Shieldalloy Metallurgical Corporation v. Nuclear Regulatory Commission and United States of America

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 15, 2010 Decided November 9, 2010
No. 09-1268
S HIELDALLOY M ETALLURGICAL C ORPORATION ,
P ETITIONER
v.
NUCLEAR R EGULATORY C OMMISSION
AND UNITED S TATES OF AMERICA ,
R ESPONDENTS
On Petition for Review of an Order
of the Nuclear Regulatory Commission
Matias F. Traveiso-Diaz argued the cause for petitioner.
With him on the briefs were Jay E. Silberg and Alison M.
Crane.
Grace H. Kim, Senior Attorney, U.S. Nuclear Regulatory
Commission, argued the cause for respondent. With her on the
brief were Lane McFadden, Attorney, U.S. Department of
Justice, Stephen G. Burns, General Counsel, U.S. Nuclear
Regulatory Commission, and John F. Cordes, Jr., Solicitor.
Paula T. Dow, Attorney General, Office of the Attorney
General for the State of New Jersey, and Andrew D. Reese,
Deputy Attorney General, were on the brief for amicus curiae
State of New Jersey.

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Before: S ENTELLE, Chief Judge, R OGERS , Circuit Judge,
and W ILLIAMS , Senior Circuit Judge.
Opinion for the Court filed by Senior Circuit Judge
W ILLIAMS.
W ILLIAMS, Senior Circuit Judge: Under § 274 of the
Atomic Energy Act of 1954 as amended, Pub. L. 86-373, 73
Stat. 688 (1959), codified at 42 U.S.C. § 2021 (“AEA”), the
Nuclear Regulatory Commission (“NRC”) is authorized to
transfer regulatory authority over various categories of nuclear
materials within a state to the state government, provided that
the state’s regulatory program is “compatible with the
[NRC’s] program” and is “adequate to protect the public
health and safety.” Id. § 2021(d)(2). Shieldalloy
Metallurgical Corporation, which for a decade has been
seeking NRC approval for a plan to decommission a New
Jersey facility, challenges the NRC’s recent transfer of
regulatory authority to that state, arguing that New Jersey’s
program is incompatible with the federal scheme and that the
transfer of authority was “arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law.” 5 U.S.C.
§ 706(2)(A). We agree.
* * *
From 1955 to 1998, Shieldalloy manufactured metal
alloys at its Newfield, New Jersey facility. Shieldalloy’s
manufacturing process generated radioactive byproducts in
the form of slag and baghouse dust; the firm held these
materials on site under a license from the NRC. In the early
1990s, Shieldalloy took the first steps toward
decommissioning the Newfield facility. Based on discussions
with the NRC staff, it developed a conceptual plan for on-site
disposal of the materials under conditions restricting the site’s

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use. At the same time, the NRC developed, and in 1997
published, a final rule on the decommissioning of licensed
facilities. 10 C.F.R. §§ 20.1401-06. Although this license
termination rule (“LTR”) expressed a preference for
remediating a site in a way that allowed unrestricted use, it
conditionally allowed firms to dispose radioactive materials
on site under restrictions designed to guarantee public health
and safety. Id. Over the next decade, the NRC and
Shieldalloy engaged in repeated discussions regarding the on-
site disposal of waste at Newfield. Between 2002 and 2009,
Shieldalloy submitted four iterations of its decommissioning
plan, two of which the NRC rejected outright and one of
which the NRC accepted for purposes of starting a technical
review. Shieldalloy revised each proposed plan based on the
NRC staff’s comments and on an extensive site-specific
“Interim Guidance” document provided by NRC staff on
April 15, 2004. The NRC declined to review the fourth plan;
instead, in light of its roughly simultaneous transfer of
regulatory authority, it forwarded the plan to New Jersey
along with the previously accumulated files.
In October 2008 New Jersey applied for a transfer of
regulatory authority over in-state nuclear materials from the
NRC, pursuant to 42 U.S.C. § 2021. Under that provision,
Congress has authorized the NRC to “enter into agreements
with the Governor of any State providing for discontinuance
of the regulatory authority of the [NRC]” and the assumption
of authority by the state. 42 U.S.C. § 2021(b). Before making
such an agreement, however, the NRC must find that the
state’s regulatory regime is “compatible with the [NRC’s]
program” and that the state’s regime is “adequate to protect
the public health and safety.” Id. § 2021(d)(2).
To evaluate the compatibility of the state and federal
regulatory programs, the NRC considers thirty-six criteria that
it enumerated in a policy statement that we will call the

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“Criteria Document.”1 It further clarified its evaluation
process in a later policy statement, the “Compatibility
Guidance Document,”2 which interprets the compatibility
requirement as mandating that the state program must “not
create conflicts, duplications, gaps, or other conditions that
would jeopardize an orderly pattern in the regulation of
agreement material on a nationwide basis.” 62 Fed. Reg. at
46,524. Pursuant to this policy, each element of the NRC’s
program is assigned to one of five groups, A through E
(though only the first three concern us here). Categories A
and B require the state and NRC programs to be “essentially
identical”; category C merely requires each element of the
state program to “embody the essential objective” of its
federal counterpart. Id. Outside of areas requiring
uniformity, the document provides that a state should have
“flexibility” and can implement regulations that are “more
stringent” than the federal regime. Id. at 46,520. In a later
document, the NRC deemed the license termination rule to be
a category C element of its program.3
1 Criteria for Guidance of State and NRC in Discontinuance of
NRC Regulatory Authority and Assumption Thereof by States
Through Agreement, 46 Fed. Reg. 7540 (Jan. 23, 1981), as
amended by 46 Fed. Reg. 36,969 (July 16, 1981) and 48 Fed. Reg.
33,376 (July 21, 1983).
2 Statement of Principles and Policy for the Agreement State
Program; Policy Statement on Adequacy and Compatibility of
Agreement State Programs, 62 Fed. Reg. 46,517 (Sept. 3, 1997).
3 See Compatibility Categories and Health and Safety
Identification for NRC Regulations and Other Program Elements –
SA-200, at App. A (June 5, 2009) (stating that program elements in
10 C.F.R. are classified at
http://nrc-stp.ornl.gov/regsumsheets_newregs.html) (follow link for
Standards for Protection Against Radiation).

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After finding New Jersey’s program adequate and
compatible with the federal program, the NRC published
notice of the proposed agreement in the Federal Register and
sought comments from the public, pursuant to its statutory
obligation under 42 U.S.C. § 2021(e).4 In a letter to the NRC
responding to the call for comments (the “Shieldalloy
Comment Letter”), Shieldalloy argued that the New Jersey
and federal programs were incompatible.5 The NRC staff
rejected Shieldalloy’s protests, see Memorandum from R.W.
Borchardt to NRC Commissioners, SECY-09-0114, encl. 2
(Aug. 18, 2009) (“NRC Staff Comments”), and the agreement
transferring authority to New Jersey took effect on September
30, 2009.6
4 See, e.g., State of New Jersey: NRC Staff Assessment of a
Proposed Agreement Between the Nuclear Regulatory Commission
and the State of New Jersey, 74 Fed. Reg. 25,283 (May 27, 2009).
Less than two weeks after the transfer of authority,
New Jersey notified Shieldalloy that its revised
decommissioning plan, hitherto pending before the NRC, did
not meet New Jersey’s remediation requirements. Worried
that it would now be forced to jettison its plans for on-site
remediation and instead transfer the radioactive materials to a
facility in Clive, Utah, Shieldalloy sought relief along
multiple avenues. It requested an exemption from the relevant
New Jersey regulatory provisions (and was denied). It filed a
motion with the NRC to stay the transfer for regulatory
authority (and was denied). And it filed the instant petition
challenging the NRC’s transfer.
5 Letter from Hoy E. Frakes, Jr., President, Shieldalloy, to
Michael T. Lesar, NRC (June 11, 2009).
6 State of New Jersey: Discontinuance of Certain Commission
Regulatory Authority Within the State; Notice of Agreement
Between the Nuclear Regulatory Commission and the State of New
Jersey, 74 Fed. Reg. 51,882 (Oct. 8, 2009).

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In reviewing agency action that is alleged to be arbitrary
or capricious, we are “not to substitute [our] judgment for that
of the agency,” but we must ensure that the agency has
“examine[d] the relevant data and articulate[d] a satisfactory
explanation for its action including a ‘rational connection
between the facts found and the choice made.’” Motor
Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463
U.S. 29, 43 (1983) (quoting Burlington Truck Lines, Inc. v.
United States, 371 U.S. 156, 168 (1962)). Encompassed in
the latter duty, of course, is the obligation of an agency to
explain any important changes of policy or legal
interpretation. Ramaprakash v. FAA, 346 F.3d 1121, 1124
(D.C. Cir. 2003). And agencies must evaluate parties’
proposals of “significant and viable” alternatives. Farmers
Union Cent. Exch., Inc. v. FERC, 734 F.2d 1486, 1511 n.54
(D.C. Cir. 1984).
* * *
Item 25 of the Criteria Document states in relevant part,
Existing NRC Licenses and Pending Applications. In
effecting the discontinuance of jurisdiction, appropriate
arrangements will be made by NRC and the State to
ensure that there will be no interference with or
interruption of licensed activities or the processing of
license applications, by reason of the transfer.
46 Fed. Reg. 7540, 7543.
In its comments to the NRC, Shieldalloy argued that New
Jersey had not attempted to make appropriate arrangements to
guarantee a smooth transition for the pending Shieldalloy
decommissioning plan; in fact, New Jersey had challenged
Shieldalloy’s decommissioning process at every stage. This
resistance, Shieldalloy contended, was incompatible with

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criterion 25’s commitment to the uninterrupted “processing of
license applications.” Shieldalloy Comment Letter at 9-10. In
response, the NRC staff aptly noted that New Jersey is entitled
to take part in hearings on licensing actions and to petition for
rulemaking, and that the state’s exercises of those rights did
not in themselves indicate the New Jersey plan’s
incompatibility with the federal regime under criterion 25.
NRC Staff Comments at 8.
But Shieldalloy also invoked criterion 25 in support of its
separate contention that, even if the NRC entered a transfer
agreement with New Jersey, it might exclude the Newfield
site from the transfer. Shieldalloy Comment Letter at 11-12.
In that context Shieldalloy went well beyond New Jersey’s
conduct in the NRC decommissioning proceeding. It pointed
to the time and expense that Shieldalloy devoted to working
with the NRC staff to develop a plan for safely
decommissioning the site (over $2 million in 2007-2009
alone), which it implied would be largely wasted under New
Jersey’s different approach. Id.
In response, the NRC staff noted that the “legislative
history for [42 U.S.C. § 2021] specifically states that
Congress did not intend to allow concurrent regulatory
authority over licensees for public health and safety,” and that
as a result, “all NRC licensees within the categories of
materials for which the State requested authority will transfer
to the State.” NRC Staff Comments at 10. The NRC also said
that a statutory provision allowing the NRC to retain authority
in cases of common defense and security, see 42 U.S.C.
§ 2021(m), was inapplicable, as Shieldalloy had not raised
security concerns. Id.
These responses were inapposite and woefully
incomplete. As to § 2021(m), Shieldalloy had never invoked
it. As to concurrent regulatory authority, NRC practice leaves

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it far more leeway than its dismissive answer to Shieldalloy
suggests. It is quite true that NRC policy, developed in
connection with a jurisdictional transfer to Oklahoma, rejects
an exclusion of “single licensees absent an identified
subcategory of material.” Memorandum from L. Joseph
Callan, Exec. Dir. of Operations, to NRC Commissioners, 1,
3, Oklahoma Agreement State Negotiations, SECY-97-087
(Apr. 22, 1997). But just after articulating that view, the NRC
approved an exclusion of Oklahoma from jurisdiction over
certain subcategories of materials that in fact covered a very
limited set of sites. The history of the Oklahoma transfer is
telling.
In the late 1990s, Oklahoma submitted a draft transfer
application that excluded five specific sites undergoing
decommissioning. Id. at 1-2. Though the NRC staff
recognized that the NRC had entered into limited agreements
in the past, it rejected Oklahoma’s request as inconsistent with
the statutory provisions, because the exclusion of single
licensees, “absent an identified subcategory of material,”
might create “an unwieldy and confusing pattern of
regulation.” Id. at 3. The NRC staff recommended rejecting
Oklahoma’s proposal. At the same time, however, it offered
guidelines for considering future proposals for limited
agreements:
[R]equests for limited Agreements would have to identify
discrete categories of material or classes of licensed
activity that (1) can be reserved to NRC authority without
undue confusion to the regulated community or burden to
NRC resources, and (2) can be applied logically, and
consistently to existing and future licensees over time.
Under this approach, NRC would not reserve authority
over a single license unless that licensee clearly
constituted a single class of activity or category of
material meeting the two criteria described above.

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Id. at 5-6. The NRC approved both of the staff
recommendations.7 Two years later, in 1999, Oklahoma
proposed a limited agreement that excluded a subcategory of
materials—a category that aligned closely with the sites
Oklahoma had desired to exclude in its site-specific proposal
two years earlier. Applying the previously developed factors
for limited agreements, the NRC staff this time recommended
approval of the limited transfer.8
Other elements of the NRC’s response as to criterion 25
were equally dismissive. The NRC staff said that New
Jersey’s regulatory scheme recognized existing NRC licenses
and would continue “any licensing actions that are in
progress” at the time of the agreement. NRC Staff Comments
at 8. The NRC thus concluded that there would be a “smooth
transition” and that New Jersey would make decisions on
pending licensing actions. Id.
The Oklahoma case is
strikingly relevant to Shieldalloy’s situation because
Shieldalloy argues, and the NRC does not dispute, that its
radioactive wastes constitute the sole New Jersey example of
a discrete subcategory of materials.
This hardly answered Shieldalloy’s contention that its
license termination process would be disrupted and that no
appropriate arrangements had been made. Although the fact
of New Jersey’s participation in prior or concurrent NRC
regulatory proceedings does not necessarily prejudice a
transfer agreement, the formal existence of New Jersey
7 Memorandum from John C. Hoyle, Secretary, NRC, to L.
Joseph Callan, Exec. Dir. of Operations, Oklahoma Agreement
State Negotiations, SECY-97-087 (June 19, 1997).
8 Memorandum from William D. Travers, Exec. Dir. of
Operations, to NRC Commissioners, 1, 6, Oklahoma Agreement
State Negotiations, SECY-99-123 (Apr. 28, 1999).

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provision for transfer seems in no way an assurance that the
transfer would satisfy criterion 25’s intended preclusion of
“interference with or interruption of licensed activities or the
processing of license applications.” 46 Fed. Reg. at 7543.
Obviously the NRC need not automatically consider every
single pending licensing action individually when it considers
transfer to a state. But in this case the NRC had a long history
of dialogue and cooperation regarding the termination of a
license, the state has been consistently hostile to those
termination proceedings, and the regulated entity alerted the
NRC not only to the likely interference with decommissioning
but also to partial transfer as a possible solution. At the very
least, the NRC should have explained how Shieldalloy’s
decommissioning process could proceed under the New Jersey
regime free of the interference and interruption sought to be
avoided by criterion 25 and why the partial transfer was not an
appropriate alternative arrangement.
At oral argument, the NRC offered an argument that the
statute did not permit a partial transfer otherwise than at the
request of the would-be transferee state, pointing to § 2021(d).
This would rule out limiting transfers at the behest of
regulated firms. Section 2021(d) states that “[t]he
Commission shall enter into an agreement under subsection
(b) of this section” pursuant to the conditions of state
certification, adequacy, and compatibility, id. § 2021(d)
(emphasis added). See Oral Arg. Recording 32:00-49:00. But
the statute also provides that “the Commission is authorized to
enter into agreements” with a state “with respect to any one or
more of” a variety of classes of nuclear materials. 42 U.S.C.
§ 2021(b) (emphasis added). As the opening phrase suggests
that the NRC is not required to enter into agreements, it
suggests that it has discretion to negotiate the terms of the
agreement with the state requesting authority.

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On the current record we cannot decide the interpretation
of the statute. Our concern is whether NRC provided a
sufficient explanation for its actions. We cannot defer to the
agency’s statutory interpretation under Chevron, U.S.A. v.
Natural Res. Def. Council, 467 U.S. 837 (1984), for NRC has
not exercised any interpretive discretion. And under SEC v.
Chenery Corp., 318 U.S. 80 (1943), as well as United States v.
Mead Corp., 533 U.S. 218 (2001), we cannot defer to the
interpretive proposals offered by NRC counsel at oral
argument. As the sections of the statute to which our attention
has been drawn do not plainly compel the reading now
proposed, we cannot affirm on the basis of that reading.
Because the NRC’s response to Shieldalloy’s comments
on criterion 25 and the retention of jurisdiction does not draw
a “rational connection between the facts found and the choice
made,” Burlington Truck Lines, 371 U.S. at 168, the NRC’s
transfer of authority to New Jersey is arbitrary and capricious.
5 U.S.C. § 706(2)(A).
* * *
Shieldalloy challenges the compatibility of many other
aspects of the New Jersey and NRC regimes. It argues that a
cost-benefit analysis principle called the ALARA principle
(“as low as reasonably achievable”) is an essential objective
of the LTR, and that New Jersey’s remediation program
excludes ALARA from consideration. It argues that the New
Jersey program fails to allow license termination for on-site
decommissioning under restricted use conditions. It argues
that New Jersey’s program includes a variety of standards that
diverge significantly from the NRC program, including the
maximum allowable total dose to a member of the public, the
duration of time over which peak dosage is calculated, the
total effective dose equivalent limits, and the approach to

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releases to ground and surface water. It argues that the New
Jersey program fails criterion 12 by not authorizing
exemptions in the interest of public health and safety. And it
argues that the New Jersey program fails criterion 23,
regarding the fair and impartial administration of regulatory
law, because the state’s regulations only affect Shieldalloy.
Shieldalloy contends that these divergences, individually and
together, render the New Jersey program incompatible with
the federal regime.
The NRC provided responses to each of these claims in
its comments. It claimed that Shieldalloy was simply wrong
on whether New Jersey allows exemptions and, among other
things, said that there was no evidence of unfair
administration of New Jersey law. NRC Staff Comments at 6-
7. With respect to ALARA, restricted use, and the various
dosage standards, the NRC argued that New Jersey’s program
merely has more stringent requirements than the federal
regime—and that greater stringency is acceptable under the
Compatibility Guidance Document, 62 Fed. Reg. at 46,520.
Id. at 4. Given that the LTR is a category C regulation, they
argued, the state regulatory program only needs to meet the
LTR’s “essential objectives.” Id. at 5.
Shieldalloy replies that while New Jersey’s standards
may be more stringent, they are actually less safe. See
Shieldalloy Br. at 50. Because of the higher stringency,
Shieldalloy states that it is prevented from using on-site
disposal and will be forced to ship the materials to a facility in
Utah. The consequence is that the doses of radiation to the
public resulting from removing the radioactive materials from
the site and relocating them in Utah will actually be greater
than the public health and environmental harms that
accompany on-site disposal of the materials. Id. Although
this is a troubling prospect, given the NRC’s commitment to
protecting public health and safety from nuclear materials

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throughout the nation, see, e.g., Compatibility Guidance
Document, 62 Fed. Reg. at 46,520 (stating that the NRC’s
mission is to enable civilian nuclear use “with adequate
protection of public health and safety” and that the NRC must
ensure a “coherent nationwide effort” for the control of
nuclear materials), Shieldalloy did not raise this criticism in
its comments on the proposed transfer (though it had done so
in its second decommissioning proposal to the Commission,
filed in October 2005).9
Given our findings on criterion 25 and the retention of
jurisdiction, we need not address whether this and
Shieldalloy’s other allegations hold up and whether the
NRC’s explanations in response were sufficient. But we do
pause briefly to note one curiosity. 42 U.S.C. § 2021(d)
requires that the state regulatory scheme be compatible with
the NRC’s program. Through rulemaking, the NRC has
adopted the LTR, which appears as subpart E of 10 C.F.R.
part 20, which (as a whole) governs standards for protection
against radiation. 62 Fed. Reg. 39,058 (July 21, 1997); 10
C.F.R. §§ 20.1401-1406. The LTR is thus part of the NRC’s
regulatory program, but for some reason, it does not feature in
the Criteria Document. This seems odd, given that the
Criteria Document otherwise tracks the various subparts of 10
C.F.R. part 20 quite closely and that the NRC staff seems to
follow the Criteria Document religiously in assessing the
compatibility of the state and federal programs. See, e.g.,
Memorandum from R.W. Borchardt to NRC Commissioners,
SECY-09-0114, encl. 3 (Aug. 18, 2009) (Staff Assessment of
the New Jersey Program). To be sure, the LTR was
promulgated years after the Criteria Document. Compare 62
Fed. Reg. 39,058 (July 21, 1997) (LTR) with 46 Fed. Reg.
9 Shieldalloy, Decommissioning Plan for the Newfield Facility
92, Report No. 94005/G-28247, Rev. 1 (Oct. 21, 2005).

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7540 (Jan. 23, 1981) (Criteria Document). But it is not clear
that a simple temporal distinction would justify deviation
from § 2021(d)’s apparent statutory requirement to ensure the
compatibility of the state program with the federal. Of course,
this issue was not raised or argued before us, so the NRC may
have an account of the role of the LTR in its regulatory
scheme that it had no occasion to present (and we no occasion
to assess). We only bring it up because it may be the
unacknowledged source of Shieldalloy’s criticisms regarding
ALARA, restricted use, and various standards for
decommissioning (and because it provides a possible
explanation for why Shieldalloy tried to shoehorn its
criticisms into criterion 9, which relates to “waste disposal,”
see Shieldalloy Comment Letter at 3, even though that
criterion appears to parallel subpart K of 10 C.F.R. part 20,
also relating to “waste disposal.”).
* * *
Together, the NRC’s insufficient explanations on the
applicability of criterion 25 and the retention of jurisdiction
render its transfer of regulatory authority to New Jersey
arbitrary and capricious. We therefore grant Shieldalloy’s
petition, vacate the NRC’s transfer of authority, and remand
for proceedings consistent with this opinion.
So ordered.

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