Free Response to Proposed Findings of Uncontroverted Fact - District Court of Federal Claims - federal

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 1 of 191

No. 98-488C (Judge Braden)

IN THE UNITED STATES COURT OF FEDERAL CLAIMS

SACRAMENTO MUNICIPAL UTILITY DISTRICT,

Plaintiff,

v.

UNITED STATES OF AMERICA,

Defendant.

SACRAMENTO MUNICIPAL UTILITY DISTRICT'S RESPONSE TO DEFENDANT'S PROPOSED FINDINGS OF FACT

OF COUNSEL: David S. Neslin Timothy R. Macdonald ARNOLD & PORTER LLP 370 Seventeenth Street, Suite 4500 Denver, CO 80202 (303) 863-1000 November 1, 2005

Howard N. Cayne ARNOLD & PORTER LLP 555 Twelfth Street, N.W. Washington, D.C. 20004 (202) 942-5899

Counsel of Record for Plaintiff Sacramento Municipal Utility District

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 2 of 191

IN THE UNITED STATES COURT OF FEDERAL CLAIMS

SACRAMENTO MUNICIPAL UTILITY DISTRICT, Plaintiff, v. THE UNITED STATES OF AMERICA, Defendant.

) ) ) ) ) ) ) ) ) ) ) )

No. 98-488 C (Judge Braden)

SACRAMENTO MUNICIPAL UTILITY DISTRICT'S RESPONSE TO DEFENDANT'S PROPOSED FINDINGS OF FACT I. The Nuclear Waste Policy Act And The Promulgation Of The Standard Contract 1. On January 7, 1983, Congress enacted the Nuclear Waste Policy Act of 1982

("NWPA"), Pub. L. 97-425, 96 Stat. 2201 (codified at 42 U.S.C. §§ 10101-10270 (1982)). RESPONSE: SMUD does not object to the government's proposed finding of fact. 2. The NWPA authorized the Secretary to enter into contracts with the owners and

generators of SNF of domestic origin for "the acceptance of title, subsequent transportation, and disposal of such [SNF and HLW]." 42 U.S.C. § 10222(a)(1) (1982). The contracts had to "provide for payment to the Secretary of fees . . . sufficient to offset expenditures." Id. RESPONSE: Although SMUD does not object to the government's proposed finding of fact, SMUD notes that the NWPA provides that the "Secretary shall annually review the amount of fees . . . to evaluate whether collection of the fee will provide sufficient revenues to offset the costs" of the program. 42 U.S.C. § 10222(4). From 1983 to the present, DOE has prepared periodic "Fee Adequacy Reports" to analyze whether the billions in fees being paid by the utilities will be sufficient to cover the life cycle costs of the program. See PX 97; PX 185; PX 681 (Fee Adequacy Reports); 42 U.S.C. § 10222(a)(4). DOE also has prepared detailed "Total System Life Cycle Cost" ("TSLCC")

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 3 of 191

reports to analyze what the full costs of the life of the program will be. See PX 429; PX 603; PX 680 (TSLCC Reports). In every one of the Fee Adequacy and TSLCC Reports, including the most recent reports prepared in 2001 and updated in 2003, DOE has concluded that the fees paid by the utilities will be sufficient to cover the life cycle costs of the program. The government today holds approximately $16 billion in unspent utility fees reserved solely for DOE's eventual performance. See Statement by T. Garrish at 6 (March 10, 2005) (Att. A to SMUD's Response to Memorandum Opinion and Order to Show Cause Dated April 21, 2005 (Dckt. # 326)). SMUD paid DOE all fees required under the Contract, amounting to more than $40 million dollars. See Sacramento Municipal Utility District v. United States, 63 Fed. Cl. 495, 498 (2005) (noting "SMUD has paid all applicable fees required by the DOE Standard Contract"); Gov. Answer at ¶ 22 (noting payment of fees is undisputed). 3. On February 4, 1983, 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 HighLevel Radioactive Waste" ("Standard Contract") mandated by the NWPA, 42 U.S.C. § 10222. See 48 Fed. Reg. 5458 (Feb. 4, 1983). RESPONSE: SMUD does not object to the government's proposed finding of fact. 4. 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: DOE shall annually provide to the Purchaser pertinent information to support waste disposal program cost projections, project plans and progress reports. Beginning on April 1, 1991, DOE shall issue an annual acceptance ranking for receipt of SNF and/or HLW at the DOE repository. This priority ranking shall be based on the age of SNF and/or HLW as calculated from the date of discharge of such material from the civilian nuclear power reactor. The oldest fuel or waste will have the highest priority for acceptance, except as provided in paragraph B.3 of Article VI of this contract. 48 Fed. Reg. 5458, 5463 (Feb. 4, 1983) (Art. V.B.5 & Art. V.B.6) (emphasis added).

-2-

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 4 of 191

RESPONSE: SMUD objects to the government's proposed finding of fact because it is a conclusion of law. Christiansen v. Nat'l Sav. & Trust Co., 683 F.2d 520, 529 (D.C. Cir. 1982) ("The duty to issue [legal conclusions] devolve[s] on the courts and lay legal conclusions are inadmissible in evidence."). SMUD agrees that the Standard Contract did not identify a specific rate by which DOE would accept contract holder's SNF and that DOE has accurately quoted portions of the proposed Contract. DOE did not put any acceptance rate term in the Contract, and thus, the acceptance rate is, in every sense, an open term. SMUD objects to the government's representation that the Contract "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." The "Delivery" provision states that "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 sixty-three months thereafter." Id., Art. V.B.1. This Court has held that the ACR, and thus the DCSs, were only "for planning purposes." Sacramento Municipal Utility District v. United States, 63 Fed. Cl. 495, 505 (2005) (quoting 10 C.F.R. § 961.11 at Art. IV.B.5.b). Final Delivery Schedules ("FDSs") were to be submitted to DOE "not less than twelve (12) months" prior to the actual delivery date. PX 44, Art. IV.C. FDSs were never submitted or approved, however, because DOE has never come close to performance under the Contract. Furthermore, the contract provides that Purchasers "shall submit to DOE the delivery commitment schedule(s) which shall identify all SNF and/or HLW the Purchaser wishes to deliver to DOE." PX 44, Art. V.B.1. The referenced process for ranking fuel was included to provide a means of ordering if Purchasers included more SNF in their DCSs than the total annual capacity for the facility. The provision on "Acceptance Procedures" explains that "[d]elivery commitment schedules for SNF and/or HLW may require the disposal of more material than the annual capacity of the DOE disposal facility (or facilities) can accommodate." PX 44, Art. VI.B.1 (emphasis added). In that circumstance, an "acceptance priority ranking will be utilized." Id. Thus the priority ranking, based on the date of discharge, was included to address this circumstance, rather than to create a "definitization" of the order of SNF acceptance and disposal under the Contract. 5. The proposed rule requested that written comments had to be submitted by

March 7, 1983. 48 Fed. Reg. at 5458. RESPONSE: SMUD does not object to the government's proposed finding of fact. 6. Certain utilities and nuclear industry groups requested that DOE insert into the

Standard Contract a specific rate of acceptance. DX 0076.063 at ADM002.0482, DX 64, at SMUD 0011731. RESPONSE: SMUD objects to the government's proposed finding of fact. SMUD agrees that certain utilities and nuclear industry groups commented on the Contract as noted. The operative point, however, is that DOE did not put any acceptance rate term in the Contract ­

-3-

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 5 of 191

in other words, the acceptance rate is, in every sense, an open term. DOE appeared to recognize this fact when it published the Standard Contract in April 1983, noting only that: "The 1998 date is called for in the Act, and we believe it to be a realistic date. Our performance will be judged by meeting this date." 48 Fed. Reg. 16,590, 16,598 (Apr. 18, 1983) (emphasis added). 7. On April 18, 1983, DOE issued the terms of the Standard Contract as a final rule.

48 Fed. Reg. 16590, 16592 (Apr. 18, 1983). In the final Standard Contract terms, DOE expressly chose not to include a minimum rate obligation in the Standard Contract because, as of 1983, DOE did not know what DOE's capabilities would be in 1998 and was unwilling to commit to the minimum rate obligations that the utilities proposed. Def. Counter-Designation of R. Morgan, at Tr. 57:20-23, Tr. 129:11-17, Tr. 203:16-19 (3/21-22/02). RESPONSE: SMUD objects to the government's proposed finding of fact. The government's citation of Mr. Morgan's testimony is simply another variant of the argument that, because the acceptance rate term is omitted from the Contract, DOE has unfettered discretion to accept fuel (or not to accept fuel) at whatever rate it sees fit. This is not the law, as noted in SMUD's response to Defendant's Proposed Finding of Fact ("DPFOF") ¶¶ 114-16. In addition, because this argument "would render the government's duties under the Standard Contract illusory," it should be rejected. Consumers Energy Co. v. United States, 65 Fed. Cl. 364, 371 (2005); see also Indiana Michigan Power Co. v. United State, 57 Fed. Cl. 88, 97 (2003) (holding that the government's argument "does not comply with congressional expectations or the parties' intentions" and "tends to render the Standard Contract illusory"); Entergy Nuclear Generation Co. v. United States, 64 Fed. Cl. 336, 343-45 & n.8 (2005) (rejecting argument that "DOE has virtually unfettered discretion to determine its obligations under the contract, through the DCS process or otherwise, especially where no repository is available"). 8. In the final rule, DOE also modified the definition of the "facility" to which SNF

could be delivered beginning in 1998. Although the proposed rule would have required delivery to a repository in 1998, the final rule provided that DOE could deliver SNF in 1998 either to a repository or to "such other facility(ies) to which [SNF and/or HLW] may be shipped by DOE prior to its transportation to a" permanent repository. 10 C.F.R. § 961.11, Art. I.10. RESPONSE: SMUD agrees that the final version of the Contract made the specific change referenced above. SMUD objects, however, to the government's characterization of the effect of this change. As this Court has recognized, DOE had an obligation to begin accepting fuel in January 1998. See Sacramento Municipal Utility District v. United States, 63 Fed. Cl. 495, 505 (2005). Furthermore, Congress and DOE expected that DOE would have a repository in operation by January 1998. See Indiana Michigan Power Co. v. Dep't of Energy, 88 F.2d -4-

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 6 of 191

1272, 1276-77 (D.C. Cir. 1996); see also H.R. Rep. No. 97-785, pt. 1, at 44 (1982) (instructing the "Secretary [of Energy] that the repository program is paramount and no other radioactive waste or spent fuel program of the Secretary shall interfere with, delay, obstruct or deflect from the establishment of a repository development program as provided in this Act.") 9. The final rule also included provisions providing DOE with the sole discretion to

approve exchanges by utilities of approved delivery commitment schedules, and to grant utilities that had shutdown priority in the acceptance queue. 10 C.F.R. § 961.11, Art. V.E, VI.B.1(b). RESPONSE: SMUD object to the government's proposed finding of fact. The exchange provision was adopted upon request by several utilities, and was one of the few changes to the draft Contract prepared by DOE. See 48 Fed. Reg. 16,590, 16,592 (Apr. 18, 1983). The final rule noted the new provision "allows Purchasers to exchange DOE-approved delivery commitments with one another," thereby allowing Purchasers "greater flexibility." Id. Robert Morgan, the first Director of the SNF program, commented at the time of Contract formation that "this poses no great problem" and "we intend to be reasonable." PX 29 at Tab D; see also Corrected Appendix to Accompany SMUD's Motion to File Designated Deposition And Trial Testimony, dated Feb. 24, 2005 (hereinafter "Designations Appendix") (Dckt. #310) at 2032-33 (Morgan). As Daniel Dreyfus, another former Director of OCRWM, has stated, the exchange provision was included "to allow Purchasers greater flexibility in managing their inventories of spent fuel. We believe the exchange provision will allow industry to optimize the allocation of waste acceptance capacity to meet individual utility needs, without the overt involvement of the Department." PX 433. Similarly, DOE would have been reasonable in granting shutdown priority. Statements by DOE officials confirm that the shutdown priority provision was supported and would have been an option absent the breach. Susan Klein, the government's Rule 30(b)(6) witness on the role and purpose of the shutdown priority provision, testified that DOE "could have given" acceptance priority to shutdown reactors if the system were operating at 3000 tons. Designations Appendix (Dckt. #310) at 1861-62 (S. Klein); see also id. at 2031-32 (Morgan). In fact, during the process of developing the Contract, DOE rejected requests by certain utilities to omit the priority acceptance provision, explaining "[t]his type of priority is necessary to prevent reactors from waiting 20 or 30 years to be decommissioned after they finish generating electricity." 48 Fed. Reg. 16,590, 16,593 (Apr. 18, 1983). 10. The final rule did not provide any provision allowing transportation campaigns,

but instead generally required that DOE accept SNF under oldest-fuel-first principles. 10 C.F.R. § 961.11, Art. IV.B.5(a). RESPONSE: SMUD objects to the government's proposed finding of fact because it is a conclusion of law. Christiansen v. Nat'l Sav. & Trust Co., 683 F.2d 520, 529 (D.C. Cir. 1982) ("The duty to issue [legal conclusions] devolve[s] on the courts and lay legal conclusions are inadmissible in evidence."). While the Contract does not reference transportation campaigns -5-

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 7 of 191

specifically, it also does not disallow use of such campaigns. As Mr. Stuart testified, the provision of the Contract that references priority for "oldest fuel" does not necessarily require a strict "oldest fuel first" acceptance. Tr. at 1412-16 (Stuart). As discussed in SMUD's response to DPFOF ¶ 4 above, the referenced process for ranking fuel based on date of discharge was included to provide a means of ordering disposal if Purchasers included more SNF in their DCSs than the total annual capacity for the facility. See PX 44, Art. VI.B.1. Furthermore, had DOE been performing, both DOE and utilities likely would have sought transportation campaigns, as they would have been efficient and beneficial for both DOE and utilities. See I. Stuart Written Direct at ¶ 35 (PX 1001); Tr. at 1941 (Zabransky). Such campaigns would be more efficient than applying an oldest fuel first methodology, which, if applied literally, would result in DOE accepting less than full cask loads of SNF. Tr. at 1416-17 (Stuart). Mr. Zabransky agreed at trial that "campaigning does have an attraction both to the utilities and potentially to the Department" and that "it would be nice to be able to do that." Tr. at 1941 (Zabransky). 11. The final rule expressly granted DOE the discretion to defer the acceptance of

failed fuel if DOE determined that the disposal of such fuel was not technically feasible. 10 C.F.R. § 961.11, Art. VI.A.2.b. RESPONSE: SMUD objects to the government's proposed finding of fact because it is a conclusion of law. Christiansen v. Nat'l Sav. & Trust Co., 683 F.2d 520, 529 (D.C. Cir. 1982) ("The duty to issue [legal conclusions] devolve[s] on the courts and lay legal conclusions are inadmissible in evidence."). The Contract does not give DOE discretion to defer acceptance of failed fuel. The Contract merely provides that, for any SNF which has been designated by Purchaser as other than standard fuel, as that term is defined in Appendix E, the Purchaser shall obtain delivery and procedure confirmation from DOE prior to delivery. DOE shall advise Purchaser within sixty (60) days of receipt of such confirmation request as to the technical feasibility of disposing of such fuel on the currently agreed to schedule and any schedule adjustment for such services. Id. at Art. VI.A.2.b. Furthermore, there is extensive evidence that DOE would have accepted failed fuel on the same schedule as standard fuel. See PX 93 (noting representation by DOE that "[f]ailed fuel canned in a container provided by or approved by the Department also will be subject to the same scheduling procedures as other spent fuel"). OCRWM Director Lake Barrett stated his belief that "[w]hen all is said and done, my expectation, what I really think will happen is when it moves along it will move together ­ contemporary, it will all move contemporary, that's the failed fuel and standard fuel." Designations Appendix (Dckt. #310) at 392 (Barrett). SMUD's expert, Ivan Stuart, also testified that "DOE could have and would have accepted these

-6-

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 8 of 191

assemblies [SMUD's damaged fuel] on the same schedule as the rest of SMUD's fuel." I. Stuart Written Direct at ¶ 42 (PX 1001). 12. SMUD and DOE signed the Standard Contract on June 14, 1983. DX 88.

RESPONSE: SMUD does not object to the government's proposed finding of fact. II. Overview Of The Rancho Seco Nuclear Facility 13. SMUD's Rancho Seco facility began operating in 1975. Tr. 114:20-21 (Shetler).

From the outset, Rancho Seco was plagued by a poor performance history, including multiple extended outages and placement upon a watch list by the Nuclear Regulatory Commission ("NRC") of reactors constituting the "greatest safety significance." DX 10; Tr. 120:17-121:14 (Shetler); Direct Testimony of Cliff Hamal, at ¶ 30. RESPONSE: SMUD objects to the government's proposed finding of fact. With regard to Rancho Seco, SMUD's Assistant General Manager Jim Shetler testified that "the actual Rancho Seco facility went on-line in about 1975, 1976." Tr. at 114. SMUD also objects to the government's characterization of SMUD's operating history. SMUD did face several operating issues during the period SMUD was on-line. Such operational issues were not uncommon during this period, however, and "[t]o some extent, all nuclear plants had to do some upgrades and changeouts as a result of Three Mile Island." Tr. at 121 (Shetler). 14. During the mid-1980s, Rancho Seco suffered a 27-month outage, from December

1985 though early 1988. Tr. 155:13-16, Tr. 156:1-3 (Shetler). During the 14-year life span of the Rancho Seco plant, the plant was non-operational more than it was operational. Direct Testimony of Cliff Hamal, at ¶ 29. RESPONSE: SMUD does not object to the accuracy of the government's finding of fact, but objects to the relevance of the proposed finding to the issues in this case. 15. S. David Freeman, SMUD's general manager characterized SMUD's operating

history as follows: . . . [SMUD was] a very troubled utility at the time. They had raised the electric rate seven or eight times. They had a nuclear power plant, that if it were an employee, you would have fired it because it operated half the time . . . .

-7-

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 9 of 191

Def. Counter-Designation D. Freeman, Tr. 24:14-18 (7/16/04). RESPONSE: SMUD does not object to the proposed finding to the extent it correctly quotes Mr. Freeman's testimony. SMUD does object to the proposed finding based on its relevance to the issues in this case. 16. As a result of the extended outages at the Rancho Seco facility, SMUD had to pay

for replacement power, which accounted for half of Rancho Seco's overall generation of electricity. Tr. 127:6-16 (Shetler). Consequently, SMUD had to raise rates for its ratepayers significantly during the mid-to-late 1980s. Tr. 127:17-18 (Shetler). Rancho Seco's extended outages, coupled with the significant rate increases, resulted in the placement on the local ballot two separate voter initiatives to close Rancho Seco, the second of which, dated June 6, 1989, passed. Tr. 127:22-23, Tr. 155:21-22 (Shetler); Tr. 876:1-4 (Ferreira). RESPONSE: SMUD objects to the government's proposed finding because it misstates the evidence. Mr. Shetler testified that the power from Rancho Seco at that time generated well over half of SMUD's overall needs as a utility district. Tr. at 127 (Shetler). SMUD replaced the power from Rancho Seco with power purchased on the open market. Id. SMUD has always purchased power both to supplement its current needs and in the form of backup contracts in the event such power is needed. Id. at 106, 113. SMUD further objects to the government's characterization of SMUD's management of Rancho Seco. SMUD did face several operating issues during the period SMUD was on-line. Such operational issues were not uncommon in the industry during this period because all nuclear plants, to some extent, faced such issues. Tr. at 121 (Shetler). In fact, the average availability of nuclear power plants for the industry during this period was only approximately 75 percent. Id. at 891 (Ferreira). Given the ability to obtain inexpensive replacement power at that time in California, it made economic sense to shutdown the plant because SMUD could purchase power more cheaply on the open market than it could produce the power. As a result, Mr. Ferreira recommended to the general manager that the facility be closed for this reason. As he testified, "As a result of successfully negotiating contracts that would either replace the output of the nuclear plant or, as I said, would provide the operating reserves necessary to meet the WCC reliability standards and requirements, . . . comparing the cost of continued operation over the next 10 years, to converting the contracts to replacement power, the nuclear power plant would have had to operate at least 75 percent of the time in order to beat the replacement cost of power." Id. Even if SMUD operated at then-industry standard, from a "risk standpoint," Mr. Ferreira concluded that "it didn't make sense to continue to own the plant and assume the risk." Id. Based on Mr. Ferreira's recommendation and others, prior to the vote, at a public Board Meeting, the general manager recommended to the Board that the plant be shutdown. Id. at 891-93. -8-

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 10 of 191

17.

The following day, SMUD's Board of Directors immediately agreed to abide the

June 6, 1989 referendum to close Rancho Seco. Tr. 129:1-12 (Shetler); Tr. 895:1-10 (Ferreira). At the time of the shutdown, Rancho Seco was licensed by the NRC to operate through 2008. DX 248, at SMUD 0029716. RESPONSE: SMUD objects to the first sentence of the government's proposed finding because it is misleading. "[T]he board had conveyed to the community that . . . they would allow the customers to vote on the outcome of the future of the nuclear power facility." Tr. at 895 (Ferreira). Thus, the Board of Directors decided prior to the vote that "if the owners of SMUD [the electorate] determined that the plant should be shut down, that they would abide by that decision." Id. at 129 (Shetler). The Board of Directors stood by its representations to the community, and "as a result of the board's direction," shutdown of the plant was initiated on June 7, 1989. Id. at 129. SMUD does not object to the remainder of the government's finding of fact. 18. SMUD's shutdown of its Rancho Seco facility occurred nine years before DOE

was obligated to begin the acceptance of SNF from the industry generally, and 12 years before DOE was obligated to begin the acceptance of SMUD's SNF. RESPONSE: SMUD objects to the government's proposed finding of fact because it is a conclusion of law. Christiansen v. Nat'l Sav. & Trust Co., 683 F.2d 520, 529 (D.C. Cir. 1982) ("The duty to issue [legal conclusions] devolve[s] on the courts and lay legal conclusions are inadmissible in evidence."). SMUD also objects to the government's proposed finding of fact because the government fails to support its finding with any record evidence. SMUD disputes that DOE had no legal obligation to begin acceptance from SMUD until 2001. No such provision is included in the Contract. Rather, the Contract between DOE and SMUD provides that disposal "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." PX 44, Art. II; see also Sacramento Municipal Utility District v. United States, 63 Fed. Cl. 495, 505 (2005) (recognizing the government's obligation under Contract to begin disposal by January 31, 1998). In addition to the provisions that govern development of a schedule for such disposal, the Contract also includes various provisions that would affect the actual schedule, including shutdown priority and exchange. See PX 44, Art. V.E, VI.B.1.b. SMUD's final disposal schedule would have been subject to these provisions. Presumably the government relies on the 1991 ACR and SMUD's submitted DCSs to support its assertion that it had no obligation to begin acceptance of SMUD's SNF until 2001. See PX 231. This Court has already held, however, that the ACRs "were only `for planning purposes.'" Sacramento Municipal Utility District v. United States, 63 Fed. Cl. 495, 505 (2005).

-9-

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 11 of 191

Thus, "the DCSs imposed no legal obligation on either party to the DOE Standard Contract." Id.; see also Commonwealth Edison Co. v. United States, 56 Fed. Cl. 652, 666 (2003) ("The parties could not have expected that planning documents would create binding contractual obligations."). III. SMUD Pursued Dry Storage In 1990 For Reasons Wholly Unrelated To The Government's 1998 Breach Of The Standard Contract A. 19. As A Result Of Rancho Seco's Premature Shutdown In 1989, SMUD's Focus Was To Decrease The Size Of Its Nuclear Footprint Upon the decision to shut down Rancho Seco, SMUD personnel placed their

focus upon decommissioning the plant. DX 122; DX 125; DX 131; DX 133; DX 134; DX 139. On December 8, 1989, following the shutdown of Rancho Seco, SMUD completed the defueling of the Rancho Seco nuclear reactor. DX 135, at SMUD 0000501. SMUD stored all 493 of its SNF assemblies in the wet storage pool within its spent fuel building. DX 141, at SMUD 0019082. Shortly after its decision to shutdown Rancho Seco, SMUD created a Decommissioning Task Force to initiate planning for decommissioning and to place the plant into a "protective lay-up" condition. DX 122; DX 125. RESPONSE: SMUD does not object to the government's proposed finding of fact. SMUD notes, however, that once Rancho Seco was shutdown, it immediately was transferred from operating to decommissioning status. See Tr. at 1255 (Holst) (noting that "everything we do at Rancho Seco after the plant closed was decommissioning"); Designations Appendix (Dckt. #310) at 2334 (Freeman) (noting that the word "decommissioning" is confusing because the staff uses the word generally to cover everything). 20. SMUD had two primary goals after Rancho Seco's premature shutdown in 1989. a. First, SMUD sought to reduce its nuclear footprint as quickly as possible.

Tr. 263:11-15 (Shetler). To achieve this goal, SMUD had to decommission its Rancho Seco facility. Tr. 263:16-18 (Shetler). The Rancho Seco site could not be decommissioned until its pool was eliminated. Tr. 617:2-4 (Redeker). SMUD believed that, by placing its SNF into dry storage, SMUD gained the ability to decommission its wet pool. Tr. 263:25-264:1-3 (Shetler). By decommissioning its wet pool, SMUD in turn gained the ability to decrease the amount of

-10-

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 12 of 191

staff and ultimately reduce its costs associated with Rancho Seco. Tr. 264:4-10 (Shetler); Tr. 833:2-12 (Redeker). SMUD recognized that its desire to decommission Rancho Seco was an important element in SMUD's decision to pursue dry storage. Def. Counter-Designation of R. Bowser, at Tr. 229:24-230:5 (9/16/04). b. Second, SMUD sought the removal of its SNF from the site as quickly as

possible. SMUD hoped that dry storage would lead DOE to accept SMUD's fuel earlier than it was otherwise entitled under the Standard Contract and as soon as possible. Tr. 264:11-15 (Shetler). RESPONSE: SMUD objects to the government's proposed finding of fact. SMUD agrees that since shutdown it has had the goals of reducing its nuclear footprint and achieving disposal of its fuel as quickly as possible. However, SMUD objects to the government's portrayal of these goals as completely divorced from the government's announced delays and subsequent breach of the Contract. SMUD's desire to facilitate its decommissioning and encourage receipt of its fuel were intertwined with and driven by DOE's anticipated delay. That delay magnified the importance of SMUD's goals because it meant that SMUD might have to store its spent fuel for several decades and such storage could complicate SMUD's decommissioning and increase its costs. See Tr. at 464 (Shetler) ("[W]e had knowledge that DOE was not going to perform on time. That was one of the basic premises on which we went forward in looking at how do we handle a shutdown plant at Rancho Seco and then dealing with the fuel."). This relationship is well-documented by the record in this case. For example, the March 1990 Levy report explains, in connection with the likelihood of DOE fuel receipt after 2010, that continued wet storage of the fuel would extend SMUD's security, cooling, and monitoring costs, as well as limit or preclude SMUD's decommissioning options. PX 176 at 59. At the October 3, 1991 SMUD Board of Directors meeting, General Manager David Freeman and Fuel Disposition Manager Rita Bowser both pointed out that dry storage at an ISFSI would provide assurance that long-term fuel storage at the site in the absence of a repository would not preclude the decommissioning of Rancho Seco. DX 274 at 63 (Bowser), 67 (Freeman). Other SMUD documents similarly relate the anticipated delay in DOE performance to the need to reduce storage costs and facilitate decommissioning. The 1992 staffing summary sheets that recommended authorizing contract negotiations and then approving the contract with Pacific Nuclear both specifically reference the savings that will result from the transfer of fuel to dry storage during the period of the government's delay, from 1998 to 2010. See PX 259 at 2; PX 269A. The EA, issued by the NRC in 1994, states that the "absence of a Federal repository makes storage of spent fuel in dry shielded canisters above ground SMUD's primary alternative." PX 363 at 8. Although the option of leaving the fuel in the pool was discussed, it was considered "undesirable" because of the continued costs to maintain the pool and the delay -11-

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 13 of 191

in decommissioning that would result. Id. The government's attempts to focus on these goals, to the exclusion of the government's impending breach, should be rejected. With regard to decommissioning, SMUD objects to the government's statement that Rancho Seco cannot be decommissioned until the pool is eliminated. In actuality, no matter how the fuel is stored, Rancho Seco cannot be completely decommissioned until all the fuel is removed by DOE. Tr. at 617 (Redeker, noting that "[y]ou can't decommission totally until the fuel is gone, no matter where it is, even if it is in [the] ISFSI, the dry storage, you are still not finished with decommissioning until the fuel is gone"), 735-37 (Redeker) (same); 2624 (Burford) (agreeing total decommissioning is not possible until all the fuel is picked up by DOE). 21. SMUD believed that dry storage could help it achieve both of these goals. First,

dual-purpose dry storage represented the quickest and cheapest way to decommission the Rancho Seco facility, because SMUD could not decommission its wet pool as long as any radioactive materials, including SNF, remained in the pool. DX 721, at SMUD 061592; Tr. 734:21-735:8; 736:7-737:9 (Redeker) (acknowledging cost in maintaining Part 50 license, and inability to eliminate Part 50 license until wet pool is decommissioned). In the early 1990s, SMUD estimated that ceasing wet pool operations would result in an annual savings of as much as $8 million. DX 287, at SMUD 0018294. Second, SMUD believed that dual-purpose dry storage presented the best chance of having DOE accept its SNF under the Standard Contract through the use of a Monitored Retrievable Storage ("MRS") system by 1998. Id.; Tr. 254:21-25 (Shetler) ("[I]f there was a potential for any kind of an interim storage facility that could take the fuel earlier, having fuel in a dual-purpose system would hopefully expedite the ability to get fuel moved there."); Tr. 278:15-19 (Shetler). SMUD believed that, although its first acceptance in the non-breach world would have been 2001, its SNF could be accepted earlier at an MRS if it had its SNF in dual-purpose dry storage by 1998. Tr. 704:22-705:1 (Redeker); DX 202, at Attachment at SMUD 0019251 ("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 . . . MRS."); DX 217, at SMUD 0025576 (stating that "the District believes that

-12-

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 14 of 191

by storing spent fuel in dual purpose storage and transport casks that early acceptance by DOE would be possible"). RESPONSE: SMUD objects to the government's proposed finding. Mr. Shetler explained the relation between SMUD's decommissioning strategy and SMUD's pursuit of dry storage, particularly as DOE's delay was anticipated to extend well beyond 2008: Well, the driver to go to [dual purpose dry storage] was really where we were with DOE acceptance. The decommissioning plan itself was somewhat independent of where the fuel was stored. We ultimately, because we elected to go to dry storage based on the DOE's failure to perform, did wrap in the dry storage as a piece of the decommissioning plan. The decommissioning plan envisioned that we would place the plant in some sort of safe storage mode, mothball mode. It could be done whether the fuel was in wet storage or not. And come back in 2008. If the DOE had performed under the original schedule, the fuel would have been gone by then. What we were faced with was the fact that the fuel would not be gone. Also the fact that obviously the DOE wasn't going to be performing in that timeframe, so the decision to go to dry storage was one around having to deal with the cost of storing fuel for the long-term. Decommissioning could have been accomplished whether the fuel was in dry storage or wet storage, depending on the performance of the DOE. If that continued to drag out, then ultimately we would have to do something with getting access to the spent fuel. Tr. at 216-17 (Shetler). Thus, SMUD's pursuit of dry storage to facilitate decommissioning and encourage DOE receipt of its fuel was directly related to and caused by the substantial anticipated delay in DOE performance. If DOE had been planning to perform in 1998 and SMUD had adequate assurance that it would do so, SMUD could have pursued its decommissioning strategy and planned for the certainty of DOE removal of its fuel. The government attempts to make much of the fact that SMUD documents from the early 1990s acknowledged that DOE "could" begin accepting spent fuel in 1998 through an MRS, and that, if DOE did so, the use of dual purpose dry storage could encourage prompt acceptance of SMUD's fuel. However, SMUD documents merely recognize that an MRS could be sited by 1998, that is, that such siting was technically possible, not that it was likely or that it could be done without changing the NWPA. See DX 164 at 1 (noting that dry storage would allow fuel shipment by 1998 if DOE storage were available); see also, e.g., DX 202 at 001925 (describing shipment of fuel to MRS as a "possibility"); DX 274 at 62 (explaining that the likelihood of an

-13-

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 15 of 191

MRS opening in 1998 would depend upon the passage of legislation delinking the repository and MRS). Moreover, SMUD's hope that a dual-purpose dry storage system could encourage prompt DOE acceptance of its fuel if an MRS were developed was itself driven by DOE's announcements of delay and the fact that DOE was not developing the necessary transportation casks or system that would allow it fully to perform its obligation. See Tr. at 1371-72, 1376, 1458 (Stuart). Those announcements indicated that SMUD faced a delay of at least 12 years in the removal of its spent fuel. According to the Levy report, SMUD's only hope of avoiding such an extended and costly delay was through a dual purpose dry storage system. See PX 176 at ii (discussing DOE repository delay until 2010 and explaining that transportable dry storage offered "the best opportunity" for early offsite shipment to DOE or interim onsite acceptance by DOE); id. at 65 (describing 1998 fuel acceptance as "[t]he most uncertain element" and explaining that Levy's transportable dry storage recommendation "only assumes that it is possible that this could happen"). As Mr. Shetler explained at trial, "we weren't going to get fuel moved any other way." Tr. at 349 (Shetler). Thus, as the documents cited by the government reflect, a dual purpose dry storage system allowed SMUD to keep its options open in case disposal at an MRS was possible. See DX 202 (noting such storage "offers the best opportunity explored to keep open the possibility"). 22. SMUD's own expert, Ivan Stuart, believed that SMUD's placement of its SNF

into dual-purpose dry storage increased the chances that DOE could timely accept SMUD's SNF. Tr. 1374:15-25 (Stuart). RESPONSE: SMUD does not object to the government's proposed finding of fact. SMUD notes that implicit in this comment is the likelihood that DOE would not perform its obligations under the Contract. In fact, by 1989, DOE had already announced that the repository would be delayed until at least 2010. PX 169 at vii (noting a "significant slip for the expected start of repository operations ­ from the year 2003 to approximately 2010"). 23. SMUD's pursuit of its two stated goals were wholly independent of the

Government's delay in the acceptance of SNF. Neither of these two goals, which were discussed in the early 1990s, were in any way related to the Government's post-1998 delay in the acceptance of SNF. See DPFOF ¶¶ 20-22. RESPONSE: SMUD objects to the government's finding of fact. As SMUD elaborated in its responses to DPFOF ¶ 20-22, both of these goals were intertwined with and driven by DOE's anticipated delay. That delay magnified the importance of these goals because it meant that SMUD would have to store its spent fuel for several decades, complicating SMUD's decommissioning and increasing SMUD's costs.

-14-

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 16 of 191

24.

Mr. Shetler testified that, in the early 1990 time frame, SMUD's "primary goal"

was "to try and get the fuel in the safest mode, low cost mode and ultimately in the DOE's hands as soon as possible." Tr. 150:22-151:1, Tr. 152:12-14 (Shetler). Mr. Shetler explained that "SMUD was no longer in the nuclear business, if you will. They are not going to be generating electricity from nuclear power from our perspective, it was in our ratepayer's best interest to minimize the cost and get the fuel in a position where DOE could take it." Tr. 152:16-21 (Shetler). RESPONSE: SMUD does not object to the government's proposed finding of fact. SMUD does object, however, to the use of this fact to imply that SMUD would have pursued dry storage in the non-breach world. In fact, this testimony indicates the opposite ­ that SMUD would have left its fuel in wet storage in the non-breach world to ensure prompt receipt. 25. As early as September 1989, SMUD was considering placing its SNF into dry

storage. DX 125, at SMUD 0020872 (noting that "spent fuel will be placed in wet storage in the existing spent fuel pool initially and then dry cask storage following the appropriate fuel decay period."); Tr. 268:10-23 (Shetler) (acknowledging that dry storage was an option SMUD was considering at the time and it was the option SMUD ultimately pursued); Tr. 1064:8-13 (Field) (admitting that SMUD began considering dry storage option within months after the June 1989 shutdown of Rancho Seco). In October and December 1989, SMUD assumed, for purposes of its proposed decommissioning plan, that it would place its SNF into dry storage beginning in 1995. DX 134, at SMUD 0027908; Tr. 271:22-272:1 (Shetler) (explaining that dry storage was one of the planning assumptions SMUD was considering as of December 1989); Tr. 1070:3-5, Tr. 1071:1-3 (Field) (acknowledging that, as of October 1989, dry storage was "certainly" an option, that cost studies regarding dry storage were being conducted, and that "considerable system reductions" were possible with dry storage). RESPONSE: SMUD objects to the government's proposed finding of fact. As early as 1987, the DOE began announcing delays in the expected opening of the repository. See PX 118 -15-

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 17 of 191

at 6. In a 1989 report to Congress on the status of the program, DOE announced a "significant slip for the expected start of repository operations--from the year 2003 to approximately 2010." PX 169 at vii. The 1989 Reassessment confirmed that there would be at least a 12-year delay in DOE's ability to begin the disposal of spent nuclear fuel. See also, e.g., PX 109 at 5, PX 113 at 2, 10, 22; PX 142 at 4-5; PX 143 at 15; PX 144 (additional documents from 1987 through 1989 reflecting that the federal repository would be substantially delayed). Although DOE hoped to develop an MRS as an interim facility, it recognized that this would necessitate the identification of a host state and the elimination of statutory linkages between an MRS and the repository. See, e.g., PX 143 at 15; PX 169 at x, 11-12; PX 188 at 5; PX 217 at 3-4, 19-23, 30-31; PX 231 at 4. These announcements were critical to SMUD's evaluation of its decommissioning plan and plans for storage of fuel following shutdown. DOE had already announced that the repository would be delayed by at least 12 years, and, thus, SMUD was facing delayed disposal of its fuel. SMUD investigated the option of dry storage following shutdown, and hired Saul Levy in February 1990 to conduct a formal study of SMUD's options. See PX 176. SMUD did not enter into a contract for a dual-purpose dry storage system until October 1992. See SMUD Contract E-776 (Sept. 25, 1992) (PX 267); DX 315. B. 26. SMUD's Board Of Directors Made The Decision In 1990 That SMUD Place Its SNF Into Dry Storage In February 1990, SMUD retained Saul Levy, Inc. ("Levy") as a consultant to

evaluate SMUD's storage options for its SNF. DX 144. On March 31, 1990, Levy provided SMUD a report with its ultimate conclusions. DX 165. RESPONSE: SMUD does not object to the government's proposed finding of fact. 27. Levy considered 15 different storage options for SMUD's SNF and reached the

following conclusion: The option that offered the best opportunity to keep open the possibility of early off-site shipment, potentially as early as 1998 under a Monitored Retrievable Storage facility ("MRS"), was storage of SMUD's SNF in transportable casks. DX 165, at SMP 0680004. RESPONSE: SMUD objects to the government's proposed finding of fact because it is misleading. Mr. Levy undertook a detailed analysis and submitted to SMUD a ninety-two page report summarizing his various conclusions. In summarizing what his study revealed, he stated as follows:

-16-

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 18 of 191

·

The most certain approach is continued storage in the spent fuel pool at Rancho Seco until disposal in the permanent DOE repository now scheduled at the earliest for 2010. Storage in the spent fuel pool with a simplified cooling system or in concrete storage-only casks are the lowest cost option if the Rancho Seco fuel must wait for the permanent repository. Storage in transportable casks offers the best opportunity for early offsite shipment, possibly as early as 1998, to an interim DOE storage facility. Another possibility is interim acceptance by DOE by 1998 of the spent fuel in transportable storage casks at the Rancho Seco site. Under such circumstances, transportable storage casks become the least cost and the preferred option.

·

·

PX 176 at ii (emphasis added). This summary reveals that (1) keeping the fuel in the pool was the most certain approach; (2) DOE's anticipated delay in performance was a "key assumption" in Levy's recommendations, Motion For Leave to File Testimony of S. Levy & R. Powers, dated March 7, 2005 ("Levy Motion") (Dckt. #300) at 111, 143; and (3) storage in transportable casks allowed SMUD to keep its options open for the possibility of DOE performance. 28. Levy "strongly recommended" that SMUD pursue this option in conjunction with

a demonstration program with DOE to develop the dual-purpose cask system. DX 165, at SMP 0680004. Levy explained that, to accomplish this objective, SMUD should "[e]nter into discussions with the DOE aimed at DOE acceptance of the Rancho Seco spent fuel in 1998." Id., at SMP 0680067. Notably, Levy acknowledged that: . . . the only way to be prepared for DOE success in establishing a site by 1998 is to proceed towards storage in transportable casks. No other alternative that could accomplish this objective was found in the course of this study. Id., at SMP 0680070. RESPONSE: SMUD objects to the government's proposed finding of fact. SMUD agrees that Mr. Levy recommended that SMUD pursue a demonstration program with DOE. The government's selective quoting from Mr. Levy's report, however, fails to accurately portray his recommendations. A transportable system was thought necessary to keep open the possibility of shipment precisely because the government was not developing the transportation casks and infrastructure

-17-

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 19 of 191

necessary and required by the Contract. PX 44, Art. IV.B.2. Furthermore, the government's selective quotations ignore other statements in the report which specifically discuss the likelihood of delayed fuel acceptance by DOE and the corresponding increase in fuel storage costs and complication of decommissioning for SMUD: If the ultimate disposal of [spent] fuel is in the contemplated federal repository, the costs will extend over a long period of time, especially if the federal repository gets delayed. In that sense, shutdown plants and, in particular, Rancho Seco with its forced shutdown will incur greater costs than operating plants for storage of their spent fuel and that differential will rise if the federal repository is postponed. Originally, the Department of Energy (DOE) had planned to accept spent fuel by 1998. Recently DOE has delayed the repository date to 2010 and there is a good chance that further schedule slippages may occur. * * *

It is concluded that the only certain path for rancho Seco spent fuel disposition is to continue the present secured, monitored storage in the cooled plant fuel pool until DOE pick-up under the NWPA as Amended (1987) and DOE disposal in the permanent geologic repository contemplated in that Act. The schedule for DOE pickup is currently highly uncertain with the earliest conceivable pickup date beginning in 1998 and a much more likely pickup date well after 2010. As long as the fuel remains in the fuel pool, the costs associated with security, cooling, and monitoring will continue; and furthermore, options for plant decommissioning and other uses of the site will be limited or precluded. PX 176 at 3, 59 (emphasis in original). Other portions of the Levy report repeatedly acknowledge the uncertainties surrounding DOE's spent fuel program and the possibility of an MRS. See id. at 14, 39, 55-56, 64, 65. 29. SMUD did not submit Saul Levy's report to DOE. Tr. 184:24-185:2 (Shetler).

RESPONSE: SMUD does not object to the government's proposed finding of fact. SMUD notes, however, that DOE was actively involved in the development of SMUD's dualpurpose system. Tr. at 183-88 (Shetler) (noting that SMUD had several cooperative agreement meetings with DOE wherein they sent many attendees); Tr. at 980 (Field) (noting DOE had an opportunity to review the bid specification and comment on it); PX 246 (example cooperative meeting minutes); Tr. 562-63 (Redeker) (noting SMUD submitted quarterly financial reports to DOE, including a detailed breakdown of the costs of the project); PX 514 (example quarterly report). See PFF ¶¶ 129, 296, 573.

-18-

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 20 of 191

30.

S. David Freeman, SMUD's general manager at the time, could not recall Saul

Levy or the report that Mr. Levy issued. Def. Counter-Designation D. Freeman, at Tr. 38:16-22 (5/16/02). Mr. Freeman explained his managerial philosophy as follows: Let me just state for the record that a general manager of a utility can do one of two things; they can either manage the utility or read all the paper. There is not enough time to do both, and I chose to manage the utility. So I initialed a lot of routine things without reading them and [am] proud of it. Def. Counter-Designation D. Freeman, at Tr. 48:13-22 (5/16/02). RESPONSE: SMUD objects to the government's proposed finding of fact. Mr. Freeman became SMUD's General Manager in June of 1990, and thus was not the General Manager at the time Mr. Levy prepared and presented his report to SMUD. See PX 896 at 5; Designations Appendix (Dckt. #310) at 2277 (Freeman). Furthermore, the government presents Mr. Freeman's comments about his so-called "managerial philosophy" out of context. When Mr. Freeman was handed a staffing summary sheet (of which there would have been hundreds during his period as general manager) by government counsel and asked if he recalled the particular document, Mr. Freeman made the comments cited above. Neither the comments nor the discussion at that point in the deposition had anything to do with Mr. Levy. Thus, the government's proposed finding of fact is misleading and irrelevant. To the extent the government calls into question Mr. Freeman's competence, SMUD notes Mr. Freeman had extensive experience prior to his employment at SMUD, including eight years on the Board of the Tennessee Valley Authority (five of which he served as the chairman) and five years as general manager of the Lower Colorado River Authority. Designations Appendix (Dckt. #310) at 2277-78 (Freeman). 31. Saul Levy presented his recommendations for the disposition of SMUD's SNF at

the March 21, 1990 meeting of the Rancho Seco Committee of the SMUD Board of Directors. DX 159. Levy recommended that: SMUD pursue alternative of having all of its spent fuel in transportable storage casks before 1998 primarily because it could lead to shipment to DOE facility by 1998 or to DOE interim acceptance of spent fuel at site by 1998.

-19-

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 21 of 191

Id., at SMUD 085624 (emphasis added). In explaining the rationale for recommending transportable storage casks, Levy reiterated that it "provides [the] earliest opportunity to ship fuel off-site." Id. at SMUD 085632. RESPONSE: SMUD objects to the government's proposed finding of fact. Once again, the government selectively quotes excerpts regarding the possibility of an MRS. Mr. Levy noted in his presentation that "continued storage in spent fuel pool offers the least risk and highest certainty of achievement." DX 159 at 2. The government emphasizes shipment to a DOE facility, but fails to note that an equally important option was "DOE interim acceptance of spent fuel at site by 1998." Id. Furthermore, Mr. Levy's statements with regard to DOE acceptance made clear that such acceptance was only a possibility. Mr. Levy testified that the anticipated delay in DOE performance was "the key assumption" in his report and that if he had assurances that DOE would begin accepting fuel in 1998 he would have recommended that SMUD leave its fuel in wet storage. Levy Motion (Dckt. #300) at 111, 143. Mr. Levy noted as follows: Importantly, it is concluded that selection for implementation of "the option with least risk, highest certainty of achievement and lowest overall cost," the District[']s stated objective, is dependent on Department of Energy (DOE) policies and programs. The DOE has current programs addressing unresolved issues, both political and technical, whose resolution will impact decisions for spent fuel disposal at shutdown plants in general and Rancho Seco in particular. It is concluded, however, that SMUD can proceed in ways that keep longer term options open in this uncertain climate. DX 165 at 56-57. Thus, considered in context, Mr. Levy's dual purpose dry storage recommendation, which SMUD largely pursued (albeit with less-costly dual-purpose canisters instead of a fleet of casks), was an attempt to respond to the uncertainties and anticipated delay in DOE's fuel acceptance. 32. SMUD relied upon the recommendations made by Mr. Levy in planning for the

disposition of its SNF. Tr. 273:16-20 (Shetler). SMUD management agreed with Levy's recommendation to pursue dual-purpose dry storage, and, consequently, in March 1990, SMUD's Board of Directors approved of the Rancho Seco general manager's pursuit of the purchase of a dual-purpose storage system. Tr. 172:2-7, Tr. 193:1-8 (Shetler) ("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 and look at dual purpose transportable system.").

-20-

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 22 of 191

RESPONSE: SMUD objects to the government's proposed finding of fact. SMUD did rely upon the recommendations of Mr. Levy in planning for the disposition of its fuel and SMUD did pursue a dual-purpose dry storage system, as Mr. Levy had recommended. SMUD did not, however, purchase a fleet of metal dual-purpose casks as recommended by Mr. Levy. Rather, SMUD chose to pursue less costly concrete storage-only casks. Mr. Levy discussed this option in his report, concluding that storage in concrete storage-only casks (or a modified pool) is the lowest cost option if Congressional and/or DOE policies and programs delay pick-up of the spent fuel well beyond 1998. . . . The longer the predicted storage time (after the first 2 to 5 years the fuel must remain in the pool in any event), the more economically attractive is dry storage in concrete casks relative to storage in the modified pool. DX 165 at 57. 33. After the Levy recommendation, SMUD saw dry storage as a "cheaper way" of

dealing with fuel storage that could facilitate transport to DOE perhaps even sooner than to a Federal repository. Tr. 172:17-24 (Shetler). RESPONSE: SMUD objects to the governments proposed finding of fact as misleading. Mr. Shetler noted that, in pursuing the dual-purpose system, there was 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, if another mechanism were to come up." At the time Mr. Levy made his recommendations, DOE had already announced that the repository would be delayed until at least 2010. PX 169 at vii (noting a "significant slip for the expected start of repository operations ­ from the year 2003 to approximately 2010"); see also PX 176 at 3, 14, 56-57, 59, 64, 65; SMUD's Response to DPFOF ¶¶ 21, 25. Thus, SMUD sought to keep its options open for the possibility of acceptance earlier than 2010 ­ long after DOE was obligated to begin performance under the Contract. 34. Immediately after the March 1990 Board of Directors meeting, SMUD's general

manager, David Boggs, drafted a letter to the Secretary of Energy indicating that, "[a]s a result of the [Levy] study, it was decided that the District pursue dual purpose (storage and transportation) casks or storage only casks that could be effectively interfaced with the early receipt by the DOE of Rancho Seco's spent fuel and subsequent use of the casks by DOE." DX 164 (emphasis added). Mr. Boggs' letter also assumed that DOE could identify an SNF storage site by 1998. Id.

-21-

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 23 of 191

RESPONSE: SMUD objects to the government's finding of fact. In actuality, this letter reflects the uncertainties and potentially significant delays associated with DOE's receipt of spent fuel. Mr. Boggs informed DOE that transfer of SMUD's fuel to dry storage "would allow shipment of the fuel by 1998 if a storage site is identified by DOE by that date." DX 164 (emphasis added). However, "[i]f no site is available by 1998, it would still be possible for DOE to meet its original 1998 contractual obligation through interim acceptance of the spent fuel in the storage/transportation casks at the Rancho Seco site." Id. (emphasis added). 35. Consistent with this decision to place its SNF into dry storage, Dan Keuter, the

Chief Nuclear Officer of Rancho Seco at the time, presented the results of the Levy report at the April 25, 1990 meeting of SMUD's Rancho Seco Committee. DX 174. Mr. Keuter explained SMUD's strategy as follows: [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. Id. at SMUD 0018522 (emphasis added). RESPONSE: SMUD does not object to the government's proposed finding of fact insofar as it has quoted Mr. Keuter accurately. SMUD notes that Mr. Keuter stated that "[i]f a commitment cannot be obtained, onsite concrete cask/canister storage by 1995 should be pursued." In fact, SMUD did pursue on-site concrete casks/canisters for the storage of its fuel. SMUD developed concrete horizontal storage modules, which are analogous to concrete casks, and dual purpose canisters, which were projected to be less expensive than the dual purpose casks that Mr. Keuter recommended if DOE was able to take possession of the fuel, whether onsite or off-site, in 1998, and which would also allow SMUD to eliminate the wet pool and

-22-

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 24 of 191

thereby reduce its costs during the period of DOE's delay. See Tr. at 142-45, 205-09 (Shetler); id. at 982-84 (Field). As indicated by Mr. Keuter's statement, SMUD always sought to have DOE take possession of its spent fuel, either on-site or off-site, as soon as possible. This was the original concept behind the demonstration project, see PX 176 at 33-35, and it was also the subject of subsequent requests by SMUD, see, e.g., PX 527; PX 1012. 36. By May 1990, SMUD had eliminated consideration of leaving its SNF in the wet

pool. In a presentation concerning Rancho Seco's decommissioning cost study, SMUD indicated that seven different storage options were evaluated ­ four involving dry storage and three involving wet storage. DX 179, at SMUD 0000392. The evaluation indicated that SMUD had rejected each of the wet storage options because "wet [storage is] more expensive than dry." Id. RESPONSE: SMUD objects to the government's proposed finding of fact. From the early 1990s up until SMUD actually began transferring the fuel to dry storage, at every juncture SMUD considered and evaluated the option of leaving the fuel in the pool and abandoning the dry storage project. PX 259; PX 502 at 1; PX 503; PX 519 at 18-20; PX 642; PX 689. C. 37. SMUD's Early Implementation Of Its Dry Storage Project On June 7, 1990, Rita Bowser, the Rancho Seco Nuclear Fuel Disposition Project

Manager who had the day-to-day project management oversight for implementing SMUD's dry storage project, submitted to Mr. Keuter a copy of SMUD's independent spent fuel storage installation ("ISFSI") licensing and engineering strategies. DX 188; Tr. 311:20-25 (Shetler). RESPONSE: SMUD does not object to the government's proposed finding of fact. 38. In the memorandum transmitting the strategies, Ms. Bowser explained that she

was "working with both Licensing and Engineering to immediately implement the generic licensing and design activities necessary for the establishment of the Rancho Seco [ISFSI]." DX 188, at SMUD 0019288 (emphasis added). RESPONSE: SMUD does not object to the government's proposed finding of fact. SMUD notes, however, that as early as 1987, DOE began announcing delays in the expected opening of the repository. See PX 118 at 6. In a 1989 report to Congress on the status of the program, DOE announced a "significant slip for the expected start of repository operations-- from the year 2003 to approximately 2010." PX 169 at vii. The 1989 Reassessment confirmed that there would be at least a 12-year delay in DOE's ability to begin the disposal of spent

-23-

Case 1:98-cv-00488-SGB

Document 342

Filed 11/01/2005

Page 25 of 191

nuclear fuel. Other documents from the 1987 through 1989 time period report or reflect that DOE's acceptance of spent fuel would be substantially delayed. See SMUD's Response to DPFOF ¶ 25. These announcements were critical to SMUD's evaluation of its decommissioning plan and plans for storage of fuel following shutdown. DOE had already announced that the repository would be delayed by at least 12 years, and SMUD was therefore facing delayed disposal of its fuel. SMUD investigated the option of dry storage following shutdown, and hired Saul Levy in February 1990 to conduct a formal study of SMUD's options. The DOE's anticipated delay in performing was a key assumption in Mr. Levy's work, and his report repeatedly noted the uncertainties surrounding the DOE's spent fuel program. See SMUD's Responses to DPFOF ¶¶ 27, 28. SMUD did not enter into a contract for a dual-purpose dry storage system until October 1992. See SMUD Contract E-776 (Sept. 25, 1992) (PX 267); DX 315. 39. Although Ms. Bowser and Ken Miller were project managers for the

implementation of the dry storage project, they did not have the authority to make the decision to pursue dry storage. Tr. 177:7-19 (Shetler). Ms. Bowser considered herself a "fairly junior" Rancho Seco staff member. Def. Counter-Designation of R, Bowser at Tr. 65:4-9, Tr. 96:6-10, Tr. 121:2-8, Tr. 201:6-16, Tr. 208:8-20 (9/16/04). RESPONSE: SMUD does not object to the government's proposed finding of fact. 40. During Ms. Bowser's deposition, counsel for SMUD objected to questions from

Government counsel on the basis that "Miss Bowser does not speak on behalf of SMUD." Def. Counter-Designation of R. Bowser, at Tr. 108:15-22, Tr. 154:17-18, Tr. 150:20-21 (9/16/04) (objecting to questions on grounds that it calls for speculation as to what were SMUD's intentions). RESPONSE: SMUD objects to the government's proposed finding of fact. First of all, counsel's objections are an inappropriate basis for a finding of fact. Secondly, Ms. Bowser was not an employee of SMUD at the time of her deposition, and thus counsel's objections were entirely appropriate. See Designations Appendix (Dckt. #310) at 2230 (Bowser). Furthermore, the government's proposed finding is irrelevant to the issues in this case. 41. The decision t