In 1982, following widespread criticism of its probe of the accident at Three Mile Island, the Nuclear Regulatory Commission agreed to create an independent Office of Investigations to examine charges of wrongdoing at nuclear power plants.

But over the past year, according to a wide range of critics, top NRC officials have sought to rein in the Office of Investigations, make it harder for the office to refer cases to the Justice Department and narrow the rules that penalize utilities for lying to the commission.

Most NRC commissioners and top officials "don't want criminal cases to be brought, and they're willing to do almost anything to see that that doesn't occur," said Julian Greenspun, who resigned last week after 6 1/2 years as the Justice Department's chief prosecutor of NRC criminal cases. "Watergate hasn't taught these people a thing. They're doing everything they can to neutralize the Office of Investigations."

"The agency has had a lot of trouble in dealing with wrongdoing," agreed NRC Commissioner James K. Asselstine, a frequent dissenter. "There has been too much of a closeness with industry." The current debate, he says, is over "the authority to label a lie what's really a lie."

Former commissioner Victor Gilinsky calls the NRC "an agency of technical people, engineers who are not oriented toward dealing with wrongdoing. They're uncomfortable in the role of policeman."

Other NRC officials, led by Chairman Nunzio J. Palladino, deny any effort to cut back on investigations. Many industry officials "say we've got too many investigations, they can barely turn around and . . . they've got someone on their tail," Palladino said. But he said the NRC has steered a middle course and that "we must be doing something right, because we get it hot and heavy from both sides."

Still, the commission is again enmeshed in a fierce debate over how it should deal with charges of industry wrongdoing, an area that even its strongest supporters say has been a historical weakness.

A pending investigation of the Fermi nuclear plant in Michigan is a case in point. Last July 10, senior NRC officials praised the plant's owner, Detroit Edison Co., as they awarded the utility a license to begin operating the plant at full power.

But the commission soon learned of a disturbing incident just eight days earlier, when an operator at the Michigan plant triggered a premature chain reaction by improperly removing control rods from the nuclear reactor. The utility told the NRC there had been an error in the control room, but at first denied that the reactor went to "critical" status, generating enough heat to achieve full power.

NRC investigators have charged in a preliminary report that Detroit Edison made "material false statements" by withholding details of the incident until after the full-power license was granted, an allegation the utility denies. But senior NRC staff members have delayed the Office of Investigation's probe for weeks by challenging the investigators' plan to refer it to the Justice Department for possible prosecution.

The office's independence was to be guaranteed by placing it directly under the five commissioners, but some NRC investigators say there is growing interference with their work. "The industry apologists at the agency are trying to muzzle us," one said.

Some commissioners have proposed that the NRC's senior staff take control of the investigations office, and suggested that the definition of "false statements" by utilities -- which are at the heart of most of its cases -- be sharply narrowed. Some fear a return to the climate before the investigations office was created, when NRC officials referred few cases to the Justice Department and sometimes gave draft investigative reports to utility officials before a probe was completed.

Palladino said the Office of Investigations has "done a good job," but that "a couple of adjustments" were needed. In the last year, the commissioners and the staff have assumed the power to review cases that the office wants to send to Justice, which some investigators say has placed a needless obstacle in their path.

"There was a feeling their efforts could be improved in certain areas," Palladino said. But he insisted that the office remains free to refer any case for prosecution.

Behind this dispute is a debate over whether criminal sanctions have any place in federal regulation of industry. Other government agencies -- from the Food and Drug Administration to the Securities and Exchange Commission -- routinely back up their civil enforcement by referring cases of questionable conduct to the Justice Department.

The NRC has been less inclined to seek criminal sanctions. Former commissioner Peter Bradford said that top NRC officials "are by and large technical people . . . . I don't think people with those backgrounds would like to think that other people with those backgrounds would deliberately give false testimony."

Some of the most heated criticism of the NRC has come from the Justice Department, which rarely rebukes other agencies in public. Last year, however, Assistant Attorney General Stephen S. Trott said in a letter to Palladino that "senior personnel" at the NRC had displayed "opposition as well as resistance . . . to the detection and disclosure of deliberate wrongdoing by NRC licensees."

The NRC's enthusiasm for investigations may dim further when Commissioner Lando W. Zech Jr. succeeds Palladino as chairman in July. At a hearing last year before Rep. Edward J. Markey (D-Mass.), Zech dismissed pleas to increase the agency's 23-person investigative staff, which is struggling with a huge backlog among nearly 200 pending cases.

"I don't think that they need any more people," Zech said. "I think they have got to manage themselves better . . . . They don't have their priorities set properly, in my judgment."

Carl Walske, president of the Atomic Industrial Forum, which represents the nuclear power industry, said that whenever the commission finds possible safety violations, "Bang, you're socked with a fine. It's sort of like the heartless cop who doesn't want any stories about innocence."

This debate over NRC enforcement could be crucial to the ailing industry's future. There are 99 operating nuclear plants in the United States and 28 under construction, but mounting cost overruns and safety problems have prompted the cancellation of more than 100 plants. No new plant has been ordered in nearly a decade.

The NRC's ability to assure nuclear safety relies largely on self-regulation. That is why the commission's proposal to limit cases involving "material false statements" -- coming on the heels of a decision to close more commission meetings to the public -- has stirred such debate.

Under the law, utilities can be prosecuted for making false statements to the NRC. This has been interpreted in the past to cover both statements made and information withheld or omitted from formal and informal reports to the commission.

Victor Stello Jr., NRC's acting executive director for operations, has proposed a new definition of false statements that would cover only written statements or sworn testimony that a person knew was false. Oral statements and omissions to the NRC would no longer be violations.

Stello said in a memo that the current rules have "a depressing effect on utility staff morale" and are "seriously counterproductive" because they "impede the information flow to the commission."

Palladino said some changes are needed because "a utility may be disinclined to have its low-level employes converse with our staff people if they're going to be called on any error, no matter how innocent, or any omission."

Commissioner Thomas M. Roberts used stronger language at Markey's hearing, saying "it has a devastating effect" on a utility's image for the NRC to accuse it of making false statements.

But Greenspun, who was deputy chief of litigation in the Justice Department's Criminal Division, said most of the commissioners and top officials "are afraid that the truth is going to come out. Is it their view that even lies are okay, as long as the industry talks to us?"

Greenspun and Asselstine also criticized the proposal to give senior NRC staffers control over the Office of Investigations. Although few of its cases have led to convictions, the Justice Department has praised the office for referring more than 20 criminal cases since its creation in 1982.

Assistant Attorney General Trott said that placing the office under the NRC staff would create "doubt and suspicion," since the staff works with utilities in presenting license applications to the commissioners.

These two issues -- the investigators' independence and the nature of material false statements -- are central to Fermi case, among others.

The $3.7 billion Fermi plant outside Detroit is 11 years behind schedule and now costs its owners $30 million a month in interest. Detroit Edison officials were therefore eager to have their low-power NRC permit upgraded to a full commercial license last July.

NRC investigators charged in a preliminary report that high-level utility officials, worried about their license application, may have misled the commission by keeping silent about the extent of the July 2 mishap involving a premature chain reaction, according to commission sources familiar with the case. But Stello and other officials have blocked any referral of the case to Justice, arguing in internal memos that the NRC and not Detroit Edison was to blame, because the agency did not aggressively examine the incident.

"We let you down and I'm very, very sorry about that," Walter McCarthy, Detroit Edison's chief executive officer, told the NRC last month. " . . . It was a very dumb thing for the Detroit Edison Co. people not to have realized the sensitivity" of the chain reaction episode.

Detroit Edison spokesman Carla Gribbs said that "we have been up front and honest in all our dealings with the NRC. We notified them on a timely basis." The NRC shut down the plant in October after more technical problems were found, and it is not clear when it may reopen.

Similar issues are involved in a federal grand jury probe of the D.C. Cook plant in southwestern Michigan. In 1982, the plant's owner, American Electric Power, assured the NRC in writing that the facility was complying with federal fire safety regulations. But NRC inspectors later learned that American Electric Power had not made millions of dollars in required improvements at D.C. Cook, according to knowledgable commission sources.

The case unfolded while the industry was mounting an unsuccessful legal challenge to overturn the NRC's fire safety rules.

When the Office of Investigations took the case to the commissioners in April 1984, according to NRC sources, they voted 3 to 2 in a closed meeting that the utility had made material false statements. But seconds later, they stunned some officials in the room by voting again, 3 to 2, that the false statements were not deliberate.

The investigators referred the case to Justice, despite strong pressure from some commission officials not to do so, sources said. But they said the investigators are concerned that the vote may have undermined any possible prosecution.

American Electric Power Vice President Milton Alexis said he could not comment on the matter because it is still under investigation by a grand jury and the NRC. But he said the facility "is in full compliance with existing NRC fire protection regulations and has been for some time."

By far the most celebrated case mishandled by the NRC was the 1979 accident at Three Mile Island. The commission was widely criticized for failing to act on evidence that the plant's owner, Metropolitan Edison Co., minimized the severity of the accident and withheld information that the reactor's temperature had reached 2,600 degrees Fahrenheit.

Moreover, the NRC took no action for three years on allegations that workers at the Pennsylvania plant had rigged important tests of coolant system leaks before the shutdown. The commission said it was deferring to the Justice Department, which in turn said it had told the NRC it was free to impose civil penalties.

Seven years after the accident -- and four years after the utility pleaded guilty or no contest to criminal charges that it used inadquate and falsified tests -- the commission is still holding hearings on the company's conduct.

In this case and others, critics inside the commission blamed Stello, formerly the NRC's chief enforcement official. As acting executive director now, Stello would again oversee all investigations if the Office of Investigations is put under the staff.

Asselstine said that Stello "is someone who personally has not been a strong supporter of doing criminal investigations within the NRC, or pursuing wrongdoing."

Stello said he was "at a loss" to explain such criticism. He said that NRC investigators should work closely with the commission staff members who must make safety decisions on a daily basis, even though that creates the appearance of less independence for the investigators.

"We investigate until we've finished deciding safety," Stello said. After that, he said, "Our agency's mission is accomplished" and the Justice Department must decide if further action is warranted. He said he knew of no effort to curtail referrals to Justice.

Others noted that Stello repeatedly has been named in connection with unsuccessful NRC investigations.

In 1980, Greenspun accused Stello of ruining a potential criminal case by meeting with a New Mexico company under investigation and disclosing "government theories and evidence."

In 1981, a federal prosecutor in New Jersey complained that Stello had jeopardized a case involving buried radioactive waste. James Cummings, then NRC's chief inspector, wrote Stello: "I continue to be puzzled that, as the chief enforcement official of NRC, you continue to downplay the possible value of criminal sanctions . . . ."

A 1983 internal report on a botched NRC probe of the Zimmer power plant in Ohio blamed Stello for ruling out criminal investigations as a matter of policy and for taking an "artificially narrow . . . unduly restrictive approach to health and safety."

The NRC's most embarrassing foulup was a 1982 probe of alleged defective parts made by a Vermont pump company. Two senior agency officials gave a copy of NRC's draft investigative report to the company's lawyer, former NRC chairman Marcus Rowden, who convinced them to change some of the language.

Some NRC officials say it is unrealistic to expect a hard-nosed approach from the commission's staff, which is under considerable pressure to process utility licenses.

Greenspun blames the commission's shortcomings on "a well-meaning desire to see nuclear power succeed." But, he said, "As time goes on the NRC is going to have less and less credibility. They are hurting themselves and they are hurting the industry."