March 17, 1997

DECISION AND ORDER

OF THE DEPARTMENT OF ENERGY

Appeal

Name of Petitioner: Niagara Mohawk Power Corporation

Date of Filing: January 31, 1995

Case Number: VEA-0004

On January 31, 1995, the Niagara Mohawk Power Corporation (Niagara) filed an Appeal from a November 21, 1994 determination issued to it by the Department of Energy's (DOE) Office of Environmental Management (OEM). In this decision, we consider Niagara's claim that the OEM has erroneously determined its liability for payment into the Uranium Enrichment Decontamination and Decommissioning Fund (the D&D Fund) established under the Energy Policy Act of 1992. Pub. L. No. 102-486, 42 U.S.C.A. 2297(g), et seq. (1994). If Niagara's Appeal were granted, its D&D Fund assessment would be reduced by 6,547 separative work units (SWUs).

I. Background

Since the era of the Manhattan Project, the DOE and its predecessors have engaged in the process of uranium enrichment in order to meet the nation's national security, research and electrical generation requirements.(1) This case concerns legislation requiring that domestic utilities contribute to a fund to pay clean-up costs associated with the program.

A. Uranium Enrichment

Nuclear-powered utilities require enriched uranium. Enriched uranium is uranium in which the concentration of a particular isotope of uranium, uranium-235 (U-235), is increased above the naturally occurring percentage of 0.711%. The percentage of U-235 contained in uranium is referred to as its "assay." Most commercial power plants require fuel with assays between 2.5 and 4.5 percent.

The uranium enrichment process involves separating uranium feed into two portions, and transferring U-235 molecules from one portion to the other. The resulting portions of uranium are called "the product" and "the tails." The product consists of enriched uranium (having a higher than natural percentage of U-235). The other portion, the tails, consists of depleted uranium (having a lower than natural percentage of U-235). The effort required to separate the two isotopes is referred to as separative work and is measured in terms of separative work units (which are commonly referred to as SWU.). The SWU is the common unit of measurement for uranium enrichment services used by the nuclear power industry.

B. The DOE's Uranium Enrichment Program

In the United States the uranium enrichment process has been performed solely at three DOE plants which used gaseous diffusion technology to achieve separation of the isotopes. The emergence of newer, more efficient technologies and the globalization of the uranium enrichment market have rendered the government-owned plants obsolete and uncompetitive. It therefore became necessary to decommission and replace the gaseous diffusion plants and to recover the costs of those operations. On October 24, 1992, Congress enacted the Energy Policy Act. The act established a Uranium and Enrichment Decontamination and Decommissioning Fund (the D&D Fund) to pay for the costs of decontamination, decommissioning and other remedial action activities at DOE's uranium enrichment facilities, and for reimbursement of certain decontamination and decommissioning, reclamation, and other remedial action costs incurred by licensees at active uranium or thorium processing sites.

The legislative history indicates that Congress intended that the D&D fund be financed by those entities that had directly benefitted from the operation of the plants, and that the allocation of assessments be apportioned in accordance to the degree which those entities had benefited from the uranium enrichment program. H.Rep. No. 474, 102nd. Cong., 2d sess.144, reprinted in 1992 U.S. Code Cong. & Admin. News 1954, 1967 ("The prevailing view on the allocation of costs of cleaning up these plants is that it should be based on benefits received from the program.")(2) Accordingly, the statute mandates contributions to the D&D Fund from both the governmental entities and the domestic utilities that took delivery of enriched uranium from the plants. After considering various methods of apportioning responsibility for the D&D Fund, Congress determined that the benefits received from the program could best be measured by each entity's receipt of DOE-originated SWUs. See id.(3) Therefore, the statute requires that each domestic utility's D&D Fund assessment be based upon the total number of SWUs that it purchased from the DOE prior to October 24, 1992. However, since Congress recognized that utilities often purchased or sold enrichment services in the secondary market, the statute further provides:

(1) a utility shall be considered to have purchased a separative work unit from the Department if such separative work unit was produced by the Department, but purchased by the utility from another source; and

(2) a utility shall not be considered to have purchased a separative work unit from the Department if such separative work unit was purchased by the utility, but sold to another source.

42 U.S.C. § 2297g-1(c). As a result, a domestic utility's D&D Fund assessment is based upon the following formula: A+B-C=X, where X is the number of SWUs upon which the utility's D&D Fund assessment is based; A is the total number of SWUs that the utility purchased from the DOE prior to October 24, 1992; B is the number of DOE-produced SWUs purchased by the utility in the secondary market prior to October 24, 1992; and C is the number of DOE-produced SWUs transferred or sold by the utility prior to October 24, 1992.

Utilities were required to purchase and then deliver to the DOE enough natural uranium feed for DOE to conduct the enrichment requested by the utility. DOE then charged the utility, on a per SWU basis, for the amount of the separative work necessary to enrich the natural uranium feed provided by the utility to the weight and product assay sought by the utility.

C. The Enrichment and Fabrication of Uranium Into Nuclear Fuel

To begin the procurement of nuclear fuel, a utility must first estimate the amount of enriched uranium that it will ultimately need to load in its nuclear reactor. A utility then places an order for enrichment services with DOE approximately six months prior to the time that the enriched uranium is to be delivered to its fabricator. See Response of the Department of Energy (March 31, 1995) at 3 (hereinafter "Response"). The Department invoices the utility for the number of SWUs it purchased and transfers the title of the enriched uranium to the utility when the specified amount of enriched uranium is delivered to the fabricator. Id. The fabricator records the number of SWUs that were delivered by the Department on behalf of the utility. Id. at 3 and 4. Once the enriched uranium and associated SWUs are purchased from DOE, title to them remains with the utility throughout the fabrication process. Id.

On many occasions the amount of enriched material actually needed for the reactor changes between the time the utility places an order and the time fabrication is completed. Because of this lack of precision in the nuclear fuel procurement process, the fabricator and the utility must "settle" on the actual number of SWUs that were needed to fabricate the fuel. Id. When this occurs, the fabricator and the utility either reach a cash settlement, or the fabricator maintains a credit balance for the SWUs the utility has already provided for future use. For instance, the present case involves a settlement Niagara made with its fuel fabricator, General Electric (GE). In this instance, if a settlement were made in cash, GE would keep the unneeded surplus amount of enriched uranium and associated SWUs, would pay Niagara in cash, and Niagara would then transfer title to the enriched uranium and associated SWUs to GE, thus resulting in a "sale" of SWUs to GE. By contrast, if a settlement were made in the form of a SWU credit, Niagara would maintain title to the enriched uranium and associated SWUs and GE would promise to credit Niagara with the same quantity of material when it fabricated Niagara's next reload. Under this instance, no "sale" would occur. It is precisely this instance that is the focus of the present case.

D. The D&D Fund Regulations

On August 8, 1994, the DOE issued regulations implementing the relevant provisions of the Act. 59 Fed. Reg. 41956 (August 15, 1994). These regulations are set forth at 10 C.F.R. Part 766. Pursuant to the regulations, a domestic utility that objects to the OEM's determination of its D&D Fund assessment may file an appeal with the DOE's Office of Hearings and Appeals (OHA). 10 C.F.R. § 766.104(d). Thus far, the OHA has issued a number of decisions with respect to such appeals. See PSI Energy, Inc., 6 Fed. Energy Guidelines ¶ 80, 165 (1996); Long Island Lighting Co., 25 DOE ¶ 80,146 (1995).

II. Analysis

The present case involves a domestic utility, Niagara, that purchased SWUs from the DOE. On July 7, 1994, DOE sent a letter to all nuclear utilities, including Niagara, requesting that the utilities submit documentation on settlements with their fuel fabricators. See Letter from Joe W. Parks, D&D Fund Reconciliation Officer, DOE, to William R. D'Angelo, Supervisor-Fuels, Niagara Mohawk Power Corporation (July 7, 1994). In an August 18, 1994 letter from DOE, DOE clarified this request by stating that "if the settlement resulted from an overdelivery of SWU to GE, the amount of overdelivery would be considered a sale of SWUs to GE and, . . . would be deducted from the SWUs purchased from DOE in that year." Appeal at 1 and 2.

On September 23, 1994, Niagara responded to DOE's July 7 letter by providing a summary of the settlements it made with its fuel fabricator, GE. In this letter, Niagara indicated that it purchased and sold SWUs on Reloads 1 through 12 for the Nine Mile Point 1 Reactor and Reloads 1 and 2 for the Nine Mile Point 2 Reactor. Niagara identified fourteen cash settlements and a single credit settlement of 6,547 SWUs. See Letter from David A. Brilbeck, Niagara Mohawk Power Corporation, to Ed Marshall, DOE (September 23, 1994). The credit settlement was made on Reload 12 for the Nine Mile Point 1 Reactor which took place in February 1992. GE applied the credit to Reload 13 which did not take place until December 1994. Id.

On November 21, 1994, DOE responded to Niagara's September 23 letter and agreed to reduce Niagara's Special Assessment by 1,427 SWUs to reflect more accurately the net difference resulting from the cash settlements received from GE. However, DOE indicated that it does not agree that the 6,547 SWU credit carried over from Reload 12 of the Nine Mile Point 1 Reactor to Reload 13 should be deducted from the SWU used to determine Niagara's assessment. Letter from Ann M. Lovell, Office of the Assistant Manager for Enrichment Facilities to David Brilbeck, Niagara Mohawk Power Corporation (November 21, 1994). Accordingly, the OEM concluded that it "only considered as credits or debits transactions in which monetary settlements were made." Id. The OEM further concluded that Niagara should be held responsible for a D&D Fund assessment based on 1,993,362.583 SWU which includes the 6,547 SWU being carried over as a credit until Niagara purchased Reload 13.

Niagara, contending that it is not subject to a special assessment for the 6,547 SWU credit, filed the present Appeal on January 31, 1995. Comments on Niagara's Appeal were submitted by the OEM on March 31, 1995. On June 2, 1995, Niagara submitted a response to OEM's comments.

Niagara argues that it is not subject to the special assessment for the 6,547 SWU credit because: (1) it is "inconsistent with EPACT and erroneous as a matter of law;" (2) DOE has not provided Niagara with a basis for its determination; and (3) DOE's "failure to provide reasons for its rejection of Niagara's proposed adjustment constitutes a denial of due process." Niagara's Appeal at 3-6. After considering Niagara's arguments and reviewing the record in this case, we find that Niagara was properly assessed for the 6,547 SWU credit.

A. The Energy Policy Act of 1992

We turn first to Niagara's claim that DOE's rejection of its proposed adjustment to a special assessment is inconsistent with EPACT and erroneous as a matter of law. Niagara focuses this argument on Section 1802(c)(2) of EPACT, which states the following:

A utility shall not be considered to have purchased a separative work unit from the Department if such separative work unit was purchased by the utility, but sold to another source (emphasis added).

42 U.S.C. § 2297g-1(c)(2).

Niagara contends that DOE has chosen to give the word "sold" a restrictive meaning beyond that contemplated in the statute by concluding that a transaction constitutes a sale only if the consideration for the transfer of SWU is money. Niagara's Appeal at 4. Niagara further states that Congress clearly established that its view that the allocation of costs of cleaning up the enrichment plants "should be based on the benefits received from the enrichment program and not on some artificial methodology that focuses on the type of consideration given in exchange for the SWU." Id. It is Niagara's contention that it receives no more benefit from SWU that are transferred to its fabricator for a future credit than it does for SWU transferred to its fabricator for cash. Id.

As an initial matter, Niagara is correct that it was Congress' intention that payments made to the D&D Fund should be based on the benefits received. As stated above, the legislative history indicates that Congress intended that the D&D Fund be financed by those entities that had directly benefited from the operation of the plants, and that the allocation of assessments be apportioned in accordance with the degree to which those entities had benefited from the uranium enrichment program. H. Rep. No. 474, 102nd. Cong., 2d sess.144, reprinted in 1992 U.S. Code Cong. & Admin. News 1954, 1967. Accordingly, the statute mandates contributions to the D&D Fund from both the governmental entities and the domestic utilities that took delivery of enriched uranium from the plants. Furthermore, the statute mandates that each domestic utility's D&D Fund assessment be based upon the total number of SWUs that it purchased from the DOE prior to October 24, 1992.

In the present case, DOE responds that Niagara has not provided any documentation that shows that it sold the 6,547 SWUs prior to October 24, 1992. As mentioned above, Niagara received a SWU credit for Reload 12 in February 1992. Unlike the fourteen cash settlements made between Niagara and its fabricator, GE, DOE argues that Niagara did not transfer title to the 6,547 SWUs during the time they were recorded as credits by GE nor did it receive any consideration for its credit settlement. Response of the Department of Energy at 7. Accordingly, the OEM contends that it has properly determined Niagara's Special Assessment. Id.

Our analysis focuses on the Act, pursuant to which DOE-produced SWUs purchased by a utility are subject to the assessment unless they are "sold." The legislative history of EPACT is silent with respect to how the word "sold" in the statute should be interpreted. Therefore, according to statutory rules of construction, we must look to the plain, common meaning of the word. See McNally v. United States, 483 U.S. 350, 358-59 (1987) (interpreting commonly used phrase according to "common understanding" where Congress has "not indicated" an intent to depart from it). Indeed, the very fact that Congress did not define the word "sold" in EPACT is evidence that Congress intended a "common sense" interpretation of its meaning. See Indiana Michigan Power Company, et al. v. Department of Energy, No. 95-1279 (D.C. Cir. July 23, 1996). In this regard, it is appropriate to rely on the commonly accepted Uniform Commercial Code definition that a "sale" requires the passage of title. U.C.C. § 2-106(1) (1977). Therefore, the main issue presented in this case is whether Niagara transferred title to GE for the 6,547 SWUs. After a review of the record in this case, we are convinced that Niagara did not transfer title for the SWUs at issue. See Carolina Power & Light Company, 26 DOE ¶80,111 (1996) (Carolina).

Under Niagara's SWU credit transaction, unlike its cash transactions where full and absolute rights were relinquished, Niagara maintained legal title to the enriched uranium and associated SWU and GE promised to credit Niagara with the same quantity of material when it fabricated the next reload. No sale occurred through this transaction because title to the SWUs did not pass to GE. In fact, nothing resembling a sale occurred. It is the legal form the parties gave this transaction, a SWU credit for a future reload, that prevents Niagara under the Act and the Part 766 regulations, which require a "sale," from deducting the SWUs associated with the credit settlement from the number of SWUs purchased from DOE. We must keep in mind the DOE regulations, which provide that the utility that purchased SWUs from the DOE is subject to an assessment based on those SWUs unless the utility demonstrates that it "sold" those SWUs to another party within the meaning of the Act. In order to demonstrate that it "sold" the SWUs to another Niagara must submit "reliable and adequately probative records." 10 C.F. R. § 766.104(c); Carolina, 26 DOE ¶80,111 at 80,535 (1996).

Niagara has provided us with a copy of the relevant portions of the contract between itself and GE which provided for the reimbursement to Niagara of excess SWUs either through a cash payment or "through provision of a quantity of natural or enriched uranium, as appropriate, equal to the value to such variance; provided such value is greater than one hundred dollars ($100)." See Letter from Gary D. Wilson, Chief Counsel, Niagara, to OHA (July 29, 1996). Niagara has indicated that pursuant to this provision of its contract, GE requested and Niagara agreed for GE to issue "a credit for future supply of material in lieu of a cash payment." See June 2, 1995 Reply to Office of Environmental Management Response. However, based on our review, there is no language in these portions of the contract concerning the transfer of title to these SWUs to GE, or language which indicates that Niagara agrees to relinquish its full and absolute rights to these excess SWUs. Thus, the contract does not support the conclusion that Niagara transferred title to GE, and Niagara has produced no other documents, e.g., general accounting records or tax documents, to demonstrate that title passed to GE with respect to the 6,547 SWUs. Thus, Niagara has failed to submit "reliable and adequately probative records" demonstrating that it sold 6,547 SWUs to GE.

This conclusion is consistent with the Act. To permit the characterization of the 6,547 SWUs at issue as "sold" would defeat the purpose of the Act, which was to allocate responsibility for contributions based on the benefits received from the DOE's uranium enrichment program. The provision for the deduction for SWUs sold to another party was intended to excuse a utility from an assessment for separative work from which it did not benefit. We believe Niagara benefitted from the 6,547 SWU at issue, and Niagara has submitted no evidence to the contrary. We therefore must agree with the OEM and find that Niagara was properly assessed for these 6,547 SWUs.

B. DOE's Basis for Its Determination

Niagara also contends that it should not be assessed for the 6,547 SWU credit because DOE failed to provide a rational basis for its findings, and therefore DOE's determination is arbitrary and capricious. The arbitrary and capricious standard for review of agency actions is narrow and is invoked only when an agency's decision is not supported on any rational basis. See Moore v. Madigan, 789 F.Supp. 1479 (W.D. Mo. 1992). In this case, we agree that OEM did not initially provide Niagara with a detailed explanation of the reasons for its determination regarding the distinction between cash settlements with GE and SWU credits redeemable in future fuel deliveries. However, consistent with the language of the statute, OEM did notify Niagara that it must produce documentation that it actually sold the 6,547 SWUs to GE. As we have stated above, Niagara failed to demonstrate that it "sold" the 6,547 SWUs to GE by submitting reliable and adequately probative records. In view of Niagara's failure to support its contention regarding the purported sale of these SWUs to GE, we find that OEM's determination did indeed have a rational basis. We therefore reject Niagara's claim that DOE's decision to assess it for those 6,547 SWUs was arbitrary and capricious.

In addition, Niagara argues that the OEM's failure to provide reasons for its rejection of Niagara's assessment adjustment constitutes a denial of due process. The record is clear that Niagara has not been denied due process. OEM properly notified Niagara that it would focus on passage of title to the relevant SWUs. Moreover, it has been given an opportunity to be heard by filing its Appeal of the OEM's determination with the Office of Hearings and Appeals. 10 C.F.R. § 766.104(d). Niagara has been given several opportunities to come forward with evidence to support its claim that it sold the 6,547 SWUs to GE. Furthermore, the record now contains a clearer explanation of the reasons why DOE did not reduce Niagara's assessment by the 6,547 SWUs at issue. For these reasons, we find this argument to be without merit.

III. Conclusion

For the reasons set forth above, we find that the OEM properly assessed Niagara Mohawk Power Corporation for 6,547 SWUs. Accordingly, we have determined that Niagara Mohawk Power Corporation's Appeal shall be denied.

It Is Therefore Ordered That:

(1) The Appeal filed by the Niagara Mohawk Power Corporation (Case No. VEA-0004) on January 31, 1995, is hereby denied.

(2) This is a Final Order of the Department of Energy

George B. Breznay

Director

Office of Hearings and Appeals

Date: March 17, 1997

(1) In this decision we make frequent reference to the DOE's uranium enrichment program, which prior to the DOE's creation in 1977 had been conducted by its predecessors, the Energy Research and Development Administration, which administered the program from 1974 through 1977, and the Atomic Energy Commission, which administered the program from its inception until 1974. In 1993, Congress created the United States Enrichment Services Corporation and transferred administration of the uranium enrichment program to it. Unless stated otherwise, when we refer to the DOE's uranium enrichment program, we are also referring to the program as administered by DOE's predecessors.

(2) The D&D Fund is to consist of annual deposits of $480 million per fiscal year, to be adjusted for inflation on an annual basis.

(3) Collection of the special assessment is authorized for either a period of fifteen years or until $2.25 billion (adjusted for inflation) has been collected, whichever occurs first.