Written by David A. Repka

In 2005, after Congress passed the Energy Policy Act of 2005, the U.S. energy industry was poised for a self-proclaimed “Nuclear Renaissance.” The Nuclear Regulatory Commission (NRC) was, for the first time in decades, flooded with applications for licenses to construct and operate over two dozen new nuclear units in the United States. These projects, if licensed and completed, would create a substantial number of manufacturing, construction, engineering, and other professional jobs — and would create a substantial new source of domestic, carbon and emissions-free electricity by the latter half of the current decade. Six years later, the NRC is poised to issue licenses for only four units (with a few others to follow in the next few years). Many proposed projects have been deferred and the “Nuclear Renaissance” has receded into the future, the prospects dimmed by the poor economy, low natural gas prices, and — significantly — new regulatory positions that appear to choke the potential for needed foreign investment in the industry.

In 1954 — at the apex of the Cold War and at the infancy of the commercial development of nuclear power — Congress included in the Atomic Energy Act a provision that the NRC may not issue a license for a nuclear power plant “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.”1 In implementing this prohibition against issuing a license, the NRC has established a regulation that goes even further: a “citizen, national, or agent of a foreign country, or any corporation, or other entity which the Commission knows or has reason to believe is owned, controlled, or dominated by an alien, a foreign corporation, or a foreign government, shall be ineligible to apply for and obtain a license.”2

Historically, these statutory and regulatory provisions have not acted as a bar to foreign participation in nuclear projects. As early as 1966, the Atomic Energy Commission (AEC) (the NRC’s predecessor) issued a decision finding that the statutory restriction in the Act “should be given an orientation toward safeguarding the national defense and security” and that the “Congressional intent was to prohibit such relationships where an alien has the power to direct the actions of the licensee.”3 In other words, foreign investment and participation in a project would not bar a license if the foreign entity did not have control over safety or security matters. The Commission subsequently allowed foreign entities to become licensees to own substantial interests in nuclear plants.

In 1999, the NRC was faced with significant foreign ownership interests in newly deregulated “merchant” nuclear plants — such as the 50-50 participation of British Energy with PECO Energy (now Exelon) in AmerGen, an owner and operator of several U.S. operating nuclear plants. The NRC issued a Standard Review Plan (SRP) on Foreign Ownership, Control, or Domination (FOCD) Issues.4 The Commission recognized, at a policy level, the global nature of the nuclear energy industry and the reality of foreign investments in U.S. energy companies and nuclear projects. The SRP, among other things, provided that partial ownership of 50%, or greater, of a project could be allowed if “negation actions,” such as governance controls, were adopted by the licensee to effectively prevent foreign control.

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In recent months, however, the NRC — during its staff review of pending applications for licenses to construct new nuclear projects — has indicated that it is not satisfied with negation actions intended by the applicants to prevent foreign control of the project. First, in the case of the proposed Calvert Cliffs Unit 3, to be located in Maryland, the NRC Staff has, for the time being, blocked a license. The applicant, UniStar Nuclear Energy (UNE), a domestic entity, was originally established as a joint venture between Constellation Energy Group (CEG) of Baltimore, and Electricité de France (EDF), one of the largest nuclear companies in the world, based in Paris. The NRC Staff recognized, however, in April 2011, that CEG’s interest had been sold to EDF and that EDF is now the sole parent of UNE. According to the NRC, this ultimate ownership interest cannot be negated by the negation action plans put in place by UNE.

More recently, in December 2011, the NRC Staff issued an adverse finding to Nuclear Innovation North America (NINA), the developer of the proposed South Texas Project. NINA’s investors include NRG, a domestic entity, and Toshiba America Nuclear, a U.S. subsidiary of Japan’s Toshiba Corporation — another major, global nuclear company. Again, the NRC staff’s view is that the company’s proposed negation actions, designed to prevent foreign control of the project and to assure that safety and security decisions are within the sole control of U.S. citizens, are insufficient to prevent FOCD. The NRC staff now sees a risk that foreign funding of projects will create foreign influence and cause the applicant to be subject to foreign control.

These FOCD issues remain under review at the NRC and are contested by the parties involved. However, these cases point out an evolving and more assertive NRC view of the 1954 statute. And, perhaps more importantly, these cases reveal the statute itself as a Cold War relic that may now stand as a significant impediment to foreign investment in major U.S. infrastructure projects. Other provisions of the Act assure that no license may be issued by the NRC if the license would be “inimical” to safety and security of the United States.5 The FOCD provision in the Atomic Energy Act — one that may prevent foreign investment in projects otherwise controlled by U.S. companies — raises significant policy questions and appears to be inconsistent with the current global nature of the nuclear energy industry.