Case Studies: Utilities

Kenrich Key To Nuclear Power Companies’ Efforts To Recover $1.8 Billion From U.S. Government In Pivotal Spent Nuclear Fuel Verdicts And Settlements

Summary

After almost two decades in litigation with the government, nuclear power companies have been awarded significant damages for mounting costs to store used nuclear fuel at their reactor sites. Since 2007, the U.S. Court of Federal Claims has awarded numerous utilities more than $1.2 billion from the Department of Energy (DOE). A number of other utilities have settled confidentially with the government for amounts that are estimated to approach that amount.

Since 1982, the DOE has charged utilities a fee on every kilowatt hour of electricity sold by a nuclear power plant. In return for the fee, DOE was required to begin removing the highly-radioactive used nuclear fuel (“spent fuel”) from plants across the United States no later than January 31, 1998. Today, with more than $35 billion funded by the utilities, DOE has yet to perform and has recently canceled its Yucca Mountain spent fuel disposal program, therefore having no current plans to perform on its end of the bargain.

More than a dozen of the more than 60 nuclear utilities faced with having to store ever increasing inventories of spent fuel at their plant sites took the lead on behalf of the industry to actively pursue damages. The Kenrich Group has and continues to work with the majority of these “lead” plaintiffs and their outside counsel to develop and prove the amount of damages to which each of the utilities is entitled.

The Kenrich Group’s consultants, comprised of accountants, engineers and financial professionals, have performed detailed investigations on and off-site for more than 30 nuclear power plants, to date gathering and analyzing information from nuclear plant managers, operators and other specialists specializing in the critical fuel and processes used to generate one of America’s essential power resources – nuclear energy. The evidence assembled and analyzed by Kenrich has been used in the trials to support the damage amounts in each individual utility lawsuit. This evidence includes voluminous amounts of detailed supporting accounting, technical, causation, and background documents. Kenrich personnel have reviewed, analyzed and clearly explained these mountains of evidence in expert witness reports and testimony in these matters.

The precedent set by these “lead” cases grows in significance. By industry estimates, the total damages to be paid by DOE could reach $16.2 billion.

Recognition

Ken Metcalfe and Kenrich’s consulting services were praised in the article “Government Contracts Group Of The Year: Pillsbury”

A key witness for Entergy was Ken Metcalfe, president of The Kenrich Group LLC, a business and litigation consulting firm. Metcalfe served as Entergy’s damages expert, Tomaszczuk said. “He is a very colorful and adept witness,” Tomaszczuk said.

“Ken does a very good job in assembling what is complicated data and making it understandable for the court and has a long history of working in the nuclear utility business.”

Background

In 1982, the Nuclear Waste Policy Act (NWPA) was enacted to regulate the disposal of nuclear waste. Under the Act, the Nuclear Waste Fund was established to finance the research, construction and maintenance of nuclear waste repositories, as well as the safe transport of the waste from the nuclear plants to a permanent storage facility. Nuclear power companies were required to pick up the tab – together paying nearly $800 million into the fund annually – with the understanding that disposal would commence in 1998. It did not – in part due to the political turmoil that ultimately erupted over the proposed disposal site: Yucca Mountain, Nevada.

Having acted under the assumption that DOE would honor its contractual agreement, power companies were now left with more than just a logistical problem. To properly handle the waste would require the utilities to incur tens to hundreds of millions of dollars to build their own spent nuclear fuel storage facilities at each of their reactor sites and obtain the requisite approval of local and state government officials to store that waste.

For example, in Minnesota, Northern States Power Company (NSP—now Xcel Energy) was one of the first utilities in the country that would have to design, license and construct storage facilities to store increasing quantities of spent fuel until Yucca Mountain opened, which NSP did at its Prairie Island nuclear power plant site. Prior to ultimately getting approval from local communities, the state utility commission and eventually the state legislature, it appeared the plant may have to be prematurely shut down — a result that would have cost Minnesota’s ratepayers hundreds of millions of dollars for the use of alternative, more expensive sources of electricity generation.

Preparation to store spent fuel onsite routinely entails utilities to incur tens of millions of dollars and several years of planning and technical analyses. The technology to safely store spent fuel would also have to evolve quickly.

Because of the government’s breach, utility companies were forced to file suits to recoup the quickly-mounting costs of the on-site nuclear waste storage made necessary by DOE’s non-performance. However, in order to recover those costs, the utilities would need, among other things, to prove a hypothetical scenario—i.e., what the world would have looked like had DOE actually begun removing spent fuel from nuclear plants in 1998, as it was contractually obligated to do.

Most U.S. nuclear plants began operations in the 1970s and early 1980s. The earliest of these plants were generally built to accommodate the storage of spent fuel for just a few years until such time that the Government took the fuel for “reprocessing” (essentially, recycling). Following President Carter’s effective ban on “reprocessing” due to proliferation concerns, the NWPA-mandated contracts would require each nuclear utility to find a means to store its spent fuel on its nuclear plant site until DOE began to accept spent fuel in 1998.

While the NWPA and related DOE contracts with nuclear utilities explicitly identified 1998 as the date when DOE would begin accepting spent fuel from nuclear plants, the rate of acceptance and the specifics with which such acceptance would occur were not as clearly specified. Proving damages, in this instance the difference between the costs that a nuclear utility has actually incurred to store spent fuel on-site and the amount it would have incurred to store spent fuel had DOE performed, and the underlying causation presented a daunting task. Nuclear engineers and other technical experts would be needed on the stand to explain the complicated processes involved in safely storing and disposing of nuclear waste, as well as the increased amount and duration of storage capacity required due to the failure of the DOE to perform in accordance with its contractual obligations.

Solution

Retained by outside counsel for many of the nuclear utilities, Kenrich personnel, with extensive prior utility experience, particularly on nuclear power plant matters, performed extensive fact-finding. This was done by conducting interviews of company executives, plant managers, operators and other technical specialists, and reviewing operational and accounting records, often dating back to the early 1980’s.

Based on this investigation, the Kenrich team performed in-depth analyses to quantify the incremental amount of spent fuel that would be stored onsite at each nuclear plant (and for what duration) and the resulting cost impacts. For each case, Kenrich prepared expert damages reports, based on the detailed work performed. For each case, the supporting evidence typically amounts to thousands of pages of documents and analyses. This documentary support typically filled 50 to 100 large binders, including supporting accounting, technical, and historical documents. Kenrich experts then delivered clear and concise expert testimony to explain to the court the basis of the plaintiffs’ damages.

The result of these efforts have been measured by the substantial damages recoveries that have been achieved. Beginning in 2007, the court decisions and settlements, example cases identified below, helped to focus the attention of the industry and others and tipped the scales in favor of nuclear utilities across the country burdened by the significant financial impacts of DOE’s breach of contract. In all cases, the awards encompassed the overwhelming majority of the elements of damages that Kenrich had determined. Several of these plaintiffs have pursued subsequent rounds of litigation to recover their ongoing costs.

  • In July 2007, Southern Company was awarded approximately $77 million in damages by the U.S. Court of Federal Claims for its three power plants located in Georgia and Alabama.
  • In September 2007, Northern States Power Company was awarded approximately $116 million in a ruling by the U.S. Court of Federal Claims for its Prairie Island and Monticello nuclear plants for costs incurred through 2004. In July 2011, Northern States Power Company settled its claim with the Department of Justice for approximately $100 million for costs incurred through 2008.
  • In October 2007, Entergy was awarded approximately $49 million in damages by the U.S. Court of Federal Claims for its Arkansas nuclear power plant.
  • In December 2009, Wisconsin Electric was awarded approximately $50 million in damages by the U.S. Court of Federal Claims for the Point Beach nuclear plant. In February 2011, Wisconsin Electric settled the claim with the Department of Justice for $46 million.
  • In February 2010, Energy Northwest was awarded approximately $57 million in damages by the U.S. Court of Federal Claims for its Columbia nuclear plant. In July 2011, Energy Northwest settled the claim with the Department of Justice for $49 million.
  • In March 2010, Entergy was awarded approximately $10 million in damages by the U.S. Court of Federal Claims for its Grand Gulf nuclear power plant in Mississippi.
  • In May 2010, Entergy was awarded approximately $4 million in damages by the U.S. Court of Federal Claims for its Pilgrim nuclear plant.
  • In May 2010, Entergy was awarded approximately $106 million in damages by the U.S. Court of Federal Claims for its Indian Point nuclear plant.

The Kenrich Group’s work was cited numerous times in Court decisions in making the case against the Government.

In addition to the work done on litigations, The Kenrich Group also assisted several utilities in settlements with the Department of Justice. The Kenrich Group continues to assist many of these utilities on annual settlement submissions provided to the DOE. These annual submissions cover the utilities’ ongoing costs for addressing spent nuclear fuel until the time DOE performs.

Result

These decisions, which account for only a fraction of the more than 60 similar cases filed, represent a significant victory for nuclear utilities and, in many cases, their customers—the ratepayers. The utilities have paid and continue collectively to pay hundreds of millions of dollars every year to the Nuclear Waste Fund with no performance by DOE and continuing deep concerns that DOE will never perform its contractual obligation.

Kenrich expert witnesses were able to demonstrate to the courts the substantial economic damages the power companies have borne to date and will continue to bear because of DOE’s failure to perform on its contractual obligations. The damage awards in the Kenrich matters have totaled more than 90% of the claim amounts (excluding financing costs, which so far have been legally barred).Today, with the Government’s termination of Yucca Mountain and continuing delay in disposing of spent nuclear fuel, the precedent set by these cases grows in significance. By industry estimates, the total damages to be paid by DOE could be in the tens of billions of dollars. For Kenrich clients still awaiting resolution, the precedent set by the utility companies’ wins offers significant hope that at least the utilities and their ratepayers will not ultimately have to pay twice to address the issue of spent nuclear fuel.