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Focusing the FOCD Restriction on National Security 

Foreign Ownership Control or Domination 

Public Meeting (June 19, 2013)

John E. Matthews

jmatthews@morganlewis.com

202.739.5524
Foreign Investment In U.S. Nuclear 

Projects Is in the National Interest

• Creates jobs in America.

• Facilitates the development of domestic infrastructure 

that is important to U.S. future.

• Improves liquidity and enhances the value of U.S. 

nuclear assets.

• More resources should help lead to safer, better performance.

• FOCD restrictions should be enforced as necessary to 

protect the national security interests of the United 

States.

• But, foreign participation in the U.S. nuclear industry from 

friendly countries does not present safety or security concerns.

2
3

Foreign Investment in

U.S. Nuclear Reactors 

• Statutory Issue:

• Atomic Energy Act, 

Sections 103d & 104d

“No license may be issued to 

an alien or any corporation or 

other entity if the Commission 

knows or has reason to believe 

it is owned, controlled, or 

dominated by an alien, a 

foreign corporation, or a 

foreign government.”
4

• Early Developments

• General Electric (1966) (“SEFOR”)

• Legislative History (5% limitation removed from statute)

• Commission opines that the foreign ownership, control, or domination 

(FOCD) limitation should be “given an orientation toward safeguarding the 

national defense and security.”

• Reaffirmed in Commonwealth Edison (Zion) (1969)

• General Atomics (1973)

• 50% ownership by Royal Dutch/Shell

• “AmerGen”-like Conditions

• Babcock & Wilcox – McDermott International (1982)

• Domiciled in Panama, but U.S. owned and controlled

• Electric Industry Restructuring (1990s)

• Transition to Merchant Generation

• Opportunity for Foreign Investment

Background
• NRC Guidance makes clear FOCD determination is to be 

based upon the totality of the facts.

• The Commission has consistently maintained that the 

limitation on FOCD “should be given an orientation toward 

safeguarding the national defense and security.”

• General Elec. Co. and Southwest Atomic Energy Assoc. (Southwest Experimental 

Fast Oxide Reactor (SEFOR)), 3 AEC 99, 100 (1966). 

• This position is reaffirmed in the Standard Review Plan 

(SRP) on FOCD.

• “The foreign control determination is to be made with an orientation toward the 

common defense and security.” 64 FR 52,355, 52,357 (Sept. 28, 1999). 

Background

(continued)

5
• In SEFOR the Commission observed that “[t]he ability to 

restrict or inhibit compliance with the security or other 

regulations of AEC, and the capacity to control the use 

of nuclear fuel and to dispose of special nuclear 

material generated in the reactor, would be of greatest 

significance.” 3 AEC at 101. 

• These were “the indicia of control or domination which would 

have special significance in view of the apparent objective of 

Section 104(d) to avert any risk to national security that might 

ensu[]e as a result of alien control of a reactor facility.” 3 AEC at 102.

• Factors relating to national security interests should be given 

highest priority.

Background

(continued)

6
Foreign Involvement in Safety Activities 

Is Necessary

• Foreign companies are involved in designing and constructing plants.

• These companies must be accountable to meet nuclear safety and quality assurance 

requirements.

• This involvement is not prohibited by the FOCD restrictions.

• Robust safety systems already protect against the risk that external 

stakeholders might have inappropriate “influence” over a licensee.

• This risk exists from non-foreign stakeholders such as state regulators, owners, 

political officials, etc. 

• Nevertheless, this potential influence is mitigated, because licensee personnel are 

responsible for ensuring safety and security notwithstanding any external pressure.

• Existing safety and oversight programs in the industry provide extensive 

“defense-in-depth.”

• QA, CAP, ROP, Inspection Program.

• Assure that any inappropriate influence that could compromise safety (whether foreign or 

domestic) would be identified, elevated and addressed by the licensee and/or NRC.

7
The NRC’s FOCD SRP Should be Revised 

to Focus on National Security

• We need a “fresh assessment” of the SRP.

• National Security is the primary purpose of the FOCD restriction.

• National Security realities today are different than they were 30-60 

years ago:

• Reactor Technology is no longer Restricted Data.

• In the 1960s and 1970s U.S. companies dominated the technology 

(export), but today foreign owned companies are suppliers to the U.S. 

industry (import).

• The existing operating plants in the United States depend upon a global 

nuclear industry.

• NRC has the flexibility to construe the FOCD restriction as focused 

on national security concerns.

8
The “Country of Origin” Should Matter

• In 1998, the NRC staff’s information 

paper for the FOCD SRP stated:

“Previous Commission decisions with 

respect to foreign ownership, control, or 

domination did not distinguish among the 

home countries of the ultimate owners of 

the applicants. Thus, the staff does not 

intend to use considerations of the home 

country of BE, plc [British Energy], in its 

determinations of foreign, ownership, 

control, or domination.”

• Commissioner McGaffigan objected 

to this approach, indicating that he 

preferred “attention to the realities of 

national security.”

9
The “Country of Origin” Should Matter

• In the Safety evaluation for the 

first AmerGen approval (TMI-1), 

the NRC staff acknowledged 

that British Energy was from the 

United Kingdom, which has 

positive credentials: 

• This is “consistent with a favorable 

determination,” because the FOCD

prohibition “should be given an 

orientation toward safeguarding the 

national defense and security.”

10
The “Country of Origin” Should Matter

• Nuclear Suppliers Group (NSG) Countries 

(10 CFR 110.30).

• All adhere to NSG Guidelines to ensure that 

nuclear trade for peaceful purposes does not 

contribute to proliferation of nuclear weapons, 

including provisions for:

• Physical Protection;

• Safeguards;

• Export Controls;

• Special Controls on Sensitive Exports;

• Control of Material.

• These Guidelines submitted to the IAEA and 

disseminated to all Member States

• NRC Policy should presume that Companies 

from NSG countries are responsible 

participants in the global nuclear industry.

11
Negation Measures Are Adequate if U.S. 

Citizens Are Vested With Authority

• Commission Policy should be restated to make clear that negation 

measures are acceptable if they adopt formal mechanisms to 

provide U.S. citizens with adequate authority to protect against 

foreigners causing:

• Diversion of special nuclear material;

• Diversion of nuclear technology (whenever nonproliferation concerns are 

present);

• Diversion of national security information; or

• Disruption of the licensee’s ability to comply with NRC requirements.

• I.e., There must be U.S. citizens under NRC’s jurisdiction and accountable 

to the NRC.

• Where the foreign investor is from an NSG country, minimal 

measures should be necessary.

• There should be a rebuttable presumption that foreign companies from NSG

countries will respect the negation measures.

12
Foreign Funding Is Not Problematic

(Unless from a Suspicious Country)

• The SRP should be revised to provide that foreign funding is not 

a factor of concern, unless:

• The foreign investor is given specific “control” rights.

• The foreign investor is from a suspicious country, e.g., North Korea, Iran.

• It should be presumed that investors from NSG countries would 

not use funding to exert direct or indirect “influence” in order to 

circumvent the negation measures:

• These foreign companies have no motive to gain access to technology or 

material, because they already have both.

• These foreign companies are respected participants in the global nuclear 

industry, and they are compliance oriented.

• These foreign companies have every motive to assure compliance with 

U.S. requirements, including FOCD negation measures.

13
Foreign Funding Is Not Problematic

(Unless from a Suspicious Country)

• Foreign funding should not be presumed to impede the 

effectiveness and enforceability of negation measures.

• Formal corporate governance structures requiring U.S. 

citizen control satisfy the letter and spirit of FOCD SRP: 

• U.S. citizens will not abandon their obligations to the U.S. 

Government due to “influence” from foreign funding.

• Existing safety programs assure that any legitimate safety issues 

would surface for resolution through the formal mechanisms.

• NRC Policy should be based upon a rebuttable 

presumption of compliance.

14
“Safe Harbors” for De Minimis

Foreign Ownership

• Unless a foreign company has special “control” rights, such as the right 

to appoint Executive Personnel (CEO or CNO) and/or to appoint 

members of the Board (with 20% or more of voting power), the 

following should be “Safe Harbors” where FOCD review is 

unnecessary: 

• Ownership of less than 10% of the voting stock of a publicly traded 

company.

• Ownership of less than 20% of the voting stock of a publicly traded 

company, where the owner has filed a Schedule 13G with the 

Securities and Exchange Commission.

• Schedule 13 G requires a certification that the ownership is not 

acquired “with any purpose, or with the effect of, changing or 

influencing control of the issuer.” 17 CFR 240.13d-1(c)(1).

15
16

Case Study: AmerGen

• Joint Venture of PECO Energy & British Energy

• Formed to acquire and operate commercial nuclear reactors in the 

United States

• Governance in LLC Operating Agreement

• 6 Member Management Committee

• 3 appointed by BE (U.K. citizens), and 3 by PECO (U.S. citizens)

• Chairman appointed by PECO has “casting” vote on matters involving 

nuclear safety or security

• BE retains voice (unanimous decision) in business decisions 

• Annual budgets, acquisitions, mergers, dissolution, major litigation 

settlements, permanent shutdown of reactors, life extension

• BE Plays Role in AmerGen Operations

• President position held by BE executives

• Management/supervisory personnel assigned to AmerGen sites
17

Case Study: National Grid

• National Grid acquires New England Electric System (NEES)

• NEES subsidiary New England Power (NEP) holds “owner” licenses:

• 9.9% of Seabrook (≈110 MWe)

• 16.2% of Millstone (≈185 MWe) – including 4% from Montaup

• Involves 100% indirect foreign ownership of minority owner licensee

• Negation Action Plan

• Nuclear decision-making assigned to Committee of NEP Board

• 3 directors are U.S. citizens, majority are independent

• Independent directors appointed by foreign owner

• Full Board reserves limited authority

• Closure & decommissioning or license renewal

• Sale, lease or other disposition

• Conditions imposed by litigation settlement

• All NEP Board members must be U.S. citizens

• Compliance with NRC Orders delegated to Committee
18

Case Study: EDF-CEG

• Électricité de France SA and Constellation Energy Group

• EDF to Acquire 49.99% of Constellation Energy Nuclear Group 

• CENG owns and operates 5 reactor units

• Governance of CENG (like AmerGen)

• 10 directors

• 5 appointed by EDF (French citizens); 5 appointed by CEG (U.S. citizens)

• CEG appoints Chairman, who has deciding vote on nuclear security, 

safety and reliability matters (“exigent” matters)

• EDF appoints the CFO

• EDF retains voice (unanimous decision) in business decisions 

• Annual budgets, acquisitions, mergers, dissolution, major litigation settlements, 

permanent shutdown of reactors, life extension

• Nuclear Advisory Committee

• Independent appointees assess and annually report on FOCD issue

• EDF Stock Ownership in CEG (9.5%)

• Investor Agreement provides that shares are voted per Board recommendation, 

except special circumstances (merger, sale, dissolution)
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CONCLUSION

• The FOCD SRP should be revised to focus on national security.

• Foreign participation by companies from NSG countries should be 

authorized with minimal negation measures to assure U.S. citizens 

control security and licensee accountability to NRC. 

• Rebuttable presumption that foreign companies from NSG countries will comply. 

• Higher scrutiny would apply if participation is from a foreign company that is not 

from an NSG country.

• Foreign funding ordinarily should not be of concern, unless:

• Foreign investor is given specific “control” rights.

• Foreign investor is from a suspicious country, e.g., North Korea, Iran.

• Negation measures should be acceptable, if U.S. citizens have 

adequate authority to prevent foreign interests from:

• Diverting special nuclear material or nuclear technology.

• Gaining access to classified information.

• Disrupting the licensee’s ability to comply with NRC requirements.

• I.e, Accountable U.S. citizens are subject to NRC jurisdiction.
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