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

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS SACRAMENTO MUNICIPAL UTILITY DISTRICT, Plaintiff, v. UNITED STATES OF AMERICA, Defendant. ) ) ) ) ) ) ) ) ) )

No. 98-488C (Judge Braden)

DEFENDANT'S MEMORANDUM OF CONTENTIONS OF LAW AND FACT Pursuant to this Court's orders dated March 23, July 28, and October 8, 2004, and its order dated February 15, 2005, defendant, the United States, respectfully submits the following memorandum of contentions of law and fact. INTRODUCTION This case involves a claim by plaintiff, Sacramento Municipal Utility District ("SMUD"), for the past capital costs allegedly associated with the design, licensing and fabrication of a dry storage facility to store its spent nuclear fuel ("SNF").1 At trial in this case, SMUD bears the burden to establish that the incurred costs associated with SMUD's dry store storage facility are the direct result of the Government's breach of the Standard Contract between the Department of Energy ("DOE") and SMUD to remove SMUD's SNF from its Rancho Seco Nuclear Generating Station. SMUD simply cannot demonstrate that DOE's breach of the Standard Contract caused the tens of millions of dollars that SMUD now claims as damages.

SMUD has submitted two separate damages claims in this case. On April 16, 2004, SMUD submitted a damages claim to the Government totaling $60,168,598, and covering the years 1997-2003. On August 27, 2004, towards the end of fact discovery, SMUD amended its damages claim to include an additional $20,540,286, which encompasses costs incurred from 1992-1996.

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Specifically, SMUD cannot establish that DOE's breach of its obligation under the Standard Contract to begin acceptance from contract holders generally in 1998, but not from SMUD specifically until at least 2001, caused SMUD to transfer its SNF from its wet pool to a dry storage facility. Although SMUD asserts that it would have kept its SNF in wet storage had DOE not indicated its intention to breach the Standard Contract, SMUD provides no contemporaneous evidence that its decision to pursue dry storage was caused by DOE's breach. Indeed, quite the opposite is true, as the evidence establishes that SMUD's primary motivation for choosing to pursue dry storage was financial and that it believed the cost of going to dry storage would have paid for itself within two-to-three years. Facing the prospect of 16 years of wet storage under the most generous of assumptions in the non-breach world, SMUD's decision to place its SNF into dry storage made imminent economic sense without regard to DOE's breach of the Standard Contract. In addition, SMUD cannot escape the fact that the miserable performance of the Rancho Seco Nuclear Generating Station led to a ratepayer referendum that mandated the premature permanent shutdown of the facility and that SMUD viewed the dry storage option as a way to facilitate the decommissioning of the plant so that the site eventually could be converted to another use. Indeed, SMUD believed that pursuit of a dry storage system would increase the chances of, and perhaps even accelerate, DOE's performance under the Standard Contract. In other words, not only was SMUD's decision to pursue dry storage not predicated upon DOE's breach of the Standard Contract, it was predicated upon the possibility of DOE's timely or early performance. Consequently, SMUD cannot establish that, amongst all the factors leading to its decision to pursue dry storage in the early 1990s, DOE's breach of the Standard Contract, under -2-

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which DOE was not required to begin acceptance of SMUD's SNF until at least 2001, caused it to pursue dry storage of its SNF. Even if SMUD could establish causation, SMUD cannot establish entitlement to all the costs included in its damages claims. First, SMUD's damages claims do not take into account its failure properly to mitigate its alleged damages. As we will show at trial, rather than keep its SNF in its wet pool ­ in which case it would have suffered no damages to date ­ or pursue an available "off the shelf" dry storage system, SMUD made the business decision to pursue an unlicensed technology that resulted in approximately nine years of delay and tens of millions of dollars in cost overruns. Had SMUD left its SNF in the wet pool or pursued the developed dry storage technology, SMUD's costs associated with the storage of its SNF would have been significantly less. Second, SMUD's damages claims fail to take into account its possession of failed fuel and Greater Than Class C radioactive waste. As discussed below, both of these items have an effect on the timing of DOE's acceptance of SMUD's SNF, and this effect is not properly reflected in SMUD's damages claims. Third, SMUD's damages claims include costs associated with the transportation of SNF from SMUD to DOE's disposal facility. Under the Standard Contract, however, transportation of SNF is the sole responsibility of DOE, not the utilities. Accordingly, because those transportation costs are included in SMUD's claims, they should be removed and the claim reduced by that amount. Fourth, SMUD does not sufficiently deduct those costs that SMUD would have incurred but for DOE's breach and has failed to provide sufficient detail to support certain of its alleged damages. Finally, SMUD has made no attempt to deduct from its damages claims cost savings that it realized by placing its SNF into dry -3-

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storage, such as the savings associated with the facilitation of decommissioning its Rancho Seco nuclear facility. Consequently, even if SMUD could prove that it would not have pursued dry storage but for DOE's breach of the Standard Contract, an analysis of SMUD's claims reveals that many of the costs that SMUD now claims as damages should be deducted from its claims and that offset savings should be considered. STATEMENT OF FACTS SMUD's Rancho Seco Nuclear Generating Station began operating in 1975. From the outset, Rancho Seco was plagued by a poor performance history, including multiple extended outages and placement on a watch list by the Nuclear Regulatory Commission ("NRC") of reactors constituting the "greatest safety significance." Indeed, during the 14-year life span of the Rancho Seco plant, the plant was non-operational more than it was operational. Over the years, public opposition to the continued operation of Rancho Seco increased. This opposition culminated in a June 6, 1989 referendum in which SMUD's ratepayers recommended that Rancho Seco be permanently closed down. Although the referendum was non-binding, SMUD's Board of Directors agreed to abide by the wishes of the voters and shutdown the facility the following day. At the time of the premature shutdown, Rancho Seco had a licence from the NRC to operate through 2008. On December 8, 1989, following the shutdown of Rancho Seco, SMUD completed the defueling of the Rancho Seco nuclear reactor. SMUD stored all 493 of its SNF assemblies in the wet storage pool within its spent fuel building. Shortly after its decision to shutdown Rancho Seco, SMUD created a Decommissioning Task Force to initiate planning for decommissioning and to place the plant in a "protective lay-up" condition. A major component of this -4-

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decommissioning planning was the need to address the storage and disposition of Rancho Seco's SNF. As early as October 1989, one option that SMUD was considering was placing its SNF into dry storage. This option presented at least two benefits for SMUD. First, dual purpose dry storage represented the quickest and cheapest way to decommission the Rancho Seco facility, because it could not decommission its wet pool as long as SNF remained in the pool. SMUD anticipated that ceasing wet pool operations would result in an annual savings of as much as $8 million.2 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 1998.3 Indeed, SMUD believed that, if it had its SNF in dual purpose dry storage by 1998, DOE could accept SMUD's SNF at an MRS on a schedule as good as, if not better than, the schedule for acceptance at a Federal repository. In February 1990, SMUD decided to retain Saul Levy, Inc. ("Levy") as a consultant to evaluate SMUD's storage options for its SNF. Levy provided SMUD a report with its ultimate conclusions on March 31, 1990. Levy considered 15 different storage options for SMUD's SNF and reached the following conclusions:

This annual $8 million in estimated savings represented the difference between wet pool storage operation and maintenance costs and dual purpose dry storage operation and maintenance costs. In fact, this estimate likely was conservative, as it failed to take into account the significant costs savings associated with decommissioning and dismantling the wet pool. The MRS was a Federal storage facility that had been contemplated by Congress since the inception of the Nuclear Waste Policy Act in 1982. See 10 U.S.C. § 10161. The MRS would have served as interim storage until DOE could build a permanent Federal repository. See generally 42 U.S.C. § 10162(b), et seq. -53

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The most certain approach for SMUD was to continue storing its SNF in its spent fuel pool until disposal in a permanent DOE repository (which was scheduled for 2010 at the earliest). However, this option complicates Rancho Seco's decommissioning and repowering options. The option with the lowest capital costs and predictable annual operating costs was storage in the spent fuel pool with a simplified cooling system or in concrete store-only casks. 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.

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DX 165, at SMUD 0031544 (emphasis added).4 Levy "strongly recommended" that SMUD pursue this third option in conjunction with a demonstration program with DOE to develop the dual purpose cask system. Id. 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 SMUD 0031606. Notably, Levy acknowledged that: The most uncertain element remains the probability that DOE can select a site and make it ready to receive dual purpose casks by 1998. [The dual purpose cask recommendation] only assumes that it is possible this could happen. If, in the intervening eight years it is announced that this will not happen, SMUD can decide to abort pursuit of storage in transportable casks or to continue for other reasons. The other reasons to continue, for example, might be that (1) what is announced is a delay which is judged short compared to an at-that-time reassessment of the time Rancho Seco fuel would be expected to remain in the pool awaiting availability of DOE casks for pickup, or (2) that responsibility for fuel in transportable casks might be taken by DOE at shutdown plants. "DX __" refers to the Government's exhibits contained on its exhibit list, and "PX ___" refers to SMUD's exhibits contained on its exhibit list. "Pl. Br. ___" refers to SMUD's memorandum of contentions of fact and law filed on February 17, 2005. -64

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In any case, 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 SMUD 0031609 (emphasis added). Saul Levy presented his recommendations for the disposition of SMUD's SNF at the March 21, 1990 meeting of the Rancho Seco Committee.5 See 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. 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. SMUD management agreed with Levy's conclusions, and, consequently, SMUD's Board of Directors approved of the Rancho Seco general manager's pursuit of the purchase of a dual purpose storage system. At the time, SMUD assumed that it would take two-to-three years to obtain completed, licensed casks. DX 160, at SMUD 085619. 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." See DX 164 (emphasis The Rancho Seco Committee was a committee of the SMUD Board of Directors that oversaw activities at Rancho Seco related to the demobilization of the workforce and development of future plans. -75

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added). Notably, Mr. Boggs' letter also assumed that DOE could identify a storage site by 1998. See id. Dan Keuter, the Chief Nuclear Officer of Rancho Seco at the time, presented the results of the Levy report at the April 25, 1990 Rancho Seco Committee meeting. See 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). SMUD's contemporaneous documents unequivocally reflect that, by May 1990, SMUD had eliminated consideration of leaving its SNF in the wet pool. For example, 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. See 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.

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On June 7, 1990, Rita Bowser, the Rancho Seco Nuclear Fuel Disposition Project Manager who had the responsibility for developing SMUD's dry storage system, submitted to Mr. Keuter a copy of SMUD's independent spent fuel storage installation ("ISFSI") licensing and engineering strategies.6 See DX 188. 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]." Id. (emphasis added). That same month, Ms. Bowser requested that a work order be opened for "licensing and engineering activities related to dry storage disposition."7 See DX 187. The following month, SMUD filed with the NRC a document entitled "Plan For Ultimate Disposition of Rancho Seco Nuclear Generating Station." See DX 194. The document, which is a regulatory requirement, served to "provide the NRC with a status report in the form of advance and preliminary District plans for the ultimate disposition of [Rancho Seco], prior to the filing of the District's [decommissioning plan]." Id., at SMUD 0025395. Consistent with its prior discussion of its intentions, this document reiterates SMUD's plan to place its SNF into dry storage. See id. at SMUD 0025406. Further, similar to its previous statements, SMUD once again expressed its belief that an MRS was expected to be in operation in "about 1998." See id. at SMUD 0025438.

An ISFSI is a dry storage complex used for the storage of SNF and other radioactive materials. SMUD appears to have requested charges at least $4.025 million dollars to this work order prior to 1992. See DX 258; DX 187. -97

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On May 20, 1991, SMUD submitted its proposed decommissioning plan to the NRC. In its plan, SMUD reiterated its intention to place its SNF into dry storage, to have its ISFSI licensed and constructed by 1993, and to transfer its SNF to dry storage by 1998. See DX 248. Further, consistent with SMUD's March 1990 draft decommissioning cost study, SMUD's April 1991 decommissioning cost study that it submitted to the NRC in conjunction with its proposed decommissioning plan again assumed that an MRS would be available to begin accepting SNF by 1998. See DX 237, at 0025652. On October 3, 1991, Rancho Seco management presented its decommissioning plan, including its dry storage strategy, to the SMUD Board of Directors. At this meeting, Ms. Bowser made a presentation concerning SMUD's ISFSI. DX 274, at SMUD 0027428. The following exchange occurred: MS. BOWSER: As a best case, without any negotiations with other utilities which are permitted to improve your place in the queue, they accept it in a policy that's called OFF, oldest fuel first. The first assemblies from Rancho Seco would be scheduled to be received three years after a facility opens, be that a monitored retrievable storage facility or a final repository. That's in the best case. And it would take approximately ten years from the opening of the facility or an additional seven years from the receipt of our first fuel for them to take the remainder of our assembly. In a worst case, it would be considerably longer, perhaps up to 20, 25 years. PRESIDENT SMELOFF: So, it's three years after the Federal Government develops an MRS that they would be required to begin to take spent fuel. MS. BOWSER: Yes. They may take our first assembly in the best case. .... PRESIDENT SMELOFF: And is that likely to be 1998 or is that ­

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MS. BOWSER: At this time, 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 from the MRS. Right now, the two are linked so that you can't actually start to operate an MRS until you've sited a final repository. With the situation at Yucca Mountain, that seems like it will be tied up in litigation for a while. So, there is actually legislation in the Congress to delink the facilities which would make an MRS likely in 1998. Id. at SMUD 0027465-66 (emphasis added). Consequently, although SMUD acknowledged that congressional action may be necessary to "de-link" the MRS from the construction of a Federal repository, SMUD management clearly believed that such de-linking was "likely."8 The following day, SMUD submitted to the NRC its application to construct and operate an ISFSI. See DX 276. On October 17, 1991, the SMUD Board of Directors issued a resolution approving "the proposal to construct a spent fuel storage facility." DX 282. SMUD issued requests for proposals ("RFPs") for the design and fabrication of the dual purpose casks in December 1991. See DX 293. This was seven years prior to the Government's expected acceptance of SNF on an industry-wide basis, and 10 years prior to date that SMUD believed DOE was obligated to begin accepting SMUD's SNF. More importantly, as discussed above,

In its pretrial brief, SMUD appears to focus upon the linkages between the establishment of an MRS and the Federal repository, concluding that the MRS was never a viable option for the disposal of SNF. Pl. Br. at 14, 18. Whether these linkages were actually an impediment to the creation of an MRS is largely irrelevant for purposes of determining SMUD's damages. Rather, the relevant inquiry is whether SMUD based its decision to pursue dry storage upon its belief that an MRS would be available to accept its SNF. As is clear from the contemporaneous documents in this case, SMUD believed that an MRS could be operational beginning in 1998 and that, because SMUD would be one of the first utilities to have its SNF in dual purpose dry storage, DOE could accept SMUD's SNF on a timely basis consistent with the Standard Contract. Indeed, as we will demonstrate at trial, SMUD actively worked with certain Indian tribes during the early 1990s in an attempt to site an MRS. Further, we will show that, throughout the early 1990s, DOE was actively pursuing an MRS. - 11 -

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SMUD's decision to place its SNF into dry storage was expressly predicated upon the belief that DOE could accept its SNF at an MRS on a timely basis consistent with the Standard Contract, and potentially even earlier. On April 2, 1992, the SMUD Board of Directors approved of the evaluation process and criteria proposed by Rancho Seco management to be used in the selection of a vendor for the dual purpose casks. DX 348. Three months later, Rancho Seco management requested that the Board authorize SMUD's general manager to negotiate and execute a contract with Pacific Nuclear Services, Inc. to purchase dual purpose casks. The staffing summary sheet presented to the Board of Directors containing the request explained: In 1990, the Board of Directors, as a result of a District study performed by S. Levy, Inc., concurred the General Manager should pursue the purchase of a dual purpose casking method. The purpose of this activity was to enable the District to dry store Rancho Seco spent nuclear fuel at an onsite location, shutdown the Spent Fuel Building, and further reduce decommissioning cost. See DX 344 (emphasis added). On July 7, 1992, the Board of Directors passed a resolution authorizing the general manager to enter into a contract with Pacific Nuclear. See DX 348. In September 1992 ­ six years before DOE was obligated to begin SNF acceptance on an industry-wide basis, and nine years before, based on SMUD's belief, DOE was obligated to begin acceptance of SMUD's SNF ­ the Pacific Nuclear contract was signed. See DX 372. SMUD chose to contract with Pacific Nuclear despite the fact that, unlike Nuclear Assurance Corporation ("NAC"), another vendor that submitted a response to SMUD's RFP, Pacific Nuclear had never successfully licensed a transportation cask.

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In 1993, for reasons entirely unrelated to the timing of DOE's acceptance of SMUD's SNF, SMUD reevaluated its SNF storage options and decided to continue pursuing dry storage. DX 425. In this 1993 evaluation of spent fuel options, SMUD included a "base case" which assumed that SMUD would place its SNF into dry storage and assumed a 2000 start date for DOE acceptance of SNF. Id. at SMUD 0027393. Clearly, one component of SMUD's early 1990s strategy for fuel disposition was to have DOE begin acceptance of its SNF by 1998.9 On May 24, 1994, DOE published a Notice of Inquiry ("NOI") regarding its responsibility to accept SNF after January 31, 1998, and sought comments from the nuclear industry. PX 351; 59 Fed. Reg. 27007 (May 25, 1994). Specifically, DOE requested industry comments upon: (1) whether it had a statutory obligation to accept SNF beginning in 1998 in the absence of an operational repository; (2) the need for interim offsite storage prior to the opening of a permanent repository; and (3) the potential option of offsetting some of the financial burden to the industry through the use of the Nuclear Waste Fund. Id. SMUD submitted comments in response to DOE's NOI on September 21, 1994. See PX 351. In its response, SMUD explained that: After a referendum of SMUD's electorate on June 6, 1989, Rancho Seco ceased operating on June 7, 1989. Since then, SMUD has been proceeding with activities to begin the decommissioning of Rancho Seco and to provide required assurances to the NRC that the District will have sufficient funds available to pay for the decommissioning. However, SMUD has not provided funds in its Decommissioning Trust for spent fuel storage after 2010. When

SMUD again reevaluated its dry storage decision in 1997. DX 718. It is undisputed that the sole reason SMUD revisited its decision at this time was because of significant vendor performance issues SMUD was experiencing and the associated increase in costs experienced by the dry storage project. Contrary to the implication contained in SMUD's pretrial brief, SMUD did not reconsider its dry storage decision or decide to continue pursuing dry storage as a result of the Government's future breach. - 13 -

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funded in 1991, the Trust assumed that DOE would accept all of Rancho Seco's fuel starting in 1998, including the queue, by 2010. DX 462, at SMUD 0019624 (emphasis added).10 Indeed, as late as December 8, 1994, SMUD continued to believe that DOE could timely accept SMUD's SNF. In a presentation as part of a public workshop, SMUD management indicated that SMUD assumed performance from DOE between 1998 and 2013. See DX 481. It is acknowledged by SMUD employees that SMUD's planning during this time period was predicated upon DOE's plan for an MRS by 1998. Further, as late as October 1996, Mr. Shelter, SMUD's chief nuclear officer, believed that: [t]he economic aspects of keeping spent fuel in the spent fuel pool as opposed to dry storage indicate that the capital costs associated with dry storage can be recovered in less than two years and a substantial amount can be recovered over the period the plant is in SAFSTOR. See DX 657, at MOF 023696 (emphasis added).11
10

These statements are consistent with the December 2, 1991, presentation SMUD made to the California Senate Committee on Energy and Public Utilities, in which it indicated that one of its waste disposal assumptions was that an MRS may be available by 1998. See DX 291, at SMUD 0029411. SMUD suggests in its pretrial contentions that DOE could have implemented "the socalled Fort St. Vrain solution, by taking title to SMUD's SNF at the Rancho Seco site and reimbursing SMUD for the on-site dry storage costs." Pl. Br. at 24. As we will show at trial, the facts and circumstances concerning Fort St. Vrain are entirely different from the situation at SMUD. In 1965, the Government entered into a contract with the Public Service Company of Colorado ("PSCC") to construct an experimental nuclear generator. See generally State of Idaho v. U.S. Dep't of Energy, 945 F.2d 295 (9th Cir. 1991). In order to implement the terms of the contract, the Government and PSCC entered into an agreement in which the Government agreed to purchase the fuel generated by the experimental reactor from PSCC upon shipment of the fuel to a Government facility in Idaho. Id. at 296. However, when the State of Idaho opposed the shipment of the fuel, the Government and PSCC agreed that the Government would purchase the fuel on-site at Fort St. Vrain. Therefore, the overwhelming majority of fuel at Fort St. Vrain is owned by the Government, and the Government agreed to pay PSCC for the on-site dry storage - 14 11

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SMUD initially estimated that its dry storage project would be completed by 1995 and that it would have its SNF loaded into dual purpose casks and canisters by 1998. However, because of vendor and subvendor performance issues, poor management oversight, and licensing challenges resulting from its choosing of an unlicensed technology, SMUD did not complete its dry storage project until 2001 ­ approximately six-and-a-half years after scheduled completion, and did not complete loading its SNF into the dual purpose dry storage system until 2002. ARGUMENT I. SMUD CANNOT ESTABLISH THAT THE GOVERNMENT'S FAILURE TO BEGIN THE ACCEPTANCE OF SMUD'S SNF BY 2001 CAUSED ITS PURPORTED DAMAGES A. Contentions Of Law Regarding Causation

This Court's predecessor, the Court of Claims, adopted a basic rule for awarding damages for common law breach of contract: In awarding compensatory damages, the effort is made to put the injured party in as good a position as that in which he would have been put by full performance of the contract, at the least cost to the defendant and without charging him with harms that he had no sufficient reason to foresee when he made the contract. Northern Helex Co. v. United States, 207 Ct. Cl. 862, 875, 524 F.2d 707, 713 (1975) (emphasis added) (quoting Restatement of Contracts § 329 cmt. e). To recover damages, a plaintiff "must prove the requirements for an award of damages by a preponderance of the evidence," and these "requirements include: causation, foreseeability, and reasonable certainty in the amount of damages." Alaska Pulp Corp. v. United States, 59 Fed. Cl. costs of the Goverment's and PSCC's SNF at Fort St. Vrain. Of course, under the Standard Contract, SMUD owns and is responsible for its SNF until the Government takes title to SMUD's SNF. - 15 -

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400, 413-14 (2004). According to the precedent of this circuit, SMUD bears the burden of introducing clear proof that it was injured as a direct result of DOE's delay in accepting SMUD's SNF. Myerle v. United States, 33 Ct. Cl. 1, 27 (1897). The venerable decision in Myerle continues to represent the binding standard of this circuit. California Fed. Bank v. United States, 395 F.3d 1263, 1267-68 (Fed. Cir. 2005) (rejecting the "substantial factor" test and explaining that the claimed damages must "inevitably and naturally, not possibly nor even probably flow from the defendant's breach," and that this causal connection between the breach and the claimed losses must be "definitely established."); Glendale Fed. Bank v. United States, 239 F.3d 1374, 1382 (Fed. Cir. 2001) (non-breaching party may recover reliance "damages for any losses actually sustained as a result of the breach"). Further, the "measure of damages to be applied in the particular case is irrelevant until the claimant has established the fact of losses that were the natural and proximate result of the breach of contract." Willems Indus., Inc. v. United States, 155 Ct. Cl. 360, 376, 295 F.2d 822, 831 (1961). "Absent tangible proof of damages, [a party] may not recover for an alleged injury." Roseburg Lumber Co. v. Madigan, 978 F.2d 660, 667 (Fed. Cir. 1992). To be recoverable, damages must be direct and not the result of any intervening incident. See Ramsey v. United States, 121 Ct. Cl. 426, 434, 101 F. Supp. 353, 357 (1951). "For a damage to be direct there must appear no intervening incident . . . ; the cause must produce the effect inevitably and naturally, not possibly nor even probably." Id. Further, "[t]here must not be two steps between cause and damage." Myerle, 33 Ct. Cl. at 27. Similarly, the loss must be one which the non-breaching party can show that, "but for" the breach of contract, would not have been suffered: - 16 -

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[T]he loss for which a recovery may be had in an action against a wrongdoer must be the result of the wrong inflicted. The party complaining must show, not only that he has suffered a loss, but also that it would not have been incurred, but for the wrongful act of his adversary . . . . Fawick Corp. v. United States, 149 Ct. Cl. 623, 637 (1960) (emphasis added) (quoting Osage Oil & Ref. Co. v. Chandler, 287 F. 848, 852 (2d Cir. 1923)); see San Carlos Irrigation & Drainage Dist. v. United States, 111 F.3d 1557, 1563 (Fed. Cir. 1997) ("[a] plaintiff must show that but for the breach, the damages alleged would not have been suffered" (emphasis added)); accord United Indus. Syndicate, Inc. v. Western Auto Supply Co., 686 F.2d 1312, 1316 (8th Cir. 1982) ("[t]he fundamental measure of contract damages is that which places the nonbreaching party in the position it would have been but for the breach"). Additionally, SMUD has the burden to establish "reasonable certainty" as to each item within its damages claims. Wells Fargo Bank, N.A. v. United States, 88 F.3d 1012, 1023 (Fed. Cir. 1996); see Restatement (Second) of Contracts § 352 cmt. a ("[a] party cannot recover damages for breach of a contract for loss beyond the amount that the evidence permits to be established with reasonable certainty"). B. Contentions Of Fact Regarding Causation 1. SMUD's Decision To Pursue Dry Storage Is Unrelated To The Timing Of DOE's Performance Under The Standard Contract

As demonstrated by SMUD's contemporaneous documents and the testimony of its witnesses, SMUD cannot demonstrate that its claimed damages were caused by the Government's breach. SMUD initially considered pursuing dry storage in 1989 ­ nine years before DOE's obligation to begin SNF acceptance from the nuclear industry, and 12 years before DOE could

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have been obligated to begin SNF acceptance from SMUD. At the time, SMUD believed that the cost of placing its SNF into dual purpose dry storage would pay for itself within two-to-three years. More importantly, as late as 1994, SMUD believed that DOE could accept SMUD's SNF through an MRS, and that such acceptance would be consistent with DOE's obligations under the Standard Contract. In fact, SMUD believed that, by being one of the first utilities to utilize a dual purpose dry storage system, there was the potential that DOE could accept SMUD's SNF on an accelerated basis. Further, SMUD's contemporaneous documents unambiguously reflect that, as early as 1991, SMUD intended to pursue some form of dry storage regardless of the timing of DOE's performance under the Standard Contract. Cliff Hamal, the Government's expert economist, has conducted an economic evaluation of SMUD's decision to place its SNF into dry storage and is expected to explain at trial that SMUD would have developed dual purpose dry storage technology regardless of the timing of DOE's performance. Mr. Hamal is expected to explain that SMUD had at least five primary reasons for committing to dry storage for its SNF, none of which were dependent upon the timing of DOE's performance. These considerations included: (1) annual operating cost savings of approximately $8 million; (2) the reduction in health, environmental, and safety concerns as compared to wet storage; (3) dry storage would facilitate the decommissioning of Rancho Seco, including the abandonment of SMUD's wet pool and the termination of its Part 50 license; (4) dry storage would facilitate the reuse of the Rancho Seco site for other purposes, such as building a new power generation facility; and (5) the use of transportable casks would potentially allow for earlier acceptance than SMUD otherwise expected under existing acceptance schedules.

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Consequently, SMUD cannot show that DOE's breach of its contract with SMUD caused SMUD to incur the costs associated with its dry storage project. In apparent recognition of the tenuousness of its claim, SMUD seeks to push its decision to pursue dry storage forward in time by claiming that it continuously reevaluated its original decision.12 Specifically, SMUD asserts in its contentions that DOE's breach of the Standard Contract caused SMUD to decide to continue the development of its dry storage project. Pl. Br. at 51-53. As we will show at trial, SMUD's contention is contradicted by the facts in this case. First, as we have discussed above, we will show at trial that SMUD's decision to pursue its dry storage process was driven by a desire to encourage timely ­ and perhaps early ­ acceptance of SMUD's SNF by DOE and to facilitate the process of decommissioning the Rancho Seco plant. See, e.g., DX 165; DX 194. The fact that SMUD reevaluated this decision several times over the decade that it took to implement its dry storage system does not alter the reasons behind that decision. Simply put, because there is no causal link between the breach and SMUD's 1990 dry storage decision, there can be no link between the breach and SMUD's revisiting of that decision. Second, we will establish at trial that SMUD's reevaluations of its dry storage decisions were driven solely by the poor performance of its dry storage vendors and the extraordinary In submitting its claims to the Government in this case, SMUD itself recognized the importance of the timing of its dry storage decision. Although SMUD clearly had incurred dry storage costs as early as 1990, SMUD's first claim submitted on April 16, 2004, included costs beginning in 1997. See PX 762. When we asked SMUD personnel why the claim did not include pre-1997 costs, they explained that they had removed those costs from the claim at the direction of counsel. Holst depo., p. 67 at 22 - p. 68 at 2. It was only after we established that, had SMUD's dry storage project not been delayed, its post-1997 costs would have been minimal at most did SMUD submit its second claim in which it now claimed the roughly $20 million in dry storage coss costs incurred between 1992 and 1997. See PX 787. - 19 12

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delays they experienced in designing, licensing, and manufacturing SMUD's dry storage facility, not DOE's breach of the Standard Contract.13 II. SMUD CANNOT PROVE ITS BASIC ASSUMPTION THAT DOE WAS OBLIGATED TO ACCEPT SNF AT AN ANNUAL RATE OF 3,000 MTUs OR AT A SPECIFIC "RAMP-UP" RATE FOR THE FIRST FIVE YEARS A. Because SMUD Elected To Pursue Dry Storage Without Regard To The Acceptance Rate, Resolution Of This Issue Is Unnecessary Here

SMUD spends a great deal of time in its pretrial brief explaining why, had DOE begun accepting SNF from utilities beginning in 1998, it would have accepted at a 3,000 Metric Ton Unit ("MTU") annual receipt rate. Pl. Br. at 36-44. Yet SMUD does not explain how a 3,000 MTU rate of acceptance would affect its damages claims in this case. Indeed, there is absolutely no evidence in this case that SMUD's decision was predicated upon a particular rate of acceptance of its SNF by DOE. As explained above, regardless of the timing of DOE's performance, SMUD would have pursued dry storage. Consequently, a determination of the appropriate rate of acceptance is unnecessary for determining damages in this case. Moreover, because SMUD does not seek future damages, or damages for the operation and maintenance of its dry storage facility, a determination of the appropriate rate of acceptance will have little, if any, effect on SMUD's damages claims in this case.14
13

Indeed, as we discuss below, SMUD's decision to stay the course of pursuing the NUHOMS dual purpose dry storage system in the face of mounting costs and delays is further evidence of its failure to mitigate its damages by switching to either a store-only cask or the NAC-STC dual purpose dry storage system which, by 1995, had been fully licensed for transportation by the NRC. Indeed, as a technical matter, SMUD was unable to remove all of its SNF from its pool before 1995 because it would take this long for its more recently discharged fuel to cool sufficiently to place into dry storage. Unlike other SNF cases, in which plaintiffs have sought future damages, the parties in this case have stipulated that SMUD will seek damages in this case only through 2003. - 20 14

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B.

DOE Expressly Rejected The Industry's Request To Include A Particular Rate Of Acceptance In The Standard Contract

To the extent the Court believes it is necessary to resolve this issue, as discussed in detail in the Government's motion for partial summary judgment concerning the rate and schedule of acceptance and, as we are prepared to demonstrate at trial, SMUD cannot establish that DOE was obligated to accept SNF at a annual rate of 3,000 MTUs, or that it was required to utilize a specific "ramp up" rate for the first five years of SNF acceptance.15 Although the Standard Contract provides that DOE would begin SNF acceptance by January 31, 1998, it contains no criteria obligating DOE to continue that acceptance after January 31, 1998, at any particular rate. See 10 C.F.R. § 961.11, Art. II. SMUD asserts that, "[h]ad the government met its contractual obligations to SMUD, it would have removed all SNF from SMUD's Rancho Seco facility by 2006 at the latest . . ." Pl. Br. at 36. SMUD appears to contend that DOE contractually obligated itself to accept SNF and/or HLW at a rate that (1) would eliminate the need for utilities to provide additional on-site storage after January 31, 1998, and (2) would work off the backlog of SNF and/or HLW already stored by utilities up until that deadline. SMUD asserts that, to meet this goal, DOE would have to accept SNF at a rate of 3,000 metric tons uranium ("MTUs") per year, after a short five-year "ramp-up" period. SMUD's basic assumptions are wholly in error and unsupported by either the Standard Contract or the Nuclear Waste Policy Act ("NWPA"). These issues are fully discussed in our pending motion for partial summary judgment upon the rate of spent nuclear fuel acceptance issues, dated November 28, 2001, and we respectfully incorporate the arguments raised in that motion here. As evident from that motion, no trial is necessary to resolve the rate of acceptance issues because they may be decided as a matter of law. However, to ensure that these issues are preserved in the event that the Court denies our summary judgment motion, we will briefly summarize that motion. - 21 15

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The evidence is completely contrary to SMUD's assertions that DOE was required to create an acceptance rate that satisfied SMUD's two-part "test." As the Court is aware, DOE published the Standard Contract at issue here as a "proposed rule" in the Federal Register. See 48 Fed. Reg. 5458, 5462 (Feb. 4, 1983). In response to that proposed rule, several nuclear utilities and industry groups submitted comments, requesting, among other things, that DOE place into the Standard Contract an obligation requiring DOE to accept SNF at some predetermined minimum rate or to adopt as contractual obligations the acceptance rates that would be identified in the statutorily-required Mission Plan. See, e.g., DX 76.063, DX 76.034, DX 76.043, DX 76.017, DX 76.036. Although "[a]ll comments received by DOE in response to its proposed rule of February 4, 1983, both at the public hearing and the written comments received thereafter, were carefully reviewed and fully considered in the formulation of this final rule," 48 Fed. Reg. 16,590, 16,590 (Apr. 18, 1983), DOE declined to agree to such requests. In the final Standard Contract that it promulgated in the Federal Register, DOE intentionally excluded the creation of any contractual obligations to meet any pre-determined acceptance rate or to satisfy the two part "test" that SMUD has proposed. Instead of agreeing to a specific minimum acceptance rate or creating standards that would obligate DOE to satisfy a minimum rate, the Standard Contract creates a contractual mechanism for the development of a specific acceptance schedule that establishes, in essence, a two-phase process. First, the Standard Contract's schedule terms seek to obtain the agreement of the parties to a specific schedule for the acceptance of an individual contract holder's SNF. Pursuant to the terms of the Standard Contract, DOE was to issue, beginning not later than July 1, 1987, "an annual capacity report [("ACR")] for planning purposes," identifying "projected - 22 -

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annual receiving capacity" at any DOE facilities and annual acceptance ranking for acceptance of contract holders' SNF and/or HLW for the first 10 years "following the projected commencement of operation of the initial DOE facility." 10 C.F.R. § 961.11, Art. IV.B.5(b). Subsequently, beginning on April 1, 1991, DOE was to issue "an annual acceptance priority ranking" ("APR") for receipt of the contract holders' SNF, "based on the age of SNF and/or HLW as calculated from [its] date of discharge." Id., Art. IV.B.5(a). Second, the contract holder, "[a]fter DOE has issued its proposed acceptance priority ranking" on April 1, 1991, and no earlier than January 1, 1992, would submit a delivery commitment schedule ("DCS") identifying "all SNF and/or HLW the [contract holder] wishes to deliver to DOE beginning sixty-three (63) months thereafter," for DOE's approval or disapproval. 10 C.F.R. § 961.11, Art. V.B.1 (emphasis added). If DOE approves the DCS, the parties have effectively agreed and defined the amount of SNF that DOE will accept from that contract holder 63 months later. Id. If DOE disapproves the first DCS submission, the contract holder is entitled to make a second DCS submission, again for DOE's approval or disapproval. Id. If DOE approves the second DCS submission, the parties have, as stated above, effectively defined the amount of SNF that DOE will accept from that contract holder 63 months later. Id. If DOE disapproves the second submission, DOE responds with its own proposed schedule, which the contract holder may accept or, alternatively, may attempt to negotiate with DOE, with a right to appeal to the Energy Board of Contract Appeals if the disagreement cannot be resolved through negotiation. Id., Art. V.B.2 & XVI.A; see McDonnell Douglas Corp., ASBCA No. 26747, 83-1 BCA ¶ 16,377, at 81,421 (1983) (boards of contract appeals "[h]istorically and traditionally" assumed jurisdiction over non-monetary "disputes as to the interpretation of contract provisions - 23 -

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and determination of the rights and obligations of the parties under the provisions of the contract"). Nothing in those terms creates an obligation upon DOE's part to accept SNF at a rate that: (1) would eliminate the need for utilities to provide additional on-site storage after January 31, 1998; and (2) would work off the "backlog" of SNF. In fact, SMUD can identify absolutely no contractual language in the Standard Contract creating any such obligation. Further, the integration clause in the Standard Contract, Article XXII.A, expressly precludes reading any unwritten "agreement" into the contract: "Any representation, promise, or condition not incorporated in this contract shall not be binding on either party," and "[n]o course of dealing or usage of trade or course of performance shall be relevant to explain or supplement any provision contained in the contract." DX 88, Art. XXII.A. SMUD's proposed requirement for a rate that precludes additional at-reactor storage and reduces the "backlog" of SNF violates standard rules of contract interpretation. As this Court recently recognized in another SNF case in response to the same argument that SMUD is raising here, "[n]one of the demanded terms is found in the contract; and it is clear that the parties shared no meeting of the minds regarding those terms, as was made clear to all during contract negotiations." Florida Power & Light Co. v. United States, No. 98-483C, 2005 WL 318678, at *30 (Fed. Cl. Jan. 31, 2005). Further, it is clear that, even if the Court were to accept parol evidence to determine whether the contract contains any such obligation, SMUD consistently understood that it did not. In interpreting the requirements of a contract, the behavior of parties before the "advent of controversy" is often more revealing than the contract language alone. Omni Corp. v. United States, 41 Fed. Cl. 585, 591 (1998). "A principle of contract interpretation is that the contract - 24 -

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must be interpreted in accordance with the parties' understanding as shown by their conduct before the controversy." Julius Goldman's Egg City v. United States, 697 F.2d 1051, 1058 (Fed. Cir. 1983), cert. denied, 464 U.S. 814 (1983). Here, the history of the notice-and-comment rulemaking itself is extremely clear in evidencing that DOE did not obligate itself to satisfy SMUD's two-part test and that the nuclear utilities were well aware of that fact. See, e.g., DX 76.063, DX 76.034, DX 76.043, DX 76.017, DX 76.036, DX 88. Further, in submitting DCSs to DOE in the early 1990s, SMUD never complained that the acceptance rates upon which DOE had requested the contract holders base their DCSs were somehow inappropriate or in conflict with the requirements of the Standard Contract. DX 366, DX 381, DX 389, DX 400. SMUD's "understanding" that DOE had some minimum acceptance rate obligation was created after disputes about timely SNF acceptance began. The contemporaneous evidence should preclude any litigation-driven reading of SMUD's two-part test into the Standard Contract. C. SMUD's Equation Of The Acceptance Rate With The Annual Capacity Of A Federal Repository Is Inappropriate

SMUD appears to assert that the 3,000 MTU rate is somehow mandatory because it has appeared in numerous DOE planning documents. Pl. Br. at 40. However, the documents upon which SMUD relies to show DOE's eventual "intent" to accept 3,000 MTUs of SNF annually depend upon the existence of an operational repository. Id. The Standard Contract, however, does not require DOE to begin SNF acceptance at a repository. To the contrary, the language of the Standard Contract explicitly contemplates that DOE may accept SNF either at a repository or at "such other facility(ies) to which [SNF] and/or [HLW] may be shipped by DOE prior to its transportation to a disposal facility." DX 88, Art. I.10. In fact, between the proposed rule and

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the final rule, the definition of the type of "facility" to which DOE could deliver SNF was expanded to expressly state, "in accordance with the [NWPA], that there may be an interim storage facility (or facilities) which DOE may utilize prior to emplacement in a repository." 48 Fed. Reg. 16590, 16591 (Apr. 18, 1983). As we discussed in prior briefing upon summary judgment, pursuant to the rationale of the United States Court of Appeals for the District of Columbia Circuit in Indiana Michigan Power Co. v. Department of Energy, 88 F.3d 1272 (D.C. Cir. 1996), DOE was not obligated to have an operational repository by January 31, 1998. Accordingly, SMUD should be precluded from arguing that DOE was somehow obligated to accept SNF at the rates it had anticipated for SNF acceptance at a repository. Because DOE was entitled to accept SNF at a facility other than a repository, SMUD's reliance upon planning documents relating to SNF acceptance at a repository is meaningless. Further, the planning documents upon which SMUD relies uniformly and expressly indicate that they are "not contractually binding," that they do not establish acceptance rates that create mandatory obligations, and that they were only for planning purposes. Pl. Br. at 40. Each Annual Capacity Report issued between 1987 and 1990 expressly advised contract holders that, in 1991, but not before, DOE would begin publishing firm individual utility acceptance schedules in accordance with the contracts, including shipment allocations. See DX 105, DX 11, DX 218. Although SMUD appears to rely in part upon the 1985 Mission Plan and its drafts to establish DOE's "intent" to accept SNF at a 3,000 annual rate, several commenters, prior to the promulgation of the final Standard Contract, had requested that DOE add a contract provision obligating itself to accept SNF at whatever rates were identified in the Mission Plan. See DX 76.043, DX 76.072. However, DOE intentionally declined to create any such obligation. See 48 - 26 -

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Fed. Reg. 5458, 5463 (Feb. 4, 1983); 48 Fed. Reg. 16590, 16592 (Apr. 18, 1983); DX 88.16 SMUD has identified no language in which DOE somehow agreed or even suggested that the acceptance rates in any planning documents which DOE issued were contractually binding or constituted anything other than DOE's hopes and goals for its program.17 See National ByProducts, Inc. v. United States, 186 Ct. Cl. 594, 558-59, 405 F.2d 1256, 1263 (1969) ("[b]efore a representation can be contractually binding, it must be in the form of a promise or undertaking . . . and not a mere statement of intention, opinion, or prediction"). D. SMUD's Claim That It Would Have Had Early Fuel-Out Dates Because DOE Would Have Granted It Priority As A Shutdown Facility Or That It Would Have Engaged In Exchanges Of Its Queue Position Is Unsupported By Any Evidence

SMUD also asserts that it is "likely" that it could have delivered its SNF to DOE even earlier than 2006 through the use of the Standard Contract's priority for shutdown reactor and
16

Importantly, the 1985 Mission Plan upon which SMUD relies was created pursuant to a statutory requirement for submission to Congress. 42 U.S.C. § 10221(b)(3). After DOE submitted the 1985 Mission Plan and a 1987 Mission Plan Amendment to Congress, Congress enacted the 1987 amendments to the NWPA, presumably after considering DOE's Mission Plan submissions and evaluating the state of DOE's program. As it was entitled to do, Congress significantly modified the scope of the program at that time, limiting DOE's focus for development of a repository to one site, Yucca Mountain, and establishing linkages between an MRS facility and a repository. 42 U.S.C. §§ 10133, 10161-69. SMUD's reliance upon documents prepared for Congress that relate to possible circumstances and scenarios that could have existed prior to congressional review of and action upon those pre-amendment planning documents does not support its argument that DOE has somehow obligated itself to accept SNF at a 3,000 MTU rate, regardless of whether a repository is available. To the extent that the Court finds it necessary to define a rate of SNF acceptance for the Standard Contract, nothing in the Standard Contract precludes DOE from performing at a minimal rate of acceptance. As discussed in our motion for partial summary judgment, at most, the acceptance schedule to which DOE could be held to perform cannot exceed the rates contained in the DCSs that it approved, given that SMUD never took any actions prior to 1998 (or any time thereafter) to establish SNF acceptance amounts 63 months in the future (as required by the DCS provision) greater than those identified in the 1991 through 1995 ACRs and APRs. - 27 17

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exchanges provisions. Pl. Br. at 42. As we will show at trial, this assertion is completely unsupported by the evidence in this case. Although Article VI.B.1(a) provides that "acceptance priority shall be based upon the age of the SNF and/or HLW . . .," it contains an exception to that general rule: "Except as may be provided for in subparagraph (b) below . . . ." 10 C.F.R. § 961.11, Art. VI.B.1(a). Subparagraph (b) of Article VI.B.1 defines that exception: "Notwithstanding the age of the SNF and/or HLW, priority may be accorded any SNF and/or HLW removed from a civilian nuclear reactor that has reached the end of its useful life or has been shut down permanently for whatever reason." Id. (emphasis added). The use of the word "may" in relation to priority reflects the permissive nature of this provision. See Huston v. United States, 956 F.2d 259, 262 (Fed. Cir. 1992) ("[w]hen, within the same statute, Congress uses both "shall" and "may," it is differentiating between the mandatory and discretionary tasks"); Green v. Gen. Servs. Admin., 220 F.3d 1313, 1318 (Fed. Cir. 2000) (agency had discretion to permit employee to withdraw from separation agreement because regulation uses the word "may"); Hubbard v. Merit Sys. Prot. Bd., 205 F.3d 1315, 1320 (Fed. Cir. 2000) (words such as "may" show intent to provide broad discretion). To the extent that SMUD alleges that the Court should find that DOE was obligated to provide, or would have provided, priority in acceptance of its SNF, such an allegation is completely unsupported by the evidence in this case. First, this provision provides DOE with the discretion, not the obligation, to provide a contract holder with a shutdown reactor priority in the SNF acceptance queue. Second, the testimony and SMUD's contemporaneous documents will firmly establish that SMUD has never believed that DOE was obligated to exercise its discretion to grant it priority. Nor did SMUD believe that, in fact, DOE would grant it priority as a shut - 28 -

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down reactor. Indeed, in SMUD's contemporaneous planning documents, it has never assumed priority for shutdown reactors. As previously discussed, in interpreting the requirements of a contract, the behavior of parties before the "advent of controversy" is often more revealing than the contract language alone, Omni, 41 Fed. Cl. at 591, and a "principle of contract interpretation is that the contract must be interpreted in accordance with the parties' understanding as shown by their conduct before the controversy." Julius Goldman's Egg City, 697 F.2d at 1058. SMUD's current interpretation of the priority provision conflicts with its pre-litigation interpretation.18 Further, SMUD's claim that it is "likely" that it would have engaged in exchanges ignores the fact that, under the Standard Contract, DOE is entitled, "in its sole discretion," to disapprove any proposed exchange approval. Had any requests for exchanges been submitted to DOE, DOE could have disapproved them for numerous legitimate reasons, including equity to other utilities or increased costs to DOE and the Nuclear Waste Fund resulting from the proposed exchange. The mere fact that DOE has the discretion to disapprove exchange requests renders SMUD's hypothetical exchanges argument speculative. See San Carlos Irrigation, 111 F.3d at 1563 ("[t]oo many contingencies ­ including, most importantly, the discretion of the agency to dispose of excess water ­ exist in the causal chain from the government's breach to the asserted lack of water.").

In addition, SMUD's contention that it is "likely" that it would have received priority as a shutdown facility completely ignores the fact that it has consciously placed its SNF into "multiple element sealed containers" ("MESCs"), commonly referred to as "canisters," which currently constitute a nonstandard waste form under the Standard Contract. Because DOE is not obligated pursuant to the Standard Contract to accept SMUD's SNF in its current configuration, SMUD cannot show that it would have received priority in the DOE acceptance schedule as a shutdown reactor. - 29 -

18

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Additionally, SMUD has produced no evidence that it would have engaged in exchanges. Nor has it identified the contract holders with which it would have engaged in exchanges. In fact, the evidence in this case demonstrates that, when SMUD was approached by another utility to engage in an exchange of queue slots, SMUD declined the utility's offer. Consequently, SMUD cannot meet its burden of demonstrating that it would have been granted priority by DOE or that it would have engaged in exchanges. Certainly, it cannot establish the manner in which it would have reached a specific fuel-out date ­ through specific exchanges with specific contract holders ­ and it has identified no contract holders (all of which are plaintiffs in the SNF cases pending before the Court) that are willing to move their SNF acceptance allocations (for purposes of their own damages claims) back in the acceptance queue based upon "would have been" exchanges with SMUD. This lack of evidence precludes post hoc reliance upon exchanges to establish the fact of injury. III. EVEN IF THE COURT ACCEPTS THAT SMUD PURSUED DRY STORAGE AS A DIRECT RESULT OF THE GOVERNMENT'S BREACH, MANY OF SMUD'S DAMAGES ARE NOT RECOVERABLE A. Contentions Of Law Regarding Damages

SMUD has the burden of establishing that each of the claimed damages is incremental to DOE's partial breach and that, had there been no delay, SMUD would not have incurred those costs. Willems Indus., 155 Ct. Cl. at 376, 295 F.2d at 831 (damages must be caused by the breach). As the Federal Circuit has explained, "[t]o derive the proper amount for the damages award, the costs resulting from the breach must be reduced by the costs, if any, that the plaintiffs would have experienced absent a breach." Bluebonnet Sav. Bank v. United States, 339 F.3d 1341, 1345 (Fed. Cir. 2003). SMUD also must provide appropriate documentary or other - 30 -

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support from its records to establish its damages claims. Roseburg, 978 F.2d at 667 (plaintiff must provide adequate support for claimed costs). The contractor's failure to present any documentary support for its assertions that it incurred costs, precluding the Government from verifying that the costs were incurred and the reasons for their incurrence, preclude any recovery of those costs. Barrow Utils. & Elec. Co. v. United States, 20 Cl. Ct. 113, 121 (1990). Finally, SMUD must establish that its alleged damages are not speculative. San Carlos Irrigation, 111 F.3d at 1563 (plaintiff may not recover speculative damages). If SMUD fails to meet its burden with regard to any particular claimed damage, it cannot recover that claimed damage, and SMUD cannot place upon the Government the burden of disproving a presumption that each of its damages is adequately supported and reasonably certain. See Quiman, S.A. v. United States, 39 Fed. Cl. 171, 183 (1997), aff'd, 178 F.3d 1313 (Fed. Cir. 1999). The burden of proof in this case rests squarely upon SMUD. Further, it is axiomatic that, after a breach of contract has occurred, a non-breaching party is obligated to mitigate its damages. See id. at 185; Midwest Indus., Painting of Florida, Inc. v. United States, 4 Cl.Ct. 124, 133 (1983) ("[T]he nonbreaching or injured party may not recover those damages which could have been avoided by reasonable precautionary action on its part."); see also Koppers Co. v. Aetna Cas. & Sur. Co., 98 F.3d 1440, 1448 (3d Cir. 1996) (applying Pennsylvania law) (duty to mitigate only "arises upon defendant's breach of the contract."). "As a general rule, a party cannot recover damages for loss that he could have avoided by reasonable efforts." Robinson v. United States, 305 F.3d 1330, 1333 (Fed. Cir. 2002) (emphasis in original, citation omitted). The duty of mitigation reflects the policy of encouraging an injured party to attempt to avoid loss when it can do so without undue risk or burden. In this way, the amount of - 31 -

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damages that the injured party could have avoided by taking reasonable steps to reduce its damages are subtracted from the amount that would otherwise have been recoverable as damages. See Restatement (Second) of Contracts § 350 cmt. b (1981); Dittmore-Freimuth Corp. v. United States, 182 Ct. Cl. 507, 390 F.2d 664, 679 (1968). B. Contentions Of Fact Regarding Damages 1. Summary

Even if SMUD could demonstrate that it decided to place its SNF into dual purpose dry storage as a result of the Government's breach, the damages claims that SMUD has presented in this case are fundamentally flawed.19 Damages are generally defined as the incremental difference in costs incurred between the non-breach and breach worlds.20 SMUD has failed to adequately present its view of the "but for" world, either through expert or fact witne