NOTATION VOTE

RESPONSE SHEET

TO: Annette Vietti-Cook, Secretary
FROM: Commissioner Baran
SUBJECT: SECY-14-0089: FRESH ASSESSMENT OF FOREIGN

OWNERSHIP, CONTROL, OR DOMINATION OF
UTILIZATION FACILITIES

Approved X__ (In Part) Disapproved Abstain

Not Participating

COMMENTS: Below Attached _X__ None

Z.

SIGNATURE
afelix
DATE

Entered on “STARS” Yes_X__No__


| agree with Commission Baran that the remaining options have “serious drawbacks.” Option 1,
maintaining the status quo, does not address the issues which led the Commission to direct the
staff to perform a fresh assessment of FOCD issues. In particular, it would not provide needed
guidance to the staff regarding foreign financing nor would it provide explicit guidance indicating
that the degree of mitigation required should depend on the degree of FOCD. | do not see
Option 2 as a useful exercise, as | do not anticipate that a new attempt to put forth a legislative
Proposal would have any greater chance of success than our prior efforts at legislative change.
| agree with Commissioners Baran and Ostendorff that that the alternative approaches
proposed in Option 4 would be cumbersome and would undercut the streamlining provided by
the Part 52 licensing process. | do not support establishing bright lines or safe harbors. | agree
with the staff that such an approach may not adequately allow for mitigation of foreign control or
domination.

Finally, | would like to address the issue of the required inimicality finding. One reason | found it
challenging to fully evaluate the FOCD issues presented by the staff was the lack of information
in the paper on how national security concerns would be addressed under the FOCD and
inimicality reviews. The staff went to great lengths in SECY-14-0089 in an attempt to separate
national security concerns from the agency’s FOCD reviews, without providing a thorough
explanation of why this is necessary. As the staff pointed out, both are addressed separately in
the Atomic Energy Act of 1954, as amended. However, as is pointed out in the FOCD SRP,

The Commission has stated that in context with the other provisions of Section
104d, the foreign control limitation should be given an orientation toward
safeguarding the national defense and security. Thus, an applicant that may
pose a risk to national security by reason of even limited foreign ownership would
be ineligible for a license.”

| agree with Commissioner Baran and Commissioner Ostendorff that the staff should provide a
SECY paper to the Commission within 6 months of the SRM on SECY-14-0089 presenting
options for developing a formalized method of performing inimicality reviews and that this
process should include procedures for consulting with the intelligence community. The staff
itself acknowledged that a formalized process for conducting inimicality reviews is needed. |
also agree with Commissioner Ostendorff that the Commission should have a role in the
inimicality review when FOCD is implicated and that, in developing guidance, the staff should
clearly indicate how the country-specific inimicality review relates to the staffs FOCD review.
Lastly, | would like to commend the non-concurring staff members for raising these very
important issues for the Commission's consideration.

However, it is important to note that, until the Commission has approved new guidance for both
FOCD and inimicality reviews, the NRC staff should not implement any changes to the FOCD
review process.

Stephen G. Burns
April 2015

? Final SRP on FOCD, 64 Fed. Reg. 52,358 (Sept. 28, 1999) at 52,53 (citing General Electric Company and
Southwest Atomic Energy Associates (Southwest Experimental Fast Oxide Reactor (SEFOR)) 3 AEC 99 (1996)).


Option 3

| agree that the FOCD SRP should be revised and a regulatory guide developed. Therefore, |
approve Option 3. The staff should revise the FOCD SRP and develop a regulatory guide to
include graded NAP criteria that would mitigate the potential for control or domination of
licensee decision-making by a foreign entity. The FOCD SRP and regulatory guide should
affirm the use of license conditions to incorporate NAPs and the staff's case-by-case, “totality of
facts” review approach. The FOCD SRP and regulatory guide should provide additional
guidance in analyzing foreign financing, discussing how the financing may result in control or
domination, and indicating how, if at all, this control or domination can be mitigated. This option
provides flexibility to more closely tailor NAPs to the degree of FOCD. This option also provides
applicants with greater clarity regarding the staff's treatment of FOCD issues. In particular, it will
clarify that, consistent with our past practice, we do not consider indirect foreign ownership to
render an applicant ineligible to hold a license.

Option 5

| also approve Option 5. | agree with the staff that reading the statutory term “owned” to mean
only direct ownership is legally supportable. As the staff points out, the term “owned” is not self-
defining on its face and it is not expressly modified in Section 103d. and 104d. by either the term
“direct” or “indirect.” Therefore, the term is ambiguous and the Commission has latitude to
adopt a reasonable definition of it. As the staff notes, Supreme Court case law supports the
idea that in corporate law terms, “owned” could mean only the direct ownership of applicant
corporations by parent corporations. Dole Food Co. v. Patrickson, 538 U.S. 468 (2003). No
legislative change is needed to accomplish this; instead, the Commission should reflect this
change in the revised FOCD SRP, which will be issued for public notice and comment.

Even though this approach is legally supportable, the staff did not recommend it for two primary
reasons. First, the staff notes that the NRC has consistently interpreted “owned” to mean that
100 percent indirect foreign ownership is prohibited and there would appear to be no compelling
justification to impart a different meaning of the statute now. Second, the staff found it
problematic to read “owned” to allow 100 percent indirect ownership because on two occasions
over the years, NRC submitted legislative proposals seeking to narrow the scope of the FOCD
prohibition (i.e., to remove “utilization facility” from the statute such that the FOCD prohibition
would only apply to production facilities). The staff points out that Congress did not adopt
NRC’s proposals, and that it is fair to presume that Congress is aware of the long-standing NRC
interpretation that 100 percent indirect ownership is prohibited.

| do not find either of these reasons persuasive. In my view, there are several compelling
reasons to interpret “owned” as only prohibiting direct ownership. First, revising the FOCD SRP
and guidance to state that the NRC reads “owned” to only prohibit direct ownership would bring
our past agency practice into line with what is stated in our guidance. Specifically, our staff
notes that the NRC has historically interpreted the statutory term “owned” to mean both direct
and indirect ownership. See 64, Fed. Reg. 52,355 at 52,359. However, the staff then details
how the agency has issued licenses where there have been varying levels of indirect foreign

Page 2 of 5


Commissioner Svinicki’s Comments on SECY-14-0089
Fresh Assessment of Foreign Ownership, Control, or Domination of Utilization Facilities

| appreciate the staffs thoughtful evaluation of all dimensions of this complex area of law and
policy. They have clearly succeeded in presenting a “fresh” or contemporary assessment of the
underlying issues. | also benefited in my deliberations from the Commission's public meeting on
this topic, which included presenters with experience in addressing the same issue in other
industrial sectors of the U.S. economy and with other Federal government agencies. | thank
them for these insights.

| join the Commission majority in approving the staff's recommended Option 3, under which the
staff will revise the foreign ownership, control, or domination (FOCD) standard review plan and
develop a regulatory guide to include graded negation action plan (NAP) criteria that would
mitigate the potential for control or domination of licensee decision-making by a foreign entity,
as described in the paper. | also approve Option 5 on the basis laid out by the staff and for the
reasons carefully elucidated by Commissioner Ostendorff in his vote, but | acknowledge that this
option does not have majority support. While | acknowledge that the concerns expressed by
Chairman Burns in his vote regarding the substantial effort that might have been entailed in
pursuing the “one degree of difference” gained by Option 5 are likely valid, | approve Option 5,
regardless, on the somewhat simple logic that if concerns associated with 99.9 percent indirect
foreign ownership can be “mitigated away” through a NAP, then similar concerns associated
with 100 percent indirect ownership legitimately can, too.

Contrary to some of my colleagues, | view it as wholly appropriate that the staff, in this paper,
separates its analysis of FOCD from the issue of inimicality. First, this is consistent with and in
fulfillment of the Commission’s instruction in its staff requirements memorandum that gave rise
to this paper. Second, while the Atomic Energy Act prohibits both FOCD and inimicality (doing
so in separate provisions), the FOCD statutory prohibition and the inimicality determination are
likewise implemented through separate provisions of the Commission's regulations.

Having participated in the Commission's mandatory hearing related to the Fermi 3 combined
license application earlier this year where the Director of the Office of New Reactors testified to
the adequacy of the process for inimicality reviews and recommended issuance of the Fermi 3
license, | find no evidence, nor was any presented, of wholesale inadequacies in agency
inimicality processes and procedures. Consequently, | do not approve any direction to the staff
to engage in a revision or modification to the conduct of inimicality reviews. Not only is there no
apparent basis for modifying the agency’s processes and procedures in this area, to do so now,
with new reactor applications pending before the agency for periods well beyond the agency's
review metrics, runs the risk of further destabilizing the new reactor review process.

ristine L. Svinicki 04/ 20 115


NOTATION VOTE

RESPONSE SHEET

TO: Annette Vietti-Cook, Secretary
FROM: COMMISSIONER SVINICKI
SUBJECT: SECY-14-0089: FRESH ASSESSMENT OF FOREIGN

OWNERSHIP, CONTROL, OR DOMINATION OF
UTILIZATION FACILITIES

Approved __ XX Disapproved Abstain
Not Participating

COMMENTS: Below___ Attached XX __None___

SIGNATURE

oa Zopiis
DATE

Entered on “STARS” Yes ,/ No__



Commissioner Ostendorff’s Comments on, SECY-14-0089
“Fresh Assessment of Foreign Ownership, Control, or Domination of Utilization
Facilities”

| would like to thank the staff for providing the Commission a fresh assessment of the NRC’s
practice, procedures, and guidance related to the statutory prohibition, found in Sections 103d.
and 104d. of the Atomic Energy Act (AEA), on foreign ownership, control, or domination (FOCD)
of a utilization or production facility. The FOCD provision provides that:

No license [for a utilization or production facility] 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.

While the NRC’s statutory prohibition on FOCD is unique to the AEA, other agencies, from the
Department of Homeland Security to the Federal Communications Commission, have
prohibitions related to foreign ownership, control, or influence. Therefore, | applaud the staff for
considering how other agencies treat similar statutory bars, which also date back to the 1950s
or earlier and must be applied in today’s dramatically different landscape. | would also like to
thank the external panelists who participated in the January 29, 2015 Commission briefing on
processes and methods through which issues of foreign ownership, control, and domination are
addressed in non-nuclear sectors of the U.S. critical infrastructure and the U.S. defense
establishment. This briefing provided valuable insight into how other agencies address similar
matters.

In its fresh assessment of foreign ownership, the staff provided important context on how the
NRC has interpreted Sections 103d. and 104d. and applied the existing FOCD Standard Review
Plan (SRP). For example, the staff details how the NRC’s FOCD review has been conducted
on a case-by-case basis with an orientation toward safeguarding the national defense and
security. Further, the staff explains that the NRC has interpreted Sections 103d. and 104d. of
the AEA to allow partial indirect foreign ownership of licensees and facilities, including majority
indirect ownership,’ with appropriately tailored negation action plans (NAPs) to mitigate control
or domination. The staff provides examples of these NAPs, and explains that they have been
incorporated into licenses as license conditions. Additionally, the staff correctly notes that in
today’s world of increased globalization, matters such as foreign corporate ownership and
project finance of power reactors has little impact on the availability of existing technologies.
Moreover, the staff points out that applicants now have new and more complex financial
arrangements that sometimes involve foreign entities. It is within this context that the
Commission must consider our FOCD policy and practices. After considering the pros and cons
of all of the options provided by the staff, | provide my vote below.

' See FOCD SRP, 64 Fed. Reg. 52, 355, 52, 358 (Sept. 28, 1999). While it is true that the Commission
itself has never approved more than 50% indirect ownership, the Commission did approve the SRP,
which provides for the possibility of majority indirect ownership, and the staff has issued licenses with
more than 50% indirect ownership. For example, in 1982, NRC approved an indirect transfer of Babcock
& Wilcox’s (B&W’s) research reactor license when a stock exchange resulted in B&W’s U.S.-owned
parent company becoming a wholly-owned subsidiary of a foreign corporation.

Page 1 of 5


coe REGU, UNITED STATES

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= - 3 WASHINGTON, D.C. 20555-0001
54 ys
% be $
"hase May 4, 2015
SECRETARY COMMISSION VOTING RECORD

DECISION ITEM: SECY-14-0089

TITLE: FRESH ASSESSMENT OF FOREIGN OWNERSHIP,
CONTROL, OR DOMINATION OF UTILIZATION FACILITIES

The Commission (with all Commissioners agreeing) approved the subject paper as recorded in
the Staff Requirements Memorandum (SRM) of May 4, 2015.

This Record contains a summary of voting on this matter together with the individual vote
sheets, views and comments of the Commission.

Ler Apt

Annette L- Vietti-Cook
Secretary of the Commission

Enclosures:
1. Voting Summary
2. Commissioner Vote Sheets

cc: Chairman Burns
Commissioner Svinicki
Commissioner Ostendorff
Commissioner Baran
OGC.
EDO
PDR


Options 2, 4 and 6

| do not approve the staff's other options (Option 2, 4, or 6). | do not approve Option 2 because,
as noted above, | do not believe a legislative proposal is needed to effectuate the desired
change in policy on FOCD. However, | do not rule out future legislative proposals in this area. |
applaud the Commission’s past efforts in this area, as those efforts reflected a common sense
and practical approach that appropriately recognized the need to retain the FOCD prohibition for
production facilities and to maintain the separate inimicality review to ensure that a utilization or
production facility license could not be issued to any entity or country that posed a threat to the
United States.

| do not approve Option 4 because | agree with Commissioner Baran that the alternative
approaches proposed in Option 4 would be cumbersome and would undercut the streamlining
provided by the Part 52 licensing process. Further, the staff's two alternative approaches would
not provide sufficient regulatory certainty to applicants, since FOCD challenges could still arise
later in the process. | do not approve Option 6 because bright lines and safe harbors, while
easy to apply, do not do justice to the possible ways in which a small amount of ownership
could lead to control or domination.

Finally, I'd like to address the issue of inimicality, which was raised by the authors of the non-
concurrences. | would like to offer my thanks to the non-concurring staff members, as their
thoughtful comments raised important issues related to the AEA’s inimicality provision. This
inimicality provision is found in a separate portion of sections 103d. and 104d., and provides
that “[iJn any event, no license may be issued to any person within the United States if, in the
opinion of the Commission, the issuance of a license to such person would be inimical to the
common defense and security or to the health and safety of the public.” Therefore, even though
the Commission is not the primary agency responsible for protecting national security (that
responsibility falls on the defense and intelligence agencies), the staff is required to do
inimicality reviews and make a finding that issuance of the license would not be inimical to the
common defense and security.

In the paper, the staff noted that it has identified opportunities for clarifying the basis upon which
its inimicality reviews are made, and the manner by which the staff performs these reviews. The
staff should take the insights gained from its examination of the regulations, guidance and
practices related to inimicality reviews of power reactor license applications and for license
transfers and draft guidance for performing these reviews. A formalized method for evaluating
inimicality when FOCD issues are implicated will enhance transparency, consistency, and
reliability of reviews. In my view, the Commission should have a role in the inimicality review
when FOCD is implicated. In developing this guidance, the staff should clearly indicate how, if
at all, the country-specific inimicality review relates to the staff's country-neutral FOCD review,
given that the provisions arose historically from some of the same national security concerns. |
agree with Commissioner Baran that the staff should provide a SECY paper to the Commission
within 6 months presenting options for developing a formalized method of performing inimicality
reviews.

Page 4 of 5


ownership, with NAPs to negate control or domination.? The logical conclusion to draw from
this, given that foreign ownership renders an applicant ineligible to hold a license, is that in
practice, the Commission has viewed “owned” to only prohibit direct ownership. Further, the
current FOCD SRP allows majority indirect ownership. As the staff points out, under the current
NRC interpretation of the FOCD provision, the only bar on indirect ownership is 100 percent; the
Commission currently has the discretion to approve licenses up to 99% percent indirect foreign
ownership. The staff also points out that allowing 100 percent indirect foreign ownership would
have little effect on the current staff FOCD process because the staff will still perform an
analysis to determine whether foreign control or domination exists.’ Therefore, a shift from
allowing 99 percent indirect ownership to allowing 100 percent indirect ownership in appropriate
circumstances would only afford the Commission a small amount of additional discretion.

A second compelling justification for reading “owned” to only prohibit direct ownership is the
dramatic changes in the global nuclear power industry since the enactment of the FOCD
provision. It is no longer a Cold War era. We live in a global, interconnected society where
foreign ownership of power reactors has little impact on the availability of existing technologies,
and where complex financial arrangements that sometimes involve foreign entities is a reality.
As we heard from external stakeholders on January 29, 2015, other agencies dealing with
sensitive technology successfully mitigate foreign ownership, control, or influence using a
variety of measures, and offered to share their practices with the NRC. Further, the NRC has
experience monitoring indirect foreign ownership and has successfully employed NAPs to
mitigate control and domination in the past. | am confident that the staff will use this experience
going forward to continue to impose appropriately tailored NAPs and other conditions to address
control or domination.

| also do not agree with staff's reasoning related to the past legislative proposals. While it is fair
to presume that Congress is aware of the NRC's past interpretation that 100 percent indirect
foreign ownership is prohibited, Congress is also aware that the NRC’s previous legislative
attempts were efforts to narrow the scope of the FOCD prohibition (e.g., to eliminate the
restriction on FOCD of utilization facilities). These efforts clearly relayed to Congress that past
Commissions did not believe that the FOCD restriction was warranted for utilization facilities
anymore. As several former Commissioners communicated in hearings related to proposals to
narrow the FOCD prohibition: the environment has changed significantly since FOCD
restrictions were enacted in the 1950s; the electric power industry has been restructured; many
countries make commercial use of nuclear power and the technology is widely known and
available; and the inimicality provision would remain and would prevent the NRC from issuing
licenses to “bad guys.”* While Congress chose not to adopt these proposals, they also did not
weigh in on the Commission’s past practice of allowing varying levels of indirect foreign
ownership. Further, while past legislative efforts have been unsuccessful, the Commission is
not prohibited from taking legally supportable action to modify its FOCD policy without a
legislative change (i.e., reading “owned” to only prohibit direct ownership). Finally, past failures
to get legislation adopted do not mean that future efforts are more likely to fail.

? Enclosure 2 of the paper provides several examples.
3 The staff will also perform an inimicality review.
* See Enclosure 1, outlining previous legislative proposals.

Page 3 of 5


NOTATION VOTE

RESPONSE SHEET
TO: Annette Vietti-Cook, Secretary
FROM: COMMISSIONER OSTENDORFF
SUBJECT: SECY-14-0089: FRESH ASSESSMENT OF FOREIGN

OWNERSHIP, CONTROL, OR DOMINATION OF
UTILIZATION FACILITIES

Approved __X (In Part) Disapproved Abstain
Not Participating

COMMENTS: Below____ Attached _X None___

Ati hbiuhf,

SIGNATURE

shyjie
DATE

Entered on “STARS” Yes___ No___


Chairman Burns Comments on SECY-14-0089
Fresh Assessment of Foreign Ownership, Control, or Domination of Utilization Facilities

In the Staff Requirements Memorandum (SRM) from SECY-12-0168, “Calvert Cliffs 3 Nuclear
Project, LLC & Unistar Nuclear Operating Services, LLC (Calvert Cliffs Nuclear Power Plant,
Unit 3), Docket No. 52-016-COL, Petition for Review of LBP-12-19,” the Commission directed
the staff to “provide a fresh assessment on issues relating to foreign ownership including
recommendations on any proposed modifications to guidance or practice on foreign ownership,
domination, or control that may be warranted.” The staff has provided that assessment in
SECY-14-0089 and presented the Commission with six policy options along with identification of
the staff's recommended option.

| approve the staffs recommendation to adopt Option 3. Under this option, the staff would
revise the current the Standard Review Plan (SRP) on Foreign Ownership, Control, or
Domination (FOCD) and develop regulatory guidance through notice and comment. The
revised guidance would include graded negation action plans (NAPs) that would take into
account multiple factors based on the potential for control and domination of licensee decision-
making by a foreign entity. As the staff pointed out, having generic NAP criteria would help to
provide greater transparency and regulatory efficiency. This option would maintain the agency's
current approach of not establishing a specific threshold above which it would be conclusive that
an applicant is controlled by foreign interests. Instead, graded NAP criteria would vary
depending on the degree of FOCD, as well as the totality of facts and circumstances of the
application, and could be enhanced with the addition of case-specific criteria, as necessary.
This approach is consistent with how other sectors of the Federal government address FOCD
concerns. For example, in the staff's conversation with representatives of the Committee on
Foreign Investment in the United States (CFIUS), they learned that CFIUS does not have a
specific threshold determination when it conducts FOCD reviews and each review is based on
the particular facts and circumstances of the filing.’ 7

Staff's Option 5 would have the Commission redefine the statutory term “owned” to mean direct
ownership only. This position is not inconsistent with those noted by panelists at our January
29, 2015, Briefing on Foreign Ownership, Control, and Domination. For example, Mr. Stanley
Sims, director of the Defense Security Service, noted that “there are a lot of 100 percent owned
companies in the National Industrial Security program. ... We just put mitigation agreements in
place to make sure we manage the risk that we're worried about.” Tr. at pg. 56.

Although | am empathetic to Option 5, | am concerned that the limited benefit from the proposed
change does not justify the level and amounts of agency resources that would be necessary for
implementation. Under Option 5, the NRC would introduce a change in policy, and go from our
current policy of potentially allowing 99 percent indirect foreign ownership, to potentially allowing
100 percent indirect foreign ownership. However, because this 1 percent difference represents
a major change in the agency's interpretation of the Atomic Energy Act of 1954, as amended,
and the NRC's regulations, the change would require that the NRC staff and Commission
expend considerable resources to either conduct a lengthy rulemaking proceeding or, at the
very least, develop the necessary related guidance (e.g., a revised Standard Review Plan)
which would also involve significant resources and stakeholder interaction. As the staff noted,
even if appropriate guidance could be developed, “the NRC would have embarked upon a
controversial change in course that resulted in no change as a practical matter,” and “changing
the NRC's interpretation of the FOCD provision to include 100 percent indirect foreign
ownership may afford the Commission only a small amount of additional discretion.” Because
the potential benefit from the 1 percent gain in possible indirect foreign ownership is nebulous,
at best, | do not believe that committing scarce agency resources to its implementation is in the
NRC's best interest, at this time..

' Conversation Record of teleconference between Michael Considine, CFIUS, and Jo Ann Simpson, NRC, dated
June 10, 2013.


Commissioner Baran’s Comments on SECY-14-0089, “Fresh Assessment
of Foreign Ownership, Control, or Domination of Utilization Facilities”

The Commission is considering a policy paper that provides six policy options related to the
statutory prohibition on foreign ownership, control, or domination (FOCD) of domestic nuclear
reactor licensees. | want to express my appreciation for the effort that went into the
development of the paper and the two non-concurrences. It is valuable to have a range of staff
views on this issue presented to the Commission.

The starting point for an analysis of the FOCD options presented in the paper is the text of the
Atomic Energy Act of 1954. If Congress has spoken on the issue, then NRC must follow that
statutory direction. Section 103d. of the Atomic Energy Act provides, in relevant part:

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. In any event, no license may be issued to
any person within the United States, if, in the opinion of the Commission, the issuance of
a license to such person would be inimical to the common defense and security or to the
health and safety of the public.

The provision establishes two independent but related prohibitions: one applicable to FOCD of
nuclear reactor licensees and the other related to inimicality.

The original purpose of the FOCD provision was to protect national security. As the
management response to one of the non-concurrences states, “FOCD and the common
defense and security provisions share a historical linkage in that they are rooted in similar
national security concerns.” In the SEFOR case, the Atomic Energy Commission (AEC) stated
that the FOCD language “should be given an orientation toward safeguarding the national
defense and security.” The AEC also noted that “the apparent objective” of the provision is “to
avert any risk to national security” that could result from foreign control of a reactor.

For decades, NRC has interpreted the phrase “owned, controlled, or dominated” as establishing
three separate and distinct restrictions; meaning an applicant cannot be foreign owned, foreign
controlled, or foreign dominated. Moreover, as the staff paper explains, “the Commission has
always interpreted the term ‘owned’ as it appears in Section 103d. to include both direct and
indirect ownership.”?

NRC's longstanding interpretation of the statutory text is that: (1) direct foreign ownership of a
reactor licensee is prohibited; (2) 100 percent indirect foreign ownership of a reactor licensee is
prohibited; and (3) some indirect foreign ownership is permissible if FOCD issues are
appropriately mitigated through Negation Action Plans (NAPs). NAPs are license conditions
that generally impose requirements to “ensure that U.S. citizens are responsible for safety and
security decisions and that foreign ownership or investment does not result in inappropriate
access to the facilities, nuclear materials, or sensitive information.” The Commission has not

' General Electric Company and Southwest Atomic Energy Associates (Southwest Experimental Fast
Oxide Reactor (SEFOR)), 3 AEC 99 (1966).
? As noted in the paper, “indirect” ownership refers to a situation in which the entity in question is the NRC
licensee’s (or applicant's) parent company or owns other companies in the ownership hierarchy. In
contrast, “direct” ownership means that the entity in question holds the NRC license or is the
licensee/applicant.

1


| also support directing the staff to provide a SECY paper to the Commission within 6 months
presenting options for developing a formalized method of performing inimicality reviews. The
staff paper before us explains that, currently, “if the staff finds that an applicant is in compliance
with all of the regulatory requirements, the proposed issuance of the license is presumed not to
be inimical to the common defense and security and public health and safety.” In my view, NRC
should be doing more than confirming an applicant's commitment to comply with NRC’s Part 73
security regulations. NRC should conduct an inimicality review before licensing to examine the
suitability of the applicant. The staff should prepare guidance for conducting the review and
establish written procedures for consulting with the intelligence community about applicants
during its review of applications. Before allowing an entity into the pool of licensees which NRC.
assumes will make good faith efforts to comply with the agency's security regulations, NRC
should make sure that the entity is not a bad actor. As one of the non-concurrences explains,
NRC's licensing procedures, including those associated with NRC security requirements, are
predicated on the assumption that applicants are acting in good faith and do not harbor
malicious motives. That assumption may not be valid in the absence of a comprehensive
inimicality review conducted prior to licensing. The staff paper acknowledges that “[iJt is
recognized that a formalized method for evaluating these country-specific considerations [of the
potential security challenges presented by the particular foreign owner(s)] is needed.”

In my view, the modified Option 3 described above has significant advantages over the other
options presented by the staff paper. Each of the other approaches has serious drawbacks.
Establishing “safe harbors” that set bright-line thresholds for acceptable levels of FOCD based
on a specific percentage of foreign ownership would provide no assurance of the absence of
foreign control or domination. As the staff paper points out, even a small percentage of foreign
ownership could result in control. Submitting a legislative proposal to Congress to eliminate the
FOCD prohibition would not further NRC’s safety mission and would border on promoting
nuclear power. A bifurcated-hearing or two-application approach would be cumbersome, would
undercut the streamlining provided by the Part 52 licensing process, and is not supported by
stakeholders. For the reasons discussed above, | agree with the NRC staff that redefining
ownership to mean only direct ownership is not legally supportable. Such a re-definition of
ownership would render the FOCD provision meaningless because a foreign-owned company
could simply establish a wholly-owned, U.S.-incorporated affiliate to evade the prohibition.

| am mindful that the commercial nuclear industry has changed significantly since 1954. As the
staff paper points out, “[nJuclear power technology is no longer limited to the U.S. and a few
other countries, international companies now develop and own nuclear power technologies,
reactor technology for new projects in the U.S. is sometimes of foreign origin, and many nuclear
reactor vendors and nuclear service providers are foreign companies.” There may well be good
policy arguments for a change to the FOCD provision, but those arguments should be directed
to Congress. NRC has no authority to re-write the Atomic Energy Act. Our role is to follow and
implement the explicit statutory prohibition on FOCD enacted by Congress and signed into law
by the President. Advocates for more foreign ownership and investment in U.S. nuclear reactor
projects should take their case to Congress if they view the FOCD provision as a barrier to such
investment.


NOTATION VOTE

RESPONSE SHEET
TO: Annette Vietti-Cook, Secretary
FROM: Chairman Burns
SUBJECT: SECY-14-0089: FRESH ASSESSMENT OF FOREIGN

OWNERSHIP, CONTROL, OR DOMINATION OF
UTILIZATION FACILITIES

7

Approved X Disapproved Abstain

Not Participating

COMMENTS: Below____ Attached _X None__

SIGNATURE

4 April 2015
DATE

Entered on “STARS” Yes_x__No____


VOTING SUMMARY - SECY-14-0089

RECORDED VOTES

NOT
APRVD DISAPRVD ABSTAIN PARTICIP COMMENTS

CHRM. BURNS x x
COMR. SVINICKI x x
COMR. OSTENDORFF  X (in part) x
COMR. BARAN X (in part) x

DATE

4/3/15
4/20/15

3/9/15
2/6/15


Thank you again to the staff for the effort that went into developing this paper and the two non-
concurrences.

Page 5 of 5


explicitly addressed whether majority indirect ownership of less than 100 percent of a reactor
licensee is permissible and has never approved an application proposing indirect foreign
ownership of more than 50 percent.®

The Commission should affirm NRC's long-standing legal interpretation that direct foreign
ownership and 100 percent indirect foreign ownership of reactor licensees are barred by Section
103d. Consistent with past practice, | believe that majority foreign indirect ownership of reactor
licensees also is prohibited by the Atomic Energy Act. In my view, the statutory prohibition
against foreign ownership, control, or domination cannot reasonably be read to permit up to
99.9 percent indirect foreign ownership.

Prior attempts by the Commission to seek legislative changes to the provision highlight the
Commission's historic understanding that it lacks the authority to change the FOCD prohibition
on its own or to interpret the statutory provision in such a way as to allow foreign ownership,
control, or domination of power and research reactors. In 1999 and 2001, NRC submitted
legislative proposals to Congress to amend the FOCD provisions to repeal the prohibition on
foreign ownership, control, or domination of power and research reactors. These proposals
were not adopted by Congress.

| therefore approve a modified version of the Option 3 recommended by the NRC staff. The
staff should revise the FOCD Standard Review Plan (SRP) and develop regulatory guidance to
establish a graded approach for non-majority indirect foreign ownership of reactor licensees.
The SRP and other regulatory guidance should provide clear graded criteria for assessing
proposed NAP provisions to mitigate the potential for control or domination of licensee
decisionmaking by an indirect foreign owner. The extent of required mitigation through NAPs
should be determined by both the degree of foreign ownership and any relevant national
security risks. In evaluating the national security risks, the staff should consider factors such as
the country of incorporation or origin of the entity with a non-majority indirect ownership interest,
the foreign investment chain, the foreign entity's technological knowledge and capability, and
any ties of the foreign entity to foreign governments, militaries, or intelligence organizations.
The criteria should explicitly address how foreign financing will be treated. As part of the FOCD
SRP revisions and guidance development, the staff should seek to obtain and consider
stakeholder views.

This graded approach should improve flexibility to appropriately tailor NAPs to specific
circumstances. It should also enhance regulatory clarity and predictability for licensees and
other stakeholders. However, a revised FOCD SRP and associated regulatory guidance cannot
provide complete regulatory certainty. FOCD determinations are fundamentally judgment calls
that must be made by staff considering a wide range of factors and all of the available
information. As the staff explained in the paper, “the staff's FOCD review involves the
evaluation of multiple factors and its conclusion is based on the totality of facts and
circumstances of the application, with no single factor being dispositive.” Unfortunately, there is
no magic formula for assessing FOCD or security risks that will reliably identify the most
appropriate NAP provisions for a range of indirect ownership interests in a variety of factual
situations.

* In 1982, NRC did approve an indirect transfer of Babcock & Wilcox's (B&W's) research reactor license
when a stock exchange resulted in B&W's U.S.-owned parent company becoming a wholly-owned
subsidiary of a foreign corporation. However, in that case, the foreign corporation's stock “was largely
owned by U.S. citizens, and its management was composed of U.S. citizens.”

2