Honeywell Intern., Inc. v. Nuclear Regulatory Com'n
| Decision Date | 21 December 2010 |
| Docket Number | No. 10-1022,10-1022 |
| Citation | 393 U.S.App.D.C. 340,628 F.3d 568 |
| Parties | HONEYWELL INTERNATIONAL, INC., Petitioner v. NUCLEAR REGULATORY COMMISSION and United States of America, Respondents. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
On Petition for Review of an Order of the Nuclear Regulatory Commission.
Tyson R. Smith argued the cause for petitioner. With him on the briefs was David A. Repka.
Robert M. Rader, Senior Attorney, U.S. Nuclear Regulatory Commission, argued the cause for respondent. With him on the brief were Robert Dreher, Acting Assistant Attorney General, U.S. Department of Justice, John E. Arbab, Attorney, Stephen G. Burns, General Counsel, U.S. Nuclear Regulatory Commission, and John F. Cordes Jr., Solicitor.
Before: ROGERS, BROWN and GRIFFITH, Circuit Judges.
In 2007 and 2008, the Nuclear Regulatory Commission granted the requests of Honeywell International, Inc. for exemptions from the regulatory requirement that licensees have a tangible net worth at least 10 times the current decommissioning cost estimate of its licensed facility. In each instance, the Commission justified the exemption by considering the value of Honeywell's goodwill, an intangible asset.1 Yet the Commission denied a third exemption request in 2009 without considering the value of goodwill. Honeywell contends that the Commission's action was arbitrary and capricious for lack of a reasoned explanation. For the following reasons we grant the petition.
The Commission's regulations provide that licensees that operate facilities requiring the receipt, possession, use, transfer, or delivery of uranium source and byproduct materials must provide financial assurance for the decommissioning of such facilities. See 10 C.F.R. § 40.36(e). Where as here the licensee is a commercial company that issues bonds, it may, in lieu of other methods such as obtaining a surety, see id. § 40.36(e)(2), "provide reasonable assurance of the availability of funds for decommissioning based on furnishing its own guarantee that funds will be available for decommissioning costs and on a demonstration that the company passes the financial test of Section II." Id. pt. 30, app. C., § I. Section II in turn requires, as relevant, that a company have: (1) "[t]angible net worth at least 10 times the total current decommissioning cost estimate for the total of all facilities ... for all decommissioning activities for which the company is responsible as self-guaranteeing licensee"; (2) "assets located in the United States amounting to at least 90 percent of total assets or at least 10 times the total current decommissioning cost estimate"; and (3) "[a] current rating for its most recent bond issuance of AAA, AA, or A as issued by Standard and Poor [']s ... or ... Moody[']s." Id. pt. 30, app. C., § II.A. The regulations also include a provision for exemptions:
The Commission may, upon application of any interested person or upon its own initiative, grant such exemptions from the requirements of the regulation in this part as it determines are authorized by law and will not endanger life or property or the common defense and security and are otherwise in the public interest.
Id. § 40.14.
Honeywell owns and operates Honeywell Metropolis Works, a facility in Illinois that chemically converts uranium ore concentrates,commonly known as "yellowcake," into uranium hexafluoride (UF6), a material used in nuclear power reactors. It is required to obtain a source materials license from the Commission, see id. § 40.3, and, pursuant to 10 C.F.R. § 40.36(e), to provide financial assurance that it has resources to decommission its facility. Honeywell last applied in 2005 to renew Source Materials License SUB-526 for ten years, noting that the financial assurance for decommissioning costs had previously been provided by a corporate self-guarantee.
In November 2006, Honeywell, at the Commission's behest, reviewed its compliance with 10 C.F.R. § 40.36(e) and, upon finding certain periods of noncompliance, informed the Commission that it would seek an exemption from the 10:1 tangible net worth to decommissioning cost requirement. On December 1, 2006, Honeywell formally requested a section 40.14 exemption from the 10:1 ratio requirement, seeking permission to include the value of its goodwill, an intangible asset, in the tangible net worth calculation. Honeywell represented that as of December 31, 2006 it had an "A" bond rating from Standard & Poor's, tangible net worth of $70,000,000, and goodwill valued at $8,403,000,000, a number well in excess of 10 times the $156,440,898 estimated decommissioning cost. Letter from David J. Anderson, Senior Vice President & Chief Fin. Officer, Honeywell, to Dir., Office of Nuclear Material Safety & Safeguards, NRC (Mar. 30, 2007).
The Commission, by letter of May 11, 2007, granted Honeywell's ten-year license renewal application. See Letter from Gary S. Janosko, Deputy Dir., Fuel Facility Licensing Directorate, Div. of Fuel Cycle Safety & Safeguards, Office of Nuclear Material Safety & Safeguards, NRC, to David Edwards, Plant Manager, Honeywell Metropolis Works, Honeywell (May 11, 2007). See generally 10 C.F.R. § 1.42. It also granted Honeywell a one-year exemption, commencing May 11, 2007, allowing the use of goodwill in satisfying the 10:1 tangible net worth to decommissioning liability requirement. License Condition 26 required Honeywell to verify its eligibility for the self-guarantee by submitting for Commission approval the results of the financial test and supporting documentation within 120 days of the close of each fiscal year. The time-limited exemption was set forth in License Condition 27.
The accompanying technical evaluation report explained that the exemption request was justified on two related grounds. First, a licensee's ability to pay "under normal circumstances is regularly rated by the bond rating agencies," with "[a] rating of 'A' or higher indicat[ing] a very low probability of default on a company's bonds." Technical Evaluation Report for the Renewal of Source Materials License SUB-526 for Honeywell Metropolis Works UF6 Conversion Plant, Metropolis, Illinois, Docket 40-3392, at 53 (May 11, 2007) ("2007 Report"). Even in times of "financial distress," the Commission explained, "a transition from the 'A' rating to a default has not occurred within a one year time span during the period 1983 to 2005 for bonds rated by either Moody's or Standard and Poor's." Id. Noting, however, that "[t]he default rate rises as the time span for default extends greater than one year," the Commission stated that "the financial test to qualify for using the self guarantee must be repeated annually, to assure that the risk of default remains low for the next year." Id. Second, the Commission explained that a "licensee's ability to pay under conditions of financial distress relates to the ratio of assets to decommissioning liability" and recognized that "if goodwill assets are included in net worth, Honeywell's ratio exceeds 35 to 1."Id. The Commission concluded that "[i]n view of the 'A' bond rating and the high ratio of net worth (including goodwill) to decommissioning obligation, the likelihood that assets will be available for decommissioning in the event of financial distress in the next year is adequate." Id. The Commission noted, however, that the ongoing evaluation of the self-guarantee regulations might cause reconsideration of the adequacy of using goodwill. 2See id. at 54.
Honeywell applied for a second exemption on April 11, 2008, to continue until the earlier of either May 11, 2009 or the effective date of a final rule amending 10 C.F.R. Part 30, Appendix C consistent with the proposed rule published January 22, 2008. When Honeywell's net worth was calculated using goodwill, it met the 10:1 ratio; however, without goodwill its tangible net worth was insufficient to meet the self-guarantee requirement and in fact declined to a negative amount during this period. Honeywell passed the annual self-guarantee financial test for fiscal year 2006 under License Condition 26, in view of License Condition 27, given Honeywell's $9,175,000,000 in goodwill assets at the close of its fiscal year. Letter from Michael D. Tschiltz, Deputy Dir., Div. of Fuel Cycle Safety & Safeguards, Office of Nuclear Material Safety & Safeguards, NRC, to David J. Anderson, Senior Vice President & Chief Fin. Officer, Honeywell (Aug. 22, 2008).
By letter of August 22, 2008, the Commission granted Honeywell's request to extend the exemption for another year, allowing the use of goodwill in satisfying the 10:1 ratio requirement. See Letter from Daniel H. Dorman, Dir., Div. of Fuel Cycle Safety & Safeguards, Office of Nuclear Material Safety & Safeguards, NRC, to Mitch Tillman, Plant Manager, Honeywell Metropolis Works, Honeywell (Aug. 22, 2008). The new exemption was approved as Amendment 2 to License Condition 27 of Honeywell's Source Materials License. The Commission found that Honeywell had increased its net income, current assets, and earnings per share, pointing to Honeywell's letter of May 15, 2008, which represented that it maintains $21.9 billion in total assets in the United States. See Extension of One-Year Exemption from the Requirements of 10 CFR 30, Appendix C, Regarding Decommissioning Financial Assurance at 2 ("2008 Report"). The Commission also found that after covering an additional $225 million in decommissioning liabilities to other federal and state agencies through guarantees for an aggregate decommissioning liability of $382 million, the ratio of Honeywell's net worth, with inclusion of goodwill, to decommissioning costs was approximately 21:1 as of March 31, 2008. The Commission noted that Honeywell continued to maintain a long-term credit rating of "A" as assigned by Standard & Poor's. "Because the basis for granting the original exemption...
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