it does not appear that Great Bay feasibly can meet the
NRC's requirement that non-electric utility power reactor licensees
obtain a surety bond or some other third-party guarantee mechanism to
provide decommissioning funding assurance.
IV.
In consideration of the foregoing, the Commission is granting an
extension to the temporary exemption issued to Great Bay and North
Atlantic on January 22, 1997. This extension to the temporary exemption
from the requirements of 10 CFR 50.75(e)(2) is granted to allow Great
Bay more time in which to obtain the additional assurance for
decommissioning funding required by the regulation.
However, in view of revisions to 10 CFR 50.2 and 10 CFR 50.75 now
being considered by the Commission, this exemption shall expire 90 days
following the date any revisions to 10 CFR 50.2 and 10 CFR 50.75 become
final agency action, or 1 year from the date of issuance of this
exemption, whichever date is sooner.
The Commission has determined that pursuant to 10 CFR 50.12(a)(1),
this exemption is authorized by law, will not present an undue risk to
the public health and safety, and is consistent with the common defense
and security. The Commission further has determined that special
circumstances as provided in 10 CFR 50.12(a)(2)(ii) and 10 CFR
50.12(a)(2)(v) are present.
Under criterion (ii), special circumstances exist in that
application of the regulation in this particular circumstance is not
necessary, for the period of the exemption, to achieve the underlying
purpose of the rule, which is to provide additional assurance that
funds will be available for decommissioning at the end of the license
term or in the event of a premature shutdown. In this instance, Great
Bay's projected income and cash flow indicate that Great Bay very
likely will be able to meet its operating costs and monthly
decommissioning fund payments for Seabrook through 2001. Furthermore,
Great Bay's past contributions to the existing sinking fund along with
its present working capital and its former corporate parent's
guarantee, would currently cover nearly three quarters of Great Bay's
proportionate share of Seabrook decommissioning costs.
Furthermore, application of the requirements of 10 CFR 50.75(e)(2)
at this time would not serve the underlying purpose of the rule. The
regulation would require Great Bay to prefund the remaining $47.2
million decommissioning obligation or to obtain a surety bond or other
third-party guarantee mechanism for the unfunded amount. No surety
arrangement appears to be available to Great Bay at this time other
than to fully fund or collateralize the insurer for the entire
obligation which would make it difficult, if not impossible, for Great
Bay to meet its day-to-day obligations. Thus, the underlying purpose of
the rule would not be served by attempting to apply the rule under
these circumstances.
Under criterion (v), special circumstances exist because the
exemption provides only temporary relief from the applicable
regulation(s), and Great Bay has made a good faith effort to comply
with 10 CFR 50.75 by continuing to make payments into an external
sinking fund while making good faith efforts to locate a suitable
assurance mechanism.
Because this exemption is based on financial circumstances and
projections that are subject to change and current market conditions
for obtaining surety methods that are subject to change, this exemption
is subject to the following conditions:
A. Great Bay is to continue efforts with due diligence to obtain a
suitable decommissioning funding assurance arrangement that will meet
the requirements of 10 CFR 50.75(e)(2) and is to provide a written
report 6 months from the date of issuance of this exemption to the
Director, Office of Nuclear Reactor Regulation, of the efforts underway
and the progress made to obtain a suitable decommissioning funding
assurance arrangement.
B. Great Bay shall provide the Director, Office of Nuclear Reactor
Regulation, its next four unconsolidated quarterly financial reports,
including statements of income and cash flow, and balance sheets within
45 days of the close of each calendar quarter.
C. In the event any circumstance or condition develops that
threatens Great Bay's present or future ability to meet its
decommissioning funding obligation, or if Great Bay is in default of
any monthly payment to the Fund, Great Bay and North Atlantic are to
inform the Director, Office of Nuclear Reactor Regulation, immediately
in writing.
Pursuant to 10 CFR 51.32, the Commission has determined that
granting this Exemption will not have a significant effect on the
quality of the human environment (62 FR 39285).
This exemption is effective upon issuance.
Dated at Rockville, Maryland, this 23rd day of July 1997.
For the Nuclear Regulatory Commission.
Samuel J. Collins,
Director, Office of Nuclear Reactor Regulation.
[FR Doc. 97-19930 Filed 7-28-97; 8:45 am]
BILLING CODE 7590-01-P
