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Nuclear Standoff - Nuclear Breach

Federal failure to fulfill spent-fuel obligations creates expensive risks.

Fortnightly Magazine - December 2009

DOE, which would be responsible for building and operating a waste repository. Contracting utilities were to pay a one-time fee for the electricity generated and sold prior to April 7, 1983, and a continuing fee of one mill/kWh thereafter until the repository was fully funded. DOE was to begin collecting and disposing spent SNF and HLW no later than Jan. 31, 1998.

The federal government quickly became a serial breacher of the standard contracts. Within just a few years, it was clear DOE wouldn’t complete the repository for decades. It also was clear the repository was insufficiently sized to support continued operation of the U.S. fleet of reactors. Faced with spent-fuel pools fast approaching capacity, many plant operators explored other technologies both to mitigate the impending breach and perhaps provide a more effective resolution.

Some were able to gain a few years of operation without violating Nuclear Regulatory Commission (NRC) safety requirements through modifications to the storage racks in their spent-fuel pools. A new industry soon was born that would provide spent-fuel storage in dry casks on plant grounds outside the plant facilities. These casks still needed to pass NRC scrutiny. For quite some time, it wasn’t obvious dry casks would be licensable or available in time to preclude premature shutdowns of plants.

Soon after the 1998 breach, many utilities filed claims against DOE to recover damages. Claims involving an express or implied contract with the United States brought within the six-year statute of limitations are heard by the U.S. Court of Federal Claims (CoFC). While companies in other industries might aggressively protect their interests, utilities typically shy away from litigation, especially when the federal government is involved. Lawyers cost money and a lot of information can be revealed through discovery. 

Finally, the remedies available through the CoFC can’t make utilities whole. For example, CoFC is precluded from awarding remote or consequential damages resulting from the federal government’s breach. Yet, a significant portion of costs are in that category. Also, CoFC doesn’t award interest accrued on damages. Not surprisingly, the Justice Department sought to delay trials as long as possible. 

Further, CoFC is not too free with federal money. For example, CoFC can’t award damages considered speculative. Anything less than “absolute exactness or mathematical precision” potentially qualifies as speculative, which is problematic since some claims involving plant devaluations are intrinsically inferential in nature; financial engineering methods used in such cases are statistical or stochastic. While mathematically precise in expected results, any statistical or stochastic estimate falls within a band of uncertainty—which fits well in a cost-accounting framework, but which the court might consider speculative by definition. 

To date, two classes of claims have been brought: the so-called “cancelled check” claims by plant owners, and “diminution of value” claims by companies who’ve sold their plants and exited the nuclear industry. Cancelled-check cases are straight-forward. Under a cancelled-check case, a company tallies up the money spent on spent-fuel pool re-racking, dry cask storage, and associated operating expenses incurred to mitigate DOE’s breach. Most nuclear companies are pursuing claims of this kind.

Of course, these