Source: NBR | Mark Fahey, CNBC.com | Juily 6, 2016
If you were to guess which government agency has had to pay out the most in court in recent years, the Department of Energy probably wouldn’t come to mind.
Yet the DOE is among the most prominent defendants requiring payment from the Judgment Fund, which pays for claims against the government. The department paid out more in legal claims than any other agency last year and the year before, according to the fund’s records — more than $5 billion over the last decade.
And according to the department itself, the bloodletting as far from over. The DOE has failed to make good on some of its most important contractual obligations for years, and its private partners have been collecting billions in damages.
The Nuclear Waste Policy Act of 1982 requires that the DOE dispose of nuclear waste being produced at civilian energy plants around the country, which in turn pay fees for a long-term storage facility. The department’s contracts with dozens of energy companies said it would start disposing of the waste in 1998.
The companies held up their end, feeding about $750 million into the Nuclear Waste Fund each year. But the department did not manage to set up any facility to receive the waste, forcing energy companies to store it themselves on-site.
All those partial breaches of contract haven’t come cheap. As of the end of 2015, the DOE has paid $5.3 billion for failing to fulfill its obligations, and even if it manages to start disposing of waste in the next 10 years, it could still be on the hook for nearly $24 billion in additional liability.
“Because the United States has no facility available to receive spent nuclear fuel (SNF) and high-level radioactive waste (HLW) under the Nuclear Waste Policy Act, it has been unable to begin disposal of SNF from utilities as required by the standard contract with utilities,” said a DOE spokesperson in an email. “Significant litigation claiming damages for partial breach of contract has ensued as a result of this delay.”
At the end of 2015, the DOE had settled 35 lawsuits and resolved 33 with judgments, with 19 cases pending, according to the Congressional Budget Office. A court ruling halted the collection of storage fees in 2014, but energy companies are still seeking to recoup the money they’re spending every year on waste storage. Even after settlements for back pay are reached, the department is usually required to reimburse those costs going forward.
The hang-up has been in finding a location for the centralized storage facility. For decades, Yucca Mountain in Nevada was the only location that could legally be considered, despite fierce opposition from state and local groups. The Obama administration eventually abandoned the site as “unworkable” in 2011.
“Significant litigation claiming damages for partial breach of contract has ensued as a result of this delay.”
At the recommendation of the administration’s Blue Ribbon Commission (BRC), the department is now pursuing a “consent-based” approach, meaning that the DOE will seek the approval of relevant communities before construction, rather than trying to force all of the country’s spent nuclear waste on a pre-decided site in Nevada.
“The administration concurs with the conclusion of the BRC that a fundamental flaw of the 1987 amendments to the NWPA was the imposition of a site for characterization,” wrote then-Energy Secretary Steven Chu in the department’s most recent guiding strategy document from January 2013. “In practical terms, this means encouraging communities to volunteer to be considered to host a nuclear waste management facility.”
The DOE plans to have a pilot interim storage facility by 2021, initially to accept waste from reactor sites that were shut down years ago. Limiting the government’s massive liabilities is a major focus of the department’s strategy, according to the document.
The question isn’t whether the DOE will continue to have to pay out an exorbitant amount of money, but just how exorbitant that sum will end up being. The department itself projects that its total liabilities based on previous payouts will ultimately come to $29 billion in 2015 dollars, but that’s assuming it manages to start accepting waste in the next decade.
Neither the Department of Energy nor the Department of Justice could provide a list of related judgments and settlements so far, and the DOE said an updated liability estimate will not be available until its fiscal 2016 financial report comes out later this year.
“The department is currently developing a consent-based siting process for storage and disposal of SNF [spent nuclear fuel] and HLW [high-level radioactive waste],” said the department spokesperson. “Since January, DOE has held a series of public meetings and received feedback on how best to develop this process.”
The energy industry does not seem optimistic about a quick solution. According to the Nuclear Energy Institute, the department’s total liabilities could stretch to more than $50 billion. But that’s a more pessimistic figure that assumes a “total default” by the DOE.
The DOE’s own documentation for the Yucca Mountain project forecasts that if it failed completely and waste had to stay at the current sites indefinitely, it would cost between $75 billion and $82 billion in 2015 dollars over the first 100 years (including the cost of decommissioning Yucca).
Jay Silberg, a prominent energy industry attorney, said his estimate for total liability is closer to the $50 billion figure.
“I think that number is going to bear out, because I unfortunately don’t have much faith that the government will do what they promised to do in 1982,” said Silberg. “We all hope they can get their act together, but whether that will actually happen and whether it will be at large enough scale to remove the fuel piled up on these sites, I don’t have a lot of confidence in that.”