UNITED STATES OF AMERICA
> NUCLEAR REGULATORY COMMISSION
BEFORE THE ATOMIC SAFETY AND LICENSING BOARD

In the matter of Pacific Gas and Electric Company Diablo Canyon Nuclear Power Plant Unit Nos. 1 and 2

Docket # 72-26

July 18

SUPPLEMENTAL REQUEST FOR HEARING AND PETITION TO INTERVENE

BY SAN LUIS OBISPO MOTHERS FOR PEACE, AVILA VALLEY

ADVISORY COUNCIL, PEG PINARD,

CAMBRIA LEGAL DEFENSE FUND

CENTRAL COAST PEACE AND ENVIRONMENTAL COUNCIL

ENVIRONMENTAL CENTER OF SAN LUIS OBISPO,

NUCLEAR AGE PEACE FOUNDATION,

SAN LUIS OBISPO CHAPTER OF GRANDMOTHERS FOR PEACE INTERNATIONAL,

SAN LUIS OBISPO CANCER ACTION NOW,

SANTA MARGARITA AREA RESIDENTS TOGETHER,

SANTA LUCIA CHAPTER OF THE SIERRA CLUB, AND

VENTURA COUNTY CHAPTER OF THE SURFRIDER FOUNDATION

In accordance with the Nuclear Regulatory Commission’s (“NRC’s” or “Commission’s”) “Rules of Practice for Domestic Licensing Proceedings” in 10 CFR Part 2, and the Atomic Safety and Licensing Board’s (“ASLB’s) Initial Prehearing Conference Order of June 6, 2002, the San Luis Obispo Mothers for Peace (SLOMFP), Avila Valley Advisory Council (“AVAC”), Peg Pinard, Cambria Legal Defense Fund, Central Coast Peace And Environmental Council, Environmental Center Of San Luis Obispo, Nuclear Age Peace Foundation, San Luis Obispo Chapter of Grandmothers For Peace International, San Luis Obispo Cancer Action Now, Santa Lucia Chapter of the Sierra Club, and Ventura County Chapter of the Surfrider Foundation, hereby submit contentions challenging the adequacy of Pacific Gas & Electric Company’s (“PG&E’s”) December 21, 2001, application for a license for an independent spent fuel storage installation (ISFSI) at the Diablo Canyon Nuclear Power Plant. SLOMFP will act as a lead intervenor with respect to all of these contentions. As demonstrated below, the contentions satisfy the NRC’s admissibility requirements in 10 C.F.R. § 2.714(b).

CONTENTIONS

TECHNICAL CONTENTIONS

TC-1 Inadequate Seismic Analysis

Contention: In Section 2.6 of the SAR, PG&E claims to satisfy Appendix A of 10 C.F.R. Part 100 and 10 C.F.R. § 72.102, which provide criteria for seismic design of nuclear facilities and ISFSIs. However, the seismic analysis presented by PG&E does not consider a number of significant seismic features in the area of the Diablo Canyon plant. As a result, the design basis earthquake for the proposed ISFSI cannot be considered reasonable or conservative for purposes of protecting public health and safety against the effects of earthquakes.¹

Basis: There are a number of serious shortcomings in the evaluation of seismic issues and design considerations that are presented in the Safety Analysis Report (SAR) and Environmental Report (ER) for the ISFSI at Diablo Canyon. The foremost problem with PG&E’s seismic analysis is its failure to consider the threat posed by large reverse or thrust fault earthquakes in the vicinity of the Diablo Canyon site. While PG&E correctly considers the Hosgri fault zone to constitute the constraining seismic source for the facility, PG&E incorrectly and nonconservatively assumes that it is a purely strike-slip fault (SAR p.2.6-33). The nonconservatism is increased by the fact that PG&E also assumes that the fault is a vertical fault (SAR p. 2.6-30), rather than east dipping. Finally, using this nonconservative fault geometry, PG&E places the fault in a nonconservative location.

Incorrect Assumption of strike-slip faulting. PG&E assumes the Hosgri fault is a strike-slip fault rather than an oblique-reverse or thrust fault (SAR p. 2.6-33). As a result, the ground motions calculated by PG&E are lower than they should be. To assume that only strike-slip faulting on a vertical Hosgri fault represents the most severe seismic threat to the Diablo Canyon site understates the hazard. One must also consider the oblique fault character, with thrust or reverse slip in combination with the right-slip.

The oblique fault character of the Hosgri fault zone is demonstrated by three decades or more of geological and seismological investigation in the vicinity of Diablo Canyon. A list of references that describe the fault character of the Hosgri fault and tectonic style of the region is listed at the end of the contention. This list is incomplete, providing only a sampling of the relevant investigations. These investigations have yielded ample data to show the character and locations of the major active fault systems that pose serious earthquake threats to the DCPP and ISFSI. PG&E provides much of this important data from its Long Term Seismic Program (LTSP; SAR Figs. 2.6-40, 41, 42). These data show that the south-central California coastal zone is an area dominated by oblique-shortening. A combination of right-slip, as expressed by the San Andreas fault system, in concert with northeast-directed compression, due to as yet poorly understood tectonic plate boundary processes, has controlled the earthquake and geologic deformation of the region for the past 3-6 Million years (Page, 1981; Nicholson and Crouch, 1989; Sorlien, 1994). This deformation is expressed in the regional geology by the widespread thrust and reverse faulting as well as the major geologic folding (Crouch and others, 1986; Namson and Davis, 1990; Clark and others, 1991; Nicholson and others, 1992). Most likely the parallel trends of faults and fold axes are directly related to the oblique character of this deformation, that is due to the combined interaction of the strike-slip associated with the Pacific-North America transform fault plate boundary and the northeast-directed compression. Geologists use the word transpression to describe this tectonic style.

The credibility of the proposed large oblique-reverse earthquake scenario is amply demonstrated in the existing geological and seismological data acquired over the past decades of research in the south-central California coastal region. First, the overall transpressional character (combination of strike-slip and compression) of the region has been described in numerous published and unpublished technical papers. The earthquake history and active seismicity show this character in the focal mechanisms and the broad distribution of microseismicity, without well-defined vertical fault planes over much of the region, are consistent with the complex patterns of faulting expected in such a transpressional environment (SAR Figs. 2.6-40,41). The seismic reflection data, including the high-quality, deep penetration, multichannel seismic profiles show this complexity, although the deeper structure (below about 3-4 km where large earthquakes initiate) is poorly imaged (Ewing and Talwani, 1991; Clark and others, 1991; McIntosh and others, 1991; Meltzer and Levander, 1991; Nicholson and others, 1992; Sorlien, 1994). The complexity of the geological structure is one of the main reasons why the data quality of the seismic reflection profiles deteriorates with depth in this and other active tectonic areas. Last, the geology as mapped at the surface on land, inferred from seismic profiles and well logs offshore, and inferred into the subsurface by geological methods is consistent with this overall structural and tectonic style (Page, 1981; Crouch and others, 1986; Namson and Davis, 1990; Guptil and others 1991; Sorlien, 1994). Consequently, PG&E must carefully re-evaluate the seismic hazard at the Diablo Canyon nuclear facilities to include the real potential for large oblique-reverse earthquake ruptures in close proximity to the subject site before the NRC can consider licensing the ISFSI.

Assumption of vertical faulting. An important effect of considering an oblique-reverse character for major earthquakes along the Hosgri fault zone is to realize that the fault is not vertical, but instead has an east to northeast dip. Seismic reflection profiles in the area, from the EDGE and PG&E multichannel seismic work (Ewing and Talwani, 1991; Clark and others, 1991; Meltzer and Levander, 1991; McIntosh and others, 1991; Trehu, 1991) as well as proprietary petroleum exploration industry data (Crouch and others, 1986; Namson and Davis, 1990) show numerous east-dipping reverse or thrust faults in the region, including faults within the mapped Hosgri fault zone. Some scientists suggested more than a decade ago that the Hosgri fault is listric in character, going from a steep fault at the surface into a shallow east-dipping thrust fault at depth and merging into a regional dcollement or detachment fault (Crouch and others, 1986; Namson and Davis, 1990). Such regional detachment fault systems have now been identified throughout the southern California region (e.g., Rivero and others, 2000), and shallow dipping blind faults that cut upwards into the shallow crust above these detachments are the source of recent damaging “blind thrust” earthquakes. California examples include the 1983 Coalinga, 1987 Whittier-Narrows, and 1994 Northridge earthquakes. An excellent example of a blind-thrust earthquake associated with a well-known right-slip (assumed vertical strike-slip) fault is the 1989 Loma Prieta earthquake along the Santa Cruz Mountains segment of the San Andreas fault. Thus, it is reasonable and prudent to consider such earthquake sources along the Hosgri fault zone in proximity to the Diablo Canyon site. With an east to north-east dip, the closest distance of the fault surface to the DCPP and ISFSI is significantly closer than (4.5 km SAR p. 2.6-32) used in the design ground motion evaluations, and the epicenter of such an earthquake could lie directly beneath the subject site (epicentral distance equals zero).

This is significant for the Diablo Canyon seismic analysis, because strong ground motion (shaking) from moderate to large reverse or thrust earthquakes tends to be greater at a specified source-to-site distance and source magnitude than for pure strike-slip earthquakes (Abrahamson and Silva, 1997; Boore and others, 1997). The recent 1999 Izmit earthquake in Turkey showed the relatively lower shaking amplitudes for a large (Magnitude=7.6) strike-slip earthquake (Anderson and others, 2001) compared to shaking values in the near source of the moderate (Magnitude=6.7) 1994 Northridge blind-thrust earthquake (Darragh and others, 1995). For an east to northeast-dipping, oblique-reverse, Hosgri fault earthquake source, reverse fault character creates an additional increase in expected ground motions because of the hanging wall effect—seismic energy trapped between the fault and ground surface (in the hanging wall), further amplifies the shaking levels. Failure to account for this realistic fault rupture scenario in the design and operation of the DCPP and ISFSI represents a serious shortcoming in the analyses presented by PG&E. This oversight, or selective ignorance, could result in a serious understatement of the seismic hazard at the subject site, and thus may represent a more serious threat to the public and the environment than the SAR and ER suggest.

Nonconservative assumption relocation of fault. PG&E exacerbates the nonconservatism of its analysis by locating the active fault plane used to determine the design ground motions along the western side of the 3-5 km (2-3 miles) wide zone recognized as the Hosgri fault zone in this area. (SAR Fig. 2.6-4; SAR p. 2.6-32). By using a vertical fault plane and placing this plane on the more distant side of the fault zone, PG&E maximizes the effective distance of the potential earthquake fault rupture source away from the subject site. As a result, PG&E underestimates the level of ground motion of potential large earthquakes.

Additional amplification factors due to site location in the near-source region of the active fault zone include focusing (directivity) and fling (SAR p. 2.6-33,34). These factors are considered in the SAR, but not for an east to northeast-dipping, oblique-reverse fault rupture scenario. Added to the hanging wall and reverse fault factors would further increase the expected ground motions at the site. That such earthquakes are not only possible, but likely in the region is well demonstrated by the data from the LTSP (SAR Fig. 2.6-42) which shows numerous reverse, thrust and oblique-reverse earthquake focal mechanisms in addition to the right-slip earthquakes typical of the San Andreas fault system. Indeed, the largest historical earthquake in the region, the 1927 Lompoc earthquake (Magnitude=7.3) had a reverse or thrust mechanism. PG&E consultants relocated the epicenter of that event as farther offshore (Helmberger and others, 1992) than other studies of this earthquake (Gawthrop, 1978; Hanks, 1979). Measured coastal strain in the area of Point Arguello and the observed tsunami demonstrate the dip-slip character of this important earthquake. To remove the largest historical event in the region from real consideration in the seismic hazard analysis of the Diable Canyon facility is nonconservative. Clearly, a reasonable and prudent evaluation of seismic hazard at Diablo Canyon would consider a similar earthquake located immediately adjacent to the site with the appropriate east to northeast fault dip. To ignore history will likely force us to relive such events, only with the potential for catastrophic consequences if unsafe nuclear materials facilities are located in harm’s way.

Because the design earthquake parameters, including fault rupture, character, magnitude and geometry, define all the other relevant seismic issues necessary for safe design and operation of the Diablo Canyon nuclear facilities, re-evaluation of the earthquake source with an oblique-reverse focal mechanism will require re-evaluation of all the subsequent secondary hazard issues, including earthquake-induced slope failure, liquefaction or lurching (surficial ground failures due to extreme shaking), tsunami, and possible secondary faulting in the hanging wall of the active fault surface beneath the coastline. The numerous minor bedrock faults observed crossing the Diablo Canyon site indeed may represent the geologic record of such secondary faulting occurrences during prehistoric large earthquakes on the coastal fault system. As pre-existing discontinuities in the surficial geologic structure, these minor faults certainly represent likely candidate locations for such secondary fault ruptures during large coastal earthquakes. Furthermore, tectonic strain or permanent ground deformation in the hanging wall of an east to northeast-dipping oblique-reverse fault earthquake under the Diablo Canyon site may occur. Such strain is likely responsible for the uplift of the coast observed geologically as the elevated Pleistocene marine terraces and possibly in the numerous folds crossing the site. Such permanent ground deformation has also been ignored in the PG&E SAR and ER.

TC-2. PG&E’s Financial Qualifications Not Demonstrated

Contention: PG&E has failed to demonstrate that it meets the financial qualifications requirements of 10 C.F.R. § 72.22(e).²

Basis: Pursuant to 10 C.F.R. § 72.22(e), PG&E must submit, with its application:

Information sufficient to demonstrate to the Commission the financial qualifications of the applicant to carry out, in accordance with the regulations in this chapter, the activities for which the license is sought. The information must state the place at which the activity is to be performed, the general plan for carrying out the activity, and the period of time for which the license is requested. The information must show that the applicant either possesses the necessary funds, or that the applicant has reasonable assurance of obtaining the necessary funds, or that by a combination of the two, the applicant will have the necessary funds available to cover the following:

1. Estimated construction costs;
2. Estimated operating costs of the planned life of the ISFSI;
3. Estimated decommissioning cots, and the necessary financial arrangements to provide reasonable assurance prior to licensing that decommissioning will be carried out after the removal of spent fuel and/or high-level radioactive waste from storage.

1. Overview

PG&E s claim that it has met the financial qualification requirement fails for five reasons. First, it is currently in a contested bankruptcy and may or may not emerge from that bankruptcy intact. Second, PG&E s claim that since it is a regulated utility its financial qualification is assured, is incorrect. Third, PG&E s claim that since it is a regulated utility the NRC should assume financial qualification is disingenuous, since the plan it has proposed in the bankruptcy proceeding has Diablo Canyon and the ISFSI owned and operated by other non-utility entities. Fourth, PG&E s current financial condition is dubious, with access to credit markets unreliable and very costly, as reported by PG&E itself and its auditors. And fifth the PG&E conglomerate is currently the target of multi-billion dollar litigation for fraud by the California Attorney General. This litigation may well have a substantial adverse impact on PG&E s aspiration to emerge from the bankruptcy as a financially viable entity.

PG&E is Bankrupt.

PG&E filed for bankruptcy on April 6, 2001, and it filed its reorganization plan on September 20, 2001. As of today, the utility is still enmeshed in the toils of an uncertain and highly contested proceeding. Whether PG&E itself will immerge as a viable entity and if so with what remaining resources is unknowable at this point.

The NRC has not directly addressed the implications of the ongoing bankruptcy of a license applicant in the context of an ISFSI. The Atomic Safety and Licensing Board has, however, considered the issue in the context of a non-utility power plant operating license in Gulf States Utilities Company, (River Bend Station, Unit 1), LBP-95-10, 41 NRC 460 (1995). ³ At issue in Gulf States was an independent operating licensee (Entergy Operations) that was entirely dependent on payments from Gulf States, a company perilously close to bankruptcy due to then-pending litigation. In disputing the intervenors’ contention that this dependence was a textbook case for financial disqualification, Gulf States and the NRC staff contended that the bankruptcy courts would adequately protect the public interest, and require continued payments to Entergy, or at the very least, provide sufficient funds to safely shut down and decommission the plant. Id., 41 NRC at 471. The ASLB concluded in response that whether the bankruptcy courts would favor safe nuclear plant operations over other creditors was a factual question that could not be resolved by summary judgment. Id. at 472. The Board discounted Staff assurances that both Palo Verde and Seabrook “operated” through bankruptcy. Id. at 470-71.

Although the Part 72 financial qualifications requirements are apparently less rigorous than the analogous Part 50 provisions, the Commission has ruled that it will not "grant an [ISFSI construction and operation] license to an applicant of dubious financial qualifications." Private Fuel Storage Facility (Independent Spent Fuel Storage Facility), 52 NRC 23, 30 (NRC 2000).

PG&E’s Status as a Utility Does Not Establish Reasonable Assurance of Financial Qualification

In its license application, PG&E relies on its status as a regulated electric utility to demonstrate its financial qualifications. PG&E asserts that:

PG&E is an electric utility subject to rates established by the California Public Utilities Commission (CPUC). As long as PG&E remains the licensee, both capital expenditures and operation and maintenance costs will be covered by revenues derived from electric rates.

License Application at 5. While PG&E acknowledges that it is bankrupt, it does not address the question of how its bankruptcy might affect its financial qualifications to build and operate the ISFSI. Id. Apparently, PG&E believes that the fact that it is able to petition for recovery of its costs from the CPUC is sufficient to demonstrate its financial qualifications. Intervenors believe that PG&E is incorrect, in a number of significant respects.

First, in California, construction work in progress (“CWIP”) is not generally recoverable in rates. Under California’s Construction Work in Progress rate setting rules, PG&E is not entitled to recover ongoing construction costs from the rate base until operation is underway.

Second, PG&E’s ability to recover operating costs from the rate base is questionable. While the fact that PG&E is a regulated utility might normally constitute sufficient evidence of its financial qualifications to operate the proposed ISFSI, in this case there are substantial indications that PG&E will not have normal recourse to the ratemaking system, due to (a) its bankruptcy, and (b) pending litigation by the California Attorney General against PG&E’s parent, PG&E Corporation, charging that under PG&E Corporation’s direction, PG&E has made illegal and fraudulent use of the ratemaking system.

Third, as noted above, PG&E has become bankrupt because it has incurred costs in excess of what it has been able to recover from the rate base. PG&E must retire enormous debts from the bankruptcy. This raises the question of whether any rates recovered by PG&E will be high enough to make it whole again, sufficient to ensure that it operates safely and does not cut corners.

PG&E the Utility as Owner and Operator of the ISFSI?

PG&E claims that as a rate-regulated utility it is financially qualified to build and operate and decommission the ISFSI, since the funds to construct and operate the facility will come from “electric rates.” License Application at 4-5. This is disingenuous. In the next paragraph of its license application PG&E notes that:

Under the [bankruptcy] plan, PG&E’s generating assets, including Diablo Canyon and the proposed ISFSI, will be transferred to a new generating company named Electric Generation LLC (“Gen”). Gen will be a subsidiary of PG&E Corporation (presently PG&E’s parent corporation), and PG&E will be separated from PG&E Corporation.

License Application at 5. Thus, since it is the stated intention of PG&E not to be involved with ownership or operation of the power plant or the ISFSI, whether PG&E does or does not have access to regulated rates is besides the point.

PG&E's Finances Are In Shambles

PG&E has not demonstrated that it will be able to borrow sufficient funds to cover the costs of construction or that its income stream will be adequate to cover construction and operation. In fact, significant evidence exists that PG&E will not be able to borrow the funds necessary to build the ISFSI. For instance, in an independent auditor’s report prepared in connection with PG&E Corporation’s 2001 Annual Report, DeLoitte and Touche reported, inter alia, that:

Pacific Gas and Electric Company, a subsidiary of PG&E Corporation, has incurred power purchase costs substantially in excess of amounts charged to customers in rates. On April 6, 2001 Pacific Gas and Electric Company sought protection from its creditors by filing a voluntary petition under provisions of Chapter 11 of the US Bankruptcy Code. These matters raise substantial doubt about Pacific Gas and Electric Company's ability to continue as a going concern.

Id.at 127 (Emphasis added). Excerpts from the 2001 Annual Report are attached as Exhibit 3. PG&E’s most recent 10-Q filing, for the quarter ending March 31, 2002, adds more detailed information about PG&E’s poor credit rating:

The Utility [PG&E] is currently operating as a debtor-in-possession under Chapter 11 of the Bankruptcy Code. While certain pre-petition debts are stayed, the Utility does not have access to external funding from the capital markets. Additionally, the Utility is in defa ult under its credit facilities, commercial paper, floating rate notes, senior notes, pollution control reimbursement agreements, and medium-term notes resulting from its failure to pay certain of its obligations. The event of default under each security has been stayed in accordance with the bankruptcy proceedings. The Utility has been making the capital investment in its infrastructure out of cash on hand under supervision of the Bankruptcy Court. It is uncertain whether the Utility will be able to continue to make such necessary capital investment in the future.

10-Q Report at 43 (emphasis added). The report can be found on the web at investor.pgecorp.com.

PG&E’s current credit ratings indicate that, even were the company able to access the debt markets, it would face extremely high costs. See 2001 Annual Report at 13. In the Annual Report, PG&E conceded that it:

has a very limited ability to enter into forward contracts to hedge its exposure to commodity price fluctuations because of the reluctance of counterparties to extend credit.

2001 Annual Report at 52. It is also essential to note that the reason lenders are reluctant to loan is that they are skeptical about the adequacy of the borrower’s ability to generate income to repay the debt. It follows then that if PG&E has insufficient revenues to cover debt service on reasonable terms, it almost certainly has insufficient revenues to cover construction and operation on an ongoing basis. Thus, given the current and foreseeable difficult circumstances it faces, PG&E has failed to demonstrate that it has a reasonable prospect of raising the ongoing funds necessary to build and operate the proposed ISFSI.

The California Attorney General’s Lawsuit creates Grave Uncertainties for PG&E

In January 2002, Attorney General Lockyer sued PG&E’s parent, Pacific Gas & Electric Corporation (“PG&E Corp.”), for the return of up to $4 billion that he alleges have been fraudulently transferred by PG&E to PG&E Corp. and other subsidiaries before PG&E filed for bankruptcy.⁴ The Attorney General elaborated on the concern behind the lawsuit when he filed a second round of state agency claims against PG&E in Federal Bankruptcy Court on October 3, 2001: “PG&E owes the money to more than a dozen state agencies for such things as unpaid taxes and environmental cleanup costs.”⁵

On June 14, 2002, the Bankruptcy Court ruled that the Attorney General’s claims regarding violations of state law could be tried in the state courts. See Memorandum and Decision. These claims include allegations that the corporation, in exchange for deregulation, promised the State that it would protect the utility’s financial health, but instead fraudulently stripped it of revenues and assets. Id. at 5. The Bankruptcy Court also decided that it would reserve for itself the resolution of claims by the California Attorney General that PG&E was using the bankruptcy process to circumvent state laws and regulations. Memorandum and Decision at 27.

On July 12, 2002, the Attorney General amended his complaint against PG&E Corp in the Bankruptcy Court, setting his state law claims out in more detail. A copy of the Amended Complaint is attached as Exhibit 4. As set forth in paragraphs 37-43 of the Amended Complaint, in 1995, the CPUC conditionally approved a corporate restructuring of PG&E and PG&E Corporation, based on assurances by PG&E, on behalf of itself and PG&E Corporation, that the reorganization would not jeopardize the public interest. The Amended Complaint charges that PG&E Corp. engaged in “unlawful, unfair and fraudulent business acts or practices,” including use of its ownership and control of PG&E to:

subordinate the interests of PG&E and PG&E’s ratepayers to the interests of PG&E Corporation and its other affiliates, by using ratepayer generated PG&E funds to: (1) subsidize its own operations and those of its other affiliates; and (ii) accomplish its overall objective of evading CPUC’s regulatory authority over its utility operations.

Id., pars. 103 and 103(b).

The Amended Complaint also contended that PG&E Corporation subordinated:

the interests of PG&E and PG&E’s ratepayers to the interests of PG&E Corporation and its affiliates, other than PG&E, by transferring ratepayer-funded assets, including revenues, from PG&E to PG&E Corporation, for the benefit of PG&E Corporation and its affiliates, other than PG&E, even when PG&E began to experience financial distress, and did so with no intent to infuse capital into PG&E when it needed capital to operate. . .

Id., par. 103(d). Unless and until the courts resolve issues relating to PG&E’s alleged defrauding of ratepayers on behalf of PG&E Corporation, it is not reasonable to anticipate that PG&E will have straightforward access to the ratemaking system.

In sum, PG&E has failed to demonstrate its financial qualification to build and operate the proposed ISFSI.

TC-3. PG&E May Not Apply for a License for a Third Party.

Contention: In its License Application, PG&E first asserts that it, as the applicant, is financially qualified. It then goes on to assert, however, that it has applied to transfer its Part 50 operating license to a yet-to-be-created limited liability company, Electric Generation LLC (“Gen”), which will then transfer it further to yet another yet-to-be-created entity, Diablo Canyon LLC. License Application at 5. “Gen” is a one of the proposed offsprings of a restructuring proposal being considered in the bankruptcy proceeding. See Application for Consent to License Transfers and Conforming License Amendments for Diablo Canyon Power Plant, Units 1 and 2 at 4 (November 30, 2001) (hereinafter “License Transfer Application”). The License Transfer Application and Enclosure 8 are attached as Exhibit 5. PG&E also asserts that revenue and income projections for Gen, “as well as the substantial assets of the company,” demonstrate Gen’s financial qualifications to construct and operate the Diablo Canyon ISFSI. Id.

As discussed in Contention TC-4 below, it is not at all clear whether Gen or some other entity will be the owner and licensee of the proposed ISFSI under PG&E’s reorganization plan, even if that reorganization plan is approved, which it may well not be.

The crux of the problem is that PG&E may not apply for a license for a third party that does not constitute the “applicant.” There is no corporate entity, other than PG&E, that has applied for a license to build and operate the proposed ISFSI. In the absence of an alternative applicant, PG&E’s attempt to demonstrate the financial qualifications of a third-party shell corporation that is a non-applicant must fail.⁶

Basis: The basis for this contention is 10 C.F.R. § 72.22, which clearly requires that financial qualifications must be demonstrated by the “applicant.” The purpose of the financial qualification rules is to ensure that the actual builders and operators of dangerous facilities have the financial wherewithal to do so in a safe manner. While we understand PG&E’s desire not to have a recently created shell corporation make an application on its own behalf, Part 72 clearly requires it.

TC-4. Failure to Establish Financial Relationships Between Parties Involved in Construction and Operation of ISFSI.

Contention: Newly formed entities that seek ISFSI licenses must conform to the requirements of 10 C.F.R. § 72.22, and also follow the Commission’s guidance in 10 C.F.R. Part 50, including 10 C.F.R. § 50.33(f) and Appendix C. See Private Fuel Storage Facility (Independent Spent Fuel Storage Facility), LBP-98-7, 47 NRC 142, 187 (1998), citing Louisiana Energy Services, L.P. (Claiborne Enrichment Center), CLI-97-15, 46 NRC 294, 302 (1997). Assuming that PG&E lawfully can seek to demonstrate the financial qualifications of a third party that does not constitute the license applicant for an ISFSI (see Contention TC-3 above), PG&E has failed to satisfy these requirements, because it has not provided an