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United States v. Consolidated Edison Co.

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT


decided: June 26, 1978.

UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE-CROSS-APPELLANT,
v.
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., DEFENDANT-APPELLANT-CROSS-APPELLEE

Appeal from a judgment of the United States District Court for the Southern District of New York, Lawrence W. Pierce, Judge, awarding $1,576,595 in damages on theories of contract, quasi-contract, and equitable estoppel. Affirmed as modified.

Waterman and Oakes, Circuit Judges, and Wyzanski,*fn* District Judge.

Author: Oakes

OAKES, Circuit Judge:

This is an appeal by Consolidated Edison Co. of New York, Inc. (appellant or Con Edison), and a cross-appeal by the United States (appellee or Government), from a September 20, 1977, judgment of the United States District Court for the Southern District of New York, Lawrence W. Pierce, Judge, awarding damages to the United States in a contract action. After a two-week bench trial, the court found that Con Edison was estopped from denying the existence of a contract to reimburse the Government for costs which the Atomic Energy Commission (AEC) incurred when it made available 200 megawatts (MW) of electric power to Con Edison during a serious Con Edison power shortage in the summer of 1970. The district court further premised liability on two-quasi-contractual theories - the "emergency assistance" doctrine and a theory of unjust enrichment resulting from the AEC's conferral of a benefit on Con Edison. Damages were awarded in the sum of $1,576,595, all three theories of liability producing the same ultimate result. Because we are satisfied both that liability is properly imposed under the emergency assistance doctrine and that the AEC would achieve its maximum damages award under that theory, we affirm the district court's imposition of liability without deciding the correctness of its equitable estoppel or unjust enrichment theories or its dismissal of the Government's contract claim on statute of frauds grounds. However, we find the district judge's treatment of the damages issue improper in one respect and accordingly modify the damages award.

I. Facts

In the spring of 1970, the Government was rightfully concerned that the nation's public utilities might be unable to satisfy peak public demands for electrical power during the coming summer. An interagency task force established by the Executive Office of the President, therefore, adopted a plan of emergency power assistance (May 5 plan) in which the AEC was to play a major role. After studying the problem and considering the impact of a reduction in power consumption on the operations of the AEC's gaseous diffusion plants,*fn1 that agency determined that it could reduce consumption of power at these plants by up to 450 MW if there were critical shortages of electricity in the commercial sector. In late June, 1970, the AEC executed modifications of its requirements contracts then in force with the three utilities which supplied electricity to these plants to reduce the AEC's overall power consumption by 450 MW for the duration of the summer. Thereafter, in early June, 1970, the released power was wheeled from the supplying utilities to utilities facing anticipated shortages in Chicago and other areas in the Midwest and East.

On July 21, 1970, Con Edison suffered a major power crisis with the outage of its Ravenswood Plant ("Big Allis") resulting in a loss of 1,000 MW.*fn2 Charles Luce, Con Edison's chairman and chief executive officer, and his staff immediately began the search for new sources of electrical power.

Concurrently, the gravity of the New York situation had come to the attention of government officials as well. On July 22, David Freeman of the Office of Emergency Preparedness (OEP) in Washington, D.C., telephoned Con Edison and indicated that the Government might be of assistance. On July 23, 1970, Luce himself called Freeman who explained that although the AEC had already made one power reduction, he believed that a further power release to Con Edison might still be possible. Luce indicated that Con Edison wanted the power; Freeman directed Luce to get in touch with George Quinn, then assistant general manager in charge of production at the AEC, in order to "work out the details." 452 F. Supp. 638 (S.D.N.Y. 1977). The district judge specifically found that the Luce/Freeman conversation constituted "only preliminary discussions."

Luce also telephoned Fred Chambers, a Tennessee Valley Authority (TVA) official, to inquire about the availability of power from TVA and to determine what TVA knew of the AEC's ability further to reduce its power from TVA. Chambers was uncertain. After the phone call, Chambers conferred with his staff to determine whether TVA could assist; he called the manager of the AEC's gaseous diffusion plant at Oak Ridge, who later told Chambers that a further power reduction would cause the AEC severe efficiency losses - which could be estimated in the neighborhood of three to seven mills per kilowatt hour (PKH). Chambers then called back Luce, informing him that the TVA could not assist and that if the AEC ultimately determined that it could release additional power, the cost would be quite high. He specified that actual costs of the power itself and the efficiency loss surcharge would likely be in the twelve to fourteen mills PKH range, although a final determination of the price would have to attend AEC calculations.*fn3

On July 24, 1977, Quinn spoke with Luce on the telephone:

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 . . . and in response to questions by the Court . . ., 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*fn4 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.

452 F. Supp. at 645 (citations omitted). This telephone conversation was the last direct AEC/Con Edison contact before the 200 MW of released power began to flow on Monday, July 27, 1970.

By Tuesday, July 28, 1970, the controller's office of the AEC calculated a surcharge of 5.41 mills, or.0541 cents PKH on the power released to Con Edison. Quinn reviewed this calculation and discussed it with his supervisor who approved it. On July 29, 1970, Quinn directed officials at the Oak Ridge diffusion facility to initiate contract modification discussions with the AEC's supplier utilities. On August 3, 1970, the AEC executed formal contract modifications with its supplier utilities by which the AEC released its rights to 200 MW of power for the remainder of the summer. These agreements provided for the utilities to collect the 5.41 mills PKH surcharge from Con Edison through the billing chain. Con Edison was not specifically informed of the terms of the modifications.

Con Edison first learned of the magnitude of the surcharge on August 6, 1970. Luce immediately objected and directed Louis Roddis, president of Con Edison, to ascertain the amount of the surcharge paid by the recipients of the 450 MW reduction. Roddis learned that the 450 MW utilities had paid no surcharge at all. Roddis telephoned Quinn to inquire whether the surcharge had the support of the AEC Commissioners and to suggest that the surcharge might cause political embarrassment for the AEC and the White House. The district court found that Roddis at no point suggested that Con Edison might terminate its receipt of AEC released power.

On August 10, 1970, Bertram Schwartz, then a Con Edison vice president, met with Quinn and among other things asked why the AEC had imposed no surcharge upon the recipients of the prior reduction. Quinn told him that it was an oversight and that the AEC was seeking to renegotiate the agreements with the 450 MW recipients to include a surcharge. The negotiations to reopen the written contracts ultimately proved fruitless.

In the meantime, Con Edison continued to assert that the only payment it would make was a surcharge equivalent to what the recipients of the 450 MW power release had paid. This position was reiterated in a meeting between Quinn and Luce on September 1, 1970. Despite Con Edison's protestations throughout the summer at having to pay a surcharge different from what had been imposed on the 450 MW utilities, no Con Edison official ever intimated that it preferred not to take the power.

By letter dated September 30, 1970, after compromise attempts had failed, Luce informed the AEC that Con Edison would not pay the surcharge. On the next day, October 1, 1970, Con Edison released the 200 MW of power back to the TVA for return to the AEC. The district court found:

Defendant never advised the AEC that it would refuse to pay a surcharge altogether [until September 30, 1970,] nor did Con Edison ever state that it would stop accepting the power. It is clear from the record that during this period Con Edison knew that AEC was demanding compensation for its increased costs; indeed, it knew as early as August 6, 1970, only ten days after the power had begun to flow, the magnitude of the surcharge sought by AEC.

452 F. Supp. at 650.

The district judge then went on to find that "the July 24, 1970 [oral] conversation between Luce and Quinn was sufficiently definite to form an agreement," but that it was unenforceable by virtue of the statute of frauds. Accordingly, he dismissed the Government's contract claim.*fn5 Nevertheless, he upheld the Government's equitable estoppel and quasi-contract theories.*fn6

II. Liability

We agree with Judge Pierce that Con Edison is liable for the AEC's costs under the emergency assistance doctrine. Recovery on this theory affords the Government the greatest amount of damages to which it could rightfully lay claim under any of the theories that it advances.*fn7 Accordingly, we see no reason to decide these other interesting, but unnecessary, issues which have been presented, and therefore confine our discussion to Con Edison's liability under the emergency assistance doctrine.

The emergency assistance doctrine is a form of quasi-contractual relief. As recognized in several cases, including a recent case of this circuit,*fn8 the doctrine is embodied in Section 115 of the Restatement of Restitution:

A person who has performed the duty of another by supplying things or services, although acting without the other's knowledge or consent, is entitled to restitution from the other if

(a) he acted unofficiously and with intent to charge therefor, and

(b) the things or services supplied were immediately necessary to satisfy the requirements of public decency, health, or safety.

The basis for recovery in this case is that the AEC performed Con Edison's duty to acquire and maintain adequate supplies of electrical power under emergency conditions with the clear intent that it be reimbursed for its costs.*fn9 See Peninsular & Oriental Steam Navigation Co. v. Overseas Oil Carriers, Inc., 553 F.2d 830 (2d Cir.) (liability under Section 114 of Restatement of Restitution, the private assistance analogue of Section 115's public assistance statement), cert. denied, 434 U.S. 859, 98 S. Ct. 183, 54 L. Ed. 2d 131, 46 U.S.L.W. 3218 (1977).

Con Edison challenges recovery under this doctrine on a number of grounds. It asserts that Con Edison had no absolute duty to supply electricity to its New York area customers; it challenges the scope of the doctrine and whether a true emergency in the Section 115 sense existed; and it attempts to distinguish the leading Second Circuit authority, Peninsular & Oriental, supra, by limiting that case not only to its admiralty context but also to its precise facts. We are unpersuaded by Con Edison's contentions.

Con Edison's claim that it has no absolute duty to supply electricity to New York area customers misconceives both the nature of the duty which must be implicated to fall within the purview of Section 115 and the nature of the duty which the AEC performed in this case. Con Edison asserts in this regard that it is liable for damages to its customers only from intentional wrongful cutoffs or accidental cutoffs when it has acted with gross negligence.*fn10 However, Section 115 of the Restatement certainly does not require either by its terms or under the case law interpreting it, that a duty must be absolute to fall within its parameters. Duty is a flexible concept. Its existence depends on calibrating legal obligations to factual contexts. One may have only a duty to avoid gross negligence, but that is a duty nonetheless and one potentially cognizable by the emergency assistance doctrine.

Peninsular & Oriental is a good illustration of a situation where less than an absolute duty was held governable by the emergency assistance doctrine. In that case, a sailor on the Overseas Progress was stricken with a heart attack. The Overseas Progress did not have a doctor or the necessary facilities to give the sailor proper medical attention and therefore sent a radio message seeking assistance from other ships in the vicinity. The S.S. Canberra responded, changing course to intercept the Overseas Progress. The rescuing ship, which had an on-board hospital, took the heart attack victim on board and increased its speed and thus its fuel consumption as it plied toward New York.*fn11 This court found that when the seaman took ill the Overseas Progress "became obligated to make reasonable efforts to provide him with swift medical care. . . . On vessels that do not carry a surgical staff, the ship's master has a duty, in the sound exercise of his judgment and depending on the circumstances, to have the seaman taken speedily to a hospital or the nearest port where surgical care may be obtained." Id. at 834. While the Overseas Progress did not have an absolute duty to provide the sailor with medical attention, it had a "manifest duty" to do so. Id. at 835.

Similarly, Con Edison had, if not an absolute, at least a manifest, duty to provide its customers with electricity. See, e.g., Park Abbott Realty Co. v. Iroquois Natural Gas Co., 102 Misc. 266, 168 N.Y.S. 673 (Sup. Ct. 1918) (utility must use best efforts), aff'd, 187 App. Div. 922, 174 N.Y.S. 914 (4th Dep't 1919). And as the district court found, based on the testimony of Con Edison's own officials, Con Edison has a general responsibility to provide electricity, one founded in its monopoly and the public service nature of its business. See Wolff Packing Co. v. Industrial Court, 262 U.S. 522, 535-36, 67 L. Ed. 1103, 43 S. Ct. 630 (1923); Munn v. Illinois, 94 U.S. 113, 124-30, 24 L. Ed. 77 (1876). Moreover, under the statutory law of New York Con Edison has a duty to "furnish and provide such service, instrumentalities and facilities as shall be safe and adequate and in all respects just and reasonable. . . ." N.Y. Pub. Serv. Law § 65(1) (McKinney 1955). Distinguishing its general duty to provide service from an absolute legal duty to pay damages to individual customers in particular circumstances would be hypertechnical and would ignore Con Edison's overriding responsibilities to the public. See People ex rel. Cayuga Power Corp. v. Public Service Commission, 226 N.Y. 527, 532, 124 N.E. 105, 106 (1919) (Cardozo, J.) (emphasizing that "the duty to serve the public goes hand in hand with the privilege of exercising a special franchise. . . ."). Since Con Edison was willing to pay a surcharge of the magnitude ultimately imposed by the district judge if the other utilities had paid an identical surcharge, it is clear that Con Edison itself believed that incurring such costs was well within the parameters of its manifest duty to provide electrical power to its customers.

The nature of Con Edison's duty to its customers aside, Con Edison also misperceives the nature of the duty which the AEC actually performed in this case. Con Edison improperly focuses exclusively on the Con Edison-customer relationship rather than on the Con Edison-AEC relationship. While Con Edison may be liable to its customers for damages from wrongful intentional cutoffs or accidental cutoffs when it has acted with gross negligence, that limitation on Con Edison's duty relates solely to damage claims between Con Edison and its customers for failure to supply electricity; it does not foreclose liability arising from a relationship between Con Edison and its supplier of electricity. The generalized duty to furnish electricity that flows from Con Edison's status as a government-regulated public service company imposes upon it the additional duty to make reasonable efforts to acquire additional electricity in time of need. This duty of acquisition, even if the ultimate object were to fulfill the separate duty of supplying its individual customers, is an independent obligation of Con Edison.

Con Edison's actions, moreover, belie its claim of no duty. Company officials went to significant (and we may say commendable) efforts to secure additional power. Luce and Chambers testified that Con Edison actively explored reactivation of an obsolete, expensive TVA steam generation system. The district court found: "In three days of frenzied activity by its highest officers, Con Edison sought out all possible sources of power and accepted 200 MW from the federal government in the face of AEC's clear indication that the AEC would seek recovery of its costs." 452 F. Supp. at 656.

In sum, then, we conclude that Section 115, with the gloss of Peninsular & Oriental, is not limited to cases of absolute duty, that in any event the proper focus here is on the Con Edison-AEC relationship rather than the Con Edison-customer relationship and that Con Edison had a manifest duty to acquire electrical power. We, therefore, reject Con Edison's contention that the AEC did not perform Con Edison's duty.*fn12

Con Edison's second principal objection to the Government's recovery under the emergency assistance doctrine is that recovery here improperly widens the concept of emergency. The thrust of Con Edison's contention is that while Con Edison confronted a very serious problem, it was not a problem of emergency dimensions within the contemplation of Section 115.

Specifically, Con Edison points out that Section 115 requires that the lack of electricity pose a threat to "public decency, health, or safety." Con Edison faced just such a threat during the summer of 1970. Even though Con Edison received 200 MW of AEC-released power which, as the district court found, constituted three per cent of Con Edison's peak load requirements, there were still "fourteen separate days during the summer of 1970" when "Con Edison reduced voltage by between three and five per cent." Bertram Schwartz testified in this regard that "when a voltage reduction goes as far as eight per cent, Con Edison's contingency plan is to begin load shedding."*fn13 On "six separate days between July 27, 1970 and September 28, 1970, Con Edison's reserve capacity was well under 200 MW. Indeed even with the 200 MW Con Edison was compelled to engage in eight per cent voltage reductions on three different days, and on September 22, 1970, Con Edison did in fact shed load." An eight per cent voltage reduction is no light matter. Load shedding is the equivalent of designated area blackouts.

Charles Luce testified that the situation confronting Con Edison was the most serious in his ten years with the company. The district judge stated:

Indeed, . . . if the situation were not an emergency, then Con Edison simply could have disconnected customers. Instead, in three days of frenzied activity by its highest officers, Con Edison sought out all possible sources of power. . . . Had the matter not been a true emergency to public welfare and safety, Con Edison could have simply "shed load." Thus, the Court finds the arguments presented on behalf of defendant to be at odds with the actions of its officers during the time at issue.

452 F. Supp. at 656. It is easy with the aid of hindsight to say that nothing serious happened. But this ignores the fact that Con Edison operated with 200 MW of AEC released power. When the decision to accept that power was made all officials concerned recognized that the situation was grave indeed. Con Edison's argument is a little like saying that, because the seaman in Peninsular & Oriental did not die of his heart attack, there was no need for emergency assistance at the time the request for aid was made. We therefore conclude that Con Edison faced an emergency within the meaning of Section 115.*fn14

Con Edison's attempt to limit the Peninsular & Oriental rationale to maritime situations and to its facts is similarly unpersuasive. As Chief Judge Kaufman's opinion made clear in that case, it was not applying some peculiarly maritime rule. On the contrary, the court took a more general equitable doctrine and applied it to a maritime context, using the opportunity to overrule specifically the outdated admiralty rule of "pure life" salvage.

Distinction of Peninsular & Oriental on a number of other technical grounds in an attempt to limit the holding of that case to its facts is also unavailing. Con Edison asserts that in Peninsular & Oriental the defendant's vessel had requested assistance from the plaintiff's vessel and had discussed the matter of reimbursement from the beginning, 558 F.2d at 833, whereas in this case, according to Con Edison, the White House made the offer of power pursuant to its May 5 plan without any mention of a surcharge. The matter, however, is not as simple as Con Edison would suggest.

First, it is not made clear why the chronology of who asked whom makes any difference. Indeed, were a rescuer to come upon a stricken victim, it is anomalous to suggest that the rescuer may be reimbursed for his costs if the victim speaks first, but not if the rescuer speaks first or presumably acts without either party speaking. True, Con Edison has seized upon a factual difference between Peninsular & Oriental and this case, but it is one that makes no legal difference.

Nor, for several reasons, do we find it significant that the question of a surcharge for Con Edison's efficiency-loss costs was not mentioned by a Government official to a Con Edison official prior to the Quinn/Luce telephone call of July 24. It was mentioned at about midpoint in the developing crisis; considering the rapidity with which events were unfolding and the magnitude of the problem, it is hardly surprising that the surcharge was not specifically mentioned until 2 1/2 days after Big Allis broke down. Con Edison was formally told of the surcharge that it would be expected to pay more than two days before the power began to flow to Con Edison. Moreover, prior to the Quinn/Luce telephone call, Luce was informally told by a TVA official - Chambers - that the AEC would look to Con Edison for its efficiency-loss costs, and he indicated what he thought they might be. The Con Edison officials cannot be considered as naive as they would now have us believe. If their purpose is to undercut the AEC's demonstrated intent to be reimbursed for its costs, that effort must fail, for it is clear from the record, and the district judge unequivocally so found, that the AEC intended to be reimbursed for its costs and made that intent unmistakably clear to Con Edison. See note 12 supra. Accordingly, we conclude that liability was properly imposed pursuant to the emergency assistance doctrine.*fn15

III. Damages

The proper measure of AEC's damages is the costs it incurred in assisting Con Edison.*fn16 We further conclude that these costs are fairly embodied in Plaintiff's Exhibit 41 (PX 41) as modified herein.*fn17 The purpose of PX 41*fn18 is to measure the increased production cost per SWU which accrued as a result of the power reduction at the AEC's gaseous diffusion centers. The incremental cost per SWU was computed to be $1.9163. Since 822,833 SWU's were produced during the power reduction period, the total costs incurred as a result of the reduction were $1,576,795.

The district court found that "despite hours devoted to cross-examination of plaintiff's witnesses on PX-41, the defendant did not seriously challenge any of the factual bases of PX-41." We agree with the district court's findings of fact. However, we consider that one component of this calculus leads to overcompensation of the Government and thus is not warranted by law. See Peninsular & Oriental, supra, 553 F.2d at 836-37 & n.7; J. Calamari & J. Perillo, Contracts § 15-4, at 475.

PX 41 includes the AEC's own "fixed operating" and "added factor" costs*fn19 (as distinguished from the costs relating to the operation of the three specific gaseous diffusion centers) in calculating the SWU production cost actually incurred during the power reduction period and the cost had there been no power reduction for the benefit of Con Edison. Because AEC's fixed operating and added factor costs would have been incurred to the same extent whether or not the power release to Con Edison had occurred and since there is no direct relationship between these costs and the power release, they should not have been included in the calculation. There is obviously a direct relationship, however, between the incremental cost of SWU production and the overhead costs at the three plants since the per SWU cost at each center was directly affected by the power release. Accordingly, the incremental cost per SWU should be reduced by recomputing both the actual costs incurred during the relevant period and the costs that would have been incurred absent a power release but without taking into account the AEC's own fixed operating and added factor costs that appear as Part D of Table I in the appendix.*fn20 The Government's damages therefore are reduced to $1,467,018.00.*fn21

Con Edison has proffered five alternative measures of damages. We find each of them unacceptable. Con Edison first puts forth as its measure of the AEC's costs what it calls power efficiency losses. This method, presented by Con Edison's expert witness, Dr. Leonard Geller, was defined as "a surcharge that would be applicable to recover [a] loss of efficiency effect in the use of the electricity," on the basis that power costs increase as a power load decreases by virtue of less efficient use of the energy involved. Thus, the method purports to measure costs relating to incremental power efficiency loss from the power release. Dr. Geller's calculations indicate a power efficiency decrease of $0.1520 per SWU. This amount would then be multiplied by the 822,833 SWU's actually produced during the power reduction period for total damages of $125,070. The weakness in the theory, and the reason we reject it, is that it focuses solely on the AEC's incremental power efficiency loss and not on its other incremental SWU costs incurred by the enrichment plants which directly resulted from the power release program. To make the AEC whole the increased cost of SWU production must be compensated; to pay only the power component of that increment would understate the Government's damages.

Dr. Geller's second theory suggests a power, rather than a monetary, surcharge. That is, Con Edison would pay a surcharge of between 10 and 20% of the raw power cost - the typical surcharge in the industry for emergency power releases. This approach however overlooks the sui generis nature of the release here in question. Presumably, in most power release situations, a 10-20% surcharge will compensate a releasing utility for special costs that it incurs in releasing and transmitting power. But it is precisely because the AEC was Con Edison's only possible power source during this crisis that makes the industry-wide practice an inapposite measure of damages. See Peninsular & Oriental, supra, 553 F.2d at 836. The AEC incurred costs which the typical utility, which is not in the business of enriching uranium, would not incur. It is, as we have said, analogous to a manufacturer rather than an electric utility although its manufactured product happens to be stored energy for future generating purposes. See note 1 supra.

Next, Con Edison puts forth a "threshold method" of calculating a surcharge. The underlying theory of this method is to measure the AEC's damages by the excess of the cost of the 200 MW reduction over the estimated cost of the 450 MW reduction. Thus, if the 200 MW reduction would cost an additional five mills PKH and the 450 MW reduction would cost four mills PKH, Con Edison would pay only the difference of one mill PKH. Presumably this method would take account of Con Edison's insistence on equal treatment with the 450 MW utilities, but recognize that the AEC's efficiency loss was greater for the 200 MW reduction than for the 450 MW reduction. Thus because the 450 MW utilities did not pay their four mills surcharge, Con Edison need not pay the first four mills of its five mill surcharge. This is a clever formulation by Con Edison, but it distorts the obvious implications of the district judge's finding that Con Edison would be expected to pay a different surcharge from that paid by the other utilities. Ante at p. 1125.*fn22 Thus, even if there were an enforceable contract, the contract terms would not justify the "threshold" measure of damages since the fact that the 450 MW utilities paid no surcharge would be legally irrelevant. Moreover, the "threshold" method overlooks the theory of liability on which we base our opinion - the emergency assistance doctrine which obligates Con Edison to pay costs. Thus, the threshold method is really an attempt to premise damages on a contract theory; as such its application would distort the district judge's findings of fact.

Con Edison's fourth damages formulation is termed a "price planning data approach," which attempts to give effect to the "time" impact upon the losses claimed by the Government. Con Edison purports to adopt the AEC's own ten-year pricing methodology whereby the agency projected costs, SWU production and sales for the ten-year planning period - fiscal years 1971-1980. The AEC then discounts to an end-of-fiscal-year-1970 "present worth" all of the projected cumulative costs, revenues, SWU sales and so forth. Con Edison employs a similar "discount" to measure the net economic impact of the 200 MW reduction expressed in terms of the 1970 net worth. There are, however, several problems with this approach which lead us to reject it.

First it borrows a planning and pricing economic model for the purpose of measuring damages incurred. While that might be a valid approach in some instances, it seems highly speculative to us especially since the actual cost data from the precise period involved are available. And, second, the figures on which Dr. Geller based his projections have not withstood the test of time, as the district court found. 452 F. Supp. at 652. Con Edison would have us ignore what has transpired since 1970 in terms of astronomical cost increases in SWU production*fn23 and measure damages based on hypothetical figures from the vantage of year end 1970. This approach would grossly distort the true impact of the power release on the AEC's gaseous diffusion centers.

Finally, Con Edison suggests a fifth alternative measure of damages - an "average" surcharge approach. Thus, Con Edison would pay a surcharge in which total efficiency-loss costs from both the 450 MW and the 200 MW reduction would be blended; since the efficiency losses from the first reduction were less than those of the second, the effect of this approach is to lower Con Edison's damages and to put Con Edison in the position it would have been if the AEC had agreed that Con Edison would pay the same costs as the 450 MW utilities and if those utilities had indeed obligated themselves to pay a surcharge or found themselves in an emergency situation similar to that facing Con Edison. Again, we are unable to accept this approach. The acceptance of emergency assistance obligated Con Edison to reimburse the Government for incurred costs. Those are the costs which flow from the emergency assistance; any other costs are extraneous to the incurrence of those emergency assistance costs.

Accordingly, we find none of Con Edison's approaches to the damages issue acceptable. We therefore affirm the district court's finding of liability and modify its damages award as set forth above.

Affirmed as modified.

APPENDIX

PX 41

Increased Cost Due to Relinquishment By The AEC of Its Contract Rights to 200 MW Of Power To Benefit Consolidated Edison Company of New York, Inc. 7/26/70 - 10/1/70

Units of Unit Cost of

Cost Separative Work Separative Work

Actual Unit Cost of

Separative Work

During Period of

Reduced Power

for Consolidated

Edison (Pgs. 2 &

4) $20,938,492 822,833 $25.4468

Unit Cost of Separative

Work As-

suming No Reduction Of

Power to

Benefit Consolidated

Edison (Pgs.

3 & 6) 22,321,164 948,605 23.5305

Increased Unit Cost

at Reduced

Power $1.9163

Separative Work Units Produced at Reduced 822,883

Power

Increased Total Cost ($1.9163 X822,833) $1,576,795

TABLE I - COSTS

1. Actual Costs Incurred During Period of Power Reduction To Benefit Consolidated Edison

1970

July August September October Total

A. ORGDP

Power Cost $201,837 1,246,510 1,389,836 10,900 2,849,083

Fixed Operating

Cost 170,004 1,074,238 1,277,969 8,550 2,530,761

Added Factor Cost 95,055 611,445 598,603 3,685 1,308,788

Total ORGDP 466,896 2,932,193 3,266,408 23,135 6,688,632

B. Paducah

Power Cost 326,213 1,867,448 2,848,899*fn**fn*

41,759 5,076,870

Fixed Operating

Cost 154,998 940,679 1,153,627 12,720 2,262,024

Added Factor Cost 10,256 55,050 59,867 751 125,924

Total Paducah 491,467 2,863,177 4,062,393 54,939 7,471,976

C. Portsmouth

Power Cost 199,239 1,057,088 1,027,559 16,025*fn*

2,295,547

Fixed Operating Cost 235,861 1,520,765 1,558,976 24,513 3,340,115

Added Factor Cost 28,493 145,423 133,279 2,294 309,489

Total Portsmouth 463,593 2,723,276 2,719,814 42,832 5,949,515

D. AEC

Fixed Operating Cost 3,200 34,524 22,713 255 60,692

Added Factor Cost 57,493 336,062 369,989 4,133 767,677

Total AEC 60,693 370,586 392,702 4,388 828,369

Total Costs $1,482,649 8,889,232 10,441,317 125,294 20,938,492

NOTE: The above are actual cost incurred by the AEC in the Uranium Enrichment Activity and are exclusive of cost related to other non-uranium enrichment AEC activities. . . .

2. Cost Assuming No Power Reduction to Benefit Consolidation Edison

1970

July August Se ptember October Total

A. ORGDP

Power Cost $229,492 $1,423,212 $1,562,637 $11,495 $3,226,836

Fixed Operating Cost 170,004 1,074,238 1,277,969 8,550 2,530,761

Added Factor Cost 95,055 611,445 598,603 3,685 1,308,788

Total ORGDP 494,551 3,108,895 3,439,209 23,730 7,066,385

B. Paducah

Power Cost 377,841 2,190,375 3,165,502 43,633 5,777,351

Fixed Operating Cost 154,998 940,679 1,153,627 12,720 2,262,024

Added Factor Cost 10,256 55,050 59,867 751 125,924

Total Paducah 543,095 3,186,104 4,378,996 57,104 8,165,299

C. Portsmouth

Power Cost 226,521 1,212,281 1,179,686 17,019 2,635,507

Fixed Operating Cost 235,861 1,520,765 1,558,976 24,513 3,340,115

Added Factor Cost 28,493 145,423 133,279 2,294 309,489

Total Portsmouth 490,875 2,878,469 2,871,941 43,826 6,285,111

D. AEC

Fixed Operating Cost 3,200 34,524 22,713 255 60,692

Added Factor Cost 57,493 336,062 369,989 4,133 767,677

Total AEC 60,693 370,586 392,702 4,388 828,369

$1,589,214$9 ,544,054 $11,082,848 $129,048 22,345,164

Less Added Maintenance*fn** 24,000

Total Cost (Page $22,321,164

1)

Disposition

Affirmed as modified.


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