Free Response to Motion - District Court of Federal Claims - federal

Case 1:98-cv-00621-ECH

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS COMMONWEALTH EDISON COMPANY et. al., Plaintiff, v. UNITED STATES OF AMERICA, Defendant. ) ) ) ) ) ) ) ) ) )

Nos. 98-621C and 04-103C (Consolidated) (Judge Hewitt)

PLAINTIFFS' RESPONSE TO DEFENDANT'S MOTION TO COMPEL PRODUCTION OF DOCUMENTS FROM HOLTEC INTERNATIONAL Plaintiffs Exelon Generation Company LLC and Commonwealth Edison Company (collectively "Exelon" or the "Plaintiff") respectfully submit this response to the Government's Motion to Compel Production of Documents From Holtec International (the "Motion"). Exelon files this response to provide the Court with additional information to consider in resolving the Government's Motion. Because the Motion is directed at Holtec International ("Holtec") (and not Exelon), and because Exelon has already produced its documents relating to Holtec, the relief the Government seeks would not impose any direct burden on Exelon. And Holtec is in the best position to describe the substantial burden likely imposed on Holtec by the Government's broad subpoena. But Exelon is in a better position than Holtec to provide information as the Court considers the other side of the discovery dispute balance ­ the potential relevance (or irrelevance) of the information sought. And in the factual context of Exelon's claims, and the Government's defensive position, Exelon believes the massive amount of information the Government seeks has little or no relevance here. That factual context is as follows. As the Court knows, Exelon seeks damages for the Government's failure to accept Exelon's spent nuclear fuel ("SNF") at the former Commonwealth Edison units as required under the Standard Contract. One principal category of

Case 1:98-cv-00621-ECH

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those damages is the expense Exelon has incurred and will incur to construct alternate facilities to store that SNF as Exelon's wet pools for storing the SNF fill up. At the end of fact discovery, the evidence from the testimony and documents demonstrates that Exelon engaged in extensive long-term reviews and evaluations to determine ­ from both a technical and economic standpoint ­ the best way to accommodate the Government's breach and resulting accumulation of SNF. As a result of that process, Exelon determined that the most feasible and economic way to address the accumulating SNF was to construct additional so-called "dry storage" facilities. Implementation of dry storage facilities (known as Independent Spent Fuel Storage Installations or ISFSIs) consist of three primary elements: (1) a shielded cask system in which to place the SNF, (2) a concrete pad to accommodate the casks filled with SNF, and (3) infrastructure improvements to site facilities to support dry cask storage operations. Holtec was selected by Exelon to provide the shielded cask system for the SNF discharged from Exelon's reactors at Dresden Unit 1 (for which Exelon does not seek damages), and Dresden Units 2 & 3 and Quad Cities (for which Exelon does seek damages). Exelon plans to construct additional dry storage facilities at its LaSalle, Byron and Braidwood units as Exelon runs out of pool space at those units. The undisputed evidence is that Holtec was selected by Exelon to supply casks for Dresden Units 2 and 3 and Quad Cities in each instance after a comprehensive technical review of other potential vendors and a bidding process, during which Holtec emerged as the most viable and economical potential vendor.1 In contrast to the casks, the other two components of the dry cask storage facilities ­ the concrete pad and infrastructure ­ have and will be designed and constructed by Exelon using a number of contractors, including Sargent & Lundy, a major engineering firm, and Holtec.

1

A similar process occurred for Dresden Unit 1.

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Against this factual background, the discovery the Government seeks from Holtec has extremely limited, if any, probative value. This is true for at least three primary reasons. First, the breadth of the Government's requests to Holtec appear to be driven by a simple misapprehension of the nature of the services Holtec has provided and will provide Exelon. Exelon has not asserted (as the Government contends on page 2) that Holtec will build the ISFSIs Exelon will be forced to construct as a result of DOE's breach. Instead, Exelon has purchased dry storage casks from Holtec in the past for its Dresden site and has decided that Holtec will supply casks for the ISFSI currently being planned for Quad Cities. In addition to storage casks, Holtec has also supplied Exelon Generation ancillary equipment necessary to load storage casks, as well as some engineering services related to design of the concrete pad and implementation of Holtec's dry cask system.2 Second, the Government has already received in discovery Exelon's documents relating to Exelon's relationship with Holtec. Exelon has already produced during discovery extensive information related to its historical and future costs to purchase storage casks and related equipment from Holtec. Not only has Exelon produced its contracts with Holtec, it has also produced invoices which reflect the actual costs of Exelon's past storage cask and equipment purchases from Holtec, extensive correspondence and e-mail communications with Holtec, and documents related to the bidding process Exelon followed prior to awarding Holtec the contract to supply storage casks for its Dresden and Quad Cities sites. Given Exelon's document

The expansive scope of the Government's requests also appears to be motivated by a misunderstanding of the basis for the preliminary damages estimates Exelon has provided in its Rule 26(a)(1)(c) initial damages disclosures. The Government's Motion suggests that Exelon's disclosures rely extensively on its costs incurred while providing dry storage for its Dresden 1 facility. (Motion at 1.) While it is true that Exelon's experience at Dresden 1 provided the basis for some calculations (as Exelon deponents have testified during discovery), Exelon's preliminary damages disclosures relied much more extensively on Exelon's experience with dry cask storage for Dresden Units 2 and 3 (as opposed to Dresden Unit 1), as well as Exelon's budget estimates for building an ISFSI at its Quad Cities site.

2

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production, the Government already has extensive information concerning the cost of storage casks Exelon has and will purchase from Holtec. Third, Exelon cannot conceive of any potential relevance of Holtec's costs and profit margins to Exelon's damages in this litigation. The Government's subpoena, even as narrowed by subsequent correspondence, appears to seek almost every document related to Holtec's dry cask storage business. The Government's Motion suggests that Holtec's actual cost to manufacture dry storage casks, Holtec's profit margins, Holtec's cost of labor, Holtec's cost of materials, and Holtec's costs of research and development are among the issues it intends to raise at trial. We do not see how. This litigation is not concerned with Holtec's current and future costs or profit margin. Holtec only comes into play in this action because Holtec is a vendor from whom Exelon has purchased and anticipates purchasing goods and services in an effort to mitigate its damages. In making these purchases, Exelon did not have access to Holtec's costs or the prices Holtec charges other utilities. If Exelon had done nothing to mitigate, the Government's adjudicated breach of the Standard Contract would have forced Exelon to shut down its nuclear reactors prematurely ­ which would have caused massive damages many fold higher than the expenses Exelon now seeks from the Government. The legal issue on mitigation is therefore whether Exelon took "reasonable" steps to reduce its damages. See Koby v. United States, 53 Fed. Cl. 493, 496-97 (Fed. Cl. 2002); Restatement (Second) Contracts § 350. The facts which bear on that question are those that have emerged in discovery from Exelon: the lengthy process in which Exelon engaged before proceeding with dry storage, and the bidding process which reasonably assured Exelon that it could not obtain comparable goods for less expense. Holtec's costs, and/or its ultimate profitability, have no relationship to whether Exelon could have obtained

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comparable services for less money from Holtec or other vendors ­ Exelon's process shows that, from Exelon's viewpoint, it could not. The underlying Holtec cost and profit information the Government seeks is therefore irrelevant to Exelon's claims; we respectfully suggest that the Court should balance this irrelevance when determining the magnitude of the burden to be imposed on Holtec.

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Conclusion Exelon respectfully requests that the Court consider the above information concerning the relevance of the discovery materials sought when ruling on the Government's Motion. Dated: March 29, 2004 Respectfully submitted, By: s/ David A. Handzo (by /s Christopher Tompkins) DAVID A. HANDZO Jenner & Block LLP 601 Thirteenth Street, N.W. Suite 1200 South Washington, D.C. 20005 (202) 639-6000 telephone (202) 639-6066 fax COUNSEL FOR PLAINTIFFS EXELON GENERATION COMPANY LLC and COMMONWEALTH EDISON COMPANY, on their own behalf and on behalf of MidAmerican Energy Company, successor-in-interest to IowaIllinois Gas and Electric Company Of Counsel: Donald R. Cassling Norman M. Hirsch David Jiménez-Ekman Christopher Tompkins Jenner & Block LLP One IBM Plaza Chicago, IL 60611 (312) 222-9350 Thomas S. O'Neill Exelon Nuclear Cornerstone II 5th Floor 4300 Winfield Road Warrenville, IL 60555 (630) 657-3770

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Certificate of Filing & Certificate of Service I hereby certify that on this 29th day of March 2004, a copy of the foregoing "Plaintiffs' Response To Defendant's Motion To Compel Production Of Documents From Holtec International" was filed electronically. I understand that notice of this filing will be sent to all parties by operation of the Court's electronic filing system. Parties may access this filing through the Court's system. I also hereby certify that on this 29th day of March, 2004 I caused a copy of the foregoing "Plaintiffs' Response To Defendant's Motion To Compel Production Of Documents From Holtec International" to be served by Facsimile and U.S. Mail on: Francis P. Maneri Dilworth Paxson LLP 457 Haddonfield Rd, Suite 700 Cherry Hill, NJ 08034

s/ Christopher Tompkins Christopher Tompkins