VEPCO at Fault: Penalties Imposed for Material False Statements Convey a Clear Warning to Nuclear Plant Licensees

The Atomic Safety and Licensing Board, which operates within the Nuclear Regulatory Commission,¹ recently imposed the most severe penalties in its 13-year history on the Virginia Electric and Power Company (VEPCO), following its finding that VEPCO officials were responsible for a series of material false statements to the Commission. The false statements, 12 in all, were made between 1968 and 1973 at various stages in VEPCO's application for licenses to construct a four-unit complex of nuclear power reactors at North Anna, in rural Louisa County, Virginia. The penalties, $60,000 in fines and a three-part order requiring certain actions of VEPCO officials to prevent recurrences, are noteworthy for their magnitude compared to past penalties, and the novel forms of affirmative action imposed on VEPCO officials. Moreover, the findings imply a high standard of care in reporting of safety information by licensees and applicants for construction permits, which may have far reaching effects on future reporting practices by private corporations and public utilities building nuclear power plants.

Allegations of false statements first came to light in August 1973 when a citizen group, the North Anna Environmental Coalition, based in Charlottesville, formally requested that VEPCO construction license proceedings be reopened to assess the safety impact of a geologic fault at the construction site. The Coalition charged that VEPCO officials had been apprised of the existence of a fault at the site as early as February 1970, but had failed to report it to the staff of the then Atomic Energy Commission,² as required by Commission regulations. Subsequent investigations, conducted in 1973 by VEPCO, independent geologists, and government officials, confirmed the existence of a fault running directly through the excavations for all four reactors. In June 1974, however, the AEC announced a final decision that the fault is "not capable," or inactive, within the meaning of its rules and regulations, and therefore poses no threat to public health or safety.³ Construction at the site was allowed to continue.

In May 1974, the Commission opened a separate investigation into charges by the North Anna Environmental Coalition of material false statements, designating an Atomic Safety and Licensing Board to hold hearings and make appropriate findings. Hearings were held in January 1975. In April, the Board notified VEPCO of its finding of 12 material false statements. The Board then initiated further proceedings to consider remedies and sanctions, issuing a final decision on all issues in September 1975.⁴

The North Anna Environmental Coalition initially alleged 24 material false statements, but by stipulation of the parties, the number was reduced to 19 for the purposes of the inquiry. All related to VEPCO's failure to report to AEC staff in a timely fashion what it knew about the fault. An example is the statement in VEPCO's Final Safety Analysis Report for Units 1 and 2 that "faulting of rock at this site is neither known nor is it suspected." VEPCO issued this Report on April 30, 1973, about a week after VEPCO had belatedly begun its own fault study at the site. The Coalition offered the Board a classification of the various types of material false statements it found among the 19 subjected to inquiry. The decision accepted the grouping, and found that among others, statements relating to a geologist's report which VEPCO withheld from the Commission, and statements made at public hearings, are appropriately within the range of statements which a licensee must ensure are accurate and complete.

The Board decided that the false statements were not sufficient to justify suspension or revocation of construction permits at North Anna. Instead, it imposed civil fines on VEPCO in the maximum amount permitted by Commission regulations for single violations, $5,000 per offense, or a total of $60,000.In addition, the Board ordered VEPCO to:

prepare a statement of policy for approval by NRC and issuance by VEPCO expressing VEPCO's strong [5 ELR 10189] commitment to discharge fully all of its responsibilities in connection with its construction activities, including its duty to submit to NRC for independent evaluation all "material safety matters;"

prepare a management evaluation and analysis of its current organizational structure, assessing its own ability to implement the required statement of policy;

analyze and report on its contract policy with contractors performing any work for VEPCO relating to its license applications to the Commission.

Both VEPCO and the North Anna Environmental Coalition have appealed the ruling to the Commission's Atomic Safety and Licensing Appeal Board, which generally has affirmed Licensing Board actions. Further appeal by either party is to a United States Court of Appeals. the Coalition is seeking a reversal of several aspects of the Board's decision, including the conclusion that the standard applied in judging the materiality of a statement is that of a technical and scientific expert, rather than of an ordinary reasonable citizen.

The Board's decision of September 10 systematically disposed of a number of legal issues, the resolution of which will have an important bearing on applications for nuclear power plant construction permits in the future, assuming the decision is upheld on appeal.

The Board charged VEPCO with the knowledge of information supplied to its employees, and expressly rejected VEPCO's claim of ignorance due to the fact that its resident engineer at the North Anna site, not appreciating the significance of the 1970 information from a local geology professor⁵ that serious faulting was evident at the site, did not report it to his superiors. The Board reasoned that if VEPCO were permitted to avoid responsibility because its employees, or agents, or independent contractors failed to inform it of material information, the safety purposes of the Atomic Energy Act could be thwarted. Stated the Board: "As the Act implies, the public health and safety is too vital to the national interest to permit such an avoidance."

The Board also resolved a number of issues concerning the elements of a "material false statement." First, it ruled that omissions or non-disclosure of material facts can amount to a material false statement. Any other rule, it said, would fail to bring about the full disclosure critical to the Commission's independent safety review of construction license applications. Second, it concluded that willfulness or scienter is not a necessary element of such a statement. During the proceedings and in statements to the press thereafter, VEPCO consistently held to the defense that it believed the statements true at the time they were made, and that VEPCO officials never intended to mislead or deceive anyone. The Board's investigation led it to agree with VEPCO on this point, but the Board rejected the contention as irrelevant, stating that while it may be true that innocent acts cannot be deterred, it is possible to some extent to deter ignorance by encouraging greater effort by a licensee to be sure it gathers and reports accurate and full information. Board member Lester Kornblith, who dissented in part from the Board's decision, concurred in this finding, citing the obvious need of the Commission for truthful and accurate information "on matters relating to carrying out its responsibility to protect the health and safety of the public."

Third, the Board rejected the argument that a statement is not "material" unless it is shown that a public official relied on it, or that the Commission staff would have changed their behavior had an omitted statement been properly included. In rejecting the test of reliance, the Board asserted that a statement is material if a staff member "would, or should, consider it in reaching a conclusion or in determining a course of action; it is not important whether … the statement ultimately played a role in his decision."

The consideration of remedies and sanctions raised a further issue, whether the Board has the power to order affirmative action. The Coalition had initially proposed affirmative action sanctions, and the proposal does not appear to have sparked much of a debate. Discussion of the basis for such action in the September decision is scant; the Board merely asserts that its delegated power under the Atomic Energy Act permit it to impose "whatever remedy or sanction may be appropriate in the circumstances consistent with the public interest," and invokes two Supreme Court decisions for general support.⁶

In determining that revocation or suspension of the construction permits was not warranted, the Board cited three factors: the fault is not active and therefore poses no risk to public health and safety; the power to be generated by the completed units will be needed by the public; and there was no finding of "concerted, deliberate intention to violate the material false statement provisions of the Act." The Board also rejected other sanctions proposed by the Coalition, including Commission monitoring of VEPCO's quality control efforts, placing VEPCO under a continuing disclosure requirements on matters related to geologic suitability of plant sites, and mandatory waiver of defenses under the Price-Anderson Act in the event of a nuclear catastrophe.

The Board's resolution of the legal issues presented by the case is heartening because it imposes a high standard of care on licensees and applicants in reporting seismic and other geologic information to the Commission, and emphasizes the responsibility of the Commission to make its own independent assessment of site suitability when adverse information is received. Current licensees and prospective applicants who take note of these conclusions will find in them a clear warning of [5 ELR 10190] the gravity of their reporting duties and of the seriousness with which the Commission can view suspected violations. The fines, while falling far short of the $705,000 proposed by petitioners, were, at $60,000 much larger than the previous largest total fine ($5,000), and should help draw attention to these conclusions of law.

By contrast, the novel venture of the Board into ordering affirmative action by VEPCO, while a creative assertion of powers, produced a relatively trivial set of penalties, perhaps best viewed as a required public confession.

The reluctance of the Board to invoke its ultimate sanction, suspension or revocation of the plant license, is distressing. The Board's stated reasons for withholding this sanction are weak. The gravity of failing to report adverse seismic information is not all alleviated merely because the geologic fault in question was later judged to be "incapable." The reason for stringent reporting requirements is the need for an early and independent Commission assessment of safety factors, a need which goes to the integrity of the entire licensing process no matter what the eventual conclusion on the merits turns out to be.

Moreover, the future public need for electricity seems a remote criterion to apply to the immediate conflict, and its level is at best debatable. Finally, while it may be valid to consider VEPCO's lack of deliberateness in shaping a sanction, one wonders whether the Commission staffwhich investigated the matter really got to the bottom of it, particularly in light of the suggestion in the majority and dissenting opinions that Commission staff were also involved in delays in informing the Commission of the existence of geologic problems at the site.

In short, if the objective of the Board is to make clear the importance of through and accurate reporting, what more effective means does it have at its disposal than a judiciously imposed temporary license suspension? One wishes that the Board might have dealt in a forthright manner with the obvious reason for refusing to apply this sanction, VEPCO's existing $600 million investment in plant construction at its North Anna site, and the certainty that any delays would mean further cost increases.

A number of factors militated for stiffer penalties. Dissenting board member Kornblith found only six false statements, but regarded one of them to be so serious he would have classified it as a continuing violation and imposed a penalty of $75,000 for it alone. Further, VEPCO's previous history of violations (two of the total of eight issued to the entire nuclear industry since civil penalties were established in 1968), might have been accorded greater weight in shaping a sanction. Finally, VEPCO's announced intention to charge any penalties assessed to its retail consumers rather than to its shareholders, a plan expressly overruled by the Board, does not put VEPCO's corporate character in a good light. Thus, to rest content with ordering VEPCO to promise better performance in the furture appears little more than a weak gesture in the case at hand.

One restraining factor in shaping sanctions may have been an issue raised in the partial dissent of Board member Kornblith, who cited numerous changes in the Commission's reporting requirements in the 1968-1973 period. In his view, these changes excused VEPCO from a number of the alleged material false statements, since the standard to which VEPCO was to conform may not have been entirely clear. This perception may also have been a silent moderating factor in the thinking of the majority.⁷

It is unfortunate that the most significant aspects of the Board's ruling, its conclusions of law, and its selection of types of statements to declare as material false statements, are buried deep in the 130-page decision. The well-publicized portions of the decision, the sanctions imposed on VEPCO, look weak when compared to the powers at the Board's disposal in such proceedings, including suspending, revoking or amending any Commission license. Nonetheless, they are the most vigorous sanctions yet imposed on a nuclear licensee. In addition, while the particular affirmative actions required of VEPCO are pro forma, the novel departure of imposing such duties on licensees who commit violations is a noteworthy development. Finally, the Board's restraint in choosing remedies may effectively serve to protect the rest of the decision on appeal.

1. The Board system was authorized by § 191 of the Atomic Energy Act as amended by Pub. L. 87-615 (1962). Boards of three are formed as needed by the Commission to resolve particular disputes; members are drawn from a panel of qualified persons, numbering about 70, named by the Commission from the government and from private life. Commission staff are not eligible to serve on the panel.

2. Under the Energy Reorganization Act of 1974, Pub. L. 93-438, 43 U.S.C. § 5801 et seq., the Atomic Energy Commission was dissolved, and the Nuclear Regulatory Commission established, assuming many of the regulatory functions of the old AEC. For convenience, this Comment uses the term "Commission" interchangeably to refer to both incarnations.

3. This decision is now on appeal in North Anna Environmental Coalition v. VEPCO, No. 75-1312 (D.C. Cir.).

4. Nuclear Regulatory Commission, In the Matter of Virginia Electric and Power Company (North Anna Power Station, Units 1 and 2) Construction Permit Nos. CPPR-77, CPPR-78, Initial Decision, September 10, 1975. (A final decision of the Board is termed an "initial decision" of the Nuclear Regulatory Commission.) Copies are available for inspection at the Public Document Room, Nuclear Regulatory Commission, Washington, D.C.

5. The professor, Dr. John Funkhouser of Tyler Community College, was tragically killed prior to the January 1975 hearings.

6. Federal Trade Commission v. National Lead Co., 352 U.S. 419, 428-29 (1957), and NLRB v. Seven-Up Bottling Company, 344 U.S. 344, 348-349 (1953).

7. The Board found that the reporting requirements for geologic and seismic matters at all times "were clear to the licensee," but acknowledged that guidance to licensees "may have become more specific and detailed commencing on November 25, 1971" when the Commission issued additional rules and regulations. Decision, supra n. 4, at p. 40.