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Dairyland Power Cooperative v. United States

June 24, 2011

DAIRYLAND POWER COOPERATIVE, PLAINTIFF-CROSS APPELLANT,
v.
UNITED STATES, DEFENDANT-APPELLANT.



Appeal from the United States Court of Federal Claims in case no. 04-CV-106, Judge Edward J. Damich.

The opinion of the court was delivered by: Prost, Circuit Judge.

Before RADER, Chief Judge, GAJARSA and PROST, Circuit Judges.

This case concerns the Department of Energy's ("DOE's" or "the government's") breach of its obligation to accept spent nuclear fuel from the nation's nuclear power utilities. Liability is not at issue. The parties dispute various aspects of the U.S. Court of Federal Claims' damages award.

First, the government contends that the trial court erred in awarding damages based on testimony that absent breach, the plaintiff would have successfully bargained its way to the front of DOE's fuel acceptance queue and would have transferred away all spent nuclear fuel in the first year of performance. Relatedly, Dairyland cross-appeals the amount of damages award, contending that the trial court erred in reducing the damages awarded by the cost of purchasing the exchange. Second, the government argues that the trial court erred in awarding the plaintiff damages to compensate for various indirect overhead costs it claims were caused by the breach. Third, the government contests the trial court's award of plaintiff's investment in an industry consortium to build a private spent fuel storage facility, particularly because, the government points out, plaintiff received significant equity in the venture for its investment. See generally Dairyland Power Coop. v. United States, 90 Fed. Cl. 615 (2009) ("Trial Op.").

We hold that the Court of Federal Claims did not commit reversible error in three of these four issues. We therefore affirm the award of damages based on plaintiff's "exchange" model and the award of indirect costs, as well as the cross-appealed discounting of plaintiff's damages. Regarding the plaintiff's investment in a private venture to build a spent fuel storage facility, we hold that the court was required to only award the cost of that investment to the extent it was made for mitigation, and not as a speculative venture for profit. We vacate the award of damages for the investment in the private fuel storage venture, and we remand for determination of the extent to which the investment was mitigation and the extent (if any) to which it was speculation.

I. BACKGROUND

This appeal, like a number of others recently before or pending with this court, concerns the government's liability for damages in connection with its failure to develop a permanent solution for the storage of spent nuclear fuel ("SNF").*fn1 From 1967 to 1987, Plaintiff Dairyland Power Cooperative ("Dairyland") operated a nuclear power plant in Genoa, Wisconsin called the La Crosse Boiling Water Reactor. The reactor is no longer active, but Dairyland maintains 38 metric tons of spent uranium there in a wet storage pool. The fact that there is SNF stored on-site prevents Dairyland from permanently decommissioning the La Crosse plant.

In 1983 Dairyland, along with the nation's other operating nuclear utilities, entered into a contract with the Department of Energy ("DOE") to address the question of what to do with SNF. See Standard Contract for Disposal of Spent Nuclear Fuel and/or High-Level Radioactive Waste, 10 C.F.R. § 961.11 (1983) ("Standard Contract"). The Standard Contract obliged DOE to accept possession of and title to the signatory utilities' SNF no later than January 31, 1998. Id. art. II. DOE had a mandate from Congress to take responsibility for long-term storage of contract holders' SNF. See generally Nuclear Waste Policy Act of 1982, 42 U.S.C. § 10101 et seq. (2006).

The Standard Contract provided that DOE would accept a certain amount of SNF from various utilities each year until all the SNF from all the signatory utilities had been removed. Standard Contract, art. II. While the contract did not set forth a detailed schedule for this removal, it stated generally that acceptance priority rankings would be assigned based on "the date of discharge of such material [e.g., SNF] from the civilian nuclear power reactor." Id., sec. VI.B.1(a). This became known as the "oldest fuel first" priority ranking. The Standard Contract required DOE to issue an annual capacity report ("ACR") that would project in a more detailed fashion DOE's acceptance of SNF from the utilities. Id., sec. IV.B.5(b).

The schedules on which DOE would accept spent fuel from the utilities were known as "delivery commitment schedules." See Standard Contract, sec. V.B. The Standard Contract permitted the utilities to negotiate with each other to adjust the delivery commitment schedules proposed by DOE:

E. Exchanges

Purchaser [i.e., the utility] shall have the right to determine which SNF and/or HLW [high-level radioactive waste] is delivered to DOE; provided, however, that Purchaser shall comply with the requirements of this contract. Purchaser shall have the right to exchange approved delivery commitment schedules with parties to other contracts with DOE for disposal of SNF and/or HLW; provided, however, that DOE shall, in advance, have the right to approve or disapprove, in its sole discretion, any such exchanges. . . .

Id. sec. V.E.

DOE was unable to meet its contractual obligation to take possession of the utilities' SNF by January 31, 1998, and as a result, partially breached the Standard Contract. Pac. Gas & Elec. Co. v. United States, 536 F.3d 1282, 1284, 1287 (Fed. Cir. 2008). Due to DOE's breach, Dairy-land has had to maintain the 38 metric tons of SNF in its wet storage pool. Had DOE performed, the parties agree that, based on the ACR, the last of the SNF at the La Crosse plant would have been removed in late early 2006. Trial Op., 90 Fed. Cl. at 615. The cost of maintaining the SNF, according to Dairyland's estimate, is about $29.8 million along with approximately $6.1 million in general overhead costs.

Dairyland also sought a solution for storing SNF off-site. It became associated with a venture to privately develop an SNF repository known as Private Fuel Storage, LLC ("PFS"). PFS was formed by a consortium of eleven nuclear utilities (Dairyland included) in order to locate, license, build, and operate such a facility. Dairyland decided to become a shareholder in PFS as a means of sharing with other nuclear operators the cost associated with such a project.

Dairyland structured its participation in PFS as follows. In 1995, it set up Genoa Fuel Tech, Inc. ("GFT") as a wholly-owned subsidiary incorporated in Wisconsin. This permitted Dairyland to avoid potential legal liability and unfavorable tax treatment associated with its investment in PFS. See Trial Op., 90 Fed. Cl. at 647. Dairyland contributed about $8.7 million into GFT, which GFT then invested in PFS in exchange for shares. Dairyland also incurred about $2.3 million in various other costs to support GFT, most of which were administrative expenses. Dairyland also allocated about $1 million in general and administrative overhead costs to its involvement with GFT and PFS.

Dairyland sued for breach of contract in the Court of Federal Claims in January 2004. The court entered summary judgment of liability. Dairyland Power Coop. v. United States, No. 04-106C, Dkt. #35 (Fed. Cl. Apr. 27, 2006) (unreported) (citing Energy Nw. v. United States, 69 Fed. Cl. 500 (2006)). The case proceeded to damages.

Shortly before trial, the court denied the government's plea for summary judgment that Dairyland could not recover damages for its investment in PFS. Dairyland Power Coop. v. United States, 82 Fed. Cl. 379 (July 2, 2008) ("SJ Denial"). It held a bench trial, and awarded Dairyland about $37.6 million. Trial Op., 90 Fed. Cl. at 618. The award included roughly $16.6 million for Dairyland's cost of maintaining SNF on-site from late 1998 to 2006 and roughly $12 million for its investment in PFS. About $6.1 million of the award was for various overhead costs associated with Dairyland's mitigation.*fn2

Post-trial, the court denied a motion from Dairyland to reconsider the amount awarded for SNF maintenance costs (Dairyland had sought over $33 million). Dairyland Power Coop. v. United States, No. 04-106C, slip op., 2010 WL 637793 (Fed. Cl. Feb. 22, 2010) (unreported) ("Denial of Reconsid."). The government timely appealed the award of SNF maintenance costs, costs of investment in PFS, and the award of overhead costs generally.

Dairyland cross-appealed concerning the amount of its SNF maintenance award. We have jurisdiction over these appeals from a final judgment of the Court of Federal Claims under 28 U.S.C. § 1295(a)(3).

II. DISCUSSION

A. Standard of ...


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