In The Matter Of Westinghouse Electric Corporation Uranium Contracts Litigation

Facts

P is a corporation organized and existing under the laws of the State of Florida, with its principal place of business in Dade County. P engaged as a public utility for the generation, transmission, distribution, and sale of electric energy. D is a multinational corporation organized and existing under the laws of the Commonwealth of Pennsylvania with its principal place of business in Pittsburgh, Pennsylvania. Jurisdiction is premised on 28 U.S.C. § 1332(a). In 1964 legislation had been enacted permitting private ownership of uranium, a necessary component of nuclear power. D was most anxious to enter into a contract with P for its proposed plants designated as Turkey Point Units 3 and 4. P contemplated the construction of two power plants at the same location. P had no expertise in nuclear power, a fact well known to D. In March of 1965 P notified D that P lacked the manpower and knowledge needed to develop specifications and evaluate proposals for a nuclear plant. From this lack of experience, P insisted on the purchase of a complete package with a guaranteed maximum price. D also encouraged P to rely on D's nuclear knowledge and capability. General Electric, D's principal competitor, was also proposing that P convert to nuclear power. During the process, D knew that the successful manufacturer of the contemplated units would have to assume responsibility for the total fuel supply. D responded and bid a guaranteed ten-year fuel cycle cost. This, of course, included the cost of uranium and the purchase and disposal of the spent fuel as a part of the fuel cycle. D agreed to a contract price fixed solely by reference to the amount of electricity generated by P, and independent of the cost to D of the purchase or disposal of uranium. The risks taken by D encompassed 'the reprocessing of the fuel at the end of the project.' It was not until after the contract had been executed that Westinghouse examined in detail the fuel cycle, consisting of enrichment, conversion, and reprocessing. P had the right until 'initial criticality' to elect one of three fuel purchase options. Initial criticality occurred at Turkey Point Unit 3 on October 20, 1972, and at Turkey Point Unit 4 on June 11, 1973. P picked option C. Under option C, which includes the contested Section 27(a)(2), D is required to furnish fuel until each plant goes off the line or 'the first refueling after ten years from the date of initial criticality.' P's obligation to pay for the power generated by the fuel it received began with 'initial criticality', which is defined as the first time a self-sustaining chain reaction occurs in the core of a nuclear unit. It is a moment that may be determined with technical precision. It is an event that occurs only once in the life of a nuclear unit. D endeavored, unsuccessfully, to convince P that its fuel cost would be lower if it undertook on its own to have the spent fuel reprocessed. D even offered to act as P's agent in obtaining reprocessing. P never entertained these suggestions. D agreed to a specified price for fuel based upon mills per kilowatt hour as a charge for the energy generated. D ultimately convinced P that the capital, fuel, and production costs of nuclear power would not exceed the costs that it was incurring for its fossil units, and would inure to the benefit of P's ratepayers. The contract by its terms requires D to remove the spent fuel and 'dispose of it as D sees fit.' Absent reprocessing, spent fuel is not only valueless but represents a financial burden. D anticipated that the reprocessing of the spent fuel, with its consequent recovery of uranium nitrate and plutonium nitrate, would result in a financial gain of between sixteen and nineteen million dollars, as the estimated value of reusable uranium and production of plutonium. D in its business judgment concluded that there was substantial value to it in reprocessing. Of necessity, the contract price also encompassed a charge to P for D's anticipated service in removing the spent fuel. The only reference to reprocessing in the final contract is a provision permitting D to use 'plutonium and reprocessed or depleted uranium in fuel loadings subsequent to the initial fuel loading….' P was unwilling to commit to reprocessing and was happy to pay a higher price. There was no evidence that would support a conclusion that the parties ever understood or intended that D be contractually obligated to reprocess the spent fuel. At the time of the execution of the contract D's primary interest was to build the nuclear reactors for Florida, with its concomitant boostering effect for the nuclear industry. Under the contract, D accepted the responsibility of removing the spent fuel and with that responsibility, to utilize that fuel as it saw fit. D took a calculated risk. No spent fuel had ever been commercially reprocessed as of the time of execution of the contract, and further, the first commercial reprocessing plant in the United States was not licensed until April 19, 1966; more than a year after negotiations between the parties had commenced. D fully understood that its offer to P was premised on what it deemed to be a reasonable business risk that commercial reprocessing would come to pass and would be economically feasible, conditions which had not, at the time of execution of the contract, been demonstrated. P had no financial interest in the spent fuel. The evidence discloses that over the life of the contract, a total of 981 spent fuel assemblies will be generated. D failed to remove the first 411 of the spent fuel assemblies. P also had to construct a storage pit for each reactor capable of holding 217 assemblies. Each pit was intended for interim, temporary storage for the period between the time the fuel was taken out of the reactor and the time it was cool enough to be removed from the plant's site by D. P has expended $9,473,242.04 adding additional spent fuel storage racks at a closer center-to-center spacing which permits each pit to have a larger capacity than contemplated in the original design. This of course has resulted in increased operating and maintenance costs, as well as potential environmental difficulties. By the end of the year 1985, both storage pits will reach their potential capacity for storage. If such comes to pass, P's reactors will be forced to shut down with a consequent cost estimated to be approximately $500,000 per day, per unit, for replacement power. The evidence reflects that D's entry into the contract came about at a time when D fully anticipated, despite the lack of a binding contract for reprocessing of spent fuel, to reprocess P's spent fuel with the hope of making its agreement with P under option C economically more profitable. As early as 1957 the United States Atomic Energy Commission adopted a policy of assuring the nuclear power industry that the government would, in the event that commercial reprocessing services were not available at reasonable times and conditions when irradiated power reactor fuels were discharged from their reactors, make financial settlement for the materials contained in those fuel elements, and reprocess them. In 1965 the Government was actively urging the reprocessing of spent fuel, was accepting fuel for reprocessing, and to a limited extent was underwriting a portion of the financial burden associated therewith. National Fuel Services, Incorporated, built a plant that became operational in 1966 and operated until 1972. The plant became operational in 1966 and was designed to operate at only about 300 tons per year. It is estimated that the Turkey Point plants will produce about 400 tons of spent fuel over the term of the contract with D. No other commercial reprocessing concerns became operable. In 1970, four years after the execution of the contract, D entered into a letter of intent with Allied-General Nuclear Services (AGNS), to contract with AGNS, subject to AGNS's receipt of a license, for the reprocessing of the Turkey Point spent fuel. In early 1974 AGNS advised D that it was not prepared to execute a formal agreement. On September 2, 1975, D notified P by letter that D had no plans for removing the spent fuel. In April 1977, two years after D declared its unwillingness to fulfill the contract, President Carter, by Executive Order, precluded the development of domestic facilities for the commercial reprocessing of nuclear fuel and the exportation of nuclear fuel for reprocessing purposes. Because of the Presidential ban on licensing procedures for contemplated commercial reprocessing facilities have been terminated. P sued D. P seeks not only monetary damages as compensation for its having to expand its storage pits but an order directing Westinghouse to remove the spent fuel. There are no commercial facilities, except for a few such as that of General Electric, which, because of the ban on reprocessing, has limited the use of its facility to take spent fuel from its customers as an accommodation in lieu of being able to fulfill reprocessing commitments, that could be used for storage of spent fuel. There are eight government facilities with potential for storing spent fuel, which, theoretically, could store spent fuel produced beyond the year 2000, they would require extensive physical modifications to make them usable. Without a solution, P's nuclear plants will be shut down by the year 1986 as to one plant, and 1988 as to the other. D raises the following five defenses: (1) that its nonperformance is excused by the common law doctrine of impossibility of performance; (2) that the government's change of policy concerning commercial reprocessing discharges its duty under the force majeure clause; (3) that performance by it has been rendered commercially impracticable under § 2-615 of the Uniform Commercial Code; (4) that the non-availability of reprocessing has frustrated the purpose of the contract; and (5) that the parties' erroneous expectation that the spent fuel would be reprocessed discharges d's obligation under the doctrine of mutual mistake.

Issues

Rule of Law

Holding and Decision

Legal Analysis

© 2007-2025 ABN Study Partner.