US v. Consolidated Edison Co. of New York

• Decision Date: 19 July 1977
• Docket Number: No. 74 Civ. 3121.,74 Civ. 3121.
• Citation: 452 F. Supp. 638
• Parties: UNITED STATES of America, Plaintiff, v. CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

452 F. Supp. 638

UNITED STATES of America, Plaintiff, v. CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., Defendant.

No. 74 Civ. 3121.

United States District Court, S. D. New York.

July 19, 1977.

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Robert B. Fiske, Jr., U. S. Atty., S. D. N. Y. by Charles Franklin Richter, Gary G. Cooper, Asst. U. S. Attys., New York City, for plaintiff.

Werner L. Polak, Thomas M. Geisler, Jr., Shearman & Sterling, New York City, for defendant.

OPINION AND ORDER

PIERCE, District Judge.

This is an action commenced by the United States as plaintiff pursuant to 28 U.S.C. § 1345. Plaintiff alleges that the defendant, Consolidated Edison Company of New York, Inc. ("Con Edison") entered into an oral agreement with the plaintiff to reimburse the Atomic Energy Commission ("AEC") for costs incurred in the summer of 1970 by reason of a release of 200 megawatts of electrical power. The power was released to Con Edison by the AEC in the midst of a New York City area power crisis resulting from the July 21, 1970 failure of Con Edison's Ravenswood electrical generating facility, commonly known as "Big Allis". Plaintiff's complaint asserts four causes of action. Count One sought to recover on an oral contract; that claim was dismissed at the close of plaintiff's case on the ground that the agreement was barred by the Statute of Frauds. Count Two was abandoned by the plaintiff and dismissed by summary judgment prior to trial. Count Three alleges contract by estoppel, and Count Four seeks recovery in quasi-contract. Count Four also asserted an alternative claim, contract implied in fact; this was dismissed by summary judgment on August 2, 1976.

The matter was tried before the Court without a jury for ten days in April and May, 1977. Having heard all the evidence, and having fully considered the matter, the Court concludes that judgment should be entered for the plaintiff on each of its claims asserted in Counts Three and Four. The following shall constitute the Court's findings of fact and conclusions of law pursuant to Rule 52(a) Fed.R.Civ.P.

Findings of Fact

In the spring of 1970, certain officers of the federal government became concerned that unless adequate contingency plans were developed, the private power industry might be unable to provide sufficient electrical power to meet the nation's energy needs in the upcoming summer. Upon the conclusion that this was a problem deserving of national attention, the Executive Office of the President established an inter-agency task force, under the auspices of the Office of Emergency Preparedness ("OEP"), to consider means by which the various federal agencies could assist in identifying potential power crises and taking action to prevent power failures or "brownouts". It became apparent as early as April 1970 that a key component of the plan would be a procedure whereby the AEC would reduce its massive power consumption at its gaseous diffusion uranium enrichment plants. The AEC participated in the development of this procedure, and on May 5, 1970, the OEP released to the public the government's emergency power assistance program, referred to hereinafter as the "May 5 Plan". The Plan contained the following provision concerning the AEC:

"The AEC will make arrangements to curtail production this summer at the AEC gaseous diffusion plants, which use large amounts of electricity. This could release coal supplies and generating capacity which could be used to assist in meeting fuel shortages and peak loads of the consuming public in parts of the inter-connected system. The diffusion plants are being used, in part, to produce enriched uranium for future use in nuclear power plants." (PX-2).

The May 5 Plan made no reference to the possibility that in the event the AEC were to reduce its power consumption for the benefit of private industry, it might seek to impose upon the release of that power a surcharge to cover its increased costs. However, it is apparent from the evidence that the document constituting the May 5 Plan did not at all attempt to set forth all of the terms and conditions under which power would be released; the Plan as revealed in PX-2 was in the nature of a press release. It was not, as defendant seems to suggest, a commitment binding the United States to undertake emergency assistance without the ability to seek reimbursement for its costs.

The nature of the costs incurred by the AEC as a result of the emergency assistance rendered to Con Edison is best understood through a discussion of the function of the gaseous diffusion plants. The AEC plants were located at Oak Ridge, Tennessee, Paducah, Kentucky, and Portsmouth, Ohio. Originally constructed for the production of special nuclear materials to be employed in national defense, these plants in 1970 were being used primarily to enrich uranium for use in commercial nuclear power plants. The plants convert natural uranium into a gaseous state; the gas is then passed through hundreds of processing stages or "cascades" to increase the concentration of the isotope U-235. Since each stage works only a slight increase in the concentration of U-235, large amounts of electrical power are required to achieve any amount of enrichment. In the early summer of 1970, the three AEC plants were consuming 2,000 megawatts ("MW") of power supplied under requirements contracts in effect with three utilities, the Tennessee Valley Authority ("TVA"), the Ohio Valley Electric Corporation ("OVEC") and Electric Energy, Inc. ("EEI"). The magnitude of the AEC's power requirements is illustrated by a comparison to Con Edison's peak load requirements in the same period; AEC consumed 2,000 MW to operate three plants and Con Edison transmitted 7,000 MW to supply the metropolitan New York City area and portions of Westchester County.

Shortly after the implementation of the May 5 Plan, the AEC received a request from EEI for permission to cut back on the full 235 MW it was supplying to one of the three uranium enrichment plants. Shortly thereafter TVA and OVEC made similar requests for reductions. George Quinn, then an AEC Assistant General Manager, testified that the AEC was reluctant to grant a substantial reduction, so Quinn sent an inquiry to the Federal Power Commission to determine whether there was in fact the likelihood of a power shortage in the area serviced by these three utilities. Upon confirmation that power reductions would be appropriate, AEC in late June 1970 entered into contract modifications with TVA, OVEC and EEI whereby AEC agreed to reduce its power consumption by 450 MW for the duration of the summer (PX-6 through PX-9). These contract modifications concerning the 450 MW reduction contained no mention of any surcharge to be imposed as a result of the release of the power.¹

The evidence indicates that it was not until after this first power reduction that officers of the AEC fully realized the increased costs which AEC would incur through the loss of power.² The product of the diffusion plants is measured in separate work units ("SWUs"); the SWUs are calculated by measurements of the assay levels of enriched uranium at various stages in the cascade process. The diffusion plants incur substantial fixed costs regardless of the number of SWUs produced; thus the AEC experienced substantial efficiency losses by operating its plants at levels below the 2,000 MW capacity. Both plaintiff's and defendant's expert witnesses agreed that such efficiency losses result from substantial power reductions. Upon becoming aware of the extent of its increased costs, the AEC in early July 1970 began considering whether it should impose a surcharge upon any further power reductions.

By July of 1970, Con Edison was already experiencing problems with its power needs. On May 20, 1970, Con Edison's nuclear plant at Indian Point went out of service, resulting in a loss of 260 MW of generating capacity. On July 21, 1970, Con Edison suffered a major power crisis with the outage of Big Allis, its 1,000 MW plant at Ravenswood.

Charles Luce, Con Edison's Chairman and Chief Executive Officer, testified that the failure of Big Allis constituted the most severe emergency faced by Con Edison during his ten years with the utility. Luce immediately met with his production and purchasing personnel to begin a search for additional electrical power. At the time, Con Edison was a party to a "pool" agreement with several other New York State utilities whereby any member of the pool could purchase from other members three different types of power (DX-B-8).

The first type, known as "economy power" involved purchases on an hour-to-hour basis from the most efficient generating plant available within the system. This power was priced according to the costs incurred in generation. Next, "supplemental power" was available to pool members at a fixed rate when the purchasing utility did not have sufficient capacity to meet its load. Finally, "emergency" power could be purchased during true crisis situations; such power usually carried a ten percent surcharge and was available only for short periods of time. Despite the existence of these emergency pooling arrangements, and notwithstanding the existence of similar agreements between the New York State power pool and other such pools in neighboring states, the Big Allis power shortage was so severe that Con Edison immediately looked elsewhere for a long-term purchase of back-up power.

The magnitude of Con Edison's July 21st power crisis had not gone unnoticed by the Executive Office of the President. On July 22, 1970, a representative of the OEP telephoned the offices of Con Edison to state that the government could perhaps come to Con Edison's assistance pursuant to the provisions of the May 5 Plan. On July 23, 1970, Charles Luce called David Freeman of the OEP, who explained that the AEC gaseous diffusion plants had already made one power reduction, but that there might...