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UNITED STATES v. CONSOLIDATED EDISON CO. OF NEW YO

July 19, 1977

UNITED STATES of America, Plaintiff,
v.
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., Defendant



The opinion of the court was delivered by: PIERCE

OPINION AND ORDER

 PIERCE, District Judge.

 This is an action commenced by the United States as plaintiff pursuant to 28 U.S.C. ยง 1345. Plaintiff alleges that the defendant, Consolidated Edison Company of New York, Inc. ("Con Edison") entered into an oral agreement with the plaintiff to reimburse the Atomic Energy Commission ("AEC") for costs incurred in the summer of 1970 by reason of a release of 200 megawatts of electrical power. The power was released to Con Edison by the AEC in the midst of a New York City area power crisis resulting from the July 21, 1970 failure of Con Edison's Ravenswood electrical generating facility, commonly known as "Big Allis". Plaintiff's complaint asserts four causes of action. Count One sought to recover on an oral contract; that claim was dismissed at the close of plaintiff's case on the ground that the agreement was barred by the Statute of Frauds. Count Two was abandoned by the plaintiff and dismissed by summary judgment prior to trial. Count Three alleges contract by estoppel, and Count Four seeks recovery in quasi-contract. Count Four also asserted an alternative claim, contract implied in fact; this was dismissed by summary judgment on August 2, 1976.

 The matter was tried before the Court without a jury for ten days in April and May, 1977. Having heard all the evidence, and having fully considered the matter, the Court concludes that judgment should be entered for the plaintiff on each of its claims asserted in Counts Three and Four. The following shall constitute the Court's findings of fact and conclusions of law pursuant to Rule 52(a) Fed.R.Civ.P.

 Findings of Fact

 In the spring of 1970, certain officers of the federal government became concerned that unless adequate contingency plans were developed, the private power industry might be unable to provide sufficient electrical power to meet the nation's energy needs in the upcoming summer. Upon the conclusion that this was a problem deserving of national attention, the Executive Office of the President established an interagency task force, under the auspices of the Office of Emergency Preparedness ("OEP"), to consider means by which the various federal agencies could assist in identifying potential power crises and taking action to prevent power failures or "brownouts". It became apparent as early as April 1970 that a key component of the plan would be a procedure whereby the AEC would reduce its massive power consumption at its gaseous diffusion uranium enrichment plants. The AEC participated in the development of this procedure, and on May 5, 1970, the OEP released to the public the government's emergency power assistance program, referred to hereinafter as the "May 5 Plan". The Plan contained the following provision concerning the AEC:

 
"The AEC will make arrangements to curtail production this summer at the AEC gaseous diffusion plants, which use large amounts of electricity. This could release coal supplies and generating capacity which could be used to assist in meeting fuel shortages and peak loads of the consuming public in parts of the inter-connected system. The diffusion plants are being used, in part, to produce enriched uranium for future use in nuclear power plants." (PX-2).

 The May 5 Plan made no reference to the possibility that in the event the AEC were to reduce its power consumption for the benefit of private industry, it might seek to impose upon the release of that power a surcharge to cover its increased costs. However, it is apparent from the evidence that the document constituting the May 5 Plan did not at all attempt to set forth all of the terms and conditions under which power would be released; the Plan as revealed in PX-2 was in the nature of a press release. It was not, as defendant seems to suggest, a commitment binding the United States to undertake emergency assistance without the ability to seek reimbursement for its costs.

 The nature of the costs incurred by the AEC as a result of the emergency assistance rendered to Con Edison is best understood through a discussion of the function of the gaseous diffusion plants. The AEC plants were located at Oak Ridge, Tennessee, Paducah, Kentucky, and Portsmouth, Ohio. Originally constructed for the production of special nuclear materials to be employed in national defense, these plants in 1970 were being used primarily to enrich uranium for use in commercial nuclear power plants. The plants convert natural uranium into a gaseous state; the gas is then passed through hundreds of processing stages or "cascades" to increase the concentration of the isotope U-235. Since each stage works only a slight increase in the concentration of U-235, large amounts of electrical power are required to achieve any amount of enrichment. In the early summer of 1970, the three AEC plants were consuming 2,000 megawatts ("MW") of power supplied under requirements contracts in effect with three utilities, the Tennessee Valley Authority ("TVA"), the Ohio Valley Electric Corporation ("OVEC") and Electric Energy, Inc. ("EEI"). The magnitude of the AEC's power requirements is illustrated by a comparison to Con Edison's peak load requirements in the same period; AEC consumed 2,000 MW to operate three plants and Con Edison transmitted 7,000 MW to supply the metropolitan New York City area and portions of Westchester County.

 Shortly after the implementation of the May 5 Plan, the AEC received a request from EEI for permission to cut back on the full 235 MW it was supplying to one of the three uranium enrichment plants. Shortly thereafter TVA and OVEC made similar requests for reductions. George Quinn, then an AEC Assistant General Manager, testified that the AEC was reluctant to grant a substantial reduction, so Quinn sent an inquiry to the Federal Power Commission to determine whether there was in fact the likelihood of a power shortage in the area serviced by these three utilities. Upon confirmation that power reductions would be appropriate, AEC in late June 1970 entered into contract modifications with TVA, OVEC and EEI whereby AEC agreed to reduce its power consumption by 450 MW for the duration of the summer (PX-6 through PX-9). These contract modifications concerning the 450 MW reduction contained no mention of any surcharge to be imposed as a result of the release of the power. *fn1"

 The evidence indicates that it was not until after this first power reduction that officers of the AEC fully realized the increased costs which AEC would incur through the loss of power. *fn2" The product of the diffusion plants is measured in separate work units ("SWUs"); the SWUs are calculated by measurements of the assay levels of enriched uranium at various stages in the cascade process. The diffusion plants incur substantial fixed costs regardless of the number of SWUs produced; thus the AEC experienced substantial efficiency losses by operating its plants at levels below the 2,000 MW capacity. Both plaintiff's and defendant's expert witnesses agreed that such efficiency losses result from substantial power reductions. Upon becoming aware of the extent of its increased costs, the AEC in early July 1970 began considering whether it should impose a surcharge upon any further power reductions.

 By July of 1970, Con Edison was already experiencing problems with its power needs. On May 20, 1970, Con Edison's nuclear plant at Indian Point went out of service, resulting in a loss of 260 MW of generating capacity. On July 21, 1970, Con Edison suffered a major power crisis with the outage of Big Allis, its 1,000 MW plant at Ravenswood.

 Charles Luce, Con Edison's Chairman and Chief Executive Officer, testified that the failure of Big Allis constituted the most severe emergency faced by Con Edison during his ten years with the utility. Luce immediately met with his production and purchasing personnel to begin a search for additional electrical power. At the time, Con Edison was a party to a "pool" agreement with several other New York State utilities whereby any member of the pool could purchase from other members three different types of power (DX-B-8).

 The first type, known as "economy power" involved purchases on an hour-to-hour basis from the most efficient generating plant available within the system. This power was priced according to the costs incurred in generation. Next, "supplemental power" was available to pool members at a fixed rate when the purchasing utility did not have sufficient capacity to meet its load. Finally, "emergency" power could be purchased during true crisis situations; such power usually carried a ten percent surcharge and was available only for short periods of time. Despite the existence of these emergency pooling arrangements, and notwithstanding the existence of similar agreements between the New York State power pool and other such pools in neighboring states, the Big Allis power shortage was so severe that Con Edison immediately looked elsewhere for a long-term purchase of back-up power.

 The magnitude of Con Edison's July 21st power crisis had not gone unnoticed by the Executive Office of the President. On July 22, 1970, a representative of the OEP telephoned the offices of Con Edison to state that the government could perhaps come to Con Edison's assistance pursuant to the provisions of the May 5 Plan. On July 23, 1970, Charles Luce called David Freeman of the OEP, who explained that the AEC gaseous diffusion plants had already made one power reduction, but that there might still be room for a further power release to Con Edison. Luce stated that Con Edison wanted the power, subject only to confirmation that it could be transmitted to the New York area. Freeman then informed Luce that he should call George Quinn at the AEC to work out the details. There was no mention in this first conversation of any surcharge; however, it is clear that these talks with the OEP were only preliminary discussions.

 On July 23, 1970, a series of significant conversations were had between the parties and with others. George Quinn at AEC was informed by the OEP of the New York power crisis and of the fact that Con Edison would be calling Quinn regarding the possibility of a further power reduction in order to assist Con Edison. Quinn reported the situation to E. H. Bloch, AEC Acting General Manager, and informed him that it was the opinion of the AEC staff that a surcharge should be imposed upon any release of power to Con Edison. Quinn did not discuss with Bloch the amount of the surcharge or how it could be imposed.

 The same day Charles Luce of Con Edison telephoned Fred Chambers, an officer of TVA, to inquire about the availability of power from TVA and to ask Chambers what he knew about the possibility of an AEC power reduction. Luce also was interested in whether TVA could assist in the transmission of power to New York. Chambers stated that TVA had no surplus power in its system, and in response to a specific inquiry by Luce, informed Luce that TVA could start up an old inefficient steam generating plant at Watts Bar, but that it would take as long as three weeks to wind the plant up to its full 200 MW capacity. Chambers also told Luce that starting up Watts Bar would be quite expensive.

 The evidence indicates that at the time of this discussion Luce was more concerned with getting power quickly than he was with the cost to Con Edison. Luce asked TVA's Chambers about the availability of power from the AEC, but Chambers stated that he could not speak for the government. The conversation ended on this note and Chambers thereafter telephoned S. R. Sapire, operations manager at the AEC Oak Ridge plant.

 Chambers asked Sapire about the possibility of a further AEC reduction; Sapire at first stated that the AEC could not possibly make a further reduction. However, shortly thereafter Sapire called Chambers to inform him that the AEC could make a further reduction but that it would be rather expensive. According to Chambers, Sapire estimated the additional cost at between 3 and 7 mills per kilowatt hour (Tr. at 324). Chambers then called Luce to pass this information on to Con Edison.

 In the course of this second conversation between Chambers and Luce on July 23, 1970, Chambers stated that AEC had already made one reduction and that a further reduction would be "pretty expensive" because AEC was incurring substantial efficiency costs. Luce stated that it was no time to be discussing costs. Chambers then informed Luce that AEC power could cost Con Edison as much as twelve to fourteen mills per kilowatt hour; however, Chambers cautioned that the price could not be determined until the completion of calculations by the AEC. *fn3" Later that same day Chambers spoke with Arthur Hauspurg of Con Edison to confirm that TVA could assist in the transmission of AEC power to New York.

 The next contact between the parties occurred between Louis Roddis, Con Edison's President, and George Quinn at the AEC. Roddis had previously been informed by David Freeman of OEP that Con Edison might be able to obtain between 250 and 300 MW from the AEC. Following preliminary confirmation that this power could be transmitted to New York, Roddis called Quinn to inform him that Con Edison was interested in the availability of the power. Quinn stated that AEC had to work out appropriate arrangements with its supplier utilities and that he would call Roddis back. Again, there was no mention of a surcharge; however, the Court finds that this conversation was yet another preliminary discussion. As the record indicates, Con Edison was primarily concerned with the availability of the power and with insuring that it could be transmitted to the New York area.

 On July 23, 1970, representatives of the Executive Office of the President called Quinn to inform him that the White House intended to issue a press release that afternoon concerning the release of the power. Quinn testified at trial that he informed both David Freeman of the OEP and one Mr. Kriegsman, a staff assistant to the President, that the AEC intended to impose a surcharge upon the release of power to Con Edison. Mr. Kriegsman informed Quinn that the President had directed that the power be made available to Con Edison. There is no indication that anyone at the White House objected to the imposition of a surcharge. *fn4" The White House press release, issued shortly thereafter, read as follows:

 
"The President announced today that the Atomic Energy Commission will make available several hundred megawatts of power to the Consolidated Edison Company serving New York City.
 
"This action is being taken to help relieve the critical power shortage in New York City created by the failure of its largest generating unit on July 21.
 
"The release of this power is pursuant to the contingency plans previously developed and announced by the Office of Emergency Preparedness on May 5.
 
"The power would be made available by reducing the use of electricity at the AEC's gaseous diffusion plants. The Consolidated Edison Company is proceeding with the necessary arrangements with the other utility companies involved and the AEC.
 
"It is expected that the power will be transmitted to New York over the interconnected grid system of the utilities in the eastern United States." (DX-R-3 at 2.)

 Defendant notes that this press release made no mention of a surcharge; however, the Court finds that this document was no more than it purported to be - a press release. The document contained no information about price; indeed, it did not even set forth the quantity of the power to be released. It did not constitute an agreement between the plaintiff and Con Edison.

 Nevertheless, the White House announcement did constitute the first statement by either party that the release to Con Edison would in fact take place. Louis Roddis, Con Edison's President, first saw the press release while he was being interviewed on an evening news program concerning the power crisis. George Quinn communicated the substance of the press release to S. R. Sapire, operations manager of the Oak Ridge plant, and informed Sapire that the decision to release the power had been taken from AEC's hands by the White House announcement. Nevertheless, as the Court has found, the AEC had made it clear to both the White House and to the OEP that it intended to impose a surcharge on Con Edison; the following day Quinn also informed a staff member of the Joint Congressional Committee on Atomic Energy that AEC would seek a surcharge.

 On the morning of July 24, 1970, Quinn again spoke to Sapire to confirm that the power could be transmitted to New York; the AEC officers also spoke concerning whether there might be surplus power available in the American Electric Power system. The details of this discussion were passed along to AEC Acting General Manager Bloch.

 Quinn then placed a call to Louis Roddis, and spoke to Charles Luce in Roddis' absence. Quinn stated that he wanted to discuss the terms and conditions of the release and that the AEC was now in the position to offer 200 MW to Con Edison. Quinn informed Luce that AEC had made a previous reduction of some 450 MW, and that while AEC would prefer not to make a further reduction, they were willing to do so. It is undisputed that Quinn informed Luce that in the event the release was effected, the AEC would look to Con Edison for reimbursement of its additional costs. Luce stated that Con Edison was still studying their end of the transmission problem and that he was not yet in a position to request the power. Apparently unconcerned with the possibility of a surcharge, Luce stated that Con Edison would be willing to pay whatever surcharge had been paid by the recipients of the previous 450 MW reduction. Quinn did not inform Luce that the recipients of the 450 MW had not been asked to pay any surcharge.

 Quinn stated that the amount of the surcharge was under study and that he could not fix a price at that time. However, Quinn did give Luce examples of the type of costs the AEC would incur, such as the shut down of certain equipment. Luce testified that Quinn referred to efficiency losses. On cross-examination (Tr. 808) and in response to questions by the Court (Tr. 821), Charles Luce stated that Quinn had explained to him that the 200 MW reduction would result in higher costs to AEC than did the 450 MW reduction, since the incremental losses were greater when the plants were required to reduce consumption to as low as 1,350 MW. The conversation ended with Quinn's advice to Luce that if Con Edison wished to receive the power, it should make arrangements with AEC's supplier utilities, TVA and OVEC.

 On the same day, July 24, 1970, AEC Acting General Manager Bloch sent a memorandum to AEC Chairman Seaborg and the Commissioners of the AEC. The memo reads in part as follows:

 
"The Oak Ridge Operations Office has been authorized to proceed to make available up to 200 MW as it may be needed by Consolidated Edison and as arrangements can be made with our power suppliers and the interconnected utilities for transmission of this power to the New York area. In agreements effecting such reductions, provisions will be included to recover ...

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