15 May 2006
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[Federal Register: May 15, 2006 (Volume 71, Number 93)]
[Rules and Regulations]
[Page 28199-28225]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15my06-12]
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Part V
Department of Energy
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10 CFR Part 950
Standby Support for Certain Nuclear Plant Delays; Interim Rule
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DEPARTMENT OF ENERGY
10 CFR Part 950
RIN 1901-AB17
Standby Support for Certain Nuclear Plant Delays
AGENCY: Department of Energy.
ACTION: Interim final rule and request for comment.
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SUMMARY: The Department of Energy (Department) is promulgating interim
final regulations to implement section 638 of the Energy Policy Act of
2005, which authorizes the Secretary of Energy to enter into Standby
Support Contracts with sponsors of advanced nuclear power facilities to
provide risk insurance for certain delays attributed to the regulatory
process or litigation.
DATES: Effective Date: This interim final rule is effective June 14,
2006, except for Sec. Sec. 950.10(b), 950.12(a) and 950.23 which
contain information collection requirements that have not been approved
by the Office of Management and Budget (OMB). The Department of Energy
will publish a document in the Federal Register announcing the
effective date of those sections.
Comment Date: Written comments must be received by June 14, 2006.
Comments may be mailed to the address given in the ADDRESSES section
below. Comments also may be submitted electronically by e-mailing them
to: StandbySupport@Nuclear.Energy.gov. We note that e-mail submissions
will avoid delay currently associated with security screening of U.S.
Postal Service mail.
ADDRESSES: You may submit written comments, identified by RIN Number
1901-AB17, by any of the following methods:
1. E-mail to StandbySupport@Nuclear.Energy.gov. Include RIN 1901-
AB17 and ``Interim Final Rule Comments'' in the subject line of the e-
mail. Please include the full body of your comments in the text of the
message or an attachment.
2. Federal eRulemaking Portal: http://www.regulations.gov. Follow
the instructions for submitting comments.
3. Mail: Address the comments to Kenneth Chuck Wade, Office of
Nuclear Energy, (NE-30) U.S. Department of Energy, Forrestal Building,
1000 Independence Avenue, SW, Washington, DC 20585. The Department
requires, in hard copy, a signed original and three copies of all
comments. Due to potential delays in the Department's receipt and
processing of mail sent through the U.S. Postal Service, we encourage
commenters to submit comments electronically to ensure timely receipt.
FOR FURTHER INFORMATION CONTACT: Kenneth Chuck Wade, Project Manager,
Office of Nuclear Energy, NE-30, U.S. Department of Energy, 1000
Independence Avenue, SW., Washington, DC 20585. (301) 903-6509 or
Marvin Shaw, Attorney-Advisor, U.S. Department of Energy, Office of the
General Counsel, GC-52, 1000 Independence Avenue, SW., Washington, DC
20585. (202) 586-2906.
SUPPLEMENTARY INFORMATION:
I. Section 638 of the Energy Policy Act of 2005
II. Rulemaking History
III. Interim Final Rule
A. Overview of the Rule
B. Section-By-Section Analysis
IV. Regulatory Review Requirements
A. Review Under Executive Order 12866
B. Review Under Executive Order 12988
C. Review Under Executive Order 13132
D. Review Under Executive Order 13175
E. Review Under the Regulatory Flexibility Act
F. Review Under the Paperwork Reduction Act
G. Review Under the National Environmental Policy Act
H. Review Under the Unfunded Mandates Reform Act
I. Review Under Executive Order 13211
J. Review Under the Treasury and General Government
Appropriations Act 1999
K. Review Under the Treasury and General Government
Appropriations Act 2001
L. Congressional Notification
V. Approval of the Office of Secretary
I. Section 638 of the Energy Policy Act of 2005
On August 8, 2005, President Bush signed into law the Energy Policy
Act of 2005 (the Act) (Pub. L. 109-58, 119 Stat. 594). Section 638 of
the Act addresses the President's proposal to reduce uncertainty in the
licensing of advanced nuclear facilities. (42 U.S.C. 16014). The
purpose of section 638 is to facilitate the construction and full power
operation of new advanced nuclear facilities by providing risk
insurance for such projects. Such insurance is intended to reduce
financial disincentives and uncertainties for sponsors that are beyond
their control in order to encourage investment in the construction of
new advanced nuclear facilities. By providing insurance to cover
certain of these risks, the Federal government can reduce the financial
risk to project sponsors that invest in advanced nuclear facilities
that the Administration and Congress believe are necessary to promote a
more diverse and secure supply of energy for the Nation.
Section 638 contains a number of provisions to establish the
Standby Support Program (the ``Program''). These provisions are related
to (1) the Secretary's authority to enter into contracts and details
related to such contracts, (2) the establishment of funding accounts,
(3) the funding of these accounts, (4) the types of regulatory and
litigation delays Congress determined were to be covered by the
Program, (6) the types of delays that Congress determined were to be
excluded from coverage, (7) the amount of coverage for up to six
advanced nuclear facilities with a distinction made for the initial two
reactors and the subsequent four reactors, (8) the types of costs to be
covered by the Program, and (9) reporting requirements by the Nuclear
Regulatory Commission (``Commission'').
Section 638(g) provides for regulations necessary to carry out
section 638. This section directs the Secretary to issue an interim
final rule within 270 days after enactment of the Act and to adopt
final regulations within one year after enactment.
II. Rulemaking History
Prior to developing and issuing this interim final rule, the
Department issued a Notice of Inquiry (NOI) and request for comments to
provide an opportunity for public input. (70 FR 71107, November 25,
2005) The NOI discussed the major topics related to section 638,
including the types of sponsors and facilities covered, the Secretary's
contracting authority, appropriations and funding accounts, covered and
excluded delays, covered costs and requirements, and disagreements and
dispute resolution. For some topics, this NOI indicated implementation
approaches and interpretations under consideration by the Department.
The NOI included a general request for comments and identified certain
topics on which the Department specifically requested comments. Among
other matters, the Department sought comment about how the statute
could be implemented most effectively to achieve the objective of
reducing the risks associated with certain delays in the advanced
nuclear facility licensing process and thereby facilitating the
expeditious construction and operation of new advanced nuclear
facilities.
On December 15, 2005, the Department sponsored a public workshop to
allow the public to provide oral comments about section 638 and the
NOI. Over 60 people attended the public workshop. A transcript of the
[[Page 28201]]
proceedings is posted at http://www.nuclear.gov.
The Department received nine written comments on the NOI, including
comments from the Commission, a nuclear energy trade association,
several utilities and other potential sponsors, an economic consulting
firm, and a public advocacy group. In addition to responding to the
questions posed in the NOI, the commenters provided their general views
on implementing section 638.
III. Interim Final Rule
A. Overview of the Rule
The interim final rule establishes a new part 950 in Title 10 of
the Code of Federal Regulations (CFR). The rule sets forth the
procedures, requirements and limitations for the award and
administration of Standby Support Contracts indemnifying a project
sponsor for certain costs that may be incurred due to a delay in full
power operation of the sponsor's advanced nuclear facility.
Subpart A sets forth the purpose, scope and applicability, and
definitions of the regulation.
Subpart B sets forth provisions addressing the Standby Support
Contract process, including the process whereby a sponsor and the
Program Administrator would enter into a Conditional Agreement prior to
a Standby Support Contract, obligations of a sponsor prior to entering
into a Conditional Agreement, the provisions of that Conditional
Agreement, conditions precedent that a sponsor must satisfy prior to
entering into a Standby Support Contract, funding issues related to the
Standby Support Program, reconciliation of costs, and termination of a
Conditional Agreement. Subpart B also addresses the provisions for each
Standby Support Contract. These include general contracts terms,
including the contract's purpose, the advanced nuclear facility that is
the subject of the contract, the sponsor's contribution, the maximum
aggregate compensation, the term of the contract, cancellation
provisions, termination by sponsor, assignment, claims administration,
and dispute resolution; and specific contract terms that implement
section 638's provisions related to covered events, exclusions, covered
delay, and covered costs.
Subpart C sets forth the claims administration process, including
the submission of claims and payment of covered costs under a Standby
Support Contract. This subpart includes sections addressing
notification by a sponsor of a covered event, covered event
determinations made by the Department's Claims Administrator,
certification of covered costs by the sponsor, determination of covered
costs by the Claims Administrator, issuance of a Claim Determination of
a covered delay and covered costs by the Claims Administrator,
conditions for payment of covered costs, and adjustments for and
payment of covered costs.
Subpart D sets forth provisions related to dispute resolution,
including disputes involving covered events and disputes involving
covered costs. In each case, subpart D provides a two-step process,
first requiring non-binding mediation and then binding arbitration, if
the parties cannot reach agreement.
Subpart E sets forth miscellaneous provisions about the
Department's authority to monitor and audit a sponsor's activities and
the public disclosure of information provided by a sponsor to the
Department.
B. Section-by-Section Analysis
Subpart A--General Provisions
Section 950.1 Purpose
The Department is adopting this interim final rule to provide risk
insurance to facilitate the construction and full power operation of
new advanced nuclear facilities. Section 638 provided for such
insurance to reduce the financial disincentives that make sponsors
reluctant to invest in construction of new advanced nuclear facilities,
including the risk that a facility may be constructed but may not
achieve full power operation in a timely manner.
In response to the NOI, commenters stated that there are additional
factors that the Department should consider in implementing the
statute. These include having well-defined regulations that are
sufficiently definite and realistic, protecting taxpayer funds from
being unreasonably allocated to the nuclear industry, and ensuring that
the regulations do not undermine the government's traditional role of
ensuring the safe design and operation of nuclear facilities.
The Department agrees with these general comments. Accordingly, the
Department has implemented section 638 in a transparent manner that is
sufficiently detailed, workable, and fair. This regulatory framework
will provide sponsors risk insurance for certain regulatory and
litigation delays, while protecting taxpayer funds by having sponsors
contribute a portion of the premium for this insurance. Further, the
Department intends that this insurance reflects the magnitude of the
risk and the extent of the protection provided. The Department also is
mindful that in facilitating the construction and full power operation
of advanced nuclear facilities, its efforts should not undermine the
responsibility of government agencies to address safety concerns during
the permitting and licensing processes for such new facilities.
In the NOI, the Department requested comment on whether a sponsor
should be eligible to participate in the Standby Support Program as
well as any loan guarantee program for which the sponsor may be
eligible pursuant to Title XVII of the Act, or the production tax
credits for advanced nuclear facilities in section 1306 of the Act.
(Subsequent to the NOI, the Department has become aware of other
Federal programs such as the Rural Utility Service that may provide
subsidies to a sponsor. Accordingly, any consideration of multiple
subsidies would include such additional programs). The Department
requests comment on whether sponsors should be eligible to participate
in multiple loan guarantee or other subsidy programs and, if so, on
whether clarification is needed on issues such as the amounts an entity
can receive under more than one Federal program.
Section 950.3 Definitions
Certain definitions set forth in the Act are included in the
interim final rule verbatim from the Act, and are repeated in the rule
for ease of reference. In several areas, the interim final rule
clarifies or further defines terms in the statutory definitions. In
addition, the interim final rule defines certain terms that are either
referenced in section 638 but not defined or are in addition to terms
in the statute. The following provides an explanation of certain key
definitions that may benefit from additional description and
clarification here. Other terms are discussed in the section discussing
subpart B.
Advanced nuclear facility. Several commenters suggested that
further clarification of the definition of advanced nuclear facility is
warranted because it relates to the issue of project eligibility.
Commenters also specifically requested further clarification of the
phrase ``substantially similar'' in the statutory definition of the
term advanced nuclear facility. One commenter suggested that the
definition include the concept that no reactor design that is certified
by the Commission after December 31, 1993 should be considered
``substantially similar'' to a design certified by the Commission prior
to that date, and that the rule should not include a ``no later
[[Page 28202]]
than'' date for design certification, thereby providing sponsors the
ability to proceed with design certification and combined licensing on
a parallel process.
The definition of advanced nuclear facility in the interim final
rule is taken verbatim from the Act. After reviewing current reactor
designs, the Department concludes that there are likely no reactor
designs that have been approved after December 31, 1993 that are
``substantially similar'' to designs that were certified before that
date for which potential project sponsors have suggested interest. The
Westinghouse System 80-plus design is the only reactor design which is
somewhat similar to a pre-1993 design, called the System 80. However,
there are enough differences between the two designs to indicate that
they should not be considered substantially similar. Based on the
Department's review, any reactor design that obtains design
certification by the Commission after December 31, 1993 likely will not
be considered substantially similar. In particular, appendices to 10
CFR part 52 (Appendix A, ``Design Certification Rule for the U.S.
Advanced Boiling Water Reactor, Appendix B, ``Design Certification Rule
for the System 80+ Design,'' and Appendix C, ``Design Certification
Rule for the AP600 Design'') specify reactor designs that have received
certification by the Commission. Nevertheless, the Department reserves
the right to make a final determination if a project sponsor chooses a
design that the Department has not anticipated. This interpretation
meets the statute's intent to promote advanced nuclear reactor designs
by eliminating from eligibility a nuclear reactor design whose major
elements had been reviewed and approved by the Commission prior to
December 31, 1993.
In recognition of the fact that some sponsors may pursue design
certification in tandem with the combined license process, the
Department has decided not to impose a ``no later than'' date for
Commission design, review, and approval. However, at the time a sponsor
has satisfied the other conditions precedent to enter into a Standby
Support Contract with the Department, including obtaining a combined
license and commences construction, a determination would then be made
as to whether the sponsor's reactor design was approved after December
31, 1993 and is not ``substantially similar'' to a reactor design of
comparable capacity that was approved on or before that date.
Commencement of construction. Several commenters also requested
that the Department define the phrase ``commencement of construction''
in the regulations, and suggested an appropriate definition would
include the pouring of safety-related concrete. It was noted that this
action by a sponsor was an accurate and clear indicator of a ``real''
project, with a high likelihood of achieving commercial operation,
thereby satisfying the Act's statutory intent. Clarity on this topic is
particularly important since a sponsor is eligible for a Standby
Support Contract only if, in addition to receiving a combined license,
the sponsor has commenced construction. Commencement of construction is
defined to mean the point in time when a sponsor initiates the pouring
of safety-related concrete for the reactor building. This definition
represents a clear and unambiguous event, and an event that denotes a
firm commitment to nuclear plant construction in accord with the
purposes of the Act.
Combined license. One commenter suggests that the term ``combined
license'' not be altered since it was established by the Commission and
should therefore be identical to that in 10 CFR part 52. The definition
of combined license in the interim final rule is taken verbatim from
section 638 of the Act. The Department notes that the definition of
combined license is somewhat different in the Commission's licensing
regulations, 10 CFR part 52, although the Department believes that this
difference is not significant. Nevertheless, to clarify, the Department
interprets the definition of ``combined license'' in the Act and part
950 as having the same meaning as that term is given in the Commission
regulations at 10 CFR 52.3.
Sponsor. The Department sought comment in the NOI on the definition
of sponsor. Many commenters agreed a definition was necessary because
it addresses the question of contract eligibility. In particular,
commenters requested further clarification of the phrase ``applied
for'' in the definition of sponsor. They suggested that an appropriate
clarification would indicate that ``applied for'' meant that a
sponsor's application was accepted as sufficient for docketing by the
Commission, and not merely submitted to the Commission.
The Department agrees that clarification of the phrase ``applied
for'' is warranted, and the clarification suggested by the commenters
is reasonable and appropriate. The intent of the Act is to encourage
the development of advanced nuclear facilities. An initial and
essential step toward that goal is the submission of a combined license
application to the Commission. While the Department fully supports this
goal, it is also important that the Department utilize its limited
resources to enter into Conditional Agreements only with those entities
that have provided the Commission with an application of sufficient
quality to be docketed by the Commission. Under the Commission's
regulations, any person may submit an application for a combined
license. However, the Commission will accept such an application for
docketing only after it has conducted a preliminary review to determine
whether the application is complete and contains sufficient information
to support the Commission's detailed technical review. The Department
believes it is appropriate to clarify that a sponsor is any person that
has ``applied for'' a combined license and such application by the
person has been docketed by the Commission. The Department is aware of
the possibility that one entity may be receiving payments for a covered
event, but that the debt obligation may actually be held by an entity
other than the sponsor. The Department emphasizes that only a sponsor
is eligible to enter a Standby Support Contract and thus be eligible
for covered costs under the Standby Support Program. If necessary, the
Department may include provisions in the Standby Support Contract to
ensure that only a sponsor is eligible for payments under the Program.
Subpart B--Standby Support Contract Process
Section 950.10 Conditional Agreement
Purpose
Section 638(b) authorizes the Secretary to enter into Standby
Support Contracts with sponsors of advanced nuclear facilities. That
paragraph directs that sufficient funding be placed in designated
Departmental accounts before the contracts are executed. In the NOI,
the Department noted that the Secretary has considerable discretion as
to the timing and method of entering into Standby Support Contracts.
The NOI then stated the Department's tentative goal of permitting
sponsors to enter into Standby Support Contracts as early as
practicable, while recognizing that entering into a contract with a
sponsor before the sponsor receives a combined license and commences
construction may raise implementation issues. Consequently, the NOI
stated that the Department should consider entering into ``binding
agreements'' with sponsors that submit combined license
[[Page 28203]]
applications that are docketed by the Commission. Although the
Conditional Agreements between the Department and project sponsors
would not themselves be Standby Support Contracts, they would commit
the Department to enter into Standby Support Contracts with the first 6
project sponsors who have met the requirements of the conditional
agreements and section 638 (including the provision of adequate
budgetary resources) have been satisfied.
Commenters generally agreed with the Department's discussion of the
benefits of a two-step approach in which an agreement could be
converted into a Standby Support Contract when a combined license is
issued by the Commission and construction commences, and the
requirements of the statute, including adequate budgetary resources,
are otherwise satisfied. Industry commenters noted that long before
construction, a project developer would need to obtain approval from
its Board of Directors and obtain construction financing. In contrast,
one commenter stated that the Department should not enter into binding
agreements, which it stated was inconsistent with section 638's
provision that the Secretary ``shall not enter into a contract unless
sufficient funds are already in the Standby Support Program Account to
cover the facility's debt costs.'' In addition to these general
comments about a two-step implementation process, commenters provided
additional detailed comments which will be addressed below.
The Department concludes that it is consistent with the provisions
in section 638 and the statutory goal of facilitating the construction
and operation of advanced nuclear facilities to implement a two-step
process involving a Conditional Agreement, which then can, for the
first six qualifying sponsors, be converted into a Standby Support
Contract at a later date, if the sponsor meets certain conditions and
budgeting resources are provided. Specifically, the Department has
significant discretion to establish the procedures needed to manage the
Standby Support Program, provided that they are consistent with section
638. Such a two-step implementation process allows the Department and
potential sponsors to manage the difficult timing issues inherent in
both the federal appropriations process and business concerns in
planning and financing a multi-billion dollar advanced nuclear
facility. In making this determination to require a Conditional
Agreement, the Department reviewed other similar federal programs,
including the Department of Transportation's Transportation
Infrastructure Finance and Innovation Act (TIFIA) program, which
provides loans for surface transportation projects. (See 64 FR 29742,
June 2, 1999.) The TIFIA program first requires a potential recipient
to enter into a ``conditional term sheet,'' which commits the
Department of Transportation to provide federal assistance to a project
at a future point in time upon satisfaction of specified conditions.
The Conditional Agreement is similar in concept to the TIFIA program.
Unlike TIFIA (under which funds are obligated at this ``commitment''
point), no funds would be obligated when the Conditional Agreement is
signed. Rather, a Standby Support Contract would be executed only after
sufficient budgetary resources are available.
Eligibility
In the NOI, the Department discussed tying the implementation of
the Standby Support Program to the Commission's process for issuing a
combined license set forth in 10 CFR part 52. Specifically, the NOI
stated that the Department should be able to enter into an initial
agreement with a sponsor that submits a combined license application at
any time on or after such application is submitted. Commenters,
including the Commission, generally agreed with tying the initial
agreement to the Commission's analysis of combined license
applications. Accordingly, the Department in Sec. 950.10(b) of the
interim final rule specifies that a sponsor is eligible to enter into a
Conditional Agreement with the Program Administrator after the sponsor
has submitted a combined license application and the Commission has
docketed the combined license application, and after the sponsor has
submitted information to the Department and the Program Administrator
has determined that information to be complete, accurate and the
Conditional Agreement is consistent with applicable statutes and
regulations. (The Department notes that in today's interim final rule,
the notice distinguishes the terms ``Program Administrator'' and
``Department.'' ``Program Administrator'' is used to identify
situations involving the execution of a Conditional Agreement or a
Standby Support Contract; whereas, ``Department'' is used to identify
general statements of policy and situations involving more general
matters such as funding and appropriations). The Department notes that
it costs millions of dollars to prepare an application for a combined
license and that the Commission has the discretion to reject any such
application that is incomplete. The Department further notes that
section 638 provides the Secretary with broad discretion to issue
regulations implementing the Standby Support Program. Accordingly, the
Department has determined that it is appropriate to allow a sponsor to
enter into a Conditional Agreement at any time on or after the
Commission dockets a combined license application, because the sponsor
has shown sufficient seriousness and its combined license application
is of sufficient quality.
Section 950.10(b) further indicates that a sponsor may enter into a
Conditional Agreement from the time the Commission dockets its combined
license application but before the Commission has issued the license.
The Department notes that it will likely take several years for the
Commission to issue the combined license, a time period which the
Department has determined is sufficient for a sponsor to decide whether
it wants to participate in the Standby Support Program.
In section 950.10(b), the Department further requires a sponsor
that plans to enter into a Conditional Agreement to provide certain
information including: (1) An electronic copy of the combined license
application docketed by the Commission pursuant to 10 CFR part 52; and
if applicable, an electronic copy of the early site permit or
environmental report referenced or included with the sponsor's combined
license application; (2) a summary schedule identifying the projected
dates of construction, testing and full power operation; (3) a detailed
plan of intended financing for the project including the credit
structure and all sources and uses of funds for the project, and the
projected cash flows for all debt obligations of the advanced nuclear
facility which would be covered under the Standby Support Contract; (4)
the sponsor's estimate of the amount and timing of the Standby Support
payments for debt service under covered delays; and (5) the estimated
dollar amount to be allocated to the sponsor's covered costs for
principal or interest on the debt obligation of the advanced nuclear
facility and for incremental costs, including whether these amounts
would be different if the advanced nuclear facility is one of the
initial two reactors or one of the subsequent four reactors.
The Department notes that this information is needed to determine
the score under the Federal Credit Reform Act of 1990 (FCRA). This
documentation requirement should pose only a nominal burden on a
sponsor
[[Page 28204]]
because the sponsor likely has this information readily available in
the normal course of obtaining financing for the advanced nuclear
facility and Commission approval for a combined license. The Department
will not use this documentation to select among potential sponsors.
Rather, the actual awarding of a Standby Support Contract is based on
fulfillment of the requirements and conditions in the Conditional
Agreement, including the Commission's issuing of a combined license and
the sponsor's commencement of construction (i.e., the pouring of
safety-related concrete for the reactor building). This documentation
will allow the Department's representative, the Program Administrator,
to enter into a Conditional Agreement and to monitor the progress of
various competing sponsors, prior to entering into Standby Support
Contracts. This relatively modest information requirement is in lieu of
an application process similar to those required by the Department of
Transportation's Transportation Infrastructure Finance and Innovation
Act (TIFIA) program or the Overseas Private Investment Corporation
(OPIC). For these reasons, the Department generally agrees with the
commenters who, in response to the NOI, noted that it would be
appropriate for the Department to request the combined license
application in lieu of a separate application to the Department to be
eligible for a Standby Support Contract.
In section 950.10(c), the Department sets forth the bases upon
which it will determine whether to enter into a Conditional Agreement.
This determination will be based on a review of the information
provided by the sponsor under Sec. 950.10(b) to determine eligibility
for a Conditional Agreement, and the accuracy and completeness of the
information provided. The Department also will determine whether the
Conditional Agreement may be executed consistent with applicable
statutes or regulations, including the National Environmental Policy
Act (NEPA). The Department anticipates that its environmental review
under NEPA for the Conditional Agreement or Standby Support Contract
would acknowledge or be based upon the NEPA review conducted by the
Commission in relation to its review and approval of the sponsor's
combined license application.
Section 950.11 Terms and Conditions of the Conditional Agreement
General
Section 950.11(a) requires that the Conditional Agreement include a
provision requiring the Program Administrator and the sponsor to enter
into a Standby Support Contract, provided that a sponsor is one of the
first six sponsors to fulfill the conditions precedent to a contract,
and subject to certain statutory funding requirements and limitations,
which are set forth in Sec. 950.12, and any other applicable
contractual, statutory and regulatory requirements. Upon a satisfaction
of these conditions precedent, the Program Administrator will enter
into a Standby Support Contract with the first six sponsors. Imposing
such requirements is consistent with the goal of section 638 which is
for the Department to enter into such a contract to facilitate the
construction and full power operation of advanced nuclear facilities.
This approach strikes a balance between two different concerns
expressed by commenters. Most industry commenters stated that the
``binding'' agreement should be binding on the Department without
conditions, not be contingent on subsequent appropriations, and be
subject to specific performance. Other commenters stated that it was
inappropriate for the Department to needlessly commit itself to such
contracts. The Department believes that given the statutory
constraints, a sponsor has as much certainty as possible that it can
rely on the Conditional Agreement in which the Program Administrator
agrees to enter into a Standby Support Contract, provided the critical
regulatory and statutory conditions precedent are met. The Department
further believes that it would be imprudent to commit the Secretary and
future Secretaries to enter into a Standby Support Contract, absent any
of these conditions precedent. This commitment, of course, remains
subject to the normal budgetary process and does not (and could not)
obligate the President to seek, nor the Congress to provide, budget
authority for a Standby Support Contract.
In both the public workshop and in comments to the NOI, several
potential sponsors stated that it was critical to understand the
pricing of the loan costs related to the Program Account, prior to a
sponsor entering into such a Standby Support Contract. They noted that
the key to an effective Standby Support Program would be the premium
charged to cover the principal or interest of a loan. If the sponsor's
portion of the premium were too high, project sponsors likely would
elect not to use the coverage. Industry commenters recommended that the
loan costs be priced similarly to other insurance coverage provided by
OPIC and other private and public insurers against sovereign political
risk. These commenters stated that OPIC risk insurance carries an
annual premium of 40-70 basis points of the face value of coverage and
that the commercial insurance market carries an annual premium of 100
basis points. Accordingly, a $500 million Standby Support Contract
would cost a sponsor $5 million per year.
The Department agrees with the general proposition that a sponsor
should know its funding needs prior to execution of the Standby Support
Contract, and has included Sec. 950.11(b), (c) and (d) in the
regulations to reflect the need for specificity, transparency and
accuracy on funding of Standby Support Contracts prior to execution.
Nevertheless, the Department emphasizes that the sponsor's contribution
is based on the amount of appropriated funds, and that the cost
estimate for the Program Account will be calculated consistent with
FCRA.
The Department notes that there are significant differences between
the risks being covered by the Standby Support Program and those
covered by OPIC. OPIC and the traditional commercial insurance market
pool the risk faced by potential insured entities. For instance, OPIC
typically provides insurance coverage for scores of different projects
at a given time. Accordingly, by distributing the risk among many
projects, the insurer--whether OPIC or a commercial insurer--spreads
the risk among many projects. OPIC uses a risk management strategy that
diversifies risk based on sector and geographic location. Such risk
diversification is not possible in the Standby Support Program.
Moreover, the average size of an individual liability is smaller for an
OPIC insured policy than for Standby Support, allowing OPIC to have
greater risk diversification for an equal amount of underwritten
policy.
In response to the NOI and at the public workshop, several
potential sponsors indicated little interest in obtaining coverage for
incremental costs. Given the differences between the Program Account
and the Grant Account, the Department believes that it is reasonable to
expect that the amount of funding a sponsor would be willing to provide
for the Grant Account, if it decides to obtain coverage for incremental
costs, would be less than for the Program Account. As with the
[[Page 28205]]
Program Account, the sponsor and the Department will be required to
indicate the anticipated amounts each would expect to contribute to the
Grant Account. For each account, the Department has no obligation to
make contributions in excess of any amounts appropriated for that
purpose.
Allocation of Coverage and Funding
Section 950.11(b) and (c) address the issues related to section
638(b)(2), which establishes a funding requirement that must be met
before the Program Administrator can enter into a Standby Support
Contract. To carry out these statutory provisions and depending on
whether the coverage is for one of the initial two or for the
subsequent four reactors, the Department requires in Sec. 950.11(b)
that the Conditional Agreement include a provision addressing how to
allocate the $500 million or the $250 million between the accounts. The
Department notes that there is a certain degree of uncertainty inherent
at the Conditional Agreement stage, given that this step precedes
entering into a Standby Support Contract possibly by several years and
that funding and appropriations issues likely will have not yet been
decided. Accordingly, the Department believes that it is sufficient at
the time of the Conditional Agreement to have the parties agree upon
the anticipated amounts for each account.
Section 950.11(c) specifically addresses the issue of how the
Standby Support Contracts will be funded. Section 638 mandates that
before entering into a Standby Support Contract, the Department
establish two separate accounts and have a specified amount of funds in
the relevant accounts before entering into a contract. The first
account is a ``Standby Support Program Account'' (``Program Account''),
and the second account is a ``Standby Support Grant Account'' (``Grant
Account''). Section 638 treats the funding requirements differently for
each account. Section 638(b)(2) specifies that consistent with the cost
of a loan guarantee under FCRA, the Program Account receives
appropriations or loan guarantee fees in an amount sufficient to cover
the loan costs in advance of the Standby Support contract; this may be
a combination of appropriated funds and loan guarantee fees from the
sponsor or other non-Federal source. The funds in the Program Account
must be in an amount sufficient to cover the loan costs for the
principal or interest on the debt obligation of the advanced nuclear
facility covered by a Standby Support Contract for the time period of
covered delay in full power operation, as described in section
638(d)(5)(A). Section 638(b)(2)(C)(ii) specifies that the Grant Account
must receive funds appropriated to the Secretary, funds paid to the
Secretary by the sponsor, or a combination of both appropriated funds
and sponsor payments. The funds in the Grant Account must be sufficient
to cover the incremental cost of replacement power the sponsor may need
to purchase to fulfill power supply contracts for the time period of
covered delay in full power operation, as described in section
638(d)(5)(B). (Section 638(c)(ii) refers to three different paragraphs
in paragraph (d)(5); however, only one of those referenced paragraphs,
(d)(5)(B), was enacted into law.) With respect to the Grant Account,
the Secretary's responsibility to pay covered costs is expressly
limited in section 638(d)(4) to the payment of those costs for which
the Secretary has received appropriations or payments from a non-
federal source in an amount sufficient to pay the covered costs.
Section 638 does not contain such a limitation with respect to the
Program Account. For either account, section 638(d)(4)(B) permits the
Secretary to receive and accept payments from any non-federal source.
With respect to the question of which party is responsible for
funding the Standby Support Contracts, Congress provided a flexible
mechanism for the parties to consider in structuring the contracts. In
general, section 638 allows for the Program Account and Grant Account
to be funded by contributions from government appropriations, the
sponsor, or a non-federal source; or a combination of these sources.
The Department has structured its regulations to reflect this statutory
intent. An explanation of the funding requirements for each account is
described below.
Pursuant to section 638, Sec. 950.11(c) requires that each
Conditional Agreement contain a provision that the Program Account or
the Grant Account be funded in advance of the Standby Support Contract.
The Program Account is required to be funded by appropriated funds that
are received by the Department, or a combination of appropriated funds
and loan guarantee fees that are in an amount equal to the loan costs
associated with the amount of principal or interest covered by the
available indemnification. Section 950.11(c)(1) further requires the
parties to specify in the Conditional Agreement the anticipated amount
or anticipated percentage of the total funding in the Program Account
to be contributed by appropriated funds to the Department, by the
sponsor or by a non-federal source. The purpose of this provision is to
obtain some specificity as to the anticipated funding responsibilities
of the Department and the sponsor, and thereby aid both the Department
and the sponsor in preparing for a Standby Support Contract in the
future.
Section 950.11(c)(2) requires each Conditional Agreement contain a
provision that the Grant Account be funded in an amount equal to the
amount of coverage allocated to cover incremental costs. Section
950.11(c)(2) further requires the parties to specify in the Conditional
Agreement the anticipated amount or anticipated percentage of the total
funding in the Grant Account to be contributed by appropriated funds to
the Department, by the sponsor, or by a non-federal source.
The similar language in Sec. 950.11(c)(1) and (2) reflects the
Department's understanding that funding for each account may come from
a combination of Department appropriations and contributions by the
sponsor or other non-federal source, and that these options should be
available for the parties to consider. The Department believes it is
reasonable and consistent with Congressional intent to maintain the
option that some or all of the funding may be provided by the sponsor,
while recognizing that the same option holds true for Congressional
appropriations.
For the Department, the actual funding contribution anticipated
under the Conditional Agreement is dependent on the extent to which
Congress appropriates funds for a particular Standby Support Contract.
For the sponsor, the actual funding contribution under the Conditional
Agreement is dependent upon how much the sponsor anticipates
contributing--which could be all, some or nothing--taking into account
the fact that the Department's contribution is subject to Congressional
appropriations. The Department believes such an approach is reasonable
since, while there is no guarantee as to what amount of funds, if any,
will be appropriated for funding either the Program or Grant Accounts
for a particular Standby Support Contract, it is likely that one of the
factors that will be considered in deciding whether to appropriate
funds will be the extent to which the sponsor provided funds. In that
regard, the Department would expect that sponsors would view funding
the Program Account similar to an insurance contract. That is, like an
insurance contract, the sponsor (insured) is responsible for paying the
insurance premium and the Department
[[Page 28206]]
(insurer) is responsible for paying the cost of any valid claims
covered by the insurance.
The most significant difference between funding the Program Account
and Grant Account is that only the Program Account is subject to the
FCRA. In section 638, Congress clearly directed that the funding in the
Program Account is to be the ``loan cost'' associated with the covered
costs for principal or interest on the debt obligation of the sponsor's
advanced nuclear facility, where loan cost has the same meaning as
``cost of a loan guarantee'' under FCRA. FCRA is a federal law designed
to improve the cost structure and budgetary basis of federal credit
programs. Under FCRA, the cost to the federal government of a loan
guarantee made to a private entity is generally equal to the net
present value of the estimated costs to cover defaults and
delinquencies, interest, or other payments under the loan. In other
words, the amount of the loan cost is not the same as the loan amount
itself, but a lesser amount that represents the net present value of
anticipated long-term costs to the Government of providing the loan
guarantee.
In accordance with section 638, the Department defines the loan
costs for a Standby Support Contract consistent with FCRA. In so doing,
the Department necessarily adopts the method for calculating the amount
of funding for the account, that is, the loan cost, consistent with
FCRA. Further, the Department interprets section 638, and the specific
requirement in section 638(b)(2) that the Program Account need only
contain amounts sufficient to cover the loan costs, to mean that the
Program Account does not need to be funded in an amount equal to the
costs for which coverage is provided and that are specified in section
638(b)(5)(A). This method of funding the Program Account is consistent
with FCRA, and is a logical outgrowth of the Congressional directive in
section 638(b)(2) to define loan costs consistent with the cost of a
loan guarantee under FCRA. Similarly, the Department's responsibilities
under section 638 to pay covered costs out of the Program Account are
consistent with loan guarantee programs under FCRA. (See 2 U.S.C.
661a(3)). That is, the Department is required to pay any claims for
covered costs under the Program Account, up to the available
indemnification, without further appropriations to the Secretary for
such payments. (See 2 U.S.C. 661d(c)).
Although section 638 does not contain an express directive
regarding this obligation of the Department, such as a provision that
the contract is backed by the full faith and credit of the United
States, it is within the Department's discretion to interpret statutory
intent where Congress is silent or unclear, and implement the statute
according to its interpretation. The Department's interpretation of its
need to pay covered costs under the Program Account is consistent with
FCRA and the obligations of the federal government under other credit
programs. Moreover, it is not necessary for Congress to include a
provision specifying that the Department's obligation for such costs is
backed by the full faith and credit of the United States. Though it
would have been desirable had such language been included in section
638, its absence does not negate the Department's obligation to pay the
covered costs under section 638 and FCRA, nor does its absence prevent
the Department from entering into a contract backed by the full faith
and credit of the United States. Accordingly, the Secretary of the
Treasury would be required to fund future obligations arising from the
payment of covered costs under section 505(c) of FCRA, even though
section 638 does not expressly use the term ``full faith and credit.''
The applicability of FCRA to the Program Account contrasts with the
Secretary's obligation to pay covered costs under the Grant Account.
Section 638(d)(4) specifies conditions on the Secretary's obligation to
pay certain covered costs. That provision limits the Secretary's
obligation to pay covered costs under section 638(d)(5)(B) (i.e.,
incremental costs) to the receipt of funds sufficient to pay those
covered costs. Congress did not place a similar restriction on the
Department's obligation to pay covered costs under section 638(d)(5)(A)
(i.e., principal or interest on debt obligation).
Reconciliation. Given the potentially lengthy period of time
between execution of a Conditional Agreement and execution of a Standby
Support Contract, the Department believes it is necessary to re-assess
the amount of funds necessary prior to execution of the Standby Support
Contract. Accordingly, in Sec. 950.11(d), each Conditional Agreement
is required to include a provision that the sponsor provide no later
than 90 days prior to execution of a Standby Support Contract
sufficient information for the Program Administrator to recalculate the
loan costs and the incremental costs associated with the advanced
nuclear facility, taking into consideration whether the sponsor's
advanced nuclear facility is one of the initial two reactors or the
subsequent four reactors. The Department believes that having the
reconciliation process within 90 days of executing the Standby Support
Contract provides the sponsor and Department additional certainty that
the pricing will realistically reflect the risks associated with the
Standby Support Contract.
Limitations
Section 950.11(e) addresses limitations related to the Department
entering into a Standby Support Contract. In particular, each
Conditional Agreement is required to include a provision limiting the
Department's obligations to contribute federal funding to the Program
Account or the Grant Account to only those amounts, if any, that are
appropriated to the Department in advance of the Standby Support
Contract for the purpose of funding the Program Account or Grant
Account. The purpose of this provision is to recognize and clarify that
the Department's contribution is contingent upon Congressional
appropriations.
Section 950.11(e) further provides that if the amount of
appropriated funds is not sufficient to fund the Department's
anticipated contribution under the Conditional Agreement, the sponsor
has the option to either (1) not execute a Standby Support Contract or
(2) provide additional contributions to fund the total amount of
coverage in either the Program Account, Grant Account, or both accounts
as specified in the Conditional Agreement. The Department believes that
these provisions take into account the change in circumstances that may
occur between the time of the Conditional Agreement and the Standby
Support Contract. The provision also provides a sponsor the option
either to enter into a contract or forego that opportunity.
Nevertheless, if the sponsor elects to execute the Standby Support
Contract, it is required to make up the difference attributable to the
Department and fully fund the total amount of costs as specified in the
Conditional Agreement. Moreover, the sponsor may not elect to change
the allocation of coverage for either account based on the Department's
lowered contribution level and thereby potentially negate its
additional contribution. This provision is reasonable and consistent
with the purposes of section 638 to provide more coverage to those
sponsors that are first in line in the construction and operation of
advanced nuclear facilities.
Termination of Conditional Agreements
The Department has determined that it is appropriate to specify
situations in which the Conditional Agreement should no longer remain
in effect. These
[[Page 28207]]
situations, specified in Sec. 950.11(f), include when a sponsor enters
into a Standby Support Contract with the Program Administrator, when
the sponsor has commenced construction of an advanced nuclear facility
but declines to enter into a Standby Support Contract within 30 days
after commencement of construction, when the sponsor notifies the
Program Administrator that it wishes to terminate the Conditional
Agreement, when contracts for three different reactor designs have been
executed and the Conditional Agreement is for another reactor design
(thereby implementing section 638(b)(1)), and when the Department has
reached the statutory limit and entered into six Standby Support
Contracts. In addition to being the logical outgrowth of administering
a regulatory program, this provision allows other sponsors to take
advantage of the Standby Support Program when a different sponsor
wishes to terminate coverage. Such flexibility anticipates evolving
circumstances and is consistent with the Department's goal to
facilitate the full power operation of advanced nuclear facilities.
Further, it is consistent with several commenters' concern that this
risk insurance might be tied up by a sponsor but not be used.
Sections 950.12, 950.13 and 950.14 Standby Support Contract
Section 950.12 sets forth the conditions and limitations associated
with the execution of a Standby Support Contract. Section 950.13
addresses the contract's purpose, identification of the advanced
nuclear facility covered under the contract, amount of sponsor
contribution, maximum aggregate compensation, term, cancellation,
termination by sponsor, assignment, claims administration, and dispute
resolution. In addition, Sec. 950.14 sets forth provisions addressing
the interrelated issues of covered events, exclusions, covered delay,
and covered costs. Each of these provisions will be discussed below.
In the NOI, the Department addressed whether to include various
terms and conditions via regulation or in a sample contract. A few
commenters recommended that the Department provide a standard contract
format, which they believed would allow them to evaluate its effect on
risk allocation and the resulting impact on financing.
The Department has determined that it is sufficient to include the
critical contract terms in this regulation rather than provide a sample
contract at this time. The Department believes that a sponsor can
appropriately evaluate the potential contract's effect on risk
allocation and financing during the pre-contract discussions set forth
in Sec. Sec. 950.10 and 950.11. Accordingly, including a sample
contract is not necessary.
Section 950.12 Standby Support Contract Conditions
Conditions Precedent
In Sec. 950.12(a), the Department sets forth nine conditions
precedent that a sponsor must fulfill to be eligible to enter into a
Standby Support Contract. These provisions must be included in the
Standby Support Contract. By requiring satisfaction of the conditions
precedent prior to obtaining a Standby Support Contract, the Department
intends to ensure that the sponsor will be able to construct an
advanced nuclear facility. Accordingly, such protections are consistent
with some commenters' concerns that the Standby Support Contracts only
be awarded to viable entities. The Department has undertaken to require
practicable and necessary conditions precedent that should not impose
an unreasonable burden on a sponsor. The conditions precedent are the
logical outgrowth of the provisions of section 638 of the Act and the
Commission's licensing process. Some of these conditions precedent
relate to the regulatory process, while others closely correlate to the
actual construction of the advanced nuclear facility. Among those tied
to the regulatory process are the need for the sponsor to have: (1) A
Conditional Agreement with the Department, (2) a combined license
issued by the Commission, (3) the payment of any required fees into the
Program Account and the Grant Account, (4) a detailed schedule for the
completion of the sponsor's performance of inspections, tests, analyses
and acceptance criteria (ITAAC) and for informing the Commission of
such completion, and (5) a detailed system-level construction schedule
identifying projected dates of construction, testing and full power
operation of the advanced nuclear facility. The regulation requires the
sponsor to provide the detailed schedule for completing ITAAC and
informing the Commission of ITAAC completion, and the systems-level
construction schedule no later than ninety days prior to execution of
the Standby Support Contract. This timing requirement will facilitate
the contracting process so it is done in an orderly fashion. Among
those tied to any construction project include documentation that the
sponsor has: (1) Obtained all Federal, State or local permits required
by law to commence construction, (2) commenced construction, and (3)
obtained coverage of required insurance for the project. Further, no
later than ninety days prior to execution of the Standby Support
Contract, the sponsor must provide to the Program Administrator, a
detailed and up-to-date plan of financing for the project including the
credit structure and all sources and uses of funds for the project,
including the projected cash flows for all debt obligations of the
advanced nuclear facility.
The Department will review the foregoing information, as well as
any applicable statutes and regulations, and enter into a Standby
Support Contract upon satisfaction that the conditions precedent have
been met, the contract is consistent with applicable statutes and
regulations, and the necessary funding is in place.
Funding and Limitations
In Sec. 950.12(b), the Department requires that no later than
thirty days prior to execution of the Standby Support Contract, funds
in an amount sufficient to fully cover the loan costs or incremental
costs as specified in the Conditional Agreement shall be deposited in
the Program Account or the Grant Account. The purpose of this provision
is to ensure that the administration and funding of the Standby Support
Program occurs in an efficient and orderly manner.
In Sec. 950.12(c), the Department provides limitations about
entering into a Standby Support Contract, based on statutory direction
in section 638, that sufficient funding for a contract must be
deposited in either the Program Account of Grant Account prior to
execution of the contract.
Section 950.13 Standby Support Contract: General Provisions
General Contract Provisions
In Sec. 950.13, the Department specifies that each Standby Support
Contract include provisions addressing basic contract terms, including
the contract's purpose, covered facility, sponsor contribution, maximum
aggregate compensation, the term, cancellation, termination by a
sponsor, assignment, claims administration, and dispute resolution.
Covered Facility. Section 950.13(b) requires each Standby Support
Contract to include a provision specifying that the Secretary provide
coverage only for an advanced nuclear facility, which must be owned by
a non-federal entity, pursuant to section 638. In addition, this
section requires the contract to
[[Page 28208]]
include the specific advanced nuclear facility to be covered, the
reactor design, and its location. Inclusion of the facility's location
is standard for any property insurance contract. Inclusion of the
reactor type is necessary to implement section 638(b)(1).
Sponsor Contribution. Section 950.13(c) requires each Standby
Support Contract to include a provision specifying the amount that a
sponsor has contributed to fund each type of account. This is necessary
to implement the funding and appropriations considerations in section
638(b), which distinguish between the Program Account and the Grant
Account.
Maximum Aggregate Compensation. Section 950.13(d) requires each
Standby Support Contract to include a provision specifying the maximum
amount of coverage permitted by section 638(d). Specifically, the
provision states that the Department is prohibited from paying
compensation under the contract in an aggregate amount that exceeds the
amount of coverage up to $500 million each for the initial two reactors
or up to $250 million each for the subsequent four reactors. In
addition, the Secretary may include a provision setting a minimum
amount of coverage, given that the Department will incur significant
costs in implementing and administering the program. These potential
costs include evaluating the funding for coverage, contract
negotiations, monitoring, claims administration, and dispute
resolution.
Term. Section 950.13(e) requires each Standby Support Contract to
include a provision specifying the date at which the contract commences
as well as the term of the contract. The Department notes that the
contract's effective date will be the date at which it has been signed
by both the sponsor and the Program Administrator. Subject to the
cancellation provisions in paragraph (f), the contract terminates when
full power operation is achieved, and when all claims have been paid or
any disputes involving claims under the contract have been resolved in
accordance with the claims administration process in subpart C and the
dispute resolution process in subpart D.
Cancellation Provisions. Section 950.13(f) requires each Standby
Support Contract to include a provision specifying that the parties may
cancel the contract under certain conditions. First, the Program
Administrator may cancel the contract if the sponsor abandons the
project, provided that the abandonment is not caused by a covered event
or force majeure. Second, the sponsor may cancel the contract if the
sponsor determines that it no longer requires continued coverage. In
either case, this provision requires the party canceling the contract
to provide written notification to the other party. Third, the parties
may cancel the contract for other causes as agreed upon. Such
cancellation provisions are consistent with requests by commenters that
the Department should have the right to cancel a contract where a
project has been abandoned. However, the Department decided not to
require a fixed timeframe for determining that a sponsor is
experiencing an unexcused, extended suspension of construction, because
the Department believes mandating cancellation based on a fixed
timeframe would inappropriately reduce the Department's flexibility in
assessing a particular situation. Nevertheless, the Department's
general decision to include cancellation provisions is consistent with
the Department's goal of facilitating the construction and operation of
advanced nuclear facilities.
Section 950.13(g) contains a limitation that if a sponsor elects to
terminate a Standby Support Contract, then the sponsor or any related
party is prohibited from entering into another Standby Support
Contract. Such a provision is necessary to prohibit potential sponsors
from ``gaming'' the Standby Support Program. Specifically, a sponsor
could be on the verge of full power operation of an advanced nuclear
facility, without the need to make any claims on the Standby Support
Program. Absent this provision, the sponsor could terminate its initial
Standby Support Contract and then enter into a new contract for a
different facility.
Assignment. Several commenters stated that it is necessary to
permit a sponsor to transfer its rights and obligations under the
contract. This would allow project lenders or other entities to
complete a project. These commenters requested that the sponsor have
full discretion to assign its rights under the contract.
The Department generally agrees that it may be appropriate to allow
a sponsor to assign its rights under the Standby Support Contract.
Accordingly, Sec. 950.13(h) requires each Standby Support Contract to
include a provision specifying the assignment of a sponsor's rights and
obligations under the contract. Specifically, this provision states
that the sponsor is permitted to assign the rights under the contract
with the Secretary's prior approval. The sponsor must obtain this
approval, in writing, prior to assigning such rights. The Department
believes that it is necessary to retain oversight related to the
assignment of such rights, given that such assignments typically
involve significantly changed circumstances with new parties. The
Department notes that any transfer of control over a license requires
prior Commission approval.
Claims Administration. Section 950.13(i) requires each Standby
Support Contract to include a provision specifying a mechanism for
administering claims pursuant to the procedures set forth in subpart C.
Dispute Resolution. Section 950.13(j) requires each Standby Support
Contract to include a provision specifying a mechanism for resolving
disputes about the terms of the Standby Support Contract pursuant to
the procedures set forth in Subpart D.
Reestimation. Section 950.13(k) requires each Standby Support
Contract to include a provision specifying that consistent with the
Federal Credit Reform Act (FCRA), the sponsor provide all needed
documentation to allow the Department to annually re-estimate the loan
cost needed in the financing account under 2 U.S.C. 661a(7) funded by
the Program Account. The ``financing account'' is defined by FCRA as
``the non-budget account or accounts associated with each credit
program account which holds balances, receives the cost payment from
the credit program account, and also includes all other cash flows to
and from the Government resulting from direct loan obligations or loan
guarantee commitments made on or after October 1, 1991.''
Section 950.14 Covered Events, Exclusions, Covered Delay, and Covered
Costs
Section 638(c) specifies situations in which the Secretary will pay
``covered costs.'' Among the situations expressly set forth in
paragraph (c)(1) are: (A) ``the failure of the Commission to comply
with schedules for review and approval of inspections, tests, analyses,
and acceptance criteria [ITAAC] established under the combined license
or the conduct of preoperational hearings by the Commission * * *'' or
(B) ``litigation that delays the commencement of full-power operations
* * *''
Covered Events
Section 950.13(a) requires each Standby Support Contract to include
a provision setting forth an agreement between the parties that
addresses the contract's purpose, which is for the Secretary to provide
compensation for covered costs incurred by a sponsor against covered
events that result in a covered delay of full power operation of
[[Page 28209]]
an advanced nuclear facility. Aside from the term ``covered event,''
these other terms--Secretary, covered costs, sponsor, covered delay,
full power operation, and advanced nuclear facility--are referenced in
section 638. The Department determined it is necessary to add the term
``covered event'' to reflect that not all events appearing to fall
under section 638(c)(1) will warrant compensation. Compensation is
dependent on whether a covered event in fact leads to a delay in full
power operation. For instance, there may be a delay in the Commission
staff's meeting the ITAAC review schedule for an individual ITAAC, but
the delay does not actually cause a delay in full power operation,
because other factors may have caused the delay. In addition, there may
be a delay in meeting the ITAAC review schedule but the ITAAC-related
delay may have no actual effect on a facility obtaining full power
operation. The same may be true for delays attributable to the pre-
operational hearing or litigation.
ITAAC Delays. In the NOI, the Department first noted that the
covered delay set forth in paragraph (c)(1)(A) are closely related to
the Commission's part 52 combined licensing process. The Commission
requires verification that the licensee has completed the required
inspections, tests, and analyses, and that the acceptance criteria have
been met before the reactor can operate. However, the Commission's
regulations do not set any schedules for completing ITAAC review.
Rather, under the combined license application, the licensee sets the
schedule for ITAACs and may change the schedule as circumstances
warrant. Although the Commission may set informal, internal schedules
for auditing the licensee's performance of its ITAAC and will provide
public notice upon completion of its review, there is no regulatory
requirement for the Commission's conduct or timing of such auditing.
Potential sponsors commented that realistic, definite schedules for
review and approval of ITAAC be included in the contracts executed in
accordance with section 638. The nuclear energy trade association
commented that ITAACs were not unreasonably complex, because they are
precise, quantitative and unambiguous indicators that provide
unambiguous and unequivocal proof that the plant will operate safely.
It then stated that the small percentage of total ITAAC that are
completed late in the process, but on schedule should not represent a
potential source of delay in commercial operation.
In its comments to the NOI, the Commission again emphasized that
its regulations do not require any schedule for completing ITAAC
review. It further stated that the licensee is not bound to any
schedule for completion of an ITAAC. Nor is the Commission staff bound
to any schedule for review of a licensee statement that an individual
acceptance criterion has been met or that all ITAACs have been met.
Notwithstanding the complexity of the ITAACs, their facility-specific
nature, the lack of a required review schedule, and the possibility
that a licensee may leave large numbers of ITAAC for resolution in the
last few weeks before fuel load, the Commission did note that:
The NRC staff intends to coordinate its schedule for ITAAC
review with the licensee's schedule for performing the [ITAACs] and
submitting ITAAC determination letters. In order to do so, the NRC
would have to develop guidance on the length of ITAAC reviews,
particularly those reviews occurring during the final 20% of
construction schedule and the six months before the schedule fuel
load * * * The staff believes this process could be used for setting
the schedules for ITAAC review to which Section 638 refers. The
staff envisions that a licensee would submit its schedule for
meeting the ITAAC to be completed in the final 20% of the
construction schedule as soon as the licensee develops such a
schedule. Without comment on the licensee's schedule or otherwise
reviewing it, the NRC would determine the review time for each ITAAC
in accordance with the guidance and issue a schedule for ITAAC
review that could be referenced in the insurance contract.
Based on these comments and the Department's understanding of the
ITAAC process, Sec. 950.14(a)(1) requires each Standby Support
Contract to include a provision setting forth a two-tier level of
review for assessing whether an ITAAC-related delay should be
considered a covered event. The Department further notes that the
Commission issued a notice of proposed rulemaking in which it is
considering modifying the ITAAC process (See, 71 FR 12782, March 13,
2006). If between the Department's issuance of this interim final rule
and determining whether there has been an ITAAC-related delay under a
Standby Support Contract, the Commission issues any rule, guidance,
audit procedures or formal opinions setting schedules for its review of
ITAACs, then such Commission rules--whether formal or informal--would
guide the Department in determining whether a delay in a sponsor's
ITAAC schedule should be considered a covered event. Given that the
Commission is considering amending part 52 and addressed the issue of
ITAAC schedules in a public workshop held on March 14, 2006, it is
possible that the Commission will issue such guidance by the time the
Standby Support Contracts take effect.
The Commission has indicated that it intends to issue such
guidance, and would initially set a schedule for reviewing the
sponsor's completion of ITAAC, based on the sponsor's schedule for
informing the Commission that the ITAAC have been completed. The
Commission has also indicated that it would make its review schedule
available to the sponsor and the Department. In any event, the
Commission commented that nothing in this rule shall be interpreted to
require or encourage the Commission or its staff to render any required
safety determination without the necessary and sufficient documentation
of information from the sponsor/licensee (including any of its
contractors, sub-contractors, vendors, manufacturers, consultants,
etc.) needed to ensure adequate protection and common defense and
security under the Commission's regulations.
Nevertheless, if the Commission has not provided any rules,
guidance, audit procedures or formal opinions setting schedules for
ITAAC review, then the Department, pursuant to Sec. 950.14(a)(2),
would evaluate the sponsor's proposed schedule for Commission review of
ITAAC completion, subject to the Department's review and approval for
such a schedule. In such a situation, the sponsor is required to submit
its initial schedule for informing the Commission of ITAAC completion,
along with any revisions of that schedule and a suggested schedule for
review of completed ITAAC by the Commission.
Preoperational Hearing. Section 638(c)(1)(A) refers to delays in
full power operation of advanced nuclear facilities caused by ``the
conduct of preoperational hearings by the Commission * * *''. In the
NOI, the Department requested comment about two possible
interpretations: (1) To allow coverage only for delays associated with
preoperational hearings under part 52 or (2) to allow coverage for
delays associated with any preoperational hearings, regardless of who
requested or caused the hearing and regardless of whether there was a
``failure'' of any kind by the Commission.
Several potential sponsors commented that the phrase ``the conduct
of pre-operational hearings by the Commission'' should include any
delay covered by any pre-operational hearings. These commenters contend
such an interpretation reflects the plain language and intent of the
statute. In
[[Page 28210]]
contrast, one commenter stated that only hearings under 10 CFR 52.103
should be covered, given that a broader reading would undermine the
Commission's safety mission. The Commission commented that the scope of
a pre-operational hearing concerns only whether the ITAAC have been or
will be satisfied. In addition, the Commission commented that a person
seeking such a hearing must meet the standards of 10 CFR 52.103(b),
i.e., the petitioner must show prima facie that one or more of the
acceptance criteria have not been met and the specific operational
consequence of nonconformance would be contrary to public health and
safety.
The Department has determined that for purposes of the Standby
Support Contracts, the phrase ``the conduct of pre-operational hearings
by the Commission'' means the non-mandatory hearing conducted by the
Commission in accordance with 10 CFR 52.103. The Department included a
definition of this term in the regulations to avoid any confusion that
this term referred to more than one type of pre-operational hearing or
to some other hearing that the Commission may conduct in the context of
a part 52 licensing proceeding. The Department believes that it would
be inappropriate and unnecessary to broaden the term to include all
hearings taking place prior to operation or fuel load, particularly in
light of the Commission's comment about how it views the Sec. 52.103
hearing. Under the Commission's rules addressing part 52, it is
unlikely that any other hearing would be held by the Commission other
than the one already expressly set forth at Sec. 52.103.
Litigation. Section 638(c)(1)(B) refers to ``litigation that delays
the commencement of full-power operations * * *'' In the NOI, the
Department noted that the Act is silent as to what type of litigation
section 638 refers. The Department further noted its inclination to
interpret the term ``litigation'' in paragraph (c)(1)(B) as meaning
only litigation in State, Federal, or tribal courts, including appeals
of Commission licensing decisions, and excluding administrative
litigation that occurs at the Commission as part of the combined
license process, because paragraph (c)(1)(A) already refers to certain
Commission proceedings that may delay full power operation. The
Department requested comment as to what type of litigation-related
delays should be covered by the Program.
Several commenters suggested the definition of litigation should be
broadly defined, while other commenters suggested the definition should
be narrow. Under a broad definition, litigation would encompass both
judicial and administrative litigation, including any hearings under 10
CFR 52.103 and any litigation commenced before or after issuance of the
combined license, as well as litigation initiated by a sponsor, a
governmental agency or a third party. Under a narrow definition
suggested by some commenters, litigation would not include
administrative litigation before the Commission, appeals of Commission
decisions to the courts, or any litigation other than frivolous claims.
The Department has decided to define litigation in the interim
final rule to include only adjudication in State, federal, or tribal
courts, including appeals of Commission decisions related to the
combined license to such courts, and excluding administrative
litigation that occurs at the Commission related to the combined
license process. The Department believes this is the most reasonable
interpretation of the term as used in the Act. Since the Act covers the
risk of a pre-operational hearing, and Commission reviews of ITAAC, the
Department assumed that the reference to litigation is to litigation
outside the context of the Commission proceeding on the combined
license. On the other hand, the Act does not suggest a limitation based
on what party brings suit. Hence, the interim final rule would apply to
litigation, if in federal, State or tribal court, initiated by a
sponsor, a governmental agency or a third party. In addition, any
appeal of a Commission decision to an appropriate court would be
considered ``litigation.'' The Department interprets this term to apply
only to situations in which a sponsor is unable to continue
construction or attain full power operation based on a court order,
e.g., a stay of a permit, a Temporary Restraining Order (TRO), or an
injunction. It does not apply to or cover delays that are only
secondarily caused by the litigation, e.g., a company's decision to
delay operation because a matter is in litigation, even though a court
has not barred operation or the permit at issue is in effect.
Exclusions
Section 638(c)(2) expressly precludes the Secretary from paying
costs resulting from three general areas: ``(A) The failure of the
sponsor to take any action required by law or regulation; (B) events
within the control of the sponsor; or (C) normal business risks.'' In
the NOI, the Department requested comment on how best to interpret and
apply this section, including examples of each category of exclusion.
No commenter addressed situations involving the failure of the
sponsor to take any action required by law or regulation. Nevertheless,
the Department has decided to require each Standby Support Contract to
include a provision addressing this exclusion of coverage for the
failure of a sponsor to take actions required by law or regulation. For
example, in the construction of any large commercial project, including
an advanced nuclear facility, a builder is required to obtain permits
and take other steps required by Federal, State, and local laws,
regulations and ordinances. In particular, a builder typically has to
comply with environmental laws such as those related to pollution
abatement or protection of human health or the environment (including
ambient air, surface water, ground water, and land surface
requirements). Further, with respect to an advanced nuclear facility, a
sponsor may have to comply with other laws or regulations due to its
unique characteristics. Where a sponsor had failed to take any of these
or similar types of actions required by law or regulation, any
associated delay would not be covered. Section 950.14(b) further
requires the Standby Support Contract to include a provision that
excludes coverage for events in which the sponsor either must re-
perform an ITAAC due to a Commission disapproval of the sponsor's
ITAACs or redress deficiencies in ITAACs as a result of a Commission
disapproval of fuel loading.
All commenters agreed that standby support should not extend to
delays and losses caused by factors that fall within the control of a
sponsor. Potential sponsors and the nuclear industry trade association
stated that situations like the late delivery of equipment should not
be covered. Several commenters stated that the Department needs to
provide examples of such events and define the terms ``events within
the control of the sponsor'' and ``normal business risk.''
The Department agrees with those commenters that requested examples
of events it considers within the control of the sponsor. To this end,
the Department reviewed commercial insurance contracts and practices,
particularly for large construction projects, in developing Sec.
950.14(b)(2) which sets forth a list of examples of such situations.
Based on this review, the Department provides the following, non-
exhaustive set of examples for situations within the control of a
sponsor. These include delays attributable to a range of project
planning and construction problems including wear and tear, rust,
[[Page 28211]]
deterioration, latent defects in property and routine construction
delays; and labor-management disputes. In addition, other events the
Department considers within the sponsor's control include (1) the
sponsor's performance of inspections, tests, analyses, and acceptance
criteria in accordance with its schedule, (2) the sponsor's obtaining
adequate funding for construction and testing of the advanced nuclear
facility, and (3) the sponsor's decision not to continue construction
or not to attain full power operation as the result of litigation in
which the sponsor is not subject to a court order.
With respect to normal business risks, a utility recommended that
it would be appropriate to define this term as ``traditional exposures
for which insurance is currently available on commercially reasonable
terms and conditions.'' Commenters further recommended that the
Department follow generally accepted practices in the insurance
industry.
The Department generally agrees with the commenters and has
provided examples of normal business risk consistent with standard
industry practice. These include events where businesses normally would
be expected to absorb any additional cost burdens including costs
resulting from changing economics or market conditions, weather delays,
labor difficulties, supplier/contractor failures, and other
difficulties. Normal business risks also would include those related to
obtaining approvals or permits from regulatory agencies, except for the
regulatory approvals that constitute a covered delay under the Standby
Support Contracts. In other words, the Department interprets ``normal
business risk'' to mean all the typical risks of a commercial
enterprise, except for those risks that ordinarily may be considered a
``normal business risk'' but, in this case, Congress determined should
be covered risks under the contracts. Other examples of normal business
risks set forth in standard commercial insurance contracts include (1)
delays attributable to force majeure such as strike or weather delay,
the failure of power or other utility services supplied to the
location, (2) natural events such as earthquake, landslide, mudslide,
volcanic eruption, other earth movement, flood, (3) government action
meaning the seizure or destruction of property by order of governmental
authority, (4) acts or decisions, including the failure to act or
decide, of any person, group, organization, or government body
(excluding those acts or decisions or failure to act or decide by the
Commission that are covered events), (5) supplier or subcontractor
delays in performance, (6) litigation, whether initiated by the sponsor
or another party, that is not a covered event, (7) failure to timely
obtain regulatory permits or approvals that is not a covered event, and
(8) unrealistic and overly ambitious schedules set by the sponsor.
The Department agrees with commenters that it would be
impracticable to develop an all-inclusive list addressing all such
delays in all future situations. Accordingly, in addition to this
preamble discussion providing some examples of exclusions, the
Department has developed a claims administration process which is
discussed in subpart C.
Covered Delay and Full Power Operation
Whether a covered event leads to covered delay depends on whether
the covered event directly causes a delay in full power operation of an
advanced nuclear facility. Accordingly, the concept of full power
operation is a critical element in determining covered delay and
covered costs under a Standby Support Contract.
Several commenters suggested that the Department should define full
power operation to mean at or near 100 percent of power on a sustained
basis. These commenters reasoned that defining full power operation to
be operation at five percent or greater is not consistent with the
intent of the Act, and that this interpretation, though applicable in
the context of a part 50 reactor license, is not useful or applicable
under a part 52 license where the regulations do not expressly require
Commission authorization for power operations greater than five
percent.
The Department notes that Congress did not define this term in the
Act, leaving it to the Department's discretion. This term is defined in
the interim final rule as that point at which the sponsor first
synchronizes the advanced nuclear facility to the electrical grid. The
Department notes that such an event typically occurs between 10 to 25
percent of a facility's licensed thermal power capacity. The Department
believes that this definition of full power operation is appropriate
because it is clear, addresses the sponsor's desire for coverage until
it is able to generate revenue from the facility, and represents a
point where the risks covered under the contracts are either not
applicable or no longer likely to occur. Once the Commission has found
that the acceptance criteria have been met in accordance with 10 CFR
52.103(g), the Commission's review of ITAAC is complete. The sponsor
may then load fuel and begin power ascension testing. Hence, there is
no opportunity after fuel load for a delay in full power operation
caused by the Commission's failure to review and approve ITAAC on
schedule. Similarly, any delay from a pre-operational hearing would not
exist after fuel load, since the covered event also would only occur
prior to loading fuel. The remaining risk, litigation in Federal, State
or tribal court that delays the sponsor from achieving full power
operation, is less likely to occur after fuel load and the first time
the sponsor synchronizes to the electrical grid. Even if this type of
delay could occur after first grid connection, there is no clear or
reasoned basis to determine precisely when that time may occur in
operating life of an advanced nuclear facility.
Based on these considerations, Sec. 950.14(c) requires each
Standby Support Contract to include a provision specifying the payment
of covered costs if a covered event is determined to cause a delay in
attainment of full power operation. In addition, for a contract for one
of the subsequent four reactors, payment for covered delay will occur
only after the initial 180-day period of delay.
Due Diligence. Section 638(e) specifies that any Standby Support
Contract requires ``the sponsor to use due diligence to shorten, and to
end, the delay covered by the contract.'' In the NOI, the Department
requested comments on how this term should be used in the context of a
Standby Support Contract. Two commenters recommended that the
Department define due diligence consistent with the concept of using
commercially reasonable efforts to shorten and end the delay. They
further commented that the Department should have the burden of
demonstrating that a sponsor failed to use due diligence.
Section 950.14(c)(2) requires each Standby Support Contract to
include a provision to require the sponsor to use due diligence to
mitigate, shorten, and end covered delay under the contract. Similarly,
Sec. 950.23(b)(2)(iii) requires a sponsor to use due diligence to
mitigate, shorten and end the covered delay and the associated costs.
The Department notes that Black's Law Dictionary defines ``diligence''
as (1) a continual effort to accomplish something and (2) the attention
and care required from a person in a given situation. In turn, Black's
Law Dictionary defines ``due diligence'' as ``[t]he diligence
reasonably expected from, and ordinarily exercised by a person who
seeks to satisfy a legal requirement or a discharge of an
[[Page 28212]]
obligation.'' As several commenters noted, the claims administration
process set forth in subpart C is the forum for determining whether a
sponsor in fact acted with due diligence to mitigate, shorten or end
the covered delay and associated costs under the Standby Support
Contract. The Department notes that requiring a sponsor to use due
diligence to mitigate costs associated with the Standby Support
Contract is consistent with general principles of mitigating damages in
contract disputes.
Covered Costs
Paragraph (d) of Section 638 provides for the coverage of costs
that result from a delay during construction and in gaining approval
for full power operation, specifically (A) principal or interest and
(B) incremental cost of purchasing power to meet contractual
agreements. In the NOI, the Department requested comments on how these
costs should be documented, especially the extent to which they are
used in calculating the funding needed prior to entering into a
contract. In particular, although the Department stated that it
anticipated only covering those costs specifically described in
paragraphs (d)(5)(i) and (ii), it noted that it might consider
providing coverage for costs in addition to those specifically
described in those sections.
Commenters expressed divergent views on whether to have an
expansive or limited interpretation of paragraph (d)(5) which states
that the covered costs shall be those that result from certain delays
``including'' the costs specifically described in that provision (e.g.,
principal or interest). Two commenters agreed with a more limited
reading of ``including.'' One stated that the statute clearly states
``including'' and does not state ``including but not limited to.'' That
commenter stated that to interpret the statute otherwise would be an
improper broadening of the law. In contrast, potential sponsors
commented that the statute's use of the term ``including'' without any
additional qualifying language such as ``and limited solely to''
suggests that Congress intended an inclusive and expansive definition
of covered costs. They suggested coverage for additional costs such as
operations and management including the costs of demobilization and
remobilization, idle time costs incurred in respect to equipment and
labor, increased general and administrative costs, and escalation of
costs for completion of construction.
The Department believes that there is more than one reasonable
interpretation of paragraph (d)(5) and that it is not clear on its
face; as a result, the Department has broad discretion to interpret the
term ``including'' in paragraph (d)(5). After reviewing the
implications of interpreting the term broadly, the Department has
concluded that it is more appropriate to limit the concept of covered
costs to those expressly set forth in paragraph (d)(5). This will
enable the Department to control the costs of the program, without
undermining the purpose of section 638 which is to facilitate the
construction and full power operation of advanced nuclear facilities.
Moreover, expanding the coverage to down-time costs suggested by some
commenters could reduce a sponsor's incentive to expeditiously complete
a project. Accordingly, Sec. 950.14(d) requires each contract to
include a provision to specify that the covered costs under the Program
Account are limited to principal or interest on any debt obligation
financing the advanced nuclear facility. The Program Account would not
cover penalty interest or other charges due to borrower delinquency or
other failure to meet debt terms that are not related to a covered
event. In other words, under the Program Account the Department will
indemnify sponsors for the cost of principal or interest on the debt
obligation for the period or duration of covered delay, less 180 days
for one of the subsequent four reactors.
Covered costs under the Grant Account involve the incremental
difference between (i) the fair market price of power purchased to meet
the contractual supply agreements that would have been met by the
advanced nuclear facility but for the delay; and (ii) the contractual
price of power from the advanced nuclear facility subject to the delay.
The Department has defined fair market price of power and
contractual price of power as follows in Sec. 950.25: The fair market
price may be determined by the lower of the two options: (A) The actual
cost of the short-term supply contract for replacement power, purchased
by the sponsor, during the period of delay, or (B) for each day by its
day ahead weighted average index price in $/MWh at the hub
geographically nearest to the delayed nuclear facility posted the
previous day by the Intercontinental Exchange (ICE) or an alternate
electronic marketplace deemed as reliable by the Secretary. The
determination of which option represents the lower price necessarily
cannot be an after-the fact mechanical determination but rather must be
made in the context of whether the sponsor exercised due diligence in
selecting an option to pursue.
In addition, the contractual price of power is calculated as the
price for which power would be sold if full power operation of the
advanced nuclear facility had not been delayed. In the event of covered
delay, standby support coverage would indemnify the sponsor for the
extra costs that may be incurred purchasing replacement power at a
higher price than the price at which the sponsor has sold it because
the sponsor may be required to make firm power deliveries regardless of
the delay and at sales prices that may be below the current market
price of power in the sponsor's region. The amount indemnified is a
function of the incremental difference between the current market price
for replacement power purchase and the contractual selling price for
firm power deliveries, as well as the quantity of power under contract.
Only the quantity of power that is under contract at the time of the
covered event, i.e., only power that had been contracted for prior to
the occurrence of a covered event will be used to determine the amount
of replacement power indemnified for the associated portion of covered
delay. In addition, only supply contracts that have a definite date for
delivery that cannot be met due to a covered delay would be eligible
for cost recovery. The upper limit on the amount of power deliveries
from the advanced nuclear facility can be no more than the net
generating capability, which is calculated by using the average nuclear
industry-wide capacity factor and site usage and line losses.
The Department determined that it would be inappropriate to adopt a
commenter's recommendation to offer a pre-defined ``weekly indemnity''
for debt service and other costs when the Standby Support Contract is
implemented. The commenter suggested that the Department emulate the
Accidental Outage Policy or business interruption-type insurance
provided by the Nuclear Electric Insurance Limited (NEIL). The
Department notes that providing a pre-defined ``weekly indemnity''
patterned after NEIL would be inconsistent with section 638. A pre-
defined amount might allow for payments in excess of those actually
incurred by a sponsor.
Subpart C--Claims Administration Process
Subpart C of the regulation sets forth the procedures and
conditions to be followed by a sponsor for the submission of claims and
the payment of covered costs under a Standby Support Contract. In the
NOI, the Department requested comment on how
[[Page 28213]]
it should determine covered costs and covered delay under the
contracts. Recognizing the inherent difficulty in prescribing ahead of
time all the factors that may determine whether a delay is covered by
the contract or the costs are properly calculated and recoverable,
several commenters suggested the Department institute a claims
management process to handle such issues as they arise. They also
recommended that the Department institute a claims procedure to
expedite processing and payment of covered costs.
Industry commented that the insured should have the burden of
making a good-faith showing of a covered delay and covered loss. The
Department believes that a sponsor has the burden of establishing that
there is a covered event, covered delay and covered loss, as the
sponsor is the entity primarily in possession of the facts necessary to
support aclaim. Accordingly, Sec. 950.20 states that ``a sponsor is
required to establish that there is a covered event, a covered delay
and a covered loss.''
In establishing an efficient and workable claims administration
process, the Department reviewed claims administration of other Federal
agencies and private sector insurers of large construction projects,
including the procedures established by the Department of the Treasury
to implement its Terrorism Risk Insurance Program at 31 CFR part 50.
(69 FR 39296, June 29, 2004)
Based on this analysis, the Department, in subpart C, establishes a
two-step process for filing and payment of claims for covered costs.
The first step in the process, covered in Sec. Sec. 950.21 and 950.22,
is a notice requirement regarding the occurrence of a covered event.
The second step in the process, covered in Sec. Sec. 950.23 through
950.28, is the requirements for certification of covered costs and the
procedures for payment of those costs by the Department. The process is
set up this way to ensure that the Department is receiving timely,
advance notice of events that may result in covered delay, so that when
the sponsor submits a claim for covered costs the Department can more
quickly and accurately determine the duration of a covered delay and
the associated covered costs. This bifurcation is particularly
necessary given that the period of coverage will extend over several
years, i.e., from commencement of construction through testing to full
power operation of the facility. A covered event may occur at various
times during this multi-year period. On the other hand, a determination
that covered delay occurred, and the exact duration of the delay, can
only be made at the time when full power operation is scheduled to
occur. This point in time may come several years after the covered
event. Accordingly, the regulations provide for early notification of
covered events that will enable the Department to determine whether an
event qualifies for coverage, and any changes in schedules and other
expectations as a result of the event. In addition, the regulations
provide for payment of claims at the time when the sponsor expected to
attain full power operation to enable the Department to determine
accurately whether a covered delay occurred, the duration of the delay,
and the amount of covered costs to be paid.
Covered Event Determination
The first step in the claims process, Sec. 950.21, is for the
sponsor to notify the Claims Administrator that a covered event has
occurred, and provide certain information in support of the claim. For
example, the sponsor provides information about the covered event, its
duration, the sponsor's projection of the duration of covered delay,
and any revisions to schedules for construction, testing or ITAAC
review resulting from the event. An authorized representative of the
sponsor is required to sign the notification of a covered event, and
certify that the notification is made in good faith, and represents
that the supporting information is accurate and complete to the best of
the sponsor's knowledge and belief.
The Claims Administrator is the official within the Department
responsible for the administration of the Standby Support Contracts,
including the responsibility to determine whether claims are
appropriate and should be paid. This information is reviewed by the
Claims Administrator and, within 60 days of receipt, the Claims
Administrator issues a determination whether the event is a covered
event under the contract. The second step in Sec. 950.22 provides the
Department with the opportunity to evaluate the threshold question of
whether the event is in fact an event covered by the contract. The
Claims Administrator bases his or her decision on review of the
conditions and exclusions under subpart B for a covered event. For
example, if the Commission failed to review an ITAAC on the approved
schedule under Sec. 950.14(a), and this failure of the Commission was
not caused by one of the events excluded from coverage under Sec.
950.14(b), e.g., an event within the control of the sponsor, then the
event is a covered event. If the Claims Administrator does not agree
with the sponsor's representation of the event as a covered event, then
the sponsor must invoke the dispute resolution procedures in subpart D.
In addition, the Claims Administrator considers the effect of
concurrent events (e.g, a litigation delay at the same time as a
strike) on whether there is a covered delay in full power operation.
The parties are bound by any Final Determination on Covered Events, and
the sponsor may rely on that in any future claim for payment of covered
costs.
Covered Cost Determination
The next step in the process under Sec. 950.23 is for the sponsor
to submit a claim for payment of covered costs when the sponsor is
within 120 days of its expected date of full power operation, but for
the covered delay. The sponsor's claim, referred to as the
Certification of Covered Costs, establishes the sponsor's basis for the
claim, including supporting documentation such as detailed information
about the expected duration of the covered delay and associated covered
costs. To the extent the sponsor cannot determine the total amount of
covered costs in the requisite time period prior to the expected date
of full power operation, either because all costs are not then known or
new covered events occur after the time of filing the Certification,
then the sponsor may file a Supplementary Certification of Covered
Costs.
The Claims Administrator reviews the information in the Certificate
of Covered Costs, and determines whether the costs should be paid based
upon an evaluation of the duration of the delay in achieving full power
operation caused by the covered event(s), adjusting for any delay in
full power operation that is not the result of a covered event and
therefore excluded from coverage. This evaluation and determination by
the Claims Administrator is referred to as the Claim Determination. The
Department pays those claims that are covered by the contract, pays an
adjusted amount if determined appropriate, or rejects the claim. If the
sponsor does not agree with the Claims Administrator's Claim
Determination, then the procedures in subpart D are invoked to resolve
the dispute.
To facilitate the process, Sec. 950.25 specifies the method the
Claims Administrator uses to calculate covered costs, and Sec. 950.26
describes the adjustments to covered costs the Claims Administrator may
make in that process.
[[Page 28214]]
Once a Claim Determination is rendered, and assuming there is no
dispute, then the Department pays the covered costs in accordance with
the Claim Determination and other conditions of payment as specified in
Sec. 950.27, such as a finding that the claim is not fraudulent,
collusive, in bad faith, or otherwise designed to circumvent the
purposes of the Act and the regulations. Other conditions include the
limitation that payments may not exceed the aggregate amounts
permissible under the Act; that is, no more than $500 million each for
the initial two reactors and $250 million each for the subsequent four
reactors.
Section 950.28 addresses the payment method for covered costs.
Assuming all conditions are met, periodic payments are made when the
sponsor has incurred and is obligated to pay the costs covered under
the contract.
Subpart D--Dispute Resolution Process
In the NOI, the Department noted that as with any commercial
insurance contract, a sponsor may disagree with the Department as to an
interpretation of a provision in the Standby Support Contract. After
further noting that the Act does not require any particular dispute
resolution mechanism or procedure, the Department requested comment on
how disputes between sponsors and the Department should be resolved,
and what dispute resolution provisions should be included in the
applicable regulations or contracts.
Industry commenters recommended the use of third party binding
arbitration to settle claims about covered events and covered delay.
The choice of binding arbitration as the preferred method of dispute
resolution was to provide a forum that was fast, efficient and not
subject to protracted litigation. The commenters recommended private
arbitrators to administer the processing of these claims and to act as
neutral evaluators.
Covered Events and Covered Costs Dispute Resolution
The Department generally agrees with the commenters' view that
claims should be resolved as effectively and efficiently as possible.
The dispute resolution methods that are set forth in subpart D address
these concerns. Subpart D provides a two step dispute resolution
process for resolving claims that first calls for mediation and then a
Summary Trial with Binding Decision.
Specifically, subpart D addresses two types of disputes: those
involving covered events in Sec. Sec. 950.31 and 950.32 and those
involving covered costs in Sec. Sec. 950.33 and 950.34. For
completeness, subpart D, Sec. Sec. 950.36 and 950.37, also provides
the same two step dispute resolution process for other contract matters
that may be in dispute and would benefit from resolution in an
efficient and effective manner.
If a sponsor initially disagrees with the Claims Administrator's
determination on what constitutes a covered event or covered delay, it
may file a rebuttal to that decision (Sponsor's Rebuttal). Within 15
days of the submission of the Sponsor's Rebuttal, subpart D requires
the parties, i.e., the sponsor and the claims administrator, to attempt
to resolve the claim dispute through mediation. The subpart further
requires the mediation neutral(s) to be mutually selected by the
parties and the cost of the process to be equally shared. Mediation is
a flexible negotiation-based process whereby a third party neutral
assists the parties in their dispute resolution efforts. If the parties
reach settlement during the mediation process that settlement
constitutes a Final Claim Determination. If, however, the parties
cannot reach a settlement, they would proceed to the second available
dispute resolution process for resolving the claim--the Summary Trial
with Binding Decision.
This process has been used in the government contracts arena for
many years. Scheduling of summary trials before the Department of
Energy's Board of Contract Appeals (Board) is expedited, discovery is
limited, and the parties try the matter informally, with relaxed rules
of evidence, either before a single administrative judge or a panel of
administrative judges. A summary or ``bench'' decision will be issued
at the conclusion of the trial or as set forth in these regulations no
later than 10 days post hearing. The parties agree in advance that the
Board's decision is final and not appealable.
The Department has decided to use the Board rather than a third-
party commercial arbitrator for dispute resolution because the services
provided by the Board and a commercial arbitrator are essentially the
same, but the Board does not charge for the use of its services.
Consequently, any costs are minimal for the parties. In contrast,
commercial arbitrators charge significant fees for conducting
arbitration.
Subpart E--Audit Investigations and Other Provisions
As with any program in which the government is providing grants or
other subsidies to the public, the Department may audit the costs
associated with the Standby Support Program. Accordingly, in Sec.
950.41, the Department reserves the right to examine any pertinent
documents and records of a sponsor. The Department may also direct the
sponsor to submit to an audit by a public accountant or equivalent
acceptable to the Secretary. Such an audit provision is patterned after
the Department's authority in 10 CFR part 800, Loans for Bid or
Proposal Preparation by Minority Business Enterprises Seeking DOE
Contracts and Assistance.
In section 950.42, the Department addresses the public disclosure
of information received from a sponsor. Industry representative at the
public workshop expressed concern that much information in the part 52
application process and under the Standby Support Program contained
proprietary information that should not be disclosed to the public. In
contrast, the advocacy group commented that all information under the
Standby Support Program should be made public. The Department generally
believes that such information should be made public, unless the
sponsor demonstrates that the information, if made public, would
divulge trade secrets or other proprietary information. Such an
approach is consistent with the Freedom of Information of Act's
approach to such information at 5 U.S.C. 552 and the Department's rules
at 10 CFR part 1004.
IV. Regulatory Review Requirements
A. Review Under Executive Order 12866
The Department has determined that today's regulatory action is an
``economically significant regulatory action'' under Executive Order
12866, ``Regulatory Planning and Review'' (58 FR 51735, October 4,
1993), as amended by Executive Order 13258 (67 FR 9385, February 26,
2002). Accordingly, the Department submitted this interim final to the
Office of Information and Regulatory Affairs of the Office of
Management and Budget, which has completed its review under E.O. 12866.
This discussion assesses the potential costs and benefits of this
rule. This regulation affects only those entities that voluntarily
elect to apply for standby support and are selected to receive such
standby support assistance. It imposes no direct costs on non-
participants. The economic impact of this regulatory action is
uncertain because the nature and size of the projects to be assisted
will not be known until specific project applicants come forward and
because it is not possible to predict the scope, frequency or timing of
the events that would be subject to payment of standby support. The
Department notes that the
[[Page 28215]]
costs are the amount of monies needed in the Program Account for the
Federal government to extend Standby Support. The Department has not
completed an estimate of the cost of this risk insurance for the
interim final rule rule, but a preliminary analysis indicates that the
rule may exceed $100 million in any one year, and will therefore be
treated as an economically significant rulemaking. For purposes of
review under E.O. 12866, the final rule will provide a best estimate of
the cost to fund the full Standby Support Program.
To promote the construction of new nuclear power plants, the
Secretary of Energy Advisory Board formed the Nuclear Energy Task Force
(NETF) in July 2004 to ``assess the issues and determine the key
factors that must be addressed if the Federal government and industry
are to commit to the financing, construction, and deployment of new
nuclear power generation plants to meet the nation's electric power
demands in the 21st Century.'' NETF determined that the ITAAC process
and the possibility of a hearing on satisfaction of the ITAAC may
create regulatory disruption after substantial funds have been
expended. Achieving the purpose of the revised regulatory process will
be thwarted if the Commission does not keep the ITAAC process focused
narrowly on those issues that must be subject to post-construction
verification. NETF concluded that this new regulatory process which has
not been tested in practice, poses a significant risk factor to
generating companies. Similarly, the Department funded a report which
defined critical risks and investment issues. (Business Case for New
Nuclear Power Plants: Bringing Public and Private Resources Together
for Nuclear Energy, Scully Capital, July 2002, available at https://www.ne.doe.gov.home/bc/businesscase.html
). Its conclusions were similar
to NETF's recommendations in that one of the critical risks with the
construction of new nuclear power plants is the regulatory risk
associated with the ITAAC process.
The costs associated with a delay caused by the regulatory process
or litigation could be significant and there is no well-established
method of assessing the likelihood of such events until the new
regulatory process is tested. As a result there is no market mechanism
available to mitigate this risk factor. The Standby Support Program is
meant to address this market failure. The overriding purpose of the
Standby Support Program is to facilitate the construction and full
power operation of new advanced nuclear facilities so that project
sponsors can invest in electric generation facilities that the
Administration and Congress believe are necessary to promote a more
diverse and secure supply of energy for the Nation.
Given that the cost to the government will be dependent on the
state of the licensing process, Congress has mandated quarterly reports
to Congress and the Secretary of the Department from the Commission
summarizing the status of licensing actions associated with the
advanced nuclear facility that voluntarily applies and is selected for
a Standby Support Contract.
The Department anticipates that the Standby Support Program will
facilitate the construction of new nuclear facilities by decreasing the
financial risks related to the combined license process. The program
establishes a maximum of $500 million in insurance as the limit for
each of the first two reactors covered and $250 million for each of the
subsequent four reactors.
Under the Federal Credit Reform Act of 1990 (FCRA), the amount of
budget authority necessary to support a Federal credit instrument
depends upon the subsidy cost (i.e., the net present value of the
estimated cash flow of payments by the government to cover the expected
value of the principal or interest on any debt obligation of the owner
of an advanced nuclear facility during covered delay). This subsidy
cost in Standby Support Program equates to the ``cost of a loan
guarantee'' under section 502(5)(C) of FCRA. Under the Standby Support
Program and FCRA, the Federal government is not authorized to extend
credit assistance unless it has sufficient funds in the Program Account
either in the form of budget authority or fees charged by the program
to offset any potential losses. The Department anticipates that all of
the funds in the Program Account needed for the Standby Support Program
will be contributed by private industry through a risk premium.
With respect to the Grant Account, section (b)(2)(C)(ii) states
that that account should contain the total cash amount that would be
needed to cover the cost of the incremental difference between the
contractual price of power and the fair market value of power, as
explained in Sec. 950.14. Given that FCRA is not mentioned with
respect to the Grant Account, the Grant Account is not funded as a
present value of expected payments like the Program Account, but
rather, is required to be funded with the upper limit of possible
payments. For example, if a sponsor elects to have a maximum of $500
million to cover the incremental cost of purchasing power from the open
market because of a delay covered by a Standby Support Contract
occurred, then the Grant Account is required to be funded with $500
million, before the Department can enter into a Standby Support
Contract with the sponsor covering the Grant Account. The Grant Account
and Program Account, jointly, address the risks addressed by the
studies mentioned above as well as respond to the Congress'
requirements in section 638.
While the exact economic effects of the Standby Support cannot be
determined, an estimate can be made from recent developments. The
benefit estimate entails the investment by the private sector in
nuclear power plants. The monetary value of reduced air pollution or
monetarily subscribing a value to energy security is not included. To
examine the benefits, the Westinghouse AP1000 reactor is used as an
example of ``advanced nuclear reactor.'' In December 2005 the
Commission approved the design of Westinghouse's AP1000 reactor that
has a capacity of 1,117 megawatts. Plant costs can be referred in
overnight capital costs terms. Overnight capital costs assume that the
plant can be built ``overnight'', and do not include interest and
financial costs. Initial overnight capital cost estimates are
approximately $1,400 per kilowatt for the first couple of plants and
decreasing to $1,000 per kilowatt for the nth plant. There are 1,000
kilowatts in a megawatt. Thus six plants represent an investment of
$6.7 billion to $9.4 billion.
The Department has concluded that the Standby Support Program will
promote the construction of new advanced nuclear facilities. The
Standby Support Program will help decrease a critical regulatory risk
factor that currently constrains the private sector from engaging in
the construction of new advanced nuclear facilities. Electricity from
nuclear energy promotes clean air by the lack of emissions, and
national security by reducing dependence on foreign sources of energy,
while being economically efficient. These benefits are anticipated to
far surpass the direct costs to the Federal government and to the
entities that elect to participate in the program.
B. Review Under Executive Order 12988
With respect to the review of existing regulations and the
promulgation of new regulations, section 3(a) of Executive Order 12988,
``Civil Justice Reform'' (61 FR 4779, February 7, 1996) imposes on
Federal agencies the general duty to adhere to the following
requirements: Eliminate drafting errors and needless ambiguity, write
[[Page 28216]]
regulations to minimize litigation, provide a clear legal standard for
affected conduct rather than a general standard, and promote
simplification and burden reduction. Section 3(b) requires Federal
agencies to make every reasonable effort to ensure that a regulation,
among other things: Clearly specifies the preemptive effect, if any,
adequately defines key terms, and addresses other important issues
affecting the clarity and general draftsmanship under guidelines issued
by the Attorney General. Section 3(c) of Executive Order 12988 requires
Executive agencies to review regulations in light of applicable
standards in section 3(a) and section 3(b) to determine whether they
are met or it is unreasonable to meet one or more of them. The
Department has completed the required review and determined that, to
the extent permitted by law; this final rule meets the relevant
standards of Executive Order 12988.
C. Review Under Executive Order 13132
Executive Order 13132 (64 FR 43255, August 10, 1999), imposes
certain requirements on agencies formulating and implementing policies
or regulations that preempt State law or that have federalism
implications. Agencies are required to examine the constitutional and
statutory authority supporting any action that would limit the
policymaking discretion of the States and carefully assess the
necessity for such actions.
Today's regulatory action has been determined not to be a ``policy
that has federalism implications,'' that is, it does not have
substantial direct effects on the states, on the relationship between
the national government and the states, nor on the distribution of
power and responsibility among the various levels of government under
Executive Order 13132 (64 FR 43255, August 10, 1999). Accordingly, no
``federalism summary impact statement'' was prepared or subjected to
review under the Executive Order by the Director of the Office of
Management and Budget.
D. Review Under Executive Order 13175
Under Executive Order 13175 (65 FR 67249, November 6, 2000) on
``Consultation and Coordination with Indian Tribal Governments,'' the
Department may not issue a discretionary rule that has ``tribal
implications'' and imposes substantial direct compliance costs on
Indian tribal governments. The Department has determined that this
final rule does not have such effects and concluded that Executive
Order 13175 does not apply to this rule.
E. Reviews Under the Regulatory Flexibility Act
The Regulatory Flexibility Act of 1980 (5 U.S.C. 601 et seq.)
requires that an agency prepare an initial regulatory flexibility
analysis for any regulation which a general notice of proposed
rulemaking is required, unless the agency certifies that the rule, if
promulgated, will not have a significant economic impact on a
substantial number of small entities (5 U.S.C. 605(b)). Given that no
general notice of proposed rulemaking is required, no regulatory
flexibility analysis is required.
F. Review Under the Paperwork Reduction Act
Section 950.10(b) contains information collection requirements
pertaining to eligibility; Sec. 950.12(a) contains information
collection requirements pertaining to fulfillment of conditions
precedent to a Standby Support Contract; and Sec. 950.23 contains
information collection requirements pertaining to submission of claims
for payment of covered costs under a Standby Support Contract. As
indicated in the DATES section of this notice of interim final
rulemaking, these provisions will not become effective until the Office
of Management and Budget (OMB) has approved them pursuant to the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) and the
procedures implementing that Act, 5 CFR 1320.1 et seq. Shortly after
publication of today's rule, the Department will issue a notice seeking
public comment under the Paperwork Reduction Act on the information
collection requirements in these sections of today's rule. After
considering any public comments received in response to that notice,
the Department will submit the proposed collection of information to
OMB for approval pursuant to 44 U.S.C. 3507. An agency may not conduct,
and a person is not required to respond to a collection of information,
unless it displays a currently valid OMB control number. After OMB
approves the information collection requirements, the Department will
publish a notice in the Federal Register that announces the effective
date and displays the OMB control number for these sections of the
rule.
G. Review Under the National Environmental Policy Act
The Department has concluded that promulgation of these regulations
fall into the class of actions that does not individually or
cumulatively have a significant impact on the human environment as set
forth in the Department regulations implementing the National
Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.).
Specifically, the rule is covered under the categorical exclusion in
paragraph A6 of Appendix A to subpart D, 10 CFR part 1021, which
applies to the establishment of procedural rulemakings. Accordingly,
neither an environmental assessment nor an environmental impact
statement is required.
H. Review Under the Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4) requires each Federal agency to prepare a written assessment of the
effects of any Federal mandate in a proposed or final agency regulation
that may result in the expenditure by states, tribal, or local
governments, on the aggregate, or by the private sector, of $100
million in any one year. The Act also requires a Federal agency to
develop an effective process to permit timely input by elected
officials of state, tribal, or local governments on a proposed
``significant intergovernmental mandate,'' and requires an agency plan
for giving notice and opportunity to provide timely input to
potentially affected small governments before establishing any
requirements that might significantly or uniquely affect small
governments. The Department has determined that the rule published
today does not contain any Federal mandates affecting states, tribal,
or local governments, so these requirements do not apply.
I. Review Under Executive Order 13211
Executive Order 13211 (Actions Concerning Regulations That
Significantly Affect Energy, Supply, Distribution, or Use), 66 FR 28355
(May 22, 2001) requires preparation and submission to OMB of a
Statement of Energy Effects for significant regulatory actions under
Executive Order 12866 that are likely to have a significant adverse
effect on the supply, distribution, or use of energy. The Department
has determined that the rule published today does not have a
significant adverse effect on the supply, distribution, or use of
energy and thus the requirement to prepare a Statement of Energy
Effects does not apply.
J. Review Under the Treasury and General Government Appropriations Act,
1999
Section 654 of the Treasury and General Government Appropriations
Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a
``Family
[[Page 28217]]
Policymaking Assessment'' for any rule that may affect family well-
being. This rule has no impact on the autonomy or integrity of the
family as an institution. Accordingly, The Department has concluded
that it is not necessary to prepare a Family Policymaking Assessment.
K. Review Under the Treasury and General Government Appropriations Act,
2001
The Treasury and General Government Appropriations Act, 2001 (44
U.S.C. 3516, note) provides for agencies to review most dissemination
of information to the public under guidelines established by each
agency pursuant to general guidelines issued by OMB. OMB's guidelines
were published at 67 FR 8452 (Feb. 22, 2002), and DOE's guidelines were
published at 67 FR 62446 (Oct. 7, 2002). The Department has reviewed
today's final rule under the OMB and Department of Energy guidelines,
and has concluded that it is consistent with applicable policies in
those guidelines.
L. Congressional Notification
As required by 5 U.S.C. 801, the Department will submit to Congress
a report regarding the issuance of today's interim final rule prior to
the effective date set forth at the outset of this rulemaking. The
report will state that it has been determined that the rule is not a
``major rule'' as defined by 5 U.S.C. 801(2).
V. Approval of the Office of the Secretary
The Secretary of Energy has approved publication of this interim
final rule.
List of Subjects in 10 CFR Part 950
Government contracts, Nuclear safety.
Issued in Washington, DC, on May 6, 2006.
Dennis R. Spurgeon,
Assistant Secretary, Office of Nuclear Energy.
0
For the reasons set forth in the preamble, the Department of Energy is
amending Chapter III of title 10 of the Code of Federal Regulations by
adding a new part 950 to read as follows:
PART 950--STANDBY SUPPORT FOR CERTAIN NUCLEAR PLANT DELAYS
Subpart A--General Provisions
Sec.
950.1 Purpose.
950.2 Scope and applicability.
950.3 Definitions.
Subpart B--Standby Support Contract Process
950.10 Conditional agreement.
950.11 Terms and conditions of Conditional Agreement.
950.12 Standby Support Contract conditions.
950.13 Standby Support Contract: General provisions.
950.14 Standby Support Contract: Covered events, exclusions, covered
delay, and covered cost provisions.
Subpart C--Claims Administration Process
950.20 General provisions.
950.21 Notification of covered event.
950.22 Covered event determination.
950.23 Claims process for payment of covered costs.
950.24 Claims determination for covered costs.
950.25 Calculation of covered costs.
950.26 Adjustments to claim for payment of covered costs.
950.27 Conditions for payment of covered costs.
950.28 Payment of covered costs.
Subpart D--Dispute Resolution Process
950.30 General.
950.31 Covered event dispute resolution.
950.32 Final determination on covered events.
950.33 Covered costs dispute resolution.
950.34 Final claim determination.
950.35 Payment of final claim determination.
950.36 Other contract matters in dispute.
950.37 Final agreement or final decision.
Subpart E--Audit and Investigations and Other Provisions
950.40 General.
950.41 Monitoring/Auditing.
950.42 Disclosure.
Authority: 42 U.S.C. 2201, 42 U.S.C. 7101 et seq., and 42 U.S.C.
16014.
Subpart A--General Provisions
Sec. 950.1 Purpose.
The purpose of this part is to facilitate the construction and full
power operation of new advanced nuclear facilities by providing risk
insurance for certain delays attributed to the Nuclear Regulatory
Commission regulatory process or to litigation.
Sec. 950.2 Scope and applicability.
This part sets forth the policies and procedures for the award and
administration of Standby Support Contracts between the Department and
sponsors of new advanced nuclear facilities.
Sec. 950.3 Definitions.
For the purposes of this part:
Act means the Energy Policy Act of 2005.
Advanced nuclear facility means any nuclear facility the reactor
design for which is approved after December 31, 1993, by the Nuclear
Regulatory Commission (and such design or a substantially similar
design of comparable capacity was not approved on or before that date).
Available indemnification means $500 million with respect to the
initial two reactors and $250 million with respect to the subsequent
four reactors.
Claims Administrator means the official in the Department of Energy
responsible for the administration of the Standby Support Contracts,
including the responsibility to approve or disapprove claims submitted
by a sponsor for payment of covered costs under the Standby Support
Contract.
Combined license means a combined construction and operating
license (COL) for an advanced nuclear facility issued by the
Commission.
Commencement of construction means the point in time when a sponsor
initiates the pouring of safety-related concrete for the reactor
building.
Commission means the Nuclear Regulatory Commission (NRC).
Conditional Agreement means a contractual agreement between the
Department and a sponsor under which the Department will execute a
Standby Support Contract with the sponsor if and only if the sponsor is
one of the first six sponsors to satisfy the conditions precedent to
execution of a Standby Support Contract, and if funding and other
applicable contractual, statutory and regulatory requirements are
satisfied.
Construction means the construction activities related to the
advanced nuclear facility encompassed in the time period after
commencement of construction and before the initiation of fuel load for
the advanced nuclear facility.
Covered cost means:
(1) Principal or interest on any debt obligation financing an
advanced nuclear facility (but excluding charges due to a borrower's
failure to meet a debt obligation unrelated to the delay); and
(2) Incremental costs that are incurred as a result of covered
delay.
Covered delay means a delay in the attainment of full power
operation of an advanced nuclear facility caused by a covered event, as
defined by this section.
Covered event means an event that may result in a covered delay due
to:
(1) The failure of the Commission to comply with schedules for
review and approval of inspections, tests, analyses and acceptance
criteria established under the combined license;
(2) The conduct of pre-operational hearings by the Commission for
the advanced nuclear facility; or
(3) Litigation that delays the commencement of full power
operations of the advanced nuclear facility.
[[Page 28218]]
Department means the United States Department of Energy.
Full power operation means the point at which the sponsor first
synchronizes the advanced nuclear facility to the electrical grid.
Grant account means the account established by the Secretary that
receives appropriations or non-Federal funds in an amount sufficient to
cover the amount of incremental costs for which indemnification is
available under a Standby Support Contract.
Incremental costs means the incremental difference between:
(1) The fair market price of power purchased to meet the
contractual supply agreements that would have been met by the advanced
nuclear facility but for a covered delay; and
(2) The contractual price of power from the advanced nuclear
facility subject to the delay.
Initial two reactors means the first two reactors covered by
Standby Support Contracts that receive a combined license and commence
construction.
Litigation means adjudication in Federal, State, or tribal courts,
including appeals of Commission decisions related to the combined
license process to such courts, but excluding administrative litigation
that occurs at the Commission related to the combined license process.
Loan cost means the net present value of the estimated cash flows
of:
(1) Payments by the government to cover defaults and delinquencies,
interest subsidies, or other payments; and
(2) Payments to the government including origination and other
fees, penalties and recoveries, as outlined under the Federal Credit
Reform Act of 1990.
Pre-operational hearing means a hearing held pursuant to the
Commission's regulation in 10 CFR 52.103.
Program account means the account established by the Secretary that
receives appropriations or loan guarantee fees in an amount sufficient
to cover the loan costs.
Program Administrator means the Department official authorized by
the Secretary to represent the Department in the administration and
management of the Standby Support Program, including negotiating with
and entering into a Conditional Agreement or a Standby Support Contract
with a sponsor.
Related party means the sponsor's parent company, a subsidiary of
the sponsor, or a subsidiary of the parent company of the sponsor.
Secretary means the Secretary of Energy or a designee.
Sponsor means a person whose application for a combined licensed
for an advanced nuclear facility has been docketed by the Commission.
Standby Support Contract means the contract that, when entered into
by a sponsor and the Program Administrator pursuant to section 638 of
the Energy Policy Act of 2005 after satisfaction of the conditions in
Sec. 950.12 and any other applicable contractual, statutory and
regulatory requirements, establishes the obligation of the Department
to compensate covered costs in the event of a covered delay subject to
the terms and conditions specified in the Standby Support Contract.
Standby Support Program means the program established by section
638 of the Act as administered by the Department of Energy.
Subsequent four reactors means the next four reactors covered by
Standby Support Contracts, after the initial two reactors, which
receive a combined license and commence construction.
System-level construction schedule means an electronic critical
path method schedule identifying the dates and durations of plant
systems installation (but excluding details of components or parts
installation), sequences and interrelationships, and milestone dates
from commencement of construction through full power operation, using
software acceptable to the Department.
Subpart B--Standby Support Contract Process
Sec. 950.10 Conditional agreement.
(a) Purpose. The Department and a sponsor may enter into a
Conditional Agreement. The Department will enter into a Standby Support
Contract with the first six sponsors to satisfy the specified
conditions precedent for a Standby Support Contract if and only if all
funding and other contractual, statutory and regulatory requirements
have been satisfied.
(b) Eligibility. A sponsor is eligible to enter into a Conditional
Agreement with the Program Administrator after the sponsor has
submitted to the Department the following information but before the
sponsor receives approval of the combined license application from the
Commission:
(1) An electronic copy of the combined license application docketed
by the Commission pursuant to 10 CFR part 52, and if applicable, an
electronic copy of the design certification or early site permit, or
environmental report referenced or included with the sponsor's combined
license application;
(2) A summary schedule identifying the projected dates of
construction, testing, and full power operation;
(3) A detailed business plan that includes intended financing for
the project including the credit structure and all sources and uses of
funds for the project, the most recent private credit rating or other
similar credit analysis for project related covered financing, and the
projected cash flows for all debt obligations of the advanced nuclear
facility which would be covered under the Standby Support Contract;
(4) The sponsor's estimate of the amount and timing of the Standby
Support payments for debt service under covered delays; and
(5) The estimated dollar amount to be allocated to the sponsor's
covered costs for principal or interest on the debt obligation of the
advanced nuclear facility and for incremental costs, including whether
these amounts would be different if the advanced nuclear facility is
one of the initial two reactors or one of the subsequent four reactors.
(c) The Program Administrator shall enter into a Conditional
Agreement with a sponsor upon a determination by the Department that
the sponsor is eligible for a Conditional Agreement, the information
provided by the sponsor under paragraph (b) of this section is accurate
and complete, and the Conditional Agreement is consistent with
applicable laws and regulations.
Sec. 950.11 Terms and conditions of the Conditional Agreement.
(a) General. Each Conditional Agreement shall include a provision
specifying that the Program Administrator and the sponsor will enter
into a Standby Support Contract provided that the sponsor is one of the
first six sponsors to fulfill the conditions precedent specified in
Sec. 950.12, subject to certain funding requirements and limitations
specified in Sec. 950.12 and any other applicable contractual,
statutory and regulatory requirements.
(b) Allocation of coverage. Each Conditional Agreement shall
include a provision specifying the amount of coverage to be allocated
under the Standby Support Contract to cover principal or interest costs
and to cover incremental costs, including a provision on whether the
allocation shall be different if the advanced nuclear facility is one
of the initial two reactors or one of the subsequent four reactors,
subject to paragraphs (c) and (d) of this section.
(c) Funding. Each Conditional Agreement shall contain a provision
that the Program Account or Grant Account shall be funded in advance of
[[Page 28219]]
execution of the Standby Support Contract and in the following manner,
subject to the conditions of paragraphs (d) and (e) of this section.
Under no circumstances will the amount of the coverage for payments of
principal and interest under a Standby Support Contract exceed 80
percent of the total of the financing guaranteed under that Contract.
(1) The Program Account shall receive funds appropriated to the
Department or a combination of appropriated funds and loan guarantee
fees that are in an amount equal to the loan costs associated with the
amount of principal or interest covered by the available
indemnification. The parties shall specify in the Conditional Agreement
the anticipated amount or anticipated percentage of the total funding
in the Program Account to be contributed by appropriated funds to the
Department, by the sponsor or by a non-federal source.
(2) The Grant Account shall receive funds appropriated to the
Department, or a combination of appropriated funds and funds from the
sponsor or other non-federal source, in an amount equal to the
incremental costs. The parties shall specify in the Conditional
Agreement the anticipated amount or anticipated percentage of the total
funding in the Grant Account to be contributed by appropriated funds to
the Department, by the sponsor, or by a non-federal source.
(d) Reconciliation. Each Conditional Agreement shall include a
provision that the sponsor shall provide no later than ninety (90) days
prior to execution of a Standby Support Contract sufficient information
for the Program Administrator to recalculate the loan costs and the
incremental costs associated with the advanced nuclear facility, taking
into account whether the sponsor's advanced nuclear facility is one of
the initial two reactors or the subsequent four reactors.
(e) Limitations. Each Conditional Agreement shall contain a
provision that limits the Department's contribution of Federal funding
to the Program Account or the Grant Account to only those amounts, if
any, that are appropriated to the Department in advance of the Standby
Support Contract for the purpose of funding the Program Account or
Grant Account. In the event the amount of appropriated funds to the
Department for deposit in the Program Account or Grant Account is not
sufficient to result in an amount equal to the full amount of the loan
costs or incremental costs under the Conditional Agreement, the sponsor
shall no later than sixty (60) days prior to execution of the Standby
Support Contract:
(1) Notify the Department that it shall not execute a Standby
Support Contract; or
(2) Notify the Department that it shall provide additional
contributions to the Program Account or Grant Account necessary to fund
the total amount of loan costs or incremental costs as specified in the
Conditional Agreement. The sponsor shall not have the option to provide
additional funds to the Program Account or Grant Account that would
fund less than the full amount necessary to fund that account.
(f) Termination of Conditional Agreements. Each Conditional
Agreement shall include a provision that the Conditional Agreement
remains in effect until such time as:
(1) The sponsor enters into a Standby Support Contract with the
Program Administrator;
(2) The sponsor has commenced construction on an advanced nuclear
facility and has not entered into a Standby Support Contract with the
Program Administrator within thirty (30) days after commencement of
construction;
(3) The sponsor notifies the Program Administrator in writing that
it wishes to terminate the Conditional Agreement, thereby extinguishing
any rights or obligations it may have under the Conditional Agreement;
(4) The Program Administrator has entered into Standby Support
Contracts that cover three different reactor designs, and the
Conditional Agreement is for an advanced nuclear facility of a
different reactor design than those covered under existing Standby
Support Contracts; or
(5) The Program Administrator has entered into six Standby Support
Contracts.
Sec. 950.12 Standby Support Contract conditions.
(a) Conditions precedent. If the Program Administrator has not
entered into six Standby Support Contracts, the Program Administrator
shall enter into a Standby Support Contract with the sponsor,
consistent with applicable statutes and regulations and subject to the
conditions set forth in paragraphs (b) and (c) of this section, upon a
determination by the Department that all the conditions precedent to a
Standby Support Contract have been fulfilled, including that the
sponsor has:
(1) A Conditional Agreement with the Department, consistent with
this subpart;
(2) A combined license issued by the Commission;
(3) Documentation that it possesses all Federal, State, or local
permits required by law to commence construction;
(4) Documentation that it has commenced construction of the
advanced nuclear facility;
(5) Documented coverage of required insurance for the project;
(6) Paid any required fees into the Program Account and the Grant
Account, as set forth in the Conditional Agreement and paragraph (b) of
this section;
(7) Provided to the Program Administrator, no later than ninety
(90) days prior to execution of the contract, the sponsor's detailed
schedule for completing the inspections, tests, analyses and acceptance
criteria in the combined license and informing the Commission that the
acceptance criteria have been met; and the sponsor's proposed schedule
for review of such inspections, tests, analyses and acceptance criteria
by the Commission, consistent with Sec. 950.14(a) and which the
Department will evaluate and approve; and
(8) Provided to the Program Administrator, no later than ninety
(90) days prior to execution of the contract, a detailed systems-level
construction schedule that includes a schedule identifying projected
dates of construction, testing and full power operation of the advanced
nuclear facility and which the Department will evaluate and approve.
(9) Provided to the Program Administrator, no later than ninety
(90) days prior to the execution of the contract, a detailed and up-to-
date plan of financing for the project including the credit structure
and all sources and uses of funds for the project, and the projected
cash flows for all debt obligations of the advanced nuclear facility.
(b) Funding. No later than thirty (30) days prior to execution of
the contract, and consistent with section 638(b)(2)(C), funds in an
amount sufficient to fully cover the loan costs or incremental costs as
specified in the Conditional Agreement have been made available and
shall be deposited in the Program Account or the Grant Account
respectively.
(c) Limitations. The Department shall not enter into a Standby
Support Contract, if:
(1) Program Account. There are insufficient funds deposited in the
Program Account to cover the loan costs of the advanced nuclear
facility under the Standby Support Contract as specified in the
Conditional Agreement and paragraph (b) of this section; or
[[Page 28220]]
(2) Grant Account. The Department has not deposited in the Grant
Account sufficient funds to cover the incremental costs of the advanced
nuclear facility under the Standby Support Contract as specified in the
Conditional Agreement and paragraph (b) of this section.
Sec. 950.13 Standby Support Contract: General provisions.
(a) Purpose. Each Standby Support Contract shall include a
provision setting forth an agreement between the parties in which the
Department shall provide compensation for covered costs incurred by a
sponsor for covered events that result in a covered delay of full power
operation of an advanced nuclear facility.
(b) Covered facility. Each Standby Support Contract shall include a
provision of coverage only for an advanced nuclear facility which is
not a federal entity. Each Standby Support Contract shall also include
a provision to specify the advanced nuclear facility to be covered,
along with the reactor design, and the location of the advanced nuclear
facility.
(c) Sponsor contribution. Each Standby Support Contract shall
include a provision to specify the amount that a sponsor has
contributed to funding each type of account.
(d) Maximum aggregate compensation. Each Standby Support Contract
shall include a provision to specify that the Program Administrator
shall not pay compensation under the contract in an aggregate amount
that exceeds the amount of coverage up to $500 million each for the
initial two reactors or up to $250 million each for the subsequent four
reactors. The Department may set a minimum amount of coverage.
(e) Term. Each Standby Support Contract shall include a provision
to specify the date at which the contract commences as well as the term
of the contract. The contract shall enter into force on the date it has
been signed by both the sponsor and the Program Administrator. Subject
to the cancellation provisions set forth in paragraph (f) of this
section, the contract shall terminate when all claims have been paid up
to the full amounts to be covered under the Standby Support Contract,
or all disputes involving claims under the contract have been resolved
in accordance with subpart D of this part.
(f) Cancellation provisions. Each Standby Support Contract shall
provide for cancellation in the following circumstances:
(1) If the sponsor abandons construction, and the abandonment is
not caused by a covered event or force majeure, the Program
Administrator may cancel the Standby Support Contract by giving written
notice thereof to the sponsor and the parties have no further rights or
obligations under the contract.
(2) If the sponsor does not require continuing coverage under the
contract, the sponsor may cancel the Standby Support Contract by giving
written notice thereof to the Program Administrator and the parties
have no further rights or obligations under the contract.
(3) For such other cause as agreed to by the parties.
(g) Termination by sponsor. Each Standby Support Contract shall
include a provision that prohibits a sponsor or any related party from
executing another Standby Support Contract, if the sponsor elects to
terminate its Standby Support Contract.
(h) Assignment. Each Standby Support Contract shall include a
provision on assignment of a sponsor's rights and obligations under the
contract. The Program Administrator shall permit assignment of rights
under the contract with the Department's prior approval. The sponsor
may not assign its rights under the contract without the prior written
approval of the Program Administrator and any attempt to do so is null
and void.
(i) Claims administration. Each Standby Support Contract shall
include a provision to specify a mechanism for administering claims
pursuant to the procedures set forth in subpart C of this part.
(j) Dispute resolution. Consistent with the Administrative Dispute
Resolution Act, each Standby Support Contract shall include a provision
to specify a mechanism for resolving disputes pursuant to the
procedures set forth in subpart D of this part.
(k) Re-estimation. Consistent with the Federal Credit Reform Act
(FCRA), the sponsor shall provide all needed documentation as required
in Sec. 950.12 to allow the Department to annually re-estimate the
loan cost needed in the financing account as that term is used in 2
U.S.C. 661a(7) and funded by the Program Account.
Sec. 950.14 Standby Support Contract: Covered events, exclusions,
covered delay and covered cost provisions.
(a) Covered events. Subject to the exclusions set forth in
paragraph (b) of this section, each Standby Support Contract shall
include a provision setting forth the type of events that are covered
events under the contract. The type of events shall include:
(1) The Commission's failure to review the sponsor's inspections,
tests, analyses and acceptance criteria in accordance with the
Commission's rules, guidance, audit procedures, or formal opinions, in
the case where the Commission has in place any rules, guidance, audit
procedures or formal opinions setting schedules for its review of
inspections, tests, analyses, and acceptance criteria under a combined
license or the sponsor's combined license;
(2) The Commission's failure to review the sponsor's inspections,
tests, analyses, and acceptance criteria on the schedule for such
review proposed by the sponsor, subject to the Department's review and
approval of such schedule, including review of any informal guidance or
opinion of the Commission that has been provided to the sponsor or the
Department, in the case where the Commission has not provided any
rules, guidance, audit procedures or formal Commission opinions setting
schedules for review of inspections, tests, analyses and acceptance
criteria under a combined license, or under the sponsor's combined
license;
(3) The conduct of a pre-operational hearing in accordance with 10
CFR 52.103; and
(4) Litigation in State, Federal or tribal courts, including
appeals of Commission decisions related to an application for a
combined license to such courts, and excluding administrative
litigation that occurs at the Commission related to the combined
license.
(b) Exclusions. Each Standby Support Contract shall include a
provision setting forth the type of events that are excluded as covered
costs under the contract, and for which any associated delay in the
attainment of full power operations is not a covered delay. The types
of excluded events are:
(1) The failure of the sponsor to take any action required by law,
regulation, or ordinance, including but not limited to:
(i) The sponsor's failure to comply with environmental laws or
regulations such as those related to pollution abatement or human
health and the environment;
(ii) The sponsor's re-performance of any inspections, tests,
analyses or re-demonstration that acceptance criteria have been met due
to Commission non-acceptance of the sponsor's submitted results of
inspections, tests, analyses, and demonstration of acceptance criteria;
(iii) Delays attributable to the sponsor's actions to redress any
deficiencies in inspections, tests,
[[Page 28221]]
analyses or acceptance criteria as a result of a Commission disapproval
of fuel loading; or
(2) Events within the control of the sponsor, including but not
limited to delays attributable to:
(i) Project planning and construction problems;
(ii) Labor-management disputes;
(iii) The sponsor's failure to perform inspections, tests, analyses
and to demonstrate acceptance criteria are met or failure to inform the
Commission of the successful completion of inspections, tests, analyses
and demonstration of meeting acceptance criteria in accordance with its
schedule;
(iv) The lack of adequate funding for construction and testing of
the advanced nuclear facility;
(v) A sponsor's decision not to continue construction or attain
full power operation unless such action is required by a court order.
(3) Normal business risks, including but not limited to:
(i) Delays attributable to force majeure events such as a strike or
the failure of power or other utility services supplied to the
location, or natural events such as severe weather, earthquake,
landslide, mudslide, volcanic eruption, other earth movement, or flood;
(ii) Government action meaning the seizure or destruction of
property by order of governmental authority;
(iii) War or military action;
(iv) Acts or decisions, including the failure to act or decide, of
any person, group, organization, or government body (excluding those
acts or decisions or failure to act or decide by the Commission that
are covered events);
(v) Supplier or subcontractor delays in performance;
(vi) Litigation, whether initiated by the sponsor or another party,
that is not a covered event under paragraph (a) of this section;
(vii) Failure to timely obtain regulatory permits or approvals that
are not covered events under paragraph (a) of this section; or (viii)
Unrealistic and overly ambitious schedules set by the sponsor.
(c) Covered delay. Each Standby Support Contract shall include a
provision for the payment of covered costs, in accordance with the
procedures in subpart C of this part for the payment of covered costs,
if a covered event(s) is determined to be the cause of delay in
attainment of full power operation, provided that:
(1) Under Standby Support Contracts for the subsequent four
reactors, covered delay may occur only after the initial 180-day period
of delay, and
(2) The sponsor has used due diligence to mitigate, shorten, and
end, the covered delay and associated costs covered by the Standby
Support Contract and demonstrated this to the Program Administrator.
(d) Covered costs. Each Standby Support Contract shall include a
provision to specify the type of costs for which the Department shall
provide payment to a sponsor for covered delay in accordance with the
procedures set forth in subparts C and D of this part. The types of
costs shall be limited to either or both, dependent upon the terms of
the contract:
(1) The principal or interest on which the loan costs for the
Program Account was calculated; and
(2) The incremental costs on which funding for the Grant Account
was calculated.
Subpart C--Claims Administration Process
Sec. 950.20 General provisions.
The parties shall include provisions in the Standby Support
Contract to specify the procedures and conditions set forth in this
subpart for the submission of claims and the payment of covered costs
under the Standby Support Contract. A sponsor is required to establish
that there is a covered event, a covered delay and a covered loss.
Sec. 950.21 Notification of covered event.
(a) A sponsor shall submit in writing to the Claims Administrator a
notification that a covered event has occurred that has delayed the
schedule for construction or testing and that may cause covered delay.
The sponsor shall submit to the Claims Administrator within thirty (30)
days of the end of the covered event and contain the following
information:
(1) A description and explanation of the covered event, including
supporting documentation of the event;
(2) The duration of the delay in the schedule for construction,
testing and full power operation, and the schedule for inspections,
tests, analyses and acceptance criteria, if applicable;
(3) The sponsor's projection of the duration of covered delay;
(4) A revised schedule for construction, testing and full power
operation, including the dates of system level construction or testing
that had been conducted prior to the event; and
(5) A revised inspections, tests, analyses, and acceptance criteria
schedule, if applicable, including the dates of Commission review of
inspections, tests, analyses, and acceptance criteria that had been
conducted prior to the event.
(b) An authorized representative of the sponsor shall sign the
notification of a covered event, certify the notification is made in
good faith, and represent that the supporting information is accurate
and complete to the sponsor's knowledge and belief.
Sec. 950.22 Covered event determination.
(a) Completeness review. Upon notification of a covered event from
the sponsor, the Claims Administrator shall review the notification for
completeness within thirty (30) days of receipt. If the notification is
not complete, the Claims Administrator shall return the notification
within thirty (30) days of receipt and specify the incomplete
information for submission by the sponsor to the Claims Administrator
in time for a determination by the Claims Administrator in accordance
with paragraph (c) of this section.
(b) Covered Event Determination. The Claims Administrator shall
review the notification and supporting information to determine whether
there is agreement by the Claims Administrator with the sponsor's
representation of the event as a covered event (Covered Event
Determination) based on a review of the contract conditions for covered
events and excluded events.
(c) Timing. The Claims Administrator shall notify the sponsor
within sixty (60) days of receipt of the notification whether the
Administrator agrees with the sponsor's representation, disagrees with
the representation, or requires further information. If the sponsor
disagrees with the Covered Event Determination, the parties shall
resolve the dispute in accordance with the procedures set forth in
subpart D of this part.
Sec. 950.23 Claims process for payment of covered costs.
(a) General. No more than 120 days of when a sponsor was scheduled
to attain full power operation and expects it will incur covered costs,
the sponsor may make a claim upon the Department for the payment of its
covered costs under the Standby Support Contract. The sponsor shall
file a Certification of Covered Costs and thereafter such Supplementary
Certifications of Covered Costs as may be necessary to receive payment
under the Standby Support Contract for covered costs.
(b) Certification of Covered Costs. The Certification of Covered
Costs shall include the following:
(1) A Claim Report, including the information specified in
paragraph (c) of this section;
(2) A certification by the sponsor that:
(i) The covered costs listed on the Claim Report filed pursuant to
this
[[Page 28222]]
section are losses to be incurred by the sponsor;
(ii) The claims for the covered costs were processed in accordance
with appropriate business practices and the procedures specified in
this subpart; and
(iii) The sponsor has used due diligence to mitigate, shorten, and
end, the covered delay and associated costs covered by the Standby
Support Contract.
(c) Claim Report. For purposes of this part, a ``Claim Report'' is
a report of information about a sponsor's underlying claims that, in
the aggregate, constitute the sponsor's covered costs. The Claim Report
shall include, but is not limited to:
(1) Detailed information substantiating the duration of the covered
delay;
(2) Detailed information about the covered costs associated with
covered delay, including as applicable:
(i) The amount of payment for principal or interest during the
covered delay, including the relevant dates of payment, amounts of
payment and any other information deemed relevant by the Department,
and the name of the holder of the debt, if the debt obligation is held
by a Federal agency; or
(ii) The underlying payment during the covered delay related to the
incremental cost of purchasing power to meet contractual agreements,
including any documentation deemed relevant by the Department to
calculate the fair market price of power.
(d) Supplementary Certification of Covered Cost. If the total
amount of the covered costs due to a sponsor under the Standby Support
Contract has not been determined at the time the Certification of
Covered Costs has been filed, the sponsor shall file monthly, or on a
schedule otherwise determined by the Claims Administrator,
Supplementary Certifications of Covered Costs updating the amount of
the covered costs owed to the sponsor. Supplementary Certifications of
Covered Costs shall include a Claim Report and a certification as
described in this section.
(e) Supplementary information. In addition to the information
required in paragraphs (b) and (c) of this section, the Claims
Administrator may request such additional supporting documentation as
required to ascertain the appropriate covered costs sustained by a
sponsor.
Sec. 950.24 Claims determination for covered costs.
(a) No later than thirty (30) days from the sponsor's submission of
a Certification of Covered Costs, the Claims Administrator shall issue
a Claim Determination identifying those claimed costs deemed to be
reasonable and appropriate based on an evaluation of:
(1) The duration of covered delay, taking into account contributory
or concurrent delays resulting from events excluded from coverage;
(2) The covered costs associated with covered delay, including an
assessment of the sponsor's due diligence in mitigating or ending
covered costs, as set forth in Sec. 950.23;
(3) Any adjustments to the covered costs, as set forth in Sec.
950.26; and
(4) Other information as necessary and appropriate.
(b) The Claim Determination shall state the Claims Administrator's
determination that the claim shall be paid in full, paid in an adjusted
amount as deemed appropriate by the Claims Administrator, or rejected
in full.
(c) Should the Claims Administrator conclude that the sponsor has
not supplied the required information in the Certification of Covered
Costs or any supporting documentation sufficient to allow reasonable
verification of the duration of the covered delay or covered costs, the
Claims Administrator shall so inform the sponsor and specify the nature
of additional documentation requested, in time for the sponsor to
supply supplemental documentation and for the Claims Administrator to
issue the Claim Determination.
(d) Should the Claims Administrator find that any claimed covered
costs are not appropriate or otherwise should be considered excluded
costs under the Standby Support Contract, the Claims Administrator
shall identify such costs and state the reason(s) for that decision in
writing. If the parties cannot agree on the covered costs, they shall
resolve the dispute in accordance with the requirements in subpart D of
this part.
Sec. 950.25 Calculation of covered costs.
(a) The Claims Administrator shall calculate the appropriate amount
of the covered costs claimed in the Certification of Covered Costs as
follows:
(1) Costs covered by Program Account Loan guarantee. The principal
or interest on any debt obligation financing the advanced nuclear
facility for the duration of covered delay to the extent the debt
obligation was included in the calculation of the loan cost; and
(2) Costs covered by Grant Account. The incremental costs
calculated for the duration of the covered delay. In calculating the
incremental cost of power, the Claims Administrator shall consider:
(i) Fair market price. The fair market price may be determined by
the lower of the two options: the actual cost of the short-term supply
contract for replacement power, purchased by the sponsor, during the
period of delay, or for each day of replacement power by its day-ahead
weighted average index price in $/MWh at the hub geographically nearest
to the advanced nuclear facility as posted on the previous day by the
Intercontinental Exchange (ICE) or an alternate electronic marketplace
deemed reliable by the Department. The daily MWh assumed to be covered
is no more than its nameplate capacity multiplied by 24 hours;
multiplied by the capacity-weighted U.S. average capacity factor in the
previous calendar year, including in the calculation any and all
commercial nuclear power units that operated in the United States for
any part of the previous calendar year; and multiplied by the average
of the ratios of the net generation to the grid for calculating
payments to the Nuclear Waste Fund to the nameplate capacity for each
nuclear unit included. In addition, the Claims Administrator may
consider ``fair market price'' from other published indices or prices
at regional trading hubs and bilateral contracts for similar delivered
firm power products and the costs incurred, including acquisition
costs, to move the power to the contract-specified point of delivery,
as well as the provisions of the covered contract regarding replacement
power costs for delivery default; and
(ii) Contractual price of power. The contractual price of power
shall be determined as the daily weighted average price in equivalent
$/MWh under a contractual supply agreement(s) for delivery of firm
power that the sponsor entered into prior to any covered event. The
daily MWh assumed to be covered is no more than the advanced nuclear
facility's nameplate capacity multiplied by 24 hours; multiplied by the
capacity-weighted U.S. average capacity factor in the previous calendar
year, including in the calculation any and all commercial nuclear power
units that operated in the United States for any part of the previous
calendar year; and multiplied by the average of the ratios of the net
generation to the grid for calculating payments to the Nuclear Waste
Fund to the nameplate capacity for each nuclear unit included.
Sec. 950.26 Adjustments to claim for payment of covered costs.
(a) Aggregate amount of covered costs. The sponsor's aggregate
amount of
[[Page 28223]]
covered costs shall be reduced by any amounts that are determined to be
either excluded or not covered.
(b) Amount of Department share of covered costs. The Department
share of covered costs shall be adjusted as follows:
(1) No excess recoveries. The share of covered costs paid by the
Department to a sponsor shall not be greater than the limitations set
forth in Sec. 950.27(d).
(2) Reduction of amount payable. The share of covered costs paid by
the Department shall be reduced by the appropriate amount consistent
with the following:
(i) Excluded claims. The Department shall ensure that no payment
shall be made for costs resulting from events that are not covered
under the contract as specified in Sec. 950.14; and
(ii) Sponsor due diligence. Each sponsor shall ensure and
demonstrate that it uses due diligence to mitigate, shorten, and to end
the covered delay and associated costs covered by the Standby Support
Contract.
Sec. 950.27 Conditions for payment of covered costs.
(a) General. The Department shall pay the covered costs associated
with a Standby Support Contract in accordance with the Claim
Determination issued by the Claims Administrator under Sec. 950.24 or
the Final Claim Determination under Sec. 950.34, provided that:
(1) Neither the sponsor's claim for covered costs nor any other
document submitted to support the underlying claim is fraudulent,
collusive, made in bad faith, dishonest or otherwise designed to
circumvent the purposes of the Act and regulations;
(2) The losses submitted for payment are within the scope of
coverage issued by the Department under the terms and conditions of the
Standby Support Contract as specified in subpart B of this part; and
(3) The procedures specified in this subpart have been followed and
all conditions for payment have been met.
(b) Adjustments to payments. In the event of fraud or
miscalculation, the Department may subsequently adjust, including an
adjustment obligating the sponsor to repay any payment made under
paragraph (a) of this section.
(c) Suspension of payment for covered costs. If the Department paid
or is paying covered costs under paragraph (a) of this section, and
subsequently makes a determination that a sponsor has failed to meet
any of the requirements for payment specified in paragraph (a) of this
section for a particular covered cost, the Department may suspend
payment of covered costs pending investigation and audit of the
sponsor's covered costs.
(d) Amount payable. The Department's share of compensation for the
initial two reactors is 100 percent of the covered costs of covered
delay but not more than the coverage in the contract or $500 million
per contract, whichever is less; and for the subsequent four reactors,
not more than 50 percent of the covered costs of the covered delay but
not more than the coverage in the contract or $250 million per
contract, whichever is less. The Department's share of compensation for
the subsequent four reactors is further limited in that the payment is
for covered costs of a covered delay that occurs after the initial 180-
day period of covered delay.
Sec. 950.28 Payment of covered costs.
(a) General. The Department shall pay to a sponsor the appropriate
covered costs due the sponsor, provided that there are no disputes
between the sponsor and the Department. Payment shall be made in such
installments and on such conditions as the Department determines
appropriate. Any overpayments by the Department of the covered costs
shall be offset from future payments to the sponsor or returned by the
sponsor to the Department within forty-five (45) days. If there is a
dispute, then the Department shall pay the undisputed costs and defer
payment of the disputed portion upon resolution of the dispute in
accordance with the procedures in subpart D of this part. If the
covered costs include principal or interest owed on a loan made or
guaranteed by a Federal agency, the Department shall instead pay that
Federal agency the covered costs, rather than the sponsor.
(b) Timing of payment. The sponsor may receive payment of covered
costs when:
(1) The Department has approved payment of the covered cost as
specified in this subpart; and
(2) The sponsor has incurred and is obligated to pay the costs for
which payment is requested.
(c) Payment process. The covered costs shall be paid to the sponsor
designated on the Certification of Covered Costs required by Sec.
950.23. A sponsor that requests payment of the covered costs must
receive payment through electronic funds transfer.
Subpart D--Dispute Resolution Process
Sec. 950.30 General.
The parties, i.e., the sponsor and the Department, shall include
provisions in the Standby Support Contract that specify the procedures
set forth in this subpart for the resolution of disputes under a
Standby Support Contract. Sec. Sec. 950.31 and 950.32 address disputes
involving covered events; Sec. Sec. 950.33 and 950.34 address disputes
involving covered costs; and Sec. Sec. 950.36 and 950.37 address
disputes involving other contract matters.
Sec. 950.31 Covered event dispute resolution.
(a) If a sponsor disagrees with the Covered Event Determination
rendered in accordance with Sec. 950.22 and cannot resolve the dispute
informally with the Claims Administrator, then the disagreement is
subject to resolution as follows:
(1) A sponsor shall, within thirty (30) days of receipt of the
Covered Event Determination, deliver to the Claims Administrator
written notice of a sponsor's rebuttal which sets forth reasons for its
disagreement, including any expert opinion obtained by the sponsor.
(2) After submission of the sponsor's rebuttal to the Claims
Administrator, the parties shall have fifteen (15) days during which
time they must informally and in good faith participate in mediation to
attempt to resolve the disagreement before instituting the process
under paragraph (b) of this section. If the parties reach agreement
through mediation, the agreement shall constitute a Final Determination
on Covered Events.
(3) The parties shall jointly select the neutral(s). The parties
shall share equally the cost of the mediation.
(b) If the parties cannot resolve the disagreement through
mediation under the timeframe established under paragraph (a)(2) of
this section and the sponsor elects to continue pursuing the claim, the
sponsor shall within ten (10) days submit any remaining issues in
controversy to the Department of Energy Board of Contract Appeals
(Board) or its successor, for binding resolution by an Administrative
Judge of the Board utilizing the Board's Summary Trial with Binding
Decision process. The parties shall abide by the procedures of the
Board for Summary Trial with Binding Decision. The parties agree that
the decision of the Board constitutes a Final Determination on Covered
Events.
[[Page 28224]]
Sec. 950.32 Final Determination on covered events.
(a) If the parties reach a Final Determination on Covered Events
through mediation, or Summary Trial with Binding Decision as set forth
in this subpart, the Final Determination on Covered Events is a final
settlement of the issue, made by the sponsor and the Program
Administrator. The sponsor, and the Department, may rely on, and
neither may challenge, the Final Determination on Covered Events in any
future Certification of Covered Costs related to the covered event that
was the subject of that Initial Determination.
(b) The parties agree that no appeal shall be taken or further
review sought, and that the Final Determination on Covered Events is
final, conclusive, non-appealable and may not be set aside, except for
fraud.
Sec. 950.33 Covered costs dispute resolution.
(a) If a sponsor disagrees with the Claim Determination rendered in
accordance with Sec. 950.24 and cannot resolve the dispute informally
with the Claims Administrator, then the parties agree that any dispute
must be resolved as follows:
(1) A sponsor shall, within thirty (30) days of receipt of the
Claim Determination, deliver to the Claims Administrator in writing
notice of and reasons for its disagreement (Sponsor's Rebuttal),
including any expert opinion obtained by the sponsor.
(2) After submission of the sponsor's rebuttal to the Claims
Administrator, the parties have fifteen (15) days to informally and in
good faith participate in mediation to resolve the disagreement before
instituting the process under paragraph (b) of this section. If the
parties reach agreement through mediation, the agreement shall
constitute a Final Claim Determination.
(3) The parties shall jointly select the mediator(s). The parties
shall share equally the cost of the mediator(s).
(b) If the parties cannot resolve the disagreement through
mediation under the timeframe established under paragraph (a)(2) of
this section, any remaining issues in controversy shall be submitted by
the sponsor within ten (10) days to the Department of Energy Board of
Contract Appeals (Board) or its successor, for binding arbitration by
an Administrative Judge of the Board utilizing the Board's Summary
Trial with Binding Decision process. The parties shall abide by the
procedures of the Board for Summary Trial with Binding Decision. The
parties agree that the decision of the Board shall constitute a Final
Claim Determination.
Sec. 950.34 Final claim determination.
(a) If the parties reach a Final Claim Determination through
mediation, or Summary Trial with Binding Decision as set forth in this
subpart, the Final Claim Determination is a final settlement of the
issue, made by the sponsor and the Program Administrator.
(b) The parties agree that no appeal shall be taken or further
review sought and that the Final Claim Determination is final,
conclusive, non-appealable, and may not be set aside, except for fraud.
Sec. 950.35 Payment of final claim determination.
Once a Final Claim Determination is reached by the methods set
forth in this subpart, the parties intend that such a Final Claim
Determination shall constitute a final settlement of the claim and the
sponsor may immediately present to the Department a Final Claim
Determination for payment.
Sec. 950.36 Other contract matters in dispute.
(a) If the parties disagree over terms or conditions of the Standby
Support Contract other than disagreements related to covered events or
covered costs, then the parties shall engage in informal dispute
resolution as follows:
(1) The parties shall engage in good faith efforts to resolve the
dispute after written notification by one party to the other that there
is a contract matter in dispute.
(2) If the parties cannot reach a resolution of the matter in
disagreement within thirty (30) days of the written notification of the
matter in dispute, then the parties shall have fifteen (15) days during
which time they must informally and in good faith participate in
mediation to attempt to resolve the disagreement before instituting the
process under paragraph (b) of this section. If the parties reach
agreement through mediation, the agreement shall constitute a Final
Agreement on the matter in dispute.
(3) The parties shall jointly select the neutral(s). The parties
shall share equally the cost of the mediation.
(b) If the parties cannot resolve the disagreement through
mediation under the timeframe established in paragraph (a)(2) of this
section and either party elects to continue pursuing the disagreement,
that party shall within ten (10) days submit any remaining issues in
controversy to the Department of Energy Board of Contract Appeals
(Board) or its successor, for binding resolution by an Administrative
Judge of the Board utilizing the Board's Summary Trial with Binding
Decision process. The parties shall abide by the procedures of the
Board for Summary Trial with Binding Decision. The parties shall agree
that the decision of the Board constitutes a Final Decision on the
matter in dispute.
Sec. 950.37 Final agreement or final decision.
(a) If the parties reach a Final Agreement on a contract matter in
dispute through mediation, or a Final Decision on a contract matter in
dispute through a Summary Trial with Binding Decision as set forth in
this subpart, the Final Agreement or Final Decision is a final
settlement of the contract matter in dispute, made by the sponsor and
the Program Administrator.
(b) The parties agree that no appeal shall be taken or further
review sought, and that the Final Agreement or Final Decision is final,
conclusive, non-appealable and may not be set aside, except for fraud.
Subpart E--Audit and Investigations and Other Provisions
Sec. 950.40 General.
The parties shall include a provision in the Standby Support
Contract that specifies the procedures in this subpart for the
monitoring, auditing and disclosure of information under a Standby
Support Contract.
Sec. 950.41 Monitoring/Auditing.
The Department has the right to audit any and all costs associated
with the Standby Support Contracts. Auditors who are employees of the
United States government, who are designated by the Secretary of Energy
or by the Comptroller General of the United States, shall have access
to, and the right to examine, at the sponsor's site or elsewhere, any
pertinent documents and records of a sponsor at reasonable times under
reasonable circumstances. The Secretary may direct the sponsor to
submit to an audit by a public accountant or equivalent acceptable to
the Secretary.
Sec. 950.42 Disclosure.
Information received from a sponsor by the Department may be
available to the public subject to the provision of 5 U.S.C. 552, 18
U.S.C. 1905 and 10 CFR part 1004; provided that:
(a) Subject to the requirements of law, information such as trade
secrets, commercial and financial information that a sponsor submits to
the Department in writing shall not be disclosed without prior notice
to the sponsor in accordance with Department regulations concerning the
public disclosure of information. Any submitter asserting that the
information is privileged or confidential should
[[Page 28225]]
appropriately identify and mark such information.
(b) Upon a showing satisfactory to the Program Administrator that
any information or portion thereof obtained under this regulation
would, if made public, divulge trade secrets or other proprietary
information, the Department may not disclose such information.
[FR Doc. 06-4398 Filed 5-12-06; 8:45 am]
BILLING CODE 6450-01-P