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

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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 MEMORANDUM OF CONTENTIONS OF FACT AND LAW

OF COUNSEL: David S. Neslin Timothy R. Macdonald ARNOLD & PORTER LLP 370 Seventeenth Street, Suite 4500 Denver, CO 80202 (303) 863-1000 February 17, 2004

Howard 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

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TABLE OF CONTENTS Page I. II. INTRODUCTION AND SUMMARY OF ARGUMENT ..................................................1 STATEMENT OF FACTS ..................................................................................................6 A. B. C. D. E. F. G. III. The Beginning Of DOE's SNF Program ­ 1983 Through 1986. ............................6 DOE Announces Likely Delay In Repository Operations ­ 1987 Through 1988..........................................................................................................................9 SMUD Closes Its Reactor And Evaluates Its Options In Light Of DOE's Announcements Of Delay ­ 1989 Through 1991. .................................................11 SMUD Pursues The Design Of Dry Storage Canisters With DOE Support / DOE Announces Additional Delay ­ 1991 Through 1994..................................13 SMUD Proceeds With Development Of On-Site Dry Storage / DOE Declares It Has No Obligation ­ 1995 Through 1997. ..........................................23 SMUD Continues To Reevaluate Its Dry Storage Project / DOE Encourages Utilities To Develop Dry Storage ­ 1998 Through 2000...................30 SMUD Completes The Fuel Transfer / DOE Experiences Further Setbacks To Its SNF Program ­ 2001 Through 2004. ..........................................................33

ARGUMENT.....................................................................................................................34 A. B. The Government Has Breached Its Obligations Under The Contract And SMUD Should Be Awarded Its Resulting Damages. ............................................34 Had The Government Properly Performed, It Would Have Picked Up All SNF From SMUD By 2006 At The Latest. ...........................................................36 1. The Government Would Have Performed at a 3,000-Ton Receipt Rate. ...........................................................................................................36 a. b. 2. A 3,000-Ton Receipt Rate Is Necessary to Satisfy the Intent of the Parties. .................................................................................37 The Receipt Rate Would Equal the Annual Capacity of DOE's Disposal Facilities, Which Is 3,000 Tons. .........................40

At an Annual Receipt Rate of 3,000 Tons, DOE Would Have Picked Up All of SMUD's SNF by 2006 At the Latest and Likely Several Years Sooner.................................................................................41

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C.

Expectation Damages Are Appropriate In This Case Because SMUD's Costs Were Reasonably Foreseeable, Were Caused By The Government's Breach, And Are Reasonably Certain....................................................................44 1. 2. The Need for Additional Storage Was A Reasonably Foreseeable Consequence of a Breach of the Contract..................................................44 As A Direct Result of DOE's Impending Breach, SMUD Developed and Implemented Its Dry Storage System. ..............................47 a. b. The Government's Breach of Contract Caused SMUD to Decide in the Early 1990s to Develop Dry Storage.......................48 The Government's Breach of Contract Also Caused SMUD to Decide in the Mid-to-Late-1990s to Continue With Its Dry Storage Project........................................................................51

3. D. E. F. IV.

The Costs SMUD Incurred Have Been Established With Reasonable Certainty. ................................................................................53

SMUD's Dry Storage Costs Are Also Recoverable As Cost Of Mitigation Or Alternative Performance...................................................................................55 Offsets To Damages Claim....................................................................................59 Breach Of Good Faith And Fair Dealing...............................................................60

CONCLUSION..................................................................................................................63

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TABLE OF AUTHORITIES Pages CASES Alabama Power Co. v. United States, 307 F.3d 1300, 1302 (11th Cir. 2002) .......................................................................... 6, 41, 63 Augustine Medical, Inc. v. Progressive Dynamics, Inc., 194 F.3d 1367, 1374 (Fed. Cir. 1999)..................................................................................... 39 Bluebonnet Savings Bank F.S.B. v. United States, 266 F.3d 1348, 1355 (Fed. Cir. 2001)................................................................... 35, 44, 46, 47 Boston Edison Company v. United States, Opinion and Order dated Feb. 15, 2005, at 20.................................................................. 47, 62 Cal. Fed. Bank v. United States, Nos. 03-5070, 03-5082, 2005, WL 95171, at *3 (Fed. Cir. Jan. 19, 2005) ...................... 47, 48 Centex Corp. v. United States, 395 F.3d 1283, slip op. at 37 (Fed. Cir. Jan 19, 2005)............................................................ 61 Chain Belt Co. v. United States, 115 F. Supp. 701, 714 (Ct. Cl. 1953)................................................................................ 56, 57 Cienega Gardens v. United States, 38 Fed. Cl. 64, 79 (1997) ........................................................................................................ 56 Coast Fed. Bank, F.S.B. v. United States, 48 Fed. Cl. 402, 408 (2000) .................................................................................................... 44 Commonwealth Edison Co. v. United States, 56 Fed. Cl. 652, 667 (2003) .................................................................................... 7, 19, 46, 62 David Nassif Assocs. v. United States, 557 F.2d 249, 259-60, 263 (Ct. Cl. 1977)............................................................................... 36 David Nassif Assocs. v. United States, 644 F.2d 4, 7-9 (Ct. Cl. 1981)................................................................................................. 36 Energy Capital Corp. v. United States, 302 F.3d 1314, 1320 (Fed. Cir. 2002)..................................................................................... 44 Essex Electro Eng'rs, Inc. v. Danzig, 224 F.3d 1283, 1291 (Fed. Cir. 2000)..................................................................................... 61 Estate of Berg v. United States, 687 F.2d 377, 379 (Cl. Ct. 1982) ............................................................................................ 34

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Glendale Fed. Bank, F.S.B. v. United States, 378 F.3d 1308, 1313 (Fed. Cir. 2004)..................................................................................... 53 Home Sav. Of Am., F.S.B. v. United States, 57 Fed. Cl. 694, 726 (2003) .................................................................................. 44, 53, 55, 56 Hughes Communications Galaxy, Inc. v. United States, 271 F.3d 1060, 1066 (Fed. Cir. 2002)....................................................... 34, 44, 46, 47, 55, 56 In re Cambridge Biotech Corp., 186 F.3d 1356, 1375 (Fed. Cir. 1999)..................................................................................... 39 In re Kellett Aircraft Corp., 186 F.2d 197, 198 (3d Cir. 1950)............................................................................................ 56 Indiana Michigan Power Co. v. United States, 57 Fed. Cl. 88, 99 (2003) .......................................................................................................... 7 Indiana Michigan Power Company v. Department of Energy, 88 F.3d 1274 (D.C. Cir. 1996) .............................................................................. 10, 19, 24, 41 Indiana Michigan Power v. United States, 60 Fed. Cl. 639, 648 (2004) .................................................................................................... 58 Koby v. United States, 53 Fed. Cl. 493, 497 (2002) .................................................................................................... 56 Locke v. United States, 283 F.2d 521, 526 (Ct. Cl. 1960) ...................................................................................... 44, 53 Massachusetts Bay Transp. Auth. v. United States, 129 F.3d 1226, 1232 (Fed. Cir. 1997)..................................................................................... 34 McAbee Constr. Inc. v. United States, 97 F.3d 1431, 1434 (Fed. Cir. 1996)....................................................................................... 39 Northern Helex Co. v. United States, 524 F.2d 707, 718 (Ct. Cl. 1975) ............................................................................................ 56 Northern States Power Co. v. United States, 128 F.3d 754, 757 (D.C. Cir. 1997) ........................................................................................ 25 Robinson v. United States, 305 F.3d 1330, 1334 (Fed. Cir. 2002)..................................................................................... 57 Rumsfeld v. Freedom NY, Inc., 329 F.3d 1320, 1330 (Fed. Cir. 2003)..................................................................................... 61

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San Carlos Irrigation & Drainage Dist. v. United States, 111 F.3d 1557, 1562-63 (Fed. Cir. 1997) ......................................................................... 34, 47 Tennessee Valley Authority v. United States, 60 Fed. Cl. 665, 674 n.10 (2004) ................................................................................ 46, 57, 58 Unihealth v. U. S. Healthcare, Inc., 14 F. Supp. 2d 623, 627 (D.N.J. 1998) ................................................................................... 36 Yankee Atomic Elec. Co. v. United States, No. 98-126C, 2004 WL 1535688, at *7 (Fed. Cl. June 28, 2004).......................... 7, 46, 58, 61 STATUTES 42 U.S.C. § 10131..................................................................................................................... 6, 45 42 U.S.C. § 10138......................................................................................................................... 10 42 U.S.C. § 10165......................................................................................................................... 10 42 U.S.C. § 10168................................................................................................................... 10, 41 42 U.S.C. § 10172......................................................................................................................... 10 42 U.S.C. § 10221........................................................................................................................... 8 Nuclear Waste Policy Act of 1982, Pub. L. No. 97-245, 96 Stat. 2201 (codified at 42 U.S.C. §§ 10101-10270)............................ 6 U.C.C. § 2-712 (1997) .................................................................................................................. 55 OTHER AUTHORITIES 10 C.F.R. Part 71........................................................................................................................... 13 10 C.F.R. Part 72........................................................................................................................... 13 48 Fed. Reg. 16,590, 16,593 (Apr. 18, 1983) ......................................................................... 43, 46 48 Fed. Reg. 5458, 5458 (Feb. 4, 1983) ....................................................................................... 10 59 Fed. Reg. 27,007, 27,008 (May 25, 1994) ................................................................... 10, 19, 20 60 Fed. Reg. 21,793, 21,794 (May 3, 1995) ..................................................................... 10, 23, 51 62 Fed. Reg. 1095 (Jan. 8, 1997) .................................................................................................. 29 8 Williston on Contracts § 19:40 (4th ed.).................................................................................... 41

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H.R. Rep. No. 101-536 (1991)................................................................................................ 14, 16 H.R. Rep. No. 97-795, pt. 1, at 38 (1982)..................................................................................... 10 Restatement (Second) Contracts § 350 ......................................................................................... 57 Restatement (Second) of Contracts § 204 (1981) ................................................................... 36, 39 Restatement (Second) of Contracts § 205 (1981) ......................................................................... 61 Restatement (Second) of Contracts § 33 (1981) ........................................................................... 36 Restatement (Second) of Contracts § 347 (1981) ....................................................... 34, 44, 55, 56 Restatement (Second) of Contracts § 351, (1981) ........................................................................ 44 Restatement (Second) of Contracts § 352 (1981) ......................................................................... 44

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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 MEMORANDUM OF CONTENTIONS OF FACT AND LAW I. INTRODUCTION AND SUMMARY OF ARGUMENT This Court has already held that the Department of Energy ("DOE") breached its Contract with Plaintiff Sacramento Municipal Utility District ("SMUD"), ruling that "the Government was obligated under the June 14, 1983 DOE Standard Contract to begin accepting SNF and/or HLW from utilities no later than January 31, 1998," and that the government's failure to begin such services constituted a breach of contract. Memorandum Opinion dated Jan. 19, 2005 at 14 ("Memorandum Opinion"). Accordingly, the remaining issue for resolution at trial is the amount of damages caused by the government's breach.1 The DOE's inability to begin disposal services as required by the Contract was apparent long before the January 31, 1998 start date. As early as 1987, the DOE began announcing delays
1

Sacramento Municipal Utility District's Amended Complaint also includes Fifth Amendment Takings claims. See Amended Complaint, Counts IV & V (Aug. 30, 2004). On July 30, 2004, this Court denied the government's motion to dismiss the Takings claims, and subsequently deferred those claims for resolution after the present trial. See Supplemental Scheduling Order dated Sept. 23, 2004 at 1. Thus, the upcoming trial has been limited to SMUD's damages arising from the breach of contract.

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in the expected opening of the repository. See 1987 OCRWM Draft Mission Plan Amendment at 6 (Pl. Ex. 118). 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." See Report to the Congress by the Secretary of Energy on Reassessment of the Civilian Radioactive Waste Management Program ("1989 Reassessment") (Nov. 29, 1989) (Pl. Ex. 169). 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 and high-level radioactive waste (collectively "SNF" or "fuel"). DOE recently acknowledged that there would be further delay in the opening of the repository, now estimating a start date of 2012, with additional delay likely. See Doug Abrahms, Yucca Mountain Opening Pushed Back 2 Years, 2005 WL 62548304, Gannett News Serv. (Feb. 8, 2005). If SMUD had done nothing to address the consequences of DOE's long-announced delays, SMUD could have left all of its SNF ­ 493 assemblies ­ in indefinite storage in its wet pool at the reactor site.2 In that case, SMUD would have been entitled to recover the resulting increased decommissioning costs and the costs of at least an additional 14 years of wet pool storage costs resulting from DOE's 1998 to 2012 delay. These damages likely would be significantly more than the damages sought here.3
Having utilities maintain their fuel in the pool until DOE disposal was the very premise of the NWPA and the Contract. See Draft OCRWM Mission Plan (Dec. 20, 1983) (Pl. Exs. 58, 59). DOE decidedly did not want and did not intend for there to be mini on-site storage facilities at nuclear reactors across the country. See id.; Memorandum from Williamson re: Mission Plan Strategy (Sept. 15, 1983) (Pl. Ex. 50). Under the Contract, the plan was for utilities to store SNF in their wet pool after discharge from the reactor core, DOE would bring transport casks for accepting the fuel, utilities would load the "bare" fuel into the transport casks, and DOE would transport the casks to the repository. Most of SMUD's estimates for the annual cost of wet pool storage range from $6 million to $12 million per year. Thus, the minimum 14-year delay would have resulted in wet pool damages of between $84 million and $168 million. In addition, SMUD would have been entitled to recover the increased costs to decommission the facility as a result of the DOE's delay, a cost that would have been many tens of millions of dollars. If the start date of the
3 2

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SMUD, however, did not simply leave its SNF in the wet pool while awaiting eventual DOE performance and incurring higher storage and decommissioning costs. Instead, SMUD sought to minimize its losses resulting from DOE's indefinite delay. Starting in 1992, SMUD pursued the design, licensing, and fabrication of its own on-site storage facility, referred to as an Independent Spent Fuel Storage Installation or ISFSI, for the long term dry storage of its spent fuel.4 Because SMUD's dry storage project experienced significant regulatory and technical hurdles ­ including the bankruptcy of its primary vendor in 1997 ­ SMUD reevaluated its storage options many times between 1992 and 2001. After each reevaluation, SMUD decided to continue pursuing an on-site dry storage facility because of the then-announced certain breach by DOE. Following the 1997 bankruptcy of its vendor, SMUD entered into a new contract with a different vendor to complete the dry storage project. SMUD completed the project and loaded all of its fuel into the dry storage facility in late 2002.5 At any point prior to 2002, SMUD could have left its SNF in the pool and likely incurred greater costs and greater damages as a result of the 14-year delay in DOE performance. DOE, however, supported SMUD's move to an on-site storage facility, both by contributing $2 million

Footnote continued from previous page
repository is actually 2015, as most experts believe ­ including the government's own expert in the Yankee cases, then SMUD's wet pool and decommissioning damages would be even higher. Because a dry storage facility is a passive system, it requires fewer personnel for oversight, monitoring, and security. SMUD's estimates for the annual cost of operating and maintaining such a facility generally have ranged from $1.5 million to $4.5 million per year. Thus, there is a significant savings in annual operating costs between wet and dry storage. The development of the dry storage facility consisted of, among other things, the design, licensing, and fabrication of twenty-one dual-purpose canisters, twenty-two Horizontal Storage Modules, a dual-purpose transport cask, a new road, a transport trailer, a sophisticated security apparatus and security boundary, development of canister and cask loading procedures, extensive training for fuel loading and transfer, and modifications to the site and facility.
5 4

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toward the project through a Cooperative Agreement and by encouraging the industry to develop canister-based dual-purpose storage systems like that procured by SMUD. Indeed, after announcing delays in 1993 and 1994, the government explicitly considered providing utilities with dry storage canisters to alleviate the burden caused by DOE's delay. Today, more than 25 utilities at 43 reactor sites have or are developing on-site dry storage facilities similar to those at SMUD. Even the United States Navy, whose SNF is to be delivered to the repository as well, has chosen to store its spent fuel in a system similar to that at SMUD. DOE documents and officials have publicly recognized the benefits of the dual-purpose dry storage systems as the best alternative to cope with DOE's extended delay, and they are planning to incorporate such systems into their permanent repository for SNF. SMUD's costs related to the development of its on-site storage facility totaled $78,558,212 between 1992 and 2003.6 As described more fully in Section III.D., infra, SMUD has agreed to offsets to these costs totaling $1,954,810. Thus, SMUD's damages claim in this case totals $76,603,412. These costs were reasonably foreseeable, were caused by the government's failure to perform under the Contract, and have been established with reasonable certainty. SMUD is therefore entitled to recover this amount as damages in this case. Set forth below in Table 1 is a chart showing SMUD's costs in millions by year:

6

By agreement of the parties and order of this Court, the damages trial will involve SMUD's costs through 2003. The parties agreed, and the Court entered an Order, that allows SMUD to bring future actions against the government for costs incurred after 2003.

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SMUD's Costs for On-Site Storage Development

Line 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

Order 465031 4000371 701547 4000372 4000114 4002862 604025 604026 701804 702035 702036 702468 705184 701843 702459 4002100 4002281 604028 703088

Work Order Description General Support Spent Fuel General Support Spent Fuel Spent Fuel Offload & Storage Spent Fuel Offload & Storage Fuel Offload & Storage Nuclear Fuel Storage Construct ISFSI Spent Fuel Disposition Site Improvement/Fuel Gantry Crane Refurbishment Gantry Crane Upgrade Computer Project - ISFSI Security Fuel Off-load Training DOE/SMUD Demonstration Project DOE/SMUD Demonstration Project Warranty Modifications Lifting Lugs Warranty Modifications - Cask/Can Interface Cask Impact Limiter Drop Test Vectra-SMUD In Kind Support $

1992 84,630 531,430 $ 616,060 $

1993 239,078 1,242,191 86,123 $ 1,567,392 $

1994 (23,367) 194,646 829,234 1,654,969 45,779 1,431 123,754 $ 2,826,446 $

1995 25,486 633,494 1,152,472 7,623,850 401,902 567,723 3,646 318 5,704 $ 10,414,595 $

1996 7,284 254,624 391,602 628,954 1,499,991 111,404 180 4,469 52,226 $ 2,950,734 $

1997 110,106 201,714 231,306 3,116,577 203,984 7,095 (18,393) 33,995 61 25,741 20,932 $ 3,933,118 $

1998 20,869 147,041 106,483 896,011 160,913 22,101 3,978 24,866 $ 1,382,262 $

1999 146,483 309,776 2,645 108,978 11,435,529 528,107 208,314 459,712 $ 13,199,544 $

2000 (64,715) 271,536 31,393 46,925 7,004 2,049 14,031,074 346,895 21,876 1,039,408 $ 15,733,445 $

2001 562,656 366 1,992,111 273 689 11,519,049 106,300 230,909 299,542 2,922 2,978 $ 14,717,795 $

2002 698,301 1,787,254 604,328 6,848,288 34,366 492,547 5,354 $ 10,470,438 $

2003 (360) 616,344 (152) 65,462 65,089 $ 746,383

Total Claim $ 222,146 1,532,133 1,773,054 3,826,290 9,922 1,220,672 3,146,521 59,527,770 3,393,699 7,095 660,734 1,075,011 1,804,016 13,585 103,151 2,922 2,978 215,581 20,932 $ 78,558,212

Annual Totals

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II.

STATEMENT OF FACTS A. The Beginning Of DOE's SNF Program ­ 1983 Through 1986.

On January 7, 1983, President Reagan signed into law the Nuclear Waste Policy Act of 1982 ("NWPA"), Pub. L. No. 97-425, 96 Stat. 2201 (codified at 42 U.S.C. §§ 10101-10270). The NWPA required that the government provide for the safe, permanent disposal of spent nuclear fuel. In the NWPA, Congress expressly acknowledged that "[a] national problem had been created by the accumulation of spent nuclear fuel from nuclear reactors." 42 U.S.C. § 10131(a)(2). Congress recognized that "[f]ederal efforts during the past 30 years to devise a permanent solution to the problems of civilian radioactive waste disposal have not been adequate." Id. § 10131(a)(3). Thus, one of the key purposes of the NWPA was to impose upon the government a firm schedule and deadline by which the government would assume responsibility for the disposal of commercially-generated SNF ­ and that date was January 31, 1998. See id. at § 10131(b)(1). On June 14, 1983, SMUD, as the owner of the Rancho Seco nuclear power plant in Sacramento County, entered into a Contract with DOE for the disposal of its SNF. See generally Contract for the Disposal of Spent Nuclear Fuel No. DE-CR01-83NE44415.000 between DOE & SMUD (June 14, 1983) (Pl. Ex. 44). As this Court previously held, SMUD's Contract created an unconditional obligation for the DOE to begin taking SNF no later than January 31, 1998, and to continue to do so until all wastes have been disposed of. Contract Art. II. See Memorandum Opinion at 14; Alabama Power Co. v. United States, 307 F.3d 1300, 1302 (11th Cir. 2002) ("The NWPA thus established a quid pro quo; the Government would provide a valuable service and utilities would pay money for this service."). In fulfillment of its obligations under the Contract, SMUD paid DOE all fees required under the Contract, amounting to more than $40 million

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dollars. Gov't Answer at ¶ 22. All told, the contracting utilities have paid DOE fees, including interest, amounting to more than $19 billion. Because of the short time period in which the Contract was put together, DOE recognized that it contained "numerous omissions, inconsistencies, ambiguities and contradictions," see ACR Issues Status Report (Dec. 31, 1991) (Pl. Ex. 237), including the absence of a specific acceptance rate. Nonetheless, DOE interpreted both the NWPA and the Contract to require the DOE to accept SNF at a rate and schedule that was sufficient to avoid the need for additional atreactor storage after January 31, 1998 and to reduce the backlog of fuel accumulated prior to that date so that utilities could decommission their reactors in a timely manner. See generally SMUD's Cross-Motion for Partial Summary Judgment on the Acceptance Rate, dated December 16, 2002 ("SMUD Rate Brief"). DOE documents and officials have confirmed that the designed acceptance rate for the repository is 3,000 tons today and has been 3,000 tons since the outset of the program. See L. Barrett Dep. at 49-60, 117-122 (Apr. 22, 2002); Yankee Trial, pp. 4168-69 (Aug. 5, 2004) (D. Zabransky); Yankee Trial, pp. 4021-23 (Aug. 4, 2004) (T. Pollog). Furthermore, the undisputed evidence demonstrates that DOE intended to operate the program with an acceptance rate of 3,000 tons in order to achieve the objectives described above. See, e.g., Yankee Atomic Elec. Co. v. United States, No. 98-126C, 2004 WL 1535688, at *7 (Fed. Cl. June 28, 2004); Indiana Michigan Power Co. v. United States, 57 Fed. Cl. 88, 99 (2003) (recognizing that the record contains "uniform support" for the conclusion that "DOE believed that acceptance of SNF and/or HLW at a steady state rate of 3,000 tons annually was necessary to prevent additional on-site storage after 1998 and to begin to eliminate the accumulated backlog of SNF and/or HLW onsite"); Commonwealth Edison Co. v. United States, 56 Fed. Cl. 652, 667 (2003); see also

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Memorandum Opinion & Order (Braden, J.) dated July 30, 2004, at 5 n.3 (noting that the 10,000ton limit in the 1987 Amendments "is a reduction in DOE's original obligation to dispose of up to 3,000 tons of SNF per year, as of January 31, 1998, until all the SNF has been disposed"). From the outset of the program, DOE also assured the utilities that, if repository operations were delayed, DOE still would carry out the purposes of the NWPA and the Contract by taking other necessary steps to help utilities avoid additional onsite storage costs after 1998. For example, shortly after the Contracts were signed in 1983, DOE wrote: "The main plan is to have an operating geological repository in 1998 . . . . If by 1994 it is known that the first repository will be delayed, then . . . to be able to accept fuel in 1998 . . . . DOE will take title to the spent fuel, have it placed in dry storage casks and pay a rental fee to the utility to store the casks onsite at the reactor." Memorandum from Williamson re: Mission Plan Strategy (Sept. 15, 1983) (Pl. Ex. 50); see also, e.g., 1984 Draft Mission Plan, Vol. II, at 9-6 (Pl. Ex. 69) (noting that, "if the Department fails to meet the schedule shown in Table 9-2 [3,000-ton rate after a five year ramp-up], then the additional storage capacity needed to accommodate the delay in schedule will be provided by the Department, possibly at reactor sites"); Memorandum from T. Overcast to E. Moore (Apr. 26, 1984) (Pl. Ex. 70) ("Rosselli stated that DOE `plans to provide the capability to accept waste at the reactor site in accordance with the waste acceptance schedule so that utilities will not be required to continue adding additional storage capacity beyond 1998.") (emphasis added). In 1985, as required by the NWPA, DOE published and submitted to Congress a Mission Plan that provided utilities and other stakeholders with information "sufficient to permit informed decisions to be made in carrying out the repository program and the research, development, and demonstration programs required under this [Act]." 42 U.S.C. § 10221(a).

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The Mission Plan outlined two plans for SNF acceptance by DOE. 1985 Mission Plan (Pl. Ex. 91). The "authorized system" had the opening of the repository in 1998, with an acceptance rate of 3,000 tons after the fifth year of operation. Id. at 26-27. The "improved performance plan" had a Monitored Retrievable Storage ("MRS") facility opening in 1996, accepting 2,200 tons before 1998 and 3,000 tons per year starting in 1998, and the repository opening in 1998. Id. DOE believed that an MRS could serve as a staging ground for optimizing and increasing the shipment of waste to the repository.7 Id. at 282-84. DOE made clear that a potential MRS would not be a substitute for the opening of the repository, but rather an enhancement to the system that would allow DOE to accept more waste and do so starting in 1996. Id. DOE recognized that if it delayed opening the repository and MRS, utilities would be forced to add dry storage facilities at reactor sites to accommodate the delay. Id. at 19. Nonetheless, DOE reassured utilities that "DOE is committed to accept waste from the signatories of the Standard Contract on a firm schedule beginning no later than January 31, 1998." Id. at 97. B. DOE Announces Likely Delay In Repository Operations ­ 1987 Through 1988.

In 1987, in its published Mission Plan Amendment, DOE announced a five-year delay in the proposed opening of the repository. See OCRWM Mission Plan Amendment at 6 (June 1987) (Pl. Ex. 118); Draft Mission Plan Amendment at 5 (Jan. 1987) (Pl. Ex. 109). To accept waste despite the delay, the DOE proposed opening an MRS facility in 1998 with repository operation commencing in 2003. Id. at 12-13; see also Monitored Retrievable Storage

7

The idea of the MRS facility was that it could be designed more quickly than a repository because it was an aboveground, temporary storage facility, not unlike the facility that SMUD ended up building.

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Submission to Congress at 1 (Mar. 1987) (Pl. Ex. 113). As noted in the 1985 Mission Plan, however, the MRS was never intended to be a substitute for the repository.8 In December 1987, Congress passed the Nuclear Waste Policy Amendments Act, Pub. L. 100-120, 101 Stat. 1329-1401, 1329-121 ("1987 Amendments"). The 1987 Amendments provided that the DOE was to consider only Yucca Mountain in Nevada as a repository site. 42 U.S.C. § 10172(a). In addition, to prevent an MRS from becoming a substitute for the repository, Congress adopted stringent linkages that tied the opening of any MRS to the opening of the repository. See id. at §§ 10165(b), 10168(d)(1), 10168(d)(2). The 1987 Amendments also established an MRS capacity limit of 10,000 tons until a repository had opened and an MRS capacity limit of 15,000 tons thereafter. Id. § 10138(d)(3). The linkages in the 1987 Amendments had the effect of insuring that an MRS could only begin operations if a repository was close behind. DOE witnesses and DOE documents confirmed that as a result of the linkages, it was impossible to have an MRS operating more than three years before a repository. See R. Milner Dep. at 20-21 (May 7, 2002); L. Barrett Dep. at 775 (Apr. 26, 2002); Report of the Monitored Retrievable Storage Review Commission at 19 (Nov. 1989) (Pl. Ex. 169). The 1987 Amendments did not relieve DOE of any obligations imposed by its Contract with SMUD or obligations under the NWPA.

8

DOE has acknowledged that "[w]hen the Act was passed, the Department anticipated that a geologic repository would be in operation and prepared to begin acceptance of spent nuclear fuel by January 31, 1998." DOE's Notice of Inquiry, 59 Fed. Reg. 27,007, 27,008 (May 25, 1994) ("Notice of Inquiry"). See also Indiana Michigan Power Co. v. United States, 88 F.3d 1272, 1277 (D.C. Cir. 1996) (noting ". . . Congress anticipated the existence of a repository by 1998"); DOE's Final Interpretation of Nuclear Acceptance Issues, 60 Fed. Reg. 21,793, 21,794 (May 3, 1995) ("Final Interpretation") ("[T]he Act originally envisioned that a geologic repository would be in operation, and DOE would be prepared to begin acceptance of SNF by January 31, 1998.") (Pl. Ex. 410); DOE's 1983 Notice of Proposed Rulemaking, 48 Fed. Reg. 5458, 5458 (Feb. 4, 1983) (noting the NWPA "directs DOE to begin repository operations no later than January 31, 1998"); H.R. Rep. No. 97-795, pt. 1, at 38 (1982) (explaining that the "Secretary must begin repository operations no later than January 1998").

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In June 1988, DOE issued another Draft Mission Plan Amendment. The Amendment projected that waste acceptance would begin at a repository in 2003. See Draft 1988 Mission Plan Amendment at 15 (Pl. Ex. 143). DOE recognized, however, that, given the statutory linkages between the MRS and the repository, it was unlikely that DOE would begin accepting SNF in 1998, as required by the Contract. Id.; see also 1988 Annual Capacity Report ("ACR") at 5 (Pl. Ex. 142) (projecting that DOE would begin acceptance of waste in 2003 and would ramp up to 3,000 tons by 2008). C. SMUD Closes Its Reactor And Evaluates Its Options In Light Of DOE's Announcements Of Delay ­ 1989 Through 1991.

Although SMUD's Rancho Seco reactor was licensed to operate through 2008, on June 6, 1989, the residents of Sacramento voted by public referendum to prematurely and permanently shut down Rancho Seco. In accordance with the results of the referendum, the SMUD Board of Directors decided to shut down the plant immediately. That same year, in November 1989, DOE published a "Report to Congress on Reassessment of the Civilian Radioactive Waste Management Program." (Pl. Ex. 169). This 1989 Reassessment was the result of a comprehensive review of the repository schedule directed by the Secretary of Energy, and it announced that the expected start of repository operations would be delayed from 2003 to 2010. Id. at vii. It also stated that any possibility of accepting waste at an MRS in 1998 would require Congress to change the law and abolish the statutory linkages between an MRS and the repository. Id. at ix-x, 17. Given the government's own pronouncements of delay, it was evident that DOE was highly unlikely to be able to perform as obligated under the Contract.

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In March 1990, faced with the likelihood of a delay in SNF disposal until at least 2010, and possibly longer, SMUD commissioned a study by an outside nuclear expert regarding fifteen different options for fuel storage at Rancho Seco. See S. Levy Inc., Rancho Seco Nuclear Generation Station Nuclear Fuel Storage Options (Mar. 31, 1990) (the "Levy Report" or "Report") (Pl. Ex. 176). One option considered was to continue to store the SNF in SMUD's spent fuel pool, which was termed the "most certain" approach because it would entail simply leaving the fuel in the pool until DOE eventually picked it up. Id. at ii, 51. The Report explained that: [T]he schedule for DOE pickup is currently highly uncertain with the earliest conceivable pickup date being in 1998 and a much more likely pickup date well after 2010. As long as the fuel is 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. Id. at 59.9 The Levy Report ultimately recommended that SMUD pursue development of an onsite interim storage facility, based on a "dual-purpose" dry storage system, that would allow for the storage of the fuel onsite until the DOE came to dispose of the fuel, at which time the fuel would be ready and licensed for transport. Id. at 62. One benefit of such a system was that "[s]torage in transportable casks offers the best opportunity for early offsite shipment, possibly as early as 1998, to an interim DOE storage facility." Id. at ii. Recognizing DOE's own discussions about taking title of SNF or providing storage at utility sites if a repository were unavailable by 1998,
The Levy Report used the following cost estimates (in 1990 dollars) for ongoing wet pool storage costs: maintenance and monitoring costs of $2 million to $3 million per year, capital costs of $1 million, and 1-2 years extra schedule at the time of shipment to DOE. Levy Report at 58. For dual-purpose transportable casks, Levy estimated maintenance and monitoring costs of $1.5 million to $2 million per year, capital costs of $21 to $31 million, and dismantling costs of $.2 to $.5 million. Id. The Report noted, however, that "[b]ecause of the short time available, Levy was unable to always carry out definitive evaluations and SMUD needs to apply appropriate and cautious judgment in the application of some of the results contained in this report." Id. at 1.
9

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see supra, pp. 8-9, the Report noted that "[a]nother possibility is interim acceptance by DOE by 1998 of the spent fuel in transportable storage casks at the Rancho Seco site." Id. at ii; see also id. at 39.10 Levy recognized that a dual-purpose system had never been developed before and would require licensing and approval by the Nuclear Regulatory Commission ("NRC") under both 10 C.F.R. Part 71 (transportation) and 10 C.F.R. Part 72 (storage). Id. at 46. The Report also encouraged SMUD to enter into negotiations with DOE for a demonstration project that would help achieve DOE buy-in on the project. Id. at 33. D. SMUD Pursues The Design Of Dry Storage Canisters With DOE Support / DOE Announces Additional Delay ­ 1991 Through 1994.

In 1991, SMUD began negotiations with DOE for a demonstration project and began developing potential specifications for a dry storage system. In October 1991, at a public meeting of the SMUD Board of Directors, SMUD staff gave a presentation on the proposed decommissioning plan,11 the demonstration project, and the fuel storage options at Rancho Seco. Transcript of Public Hearing, at 3-4 (Oct. 3, 1991). Staff explained that a dual-purpose dry storage system could reduce long-term annual operating costs by $8 million and allow SMUD to continue with decommissioning without the SNF in the pool. Id. at 22, 66. SMUD staff member
10

The Report recognized DOE's pronouncements of delay, noting that "[o]riginally, 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." Id. at 3. The Report also concluded that, in light of the uncertainties in the program and DOE's transportation fleet, "the only way to be prepared for DOE success in establishing a site by 1998 is to proceed toward storage in transportable casks." Id. at 65. Recognizing that "[t]he most uncertain element remains the probability that DOE can select a site and make it ready to receive dual-purpose casks by 1998," the Levy Report recommended that SMUD pursue a dual-purpose storage system. Id.
11

SMUD's initial decommissioning plan was to stabilize the existing facilities at the Rancho Seco plant until 2008 to allow adequate decommissioning funds to accumulate. Thereafter, active decommissioning would have commenced. Subsequently, in the mid to late 1990's, SMUD transitioned to "incremental decommissioning" under which it would decommission particular segments of the plant as they became available.

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Rita Bowser explained that the repository was delayed by at least 12 years, and that although DOE was pursuing an MRS, such a facility would require congressional action to de-link it from the repository. Id. at 62. Members of the Board expressed their view that it was unrealistic to believe that DOE would accept SNF from utilities in a timely fashion. Id. at 62-71. Similar to DOE's own proposals in 1983 and 1984, see supra, pp. 8-9, Assistant General Manager Jim Shetler also discussed the possibility of requiring DOE to take ownership and responsibility for the SNF at SMUD's site. Id. at 70. SMUD's pursuit of dry storage was closely coupled with the potential "demonstration project" involving DOE. The program was spurred in part by Fiscal Year 1991 appropriations in which Congress directed DOE to pursue a cooperative research and demonstration program to demonstrate dual-purpose casks. In approving that appropriation, Congress agreed with the NRC "that radiation exposure and other handling risks should be minimized in the entire process from original removal of the fuel from the reactor pool through its ultimate disposal. Development of dual-purpose casks can help to reduce these handling risks and thereby enhance public health and safety." H.R. Rep. No. 101-536 (1991). SMUD began meeting monthly with DOE in 1991 regarding the demonstration project and shared its technical specifications for the dry storage casks with DOE. DOE provided comments to SMUD on the technical specifications and stayed in close contact with SMUD regarding the project. In December 1991, SMUD issued a Solicitation for Dual Purpose Casks and Request for Proposal, seeking proposals from vendors for casks that could be used for an onsite dry storage facility. DOE again received and reviewed SMUD's Request for Proposal and had meetings with SMUD about the proposal.

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Given DOE's acknowledgements of significant delay in the program, DOE believed that the development and licensing of dual-purpose casks could be beneficial to it and the nuclear industry and was supportive of SMUD's development of an interim dry storage facility. In 1992, SMUD's Assistant General Manager, Jim Shelter, explained that "[w]e feel we need to keep DOE involved in this program to gain their buy-in of the dual-purpose system for ultimate acceptance of the fuel by DOE. . . .12 The DOE acknowledges that there are benefits to our approach and is interested in seeing it become successful." Memorandum from J. Shelter to D. Freeman and L. Fassler at 1 (June 11, 1992) (memo misdated June 11, 1991) (Pl. Ex. 208). Mr. Shetler further explained that SMUD was focused on getting the fuel into dry storage because it could produce cost savings of approximately $6 million per year. Id. After nearly three years of meetings and negotiations regarding the details of a demonstration project, SMUD and DOE officially signed a Cooperative Agreement in late 1994. See Letter from S. Redeker to DOE with Cooperative Agreement attached (Dec. 19, 1994) (Pl. Ex. 381). Under the Cooperative Agreement, DOE would provide $2 million in funding for one dual-purpose cask and SMUD would provide DOE with Monthly Reports regarding the status of the project and detailed Quarterly Financial Reports regarding the ongoing costs. Id. at 88-90. The Cooperative Agreement recognized that DOE would share in and benefit from the licensing experience for the transportable storage system, noting that "[i]t is especially important to identify license-related requirements for maintaining the capability to ship loaded spent fuel after long-term spent fuel storage." Id. at 4.

DOE had previously taken the position that a dual-purpose cask or canister could be subject to delayed acceptance at the federal repository. See, e.g., Letter from D. Zabransky to A. Brownstein (Apr. 1, 1991) (Pl. Ex. 201).

12

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The Cooperative Agreement created Joint Oversight and Technical Management Committees to administer the project and DOE's members included DOE officials Jeff Williams, Dave Langstaff, Leroy Stewart, and Mikal McKinnon. Id. at 85-87. The Joint Committees, including the DOE officials, were responsible for "approval of the DOE and SMUD Technical Project Plans," "concurrence with any proposed changes to this Project Management Plan; the DOE and SMUD Technical Project Plans; or major milestones," "concurrence of each year's proposed budgets and any changes to the budgets," and "review of overall general progress, conduct of technical reviews, and determination of approaches to improve or solve technical problems or recommendations of work-around solutions." Id. at 87. Thus, DOE had the opportunity to review every aspect of SMUD's dry storage project and received monthly and quarterly information on it. DOE also had audit and termination rights under the Cooperative Agreement, id. at 15-16, 55-59, neither of which DOE exercised during the term of the Agreement. DOE ultimately paid SMUD $2 million toward the purchase of one dual-purpose cask that, because of fabrication difficulties and the bankruptcy of SMUD's vendor, was never completed.13 Following the issuance of its Request for Proposal in late 1991, SMUD received five bids from different storage vendors for the cask and canister portion of the storage facility, ranging from approximately $12 million to $72 million. At that time, no company had a cask or canister that was licensed for both storage and transport of SNF ­ the so-called "dual-purpose" system.14
13

The Cooperative Agreement was terminated by mutual agreement of the parties in April 2000. See Letter from DOE to S. Redeker (Apr. 28, 2000) (Pl. Ex. 648).
14

Because SMUD was a shutdown utility, SMUD, as well as DOE, believed that a "dual-purpose" system was the most economical and rational choice because it would reduce radiation exposure and handling risks and allow SMUD to decommission the fuel pool. See H.R. Rep. No. 101-536 (1991); Letter from L. Barrett to J. Shetler (Sept. 2, 1993) (Pl. Ex. 320). Maintaining the wet pool for the extended storage period would have dramatically

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As a result, there was a large disparity in the bids and considerable uncertainty in how much the project would cost. SMUD ultimately selected the low bidder ­ Pacific Nuclear. In July 1992, SMUD staff sought authorization from the SMUD Board of Directors to negotiate a contract with Pacific Nuclear for the design and development of the dry casks and canisters. In seeking this authorization, SMUD staff explained that 2010 was "the proposed opening of the Federal Geologic Repository." See Board Agenda Item Staffing Summary Sheet, at 2 (July 7, 1992) (Pl. Ex. 261). In addition, SMUD estimated that the conversion to a dry storage facility could save SMUD approximately $33 million between 1998 and 2010. The contract price for the canisters, cask, and storage modules was estimated at $12.4 million, plus applicable taxes, escalation, and a 15% contingency. Id. In addition, SMUD would have its own costs for design and engineering, the costs of other necessary equipment (e.g., security systems, ISFSI pad), and the costs for transferring SNF to dry storage (e.g., training, procedure development, tool fabrication). The Board approved negotiations of a contract with Pacific Nuclear and subsequently, in September 1992, approved the signing of a contract on the negotiated terms. In seeking approval of the contract, SMUD staff explained that "[t]he District solicited proposals for the spent nuclear fuel dry cask system as a more economic alternative than long term storage in the spent fuel pool at Rancho Seco and as a part of a dual-purpose cask demonstration program to be carried out with the U.S. Department of Energy." Staffing Summary Sheet (Sept. 28, 1992) (Pl. Ex. 269). SMUD staff again estimated that the savings that could accrue from being in dry Footnote continued from previous page
increased the costs and damages SMUD was seeking to minimize. SMUD's decision to go to a dual-purpose system has been proven correct, as every single-reactor shutdown utility has gone to dual-purpose dry storage, the U.S. Navy has gone to dual-purpose dry storage, and most operating utilities are now doing the same.

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storage during the period of DOE's delay, 1998 to 2010, was $33 million. Id. SMUD signed the contract with Pacific Nuclear in October 1992. Within two months, the NRC advised Pacific Nuclear that additional and unanticipated testing would be required for the purpose of transportation licensing. See, e.g., Pl. Exs. 267, 295. In March 1993, SMUD provided the NRC with its environmental report for the decommissioning of Rancho Seco. See Letter from J. Shetler to NRC (Mar. 30, 1993) (Pl. Ex. 297). SMUD's report noted that DOE would not be able to begin disposing of fuel until 2010, that interim storage by DOE was not currently an option, and that dual-purpose dry storage was accordingly "the most prudent alternative available." Id. at 7. In October 1993, SMUD submitted its application to the NRC for transportation and storage licenses for the dry storage project. SMUD's understanding was consistent with DOE's announcements throughout the early 1990s that it would not begin acceptance in 1998 as required by the Contract. See 1990 ACR at 5 (Pl. Ex. 188) ("If the current linkages to the repository are maintained, it is estimated that commencement of facility operations and initial acceptance of SNF/HLW by DOE would not start until 2007."); see also, e.g., 1991 ACR at 4 (published Dec. 1991) (Pl. Ex. 231) (same); 1992 ACR at 3 (published Mar. 1993) (Pl. Ex. 294) (same). In December 1991, DOE also began to include projections for a possible minimal acceptance rate of 900 tons per year in its ACR, apparently in effort to limit its future liability to utilities. See SMUD Rate Brief at 55-57. DOE explained that it developed the 900-ton rate by assuming that Congress might abolish the statutory linkages between the MRS and the repository contained in the 1987 Amendments, but

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nonetheless retain a capacity limit of 10,000 tons during the period between 1998 and 2010.15 See 1991 ACR at v. The MRS, however, never proceeded beyond the conceptual phase. By 1992, DOE publicly announced that it would not be able to open an MRS by 1998. See DOE Acknowledged Last Week That It Will Not Be Able to Build a Monitored Retrievable Storage (MRS) Facility by 1998, Inside Energy with Federal Lands at 14 (Dec. 21, 1992). In addition, DOE never began actively planning to accept SNF using the minimal 900-ton rate and did not develop the necessary infrastructure, transportation casks, or receiving capability for doing so.16 To the contrary, DOE began planning for its failure to accept SNF from utilities, taking the position in 1993 and 1994 that DOE had no obligation to accept waste in the absence of an operating repository. See Indiana Michigan, 88 F.3d at 1274 (D.C. Cir. 1996); Notice of Inquiry, 59 Fed. Reg. at 27,007-27,009. The failure of the DOE program was also evident in other ways. In 1993, after several years of decline, DOE cancelled its "Cask System Development Program," DOE's only effort to develop the necessary transportation infrastructure to collect and transport SNF from utilities. DOE had begun that Program in 1985 to obtain the design, testing and licensing of four different transportation cask designs by four different vendors. DOE marginalized and then cancelled the
15

Under the 900-ton rate schedules published by DOE, SMUD had only 84.2 tons of SNF covered in DOE's tenyear schedule. Id. SMUD, however, had 228.4 tons of SNF at its reactor site. Thus, this schedule would have left SMUD with 144.2 tons of SNF for the indefinite future.
16

The only use that DOE made of the 900-ton rate was to demand, contrary to the provisions of the Contract, see Art. V.B.1, that utilities use that rate in filling out Delivery Commitment Schedules ("DCSs"). See March 4, 1992 DCS Instructions ¶ 2.7 & 7(b) (Pl. Ex. 249). This Court has already held that "the DCSs imposed no legal obligation on either party to the DOE Standard Contract." Memorandum Opinion dated Jan. 19, 2005 at 14; see also Commonwealth Edison, 56 Fed. Cl. at 666 (explaining that "[d]efendant eventually conceded at oral argument that the ACRs were for planning purposes" and that "[t]he parties could not have expected that planning documents would create binding contractual obligations"); SMUD Rate Brief 58-70.

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program in the early 1990s after spending nearly $100 million without receiving a single licensed regular type cask design (let alone receiving an actual cask). Without any transport capabilities or SNF acceptance on the horizon, more utilities began pursuing dual-purpose dry storage systems. Recognizing that it could not meet the 1998 date in any manner, DOE announced in 1994 that its "preliminary view is that it has no statutory obligation to accept spent nuclear fuel beginning in 1998 in the absence of an operational repository or other facility constructed under the Act." Notice of Inquiry, 59 Fed. Reg. at 27,008 . DOE also began investigating the development of a Multi-Purpose Canister ("MPC") system that it could provide to utilities for on-site storage to help offset the costs of DOE's failure to begin accepting SNF. DOE conducted feasibility studies on the MPC concept in 1993 and issued conceptual design reports on it in 1993 and 1994. See generally Multi-Purpose Canister System Evaluation, A Systems Engineering Approach (Sept. 1994) (Pl. Ex. 368); Multi-Purpose Canister (MPC) Implementation Program Conceptual Design Phase Report (Sept. 1993) (Pl. Ex. 326). As conceptualized by DOE, the MPC would be a canister-based dry storage system, similar to SMUD's system, that would be suitable for storage, transport, and possibly disposal at the repository. In 1994, when DOE announced its inability to perform, DOE recognized that the MPC system could produce considerable "cost savings for both utilities and the federal waste management system" and noted that "the Secretary has directed that the options to be explored by the Department should include, to the maximum extent possible, the provision and use of MPCs to address both schedule and cost concerns arising from the potential unavailability of a repository or MRS in 1998." Notice of Inquiry, 59 Fed. Reg. at 27,009.

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In 1993 and 1994, SMUD asked DOE to refocus the DOE-SMUD demonstration project to maximize the benefit to DOE's new MPC initiative. See Letter from J. Shetler to L. Barrett (June 22, 1993) (Pl. Ex. 311). Mr. Shetler explained that "SMUD is in the unenviable position of having to procure fuel storage technology without knowing how DOE plans to accept spent fuel." Id. Mr. Shetler's letter also expressed concern about whether a change to dual-purpose dry storage would impact the timing of DOE's acceptance of SMUD fuel. SMUD sought a commitment from DOE that SNF in dual-purpose canisters would not be moved to the end of the pick up line. Id. In response, DOE refused to make a commitment that fuel in dual-purpose canisters would be accepted in the future without schedule delays, explaining that "[w]hile we share mutual goals of minimizing spent fuel handling and repackaging, until the Nuclear Regulatory Commission completes its certification, it is premature . . . for the Department to commit to accept such canistered fuel, either as a matter of policy or under the terms of the Standard Contract." Letter from L. Barrett to J. Shetler (Sept. 2, 1993) (Pl. Ex. 320). However, DOE did acknowledge the DOE-SMUD demonstration program: [W]ill address several important issues relating to the multi-purpose canister system. These issues include: the resolution of licensing and operational issues related to canister transport and storage; the development of a dry cask-to-cask spent fuel transfer system to maximize the use of the canister system at all utilities; and burn-up meter validation tests. Id. Activities associated with the MPC system were later terminated due to funding constraints in the Fiscal Year 1996 appropriations. DOE, however, continued to support and encourage utilities' development of canister-based dry storage systems like that at SMUD. During 1994, the dry storage project experienced additional delay. This delay resulted from problems associated with the additional testing that the NRC had required, as well as the

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NRC's initial review of the transportation license application taking longer than expected. See, e.g., Pl. Ex. 267. The NRC's initial comments also led to significant design changes to the canister. In August 1994, the NRC issued an Environmental Assessment ("EA") and Finding of No Significant Impact ("FONSI") in connection with SMUD's application to construct and operate the on-site dry storage facility. See Letter from C. Haughney to J. Shetler (Aug. 5, 1994), with accompanying FONSI and EA (Pl. Ex. 363). The NRC's analysis explained that shipment of SNF to a permanent federal repository "is SMUD's preferred solution to the storage of spent fuel from Rancho Seco." EA at 7. The NRC explained, however, that "no permanent Federal repository is available" and that "[a]ccording to a November 1989 DOE report, it is not likely that DOE will have a licensed repository ready to receive spent fuel before 2010." Id. With respect to a potential MRS, the NRC noted that the statutory linkages would delay its development. Id.17 The EA also noted that the status quo ­ the "no action" alternative ­ would be to continue to store SNF in the wet pool. Id. at 8. The NRC recognized the undesirable consequences of SMUD maintaining its wet pool for indefinite storage, explaining that doing so would: (1) require the operation and maintenance of support facilities, which include fire suppression, fuel handling machines, and active cooling; (2) prevent SMUD from being able to complete decommissioning Rancho Seco until DOE accepts the fuel for removal from the site; and (3)

17

The NRC also addressed the efforts of the Nuclear Waste Negotiator to locate a voluntary host for the MRS, noting that "even this voluntary process was effectively terminated when the first of the potential hosts requested the second level of funding authorized under the act." EA at 7; see also id. (explaining that the Bingaman amendment "terminated the current voluntary process and further complicated the uncertainties of schedules for a repository or MRS").

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keep the cost to maintain the SNF pool which was estimated at $6 million to $8 million per year. Id. The NRC concluded that "[t]he absence of a Federal repository makes storage of spent fuel in dry shielded canisters above ground SMUD's primary alternative." Id. Following issuance of the NRC EA and FONSI, work began on the Ranch Seco ISFSI, including the Horizontal Storage Modules and the pad. E. SMUD Proceeds With Development Of On-Site Dry Storage / DOE Declares It Has No Obligation ­ 1995 Through 1997.

At the same time that SMUD was reconsidering its storage options, DOE provided additional notice that it would not begin performance in January 1998. In May 1995, the Department issued its Final Interpretation regarding its view of the NWPA, stating that "[t]he Act does not impose a statutory obligation on DOE to begin nuclear waste disposal in 1998 in the absence of a disposal or interim storage facility constructed under the Act." Final Interpretation, 60 Fed. Reg. at 21,794-95. The DOE stated that no repository or interim waste acceptance facility would be in operation until 2010, and that no waste acceptance would occur until then. Id. DOE also recognized that utilities would have to plan for the long-term storage of SNF in light of DOE's delays, explaining that "important public and private interests are implicated by the need for orderly financial and technical planning with respect to the Department's inability to accept SNF in 1998." Id. DOE further acknowledged that "[t]here are also equitable considerations that may argue for some form of relief to help offset costs incurred as a result of the Department's inability to begin acceptance of SNF in 1998." Id. at 21,797.18
18

In March 1995, despite the fact that DOE had concluded that an MRS facility was "no longer a viable option," L. Barrett Dep. at 779-80 (Apr. 26, 202), DOE published a 1995 Annual Priority Ranking ("APR")/ACR using the 900-ton rate and still assuming the use of an MRS. 1995 APR/ACR at 3 (Pl. Ex. 396). The testimony of government witnesses demonstrates that the ACR was published with the minimal rate in order to limit the DOE's obligations to utilities. Yankee Trial, pp. 4166-67 (Aug. 5, 2004) (D. Zabransky).

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The utilities challenged DOE's interpretation that it had no obligation to accept waste in Indiana Michigan. 88 F.3d at 1272. On July 23, 1996, the D.C. Circuit rejected DOE's interpretation of its obligations, concluding that in exchange for the billions of dollars in fees paid by nuclear utilities, the DOE had an unconditional obligation to start removing SNF in 1998. Id. at 1276-77. On December 17, 1996, in response to the D.C. Circuit's decision in Indiana Michigan, DOE contracting officer Beth Tomasoni sent a letter to SMUD announcing that DOE "will be unable to begin acceptance of spent nuclear fuel for disposal in a repository or interim storage facility by January 31, 1998" and requesting comments regarding how the delay could be accommodated. See Letter from B. Tomasoni to J. Hastings (Dec. 17, 1996) (Pl. Ex. 500); see also DOE Press Release, Department of Energy Notifies Utilities of Anticipated Delay in Accepting Commercial Spent Nuclear Fuel (Dec. 17, 1996) (Pl. Ex. 501). In a response dated March 13, 1997, SMUD requested that DOE implement the so-called Fort St. Vrain solution,19 by taking title to SMUD's SNF at the Rancho Seco site and reimbu