Free Memorandum of Contentions of Fact and Law - District Court of Federal Claims - federal

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No. 01-249C (Judge Lettow) _____________________________________________________________________________ IN THE UNITED STATES COURT OF FEDERAL CLAIMS TENNESSEE VALLEY AUTHORITY, Plaintiff, v. THE UNITED STATES OF AMERICA, Defendant. ______________________________________________________________________________ DEFENDANT'S MEMORANDUM OF FACTS AND LAW ______________________________________________________________________________ Respectfully submitted, PETER D. KEISLER Assistant Attorney General OF COUNSEL: JANE K. TAYLOR Office of General Counsel Department of Energy 1000 Independence Avenue, S.W. Civil Division Washington, D.C. 20585 ALAN LO RE Senior Trial Counsel KEVIN B. CRAWFORD SHARON A. SNYDER Trial Attorneys Commercial Litigation Branch Civil Division Department of Justice Washington, D.C. 20530 June 10, 2005 DAVID M. COHEN Director HAROLD D. LESTER, JR. Assistant Director SONIA M. ORFIELD Trial Attorney Commercial Litigation Branch Department of Justice Attn: Classification Unit 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Tel: (202) 353-0534 Fax: (202) 307-2503

Attorneys for Defendant

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TABLE OF CONTENTS

SUMMARY OF ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 STATEMENT OF FACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 I. THE ORIGINAL PROVISIONS OF THE NUCLEAR WASTE POLICY ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 THE DEPARTMENT OF ENERGY'S PROMULGATION OF THE "STANDARD CONTRACT FOR DISPOSAL OF SPENT NUCLEAR FUEL AND/OR HIGH-LEVEL RADIOACTIVE WASTE" THROUGH NOTICE AND COMMENT RULEMAKING IN THE FEDERAL REGISTER . . . . . . . . . . . . . . . . . . . . . . . . 6 A. B. C. III. IV. The Proposed Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Public Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 The Final Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

II.

TVA'S EXECUTION OF THE STANDARD CONTRACT . . . . . . . . . . . . . . . 11 ISSUANCE OF THE MISSION PLAN AND ITS AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 THE 1987 AMENDMENTS TO THE NUCLEAR WASTE POLICY ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 DOE'S ISSUANCE OF ANNUAL CAPACITY REPORTS . . . . . . . . . . . . . . . . 15 A. B. C. The 1987 Through 1990 Annual Capacity Reports . . . . . . . . . . . . . . . . . 15 The 1991 Annual Capacity Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 The 1992 Through 1995 Annual Capacity Reports . . . . . . . . . . . . . . . . . 18

V.

VI.

VII.

PRELIMINARY ESTIMATES OF THE TOTAL-SYSTEM LIFE CYCLE COST FOR THE RESTRUCTURED PROGRAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 TVA'S SUBMISSION OF DELIVERY COMMITMENT SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

VIII.

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IX. X.

TVA'S NEED FOR DRY STORAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 DOE'S DELAY AND TVA'S DAMAGES SUIT . . . . . . . . . . . . . . . . . . . . . . . 23

ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 I. TVA BEARS THE BURDEN AT TRIAL OF ESTABLISHING THAT ITS CLAIMED COSTS WERE CAUSED BY THE GOVERNMENT'S DELAY . 24 TVA CANNOT ESTABLISH THAT THE GOVERNMENT'S FAILURE TO BEGIN ACCEPTING ITS SNF BY 2002 CAUSED ITS PURPORTED DAMAGES RELATING TO DRY STORAGE OF ITS SNF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 A. TVA Cannot Establish Any Causal Link Between Its Claimed Dry Storage Construction Costs and DOE's Delay In Beginning SNF Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 1. The SNF Acceptance Scenario That TVA Attempts To Place Into The "But For" World Is Wholly Unsupported And In Conflict With Prior Rulings In This Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 TVA's Efforts To Impose A 3,000 MTU Rate Into The Standard Contract Conflicts With The Language Of The Contract And The History Of Its Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Under Any Reasonable Acceptance Rate Scenario, TVA Would Have To Build Dry Storage In The "But For" World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

II.

2.

3.

III.

OTHER COSTS CLAIMED BY TVA WERE NOT CAUSED BY DOE'S DELAY IN ACCEPTING SNF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 TVA'S COSTS MUST BE REDUCED BY THE COSTS THAT IT WOULD HAVE EXPERIENCED ABSENT A BREACH . . . . . . . . . . . . . . 50 TVA'S CLAIMED DAMAGES MUST ALSO BE REDUCED BY AT LEAST AN ADDITIONAL $1,402,685 BASED UPON LACK OF SUPPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

IV.

V.

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 ii

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TABLE OF AUTHORITIES CASES

AES Tech. Sys., Inc. v. Coherent Radiation, 583 F.2d 933 (7th Cir. 1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47, 48 Alaska Pulp Corp. v. United States, 59 Fed. Cl. 400 (2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Autotrol Corp. v. Cont'l Water Sys. Corp, 918 F.2d 689 (7th Cir. 1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Barrow Utils. & Elec. Co. v. United States, 20 Cl. Ct. 113 (1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Bluebonnet Sav. Bank, F.S.B. v. United States, 339 F.3d 1341 (Fed. Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26, 49, 50 Boyajian v. United States, 423 F.2d 1231 (Ct. Cl. 1970) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46, 48 Branhill Realty Co. v. Montgomery Ward & Co., 60 F.2d 922 (2d Cir. 1932) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 California Fed. Bank v. United States, 395 F.3d 1263 (Fed. Cir. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Castle v. United States, 48 Fed. Cl. 187 (2000), aff'd on other grounds, 301 F.3d 1328 (Fed. Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . 40 Commercial Metals Co. v. United States, 176 Ct. Cl. 343, 349 (1966) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Consumer Product Safety Commission v. GTE Sylvania, Inc., 447 U.S. 102 (1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Convoy Co. v. Sperry Rand Corp., 672 F.2d 781 (9th Cir. 1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Department of Energy v. Westland, 565 F.2d 685 (CCPA 1977) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

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England v. Contel Advanced Systems, Inc., 384 F.3d 1372 (Fed. Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Fawick Corp. v. United States, 149 Ct. Cl. 623 (1960) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Jessup & Moore Paper Co. v. Bryant Paper Co., 297 Pa. 483, 147 A. 519 (1929) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 McAbee Constr, Inc. v. United States, 97 F.3d 1431 (Fed. Cir. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 National By-Products, Inc. v. United States, 186 Ct. Cl. 546, 405 F.2d 1256 (1969) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36, 37 Northern Helex Co. v. United States, 207 Ct. Cl. 862, 524 F.2d 707 (1975) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Precision Pine & Timber v. United States, 63 Fed. Cl. 122 (2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49, 50 Quiman, S.A. v. United States, 39 Fed. Cl. 171 (1997), aff'd, 178 F.3d 1313 (Fed. Cir. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Ramsey v. United States, 121 Ct. Cl. 426, 101 F. Supp. 353 (1951) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Roseburg Lumber Co. v. Madigan, 978 F.2d 660 (Fed. Cir. 1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 S.W. Eng'g Co. v. Cajun Elec. Power Coop., 915 F.2d 972 (5th Cir. 1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Saddler v. United States, 287 F.2d 411 (Ct. Cl. 1961) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 San Carlos Irrigation & Drainage Dist. v. United States, 111 F.3d 1557 (Fed. Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25, 26, 41 Selman v. United States, 204 Ct. Cl. 675, 498 F.2d 1354 (1974) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 - iv -

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Sylvania Elec. Prods., Inc. v. United States, 198 Ct. Cl. 106, 458 F.2d 994 (1972) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 TVA's SNF. Myerle v. United States, 33 Ct. Cl. 1 (1897) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Tennessee Valley Authority v. United States, 60 Fed. Cl. 665 (2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 23 Town of Grantwood Village v. United States, 55 Fed. Cl. 481 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Turtle Island Restoration Network v. Evans, 284 F.3d 1282 (Fed. Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 United Indus. Syndicate, Inc. v. Western Auto Supply Co., 686 F.2d 1312 (8th Cir. 1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 United States Steel Corp. v. United States, 618 F. Supp. 496 (CIT 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Wells Fargo Bank, N.A. v. United States, 88 F.3d 1012 (Fed. Cir. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 White v. Delta Constr. Int'l, Inc., 285 F.3d 1040 (Fed. Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Willems Indus., Inc. v. United States, 155 Ct. Cl. 360, 295 F.2d 822 (1961) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25, 50 Willred Company v. Westmoreland Metal Mfg. Co., 200 F. Supp. 59 (E.D. Pa. 1961) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Wilner v. United States, 23 Cl. Ct. 241 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Wilson v. Marquette Elecs., Inc., 630 F.2d 575 (8th Cir. 1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

-v-

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FEDERAL STATUTES AND REGULATIONS 42 U.S.C. §§ 10101-10270 (1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 42 U.S.C. § 10131 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 33 42 U.S.C. §§ 10132 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 5 42 U.S.C. § 10161 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 12, 14 42 U.S.C. § 10162(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 42 U.S.C. § 10168(d)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 28 42 U.S.C. § 10172(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 42 U.S.C. § 10221 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 12 42 U.S.C. § 10222(a)(1) (1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 34 42 U.S.C. § 10242(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 10 C.F.R. § 961.11, Art. II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS TENNESSEE VALLEY AUTHORITY, Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) No. 01-249C ) (Judge Lettow) ) ) )

DEFENDANT'S MEMORANDUM OF FACTS AND LAW Pursuant to this Court's order dated February 4, 2005, defendant, the United States, respectfully submits the following memorandum of facts and law. SUMMARY OF ARGUMENT This case involves a claim by plaintiff, Tennessee Valley Authority ("TVA"), for $35,752,512.11 in costs that it has allegedly incurred for the design, licensing, and fabrication of dry storage facilities to store its spent nuclear fuel ("SNF") through the end of its 2004 fiscal year.1 TVA contends that the Government is liable for these costs because its need for dry storage was caused by the Government's failure to begin accepting its spent nuclear fuel in 2002 pursuant to its Standard Contract with TVA.2 As set forth below, TVA's claim cannot be
1

TVA has submitted four separate damages reports in this case. In September 2002, TVA provided a report covering costs incurred through FY 2001. In July 2003, TVA provided a report addressing its costs incurred through FY 2003. In July of 2004, TVA submitted a report addressing its costs incurred through FY 2003 and in November of 2004, TVA submitted a report addressing its costs incurred through FY 2004. The Court has limited the scope of the forthcoming trial to TVA's costs incurred through fiscal year 2004. Tennessee Valley Authority v. United States, 60 Fed. Cl. 665, 679 (2004). Although DOE was to commence acceptance of spent nuclear fuel in 1998 from some commercial utilities, "TVA was not entitled to have its SNF removed beginning in January 1998. Rather, the earliest that any of TVA's SNF would have been collected by DOE was sixty-three months after TVA's submission of its first proposed DCS. . . in July 2002. . . ." Tennessee
2

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sustained, first, because the facts at trial will establish that TVA would have pursued dry storage regardless of the Government's breach, and further that even if the Government's breach did cause TVA to pursue dry storage, TVA has failed to properly account for a significant amount of costs that it would have incurred regardless of the breach. TVA's entire theory of recovery in this case is based upon a DOE acceptance rate of spent nuclear fuel ("SNF") to which DOE was never obligated, nor the parties even contemplated prior to 1998. Indeed, TVA concedes that the rate of acceptance at which TVA expected DOE to perform beginning in 1998, would have resulted in the need for the construction of dry storage at TVA. Accordingly, TVA cannot show that its need to construct dry storage was caused by the Government's delay in accepting its spent nuclear fuel. Rather, as the Government will establish at trial, TVA would still have been required to construct dry cask storage in the absence of the Government's delay, only at a later date. Therefore, TVA cannot recover the cost associated with constructing a dry storage facility, except to the extent that it can prove incremental cost associated with an earlier construction date, or the present value of the time difference of those expenditures. Accordingly, TVA's claim should be reduced by $13.41 to $19.29 million on this basis alone. Further, even if TVA could show that it would not have needed dry storage in the "but for" world, we will establish at trial that TVA's claim failed to properly account for costs in the "but for" world in that there is no causal connection between a number of other costs included in TVA's claim and the Department of Energy's ("DOE's") delay. Specifically, costs associated with analyzing the railroad bay floor multi-purpose canister ("MPC") transfer and trailer

Valley Authority, 60 Fed. Cl. at 674. 2

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movement scenarios at TVA's nuclear reactor site at Sequoyah, and with assessing the costs of complying with Nuclear Regulatory Commission ("NRC") criteria for handling heavy loads identified in NRC Bulletin 96-02 would have also been required if DOE had started accepting spent nuclear fuel in 1998. Costs claimed for analyzing the acceptability of the spacing between the currently installed spent fuel storage racks at TVA's reactor site at TVA's reactor site at Browns Ferry, and for certain other engineering studies and evaluations are not required to design, construct or operate an ISFSI, or to load fuel to DOE. Moreover, certain costs claimed for labor, internal charge backs, and overhead would have been incurred regardless of the delay. These costs should be removed from TVA's claim altogether. TVA's claim also suffers from a failure properly to account for savings TVA experienced as a result of the Government's delay. Although it claims to have accounted for such savings by removing various costs from its claim, including a portion of the fuel transfer costs, TVA has significantly understated these costs. Thus, TVA's claim should be adjusted by increasing the offset to TVA's claimed costs for these amounts. Finally, TVA's claim suffers from a failure of proof. TVA has simply not documented that it has incurred a number of its claimed costs. Without proper documentation, these costs cannot be charged to the Government. We will establish at trial that taken together, these omissions over state TVA's claim by at least $7,890,920 consisting of at least $353,000 relating to TVA's failure to properly account for fuel transfer costs it would have incurred absent the Government's delay;3 $6,135,235 relating to

The Government will argue that this credit is in the range of $353,000.00 to $430,000.00 3

3

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non-incremental costs TVA erroneously included in its damages claim; and, $1,402,685 in claimed costs for which TVA failed to provide proper support. Accordingly, even if the Court finds that TVA pursued dry storage because of DOE's failure to begin SNF acceptance by January 31, 1998, TVA's claim should be reduced by at least $7,890,920. STATEMENT OF FACTS I. THE ORIGINAL PROVISIONS OF THE NUCLEAR WASTE POLICY ACT

On January 7, 1983, the Nuclear Waste Policy Act of 1982 ("NWPA"), Pub. L. 97-425, 96 Stat. 2201 (codified at 42 U.S.C. §§ 10101-10270 (1982)), was enacted. In its statement of the statutory purposes underlying the NWPA, Congress identified the following four objectives: developing repositories to ensure the protection of the public and the environment from the hazards posed by SNF and high level radioactive waste ("HLW"); establishing Federal responsibility and policy for the disposal of SNF and HLW; defining the relationship between the Federal Government and state governments regarding SNF and HLW disposal; and establishing . . . a Nuclear Waste Fund, composed of payments made by the generators and owners of such waste and spent fuel, that will ensure that the costs of carrying out activities relating to the disposal of such waste and spent fuel will be borne by the persons responsible for generating such waste and spent fuel. Id. § 10131(b). The NWPA set forth a specific process by which the Secretary of Energy, the President of the United States, and the United States Congress would determine a site for a repository for the permanent deep geologic disposal of SNF. See 42 U.S.C. §§ 10132, 10134, 10135. In addition to this process for the siting of a repository, the Secretary was to "prepare a comprehensive

4

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report, to be known as the mission plan, which shall provide an informational basis sufficient to permit informed decisions to be made in carrying out the repository program and the research, development, and demonstration programs required under this chapter." 42 U.S.C. § 10221(a) (1982). The Secretary was to provide a draft mission plan to the states, affected Indian tribes, the NRC, and other Federal Government agencies within 15 months of the date of the NWPA's enactment. Id. § 10221(b)(1). The Secretary was to obtain those entities' comments, revise the draft mission plan in response to them, and, within 17 months of the NWPA's enactment, to provide the appropriate committees of Congress with the mission plan. Id. § 10221(b)(2)-(3). Congress also included in the NWPA provisions allowing the Secretary to study the possibility of creating Monitored Retrievable Storage ("MRS") facilities, with Congress finding that "long-term storage of high-level radioactive waste or spent nuclear fuel in monitored retrievable storage facilities is an option for providing safe and reliable management of such waste or spent fuel." 42 U.S.C. § 10161(a)(1) (1982). By July 1, 1985, the Secretary was to "complete a detailed study of the need for and feasibility of, and shall submit to the Congress a proposal for, the construction of one or more monitored retrievable storage facilities for highlevel radioactive waste and spent nuclear fuel." Id. § 10161(b)(1). The proposal was to "include, for the first such facility, at least 3 alternative sites and at least 5 alternative combinations of such proposed sites and facility designs . . . ." Id. § 10161(b)(4). However, the NWPA provided that any MRS facility that Congress might authorize in response to the Secretary's proposal could "be constructed in any State in which there is located any site approved for site characterization under section 10132 of this title." Id. § 10161(g). In addition, the NWPA provided that the Secretary would enter into contracts with 5

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the owners and generators of SNF of domestic origin for "the acceptance of title, subsequent transportation, and disposal of such [SNF]." 42 U.S.C. § 10222(a)(1) (1982). The contracts had to "provide for payment to the Secretary of fees . . . sufficient to offset expenditures" described elsewhere in the statute. Id. II. THE DEPARTMENT OF ENERGY'S PROMULGATION OF THE "STANDARD CONTRACT FOR DISPOSAL OF SPENT NUCLEAR FUEL AND/OR HIGH-LEVEL RADIOACTIVE WASTE" THROUGH NOTICE AND COMMENT RULEMAKING IN THE FEDERAL REGISTER A. The Proposed Rule

On February 4, 1983, the Department of Energy ("DOE"), in furtherance of its obligations pursuant to the NWPA, 42 U.S.C. § 10222, published a notice of proposed rulemaking in the Federal Register, proposing terms for the "Standard Contract for Disposal of Spent Nuclear Fuel and/or High-Level Radioactive Waste" ("Standard Contract") mandated by the NWPA, 42 U.S.C. § 10222. See 48 Fed. Reg. 5458 (Feb. 4, 1983). The proposed Standard Contract provided, inter alia, a mechanism for determining both the order in which, and the rate at which, the various contract holders' SNF would be accepted. As for the order of SNF acceptance, the Standard Contract proposed that DOE would issue an "acceptance priority ranking" ("APR") of SNF and/or HLW, through which SNF and/or HLW would receive acceptance priority based generally upon its age. Id. at 5464 (Art. VI.B.3). Although the proposed Standard Contract itself did not identify a specific rate by which DOE would accept contract holders' SNF, it provided for DOE's issuance of documents for planning purposes to assist in the eventual definitization of the specific rate and order of SNF acceptance and disposal. Id. at 5463 (Art. V.B.5 & Art. V.B.6). The proposed contract further provided that, following DOE's issuance of planning documents,

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rates of SNF acceptance, as well as the specific order of SNF acceptance from particular contract holders, would be defined through the contract holders' submission of, and DOE's approval of, delivery commitment schedules ("DCSs"). Id. at 5462. The proposed Standard Contract also provided for the contract holders' subsequent submission of Final Delivery Schedules ("FDSs"), which would serve to take the annual allocation defined in a DCS and further refine it to reflect as closely as possible the month(s) and day(s) upon which SNF acceptance would occur in that year. Id. at 5463 (Art. IV.C). The term "DOE facility" in the proposed Standard Contract referred to a facility for disposal, in a permanent repository, of the SNF and/or HLW. Id. at 5462 (Art. I.11). The proposed rule provided that written comments had to be submitted by March 7, 1983. Id. 5458. B. Public Comments

DOE received numerous comments in response to the proposed rule. A number of the comments recognized that the Standard Contract did not establish a specific rate at which DOE must accept SNF, and sought to have such a rate included. For instance, TVA submitted a comment, stating that "a commitment to do no more than start accepting deliveries by 1998 is empty and meaningless without setting forth some reasonable minimum rate of acceptance which corresponds to the purposes of the Act." DX 0005.063 at 5 (ARC0010537). TVA recognized that, "[o]f course, under the priority ranking system in the draft contract, it would be difficult at the time contracts are executed to give each Purchaser assurances of delivery acceptance at any specific rate," but suggested that "[t]his could, however, be done on an industry wide basis." Id. TVA suggested that DOE add a contract provision to provide that "DOE shall start accepting delivery of SNF or HLW not later than January 31, 1998, at not less than the annual rate [at 7

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which] SNF and/or HLW is then being produced from civilian nuclear power plants covered by contracts . . . ." Id.4 DOE also received comments seeking a commitment for DOE to accept SNF at the rates set forth in the Mission Plan. For instance, Florida Power & Light Company, expressly stated that DOE should create a mandatory obligation that would require DOE to accept SNF and HLW at the rates identified in the Mission Plan, once that plan was approved by Congress: The [NWPA] specifically requires the Department of Energy to prepare a Mission Plan detailing a schedule for the construction of repositories and their capacities (Section 301). It is proposed that once this Mission Plan has been approved by Congress (18 months after the enactment of the [NWPA]), it becomes the standard by which contract performance by the DOE is judged. It is suggested that Article V B (3) be modified to include the statement: "Should the DOE fail to meet the schedule and capacities detailed in the approved 1984 DOE Mission Plan, because of Force Majeure or other causes, DOE shall, to the extent permitted by the [NWPA], as it may be amended from time to time, bear the reasonable and necessary incremental costs of storage or alternative disposal incurred by the Purchaser." DX 0019 at 3-4. EEI and UNWMG also suggested that "[t]he definition of 'DOE Facility' (Article I.11) should be broadened to include destinations other than the repository." DX. 0005.034 at 4 of attachment. They stated that "[t]he contract does not recognize the possibility that DOE might send SNF/HLW to an intermediate location (such as a monitored retrievable storage facility)

TVA also proposed that the contract provide that, "[a]fter January 31, 1998, DOE shall be prepared to accept delivery of SNF and/or HLW produced prior to said date on a schedule sufficient to provide for delivery consistent with decommissioning plans for Purchaser's nuclear power plants specified in Appendix A." Id. 8

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before it goes to a repository" and that, "[t]o accommodate this, the definition of 'DOE Facility' should be broadened." DX 0005.034 at 4 of attachment (ARC 0010336). See also DX 005.014 (ARC0010180) (change to contract language "would implicitly recognize DOE's option to reprocess SNF or to utilize Monitored Retrievable Storage prior to permanent disposal"); DX 005.069 (ARC0010625) ("[t]his change would recognize the possibility of DOE shipping SNF/HLW to an intermediate storage facility such as a monitored retrievable storage facility"). C. The Final Rule

On April 18, 1983, DOE issued the Standard Contract as a final rule. The final rule, as promulgated, made certain modifications to the Standard Contract set forth in the proposed rule. Although the proposed rule provided that "services provided to the Purchaser by DOE under this contract are related to disposal of SNF," Id. at 5462, that "disposal" was defined as emplacement in a permanent repository, id., and that such "disposal" services would begin by January 31, 1998, id., the final Standard Contract eliminated any requirement for DOE to begin SNF "disposal" in a permanent repository by January 31, 1998. Instead, the final Standard Contract only required DOE to begin SNF acceptance by January 31, 1998, after the commencement of "facility" operations. 10 C.F.R. § 961.11, Art. II. The "facility" to which the final Standard Contract refers is either a permanent repository to be constructed pursuant to the NWPA or such other facility to which SNF might be shipped by DOE prior to its transportation to a permanent repository. Id. § 961.11, Art. I.10. As the preamble to the final rule expressly recognized, the final Standard Contract would not obligate DOE to have an operational permanent repository by January 31, 1998:

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The definition of "DOE facility" (Article I.10) was expanded to expressly state, in accordance with the Act, that there may be an interim storage facility (or facilities) which DOE may utilize prior to emplacement in a repository. 48 Fed. Reg. 16590, 16591 (Apr. 18, 1983). DOE did not adopt TVA's request that DOE add a provision to the Standard Contract to require DOE to "start accepting delivery of SNF or HLW not later than January 31, 1998, at not less than the annual rate [at which] SNF and/or HLW is then being produced from civilian nuclear power plants covered by contracts . . . ." See DX 0005.063 at 5 (ARC0010537). TVA acknowledged this fact in an internal memorandum dated May 24, 1983. DX 28 at 3 of attachment 2 (TV 1470). Nor did DOE adopt Florida Power & Light Company's request that DOE add a contract clause obligating DOE to accept SNF and/or HLW under "the schedule and capacities detailed in the approved 1984 DOE Mission Plan . . . ." DX 0005.043 at 1 of attachment 1 (ARC00010439). However, the final Standard Contract included a "Disputes" clause, the purpose of which was to provide a mandatory administrative mechanism for the resolution of contract disputes arising under the contract: Except as otherwise provided in this contract, any dispute concerning a question of fact arising under this contract which is not disposed of by agreement shall be decided by the Contracting Officer, who shall reduce his decision to writing and mail or otherwise furnish a copy thereof to the Purchaser. The decision of the Contracting Officer shall be final and conclusive unless within ninety (90) days from the date of receipt of such copy, the Purchaser mails or otherwise furnishes to the Contracting Officer a written appeal addressed to the DOE Board of Contract Appeals (Board). . . . 10 C.F.R. § 961.11, Art. XVI.A (emphasis added).

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The Standard contract also contained an "unavoidable delays" clause. Specifically, it provided that Neither the Government nor the Purchaser shall be liable under this contract for damages caused by failure to perform its obligations hereunder, if such failure arises out of causes beyond the control and without the fault or negligence of the party failing to perform. In the event circumstances beyond the reasonable control of the purchaser or DOE ­ such as acts of God, or of the public enemy, acts of Government in either its sovereign or contractual capacity, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes and unusally severe weather ­ cause delay in scheduled delivery, acceptance or transport of SNF and/or HLW, the party experiencing the delay will notify the other party as soon as possible after such delay is ascertained and the parties will readjust their schedules, as appropriate, to accommodate such delay. 10 C.F.R. § 961.11, Art. IX.A Finally, the final Standard Contract contained an integration clause, precluding reliance upon any representation, promise, or condition not expressly incorporated into the contract: This contract, which consists of Articles I through XXII and Appendices A through G, annexed hereto and made a part hereof, contains the entire agreement between the parties with respect to the subject matter hereof. Any representation, promise, or condition not incorporated in this contract shall not be binding on either party. No course of dealing or usage of trade or course of performance shall be relevant to explain or supplement any provision contained in this contract. 10 C.F.R. § 961.11, Art. XXII. III. TVA'S EXECUTION OF THE STANDARD CONTRACT

On June 28, 1983, TVA executed its Standard Contract with DOE. See Complaint, ¶ 4, in Tennessee Valley Authority v. United States, No. 01-249C (April 26, 2001). TVA's Standard

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Contract contained the same terms and conditions as the final rule promulgated by DOE on April 14, 1983. IV. ISSUANCE OF THE MISSION PLAN AND ITS AMENDMENT

In June 1985, DOE issued the Mission Plan, in accordance with the requirements of 42 U.S.C. § 10221 (1982), which was to "provide an informational basis sufficient to permit informed decisions to be made in carrying out the repository program and the research, development, and demonstration programs required under this chapter." 42 U.S.C. § 10221 (1982). In the 1985 Mission Plan, DOE projected for informational purposes that an initial permanent repository would begin operations in 1998 and that a second permanent repository would commence operations in 2006. DX 0045 at 25 (HQR0031129) ("Assumptions About Geologic Repositories, A. Number of Repositories, Two"); id. ("Table 2-2 shows a schedule that is based on the current estimated emplacement capacities of the two planned geologic repositories, one of which is currently authorized"). The 1985 Mission Plan also described an improved performance system that would include a MRS facility that could start receiving SNF in 1996, two years ahead of the first repository (although DOE recognized that it lacked statutory authority to pursue this approach absent congressional approval of the MRS proposal to be submitted pursuant to section 10161), which would "service[] the first repository." DX 0045 at 24 (HQR0031128), 28-29 (HQR0031132-HQR0031133). Based upon these assumptions, the Mission Plan at pages 26-27 in Tables 2-2 and 2-3 uses a two repository assumption and the following waste acceptance rates (the improved system with an MRS):
Authorized System First Repository Second Repository Improved System

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Year

MTU

MTU 2,200 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,900 4,800 34,900

Pre-1998 1998 400 1999 400 2000 400 2001 900 2002 1,800 2003 3,000 2004 3,000 2005 3,000 2006 3,900 2007 4,800 Total 21,600

400 400 400 400 400

DX 0045 at 26-27 (HQR0031130-HQR0031131). The 1985 Mission Plan also noted the controversy surrounding the program and set forth a contingency plan should the repository be substantially delayed. Specifically, If an MRS facility has been authorized and constructed, it can accept spent fuel on or ahead of schedule, packaging and storing it (up to the authorized storage-capacity limit) until the "second" repository is authorized (which, of course, would then become the first repository) and becomes operational. If an MRS facility has not been authorized, spent fuel will continue to be stored at reactor sites in spent-fuel pools and possibly in dry storage. DX 045 at 19-20 (HQR0031123-HQR0031124). In the 1987 Mission Plan Amendment, which DOE submitted to Congress in June 1987, DOE recommended deferral of the date contemplated for operation of the first repository from 1998 to 2003, with the second repository becoming operational by 2023. It explained that this recommendation was based on experience gained in the program, a budget decrease for fiscal year 1987, and budget uncertainty for fiscal year 1988. The Mission Plan also noted that DOE

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could nonetheless start accepting waste in 1998 at an MRS facility.5 DX 0049 at 6 (HQR-003-1634). Further, in the 1987 Mission Plan Amendment, DOE stated that, "[l]ike the schedule in the 1985 Mission Plan, the schedule presented here is only an approximation of how the system may operate and is subject to considerable variation." DX 0049 at 60 (HQR-003-1687). The 1987 Mission Plan Amendment also acknowledged the importance of the Annual Capacity Report that would be issued in 1991; namely that it would be used in the DCS process. DX 0049 at 60 (HQR-003-1687). V. THE 1987 AMENDMENTS TO THE NUCLEAR WASTE POLICY ACT

On December 22, 1987, after DOE submitted the 1987 Mission Plan Amendment, Congress amended the NWPA "to redirect the program for the management and disposal of spent nuclear fuel and high-level radioactive waste under the [NWPA]." DX 0299 (S. Rep. No. 100152, at 1 (Sept. 1, 1987)). The Senate Committee on Energy and Natural Resources reported, in considering legislation to amend the NWPA, that "[t]he schedules included in the NWPA have proven to be overly ambitious," and that "[t]his has been largely due to the need to provide additional time for completion of necessary technical work and additional time for public participation." Id. at 5. The committee reported that, "[i]n the four and a half years since passage of the NWPA, it has become clear that the program laid out in the Act will take longer to complete than was anticipated and that completion will be at much greater cost." Id. It further reported that, "[i]n addition to cost and schedule considerations, a number of other circumstances have changed since passage of the NWPA," including that, "as we approach major decision

The ability to start accepting waste in 1998 at an MRS facility was dependent upon congressional authorization. See 42 U.S.C. § 10161(b)-(c) (1982). 14

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points in the nuclear waste program, there will be great potential for political opposition . . . ." Id. The 1987 amendments to the NWPA directed DOE to characterize a single site, at Yucca Mountain in Nevada, for development of a single permanent repository and to terminate activities at all other sites. 42 U.S.C. § 10172(a). The 1987 amendments also authorized the Secretary to site, construct, and operate one, but only one, MRS facility. 42 U.S.C. § 10162(b). However, the 1987 amendments provided that "construction of [the MRS] facility may not begin until the Commission has issued a license for the construction of a repository under section 115(d)." 42 U.S.C. § 10168(d)(1). Finally, it also provided that "the quantity of [SNF] at the site of such facility at any one time may not exceed 10,000 metric tons of heavy metal until a repository under this Act first accepts [SNF]." Id. § 10168(d)(3).6 VI. DOE'S ISSUANCE OF ANNUAL CAPACITY REPORTS A. The 1987 Through 1990 Annual Capacity Reports

Beginning in 1987, in compliance with the NWPA and the language of the Standard Contract, DOE issued an "Annual Capacity Report." As each of these ACRs expressly stated, "[a]s specified in the Contract, the ACR is for planning purposes only and thus is not contractually binding on either DOE or the Purchasers." DX 0050 at 2 (HQR-001-2713), 0057 at 1 (EDB-001-1103), 0066 at 2 (HQR0012494), 0050 (HQR0012780) ("projections in this initial

The 1987 amendments to the NWPA also established the Office of the Nuclear Waste Negotiator. 42 U.S.C. § 10242(a). That office was to seek to enter into negotiations with states and Indian tribes to "attempt to reach a proposed agreement" with them through which a state or Indian tribe "would agree to host a repository or [MRS] facility with such State or reservation." Id. § 10243(a). The authorization for that office expired in 1994, id. § 10250, without any agreements with any states or Indian tribes. 15

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report are based on current plans and best available information; they are not contractually binding"). Further, each of the ACRs from 1987 through 1990 contained the following, or substantially similar, language: Beginning in 1991, the ACR acceptance ranking will be converted into an Annual Priority Ranking for receipt of SNF/HLW. In 1992, based on this priority ranking, the Purchasers will submit to DOE for approval, Delivery Commitment Schedules identifying the SNF/HLW that Purchasers propose to deliver to the DOE waste management system (WMS). Once approved, these schedules will become the basis for Final Delivery Schedules to be submitted by the Purchasers not less than 12 months before the date of DOE's anticipated acceptance of title to the SNF/HLW and subsequent transport to a DOE facility. DX 0050 at 2 (HQR-001-2713), 0057 at 2 (EDB-001-1104), 0066 at 2 (HQR0012494). B. The 1991 Annual Capacity Report

In December 1991, DOE issued its "Annual Capacity Report" for that year, DOE-RW331P. DX 0076 at 1-2 (HQR0012362-HQR0012363). The 1991 ACR was significant because it was the last ACR that would be issued prior to the contract holders' submission of DCSs beginning January 1, 1992. See 10 C.F.R. § 961.11, Art. V.B.1. In that regard, the 1991 ACR provided that, "[b]eginning in January 1992, the Purchasers may submit Delivery Commitment Schedules (DCS) to DOE identifying the range of SNF that the Purchasers propose to deliver to the Federal Waste Management System (FWMS) beginning sixty-three months thereafter." DX 0076 at 2 (HQR0012363). It also stated that "[t]he Purchasers' allocations for each delivery year are presented in Tables A.1 through A.10 in Appendix A, and should be used as the basis for submitting DCSs." DX 0076 at 2 (HQR0012363). See DX 0076 at 7 (HQR0012368) ("[t]hese allocations are the basis for DCS submittals").

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The 1991 ACR specified the following acceptance allocations: TABLE 2.1 Projected Waste Acceptance Rates for Spent Nuclear Fuel Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 TOTAL SNF (MTU) 400 600 900 900 900 900 900 900 900 900 900 8,200

DX 0076 at 5 (HQR0012366). These allocations were created with the knowledge that no permanent repository would be available by January 31, 1998. Id. at 4 (HQR0012365). Thus, as DOE explained "the waste acceptance projections used in this ACR are representative of a FWMS [Federal Waste Management System] configuration authorized by the NWPA, which includes a Monitored Retrievable Storage (MRS) facility." Id. In particular, they "are consistent with the 10,000 MTU storage capacity limit contained in the NWPA for an MRS facility before a repository starts operation." Id. In a memorandum dated December 20, 1991, Ronald A. Milner, Associate Director for Storage and Transportation, stated in a memorandum to John Bartlett, Director, Office of Civilian Radioactive Waste Management, as follows: The 1991 ACR assumes that FWMS [Federal Waste Management System] operations commence in 1998 and the system 17

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configuration is that authorized by the Nuclear Waste Policy Amendments Act of 1987, specifically a Monitored Retrievable Storage facility with a 10,000 MTU storage limit prior to repository operations. The 1991 ACR differs from previously published ACRs for two reasons. First, while the information in the ACR has traditionally been used for planning purposes only, the allocations in the 1991 ACR will also serve as the basis for submission of Delivery Commitment Schedules (DCS) by the Contract holders. These DCSs, which will provide planning information for waste acceptance activities, may be submitted to the Department as early as January 1, 1992. PX 16. C. The 1992 Through 1995 Annual Capacity Reports

The 1992 ACR, which was issued in May 1993, contained the same acceptance rates as the 1991 ACR. DX 0084 at 4 (HQR 0012324). The 1992 ACR also provided that, "[d]uring the first ten years following projected commencement of the Civilian Radioactive Waste Management System (CRWMS) operation, the total quantity of SNF that could be accepted is projected to be 8,200 MTU." DX 0084 at v (HQR 0012319). It stated that "[t]his is consistent with the storage capacity licensing conditions imposed on an MRS facility by the NWPA." Id. The ACR also stated that, "[a]s specified in the Standard Contract, the ACR is for planning purposes only and, thus, is not contractually binding on DOE or the Purchasers." DX 0085 at 1-2 (HQR0012322-HQR0012323). In 1995, DOE issued a combined APR and ACR, to "establish[] the order in which the Department allocates the projected acceptance capacity for commercial [SNF]" and to appl[y] projected nominal acceptance rates for the system to the priority ranking in the APR, resulting in individual allocations for the owners and generators expressed in metric tons per uranium 18

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(MTU)." DX 0089 at 1 (HQR-001-2246). The 1995 ACR contained substantially similar SNF acceptance rates as the 1991 and 1992 ACRs, identifying a projected nominal waste acceptance rate of 8,200 for the first 10 years of SNF acceptance: Table 1. Projected Nominal Waste Acceptance Rates for Spent Nuclear Fuel Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 TOTAL SNF (MTU) 400 600 900 900 900 900 900 900 900 900 8,200

DX 0089 at 4 (HQR-001-2249). See 0076 at 5 (HQR0012366), 0084 at 4 (HQR0012324). The 1995 ACR also contained the following statement: The ACR (see Appendix B) applies a 10-year projected nominal waste acceptance rate to the APR, resulting in individual capacity allocations. In the previous ACR, the projected nominal acceptance rate was based on the assumption of SNF acceptance beginning in 1998 at a Monitored Retrievable Storage facility prior to repository operations. Due to the uncertainty associated with the date of commencement of operation of the waste management system, the annual nominal waste acceptance rates are presented by year(s) of operation of the system rather than by specific calendar year(s). The projected nominal acceptance rates also reflect the capacity limit imposed by the Act on such a storage facility prior to repository operations. These projected nominal waste acceptance rates are presented in Table 1. The Department will continue to process DCS submittals on an annual basis.

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DX 0089 at 3-4 (HQR-001-2248-HQR-001-2249) (emphasis added). The 1995 ACR also provided that, "[a]s specified in the Standard Contract, the ACR is for planning purposes only and, thus, is not contractually binding on either DOE or the Purchasers." DX 0089 at 1 (HQR00102246). However, it also provided that "[t]hese capacity allocations, as listed in the ACR, form the basis for the Purchasers' submittal of Delivery Commitment Schedules (DCS)." Id. VII. PRELIMINARY ESTIMATES OF THE TOTAL-SYSTEM LIFE CYCLE COST FOR THE RESTRUCTURED PROGRAM

DOE's anticipation of performance at an MRS was also reflected in the cost analyses it preformed around the time of the 1991 ACR to support the adequacy of fees collected for the Nuclear Waste Fund. In its Preliminary Estimates of the Total-System Life Cycle Cost For The Restructured Program: An Addendum to the May 1989 Analysis of the Total Life Cycle Cost for the Civilian Radioactive Waste Management Program, December 1990, ("1990 PETSLCC") DOE utilized a schedule that was explicitly based on acceptance starting at an MRS. DX 292. The first ten years are identical to the ACR schedule, with the exception of the second year of acceptance, where the 1990 PETSLCC contemplates that 400 MTU rather than 600 MTU would be accepted. Id. This schedule goes on to show what DOE anticipated the transition from a repository to an MRS would look like. Id. In year eleven and year twelve of acceptance, 900 MTU would be accepted. In years thirteen through seventeen 1800 MTU would be accepted. And only in year eighteen would the system accept 3000 MTU. Id. During this time period, TVA expected that DOE would start accepting fuel in accordance with DOE's 1990 PETSLCC and the 1995 APR/ACR. DX 150, 176.

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VIII.

TVA'S SUBMISSION OF DELIVERY COMMITMENT SCHEDULES

Between 1997 and 2003, TVA submitted DCSs for delivery of spent nuclear fuel in the years 2002 through 2009. The DCSs submitted by TVA for the first six years comported with the rate of acceptance set forth in the 1995 ACR. Unlike other utilities, TVA did not object to these rates in its submissions. The two final submissions, made on September 5, 2002, and August 21, 2003, do not comport with a rate set forth in any ACR. In response to all of these submissions, DOE stated it was not "able at this time to approve [TVA's] DCS submittal" and that, "[c]onsequently, the Department hereby waives until further notice the contract requirement that you provide a revised schedule within 30 days." See, e.g. DX 96, 110, 126, 139, 302. IX. TVA'S NEED FOR DRY STORAGE

TVA has maintained a Spent Fuel Management Program to evaluate its need for storage of spent nuclear fuel at least since the inception of the Standard Contract. See DX 41. As early at 1983, TVA believed that, even were DOE to commence acceptance of spent nuclear fuel into a federal repository by 1998, there was only a 50-percent chance that TVA "might get by" without constructing additional storage. Id. at 9 (TVA001601). Indeed, at that time, TVA was already planning a dry cask storage demonstration project. Id. at 3 (TVA001595). In addition, in 1989, TVA anticipated that it would require additional storage capacity even with an MRS. DX 62 (TVA002441). It further anticipated that, even if DOE began accepting SNF at an MRS, additional storage need could be created by "the breaking of any link in the MRS chain ­ shipment to the MRS, equipment malfunction, safety questions, licensing difficulties could bring the waste management system ­ and eventually our nuclear plants ­ to a screeching halt." Id. at 4 (TVA002431). In 1996, TVA anticipated that even if "a limited 21

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quantity of on-site dry cask storage may be needed to store spent fuel generated after the fuel pools are full and until TVA's disposal allocation matched spent fuel generation," even if DOE met its contractual commitment and began accepting industry fuel by 1998 and TVA's spent nuclear fuel by 2003. DX 92 (TVA001404). In 1997 TVA created a Spent Fuel Assessment Team to evaluate TVA's options for increasing its SNF storage capacity at its Sequoyah and Browns Ferry nuclear plants. The team examined a variety of options, including transhipment of its fuel between sites, dry cask storage, and expanding its wet storage by reracking its fuel pools altogether or adding peripheral racks or "baby racks" to the pools. For the purposes of its analysis, TVA continued to assume an acceptance rate no greater than that set forth in the 1990 PETSLCC. DX 282 (TVA003112). The team generated an Initial Draft Assessment and Evaluation of Spent Fuel Storage Options in December 1997, DX 105 (TVA0020861-TVA0020904), and issued a final report captioned "Spent Fuel Storage Options Evaluation & Recommendations" in June 1998. DX 120. The final report indicates that transhipment was eliminated as an option at the direction of senior management. It recommended that a dry cask storage facility be built at Sequoyah. With regard to Browns Ferry, it recommended further evaluation of the structural adequacy of Browns Ferry pools for additional racks prior to constructing dry storage. Browns Ferry had reracked its pools during the late seventies or early eighties, and the pools had very little additional structural margin between the stresses generated by the racks and what was required by the code. By the late 1990s TVA no longer had access to an earlier analysis performed by General Electric in support of that reracking, which would have been necessary to add peripheral racks. In 1997, TVA had Holtec take a cursory look at the potential for reracking by comparing the Browns 22

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Ferry pools to pools in other Mark 1 plants. NAC also performed a preliminary analysis of that potential. The results of those studies were not definitive, and TVA then had Holtec perform a more detailed evaluation of the potential for reracking. In the course of that study, Holtec recognized that, if the pool were reracked, there would be localized high stresses on certain parts of the floor which exceeded the nominal code limits. Holtec proposed an interpretation of the code to the effect that, from an overall capacity standpoint, TVA could average those stresses over some dimensions and that would meet the intent of the code. That interpretation, however, would have to be approved by the NRC, which TVA determined involved too much risk to pursue. Thus, toward the end of 2000, TVA decided to proceed with dry cask storage at Browns Ferry. X. DOE'S DELAY AND TVA'S DAMAGES SUIT

DOE did not begin accepting SNF and/or HLW under the Standard Contract by January 31, 1998. On April 26, 2001, TVA (No. 01-249C) filed its complaint in this Court. In a decision dated June 2, 2004, the Court determined that TVA had accepted the rate set forth in DOE's 1995 ACR. Tennessee Valley Authority, 60 Fed. Cl. at 669. The Court further ordered that the case should proceed to trial to address TVA's damages accrued between the Government's initial alleged breach in 1998 and the conclusion of TVA's fiscal year ending September 20, 2004. Id. at 667. TVA has submitted four separate damages claims since filing its complaint. Its final claim suffers from three broad defects. It includes a number of costs that TVA would have incurred regardless of DOE's delay in accepting its SNF. It also fails to account for savings that

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accrued to TVA as a result of DOE's delay. In addition, TVA has failed to document that certain costs were actually incurred. ARGUMENT I. TVA BEARS THE BURDEN AT TRIAL OF ESTABLISHING THAT ITS CLAIMED COSTS WERE CAUSED BY THE GOVERNMENT'S DELAY

This Court's predecessor, the Court of Claims, adopted a basic rule for awarding damages for common law breach of contract: In awarding compensatory damages, the effort is made to put the injured party in as good a position as that in which he would have been put by full performance of the contract, at the least cost to the defendant and without charging him with harms that he had no sufficient reason to foresee when he made the contract. Northern Helex Co. v. United States, 207 Ct. Cl. 862, 875, 524 F.2d 707, 713 (1975) (quoting Restatement of Contracts § 329 cmt. e).7 To recover damages, a plaintiff "must prove the requirements for an award of damages by a preponderance of the evidence," and these "requirements include: causation, foreseeability, and reasonable certainty in the amount of damages." Alaska Pulp Corp. v. United States, 59 Fed. Cl. 400, 413-14 (2004). According to the precedent of this circuit, TVA bears the burden of introducing clear proof that it was injured as a direct result of DOE's delay in accepting TVA's SNF. Myerle v. United States, 33 Ct. Cl. 1, 27 (1897). The venerable decision in Myerle continues to represent the binding standard of this circuit. California Fed. Bank v. United States,

In addition to these damages theories, as part of the Government's evidence at trial, we anticipate that Mr. Kouts and perhaps other witnesses will testify regarding the reasons for DOE's delay in beginning SNF acceptance and its excusability. The Court may find it necessary to resolve these issues at trial. 24

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395 F.3d 1263, 1267-68 (Fed. Cir. 2005) (rejecting the "substantial factor" test and explaining that claimed damages must "inevitably and naturally, not possibly nor even probably flow from the defendant's breach" and that this causal connection between breach and claimed losses must be "definitely established"). Further, the "measure of damages to be applied in the particular case is irrelevant until the claimant has established the fact of losses that were the natural and proximate result of the breach of contract." Willems Indus., Inc. v. United States, 155 Ct. Cl. 360, 376, 295 F.2d 822, 831 (1961). To be recoverable, damages must be direct and not the result of any intervening incident. See Ramsey v. United States, 121 Ct. Cl. 426, 434, 101 F. Supp. 353, 357 (1951). "For a damage to be direct there must appear no intervening incident . . . ; the cause must produce the effect inevitably and naturally, not possibly nor even probably." Id. Further, "[t]here must not be two steps between cause and damage." Myerle, 33 Ct. Cl. at 27. Similarly, the loss must be one which the non-breaching party can show that, "but for" the breach of contract, would not have been suffered: [T]he loss for which a recovery may be had in an action against a wrongdoer must be the result of the wrong inflicted. The party complaining must show, not only that he has suffered a loss, but also that it would not have been incurred, but for the wrongful act of his adversary . . . . Fawick Corp. v. United States, 149 Ct. Cl. 623, 637 (1960) (emphasis added) (quoting Osage Oil & Ref. Co. v. Chandler, 287 F. 848, 852 (2d Cir. 1923)); see San Carlos Irrigation & Drainage Dist. v. United States, 111 F.3d 1557, 1563 (Fed. Cir. 1997) ("[a] plaintiff must show that but for the breach, the damages alleged would not have been suffered" (emphasis added)); accord United Indus. Syndicate, Inc. v. Western Auto Supply Co., 686 F.2d 1312, 1316 (8th Cir. 1982) ("[t]he 25

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fundamental measure of contract damages is that which places the nonbreaching party in the position it would have been but for the breach"). Additionally, TVA has the burden to establish "reasonable certainty" as to each item within its damages claims. Wells Fargo Bank, N.A. v. United States, 88 F.3d 1012, 1023 (Fed. Cir. 1996); see Restatement (Second) of Contracts § 352 cmt. a ("[a] party cannot recover damages for breach of a contract for loss beyond the amount that the evidence permits to be established with reasonable certainty"). TVA may not recover speculative damages. San Carlos Irrigation, 111 F.3d at 1563. II. TVA CANNOT ESTABLISH THAT THE GOVERNMENT'S FAILURE TO BEGIN ACCEPTING ITS SNF BY 2002 CAUSED ITS PURPORTED DAMAGES RELATING TO DRY STORAGE OF ITS SNF A. TVA Cannot Establish Any Causal Link Between Its Claimed Dry Storage Construction Costs And DOE's Delay In Beginning SNF Acceptance 1. The SNF Acceptance Scenario That TVA Attempts To Place Into The "But For" World Is Wholly Unsupported And In Conflict With Prior Rulings In This Case

In its pretrial brief, TVA contends that it has constructed a dry storage facility at Sequoyah and is in the process of constructing such a facility at Browns Ferry, and it asserts that the Government, because of its delay in beginning SNF acceptance, is responsible for these costs. Pl. Br. at 2. In fact, TVA's dry storage construction cost claim constitutes the large majority of its damages claim. Yet, TVA cannot recover these costs unless it establishes that it would not have incurred these construction costs had DOE timely begun SNF acceptance. See Bluebonnet Sav. Bank, F.S.B. v. United States, 339 F.3d 1341, 1344-45 (Fed. Cir. 2003) (citing White v. Delta Constr. Int'l, Inc., 285 F.3d 1040, 1043 (Fed. Cir. 2002)). To the contrary, "the

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non-breaching party 'should on no account get more than would have accrued if the contract had been performed.'" White, 285 F.3d at 1043 (quoting DPJ Co. v. FDIC, 30 F.3d 247, 250 (1st Cir.1994)). In this case, the evidence will show that, regardless of DOE's delay in beginning SNF acceptance from the nuclear industry, TVA, under any reasonable SNF acceptance scenario, would have to have built dry storage facilities at both its Sequoyah and Browns Ferry nuclear sites, albeit at a later time than that at which TVA has found it necessary to construct them. Specifically, depending upon the rate of SNF acceptance that the Court finds DOE had to satisfy in the "but for" world ­ that is, a world in which DOE timely began SNF acceptance ­ and assuming appropriate SNF generation projections, TVA would have run out of SNF storage space in its wet pools at Sequoyah and at Browns Ferry beginning as early as 2013, requiring TVA to build dry storage. To avoid the need to build dry storage facilities at its reactors in the "but for" world, TVA needs this Court to find that DOE was obligated to accept SNF, after 1998, at a rate that directly conflicts with the rationale underlying the rate that this Court has already identified as applying in this case and that TVA does not dispute. In its rate of acceptance decision in this case, this Court found that the SNF acceptance rates and allocations that DOE identified in its 1991 through 1995 Annual Capacity Reports and Acceptance Priority Rankings governed this litigation. See Tennessee Valley Auth., 60 Fed. Cl. at 669-70. In the 1991 ACR and the 1995 ACR/APR, TVA obtained specific acceptance allocations for the first 10 years of DOE's SNF acceptance program, based upon DOE acceptance of 400 Metric Tons Uranium ("MTUs") of SNF in Year One, 600 MTUs of SNF in Year Two, and 900 MTUs of SNF from Years Three through Ten. Assuming an acceptance start date of 1998, the 1991 ACR and 1995 ACR/APR 27

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allocations run through the end of 2007. In its pretrial brief, TVA accepts those rates, but asserts that, in 2008 and every year thereafter, DOE was somehow immediately obligated to begin accepting 3,000 MTUs of SNF each year. See Pl's Br. at 16. Apparently, TVA believes that, with such an acceptance obligation beginning in 2008, TVA could have avoided the need to build dry storage facilities in the "but for" world.8 Not only is TVA's "but for" world acceptance rate theory not supported by the contract itself, it is wholly unsupported by any plan for SNF acceptance that DOE has ever published or considered. As we anticipate es