The NRC recently revised its Enforcement Manual (Manual) to consolidate and expand its guidance on the process for resolving licensee challenges to certain enforcement actions. The biggest change to the Manual is the creation of a new Section 2.8 on “Disputed Violations” that merges into one section the disputed violation resolution process for all enforcement actions other than those associated with NRC orders.
The revised Section 2.8 includes a new Subsection 2.8.3 on “Backfitting Concerns and Appeals,” which now requires licensees to formally file a backfit appeal under Management Directive 8.4 (MD 8.4) to have the NRC fully evaluate backfit issues as part of its resolution of the disputed violation. Subsection 2.8.3 also directs the NRC staff to hold the resolution of the disputed violation in abeyance until the backfit appeal is dispositioned using the procedures in MD 8.4.
The consolidation of dispute resolution mechanisms is a welcome change, but the Manual’s guidance that only a formal backfit appeal will require the NRC to fully address a licensee’s backfit arguments will force licensees to choose between having an open violation, with all potential collateral consequences, and challenging the NRC’s action as inconsistent with backfit principles.
Background on Enforcement Process and Types of Violations
The NRC’s Manual serves as the “primary source of staff guidance” on enforcement issues and “contains procedures, requirements, and background information” for staff who develop or review NRC enforcement actions. The Manual thus applies to the enforcement activities of the Office of Enforcement; the regional offices; the Offices of Nuclear Reactor Regulation, Nuclear Material Safety and Safeguards, Nuclear Security and Incident Response, and International Programs; and all other special teams or task forces involved in enforcement activities. It also applies to the enforcement role of the Office of the General Counsel. The Manual is meant to align with the NRC’s Enforcement Policy (Policy), but the Commission can deviate from the Policy and Manual in a particular enforcement matter so long as doing so is not arbitrary or capricious.
The NRC can identify violations through inspections, investigations, licensee reports, or by substantiating an allegation. After it identifies a violation, the NRC assesses the significance of the violation. Under the traditional enforcement process, violations are assigned a severity level that reflects the safety or security significance of the violation and whether it involved a willful or deliberate violation of NRC requirements. Violations identified at power reactors as part of the Reactor Oversight Process (ROP) are assessed using the significance determination process (SDP), which assigns the violation a color (green, white, yellow, or red) based on safety significance. Violations assigned a severity level IV or a green finding are often dispositioned as non-cited violations (NCVs), which do not require a response from the licensee. For violations assigned a severity level I, II, or III or that are associated with a white, yellow, or red finding, the NRC issues a Notice of Violation (NOV) and may also issue a civil penalty with the NOV. NOVs generally require a formal response from the licensee.
Denying or Disputing a Violation under Manual Section 2.8
Licensees (and non-licensed entities) can deny or dispute an NCV, NOV, or civil penalty. The Manual’s process for challenging an enforcement action does not apply to enforcement orders that modify, suspend, or revoke a license or that require a specific action by a licensee. Licensee responses to these orders follow the process in Section 2.7.7 of the Manual (which is unchanged).
As for NCVs, NOVs, or civil penalties, Section 2.8 divides disputed violations into two categories: (1) those that contest the facts underlying the violation or that challenge the conclusions drawn from the facts and (2) those that challenge the NRC’s assessment of severity level or significance determination. But how the dispute is reviewed under the revised Manual is determined by the type of enforcement action.
If the original enforcement action was non-escalated (i.e., a severity level IV violation or a violation associated with a green SDP finding), typically an independent reviewer from the affected NRC regional or program office will review the licensee’s response to the notice of the NCV. If the original enforcement action was escalated (i.e., a severity level I, II, or III violation or a violation associated with a white, yellow, or red SDP finding), the licensee’s challenge will be reviewed by a team of independent reviewers, including a team lead from another NRC regional or program office.
For challenges to the severity level or significance (i.e., color) of a violation, the revised Manual states that such appeals merit review if they fall into one of the following two categories:
- The severity level or significance determination was inconsistent with the Enforcement Policy or applicable significance determination process guidance or lacked sufficient justification.
- The licensee submits new information to the NRC which was not available at the time of the pre-decisional enforcement conference or regulatory conference or included in their written response, if received by the NRC within a reasonable period as agreed upon between the licensee and the staff.
A licensee’s failure to provide sufficient justification or an adequate basis to reclassify the severity level or significance is grounds for the NRC to reject an appeal and maintain that the violation occurred as stated.
Section 2.8 also provides guidance to staff on the timely resolution of disputed violations. After a licensee submits a formal dispute, the NRC will hold a planning meeting to discuss, among other things, the expected timeframe to review the dispute and issue a formal response. The NRC will send the licensee an acknowledgment letter to provide the expected timeframe for a formal response. The Manual states that the internal meeting to discuss the dispute should occur within two weeks after the NRC receives the dispute and the acknowledgment letter should issue shortly after, but no later than 30 days from the date the NRC received the dispute. An acknowledgment letter is not required, however, if the NRC can answer within 30 days. For reviews taking longer than 30 days, the Manual states that the review schedule should reflect the goal of providing a final response to the licensee within 90 days.
Addressing a Licensee’s Backfit Concerns in Resolving Disputed Violations
As mentioned above, the revised Manual also includes a new Subsection 2.8.3 governing backfitting concerns and appeals. Pursuant to Subsection 2.8.3, a licensee’s reference to backfitting concerns will not be treated as a formal “backfit appeal” unless the licensee “explicitly identifies its concern as such.” If a licensee references a backfitting concern without making a formal backfit appeal, the Manual directs the staff to communicate with a licensee as soon as practicable “via telephone communication” to understand the licensee’s concern and whether the licensee intended its correspondence to constitute a formal backfit appeal. If the licensee makes a formal backfit appeal or informs the staff that it intended to do so in referencing backfit concerns, then the backfit appeal will be reviewed under the process set forth in MD 8.4. Importantly, the Manual states that “any response to a disputed violation will be held in abeyance until the MD 8.4 backfit appeal process is completed” as the results of the backfit appeal will inform the ultimate disposition of the disputed violation.
As we have discussed in prior posts, the NRC cannot impose a backfit unless it demonstrates that the backfit will provide a substantial increase in the overall protection of the public health and safety and that the direct and indirect costs of implementing the backfit action are justified by the increased protection. Even so, three exemptions allow the NRC to impose a backfit without a cost-benefit analysis. After a licensee successfully appealed the NRC staff’s use of one of those exemptions to apply a backfit without a cost-benefit analysis, the NRC revised MD 8.4 and subsequently revised NUREG-1409, “Backfitting Guidelines.” Although the NRC seeks to resolve backfit appeals within 90 days, appeals often last longer.
The consolidation of the dispute process for violations is a welcome development as it provides clear guidance to the industry on how the staff will review and disposition disputed violations. However, the Manual’s direction to hold a disputed violation in abeyance while a backfit appeal is resolved presents licensees with a difficult dilemma: delay resolution of a disputed violation, which, depending on the severity level or SDP finding, could trigger additional inspections and oversight, or acquiesce to a backfit. Licensees may therefore feel compelled to forgo a backfit appeal to obtain a timely resolution of the disputed violations.
Morgan Lewis regularly counsels licensees on defending and responding to enforcement actions and proposed backfits and will continue to closely follow developments in this area.