Pacific Gas and Elec. Co. v. U.S.

• Decision Date: 07 August 2008
• Docket Number: No. 2007-5046.,2007-5046.
• Citation: 536 F.3d 1282
• Parties: PACIFIC GAS AND ELECTRIC COMPANY, Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

536 F.3d 1282

PACIFIC GAS AND ELECTRIC COMPANY, Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee.

No. 2007-5046.

United States Court of Appeals, Federal Circuit.

August 7, 2008.

Carter G. Phillips, Sidley Austin LLP, of Washington, DC, argued for plaintiff-appellant. With him on the brief were Virginia A. Seitz and Ruthanne M. Deutsch. Of counsel on the brief were Jerry Stouck and Robert L. Shapiro, Greenberg Traurig LLP, of Washington, DC.

Harold D. Lester, Jr., Assistant Director, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-appellee. With him on the brief were Jeanne E. Davidson, Director, Alan J. Lo Re, Senior Attorney, Joshua E. Gardner and Scott R. Damelin, Trial Attorneys. Of counsel on the brief was Jane K. Taylor, Attorney, Office of General Counsel, United States Department of Energy, of Washington, DC.

Ronald A. Schechter, Arnold & Porter LLP, of Washington, DC, for amici curiae

Southern Nuclear Operating Company, et al. Of counsel on the brief were M. Stanford Blanton, Ed R. Haden, and K.C. Hairston, Balch & Bingham LLP, of Birmingham, Alabama.

Before MAYER, LOURIE, and RADER, Circuit Judges.

RADER, Circuit Judge.

This appeal involves the damages calculation for the partial breach by the United States of its contract with the nuclear utilities, in this case, Pacific Gas & Electric Co. (PG & E), for the storage of high-level nuclear waste (HLW) and spent nuclear fuel (SNF). Because the United States Court of Federal Claims erred in its determination of the rate at which the contract obligated the Department of Energy (DOE) to accept the utilities' HLW and SNF, this court reverses-in-part and remands.

I

PG & E owns Humboldt Bay and Diablo Canyon, two nuclear power generation stations in California. Humboldt Bay shut down temporarily in 1976, but never restarted due to concerns about seismic activity and regulatory uncertainties. Diablo Canyon's two reactors remain operational, supplying about 10% of California's energy needs. Like the other nuclear utilities, PG & E entered into a Standard Contract with DOE, as discussed in greater detail below, which obligated DOE to take title to and dispose of PG & E's SNF and HLW. In exchange, PG & E paid a one-time fee of approximately $4 million to cover non-"in-core" fuel, used for generation of electricity before April 7, 1983, and committed to paying ongoing contract fees (approximately $5 million per quarter) to DOE's Nuclear Waste Fund.

DOE did not begin accepting fuel from PG & E (or from any other nuclear utility, for that matter) by January 31, 1998, as required by the Standard Contract. In fact, DOE has not even yet performed under the contract. Meanwhile, PG & E continues to pay its quarterly contract fees. In addition PG & E has continued to store its SNF/HLW on-site at Humboldt Bay and Diablo Canyon. A series of cases has established that DOE has partially breached the contract by failing to begin its performance on January 31, 1998. See Ind. Mich. Power Co. v. United States, 422 F.3d 1369, 1376-77 (Fed.Cir.2005) (Ind. Mich. III); Me. Yankee Atomic Power Co. v. United States, 225 F.3d 1336, 1343 (Fed. Cir.2000). Thus this case deals only with the question of damages for that partial breach.

As explained further below, the Court of Federal Claims concluded that the duty of good faith and fair dealing required "reasonable performance," as defined by the circumstances existing at the time and based on the requirements of the Standard Contract. Relying primarily on DOE's reports from 1991, the Court of Federal Claims awarded PG & E approximately $42.76 million in damages through December 31, 2004, about half the amount PG & E had sought. Pac. Gas & Elec. Co. v. United States, 73 Fed.Cl. 333, 432 (2006) (PG & E I). PG & E appeals the Court of Federal Claims' interpretation of the Standard Contract to require an acceptance rate according to the 1991 numbers, as well as the Court of Federal Claims' exclusion of the proffered expert testimony of Mr. Frank Graves, its exclusion of Greater Than Class C (GTCC) waste from the contract, and its issuance of a final judgment, rather than a partial judgment, under Court of Federal Claims Rule 54(b).

II

This court reviews contract interpretation as a question of law, without deference. Winstar Corp. v. United States, 64 F.3d 1531, 1540 (Fed.Cir.1995) (en banc), aff'd, 518 U.S. 839, 116 S.Ct. 2432, 135 L.Ed.2d 964 (1996). Evidentiary rulings are reviewed for abuse of discretion. Flex-Rest, LLC v. Steelcase, Inc., 455 F.3d 1351, 1357 (Fed.Cir.2006) (citing Gen. Elec. Co. v. Joiner, 522 U.S. 136, 141-43, 118 S.Ct. 512, 139 L.Ed.2d 508 (1997)).

Acceptance Rate

In setting the rate at which DOE was obligated to accept SNF/HLW from PG & E and the other utilities under the Standard Contract, the Court of Federal Claims improperly relied on a unilateral DOE estimate made far after contract formation and tainted by a statutory framework in place at that time, which, if left unchanged, would have rendered timely performance impossible. To understand the contours of the parties' expectations and intent, and ultimately to discern the appropriate acceptance rate from the contract itself and the parties' dealings, this court will briefly set forth the byzantine process leading up to and following the execution of the Standard Contract.

A Brief History of the Standard Contract

On January 7, 1983, Congress enacted the Nuclear Waste Policy Act of 1982, Pub.L. No. 97-425 (codified at 42 U.S.C. §§ 10101-10270) (NWPA or Act). The Act set forth four objectives: 1) to develop repositories to protect the public and the environment from SNF and HLW; 2) to establish federal responsibility and a definite federal policy for the entire project; 3) to define the relationship between the federal government and the states and tribes with respect to SNF/HLW disposal; and 4) to establish a Nuclear Waste Fund, financed by the nuclear utilities, to pay for the waste disposal. 42 U.S.C. § 10131(b) (2000). The Act assigned DOE the obligation to begin acceptance and disposal of the utilities' SNF and HLW "not later than January 31, 1998." Id. § 10222(a)(5)(B). In return, the Act obligated the utilities to pay fees "in an amount equivalent to an average charge of 1.0 mil per kilowatt-hour for electricity generated by ... [SNF], or ... [HLW] derived therefrom." Id. § 10222(a)(3). The NWPA also required DOE to take title to the SNF and HLW "as expeditiously as practicable." Id. § 10222(a)(5)(A). To accomplish these tasks, the Act required DOE to enter into contracts with the nuclear utilities no later than June 30, 1983. Id. § 10222(b)(2)(A). The utilities had little choice but to enter into these contracts, because the Act also precluded the Nuclear Regulatory Commission (NRC) from issuing licenses to utilities that had not contracted with DOE for SNF/HLW disposal or were not in the process of good-faith negotiations for doing so. See id. § 10222(b)(1)(A); Me. Yankee, 225 F.3d at 1337.

In April 1983, DOE promulgated the Standard Contract for Disposal of Spent Nuclear Fuel and/or High Level Radioactive Waste (Standard Contract) after a lengthy notice and comment process. Various utilities and industry groups, among others, provided specific suggestions to DOE during this process. Although numerous commentators advocated the inclusion of a firm commitment from DOE on its rate of disposal, DOE instead agreed to take title to SNF/HLW "as expeditiously as practicable" "following commencement of operation of a repository." 10 C.F.R. § 961.11 (1984). The Standard Contract also included provisions setting priority for acceptance of waste (generally through an oldest fuel first (OFF) scheme) and allowed utilities to swap approved delivery commitment schedules (the Exchanges provision). In lieu of a firm rate for SNF/ HLW acceptance and disposal, the Standard Contract required DOE to issue annual capacity reports (ACRs) beginning no later than July 1, 1987. These reports set forth projected annual receiving capacity for DOE facilities and annual acceptance rankings, including projected capacity information for the first ten years of operation for the repository. In addition to the annual reports, the Standard Contract also required DOE to issue annual acceptance priority rankings beginning April 1, 1991. In response to these priority reports, the Standard Contract obligated each utility to submit a delivery commitment schedule to DOE to identify the SNF/HLW ready for delivery to DOE beginning sixty-three months after the DCS submission. This court refers to this entire process as the acceptance capacity schedule or ACS process.

On December 20, 1983, DOE set forth its plan for a firm schedule for waste acceptance and removal beginning no later than the statutorily-mandated date (January 31, 1998). Specifically, the schedule was "designed to provide an acceptance rate in the first five years such that no utility will have to provide additional storage capacity after January 31, 1998. Subsequently, the acceptance rate will be equal to or greater than the actual discharge rate of spent fuel each year." PG & E I, 73 Fed.Cl. at 355 (quoting 1983 Mission Plan). The preliminary schedule in this plan envisioned that DOE would begin accepting waste in 1998 at a rate of 1,800 metric tons of uranium (MTU) per year until 2003, when DOE would begin accepting 3,000 MTU/year. This 1983 plan also cautioned that completion of a geologic repository by 1998 was "optimistic," requiring resolution of several regulatory, institutional, and technical challenges. As a contingency in case the permanent repository would not be available to meet the 1998 deadline, the plan stated that DOE would request congressional authorization to build a monitored retrievable storage (MRS) facility as an interim solution. See, e.g., id. at 354-56. The trial court found in effect that the nuclear...