United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 16, 2010 Decided December 21, 2010
No. 10-1022
HONEYWELL INTERNATIONAL, INC.,
PETITIONER
v.
NUCLEAR REGULATORY COMMISSION AND UNITED STATES OF
AMERICA,
RESPONDENTS
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.
Opinion for the Court by Circuit Judge ROGERS.
2
Rogers, Circuit Judge: 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.
I.
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-
1
“Goodwill” refers generally to “the expectancy of continued
patronage.” Newark Morning Ledger Co. v. United States, 507 U.S.
546, 555-56 (1993) (citation and quotation marks omitted).
3
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
hexaflouride (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
4
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,
5
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.2 See id. at 54.
2
On January 22, 2008, the Commission published for
comment a proposed rule allowing the use of intangible assets in the
net worth calculation, provided the licensee has tangible assets of $19
million. Nuclear Regulatory Commission Rules for Decommissioning
Planning, 73 Fed. Reg. 3812, 3825, 3831 (Jan. 22, 2008). The
Commission has made available to the public on its website a
“proposed final rule” increasing the tangible assets prerequisite to $21
million. See Rulemaking Issue Affirmation from R.W. Borchardt,
Exec. Dir. for Operations, NRC, to the Comm’rs, NRC (Mar. 13,
2009).
6
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
7
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 still applie[d], the [Commission] consider[ed] that it
[wa]s acceptable to allow an extension” as requested. Id. at 2-3.
Honeywell applied for a third exemption on April 1, 2009,
referencing its March 23, 2009 letter, sent pursuant to License
Condition 26, verifying its eligibility for the self-guarantee and
noting that its net worth including goodwill continued to exceed
its decommissioning costs by a 10:1 ratio. Honeywell estimated
that as of December 31, 2008 its decommissioning costs
remained $156,440,898 while its net worth decreased to
$4,920,000,000 (comprised of negative $5,265,000,000 in
tangible net worth and $10,185,000,000 in goodwill).
Honeywell passed the annual self-guarantee financial test for
fiscal year 2008 under License Condition 26, in view of License
Condition 27, given its goodwill assets. Letter from Marissa G.
Bailey, Deputy Dir., Special Projects & Technical Support
Directorate, Div. of Fuel Cycle Safety & Safeguards, Office of
Nuclear Material Safety & Safeguards, NRC, to David J.
Anderson, Senior Vice President & Chief Fin. Officer,
Honeywell at 2 (Aug. 3, 2009). As of December 31, 2008,
Honeywell had assets in the United States of at least 10 times
the current decommissioning cost estimate, at least one class of
equity securities registered under the Securities and Exchange
Act of 1934, 15 U.S.C. § 78a et seq., a current rating for its most
recent unsecured bond issuance of “A” as issued by Standard &
Poor’s, and a tangible net worth at least 10 times the current
decommissioning cost estimate. See id.
8
At the Commission’s request, on October 13, 2009
Honeywell submitted supplemental information to support the
exemption’s extension. This information addressed
Honeywell’s:
(1) maintenance of an “A” bond rating from Standard &
Poor’s and an A2 rating from Moody’s for the past 17 years,
noting the default rate was “still less than 0.244%” for A2
Moody’s rated bonds at only 3 defaults in the last 25 years,
Supplemental Information at 3 (Oct. 13, 2009);
(2) strong financial condition as evidenced by the fact that
“[t]o the extent that the recent economic turmoil has led to a
historically anomalous number of defaults, the majority . . . were
in the banking, finance, insurance, and real estate finance
sectors,” id., and additionally that “Honeywell is in a stronger
financial condition than many of the third parties that it would
turn to in the event that it became necessary to obtain a letter of
credit,” id. at 3-4;
(3) “significant annual free cash flow that is available for
decommissioning [Honeywell’s facility],” noting it had
generated $3.1 billion in free cash flow in 2007 and in 2008, and
expected in 2009 to generate a minimum of $2.2 billion, id. at 4;
(4) more than $22.5 billion in assets in the United States at
the end of 2008, more than in 2006 or 2007, id.;
(5) explanation of why the tangible net worth test does not
accurately reflect the financial stability or low risk of default of
a diversified technology and manufacturing company like
Honeywell, see id. at 4-5; and
(6) view that the third exemption request was consistent
with the pending proposed rule, see id. at 6-7.
The Commission, by letter of December 11, 2009, denied
the third exemption request, stating that “Honeywell’s tangible
net worth has continued to decline . . . [from] $1.929 billion . .
. as of December 31, 2005; $70 million . . . as of December 31,
2006; minus $1.451 billion . . . as of December 31, 2007; and
9
minus $5.265 billion . . . as of December 31, 2008.” Letter from
Daniel H. Dorman, Dir., Div. of Fuel Cycle Safety &
Safeguards, Office of Nuclear Material Safety & Safeguards,
NRC, to Dave Cope, Plant Manager, Honeywell Metropolis
Works, Honeywell at 2 (Dec. 11, 2009) (“2009 Letter”). The
Commission also rejected Honeywell’s position that the
exemption request was consistent with the proposed rule, see
supra note 2, stating that the originally proposed rule required
a tangible net worth of $19 million before intangible assets such
as goodwill may be used to calculate the 10:1 tangible net worth
to decommissioning cost ratio, and that the amount had been
increased to $21 million to account for inflation. See 2009
Letter at 2-3. The Commission directed Honeywell to provide
one or more alternate forms of financial security within 120
days; Honeywell’s self-guarantee would remain in force until
the Commission approved an alternate security. Id. at 3.
Honeywell petitions for review.
II.
We first address two threshold issues regarding this court’s
jurisdiction.
A.
The Administrative Orders Review Act, known as the
Hobbs Act, 28 U.S.C. § 2342(4), provides as relevant that the
court of appeals “has exclusive jurisdiction to enjoin, set aside,
suspend (in whole or in part), or to determine the validity of . . .
all final orders of the Atomic Energy Commission,” now the
Nuclear Regulatory Commission, “made reviewable by section
2239 of title 42.” Section 2239, in turn, makes reviewable
“[a]ny final order entered in any proceeding of the kind
specified in subsection (a) of this section,” 42 U.S.C. § 2239(b),
which includes proceedings “for the granting, suspending,
revoking, or amending of any license,” id. § 2239(a)(1)(A).
10
In Florida Power & Light Co. v. Lorion, 470 U.S. 729
(1985), the Supreme Court clarified a “vexing semantic
conjunction” due to subsection 2239(a)’s reference both to the
scope of Commission licensing proceedings and to the hearing
requirement for such proceedings, holding that “Congress
intended to provide for initial court of appeals review of all final
orders in licensing proceedings whether or not a hearing before
the Commission occurred or could have occurred.” Id. at 736-
37. The Court explained that “[a]bsent a firm indication that
Congress intended to locate initial [Administrative Procedure
Act (“APA”)] review of agency action in the district courts, we
will not presume that Congress intended to depart from the
sound policy of placing initial APA review in the courts of
appeals.” Id. at 745.
Until recently courts of appeals found jurisdiction to review
the Commission’s exemption decisions under the Hobbs Act, as
interpreted in Lorian. See, e.g., Shoreham-Wading River Cent.
Sch. Dist. v. NRC, 931 F.2d 102 (D.C. Cir. 1991); Massachusetts
v. NRC, 878 F.2d 1516 (1st Cir. 1989). The Second Circuit in
Brodsky v. NRC, 578 F.3d 175, 182 (2d Cir. 2009), distinguished
Lorian, however, holding that it lacked jurisdiction under the
Hobbs Act to consider the Commission’s fire safety regulation
exemption at a nuclear power plant. Observing that its
jurisdiction was limited to an appeal of an order “issued in a
proceeding . . . for the granting, suspending, revoking, or
amending of any license,” id. at 180 (ellipsis in original)
(citations and internal quotation marks omitted), the court
focused on the fact that the Commission had not treated the
exemption as an amendment to the license of the nuclear power
plant, see id. at 182-83. Deferring to the Commission’s
characterization of its exemption, the court concluded its Hobbs
Act jurisdiction did not reach that far.
11
Lorian controls here. The Commission has treated
Honeywell’s exemptions from the 10:1 tangible net worth to
decommissioning cost requirement under 10 C.F.R. § 40.36(e)
and 10 C.F.R. Part 30, Appendix C, Section II, as an amendment
to its Source Materials License, bringing Honeywell’s petition
for review within the ambit of the Hobbs Act, 28 U.S.C.
§ 2342(4) (cross-referencing 42 U.S.C. § 2239). The first
exemption was granted as part of a license renewal proceeding
and memorialized as License Condition 27 to Honeywell’s
Source Materials License; the second exemption was granted as
an amendment to License Condition 27. Therefore, because the
Commission’s letter of December 11, 2009 denying
Honeywell’s exemption request is a “final order” marking the
consummation of the decision-making process that determines
rights and obligations, see Natural Res. Def. Council, Inc. v.
NRC, 680 F.2d 810, 815 (D.C. Cir. 1982), this court has
jurisdiction over Honeywell’s petition challenging the denial of
an extension of the exemption memorialized in License
Condition 27 to its Source Materials License.
B.
“[A] case is moot when the issues presented are no longer
‘live’ or the parties lack a legally cognizable interest in the
outcome.” County of Los Angeles v. Davis, 440 U.S. 625, 631
(1979) (citation and quotation marks omitted). “[I]f an event
occurs while a case is pending on appeal that makes it
impossible for the court to grant ‘any effectual relief whatever’
to a prevailing party, the appeal must be dismissed.” Church of
Scientology of Cal. v. United States, 506 U.S. 9, 12 (1992)
(citation omitted). The court has held in numerous instances
that a case is moot because a period or deadline has passed. See,
e.g., S. Co. Servs., Inc. v. FERC, 416 F.3d 39, 43 (D.C. Cir.
2005); McBryde v. Comm. to Review Circuit Council Conduct
& Disability Orders of Judicial Conference, 264 F.3d 52, 55
(D.C. Cir. 2001). The initial “heavy burden” of establishing
12
mootness lies with the party asserting a case is moot, see Motor
& Equip. Mfrs. Ass’n v. Nichols, 142 F.3d 449, 459 (D.C. Cir.
1998), but the opposing party bears the burden of showing an
exception applies, see S. Co. Servs., 416 F.3d at 43.
Contrary to the Commission’s contention, this case is not
moot. The Commission maintains that the court can grant no
relief that would affect the parties’ rights with regard to
Honeywell’s exemption request for the May 2009-May 2010
period. Responding, Honeywell persuasively maintains that its
challenge falls within the exception to mootness for issues that
are “capable of repetition, yet evading review.” S. Pac.
Terminal Co. v. ICC, 219 U.S. 498, 515 (1911); see Newdow v.
Roberts, 603 F.3d 1002, 1008 (D.C. Cir. 2010); Christian
Knights of the Ku Klux Klan Invisible Empire, Inc. v. District of
Columbia, 972 F.2d 365, 369 (D.C. Cir. 1992).
The “capable of repetition, yet evading review” exception
to mootness has two requirements: (1) the challenged action
must be too short to be fully litigated prior to cessation or
expiration; and (2) there must be a “reasonable expectation that
the same complaining party [will] be subject to the same action
again.” S. Co. Servs., 416 F.3d at 43 (alteration in original)
(citation and quotation marks omitted); see Christian Knights,
972 F.2d at 369-71. It is undisputed that Honeywell meets the
first requirement, for a presumption applies that “orders of less
than two years’ duration ordinarily evade review.” S. Co.
Servs., 416 F.3d at 43 (citation and quotation marks omitted).
The license amendment formulated by the Commission requires
Honeywell to reapply for the exemption on an annual basis.
Moreover, as Honeywell points out, the Commission denied
Honeywell’s exemption for the May 2009-May 2010 period on
December 11, 2009, eight months after Honeywell’s application
and only five months before the exemption would have expired
had it been granted.
13
Honeywell also meets the second requirement. It holds a
license from the Commission that does not expire until 2015. It
has sought a license amendment allowing goodwill, an
intangible asset, to be considered in satisfying the 10:1 tangible
net worth to decommissioning cost requirement on three
occasions since its license was renewed, and it timely petitioned
for review of the Commission decision denying the 2009
exemption request. It also advised the Commission that the
alternative to serving as a self-guaranteeing licensee is costly: it
estimated the cost of a letter of credit covering the
decommissioning costs would be between $550,000 to $750,000
annually in 2007 (and up to $7 million over a 10-year license
term), and $1.5 to $2 million annually in 2009 (and up to $20
million over a 10-year license term). In its brief to this court
Honeywell states that as a result of the Commission’s action it
has executed a costly surety bond to meet the requirements of 40
C.F.R. § 40.36(e). See Pet’r’s Br. 15. Honeywell’s historical
preference for the self-guarantee method and its three exemption
requests to use goodwill in satisfying the tangible net worth
requirement are consistent with the Commission’s stated
purpose in establishing this method: “to ‘reduce the licensee’s
cost burden’ in annual fees for letters of credit, surety bonds,
and other forms of third-party financial assurance, but ‘without
causing adverse effects on public health and safety.’” Resp’t’s
Br. 10 (quoting Self-Guarantee as an Additional Financial
Assurance Mechanism, 58 Fed. Reg. 68,726, 68,727 (Dec. 29,
1993)). Under the circumstances we conclude that there is a
reasonable expectation that Honeywell, as a regulated party
subject to the Commission’s licensing requirements, will in the
future seek Commission approval to act as a self-guaranteeing
licensee by means of an exemption from the 10:1 tangible net
worth to decommissioning cost requirement. See Washington v.
Harper, 494 U.S. 210, 219 (1990).
14
The Commission points to the fact that Honeywell did not
apply for an exemption for the May 2010-May 2011 period in
maintaining that there are no “future relations” to be affected by
judicial resolution of this appeal. In the Commission’s view,
Honeywell has “chose[n] to abandon the undertakings that gave
rise to the controversy.” Entergy Servs., Inc. v. FERC, 391 F.3d
1240, 1246 (D.C. Cir. 2004). But the test is not whether there is
in fact a “future relation” that will be affected, but rather
whether “resolution of an otherwise moot case . . . h[as] a
reasonable chance of affecting the parties’ future relations.”
Newdow, 603 F.3d at 1008 (emphasis added) (citation and
internal quotation marks omitted). As Honeywell responds, the
record indicates that another exemption request would be
pointless until the Commission adequately explains the reasons
for rejecting Honeywell’s third request. Although the
Commission’s determination whether to grant an exemption will
turn on specific facts regarding Honeywell’s financial net worth
at the relevant time, the likelihood that Honeywell will again
seek to use the value of goodwill intangible assets in satisfying
the 10:1 tangible net worth to decommissioning cost
requirement do not cause the court “to imagine a sequence of
coincidences too long to credit.” People for the Ethical
Treatment of Animals, Inc. v. Gittens, 396 F.3d 416, 424 (D.C.
Cir. 2005); see also Pharmachemie B.V. v. Barr Labs., Inc., 276
F.3d 627, 633-34 (D.C. Cir. 2002). Unlike in Entergy, where
the petitioners abandoned their judicial challenge altogether, see
391 F.3d at 1245-46, Honeywell continues to challenge the
Commission’s denial of its exemption request and its choice not
to file a subsequent exemption request neither forecloses such
action in the future nor evidences an intention to abandon its
challenge.
Likewise the Commission’s reliance on cases holding the
second requirement is not met when the application of a
regulatory requirement varies from one period to the next and
15
the factual record changes is misplaced. For example, in
National Association of Home Builders v. U.S. Army Corps of
Engineers, 264 F. App’x 10, 13 (D.C. Cir. 2008) (per curiam),
cited by the Commission, the court concluded the agency’s
issuance of time-limited permits was not “capable of repetition”
because the permit regulations had changed. Here, by contrast,
the Commission’s proposed rulemaking has been pending for a
number of years. See supra note 2. It would be imprudent to
dismiss Honeywell’s petition as moot when the challenged
denial was based on regulations that continue in effect and the
content and timing of the Commission’s final rule are uncertain.
Finally, the Commission’s suggestion that Honeywell can
“easily neutralize any future, adverse decision” by Commission
staff by seeking a hearing before the Atomic Safety and
Licensing Board and subsequent review before the Commission,
Resp’t’s Br. 32 (citing 10 C.F.R. §§ 2.340(a), 2.341), does not
address whether there is a reasonable likelihood that Honeywell
will in the future apply for an exemption allowing consideration
of the value of goodwill in satisfying the 10:1 tangible net worth
to decommissioning cost requirement.
III.
Honeywell contends that in denying its 2009 request for an
exemption under 10 C.F.R. § 40.14 the Commission was
arbitrary and capricious because it failed to provide a reasoned
decision for changing its policy of considering the value of
goodwill, an intangible asset, as it had in granting prior
exemptions. Specifically, Honeywell contends that the
Commission’s December 11, 2009 decision, without
explanation, changed the criteria it applies in interpreting section
40.14, applied the new criteria inconsistently, and ignored
information in the record that is contrary to its conclusions. As
for the Commission’s statement about the continuing decline in
16
Honeywell’s tangible net worth, Honeywell maintains that “this
does not explain why the [Commission] drastically departed
from its prior decision to allow intangible assets to be used for
determining capital adequacy, nor . . . how the relationship
between tangible and intangible assets affects a licensee’s ability
to use self-guarantee to provide decommissioning financial
assurance.” Pet’r’s Br. 26.
The scope of our review under the APA is narrow, see
Reytblatt v. NRC, 105 F.3d 715, 722 (D.C. Cir. 1997), and the
court generally accords the Commission’s licensing decisions
“the highest judicial deference” in view of Congress’ delegation
of broad authority to the Commission under the Atomic Energy
Act, Massachusetts v. NRC, 924 F.2d 311, 324 (D.C. Cir. 1991).
We have no occasion to doubt such deference is similarly due
where, in denying an exemption under a license condition, the
Commission is enforcing regulations pertaining to ensuring
licensees provide a financial guarantee for the decommissioning
of their facilities, see 10 C.F.R. § 40.36, a statutory mandate, see
42 U.S.C. §§ 2201(i)(4) and (x), 2243(d)(2). Honeywell’s
petition is thus distinguishable from cases in which deference is
withheld because the agency is interpreting a statute “outside
[its] particular expertise and special charge to administer.”
Prof’l Reactor Operator Soc. v. NRC, 939 F.2d 1047, 1051
(D.C. Cir. 1991). Moreover, the court has declined “to
micromanage the [Commission’s] licensure proceeding, or to
second-guess its acceptance of reasonable cost estimates.”
Nuclear Info. & Res. Serv. v. NRC, 509 F.3d 562, 570 (D.C. Cir.
2007).
Honeywell’s challenge to the Commission’s denial of its
exemption request is based on the legal constraint that an agency
“may change its policy only if it provides ‘a reasoned analysis
indicating that prior policies and standards are deliberately
changed, not casually ignored.” Mich. Pub. Power Agency v.
17
FERC, 405 F.3d 8, 12 (D.C. Cir. 2005) (quoting Greater Boston
Television Corp. v. FCC, 444 F.3d 841, 852 (D.C. Cir. 1970)).
“As a general matter,” the court explained in Hatch v. FERC,
654 F.2d 825, 834 (D.C. Cir. 1981), “an agency is free to alter
its past rulings and practices even in an adjudicatory setting . . . .
However, it is equally settled that an agency must provide a
reasoned explanation for any failure to adhere to its own
precedents.”
It is true, as the Commission points out, that Honeywell
falls short of showing that the Commission’s 2009 denial of its
exemption request runs afoul of Alaska Professional Hunters
Ass’n, Inc. v. FAA, 177 F.3d 1030 (D.C. Cir. 1999). In that case,
the court set aside an agency announcement changing a policy
to which it had adhered for more than 30 years exempting
Alaskan guide pilots from its regulations on commercial pilots.
The court held that “[w]hen an agency has given its regulation
a definitive interpretation, and later significantly revises that
interpretation, the agency has in effect amended its rule,
something it may not accomplish without notice and comment.”
Id. at 1034.
In granting the 2007 and 2008 exemption requests, the
Commission did not give the exemption provision, 10 C.F.R.
§ 40.14, a “definitive,” Alaska Prof’l Hunters, 177 F.3d at 1034,
or “express, direct, and uniform interpretation,” Ass’n of Am.
Railroads v. Dep’t of Transp., 198 F.3d 944, 949 (D.C. Cir.
1999). The court has repeatedly held that “conditional or
qualified statements, including statements that something ‘may
be’ permitted, do not establish definitive and authoritative
interpretations.” MetWest Inc. v. Sec’y of Labor, 560 F.3d 506,
509-10 (D.C. Cir. 2009) (citations omitted). In the technical
evaluation report accompanying its 2007 letter, the Commission
stated that the exemption “must be time limited to allow
reconsideration of the basis for the exemption in the future”
18
given the ongoing re-examination of the self-guarantee
regulations. 2007 Report at 54. Likewise in 2008, the
Commission granted the exemption for only one year or until the
proposed rule was promulgated as a final rule, whichever came
first. These statements qualify the Commission’s action, rather
than establish a definitive policy that could be changed only by
notice and comment rulemaking. See Ass’n of Am. Railroads,
198 F.3d at 949.
Moreover, “[a] fundamental rationale of Alaska
Professional Hunters was the affected parties’ substantial and
justifiable reliance on a well-established agency interpretation.”
MetWest, 560 F.3d at 511. “People in the lower 48 states had
pulled up stakes and moved to Alaska,” id., and “Alaskan guide
pilots and lodge operators relied on the advice FAA officials
imparted to them — they opened lodges and built up businesses
dependent on aircraft, believing their flights were subject to
[general instructions regarding aircraft operation] only,” Alaska
Prof’l Hunters, 177 F.3d at 1035. Even if the Commission’s
approval letters in 2007 and 2008 had provided a definitive
regulatory interpretation, Honeywell could not reasonably have
based its long-term conversion contracts in part on the annual
extension of the exemption. The Commission’s approvals, and
the accompanying reports, gave fair warning that the
appropriateness of the time-limited exemption would be
reevaluated each year. Indeed, in granting the original one-year
exemption resulting in License Condition 27, the Commission
advised Honeywell that the exemption “will expire” and that
Honeywell’s options upon expiration would be to re-apply for
an exemption, comply with the self-guarantee financial test
without including the value of its goodwill, or have an
alternative surety in place. See 2007 Report at 54.
Instead, the problem arises for the Commission because its
2009 decision is inconsistent with its 2007 and 2008 decisions
19
granting Honeywell’s exemption requests. The Commission’s
2007 grant of the initial exemption following relicensing was
based on (1) Honeywell’s “A” bond rating, which served as a
“reliable indicator” that Honeywell had the ability to pay its
decommissioning costs under normal circumstances and further
indicated that Honeywell was unlikely to face default or
financial distress within a year, and (2) the fact that Honeywell’s
net worth to decommissioning cost ratio exceeded 35:1 when
goodwill was considered. Thus, the Commission found 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.
at 53. The Commission relied on this same rationale in granting
the exemption in 2008: “Honeywell’s net worth to
decommissioning liability is approximately 21 to 1 [if goodwill
is included]. . . . Additionally, Honeywell has continued to
maintain a long-term credit rating of ‘A’ . . . . Because the basis
for granting the original exemption still applies, the
[Commission] considers that it is acceptable to allow an
extension of this exemption . . . .” 2008 Report at 2-3.
Although in 2009 Honeywell continued to maintain an “A” bond
rating and its net worth to decommissioning liability ratio
continued to exceed 10:1, the Commission denied the exemption
request because Honeywell’s tangible net worth had declined
over a four-year period.
The Commission’s decision is inconsistent with its
precedent addressing Honeywell’s exemption requests and its
explanation for its denial in the December 11, 2009 letter is
inadequate. If the Commission in 2009 had applied the same
criteria identified in 2007 and 2008 in granting the exemption,
then, Honeywell maintains, it should have granted the
exemption again because Honeywell maintained an “A” bond
rating and reported a net worth, inclusive of goodwill, that
20
exceeded its decommissioning liability by more than a 10:1
ratio. Contrary to the Commission’s suggestion, this is not a
case in which the court should “permit agency action to stand
without elaborate explanation where distinctions between the
case under review and the asserted precedent are so plain that no
inconsistency appears.” Jicarilla Apache Nation v. U.S. Dep’t
of Interior, 613 F.3d 1112, 1120 (D.C. Cir. 2010) (citation and
quotation marks omitted). The Commission’s December 11,
2009 letter did not address the substance of supplemental
information Honeywell submitted on October 13, 2009 at the
Commission’s request regarding Honeywell’s financial health
and stability and data of default rates by credit sources during
“recent economic turmoil that has led to a historically
anomalous number of defaults,” Supplemental Information at 3.
Nor did the Commission’s mere recital of its 2007 and 2008
rulings in the December 11, 2009 letter demonstrate that the
Commission was “by inference clearly reevaluating what it has
previously looked at” in granting Honeywell’s exemption
requests, as Commission counsel suggested at oral argument.
Oral Arg. 15:42-16:11. While the Commission might
reasonably have concluded that a decline in tangible net worth
over a given period is not rectified by a high goodwill value, or
by other potential indicators of a company’s financial health and
stability, the Commission’s decision leaves too much to
inference. See Hatch, 654 F.2d at 834. Most notably, how far
must the tangible net worth decline and over what period before
goodwill will not be considered adequate? How does a decline
in tangible net worth affect the reliability of the “A” bond rating
and other assets previously considered, and the high ratio of net
worth to decommissioning liability when goodwill is included?
Without the Commission’s explanation, “we are left with no
guideposts for determining the consistency of administrative
action in similar cases, or for accurately predicting future action
by the Commission.” Id. at 834-35.
21
On the record before the court, the fact that Honeywell’s
tangible net worth declined does not necessarily provide a
reasonable basis to distinguish the 2009 decision because, as the
Commission charts in its denial letter, Honeywell’s tangible net
worth was declining when it granted the 2007 and 2008
exemptions. Nor can the fact that Honeywell had a negative
tangible net worth in 2009 serve as the apparent basis for the
denial because its 2008 tangible net worth was also negative.
Nor can the fact that the proposed rule would require a licensee
to have $19 million in tangible net worth before allowing
consideration of goodwill; the proposed rule was published
before the Commission granted Honeywell’s second exemption
in 2008, see supra note 2, and the governing regulations have
remained unchanged since Honeywell received its exemption in
2007 upon renewal of its Source Materials License. The
Commission’s attempt through post hoc arguments of counsel
to explain its decision in its response brief comes too late. See
Motor Vehicle Mfrs. Ass’n of the U.S. v. State Farm Mut. Auto.
Ins. Co., 463 U.S. 29, 50 (1983).
Accordingly, we grant the petition, vacate the
Commission’s December 11, 2009 denial, and remand
Honeywell’s April 11, 2009 exemption request to the
Commission for further proceedings.