Free Published Opinion - District Court of Federal Claims - federal

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In the United States Court of Federal Claims
No. 98-488C Filed: March 31, 2006 TO BE PUBLISHED ************************************* * SACRAMENTO MUNICIPAL UTILITY * DISTRICT, * * Plaintiff, * * v. * * THE UNITED STATES, * * Defendant. * * ************************************* Causation; Certainty; Damages; Foreseeability; Mitigation; Nuclear Waste Policy Act, 42 U.S.C. §§ 10101, et seq.; RESTATEMENT (FIRST ) OF CONTRACTS § 329; RESTATEMENT (SECOND ) OF CONTRACTS §§ 152, 351(1), (2); RESTATEMENT (SECOND ) OF JUDGMENTS; § 26(1)(a), (b); FED . R. EVID . 702; 10 C.F.R. § 961.11.

Howard N. Cayne, Arnold & Porter, LLP, Washington, D.C.; David S. Neslin and Timothy R. Macdonald, Arnold & Porter, LLP, Denver, Colorado, counsel for Plaintiff. Russell Alan Shultis, Alan J. Lo Re, Scott R. Damelin, Joshua E. Garnder, Todd J. Cochran, and Elizabeth Thomas, United States Department of Justice, Civil Division, Commercial Litigation Branch, Washington, D.C., counsel for Defendant. MEMORANDUM OPINION AND ORDER BRADEN, Judge On January 19, 2005, the court held that the United States ("the Government") is liable for the January 31, 1998 partial breach of a June 14, 1983 Department of Energy Standard Contract ("Standard Contract") with the Sacramento Municipal Unity District ("SMUD" or "the District"). See Sacramento Mun. Util. Dist. v. United States, 63 Fed. Cl. 49 (Fed. Cl. 2005). On March 21-25, 2005 and March 28, 2005-April 1, 2005, the court convened an evidentiary hearing, wherein SMUD asserted that the partial breach caused SMUD to incur $78,558,212.00 in costs from January 1, 1992 to December 31, 2003. Post-hearing briefing was concluded on November 1, 2005. After evaluating the evidence proffered by the parties in light of Indiana Michigan Power Co. v. United States, 422 F.3d 1369 (Fed. Cir. 2005), the court has determined that SMUD is entitled to damages, but only for certain costs incurred from May 15, 1997 to December 31, 2003.

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An outline of this Memorandum Opinion and Order follows: I. RELEVANT FACTS. A. In 1982, Congress Required The Department Of Energy To Provide For The Permanent Disposal Of Spent Nuclear Fuel And/Or High Level Radioactive Waste From All Domestic Utilities. In 1983, The Sacramento Municipal Utility District Entered Into A Standard Contract With The Department Of Energy To Dispose Of Spent Nuclear Fuel And/Or High-Level Radioactive Waste. In 1989, The Sacramento Municipal Utility District Decided To Shut Down The Nuclear Generating Plant. Actions Taken By The Sacramento Municipal Utility District To Decommission The Nuclear Generating Plant. 1. In 1990. a. b. c. Options For Spent Nuclear Fuel Storage Were Evaluated. A "Dual-Purpose" Dry Storage Project Was Authorized. A Decision Was Made To Enter Into A Joint Dry Transfer Demonstration With The Department Of Energy.

B.

C.

D.

2.

In 1991. a. Initial Planning Was Started And Proposals For The "DualPurpose" Dry Storage Project Were Solicited. Discussions About The Joint Dry Transfer Demonstration Began.

b. 3.

In 1992. a. Planning For The "Dual-Purpose" Dry Storage Project And Selecting A Vendor Continued. Discussions About The Joint Dry Transfer Demonstration Continued.

b.

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c.

The Department Of Energy Announced That It May Not Be Able To Construct A Permanent Storage Facility By 1998.

4.

In 1993. a. Vendor Difficulties Delayed Implementation Of The "DualPurpose" Dry Storage Project. Concerns Arose About Whether The Department Of Energy Would Accept Spent Nuclear Fuel Stored In Canisters. Discussions About The Joint Dry Transfer Demonstration Continued.

b.

c.

5.

In 1994. a. The Department Of Energy Raised Concerns About The Availability Of A Suitable Storage Facility. The "Dual-Purpose" Dry Storage Project Continued To Be Implemented. A Cooperative Agreement For A Joint Dry Transfer Demonstration Was Reached With The Department Of Energy.

b.

c.

6.

In 1995. a. The Department Of Energy Announced That It Would Not Begin Accepting Spent Nuclear Fuel In 1998. Development Of The "Dual-Purpose" Dry Storage System Continued.

b.

7.

In 1996. a. Development Of The "Dual-Purpose" Dry Storage System Continued. Disposal Of Low-Level Radioactive Waste Around The Wet Pool Began. Received Legal Notice That Performance Would Not Begin Under The Standard Contract On January 31, 1998. 3

b.

c.

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d. e.

The "Dual-Purpose" Dry Storage Project Was Reevaluated. The Sacramento Municipal Utility District Sought To Amend The Cooperative Agreement For A Joint Dry Transfer Demonstration.

8.

In 1997. a. Regulatory Problems And Vendor Bankruptcy Delayed Implementation Of The "Dual-Purpose" Dry Storage Project. The "Dual-Purpose" Dry Storage Project Was Continued.

b. 9.

In 1998. a. The Department Of Energy Did Not Begin Disposal Of Spent Nuclear Fuel And/Or High-Level Radioactive Waste, As Required Under The Standard Contract. A New Vendor Was Retained To Complete The "Dual-Purpose" Dry Storage Project. The Cooperative Agreement For A Joint Dry Transfer Demonstration Was Terminated.

b.

c.

10.

In 1999­2001, The Sacramento Municipal Utility District Completed Licensing And Testing The "Dual-Purpose" Dry Storage Project. In 200-2002, Spent Nuclear Fuel Was Loaded Into Twenty-One Canisters And Transferred To An Independent Spent Fuel Storage Installation.

11.

II.

PROCEDURAL HISTORY OF THIS CASE. A. On June 9, 1998, The Sacramento Municipal Utility District Filed Suit For Partial Breach In The United States Court Of Federal Claims. On February 17, 2005, The Sacramento Municipal Utility District Claimed Damages Of $21,553,462.00 For Costs Incurred From 1992 Through 1997 For The Dry Storage Project.

B.

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C.

On February 17, 2005, The Sacramento Municipal Utility District Claimed Damages Of $55,049,870.00 For Costs Incurred From 1998 Through 2003 For The Dry Storage Project.

III.

DISCUSSION. A. B. C. Jurisdiction. Standing. Causation. 1. Governing Precedent. a. b. c. 2. "Reasonable Foreseeability." "Substantial Causal Factor." "Reasonable Certainty."

The Court's Determination Of Causation In This Case. a. b. c. "Reasonable Foreseeability" Was Established, In Part. "Substantial Causal Factor" Was Established, In Part. "Reasonable Certainty" Was Established, In Part.

D.

Mitigation Costs For Partial Breach. 1. 2. Governing Precedent Of Mitigation In This Case. The Court's Determination. a. SMUD May Recover Or Retain Certain Costs In This Case. 1. 2. 3. 4. For Dry Storage. For Labor Severance And Recruiting Costs. For Dry Storage Project Delays. For Failed Spent Nuclear Fuel. 5

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5.

For Operation And Maintenance Costs For The Independent Spent Fuel Storage Installation. For Gantry Crane Refurbishment. For Costs Associated With The Preparation, Packaging, Inspection, And Loading Of Spent Nuclear Fuel.

6. 7.

b.

SMUD May Not Recover Or Retain Certain Costs In This Case. 1. 2. 3. 4. 5. 6. 7. For "Dual-Purpose" Dry Storage. For Contract, Lease, Or Other Legal Obligations. For Certain ISFSI Construction Costs. For Wet Pool Cost Savings. For Certain Internal Labor Costs. For Other Overhead Costs. For On-Site Drop Testing Costs.

IV.

CONCLUSION. * * *

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I.

RELEVANT FACTS.1
1

The relevant facts recited herein were derived from: SMUD's June 9, 1998 Complaint ("Compl."); SMUD's August 30, 2004 Amended Complaint ("Amend. Compl."); the Government's October 15, 2004 Answer ("Gov't Answer"); SMUD's February 17, 2005 Memorandum of Contentions of Fact and Law ("Pl. Mem."); the Government's February 28, 2005 Memorandum of Contentions of Fact and Law ("Gov't Mem."); SMUD's Exhibits ("PX" 1-1029); the Government's Exhibits ("DX" 1-2004); Transcript of the Evidentiary Hearing held March 21-25, 2005 and March 28, 2005-April 1, 2005 ("TR"); SMUD's August 22, 2005 Post-Trial Brief ("Pl. PT Br.") and the Government's Proposed Findings of Fact ("Pl. PFF"); the Government's September 20, 2005 PostTrial Brief ("Gov't PT Br.") and Proposed Findings of Fact ("Gov't PFF"); the Government's October 4, 2005 Response to SMUD's Proposed Findings of Fact ("Gov't Resp. to Pl. PFF"); SMUD's October 18, 2005 Post-Trial Reply Brief ("Pl. PT Reply Br."); and SMUD's November 1, 2005 Response to the Government's Proposed Findings of Fact ("Pl. Resp. to Gov't PFF"). In a March 16, 2005 Order, the court granted in-part and denied in-part, SMUD's February 18, 2005 Motion for Leave to File Designated Deposition and Trial Testimony as Substantive Evidence, Pursuant to RCFC 32(a) and FED . R. EVID . 801(d), as to the deposition or trial testimony of the following witnesses (collectively "Designations App."): Mr. Lake Barrett, Deputy Director of the Department of Energy's Office of Civilian Radioactive Waste Management ("OCRWM"); Mr. Ronald Milner, Chief Operating Officer of the OCRWM; Mr. Alan Brownstein, Director of the Regulatory Coordination Division and Senior Policy Advisor to the Director of the OCRWM; Mr. David Huizenga, former Deputy Assistant Secretary for DOE's Office of Integration, within the Office of Environmental Management; Mr. Leroy Stewart, an Engineer at the OCRWM; Mr. Keith Klein, Manager of DOE's Richland, Washington Field Office; Ms. Patrice Bubar, Deputy Assistant Secretary for Safety and Operations Oversight in the Office of Environmental Management; Mr. Robert M. Rosselli, Deputy Manager for Business Services at DOE's Richland, Washington Field Office; Mr. Robert Campbell, Program Manager for the Office of Environmental Management; Mr. Christopher Bajwa, an Engineer at the Nuclear Regulatory Commission's Spent Fuel Project Office; Mr. Stephen O'Connor, a former NRC Senior Project Manager; Ms. Nancy Slater-Thompson, Team Leader of the Regulatory Coordination Division of the OCRWM; Mr. Victor Trebules, Director of the Office of Project Control at the DOE's Yucca Mountain Site Characterization Office in Nevada; Mr. Francis Young, an NRC Senior Transportation Program Manager; Mr. Michael Lawrence, Associate Laboratory Director for Energy Science & Technology at DOE's Pacific Northwest National Laboratory; Ms. Susan Klein, a Senior Policy Advisor at the OCRWM; Mr. Robert Morgan, a former Director of the Nuclear Waste Project Office; Mr. Ben Rusche, former Director of the DOE's Spent Fuel Program; Mr. James Carlson, a former senior official at the OCRWM; Mr. S. David Freeman, former General Manager of SMUD; Ms. Rita Bowser, SMUD's former Fuel Disposition Project Manager; Mr. Ed Benz, a former employee of Jacobs Engineering Group Inc.; Mr. Robert Burgoyne, an Associate with Booz Allen Hamilton Inc.; and Mr. Billy Cole, former Vice President of Johnson Associates, Inc. The court did not admit deposition testimony or trial testimony of: Mr. Thomas Pollog; Mr. 7

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A.

In 1982, Congress Required The Department Of Energy To Provide For The Permanent Disposal Of Spent Nuclear Fuel And/Or High Level Radioactive Waste From All Domestic Utilities.

In 1982, Congress enacted the Nuclear Waste Policy Act ("NWPA"), Pub. L. No. 97-425, 96 Stat. 2201 (codified at 42 U.S.C. §§ 10101, et seq.), pursuant to which the federal government assumed the duty to "provide for the permanent disposal" of spent nuclear fuel2 and/or high-level

David Zabransky; Mr. William Knoll; Mr. Christopher Kouts; Mr. Jeffrey Williams, because the Government represented that these individuals would testify at the evidentiary hearing. In addition, the court did not admit trial testimony of Mr. Edward Abbott in another proceeding, but invited SMUD to call Mr. Abbott as a witness at the evidentiary hearing. On March 16, 2005, the court also granted SMUD's March 7, 2005 Motion for Leave to File Designated Deposition Testimony as Substantive Evidence Pursuant to RCFC 32(a), admitting the deposition testimony of: Mr. Salomon Levy ("Levy Dep.") of S. Levy Inc., a consultant hired by SMUD, and Mr. Roger Powers, a former SMUD Supervisory Nuclear Engineer. In addition, on March 31, 2005, the court granted SMUD's February 25, 2005 Motion for Leave to File Designated Deposition Testimony as Substantive Evidence Pursuant to FED . R. EVID . 801(d), admitting the deposition testimony of Mr. David Langstaff, a General Engineer of DOE's Richland, Washington Field Office ("Langstaff Dep."). At the March 21-25, 2005 and March 28, 2005-April 1, 2005 evidentiary hearing, the court also admitted the written direct testimony of the following expert witnesses, who testified at the hearing on cross-examination and re-direct: Mr. Brian P. Brinig, J.D., C.P.A., A.S.A., of Brinig & Company, Inc. ("PX 1000"); Mr. Ivan F. Stuart of I. Stuart & Co., a nuclear industry consultant ("PX 1001"); Ms. Eileen M. Supko of Energy Resources International, Inc., a nuclear industry consultant ("PX 1002"); Mr. John R. McGrath, M.B.A., of Contract Solutions, LLC, a nuclear industry consultant ("DX 2000"); Mr. Jerry N. Burford of Watkins Consulting, Inc., a nuclear industry consultant ("DX 2001"); Mr. Stephen J. Kiraly, M.B.A., C.P.A., of Navigant Consulting, Inc. ("DX 2003"); and Mr. Cliff W. Hamal, M.B.A., of LECG, LLC, an economic and business consultant. ("DX 2004"). Congress defined spent nuclear fuel ("SNF") as fuel that "has been withdrawn from a nuclear reactor following irradiation, the constituent elements of which have not been separated by reprocessing." 42 U.S.C. § 10101(23). SNF contains toxic uranium and toxic byproducts, such as plutonium. See TR 116; see also Amend. Compl. ¶ 15; Gov't Answer ¶ 15. SNF remains radioactive after it is removed from a nuclear reactor and must be isolated in safe disposal facilities for thousands of years. See TR 138-39. 8
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radioactive waste3 from utilities across the country. See 42 U.S.C. § 10131(a)(4) ("Congress finds that - - . . . the Federal Government has the responsibility to provide for the permanent disposal of high-level radioactive waste and such spent nuclear fuel as may be disposed of in order to protect the public health and safety and the environment[.]"); see also 42 U.S.C. § 10131(b)(2) ("[T]o establish the Federal responsibility, and a definite Federal policy, for the disposal of such waste and spent fuel[.]"). Congress, however, imposed the cost of the Government's acceptance and disposal of SNF and HLW on the "generators" and "owners." See 42 U.S.C. § 10131(a)(4) ("Congress finds that - - . . . while the Federal Government has the responsibility to provide for the permanent disposal of high-level radioactive waste and such spent nuclear fuel as may be disposed of in order to protect the public health and safety and the environment, the costs of such disposal should be the responsibility of the generators and owners of such waste and spent fuel.") (emphasis added). Congress also required the Department of Energy ("DOE") to enter into contracts with generators and owners of SNF and HLW by June 30, 1983 - - committing DOE to accept, transport, and dispose of SNF and HLW ("the Standard Contract"). See 42 U.S.C. § 10222(b)(2) ("No [SNF or HLW] may be disposed of by the Secretary . . . unless the generator or owner of such [SNF or HLW] has entered into a contract with the Secretary under this section by not later than - - June 30, 1983[.]"); see also 10 C.F.R. § 961.11 (setting forth "the text of the standard contract for disposal of spent nuclear fuel and/or high-level radioactive waste[.]"). If a utility did not enter into the Standard Contract with DOE, the Nuclear Regulatory Commission ("NRC") was prohibited from renewing or issuing an operator's license.4 See 42 U.S.C. § 10222(b)(1)(A). In addition, Congress authorized DOE to set the fee amounts to be paid by utilities into the Nuclear Waste Fund to fund the Department's acceptance and disposal of SNF and HLW. See 42 U.S.C. § 10222(a)(1) ("[T]he Secretary is authorized to enter into contracts with any person5 who generates or holds title to high-level radioactive waste, or spent nuclear fuel, of domestic origin for the acceptance of title, subsequent transportation, and disposal of such waste or spent fuel. Such contracts shall provide for payment to the Secretary of fees pursuant to paragraphs (2) and (3)

Congress defined high-level radioactive waste ("HLW") as "highly radioactive material resulting from the reprocessing of spent nuclear fuel, including liquid waste produced directly in reprocessing . . . and other highly radioactive material that the [Nuclear Regulatory] Commission, consistent with existing law, determines by rule requires permanent isolation." 42 U.S.C. § 10101(12). "Utility" or "utilities" refers to an entity or entities that have generated or hold title to highlevel radioactive waste, or spent nuclear fuel, of domestic origin, and have entered into a Standard Contract. When a "person [or entity] who generates or holds title to high-level radioactive waste, or spent nuclear fuel, of domestic origin" enters into the Standard Contract, the Standard Contract provides that the person or entity will be referred to in the Contract as the "Purchaser." 10 C.F.R. § 961.11. 9
5 4

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sufficient to offset expenditures described in subsection (d) of this section." (footnote added)). The Standard Contract provided that, in return for the payment of fees from a utility, DOE would start disposing of the SNF and HLW covered by the contracts, no later than January 31, 1998, and continue such services until disposal of all SNF and HLW was completed. See 42 U.S.C. § 10222(5)(B) ("[I]n return for payment of fees established by this section, the Secretary, beginning not later than January 31, 1998, will dispose of the high-level radioactive waste or spent nuclear fuel involved as provided in this subchapter."); see also 10 C.F.R. § 961.11 at Art. II ("The services to be provided by DOE under this contract shall begin, after commencement of facility operations, not later than January 31, 1998 and shall continue until such time as all SNF and/or HLW from the civilian nuclear power reactors . . . has been disposed of."). The Standard Contract did not specify a date that DOE would accept a particular utility's SNF and HLW. See 10 C.F.R. § 961.11 at Arts. II & VI(B)(1). Rather, the Standard Contract provided that priority of SNF and HLW acceptance was to be determined by the material's age, calculated as of the date of discharge from a nuclear power reactor. See 10 C.F.R. § 961.11 at Art. VI(B)(1) ("[A]cceptance priority shall be based upon the age of the SNF and/or HLW as calculated from the date of discharge of such material from the civilian nuclear power reactor."). DOE's acceptance of SNF and HLW was to be prioritized, pursuant to Delivery Commitment Schedules ("DCS's") submitted by each utility, as approved by DOE. See 10 C.F.R. § 961.11 at Art. V ("After DOE has issued its proposed acceptance priority ranking . . . the Purchaser shall submit to DOE the delivery commitment schedule(s) which shall identify all SNF and/or HLW the Purchaser wishes to deliver to DOE beginning 63 months thereafter."). The Standard Contract further provided that DOE first would accept the oldest SNF and HLW. See 10 C.F.R. § 961.11 at Art. VI(B) ("DOE will first accept from Purchaser the oldest SNF and/or HLW for disposal in the DOE facility, except as otherwise provided for in paragraphs B and D of Article V."). A utility, however, had the right to exchange approved DCSs with other utilities that may hold a priority ranking for pickup of SNF and HLW, subject to DOE's approval. See 10 C.F.R. § 961.11 at Art. V(E) ("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."). An important provision in the Standard Contract gave DOE discretion to grant priority for SNF and HLW removal from nuclear reactors that are no longer operating and to accept emergency deliveries prior to the date of acceptance. See 10 C.F.R. § 961.11 at Art. VI(B) ("[P]riority may be accorded any SNF and/or HLW removed from a civilian nuclear power reactor that has reached the end of its useful life or has been shut down permanently for whatever reason."); 10 C.F.R. § 961.11 at Art. V(D) ("Emergency deliveries of SNF and/or HLW may be accepted by DOE before the date provided in the delivery commitment schedule upon prior written approval by DOE.").

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B.

In 1983, The Sacramento Municipal Utility District Entered Into A Standard Contract With The Department Of Energy To Dispose Of Spent Nuclear Fuel And/Or High-Level Radioactive Waste.

SMUD is a publicly-owned municipal utility district established under the laws of California that operated the Rancho Seco Nuclear Generating Station ("Rancho Seco"), a nuclear-powered plant located in Sacramento County, California. See DX 2004 ¶ 29; see also TR 114, 129. In 1975, SMUD began commercial operations at Ranch Seco. See DX 2004 ¶ 29; DX 248 at SMUD0029731. On June 14, 1983, SMUD and DOE entered into the Standard Contract for disposal of SNF and HLW at Rancho Seco. See PX 44.6 Pursuant to the terms of the Standard Contract, by January 31, 1998, SMUD paid approximately $40 million into the Nuclear Waste Fund under the Standard Contract for permanent disposal and other services. See DX 481 at SMUD-0033398; see also TR 149-50. C. In 1989, The Sacramento Municipal Utility District Decided To Shut Down The Nuclear Generating Plant.

After the March 28, 1979 accident at Three Mile Island, the NRC initiated a number of regulatory changes that required SMUD to incur substantial expense. See TR 121, 1533-34. At this time, SMUD also experienced significant operating problems with Rancho Seco's steam turbine controls and the steam generator tube. See TR 120-21. As a result, Rancho Seco incurred numerous outages, including a 27-month outage from December 1985 through early-1988. See DX 2004 ¶¶ 29-31; see also TR 120-21, 128, 155-56. In fact, over Rancho Seco's fourteen year operating life, the plant operated a full capacity less than half the time. See DX 2004 ¶ 29. To service customers during these extended outages, SMUD had to purchase replacement power that significantly increased the electricity rates SMUD charged. See TR 127; see also TR 891 (Mr. Richard Ferreira, then SMUD Assistant General Manager: "SMUD's operating experience was lower than the national average."). In the spring of 1998, the District voters placed an initiative on the statewide primary ballot to shutdown Rancho Seco. See DX 2004 ¶ 32; see also TR 127-29, 876-77. SMUD placed a counter-referendum on the ballot to keep Rancho Seco operational for an additional eighteen month trial period to ascertain the continued viability of the plant and to hold a follow-up referendum the following year. Id. This alternative, passed by a slim margin. See DX 2004 ¶ 32 (citing SMUD's 1988 Annual Report at 12). In the June 6, 1989 followup referendum, the District voters decided to close Rancho Seco. See DX 2004 ¶ 33; see also TR 128-129, 893. On June 7, 1989, SMUD's Board of Directors

The text of the June 14, 1983 Standard Contract is identical to the text published at 10 C.F.R. § 961.11. Compare PX 44, with 10 C.F.R. § 961.11. 11

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("SMUD's Board") began implementing plans for closure. See TR 129, 894-95. At that time, SMUD had 493 SNF assemblies, measuring approximately 228.37 MTU,7 stored in a "wet pool."8 See DX 202 at SMUD-0019248; PX 1002 ¶ 109 (Tables 7 & 8); see also TR 133, 2046. One of SMUD's principal goals was to decommission the Rancho Seco site, reducing the "nuclear footprint." See TR 263-64. SMUD's initial January 31, 1989 Decommissioning Plan indicted that both DECON and SAFSTOR options would be considered.9 See DX 122 at SMUD-0020853-54. At least two other decommissioning studies were undertaken by SMUD in 1989. See, e.g., DX 125 (Sept. 26, 1989 Rancho Seco Decommissioning Plan: Issues & Assumptions, Revision 1); DX 134 (Dec. 12, 1989 Office Memorandum). D. Actions Taken By The Sacramento Municipal Utility District To Decommission The Nuclear Generating Plant. 1. In 1990. a. Options For Spent Nuclear Fuel Storage Were Evaluated.

On January 25, 1990, the Rancho Seco Committee of SMUD's Board ("the Rancho Seco Committee") instructed SMUD's General Manager, Mr. David Boggs: "to review the numerous options with varying degrees of risks, certainty, and costs associated with storage of the Rancho Seco

7

One metric ton of uranium ("MTU") is equal to one-thousand kilograms. See TR 1811.

Spent fuel assemblies may be stored in a "wet pool" of at least 20 feet of water, which provides adequate shielding from the radiation for anyone near the pool. See Spent Fuel Pools, U.S. NUCLEAR REGULATORY COMMISSION , available at http://www.nrc.gov/ (last visited Mar. 31, 2006). The assemblies are moved into the wet pool from the reactor along the bottom of water canals, so that the spent fuel is always shielded to protect workers. Id. Decommissioning involves three different alternatives: 1) DECON; 2) SAFSTOR; or 3) ENTOMB. See Fact Sheet: Decommissioning Nuclear Power Plants, U.S. NUCLEAR REGULATORY COMMISSION , OFFICE OF PUBLIC AFFAIRS, at 1, available at http://www.nrc.gov/ (last visited Mar. 31, 2006) ("NRC DECOMMISSIONING FACT SHEET "). DECON is "immediate dismantlement[,] soon after the nuclear facility closes, equipment, structures, and portions of the facility containing radioactive contaminants are removed or decontaminated to a level that permits release of the property and termination of the NRC license." NRC DECOMMISSIONING FACT SHEET at 1. SAFSTOR is considered "`delayed DECON,' [i.e.,] a nuclear facility is maintained and monitored in a condition that allows the radioactivity to decay; afterwards, it is dismantled." Id.; see also TR 270 ("SAFSTOR is a term[] that's used for decommissioning and is basically putting the facility in a safe storage or mothball condition."). Under ENTOMB, "radioactive contaminants are encased in a structurally sound material such as concrete and appropriately maintained and monitored until the radioactivity decays to a level permitting release of the property." NRC DECOMMISSIONING FACT SHEET at 1. 12
9

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nuclear fuel." DX 202 at SMUD-0019248-49. In response, Mr. Boggs commissioned a study from S. Levy Incorporated, a engineering consulting firm. See DX 144; see also Levy Dep. at 18. On March 21, 1990, Mr. Solomon Levy of S. Levy Inc. presented an analysis to the Rancho Seco Committee. Mr. Levy evaluated fifteen SNF storage options for Rancho Seco, including both wet and dry storage options.10 See DX 159; DX 160 at SMUD-085618; DX 165; PX 176; see also TR 171-72. Although the "most certain approach" was to continue storage in the spent nuclear fuel pool, nevertheless, Mr. Levy recommended that all SNF be placed in dual-purpose canisters11 and moved from the wet pool to dry storage by 1998, because such storage "offers the earliest date for removal of spent fuel." DX 160 at SMUD-085618-19; see also PX 176 at SMUD-0031544 ("It is strongly recommended that the transportable cask option be pursued for the Rancho Seco spent fuel,

Spent nuclear fuel that has already been cooled in a wet pool for at least one year may be placed in "dry storage." See Dry Cask Storage, U.S. NUCLEAR REGULATORY COMMISSION, available at http://www.nrc.gov/ (last visited Mar. 31, 2006). In "dry storage," the spent fuel is surrounded by inert gas inside a container, typically a steel cylinders that either is welded or bolted closed. Id. The steel cylinder provides a leak-tight containment of the spent fuel, and each cylinder is surrounded by additional steel, concrete, or other material to provide radiation shielding to workers and members of the public. Id. There are various "dry storage" system designs. Id. Dual-purpose canisters are designed for dry storage, but also allow SNF to be transported within a cask unit to a disposal site. See TR 142; see also TR 143-44 ("The canister . . . would be inserted in this cask for either movement onsite or for transportation off site. . . . The cask provides the shielding necessary to handle the device out of the water or the canister out of the water and also provides the support structure for shipping and protecting the fuel during transportation. . . . . It also is designed sturdy enough along with the canister to withstand probable accidents, fire, dropping, et cetera."); TR 2368-70. Storage in dual-purpose canisters is less expensive than storage in dualpurpose casks, because the canisters are much cheaper to produce and such storage only requires that one cask be procured for transport. See TR 458-59 ("The cask is a much more beefier construction. It has to have shielding. It has to withstand the loads during a transportation, so you have to deal with accident environments or accident analysis of the cask, whereas the canister is just left onsite, stored onsite, does not have to have that kind of a rigorous analysis and withstand those kind of accidents because it would be contained within the cask."). Storing SNF in a dual-purpose system, instead of a storage-only system, is advantageous, because it is not necessary for the fuel to be transferred from dry storage to a wet pool or through a dry transfer before transportation. See PX 1002 ¶ 113 ("One of the benefits of spent fuel storage in a dual-purpose system is that the fuel does not have to be handled two or more times for the eventual transfer to DOE repository. Minimizing spent fuel handling results in minimizing worker dose associated with spent fuel and cask handling which results in safety benefits as well as cost savings."); PX 1001 ¶¶ 17-21; TR 195-96, 263-64; see also TR 336 ("[A] dry transfer system is essentially a mechanism that would allow for handling of spent fuel without having to go back to the fuel pool[.]"). 13
11

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particularly if it can be coupled to a two to three transportable casks demonstration program described in the report and sponsored jointly by DOE/SMUD/cask vendors/and other utilities."). As Mr. Levy explained: The schedule for DOE pickup is currently highly uncertain with the earliest conceivable pickup date being in 1998 and a much more likely pickup date well after 2010. * * * For these reasons it is concluded that there is a need for both (a) an aggressive program to reduce the annual costs for security, cooling and monitoring of spent fuel in the Rancho Seco fuel pool and (b) a programmatic effort to economically close off the number of years of storage in the pool by transfer to a licensed independent fuel storage facility consisting of certified transportable storage casks.

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PX 176 at SMUD-0031604 (underlining in original).12 Mr. Levy also suggested that SMUD pursue a joint demonstration project with DOE, and other interested entities, to construct and demonstrate transportable/storage casks: "This demonstration program would also provide a sound, practical basis for the broader program . . . for DOE acceptance of spent fuel in transportable storage casks by 1998." PX 176 at SMUD-0031580; see also DX 160 at SMUD-085618-19; TR 187, 272. Mr. Levy emphasized that SMUD needs "to recognize the unique situation of shut down nuclear power plants and, in particular, of Rancho Seco and the extra costs [SMUD] will incur for spent fuel storage by comparison to operating plant[s]." PX 176 at SMUD-0031545, SMUD-0031548. b. A "Dual-Purpose" Dry Storage Project Was Authorized.

On March 30, 1990, SMUD adopted the recommendation to utilize dry storage for Rancho Seco's SNF. See DX 164 at SMUD-0029491-92 ("As a result of the [Levy] [S]tudy, it was decided that [SMUD] pursue dual purpose (storage and transportation) casks or storage only casks that could be effectively interfaced with early receipt by the DOE of Rancho Seco's spent fuel and subsequent use of the casks by DOE. . . . For that reason, we would like to meet with you and your staff to

In 1987 and 1988, DOE announced that the date for SNF acceptance at a permanent repository would be delayed from 1998 to 2003, but that DOE would accept SNF and HLW in 1998 at a Monitored Retrievable Storage Facility ("MRS") site. See PX 109 at HQR-0255148-49 (Jan. 1987: announcing the date for waste acceptance at the first repository is delayed from 1998 to 2003, "DOE could nonetheless start accepting waste in 1998 at an MRS facility"); PX 118 at HQ0005810 (June 1987: same); PX 143 at HQ0004887 (June 1988: "The repository will be developed in two phases and will start receiving spent fuel in the year 2003. The DOE expects to complete phase 1 for waste acceptance in 2003 and to complete phase 2 . . . in the year 2006."). An MRS is an interim storage facility that is neither a disposal nor a repository facility. See TR 441-42. Congress, however, prohibited DOE from developing MRS's, until after the NRC authorized construction of a permanent repository. See 42 U.S.C. § 10168(d)(1); see also PX 169 at DB0001469). DOE understood this statutory impediment and expressed its intent to work with Congress to amend the law to permit an "MRS to begin receiving SNF significantly earlier than the repository[.]" PX 188 at HQ0003376-77 ("The current restrictions . . . linking the repository and MRS make it impossible for DOE to accept waste at an MRS facility on a schedule that is independent from that of the repository."). In November 1989, DOE announced that a permanent repository would not begin to accept SNF until 2010, DOE subsequently reiterated that it planned to begin collection of SNF in 1998 with an MRS. See PX 169 at BD0001448 (Nov. 1989: announcing a "significant slip" for the start of SNF acceptance at a permanent repository from 2003 to "approximately 2010"); PX 189 at 3, 9-10, A-1 (Dec. 1990: announcing that DOE planned to commence performance of the Standard Contract in 1998 through use of an MRS); PX 231 at HQ0003592 (Dec. 1991: "[A] site for a Monitored Retrievable Storage (MRS) facility will be obtained and the facility will initiate operations in 1998[.]"). 15

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discuss the Rancho Seco spent fuel option study and our selected alternative."); see also TR 163-64, 172, 193, 275, 401 ("What dry storage offered was a cheaper way of dealing with storage of the fuel, so less impact from a cost standpoint. . . . [I]n looking at what Mr. Levy was pulling together, based on potential options, a possibility that it would also be in a form that could facilitate transport to the DOE in the long term and perhaps even sooner than the repository. . . . As a result of our review of the Saul Levy report and his recommendation, our recommendation to our board was that we pursue that option and go look at dual purpose transportable system."); DX 202 at SMUD-0019255 ("The District plans to have all of Rancho Seco's fuel in DOE-compatible dry storage by 1998. This will allow abandonment of the spent fuel pool which could lead to earlier decommissioning of the facility or facilitate repowering."). c. A Decision Was Made To Enter Into A Joint Dry Transfer Demonstration With The Department Of Energy.

On March 30, 1990, SMUD also began the process of obtaining a cooperative arrangement with DOE for the development and demonstration of dual-purpose cask technology. See DX 164 ("[SMUD] recognize[s] that transportable storage casks and compatible shipping storage casks have not yet been licensed by the Nuclear Regulatory Commission (NRC) and that monitoring and inspection program must still be developed to assure their subsequent periodic recertification by the NRC. [SMUD] believe[s] that these issues can best be resolved by a demonstration effort sponsored jointly by the DOE, the District, cask vendors, and other utilities."); see also TR 184. On April 25, 1990, SMUD's Chief Nuclear Officer advised the Rancho Seco Committee of the following: [S]et up a demonstration program and construct three dual purpose casks by 1993. At that time, 72 fuel assemblies would be loaded into the three casks and monitored until the DOE takes possession of them in 1998. The remaining 493 assemblies will be maintained in wet storage until 1993. At that time, we should have a commitment from DOE regarding fuel acceptance in 1998. Our decision point regarding concrete casks or dual purpose casks is in 1993. If the DOE will not take our fuel in 1998, or if the dual purpose casks do not prove feasible, we will award a contract to build concrete casks and load the fuel in them by 1995. * * * If a commitment can be obtained from DOE to take possession of the spent fuel by 1998, whether onsite or offsite, then dual purpose casks should be pursued. If a commitment cannot be obtained, onsite concrete cask/canister storage by 1995 should be pursued. This is the earliest that we can put our spent fuel in concrete casks, since it must decay for approximately five years before it is put in cask storage.

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DX 174 at SMUD-0018522 (emphasis added).13 SMUD wanted to place the SNF in "dual-purpose" dry storage, but recognized that the technical feasibility of such a system was not yet known. Id. Regarding SMUD's decision to select dry storage, Mr. Shetler, formerly SMUD's Deputy Assistant Manager and currently Assistant General Manager for Energy Supply, testified that, in 1990 and 1991, SMUD viewed the probability of an MRS being available to be "50/50." TR 395, 400, 440-41. By mid-1990, SMUD was engaged in planning the construction and licencing of an Independent Spent Fuel Storage Installation ("ISFSI"), a passive system of storage that requires less system support and fewer personnel for oversight, monitoring, and security. See DX 188; DX 202 ("Generic siting, design and licencing activities for the Rancho Seco Independent Spent Fuel Storage Installation (ISFIS) have begun. These include regulatory reviews, review of vendor topical reports, and procurement of 10 CFR [Part] 72 applications submitted by other utilities. The ISFSI should be licensed and constructed by 1993. Sometime after licensing and construction of the ISFSI, the District will transfer all remaining fuel to casks where they will remain prepared for storage and transportation until DOE acceptance."); see also TR 146-47, 523. An internal SMUD memorandum, dated June 7, 1990, evidences SMUD's understanding that an ISFSI "will be required for dry cask storage regardless of whether a commitment for a DOE demonstration program is received[.]" DX 188 at SMUD-0019292. SMUD was convinced that: "Storage in transportable casks offers the best opportunity explored to keep open the possibility of early off-site shipment, possibly as early as 1998 should DOE develop a Monitored Retrievable Storage facility (MRS). Under such circumstances, transportable storage casks would involve the lowest overall cost and become the preferred option." DX 202 at SMUD-0019251 (emphasis added). Accordingly, SMUD embarked on a "first-of-a-kind effort" to develop a dual-purpose dry storage system. See TR 172-73, 190, 265, 345-46. 2. In 1991. a. Initial Planning Was Started And Proposals For The "DualPurpose" Dry Storage Project Were Solicited.

On May 20, 1991, SMUD submitted an Application for Termination of License and Proposed Decommissioning Plan for Rancho Seco ("Decommissioning Plan") to the NRC. See DX 247; DX 248. The Decommissioning Plan emphasized SMUD's plan to move the SNF from the wet storage to dry storage, construct and license an ISFSI by the end of 1993, and complete the transfer of the
13

Although this statement suggests that SMUD has 565 spent fuel assemblies, the record establishes that SMUD has 493 assemblies. See DX 202 at SMUD-0019248; PX 1002 ¶ 109 (Tables 7 & 8); see also TR 133, 2046. 17

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SNF to the ISFSI by 1998. See DX 248 at SMUD-0029733. The Decommissioning Cost Study acknowledged that SMUD "presumes the availability of a Monitored Retrievable Storage (MRS) facility such that DOE can meet its obligation to begin receiving fuel[.]" DX 248 at SMUD-0030074; but see TR 474 (Mr. Shetler: "It was a planning assumption for funding purposes. It allowed us to come in with a decommissioning estimate that met our targets from a rate standpoint. We also recognized that we would be reviewing and adjusting this on an annual basis, once we had better information, not only for decommissioning but also for fuel disposition."). On October 3, 1991, SMUD's Board convened a Public Hearing concerning the "Proposed Decommissioning Plan and Construction of a Spent Fuel Storage Facility." See DX 274. During the presentation, Mr. Ken Miller, SMUD's Decommissioning Project Manager, explained the concept of dry storage and SMUD's plan to develop an ISFSI: For our high level waste, we're going to put fuel assemblies in casks for a number of years, and wait for the Federal Mine Geological Repository to open. And currently, that's targeted somewhere in the neighborhood of the year 2010. However, there is currently a process going on to site and build something called a "monitored retrievable storage facility" whereby we could take our canisters or fuel storage packs and have them temporarily reside until the Mine Geological Repository is opened, and then they would be transferred. * * * Now, once we take the fuel out of the spent fuel pool and put it into the dry storage casks, then we reduce staff, we reduce maintenance, and the cost on an annualized basis is $2.6 million. And that is why we're casking the fuel, because we can prudently save the District a great deal of money over the storage period. Id. at SMUD-0027418-19 (emphasis added). Ms. Rita Bowser, SMUD's former Fuel Disposition Project Manager, however, estimated that dry storage would save SMUD approximately $8 million per year and the potential for more significant savings long term: If you look at the fact that a repository isn't projected until 1998, or an MRS until 1998, with a repository in 2010, and it will take DOE approximately 10 years to accept all of SMUD's fuel, the cost savings can range somewhere between $60 to $156 million over the lifetime of decommissioning. Id. at SMUD-0027436. The range reflected the difference between DOE assumptions of acceptance at an MRS in 1998 and acceptance at a federal repository in 2010. See TR 327. At the time, SMUD calculated that the transfer from wet to dry storage would pay for itself within two and a half years, by mid-1994. Compare DX 274 at SMUD-0027426 (explaining that transfer from wet to dry storage would cost between $16 and $20 million), with DX 274 at SMUD-0027436 (explaining that transfer from wet to dry storage would result in a savings of $8 million per year). 18

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At the October 3, 1991 Public Hearing, in response to a question from SMUD's President, SMUD's Fuel Disposition Project Manager, at the time, stated that "it is likely that an MRS could be sited by 1998 . . . [, however,] there needs to be some congressional action that would delink the final repository [at Yucca Mountain] from the MRS" before the MRS could actually start to operate. DX 274 at SMUD-0027466. The Fuel Disposition Manager explained "[w]ith the situation at Yucca Mountain, that seems like it will be tied up in litigation for a while[,] . . . there is actually legislation in Congress to delink the facilities which would make an MRS likely in 1998." Id. The Fuel Disposition Project Manager also suggested that: "[B]y the District procuring dual purpose casks, there would perhaps be an implied incentive that would enable DOE to take our assemblies perhaps earlier than they otherwise could if they had to do a lot of additional planning." Id. at SMUD0027473. On October 4, 1991, SMUD submitted an application to the NRC to construct and operate an ISFSI, pursuant to 10 C.F.R. Part 72. See DX 276; PX 222. On October 17, 1991, SMUD's Deputy Assistant General Manager made another presentation to SMUD's Board, estimating that $8 million in annual savings could be realized from moving SNF from wet to dry storage. See DX 280 at SMUD-0029434.14 It was assumed, however, that either an MRS would be operational in 1998 or a federal repository be operational in 2010.15 Id. at SMUD-0029434 ("Assumes no MRS until 1998 with final acceptance of [SMUD] fuel by 2008 or no Repository until 2010 with final acceptance of SMUD fuel by 2020[.]" (underline in original)). On that same day, SMUD's Board issued a Resolution approving "the proposal to construct a Spent Fuel Storage Facility." See DX 282. On December 5, 1991, SMUD issued a Solicitation for Dual-Purpose Casks, which stated that the procurement "shall initially consist of two such [dual-purpose (storage/transport)] casks for the District/U.S. Department of Energy Cask Demonstration Project with additional cask procurement dependent on successful demonstration of cask design, testing and licensing effort." PX 233 at SMUD-0005508; see also DX 293 at SMUD-0005908. Shortly thereafter, SMUD issued "Request for Proposal [No.] 3449 for the Acquisition of Dual-Purpose Spent Nuclear Fuel Casks and Cask System[,]" with a proposal due date of January 15, 1992. See PX 239 (Request for Proposal No. 3449); see also TR 200 (Mr. Shetler: "We recognized we were looking at some new technology here. We recognized that vendors were probably going to come back with some potentially unique

At trial, Mr. Shetler explained that, based on the estimates provided to SMUD's Board, the cost of the dry storage project would be offset by operating savings within two-and-a-half years. See TR 329. In 1994, DOE published a Notice of Inquiry stating that it planned to accept SNF sometime after January 31, 1998. See 59 FED . REG . 27,007 (May 25, 1994). On September 21, 1994, SMUD submitted a comment in response indicating that, when SMUD decided to fund its Decommissioning Trust in 1991, SMUD "assumed that DOE would accept all of Rancho Seco's fuel starting in 1998, including the queue, by 2010." DX 462 at SMUD-0019624. 19
15

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options or offerings. And we wanted to have the ability, through a request for proposals, to be able to negotiate with the individual vendors when they brought back their offerings."). The Request solicited proposals for one dual-purpose cask to be delivered by July 1, 1993 as a demonstration project, but stated that "[t]he District intends to procure an additional cask by or upon successful completion and delivery of the first demonstration cask." PX 239 at SMUD-0005507. Subsequently, SMUD extended the initial deadline for proposals to February 12, 1992. See PX 236 at HQR0161575; see also PX 242 at SMUD-0006152. At that time, SMUD was focused on transferring SNF from the wet pool to dry storage in order further advance the decommissioning of Rancho Seco: The District is committed to store spent nuclear fuel assemblies in dry, shippable casks from the time that their decay heat generation rate allows until the Department of Energy is ready to accept them for permanent disposal. This will permit the lay up of the Spent Fuel Pool, Spent Fuel Cooling System, the Component Cooling Water System, the Plant Cooling Water System and the Radioactive Waste System. All fuel will be in dry casks by 1998. DX 234 at SMUD-0031033 (emphasis added); see also TR 1178. b. Discussions About The Joint Dry Transfer Demonstration Began.

During 1991, SMUD and DOE also began to discuss the possibility of a joint demonstration of a dry transfer system and dual-purpose dry storage. See, e.g., PX 220 (Sept. 19, 1991 meeting); PX 229 at SMUD-0006753 (Nov. 15, 1991 meeting); PX 246 (Nov. 15, 1991 meeting); see also TR 188-89 (Mr. Shetler: We had a "series of meetings to determine what the demonstration program would consist of. We had certain views of what we thought might be of benefit to DOE and the industry. I think DOE had their views of what might be a benefit. And we spent quite a bit of time going through trying to figure out what were those joint or overlapping benefits."). SMUD believed that DOE and SMUD had a mutual interest in the development of dual-purpose cask technology. See TR 188-90 (Mr. Shetler: "From [SMUD's] perspective, we felt that this was a technology that had promise, that the concept of joint storage and transportation cask might have an advantage to the industry in general and DOE. And we felt that demonstrating that, the licensing of that, the demonstration of the loading of the fuel, inspection of the fuel, those different aspects would have benefit to DOE. DOE, I think, felt they had some benefit from that, but also was interested in demonstrating a dry transfer capability, the ability to dry transfer fuel assemblies from one container or canister to another."). During these discussions, SMUD provided DOE with a draft of the technical specifications developed for a dual-purpose cask and solicited comments from DOE. See PX 224; PX 229. SMUD also lobbied Congress, including then-Congressman Fazio of California's Third Congressional District, to facilitate DOE's participation in a cooperative arrangement. See DX 175 at SMUD-0018539; DX 254. On August 17, 1991, Congress enacted the Energy and Water 20

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Development Appropriations Act of 1992, providing the necessary appropriations that would enable DOE to enter into a cooperative agreement with SMUD beginning in fiscal-year 1992. See Pub. L. No. 102-104, 105 Stat. 510 (Aug. 17, 1991). On December 2, 1991, Mr. Shetler made a presentation to the California Senate Committee on Energy and Public Utilities, identical to the October 17, 1991 presentation to SMUD's Board. See DX 291 at SMUD-0029418; see also TR 358-59. That presentation included a slide representing that SMUD could realize an $8 million annual savings from moving the SNF from wet to dry storage. Id. at SMUD-0029418. The slide, however, noted SMUD's assumption that either an MRS would be operational in 1998 or a federal repository be operational in 2010. Id. at SMUD-0029418 ("Assumes no MRS until 1998 with final acceptance of [SMUD] fuel by 2008 or no Repository until 2010 with final acceptance of SMUD fuel [by] 2020[.]" (underline in original)). 3. In 1992. a. Planning For The "Dual-Purpose" Dry Storage Project And Selecting A Vendor Continued.

SMUD received bids from the following companies: Pacific Nuclear Systems Inc. ($11,754,00.00); Sierra Nuclear Corp. ($12,670,000.00); Transnuclear Inc. ($19,812,00.00); Nuclear Assurance Corp. ($37,950,000.00); and The Babcock and Wilcox Co. ($72,543,000.00). See DX 35; PX 259; see also TR 198-99, 459, 981-82. The $11.7 million and $12.6 million bids were for a canister-based system. See TR 811-13, 983-990. Bids in the $19.8-$72.5 million range were for a cask-based system. See TR 983-990; see also supra note 11 (explaining the difference between canister-based and cask-based storage). In April 1992, SMUD's Board approved a process for evaluating these proposals. See DX 348; see also PX 259 at SMUD-0027247-48. SMUD initially estimated that approximately $6 million in annual savings could be realized by the use of dry storage. See PX 272 at SMUD-0029013; DX 251 at SMUD-0018595. By June 11, 1992, the Rancho Seco staff evaluated the potential suppliers' bids for a dry storage system and selected Pacific Nuclear. See PX 272; DX 251; see also TR 362-63. On July 7, 1992, Mr. Shetler advised SMUD's Board that SMUD could save approximately $33 million over a twelve-year period with dry storage. See PX 991 at SMP0330404, SMP0330410. On July 9, 1992, SMUD's Board selected Pacific Nuclear's proposal and authorized SMUD's General Manager to negotiate a contract. See PX 259 at SMUD-0027247, PX 242, PX 269A, PX 991; see also DX 315, DX 344; TR 201. In October 1992, SMUD and Pacific Nuclear entered into Contract E-776 for the development and construction a "dual-purpose" dry storage system, including twenty-one dry-sealed canisters, twenty-two horizontal-storage modules, and two transportable casks. See PX 267; PX 269A; see also TR 959. Pacific Nuclear's original cost and schedule estimates assumed that most of the design work was completed. See TR 201-02, 537-38, 985-87. Pacific Nuclear had a licensed storage-only dry canister system, i.e. the NUHOMS system, and a licensed transport-only cask, i.e. the 125-B cask. 21

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Id. Pacific Nuclear assumed with that any modest technical changes, these two licenses could be converted into a dual-purpose system. Id. Although nuclear industry vendors were working to secure NRC licensing for a dual-purpose system, the NRC had not issued a full license to any company. See TR 190, 1382-83; see also TR 2249 ("[A]t the time, there was no transportable storage casks that were licensed. But there was storage, dry storage casks."). For the remainder of 1992, SMUD and Pacific Nuclear worked to design, license, and fabricate dual-purpose system. See TR 212 (Mr. Shetler: "[W]e then started the process of working with Pacific Nuclear. [Pacific Nuclear] provided the design information. We started generating the licensing documents for both the storage and transportation systems. And started the discussions with the NRC on the licensing process that would be necessary in order to go forward with this arrangement."). b. Discussions About The Joint Dry Transfer Demonstration Continued.

In 1992, SMUD and DOE continued to discuss the specifics of a joint demonstration of dualpurpose storage and dry transfer system. See, e.g., PX 253 (Jan. 14, 1992 and Mar. 4, 1992 meetings); PX 258 (Apr. 16, 1992 meeting). SMUD anticipated that if an agreement could be reached with DOE for a demonstration project, up to $3 million of the proposed cost of Pacific Nuclear's contract could be shared. See PX 259 at SMUD-0027248. c. The Department Of Energy Announced That It May Not Be Able To Construct A Permanent Storage Facility By 1998.

In December 1992, DOE acknowledged that it may not be able to build and operate an MRS by 1998, but explained that the Department was investigating alternatives, e.g., "storing the waste at existing federal facilities on an interim basis." PX 973. 4. In 1993. a. Vendor Difficulties Delayed Implementation Of The "DualPurpose" Dry Storage Project.

In 1993, Pacific Nuclear experienced a number of set-backs in the development of the dualpurpose casks. See TR 375, 597. In early 1993, the NRC advised Pacific Nuclear that additional testing, e.g., impact limited testing, would be required for the design of the casks and canisters to ensure that the system could safely transport SNF. See TR 225, 537-38. Although Pacific Nuclear and SMUD anticipated two to three rounds of questioning from the NRC, seven rounds followed. See PX 845. As a result, Pacific Nuclear16 was required to execute ten change orders between 1993
16

In 1993, Pacific Nuclear changed its name to Vectra Technologies, Inc. ("Vectra") after acquiring ABB Impell Corp. See DX 442. 22

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and 1997 to modify the original 1992 Contract. See PX 267; see also TR 225. These change orders increased the cost of the dry storage project. Id.; see also TR 230-31. b. Concerns Arose About Whether The Department Of Energy Would Accept Spent Nuclear Fuel Stored In Canisters.

On June 22, 1993, SMUD sent a letter to DOE, asking for assurances "regarding the acceptability of the canister-based storage system SMUD recently purchased[.]" PX 311 at SMUD0031661. On September 2, 1993, DOE responded: "Once the Nuclear Regulatory Commission has certified Sacramento Municipal Utility District's transport-storage system, the Department would be willing to initiate the appropriate actions to include such a system as an acceptable waste form under the terms of the Standard Contract[.]" PX 320 at HQR-0361098. On September 28, 1993, SMUD sent another letter that explained SMUD's understanding of DOE's position: [I]t is now my understanding that your letter of September 2, 1993, takes the position that once the Nuclear Regulatory Commission (NRC) certifies the Rancho Seco transportation/storage system, the DOE would them be ready to take the necessary actions to include the system as an acceptable waste form under the terms of our spent fuel contract. . . . This clarification greatly helps the District. We now understand that as long as we have an NRC certified system, the fuel will eventually be accepted by DOE, which makes our long range planning much easier. PX 325 at SMUD-0019636. On October 4, 1993, DOE sent a letter, reiterating the assurances provided in its September 2, 1993 letter. See PX 327 (Mr. Lake Barrett, then Acting Director of OCRWM: "In a letter dated September 2, 1983, . . . I provided the assurances you requested concerning the acceptability of the Rancho Seco spent nuclear fuel in a canistered system certified for storage and transportation offsite to a Federal facility."). Despite this assurance, in 1993, SMUD decided to conduct an evaluation of its dry storage project, because of concerns about whether DOE would delay acceptance of the Rancho Seco SNF if it were placed in canisters: The uncertainty rests with the acceptance of the spent fuel by DOE for ultimate disposal. The issue does not appear to be one of will the DOE accept our canistered spent fuel but, rather, one of when will they accept it. Under our current contract with DOE for spent fuel disposal, they will only accept "standard" fuel in accordance with their planned receipt schedule. Presently the definition of "standard" fuel is bare fuel assemblies. Thus, even though DOE is moving toward a canistered fuel concept similar to ours, fuel in canisters is not currently considered "standard" fuel. We are continuing to interface with DOE on this issue in order to get our system declared a "standard" fuel form. This effort involves ourselves, other interested utilities, and support from Congressman Fazio's office.

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However, we cannot predict the final outcome, though the obvious worst case is that we are declared a "non-standard" fuel form. This is not as bad as it may at first appear since DOE acknowledges that they will still have to take the fuel some day, just not necessarily in accordance with the current planned receipt schedule. Therefore, the issue with DOE and the use of our planned dry storage system comes down to one of financial risk. DX 425 at SMUD-0027390-91 (footnote omitted & emphasis added); see also TR 367-70. SMUD's objective was to quantify the risk of different scenarios. See DX 425 at SMUD-0027391-92; see also TR 370, 374. The evaluation also included a "base case" - - the current dry storage project - which assumed that "DOE Accepts Fuel on Current Schedule." Id.; DX 425 at SMUD-0027393. Again, SMUD concluded that "continuing with the licensing and construction of the Dry Fuel Storage System is the right direction for the District." Id. c. Discussions About The Joint Dry Transfer Demonstration Continued.

Throughout 1993, SMUD and DOE also continued to discuss a joint demonstration arrangement. See, e.g., PX 286 at SMUD-0009322 (Apr. 30, 2003 meeting), SMUD-0009348 (referencing an Aug. 24, 2003 planned conference call between SMUD and DOE); PX 325 (referencing a Sept. 22, 1993 meeting between SMUD and DOE). 5. In 1994. a. The Department Of Energy Raised Concerns About The Availability Of A Suitable Storage Facility.

On May 24, 1994, DOE published a Notice in the FEDERAL REGISTER acknowledging that "[t]hus far, neither efforts of the Department [of Energy] nor any other organization . . . have achieved the level of success needed to realize significant success in developing a [repository or MRS] site by 1998." 59 FED . REG . 27,007, 27,008 (May 25, 1994). The Notice solicited comments on the issue of whether DOE has "a legal obligation under the Act or the Standard Contract to accept waste in 1998 in the absence of a repository or other facility under the Act?" Id. at 27,009. Interestingly, DOE explained that: [T]he Department is evaluating a design for multi-purpose canisters (MPC) to support spent nuclear fuel transportation, storage, and disposal. The MPC offers the potential for considerable standardization, simplification and, consequently, cost savings for both utilities and the Federal waste management system. Given the potential benefits of the MPC, the Secretary [of Energy] has directed that the options

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to be explored by the Department should include, to the maximum extent possible, the provision and use of MPCs to address both schedule and cost concerns arising from the potential unavailability of a repository or an MRS in 1998. Id. b. The "Dual-Purpose" Dry Storage Project Continued To Be Implemented.

During 1994, SMUD met with the NRC to discuss the preliminary designs for SMUD's dry storage. See TR 543-44. Based on these discussions, on December 6 and 8, 1994, SMUD stated, at a public workshop on the various alternative strategies for decommissioning Rancho Seco, that DOE may begin accepting SNF as early as 1998. See DX 481 ("DOE May Start Accepting Spent Fuel Between 1998 and 2013[.]"). c. A Cooperative Agreement For A Joint Dry Transfer Demonstration Was Reached With The Department Of Energy.

In late-1994, after three years of negotiations, SMUD and DOE executed a Cooperative Agreement for the "demonstration of a spent fuel dry transfer system using transportable storage systems." PX 371; see also DX 1328; PX 220; PX 229 at SMUD-0006753; PX 246; PX 253; PX 258; PX 286 at SMUD-0009322, SMUD-0009348; PX 325; PX 376; PX 381; TR 188-89. The demonstration project was to proceed in two phases: Phase I consisted of the development and procurement of two dual-purpose canisters; Phase II consisted of the procurement of a dry-transfer system and the demonstration of a transfer of spent fuel from one canister to another. See PX 371 at SMUD-0036436; DX 1328 at HQR3100004. The Cooperative Agreement specified that SMUD would pay for one of the dual-purpose canister and DOE would pay for the other. See PX 371 at SMUD-0036437-40, SMUD-0036507; DX 1328 at HQR3100005-08, HQR3100083. 6. In 1995. a. The Department Of Energy Announced That It Would Not Begin Accepting Spent Nuclear Fuel In 1998.

On May 3, 1995, DOE issued another Notice stating that was not able to begin providing disposal services in 1998. See 60 FED . REG . 21,793, 21,793-94 (May 3, 1995). The Notice also explained that the Department "does not have an unconditional statutory or contractual obligation to accept high level waste and spent nuclear fuel beginning January 31, 1998 in the absence of a repository or interim storage facility." Id. DOE also stated that "the earliest possible date for acceptance of waste for disposal at a repository is 2010" and acknowledged that utilities with SNF might have to plan for alternate storage until DOE could begin acceptance. Id. at 21,794 & 21,797.

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b.

Development Of The "Dual-Purpose" Dry Storage System Continued.

Throughout 1995, SMUD's dry storage project continued to progress. See TR 670 (Rancho Seco Plant Manager: "1995 was very heavy into engineering, redesign, reengineering. We also started fabricating the cask at [Precision Custom Components ("PCC")]. We started purchasing materials for the canisters. The project was really starting to roll."). Construction of the ISFSI site,17 e.g., the concrete structure, fencing, and security, also continued. See DX 524; see also TR 959. On June 27, 1995, SMUD submitted a Plan to the NRC for the Rancho Seco ISFSI. See DX 521. 7. In 1996. a. Development Of The "Dual-Purpose" Dry Storage System Continued.

In July 1996, in order to determine the condition of each fuel assembly prior to transfer, as required by the Standard Contract, SMUD performed a visual on-site inspection of the SNF in the pool, videotaping the fuel with underwater radiation hardened cameras. See TR 1041; see a