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Corporate Governance Report: Silicon Valley & SF Bay Area Public Companies

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Orrick Silicon Valley-SF Bay Area Corporate Governance Report 2017

The Morning Risk Report: Exclusive Forums, Proxy Access Are Hot Governance Issues

By Ben DiPietro

The Wall Street Journal

Mar 28, 2017 7:12 am ET

An increasing number of publicly traded companies in the San Francisco Bay area are moving to limit the jurisdiction where a stockholder derivative class-action lawsuit can be filed. Some of these companies, as well as other companies from the region, are adopting some form of proxy access–and some are requiring board members to win a majority of votes before they can gain or retain their seat, according to a report from law firm Orrick released on Monday. The report looked at 153 Bay Area companies that are publicly traded and have market capitalizations of $750 million or more, said Ed Batts, global leader of Orrick’s M&A and private equity practice.

With regard to the so-called “exclusive forum” provisions that allow a company to decide in which jurisdiction a shareholder can file a lawsuit—it’s usually Delaware—Mr. Batts said more companies are changing their incorporation bylaws or other rules to stipulate where such lawsuits can be litigated. “In 2011-2012 nobody had it. Now 50% of companies have it” and more are likely to follow suit, said Mr. Batts. With proxy access—a provision allowing group of up to 20 stockholders who own collectively 3% of the company’s stock for at least three years to be able to nominate up to 20% of the board of directors–the report found fewer than 20% of the companies permit it. Mr. Betts said he expects that number to increase. “My guess is it will jump from 20% to 50% next year, and to 75% not too long after,” he said. “Companies are beginning to proactively adopt it.” Of the Bay Area companies that don’t have dual-class shares of common stock that allow founders to retain super-voting rights, 70% have some rule requiring a board nominee to get a majority of votes in support to win the seat in an uncontested election.

What does all this mean for companies outside of the Bay Area? Mr. Batts said they need to start to pay attention to some of these governance issues—and ought to do so before an activist investor comes knocking at the door. “They ought to get a check-up of their corporate governance health profile,” he said, adding the time to make changes is before an outside group starts to put pressure on the company, at which point making changes will look bad. “Be proactive in how you attack the corporate governance assessment and ask, ‘What do we have, what should we have?’”

Law 360: Dealmaker’s Q&A

EdBattsPostImageLaw360, New York (September 09, 2014, 10:42 AM ET) —

Ed Batts is co-chairman of DLA Piper’s Northern California Corporate & Finance practice. He counsels publicly traded companies in complex mergers and acquisitions, corporate governance and public offerings. He focuses on technology and has particular experience with cross-border transactions, public-public mergers, tender offers and going-private transactions. Batts also advises on board matters and public reporting obligations, including activist investor situations, stockholder proposals and accounting-related issues.

As a participant in Law360’s Q&A series with dealmaking movers and shakers, Ed Batts shared his perspective on five questions: READ MORE

Corporate Attorneys Survey New Tactics Against Activists

The Daily Journal

April 7, 2014

By Dominic Fracassa

As the dust kicked up by the latest wave of shareholder activism finally begins to settle, businesses and their legal advisers are huddling in an effort to survey and adapt to what’s changed in the world of corporate governance. Increasingly seeing run-ins with activists as more a matter of when than if, attorneys are urging their corporate clients to adopt strategies focused more on communication than confrontation.

“I think we’re doing a lot more proactive outreach to public company clients to put in place programs with boards of directors and management to get them prepared for activist activity, whether it’s activist outreach or full-on proxy contests and everything in between,” said Cooley LLP partner Jamie Leigh.

The extraordinary victories claimed by activists in a number of high-profile companies convulsed the corporate world in recent years. Companies once thought to be virtually untouchable, like Apple Inc. and Microsoft Corp., have acquiesced to activist demands. Many of these stem from the feeling that shareholders’ ideas aren’t being considered by walled-off boards of directors.

Last year, activist funds made 42 investments in companies with market caps of more than $10 billion, nearly double the number recorded in 2012, according to a recent report by analyst Activist Insight and the New York-based law firm Schulte Roth & Zabel LLP, which specializes in advising activist funds.

Overall, activists publicly took stakes in 237 companies in 2013, according to the report, up from 218 in 2012.

Making a concerted effort to connect with shareholders regularly has become a central strategy in the hopes of assuaging activist’s concerns before they turn into more intense conflicts.

“If you’re speaking with shareholders on an ongoing basis and keeping them involved as to ‘here’s the plan,’ you’re much more likely to have a receptive ear when an activist comes knocking,” said O’Melveny & Myers LLP partner Paul S. Scrivano.

Many attorneys are also now finding themselves collaborating with investor relations specialists, financial advisers and proxy solicitors to help companies run “prep sessions,” Leigh said, and keep a close eye on their competitors in the marketplace.

“You need to be more proactive with engagement with your shareholder base on a routine basis by identifying who’s in your stock, keep up your surveillance of the market and figure out whom you should go to talk to gauge stockholder concerns,” said Edward H. Batts of DLA Piper.

But as activist initiatives continue to gain momentum, attorneys are keeping close tabs on new tactics in order to better spot potential problems early.

For instance, activists are finding opportunities to leverage some of their influence in transactional matters. Though the trend has yet to become widespread, some activist funds are choosing to exercise their appraisal rights – getting a court to evaluate the fair market value of the acquisition of a company they own stock in – if they believe the asking price to be too low.

The strategy comes with a fair amount of cost and risk, as courts can decide on a lower amount than the original offer, or to leave the offer unchanged, but some funds appear willing to take the plunge if it means the prospect of a bigger payday or procuring a settlement.

Westlake Village-based Dole Food Co. Inc. is currently embroiled in a battle over appraisal rights being waged by activist shareholders. Last year, Dole’s management barely managed to get a $1.6 billion take-private offer approved by shareholders. The $13.50 per share offer was widely reported by analysts as a low-balled figure.

Spearheaded by a consortium of hedge funds, some of which purport to specialize in appraisal rights suits – and which raise billions in order to do so – 25 percent of Dole’s shareholders have now opted to exercise their appraisal rights, and litigation is pending.

Taken on the whole, Scrivano said the uptick in the use of appraisal rights is likely to have an impact on the way in which attorneys negotiate acquisition term sheets in public company deals. Buy-side counsel, he said, may, for instance, look to implement clauses that would allow their clients to walk away from a deal if more than 10 percent of the sell-side’s shareholders decide to exercise appraisal rights.

“That condition will be focused on a lot more by M&A practitioners if the thought here is that hedge funds might seek to exercise appraisal rights and hold a deal up,” Scrivano said.

In another notable dispute that dates back to October, Daniel S. Loeb, CEO of the hedge fund Third Point LLC, sued Sotheby’s Corp. over its shareholder rights plan. The plan, commonly referred to as a poison pill, would rapidly dilute the company’s shares if any one entity were to amass more than a 10 percent stake in the company, a move meant to prevent a hostile takeover.

Loeb and Third Point currently own a 9.6 percent stake in the auction company, making it Sotheby’s largest shareholder.

The terms of the poison pill, Loeb contends, unfairly obstructs his ability to continue building his position in the Sotheby’s and ultimately replace at least three of the company’s directors. Loeb has been publicly critical of the company’s management and its deteriorating competitive position.

Sotheby’s poison pill structure allows “active” investors like Loeb to obtain only a 10 percent stake in the company. “Passive” investors, ones not likely to take part in most governance decisions, are permitted to buy up to a 20 percent stake.

In an unusually aggressive move, Loeb is claming the policy is unfairly discriminatory and is being used to block his initiatives. Late last month, a Delaware judge decided to fast-track the case.

Scrivano thinks Loeb is in for an uphill battle, however, and that this particular move isn’t likely to be widely copied.

“The whole reason the pill has teeth is because of that discriminatory feature,” he said. “Every so many years, it feels like the pill gets litigated, but it continues to hold up. I think the smart money is on the pill being upheld.”

If activism at its current level is, in fact, here to stay, lawyers said companies will need to do more than simply make a point to interact more with their shareholders regularly.

“It’s definitely helpful to communicate, but it doesn’t solve the problems of a mismanaged or under-managed company,” said David E. Rosewater, co-head of Schulte Roth’s activist shareholder practice. “Ultimately, the best solution that companies can follow is . . . basically think like an activist would about their own business,” he said.

[email protected]

Seeing Risk in Valley’s Overlapping Roles

The Recorder

April 2, 2013

By:  Joshua Sisco

SAN FRANCISCO — Perhaps nothing illustrates the clubby atmosphere of Silicon Valley quite like the tangled web of directors and consultants at many of the area’s companies.

The many concurrent roles that Valley players often take on — executive at one company, director at several others and at times consultants to still more — is a big reason the Valley is such a good incubator for new businesses.  A startup software developer can greatly benefit from a director who has spent years at larger rivals.

But companies that rely on people with overlapping fiduciary duties can potentially expose themselves to a thicket of litigation risks.  Recently a judge handling discovery in the “no poach” employment case against seven Valley giants had to wade into that thicket to decide whether Google Inc.’s communications with Intuit chairman Bill Campbell were privileged.

Corporate governance attorneys and others who advise companies say the situation is a reminder of the need to keep the lines as clean as possible.

“We conduct annual board assessments for our clients. It’s something that needs to be looked at continuously,” said Allison Leopold Tilley, a partner at Pillsbury Winthrop Shaw Pittman in Palo Alto, who is not involved in the antipoaching litigation.  “Anything that adds fuel to the fire can be something for plaintiffs lawyers to latch on to.”

In In re High-Tech Employee Antitrust Litigation, 11-2509, plaintiffs are attempting to show that Google, Intuit and other employers entered into no-poach agreements to suppress wages. Campbell, the former longtime Intuit CEO, was a Google consultant and is an Apple Inc. director.  U.S. Magistrate Judge Paul Grewal reviewed a small sampling of the emails and ruled that they are privileged.  However, he agreed to an in camera review of a wider selection of emails. That is currently ongoing.

Whatever happens in that case, said DLA Piper’s Edward Batts, “In the Valley, it is inevitable that things like that will continue to crop up.” 

Batts added that he doesn’t see Valley technology companies as any worse than other industries. “The Google-Apple issue was a pretty good call to arms,” he said, referring to the time in 2009 when Eric Schmidt, then the CEO of Google, stepped down from Apple’s board as Google moved further into the mobile business.

One partner at a Silicon Valley-based law firm, who declined to be named to preserve client relationships with companies involved in the poaching case, said that there is a greater risk of conflicts and entrenchment on boards at Silicon Valley companies, especially the smaller ones.  There is often overlap on boards between companies in the same industry and that can present problems with potential business partnerships and acquisitions if the directors don’t recuse themselves or step down, the attorney said.

The problem is real and can go well beyond privilege concerns, says another attorney who did not want to be named discussing a client.  A company this lawyer represents has a venture capital investor sitting on its board — someone the CEO would often bounce ideas off of. Now this board member has started his own competing company. The CEO hopes he’ll step down, but so far he hasn’t recused himself from any board activities. “There are not a lot of executives willing to have that conversation with their boards,” the attorney added.

These conflicts are difficult to navigate, and one lawyer says board members and others need to recognize these conflicts and act to resolve them, even if that means stepping down from or declining a directorship. “When someone serves on numerous boards they owe the same responsibilities to each of those companies,” said Nancy Wojtas, a corporate partner with Cooley in Palo Alto. “It is hard to compartmentalize that information.”  It’s a bigger concern than many in the Valley want to acknowledge, Wojtas said. “It’s an ethical issue for these people. They need to be sensitive about who is serving on a board and to police it internally.” Conflicted board members, she adds, are usually decent, responsible people, “but it is hard to unlearn things.”

Amid criticism, nuclear chief Jaczko resigns

By Roberta Rampton

WASHINGTON Mon May 21, 2012 9:53pm EDT

(Reuters) – Gregory Jaczko, chairman of the U.S. Nuclear Regulatory Commission, said on Monday that he would resign, following a year of intense criticism over his abrasive management style.

A series of reports and congressional hearings have painted Jaczko as a bully who had reduced some senior female employees to tears – accusations that have overshadowed new rules he championed in the wake of the 2011 earthquake and tsunami that devastated Japan’s Fukushima Daiichi nuclear complex.

Jaczko, 41, has consistently dismissed and denied the reports. He said announcing his decision to step down more than a year before his term expired was “not at all” related to the accusations but rather publicly signals his intention not to pursue a second term as chairman.

“I just wanted to provide the best opportunity for a successor to be brought on board and to give the president and the Senate maximum opportunity to do that,” Jaczko told Reuters, noting he will stay in his job until his replacement is confirmed by the Senate.

The White House plans to nominate a new chairman soon, a spokesman said.

Jaczko said the negative headlines have not taken a toll on him or his family. “I’ve learned to separate and not take personally the kinds of things that people have said,” he said.

“It’s rare in life to have the opportunities I’ve had as chairman and I relish every moment of it. If that means being in the middle of some difficult issues with Congress, then that’s just part of the job and something I will continue to deal with,” he said.


Having cast himself as a reformer at an agency where change typically happens at a glacial pace, Jaczko was long an irritant for the nuclear power industry, which fears the new regulations could drive up costs at the same time that cheap natural gas heightens competition.

The head of the Nuclear Energy Institute, a lobby group, acknowledged in a statement that the industry had differences with Jaczko but wished him well and urged the White House to name a new chairman quickly.

Republicans, with an eye to elections in November, were quick to cheer the departure of Jaczko, a Democrat, and also want a replacement soon.

“The only thing surprising about his resignation is the fact that the Obama administration has remained silent for more than a year after allegations of Jaczko’s offensive behavior surfaced,” said Mitch McConnell, Republican leader in the U.S. Senate.

The selection of a replacement could happen in tandem with the reconfirmation of a Republican commissioner, Kristine Svinicki, whose term expires next month.

Jaczko’s replacement likely will be someone more open to “consensus building,” said Ed Batts, a partner at law firm DLA Piper.

“It would seem likely that his successor … will be from a more conventional background, either a technocrat or academic, and perhaps less of a dynamic personality,” Batts said.


Jaczko got his start in Washington as a young, socially conscious physicist helping his then-boss Harry Reid, now Senate majority leader, block a plan to store radioactive waste under Nevada’s Yucca Mountain.

Jaczko, a Democrat, had served at the NRC for almost eight years, and was appointed to the chairman role by President Barack Obama.

“He was a decent guy but he was too direct,” said Najmedin Meshkati, an engineering professor at the University of Southern California. “To run the NRC he needed to be much more diplomatic, much more circumspect.”

The resignation comes as the nuclear agency overhauls safety rules for the nation’s 104 nuclear plants, owned by companies such as Exelon and Entergy Corp.

It also recently approved licenses for the first new U.S. plants in more than 30 years, owned by Southern Co and Scana Corp.

Jaczko cast the lone dissenting vote against the new licenses, drawing ire from the industry and Republicans.


The four other commissioners at the NRC – two Democrats and two Republicans – took the unprecedented step last year of complaining to the White House about Jaczko.

Uncomfortable congressional hearings followed with the commissioners detailing their concerns and Republicans grilling Jaczko.

At the time, Bill Daley, then White House chief of staff, expressed his support for Jaczko and urged the commissioners to get along, perhaps with help from a mediator.

But the rancor did not fade. Republicans helped revive the story when the White House was slow to renominate Svinicki this spring. House Republicans had a hearing planned for next week expected to focus on Jaczko’s tactics.

The inner turmoil at the NRC first attracted public scrutiny a year ago when the agency’s inspector general, an internal watchdog, released a report that described Jaczko as someone who often lost his temper and used threats and intimidation to try to get his way.

The NRC’s inspector general is expected to release a follow-up report about Jaczko’s leadership style soon, although the timing and content of the report is not clear.

Jaczko told Reuters he had not seen the report and said he would not see it until it is final.

Jaczko’s defenders said the accusations have been amplified by opponents to distract the agency from its reforms.

“These attempts to make a slender, balding particle physicist appear to be careening about the NRC like Mike Tyson with Evander Holyfield’s ear in his teeth were always complete nonsense,” said Peter Bradford, an adjunct professor at Vermont Law School and a former NRC commissioner.

(Additional reporting by Jeff Mason and Timothy Gardner in Washington and Scott DiSavino in New York; Editing by Dale Hudson and Bill Trott)

Has Omnicare Been Rendered a Farce?

 Shareholder Approval of Small Private Acquisitions:Has Omnicare Been Rendered a Farce?

By Ed Batts, a Partner of DLA Piper

Deal Lawyers, March-April 2012

Perceived Delaware requirements for stockholder solicitation to approve an acquisition agreement have become increasingly opaque due to first the 2003 Omnicare decision and then the subsequent erosion thereof. The result is the casting of a cloud of both uncertainty and inefficiency, the twin root evils of effective corporate jurisprudence.

In Omnicare Inc. vs. NCS Healthcare Inc., 818 A.2d 914 (Del. 2003), the Supreme Court of Delaware invalidated a merger agreement where an insolvent company had been given 24 hours by a potential acquirer to agree to (1) no fiduciary out (the ability by a target company to terminate the agreement, subject to a break-up fee, in the event a third company offers a superior proposal for the target company) and (2) requiring voting agreements from two stockholders, who also represented one half the board, which had the effect of contractually guaranteeing the required stockholder vote prior to the company actually submitting the deal for approval to the stockholders as a whole.

Prior to Omnicare, private company acquisitions were relatively straightforward affairs. Provided that a transaction’s value fell below the threshold requiring a Hart-Scott-Rodino (HSR) antitrust notification filing (currently around US$66 million), and that consents from customers or suppliers could be acquired prior to signing, often a buyer could insist on a simultaneous signing and closing whereby stockholder consents were delivered concurrent with execution of the merger agreement. In venture capital backed companies, with a concentration of share ownership in a select few VC firms and perhaps a founder or two, smaller stockholders were routinely ignored in the initial pre-execution solicitation, though they retained the dissenters’ rights accorded them by statute. While this may seem procedurally high-handed, it did nothing to substantively change the outcome of any merger vote.

A simultaneous sign/close was beneficial, however, in that it allowed certain verbose, contentious provisions to be omitted from a merger agreement—for instance, interim operating covenants for the target company between signing and closing, a termination section, fiduciary outs and break-up fees. Omitting such provisions increased deal certainty and reduced transactional (that is, lawyer) costs. Even when HSR filings or contractual consents were necessary, the immediate delivery of stockholder approval at signing eliminated the buyer’s fear of a deal break-up from topping interference.

The decision in Omnicare limited the ability to lock up a deal prior to its submission to stockholders following execution of an agreement. For public company transactions, it meant that voting agreements could no longer make a deal a forgone conclusion. And, indeed, it meant the same for private company transactions—but with the added wrinkle that a period between signing and closing became mandatory, not optional. Thus came the advent of interim operating covenants and termination provisions in private company agreements, even where no HSR filing or contractual consents were required.

Following Omnicare, some counsel in smaller transactions quite conveniently chose to ignore the decision—and in such deals many continue to do so. Some cannot be bothered to worry about the purportedly hypothetical risk of merger contract judicial invalidation; others stake their claim by asserting that the specific facts of Omnicare are not analogous to a concurrent sign/close situation.

The oracles of the Delaware Bar, however, have generally taken a dim view of both perspectives. The risk of stockholder litigation in a closely held private company may be remote, but many are concerned about even the faint chance that a cranky shareholder might turn up in a Delaware court to upset a merger. And while the facts of Omnicare are extreme (an insolvent corporation backed into a financial pickle) the underlying holdings are pretty clear-cut—at least on their own. Further, if a law firm is asked to give a legal opinion on enforceability of a merger contract that does not comply with the basic tenets of Omnicare, ignoring the case is a difficult proposition.

From a public policy standpoint, the roots of Omnicare may well be grounded in laudable goals. In Omnicare, the target company (NCS Healthcare) was jammed. It was given less than 24 hours to deliver a stockholder vote for deal that threw a lifeline of value to an enterprise precariously perched on the precipice of financial apocalypse. One could reasonably posit that stockholders should have a fair period of time in which to review a detailed solicitation statement. The majority opinion in Omnicare noted there is an inherent balance under Delaware law between the board and the stockholders. Restoring some period of reasonable review would seem equitable in allowing stockholders to offset the specter of unfettered board edicts. Public companies already in reality enjoyed such benefits as federal securities laws have long mandated that a proxy statement for a publicly-traded company must be in the mail no later than 20 business days prior to a stockholder vote, giving stockholders a whopping month to mull over a deal’s merits.

Omnicare, however, has been muddied by subsequent erosion. Nothing in either that decision or in Delaware law prescribes an actual bright-line time period for stockholder review of the terms of a proposed merger. In practice, many deals now involve execution of the merger agreement followed by an immediate “solicitation” that constitutes an e-mail from the target’s counsel to stockholders, followed by the seemingly magical submission of stockholder consents from large stockholders representing the required vote. Such consents in reality often are sought in hushed tones by the target’s counsel prior to the execution of the merger agreement and held by such counsel in mythical escrow, pending signing.

This process perfects the triumph of form over substance.  It therefore was inevitable that some clever lawyer would impose a post-signing deadline for a stockholder  vote. Such a deadline was included in a merger agreement that became the subject of a 2008 Delaware Chancery case, Miami v. WCI Steel, Inc., C.A. No. 3833-VCL (Del. Ch. June 27, 2008), in which a 24‑hour deadline to return consents was included in the merger contract; the failure to meet such condition gave the buyer a right to terminate. Upholding this condition, Vice Chancellor Stephen Lamb reaffirmed that Delaware law does not require “any particular period of time between a board’s authorization of a merger agreement and the necessary stockholder vote.” WCI Steel thus would appear to substantially undermine Omnicare’s applicability to private company mergers.

Indeed, following WCI Steel, many smaller private company agreements now contain a 24-hour (or shorter) deadline, whereby the buyer can terminate the agreement if the stockholder vote has not been received.

The result is farcical. Frantically prepared solicitation statements are transmitted in a post-signing e-mail flurry, only to be promptly superseded by prepared consents, freshly released from “escrow” and pouring in. However, lawyers must still negotiate pre-closing operating covenants, and termination provisions all of which are an arguably superfluous chore if no HSR or contractual consents are needed for closing; the provisions themselves remain operative only during the briefly open window between signing of the merger agreement and the return of stockholder approvals just hours later. One could hypothetically assert that WCI Steel allows for a return to the old days of near-simultaneous signing/closing, but it is not clear that it does. And lack of clarity causes customarily risk-averse lawyers to assume that the worst (a court

action to invalidate) can still occur. For a transaction of modest size, this imposes both needless angst and an indirect tax (of lawyer’s fees) on stockholders of both sides of the transaction.

The unadorned beauty of Delaware as the jurisdiction of choice for American corporate law is its large body of rulings on the subject, its speedy opportunity for judicial review, its customer-service oriented filing process (the utility of which is not to be underestimated) and the (usual) clarity of its judicial guidance.

A few larger technology darlings have recently conducted long-awaited IPOs which have garnered much publicity. However, such deals are numerically dwarfed by the volume of pre-public acquisitions.  Well established, large technology companies rely on Silicon Valley and its various geographic siblings  as incubators for ideas that are enshrined in an ever-changing constellation of startups. The ability to efficiently and quickly acquire such idea-based entrepreneurial gems strips away development cost. And even startups (and their VC backers) rely on the ability to quickly combine such very entities in order to re-jigger organizations, tweak development and evolve ideas.

Accordingly, Delaware, whether through one of its august judiciary or legislative bodies, would do well to proactively address the present conundrum. If Delaware decides, through statute or a bright-line Supreme Court holding, to require a minimum period of time for stockholder review, then so be it—but a public policy determination of such import needs real teeth. One would think a period of 72 hours reasonable to digest and discuss the contents of a thorough solicitation statement (which Delaware also ought to consider mandating be written in “plain English”). In larger transactions with publicly traded buyers, even though there likely would be a required HSR filing, 72 hours would seem a reasonable period, since such buyers may need to file the terms or actual agreement on a Form 8-K with the Securities and Exchange Commission. Such a filing publicizes the commercial terms of the deal, thereby essentially inviting topping offers, permissible absent stockholder approval ending a fiduciary out period, which such buyers are understandably loathe to do.

What we do not need is the current, de facto standard, in all its ambiguity and ridiculous brevity.  On the other hand, if Delaware decides that no prescribed period is necessary, and the power of stockholders to withhold their vote (or signature on a consent) is sufficient leverage in the balance of the board and the stockholders with which Delaware should not further interfere, so be it. Such a clarification would allow the charmingly simplistic simultaneous sign/close model to re-emerge.

With either approach, however, at least transactional lawyers in small private deals could abandon their perennial head-scratching question: “But what about Omnicare?”

NRC approves first new nuclear plant in a generation

By Ayesha Rascoe

ROCKVILLE, Maryland Thu Feb 9, 2012 5:53pm EST

(Reuters) – Regulators on Thursday approved plans to build the first new nuclear power plant in the U.S. in more than 30 years, despite objections of the Nuclear Regulatory Commission chairman, who cited safety concerns stemming from Japan’s 2011 Fukushima disaster.

The NRC voted 4-1 to allow Atlanta-based Southern Co to build and operate two new nuclear power reactors at its existing Vogtle nuclear power plant in Georgia. The units will cost Southern and partners about $14 billion and enter service as soon as 2016 and 2017.

The approval was cold comfort for nuclear industry officials who have touted a “renaissance” that has failed to materialize, undercut by high costs and the cheapest natural gas prices in about a decade.

No nuclear power plants have been licensed in the United States since the partial meltdown of the reactor core of the Three Mile Island plant in Pennsylvania in 1979. After the accident, the NRC adopted more stringent safety standards, which caused construction costs for nuclear plants to skyrocket and stopped dozens of planned plants in their tracks.

Further clouding future prospects, NRC Chairman Gregory Jaczko cast an extraordinary dissenting vote, citing the Fukushima nuclear disaster in Japan in March 2011 that spurred the NRC to review whether existing and new U.S. reactors could withstand natural disasters like earthquakes and floods.

“I cannot support issuing this license as if Fukushima never happened.” said Jaczko, who has close ties to congressional Democrats. “I believe it requires some type of binding commitment that the Fukushima enhancements that are currently projected and currently planned to be made would be made before the operation of the facility.”

Supporters of nuclear power saw Jaczko’s dissent as another sign of dysfunction at the top of the NRC, where in-fighting among members has been the subject of Congressional hearings where one Democratic commissioner called Jaczko abusive.

The chairman just voted against the first new nuclear reactors in 30 years,” said Ed Batts, a partner at law firm DLA Piper. “That’s just not the way that confidence is inspired in the average American and thus does not seem like the best way for nuclear regulation.”

The new plant will use AP1000 reactors built by Westinghouse Electric, a standardized design approved by the NRC in December that will be the foundation for several other proposed nuclear plants. Westinghouse is majority owned by Japanese multinational Toshiba Corp.

Thomas Fanning, Southern Co.’s chief executive Officer, called the license a “monumental accomplishment” and said the new Vogtle plants would provide cheap, reliable power to Southeast residents for years to come.

“This has been a thorough, thoughtful and complete process,” Fanning said. “Recall that four other commissioners saw the same facts and voted” to issue the license.

However, Rep. Edward Markey of Massachusetts, a Democratic critic of the nuclear industry, said the agency “abdicated its duty to protect public health and safety, just to make construction faster and cheaper for the nuclear industry.”

Fanning declined to say why Southern would not agree to include language in the new license to complete potential Fukushima modifications before the Vogtle reactors come online as Jaczko suggested.

“There will be issues (from the Fukushima review) that apply to the U.S. nuclear fleet, but they apply much more closely to the current fleet, not this newest generation of nuclear technology,” Fanning said.

The Obama administration has offered Southern and its partners $8.3 billion in federal loan guarantees as an incentive. Fanning said he expects the U.S. Energy Department to finalize the loan in the second quarter of 2012.

Southern’s Vogtle project is the first in a queue of permits filed by U.S. utilities, like Scana Corp. These were once expected to usher in a “renaissance” of nuclear power, which now accounts for about 20 percent of U.S. electric generation.

Interest in building new nuclear plants had risen about a decade ago when natural gas prices were soaring and experts thought the U.S. Congress would begin to place limits on emissions of carbon dioxide and other greenhouse gases.

Between the fall of 2007 and the summer of 2009, 13 companies applied for construction and operating licenses to build 25 new reactors, including units of Southern, Scana Corp., Exelon, Duke Energy, NRG Energy, Progress Energy, Dominion Resources, NextEra Energy and Energy Future Holdings.

But the case for widespread U.S. nuclear plant construction has eroded due to abundant natural gas supplies, slow electricity demand growth in a weak U.S. economy, lack of financing and uncertainty following the Fukushima disaster.

Nuclear industry officials now say they expect just five new reactors to enter service by 2020 — Southern’s two Vogtle reactors, two at Summer in South Carolina and one at Watts Bar in Tennessee, to be built by the federally owned Tennessee Valley Authority.

Earlier this week, TVA said the Watts Bar unit was behind schedule and that costs would “significantly exceed” a previous building cost estimate of $2.5 billion.

New nuclear plants are “more questionable because there are economic factors right now which favor gas-fueled power plants and the fact that the economy is only growing slowly means that nationally the need for new generation is lower than people were expecting in 2007,” said Michael Golay, a professor at the Massachusetts Institute of Technology.

A 1,000-megawatt natural gas plant takes a few years to permit and build and costs up to $1 billion for the most efficient, combined-cycle model. A similar-sized nuclear reactor however could take five to 10 years to develop and build and cost more than $5 billion.

Industry experts say building interest is centered in Southeast states like Georgia, the Carolinas, Virginia, Alabama and Florida, where traditional utility regulation offers companies the best chance to make a profit on the sizable investment needed to develop new reactors.

Southern Co. stock closed at $44.68 per share, nearly unchanged from the previous day.

(Additional reporting By Eileen O’Grady in Houston and Scott DiSavino in New York, writing by Chris Baltimore; Editing by Marguerita Choy and David Gregorio)

U.S. nuclear agency: Can they all just get along?

By Roberta Rampton

ROCKVILLE, Maryland Tue Dec 13, 2011 1:37pm EST

(Reuters) – Drawn and stone-faced, the five members of the U.S. Nuclear Regulatory Commission sat side by side at a table, speaking the complex language of engineering acronyms and numbers with people who run nuclear plants.

It was business as usual on Tuesday at an NRC briefing on mathematical risk models used to prevent fires, despite the infighting that has broken out in a very public way at an agency that critics say has become dysfunctional.

And with no changes to leadership in sight, they will have to work together as they oversee a call for massive reforms of the large but aging U.S. nuclear power system.

It is the first time the group met publicly since four of the commissioners – two Democrats and two Republicans – took the unprecedented and risky step of formally complaining to the White House about Chairman Gregory Jaczko.

They did not address the spat at the briefing. But they will be grilled about it on Wednesday and Thursday in Congress when lawmakers will demand answers about what went wrong in their relationship and whether it is beyond repair.

The rift comes as the agency considers an overhaul of its safety regulations after an earthquake and tsunami wrecked the Fukushima Daiichi plant in Japan in March.

The changes are expected to cost millions of dollars for existing plants owned by companies such as Exelon and Entergy Corp.

The commissioners – William Magwood, Kristine Svinicki, William Ostendorff and George Apostolakis – say Jaczko has created a toxic work environment through intimidation and bullying. Jaczko has defended his record and said he has always been professional.

Jaczko has promised to try to improve things “and has proposed that all of the commissioners meet with a trusted third party to promote a better dialog,” William Daley, White House Chief of Staff, told them in a letter on Monday night.

The White House expressed confidence in all five commissioners but warned them to try to get along, perhaps with help from a mediator.


Industry observers say the commission’s wheels will keep turning amid the row, noting it has continued to meet and make decisions since October, when the commissioners lodged their complaint.

“Even in this extraordinarily dysfunctional environment, you’re able to get some of this business done,” said Paul Dickman, who was chief of staff to the previous NRC Chairman Dale Klein.

Over time, though, the conflict could wear on staff at the regulator, he said.

The commissioners serve staggered terms and change could happen as term’s end. Svinicki, a Republican appointee, will see her term expire in June 2012, followed by Jaczko in June 2013.

“I’ve been on commissions with people I didn’t like much but the basic work goes on,” said Peter Bradford, who was a commissioner from 1977 to 1982 when the NRC grappled with reforms after the Three Mile Island meltdown in Pennsylvania.

The NRC is expected to rule soon on new plants proposed by Southern Co and SCANA Corp, and new reactor designs by Westinghouse and others.

Those technical decisions driven by staff work are unlikely to be affected by the relationship issues at the helm of the commission, said Ed Batts, a partner at law firm DLA Piper.

But broader policies could stall, including Fukushima reforms, he said, noting a majority of commissioners had already voted for a more methodical approach with additional studies than quick reforms advocated by Jaczko.


Daley’s letter is not likely to put the story of the squabbling to rest. Lawmakers are apt to draw out more awkward details of the relationship gone wrong at hearings this week.

While Jaczko regularly gives speeches and interviews, the other four commissioners have stayed out of the spotlight.

“These are risk-averse nuclear engineering types,” Batts said, calling their letter an unprecedented step at an agency known for being a low-key regulatory “backwater.”

Jaczko has support from powerful backers on Capitol Hill leading up to the hearings, including his former boss, Senate Majority Leader Harry Reid.

Some have criticized Jaczko as being too political. But he has won praise from others as being independent from the nuclear power industry, which did not approve of his appointment.

“I believe, with the exception of Jaczko, that the NRC has an unhealthy co-dependent relationship with its licensees,” said Robert Alvarez, an Energy Department official during the Clinton administration and now a senior scholar at the Institute for Policy Studies.

“Whether or not Jaczko behaved inappropriately is a side-show to a larger battle going on about the safety of an aged U.S. reactor fleet and an industry that has very much had its way for nearly 20 years until, perhaps, now.”

(Additional reporting by Scott DiSavino in New York; Editing by Russell Blinch and John O’Callaghan)

What do we do with it all? Blue ribbon commission issues draft report on civilian nuclear waste disposal

Nuclear News

A publication of the American Nuclear Society

November 2011

In the face of a mounting physical need for civilian nuclear waste solutions, The US Blue Ribbon Commission on America’s Nuclear Future on July 29, 2011 issued its draft report to the Secretary of Energy.

The BRC was formed in January 2010 under the auspices of the Department of Energy with the task of reviewing the civilian nuclear fuel cycle, primarily with respect to waste storage and disposal.  Its 15 members represent a broad sampling from the worlds of politics (most notably, its co-chairs are former Congressman Lee Hamilton and former National Security Adviser Brent Snowcroft, and among the members are former Senators Pete Domenici and Chuck Hagel), industry and academia.  The commission was formed following the withdrawal of funding in 2009 from the proposed long-term civil nuclear waste repository at Yucca Mountain, Nevada.

Currently, US civilian nuclear waste is stored in water-filled pools at reactor sites (50,000 metric tons of spent fuel currently is stored in this way) or, increasingly, in steel and concrete casks co-located at reactor sites (so-called dry cask storage; 15,000 metric tons of spent fuel is currently stored this way).  Of the total, 3,000 metric tons of waste is stranded at nine decommissioned reactor sites, where waste has remained indefinitely with no near-term prospect of relocation.  These economically unproductive facilities bring with them considerable security and engineering costs.

The US summarily rejected nuclear waste recycling in the 1970s.  That decision stemmed from fears of proliferation risk: Recycling includes the production of plutonium, which could be repurposed to make weapons.  The amount of spent nuclear fuel and transuranic waste that has built up since the 1970s is significant.

There are now 104 operating reactors in the US, producing about 20 percent of the nation’s electricity.  Thus, adding we are always adding to the volume of spent fuel and waste, which increases every year by as much as 2,400 metric tons annually. Absent allowing civilian nuclear waste recycling to proceed (as has happened for defense-related nuclear materials from decommissioned nuclear warheads), the industry now has only three options for handling its waste:

(1)  storage at reactor sites distributed throughout the country, necessitating increased dry cask storage as cooling ponds reach capacity

(2) moving waste into a consolidated interim-term storage facility (or two) for perhaps 100 years, an approach which may be politically elegant but needlessly introduces an expensive middle-layer storage facility between the reactor site and a long-term disposal site, and

(3) putting waste products directly into a long-term waste depository, along the model of Yucca Mountain.

In the face of a mounting physical need for civilian nuclear waste solutions, the BRC has issued seven primary recommendations and numerous secondary observations.  The seven recommendations are:

  1. A new, consent-based approach to siting future nuclear waste management facilities
  2. A new organization dedicated solely to implementing the waste management program and empowered with the authority and resources to succeed
  3. Access to the funds nuclear utility ratepayers are providing for the purpose of nuclear waste management
  4. Prompt efforts to develop one or more geologic disposal facilities
  5. Prompt efforts to develop one or more consolidated interim storage facilities
  6. Support for continued US innovation in nuclear energy technology and for workforce development
  7. Active US leadership in international efforts to address safety, waste management, nonproliferation and security concerns

The various recommendations are discussed below.  However, in arriving at these recommendations, the BRC ultimately was hobbled by self-imposed constraints.  It did not allow itself to evaluate the merits of specific potential sites (such as Yucca Mountain), nor did it elect to opine on the wisdom of nuclear recycling.  While its 192-page report is an informative and detailed examination of the current status of civilian nuclear waste, ultimately its recommendations are a tangled web of the glaringly obvious (calling for sorting out of funding and legislative snafus) and the much less understandable (proposing the creation of costly, risky interim storage solutions and of a completely new oversight body and failing to provide clear guidance on spent fuel recycling).

1.  A new, consent-based approach to siting future nuclear waste management facilities

The Nuclear Waste Policy Act as amended in 1987 (NWPA) contemplates the licensing solely and exclusively of Yucca Mountain as a civilian repository.  For better or worse, this policy led to  the abandonment of other potential sites as well as contemplation of two (rather than one) civilian waste repositories.

The BRC’s primary recommendation in its draft report is that the NWPA be loosened to allow for “consent-based” siting in alternate locations.  This recommendation is unsurprising, given the political reality of strong opposition from Senator Harry Reid (D-NV), which many believe prompted the current administration to acquiesce and order the abrupt shutdown of Yucca Mountain – a site which has already cost the US government an estimated $15 billion in investment.  Left unsaid, however, is that unless both political parties display the political will power to either prevent the loss of billions of dollars in sunken costs at Yucca Mountain or to promptly and earnestly pursue an alternate long-term location, the issue of consent-based siting remains moot.

Also urgent to note is that delay itself is not without extraordinary cost.  In its report, the BRC noted that the failure to have a long-term repository to accept civilian waste is a breach of US government contractual obligations to utilities.  Such breaches have prompted approximately 75 lawsuits by utilities against the government, resulting in almost $1 billion in settlements being paid out to date by the US Treasury – a blank check from the taxpayer to utilities. Such settlements are projected to reach an aggregate of over $16 billion by 2020 (subjectively used as the earliest feasible date by which a long-term disposal program might begin accepting  waste) and, failing a functioning disposal program, would increase by $500 million annually thereafter – a state of affairs hardly conducive to federal deficit reduction.

2.  A new organization dedicated solely to implementing the waste management program and empowered with the authority and resources to succeed

The BRC has recommended the establishment of a new, independent government-chartered corporation whose sole purpose would be nuclear waste handling and disposal.  The BRC argues that the inherent complexity and competing agendas of the various parts of the Department of Energy have clouded its efficacy and that a single-purpose entity devoted entirely to nuclear waste handling and disposal would yield efficiencies across the board,  from management focus to funding clarity.

One questions, however, why an additional government bureaucracy, no matter how cleverly cloaked in the trappings of a quasi-private sector entity, would be more cost effective than simply rectifying the shortcomings of the Department of Energy.  The BRC’s recommendation calls to mind the creation of the Office of the Director of National Intelligence, which added another layer of oversight to the already-jumbled organizational chart of the intelligence community.  Any new nuclear waste organization would require not only significant political momentum for its creation, but, more importantly, the establishment of institutional mechanisms from scratch (from office buildings to security clearance regimes) in an area of regulation that is inherently intricate and expensive.  It also is unclear how such an entity would necessarily be wholly different than many related, already extant programs at the Department of Energy.  Perhaps more logical would be an effort to revamp the Department of Energy and enhance its accountability mechanisms, rather than embark on a new, costly, risk-enhanced endeavor to create a wholly separate new entity.

3.  Access to the funds nuclear utility ratepayers are providing for the purpose of nuclear wastemanagement

Under the NWPA, utility ratepayers (through a de facto indirect tax) have collectively paid $25 billion to the federal government to fund civilian waste disposal.  However, these funds have not been sequestered and applied directly to civilian nuclear waste management.  Thanks to Washington political machinations, the monies are instead essentially applied toward the federal budget.

The BRC has recommended that this mechanism by fixed so that the money collected by ratepayers is actually available as a dedicated resource for nuclear waste disposal.  Such a proposal, while politically unpalatable in Washington in a cost-constrained fiscal era, would seem both equitable and intuitive.

4.  Prompt efforts to develop one or more geologic disposal facilities

The BRC merely noted the need to identify a long-term repository.  This point obstinately ignores the massive elephant in the room: Yucca Mountain.  When the BRC embarked on its work, it chose to bar itself from evaluating the merits of Yucca Mountain, ignoring a site that had been the central tenet of long-term civilian waste disposal in US nuclear policy for decades.  The current Administration’s request to withdraw the licensing application for Yucca Mountain was rejected by the Atomic Safety Licensing Board in 2010, but well over a year later remains pending before the full NRC.  The withdrawal request has yet to be conclusively adjudicated by the NRC, amidst heated political rhetoric from both pro- and anti-Yucca Mountain political camps.

Sadly, this point also shows that the BRC, in and of itself, is another symptom of the breakdown that has paralyzed so many US government institutions, as most pointedly displayed in the recent debt crisis.  When a “blue ribbon commission” panel is appointed in any context, it more than likely represents merely an opportunity for policy makers to avoid direct and immediate action. No matter what the political perspective, given the basic fact that our nuclear waste is growing every day, there is a crying need for concerted, timely action from Washington.  Yet, US lawmakers fundamentally have not agreed on a unified approach, abdicating instead to a non-elected panel with no political power.

5.  Prompt efforts to develop one or more consolidated interim storage facilities

In the absence of identifying a long-term repository, the BRC recommended the establishment of one or more “consolidated storage facilities.”  These are essentially interim sites which would accept waste from multiple reactors, but would not have the requisite siting or engineering to serve as a long-term repository.  US legislation currently prevents this option prior to the introduction of a long-term repository, precisely to avoid creating a “middle” storage site which over time could take on “permanent” aspects.

Any site, irrespective of its title as long- or medium-term, requires extensive engineering and security oversight.  As a result, introducing even one putatively interim facility would merely add significant additional costs and dangers – for instance, the time and expense of interim dry cask storage or the consolidation of such casks in interim facilities.  Transporting spent fuel directly from a reactor cooling pond to a long-term repository would be a more efficient approach.

6.  Support for continued US innovation in nuclear energy technology and for workforcedevelopment

This point encompasses two issues.  First, the BRC identified a serious concern: a critical shortfall in a skilled nuclear workforce.  However, while identifying that genuine issue, the BRC sidestepped the larger, and more controversial, issue: nuclear fuel recycling.  It stated, “The Commission believes it is premature to try to reach consensus on the question of whether the United States should commit, as a matter of policy, to “closing” the nuclear fuel cycle (i.e., commit to recovering and reusing some components of spent fuel) given the large uncertainties that exist about the merits and commercial viability of different fuel cycles and technology options.”  With this statement, the BRC avoided commenting on the validity of current reactor technology (which the BRC itself noted was at least 30 years old for current operating reactors) versus many new technologies (both existing and under development) that would allow for spent fuel reprocessing (recycling) and significantly reduce the amount of waste requiring long-term disposal while concurrently providing new fuel for power generation.  On the other hand, recycling would increase the amount of plutonium and, commensurately, would increase the need for greater security and the risk of nuclear proliferation and raise fears of nuclear terrorism.  However, by choosing to be dogmatically agnostic as to recycling, the BRC essentially ignores a promising area that has been successfully employed in other countries with robust nuclear power sectors, such as France, the U.K., India and Japan.

7.  Active US leadership in international efforts to address safety, waste management, nonproliferation and security concerns

Finally, in an area only tangentially related to the critical question of domestic civilian spent fuel disposal, the BRC noted the need for the US to continue participating in international efforts for the safe and efficient disposal of civilian nuclear waste.  The BRC noted the potential for exploring “take away arrangements” whereby nations would be able to have waste transported to and disposed of by another nation (such as the US) as a counter-proliferation strategy.  However, ironically, any US participation in these arrangements seems short sighted, given that the US has not yet sorted out its own strategy has and still lacks the capacity to house such waste for the long term.


While the BRC’s report accurately depicts the status of civilian nuclear waste storage in the US today, it falls short of offering a cohesive, actionable blueprint that takes advantage of technology advances in a cost efficient manner.

Quake shook nuclear plant twice as hard as design allowed

By Roberta Rampton

WASHINGTON Thu Sep 8, 2011 1:48pm EDT

(Reuters) – Last month’s record earthquake in the eastern United States may have shaken a Virginia nuclear plant twice as hard as it was designed to withstand, a spokesman for the nuclear safety regulator said on Thursday.

Dominion Resources told the regulator that the ground under the plant exceeded its “design basis” — the first time an operating U.S. plant has experienced such a milestone — but said its seismic data from the site showed shaking at much lower levels than those reported by the U.S. Geological Survey.

Both the company and the Nuclear Regulatory Commission have not yet found any signs of serious damage to safety systems at the North Anna nuclear plant, and the company said it is eager to resume operations once inspections and repairs are complete.

The NRC has said it plans to order all U.S. plants later this year to update their earthquake risk analyses, a complex exercise that could take two years for some plants to complete.

The North Anna quake shows the need for the nation’s 104 aging reactors to reevaluate earthquake risks using up-to-date geological information, said Majid Manzari, an engineer at George Washington University who studies quake impacts.

“The implications of exceedance could be disastrous,” Manzari said. “I would say these studies have to be done as soon as possible.”

Expensive “backfits” to North Anna or any other U.S. plant are not a given from this exercise, Manjari said.

But a former chairman of the NRC said he expects the broad review ultimately will impact most nuclear plants along the U.S. East Coast.

“I think what the East Coast earthquake demonstrated is the design parameters might be changing,” said Dale Klein, a mechanical engineer at the University of Texas.


Japan’s nuclear disaster at the Fukushima Daiichi plant — overwhelmed six months ago by an earthquake and tsunami — put quake risks at the forefront.

Then the historic August 23 earthquake hit the United States. Its epicenter was 12 miles from the North Anna plant, which shut down as it was designed to do.

The regulator’s preliminary analysis is based on USGS data, collected about 30 miles away. It continues to inspect the site and expects to issue a final report in mid-October.

“We are currently thinking that at the higher frequencies, the peak acceleration was around 0.26” g, which is a unit of gravity that measures the impact of shaking on buildings, said Scott Burnell, an NRC spokesman.

The plant was designed to withstand 0.12 g of horizontal ground force for parts that sit on rock, and 0.18 g for parts that sit on soil, Burnell said.

Dominion’s sensors recorded average horizontal ground force of 0.13 g in an east-west direction and 0.175 g in a north-south direction, officials said.

The levels were not high enough to be expected to cause significant damage, and inspections have borne that out thus far, Dominion said.

Dominion’s analysis will be considered as the NRC does its analysis of what the company will be required to do to restart operations, Burnell said.


In an interview last week, NRC Chairman Gregory Jaczko told Reuters it was unclear what the plant would need to show to resume operations because it is the first time an operating plant has sustained a beyond-design-basis quake.

There could be new requirements stemming from the incident or from the NRC’s broader review of earthquake risks, and plant operators will need to assess the costs to ensure they’re worth it, said Ed Batts, a partner at law firm DLA Piper.

“You shake something really hard, and it’s not designed to be shaken that hard — it doesn’t mean that it’s broken,” he said.

The incident helps make the case for new-generation nuclear plants, which have additional safety features, Batts argued.

“If you can have a car from 2011 vs. a car from 1978, what are you going to put your toddler in?” Batts said.

(Additional reporting by Eileen O’Grady in Houston and Timothy Gardner in Washington; Editing by Jim Marshall, Sofina Mirza-Reid and Bob Burgdorfer)