Appendix — Northern Helex Co. v. United States

Supreme Court brief1976

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IN THE

Supreme Court of the United States

OcTOBER TERM, 1975

No $5- 1425

NORTHERN HELEX Company, Petitioner,

UniTep STATES OF AMERICA, Respondent.

APPENDIX TO PETITION

FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF CLAIMS

CLARENCE T. Kipps, JR.

1700 Pennsylvania Avenue, N.W.

Washington, D.C. 20006

Counsel for Plaintiff

Of Counsel:

F. Vinson RoAacH

DEAN W. WALLACE

NORTHERN NATURAL GAS COMPANY

2223 Dodge Street

Omaha, Nebraska 68102

JOHN Lioyp RIcE

MILLER & CHEVALIER

1700 Pennsylvania Avenue, N.W.

Washington, D.C. 20006

Press or Byron S. ADAMS PRINTING, INC., WASHINGTON, D.C.

INDEX TO APPENDIX

Page

I. Opinion of the Court of Claims dated October 22,

eek cee scconcccccccccese 2

II. Opinion of the Trial Judge, Findings of Fact, and

ee ce occ ceesecccesccces 42

ee ees c cds ccocaceoesececes 42

Ee cece cccceccccsccesceoce 162

1. Issues for Disposition ................. .. 167

2. Northern’s plans to integrate helium, LPG,

ethane, nitrogen removal, and petrochemical

Pc ceskedéesees 169-170, 177-179, 205-206

3. Government knowledge of integration of he-

lium facilities with nitrogen removal, LPG,

ethane and petrochemical facilities .... 174, 175,

179, 206, 207, 214-215

4. Northern’s LPG, helium, ethane, nitrogen

removal and petrochemical facilities ... 217-234

(a) Natural Gas Constituents ......... 169-170

EEE 217-220

{d) Helium plant processes ........... 20-223

TEE, oc ccaccccccsccscecs 224-225

(f) Petrochemical facility ............ 226-228

(g) Contractual integration ........... 228-230

5. Purposes of the helium conservation pro-

De keeeekeneeccecces 170-174, 179-204, 217

6. Helium uses, present and future ....... 253-264

7. Helium supply, present and future ..... 264-272

8. Office of Management and Budget cancella-

tion of helium conservation program .. 234-253,

274-279

9. National Environmental Policy Act .... 272-274

10. Computation of Damages ............. 280-297

Index to Appendix Continued

Page

. Opinion of the Court of Claims dated January 21,

BOE cunsucnccesecesendchenvahesaseuseusensascll

. Order of the Court of Claims dated September 27,

SE esas ckencensactenseesaseeeee 5 od

. Order of the Court of Claims dated January 9,

DOU Waindndciacccsscunecsuassdeneeaee pet

IN THE

Supreme Court of the United States

Ocroser Term, 1975

No.

NortTHerRN Hevex Company, Petitioner,

Unirep States oF America, Respondent.

APPENDIX TO PETITION

FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF CLAIMS

IN THE UNITED STATES COURT OF CLAIMS

No. 454-70

(Decided October 22, 1975)

NorTHeRN Hetex Company v. Tue Unirep States

Clarence T. Kipps, Jr., attorney of record for plaintiff.

F.V. Roach, Ralph P. Blodgett, Jim W. Krueger, Dean W.

Wallace, Edward J. Vandermark, John Lloyd Rice and

Miller & Chevalier, of counsel.

Edward J. Friedlander with whom was Assistant Attor-

ney General Rex E. Lee. James F. Merow, of counsel.

Before Cowen, Chief Judge, Dunrer, Senior Judge,

SKELTON, Nicnois, and Kunzic, Judges.

OPINION

SKELTON, Judge, delivered the opinion of the court:

In this case Northern Helex Company (plaintiff or North-

ern Helex) seeks in its second amended petition to recover

$99,964,000 from the Government as damages for a breach

of contract to purchase helium. The plaintiff is a wholly

owned subsidiary of Northern Natural Gas Company

(Northern). The liability issue in the ease was decided in

favor of the plaintiff~by this court in Northern Helex Co.

v. United States, 197 Ct. Cl. 118, 455 F. 2d 546 (1972). In

that decision we held that the failure of the Government to

pay for helium delivered to it by the plaintiff as required

by the contract was a material breach that justified the

plaintiff in terminating the contract and for which the plain-

tiff has a claim for damages. We held further that the

plaintiff had not waived the breach of the Government by

its continued production and tender of helium to the Gov-

ernment both before and after suit was filed. However, we

did not pass upon plaintiff’s claim for damages nor upon

other issues in the case that will be discussed below. We

granted plaintiff’s motion for summary judgment on lia-

bility and remanded the case to the trial judge to determine

the amount of recovery, if any. A trial was held on this

issue, which resulted in findings of fact and a recommended

decision by the trial judge in favor of the plaintiff for the

recovery of $78,012,142 as damages from the Government.’

Both the plaintiff and the defendant excepted to the trial

judge’s report. The facts necessary for our decision are

included in this opinion. Our task is to decide the issues

left undecided in our prior opinion cited above. Most of

the basic facts are set forth in that opinion, and, for the

sake of clarity and continuity, are repeated below with

certain omissions and additions.

The plaintiff, a wholly owned subsidiary of Northern

Natural Gas Company, made a contract with the United

States, acting through the Department of Interior, on

August 15, 1961. This agreement was authorized by the

Helium Act Amendments of 1960 (50 U.S.C. § 167, et seq.),

a long-range program designed to conserve helium as a

natural resource for future use. A by-product of the pro-

duction of natural gas, helium was wasted daily as it

escaped into the atmosphere at such a rate that the helium-

bearing gas resources in the southwestern states were ex-

pected to be inadequate for national needs by 1980-1985.

Because of the unique properties of helium and the slim

likelihood of finding new sources as rich as the Hugoton

Area, involved here, the helium conservation program was

initiated. One of its components was plaintiff’s contract.

‘The findings of fact and recommended decision of Trial Judge

Louis Spector have been helpful, but we reach a somewhat different

result.

This provided for the purchase by the United States of

the helium to be produced by Northern Helex which was

estimated to be 13.5 billion cubic feet over a span of years.

The helium was to be extracted from Hugoton gas, deliv-

ered, and paid for each month over the 22-year contract

period with an annual fiscal year limitation of $9.5 million.

The unit price of $11.24 per thousand eubie feet had in-

creased to $12.41 by the date this action was filed (in De-

cember 1970) due to automatic price adjustments envisaged

by the agreement. The Government also entered into sim-

ilar contracts with Cities Service Helex, National Helium

Corporation, and Phillips Petroleum Company. Pursuant

to its contract, Northern Helex constructed facilities, ex-

— and delivered helium from December 7, 1962, on-

ward.

The helium conservation program was intended to be

self-liquidating, financed with borrowing authority pro-

vided by Congress and with funds lent by the Treasury De-

partment to Interior. The borrowed funds were to be sup-

plemented and, within 25 to 35 years, repaid with interest

from helium sales proceeds. Interior was to sell some of

the helium at a price high enough to pay for the entire pro-

gram and still have 40-50 billion cubic feet in storage for

use after 1983. The ‘‘federal market’’—consisting of Gov-

ernment agencies, their prime contractors and _ subcon-

tractors—was expected to purchase its major helium re-

quirements from Interior and provide the basic financing

for the whole program.

Unfortunately this forecast did not prove itself. The dif-

ficulty was that, from the mid-1960’s, private helium plants

hegan to operate outside the program and to sell to Go-

vernment contractors. Also, other conservation contractors

produced helium in excess of the amount which could be

sold to Interior under their contracts and sold the excess in

competition with Interior at lower prices. Northern Helex

sold helium only to Interior, but over the period of 1965-

1969, some $25 million (it is said) was lost to the program

because helium was purchased for federal use from other

private producers rather than the Bureau of Mines, Con-

gress did not appropriate enough funds to satisfy the pay-

ments due under the agreements of Northern Helex and

its companions in the program. By letter dated November

26, 1968, Interior informed plaintiff that the Government

would be unable to make payments when they became due

as of January 1969. Beginning in December 1968, and con-

tinuing through 1969 the Government failed to pay the

complete amount owed. Arrearages in the monthly pay-

ments ranged from a low of $664,122 to a high of $3,235,349.

For deliveries from November 1969 through November

1970, the Government paid nothing at all.

In May 1970, the Interior Department convened a meet-

ing of the four conservation contractors in which they were

told that the unit price and the maximum annual payment

would have to be negotiated downward. A letter of June 24,

1970 (acknowledged June 26), from Northern Helex noti-

fied the Government that its failure to make payments was

a material breach which was not being waived, but that

Northern Helex was willing to discuss modifications. A

draft agreement which would have increased the obliga-

tions of plaintiff while the payments to it were decreased

was circulated along the lines discussed in the negotiations.

Meanwhile, in his request for supplemental appropriations

for fiscal year 1971, the President asked only $56,100,000

in borrowing authority for obligations under the helium

contracts. This amount was not sufficient to pay outstand-

ing debts and all anticipated deliveries for the remainder

of the fiseal year but only to cover five months of operation

at the present contract price and seven months at the re-

duced price proposed by Interior. No real progress was

made during the negotiations, as Northern Helex delivered

657;008,000 cubic feet of helium from November 1, 1969,

through November 30, 1970, plus an additional 44,647,000

through December 24, 1970, the date of filing of the peti-

tion in this court, without receiving any payment.

In its petition, plaintiff alleged that although its con-

tractual obligation to perform had been discharged by the

Government’s material breaches of contract, it would con-

tinue to tender helium to the Government in mitigation of

damages and in the interest of conservation. This was

done, according to Northern Helex, because helium extrac-

tion facilities have been interrelated with its liquefied pe-

troleum gas and petrochemical operations in such a way

that the helium facilities must be continued in operation

whether helium is wasted or stored. Northern Helex has

no facilities for storage, purification, distribution, or mar-

keting of helium and there is so little demand for the gas

in the private market that the company has not considered

it financially feasible to develop such facilities. On Decem-

ber 30, 1970, Northern Helex notified Interior of this suit

and of its decision to continue to deliver helium, despite

the material breach, because of the integration of its facili-

ties and the need to save helium.

On January 14, 1971, the United States sent Northern

Helex a check for $8,671,631.99—the total amount then due

for all helium delivered by plaintiff—which the company

cashed, without any notation on the check, and it then

amended its petition to reflect payment as a reduction of

damages. On January 26, 1971, the Under Secretary of

Interior wrote plaintiff terminating the contract under its

termination clause, effective March 28, 1971. Plaintiff does

not acknowledge the legitimacy of this asserted termina-

tion. Since then, a ‘‘no prejudice agreement’’ has been

entered into under which Interior agrees to store helium

which Northern Helex has continued to deliver. Payment

also continued. Northern Hielex billed Interior for helium

delivered through March 31, 1971. The bills carry a legend

indicating that delivery, submission of documents, and pay-

ment shall be without prejudice to the rights of the parties.

After the recent Congressional appropriation of funds, on

‘

June 23, 1971, Northern Helex received a check of $2,285,-

872.87 for the period of December 1970 through March 28,

1971. This June payment is also considered by Northern

Helex to be a reduction of damages without prejudice to

its rights.

The parties stipulated that had the contract remained in

effect from December 24, 1970, through August 15, 1983,

the plaintiff would have delivered 6,467,000,000 cubie feet

of helium to the Government. The trial judge found that at

the contract price of $12.41 per m.c.f. in effect when the

contract was terminated on December 24, 1970, the Govern-

ment would have paid the plaintiff the sum of $80,255,000

for such helium,

The parties stipulated further that had the contract re-

mained in effect to the end of the contract period, plain-

tiff’s costs in performing the contract would have amounted

to the sum of $43,067,413.?

The plaintiff contends that it is entitled to recover as

common law damages for the breach the full contract price

of $80,255,000, adjusted upward according to the wholesale

price index, without any reduction for its costs of opera-

tion ($43,093,793) in performing the contract. The basis

for this contention is that plaintiff’s helium extraction plant

is a part of an integrated operation involving itself, which

owns and operates the helium extraction plant, and the

following additional companies and their operations:

Northern Natural Gas Company (Northern), which owns

the natural gas and also owns and operates a natural gas

pipeline and transmission system; Northern Gas Products

Company (Gas Products), which owns and operates ethane

and liquefied gas products facilities; and Northern Petro-

? Excludes consideration of potential liability for Landowners/

Producers claims; excludes any adjustment for inflation (stated in

1971 dollars) ; and excludes interest for money borrowed or to be

borrowed by plaintiff.

chemical Company (Petrochemical), which owns and op-

erates petrochemical facilities. Northern is the parent com-

pany and all of the other companies are its wholly owned

subsidiaries. The integration relied on by the plaintiff

consists of the following operations. Northern supplies the

natural gas from its pipelines to the plant of Gas Products

in Bushton, Kansas, which extracts propane, ethane, and

heavier liquids from the gas. The helium plant of plaintiff

at Bushton extracts helium and nitrogen from the gas and

returns the gas to Northern for sale to fuel customers,

while a low B.T.U. nitrogen-methane mixture is piped to

Gas Products for burning the methane as fuel, and for

rejection of the nitrogen by venting it into the air. Petro-

chemical’s plant is located in Joliet, Illinois, but is con-

nected with the Bushton, Kansas complex by a pipeline

from which it receives Bushton feedstocks and especially

the high purity ethane for which it was designed and on

which it depends. The Petrochemical complex consists of

an ethylene oxide—ethylene glycol plant, an olefins plant,

and a low density polyethylene plant. The plaintiff alleges

that Northern, through its wholly owned subsidiaries men-

tioned above, has an investment of 300 million dollars in

all of these plants. These companies allegedly have inter-

locking agreements or understandings providing for the

furnishing of services and products to each other. The plain-

tiff says that it cannot stop operating its helium plant be-

cause it is obligated by contract with Northern to process

up to 500,000,000 cubic feet of Northern’s “on per day for

the extraction of helium-gas mixture for 22 years (to 1983),

and beeause it is necessary for plaintiff’s helium plant to

extract a nitrogen-methane mixture from the gas so that

Gas Products can reject the nitrogen and burn the meth-

ane as fuel. The contract between the plaintiff and North-

ern is in evidence and only requires the plaintiff to extract

helium. Nitrogen extraction is not mentioned. There is no

showing how or why the plaintiff is obligated to extract

nitrogen for the benefit of Gas Products and Petrochemical

and their operations.

The plaintiff contends that the pre-contract discussions

by the parties about integration of helium, nitrogen re-

moval, liquid propane gas (',.PG), and petrochemical facili-

ties show that the necessity for Northern Helex to continue

operation of the helium facilities to the end of the contract

period in the event of a breach (or termination) by the

Government was not only reasonably foreseeable by the

Government, but was expressly recognized before and dur-

ing the negotiation of the contract, as well as in the terms

of the contract. By reason of these facts, plaintiff claims

that it is entitled to recover its cost of operation to August

15, 1983, along with its profit, which together equal the full

contract price. We do not agree. Neither the facts in this —

case nor the law applicable thereto obligates or requires

‘the Government to pay the costs of plaintiff’s perf

om the date of the breach to the end of the contract term. ~

ere was no privity of contract between the Government

and Northern, or Gas Products, or Petrochemical. The Gov-

ernment had nothing whatsoever to do with the operations

of those companies nor with their obligations with or to

each other. There was no obligation on the part of the Gov-

ernment to remove helium and nitrogen from the gas so

that Northern could have gas of pure quality to sell to fuel

customers. Neither was the Government obligated to re-

move nitrogen from the gas so that» Gas Products could

reject it, nor was the Government concerned or involved

in any way with the extraction of propane, ethane, LPG

and other hydrocarbons from the gas by Gas Products.

There was no obligation on the part of the Government to

see that high purity ethane was furnished by Gas Products

to Petrochemical in Joliet, Illinois. The plaintiff has shown

no connection whatever between the Government and these

companies and their operations.

The only contract that the Government had was with

Northern Helex for the purchase of helium. No other

product is mentioned in the contract. This was a fixed fee

contract. The Government had no interest in nor obligation

with respect to plaintiff’s costs in performing the contract

either before or after termination. Performance costs were

the sole responsibility of the plaintiff as the seller of the

helium and the Government as the buyer had no liability

with respect to them.

The Government is even further removed from liability

for the so-called ‘‘integrated costs’? of plaintiff resulting

from the integrated operations of plaintiff with Northern,

Gas Products and Petrochemical, because the contract be-

tween plaintiff and the Government provided:

ARTICLE XXXI. GENERAL

* * * * *

31.3 In connection with Seller’s plant, Seller at its

sole risk, cost and option may construct and operate,

or cause to be constructed and operated, facilities for

extracting products other than helium from the nat-

ural gas processed through said helium plant.

This clause completely exculpates and exonerates the Gov-

ernment from the cost of operation of any ‘‘facilities for

extracting products other than helium from the natural gas

processed through said helium plant’? constructed and op-

erated by plaintiff. The only facility constructed and op-

erated for such purpose by plaintiff wa’ that part of its

helium extraction plant that extracted nitrogen which it

furnished to Gas Products. The above clause relieves the

Government of any liability for the cost of extracting nitro-

gen from the gas by plaintiff. None of the remaining inte-

grated facilities for the extraction of ethane, propane,

LPG, petrochemicals, ete., from the gas were constructed

or operated by the plaintiff but by Northern, Gas Products,

and Petrochemical with which the Government had no priv-

ity of contract. Since the above clause in the contract pro-

tects the Government from liability for the cost of opera-

tion of any such facility constructed and operated by the

plaintiff, no liability can be imposed on the Government for

the cost of operation of any part of the facilities con-

structed by plaintiff’s parent and sister companies to which

the Government owes no contractual obligation. Even if the

plaintiff ‘‘caused to be constructed and operated’’ the

plants of Northern, Gas Products, and Petrochemical, the

above contract clause protects the Government from lia-

bility for their operation costs, because this contingency is

covered.

The basic rule for awarding common law damages for a

breach of contract is stated as follows in RestaTEMENT OF

Law, Contracts § 329, comment a at 504:

In awarding compensatory damages, the effort is

made to put the injured party in as good a position as

that in which he would have been put by full perform-

ance of the contract, at the least cost to the defendant

and without charging him with harms that he had no

sufficient reason to foresee when he made the con-

wat, °° **

See also subsidiary rule section 335 [Id.]:

If the defendant’s breach of contract saves expense

to the plaintiff by discharging his duty of rendering a

performance in return or by excusing him from the

performance of a condition precedent, the amount of

this saving is deducted from the damages that would

otherwise be recoverable.

See also 5 Corpix, Contracts §§ 1038, 1053, 11 WiutstoN,

Contracts, § 1353, (3d ed. 1968).

*The court has qualified or clarified this rule by noting that

plaintiff is to be placed ‘‘in as good a position pecuniarily as [it]

would have been if the contract had been completely performed.”’

J. D. Hedin Constr. Co. v. United States, 197 Ct. Cl. 782, 803, 456

F. 2d 1315, 1327-28 (1972). [Emphasis supplied.] G. L. Christian

d Associates v. United States, 160 Ct. Cl. 1, 312 F. 2d 418, cert.

denied, 375 U.S. 954 (1963).

The plaintiff argues that the above rule (section 329)

when properly applied to the facts of this case entitles it

to recover its costs for performance of the contract to the

end of the contract term. The basis for this argument, as

pointed out above, is that by reason of the pre-contract

discussions and negotiations between the parties, it was

contemplated that the plaintiff would build and operate an

integrated plant that would extract nitrogen, ethane, pro-

pane, LPG, other hydrocarbons, and petrochemicals, in ad-

dition to the helium to be sold to the Government, and that

the Government agreed to and encouraged such a plan. The

plaintiff contends that by reason of these facts, the Govern-

ment had sufficient reasons to foresee the harm that would

result to the plaintiff if the Government breached or ter-

minated the contract, and that this imposed an obligation

on the Government to pay the cost of plaintiff’s perform-

ance to the end of the contract term if the Government

breached the contract. We do not agree, because the facts

do not support the theory of the plaintiff, as will be shown

below.

The facts show that Northern was planning as a com-

mercial undertaking the integrated operation (that was

finally constructed and operated) as early as 1957. At or

about this time it had architects and engineers to draw up

plans for such an enterprise. These were abandoned when

it began negotiations with the Government. However, on

October 28, 1960, Northern entered into a contract with

Gas Products whereby the latter company would construct

and operate a plant at Bushton, Kansas, to extract and re-

move various hydrocarbons from natural gas to be sup-

plied by Northern. The contract period was 20 years. This

contract was made almost a year before the contract was

executed between the plaintiff and the Government on

August 15, 1961. Consequently, the contract with Gas Prod-

ucts could not have been foreseen nor contemplated by the

Government when its contract was executed with the plain-

tiff, because the Gas Products contract had been in force

for almost a year. Furthermore, the Gas Products contract

was amended on June 26, 1967, almost six years after the’

contract with plaintiff involved here was executed. Such

amendment provided that at that time ethane was not being

extracted from the gas by Gas Products, but that it was

proposed to be so extracted by 1969 and be in full produc-

tion by the end of 1974. These activities were to take place

eight and 13 years after the contract between the plaintiff

and the Government was executed on August 15, 1961. The

Government could not have foreseen that these events

would occur after so long a time. It should be kept in mind

that the Gas Products plant is the central part of plain-

tiff’s alleged integrated operations. It receives the nitrogen

from plaintiff’s extraction plant which it rejects. It extracts

ethane, propane, LPG, and other hydrocarbons from North-

ern’s gas. Furthermore, it supplies Petrochemical with

pure ethane, from which the latter company extracts the

petrochemicals mentioned above. To hold the Government

responsible for costs that support such operations ap-

proaches speculation which we cannot approve. As pointed

out above, we do not know how or why the plaintiff is obli-

gated to supply nitrogen to Gas Products, nor how or why

Gas Products is required to supply pure ethane to Petro-

chemical. The Government could not possibly have fore-

seen these activities nor assumed any liability with refer-

ence thereto, because, among other reasons, even now the

facts regarding them are unknown to the Government.

There is no evidence whatever that the parties contem-

plated at the time the contract was signed that the Govern-

ment assumed any liability or responsibility for the alleged

integrated operations, nor that the Government would be

liable for the cost of plaintiff’s performance in case the

contract was terminated. The evidence, including the con-

tract, point the other way and negate any such understand-

ing or assumption. The Supreme Court said in Globe Re-

fining Co. v. Landa Cotton Oil Co., 190 U.S. 540, 544

(1903) :

* * * Tf a contract is broken the measure of damages

generally is the same, whatever the cause of the breach.

We have to consider therefore what the plaintiff would

have been entitled to reeover in that case, and that de-

pends on what liability the defendant fairly may be

supposed to have assumed consciously, or to have war-

ranted the plaintiff reasonably to suppose that it as-

sumed, when the contract was made.

This point of view is taken by. implication in the rule

that ‘‘a person can only be held to be responsible for

such consequences as may be reasonably supposed to

be in the contemplation of the parties at the time of

making the contract.’’ * * * The consequences must be

contemplated at the time of the making of the contract.

[Emphasis supplied. ]

Plaintiff’s claim for its performance costs appears to be an

afterthought that was developed by it after the breach by

the Government. ;

Furthermore, during the pre-contract discussions, the

Government did not request or require the plaintiff to

exhibit its plans nor to reveal its cost, because the Govern-

ment was not concerned with such facts. All the Govern-

ment wanted to do was to buy heliuin at a fixed fee .and

the extent and cost of plaintiff’s plant and its operation

was its own business that did not concern the Government.

Regardless of the pre-contract discussions and negotia-

tions between the parties, under well settled principles of

contract law, for which citation is unnecessary, all such

discussions and negotiations merged into the executed con-

tract. As has been stated, the contract does not impose any

obligation on the Government to pay plaintiff’s costs of

performing the contract to the end of the term, nor any

obligation whatever to pay any costs with reference to

plaintiff’s integrated operations with its parent and sister

companies. As stated above, the contract absolves the Gov-

———<—

ernment from liability for any costs of plaintiff’s integrated

operations. Furthermore, with reference to the alleged pre-

contract discussions and negotiations, the contract pro-

vides:

ARTICLE XXXI. GENERAL

31.2 The terms of this contract express and consti-

tute the full agreement between the parties thereto.

There are no warranties, covenants, stipulations, or

conditions existing apart from the terms of this con-

tract.

Accordingly, we hold that the plaintiff is not entitled to

recover its cost of performance ($43,093,793) of the con-

tract to the end of the contract period, and that its claim

for the full contract price of $80,255,000, escalated, without

any reduction for costs of performance is denied.

The defendant has alleged what it calls an affirmative

defense to plaintiff’s claim for damages. We declined to

decide this question in our previous decision (197 Ct. Cl.

118), but must do so in this opinion. This affirmative de-

fense consists of the following set of facts. Notwithstand-

ing plaintiff’s termination of the contract on December 24,

1970, because of defendant’s breach for non-payment as

required by the contract, the defendant treated the con-

tract as still valid until January 26, 1971, when Under

Secretary of the Interior Russell sent plaintiff a notice ter-

minating the contract as of March 28, 1971, under para-

graph XII of the contract. The plaintiff challenges both

statements and says that neither condition existed. The

plaintiff says furthermore that the decision to terminate

was not that of the Under Secretary as required by the con-

tract but that of the Office of Management and Budget; and

that in any event the Under Secretary had not complied

with the National Environmental Policy Act of 1970 (42

U.S.C. § 4321, et seq.) by filing an environmental impact

statement dealing with the termination; and, finally, that

the contract had already been terminated by the plaintiff on

December 24, 1970, by reason of defendant’s breach; and

that for all these reasons the attempted termination by

Under Secretary Russell was ineffective. We hold that the

last stated argument of the plaintiff is the correct one and

that since the contract had been terminated by the plaintiff

on December 24, 1970, there was nothing for the Under

Secretary to terminate when he sent his termination letter

on January 26, 1971, and that his attempted termination of

the contract under paragraph XII, effective March 28,

1971, was totally ineffective because he could not terminate

a contract that no longer existed. We do not reach nor

decide the other questions raised by the plaintiff with re-

spect to Under Secretary Russell’s attempted termination

of the contract, because it is unnecessary to do so.

After plaintiff terminated the contract on December 24,

1970, it continued to extract helium and nitrogen from

Northern’s natural gas, delivering the thus purified gas to

Northern for its fuel customers and nitrogen to Gas Prod-

ucts for rejection. Ethane was furnished to Petrochemical

by Gas Products for the extraction and production of the

described petrochemicals. The helium thus extracted after

termination was tendered to the Government for the alleged

purpose of mitigating damages, according to the plaintiff.

Since the Government considered the contract still in effect

_until Under Seeretary Russell terminated it as of March

28, 1971, the Government continued to accept and pay for

the tendered helium up to that date but refused to accept

any helium thereafter. On January 14, 1971, the Govern-

ment paid plaintiff $8,671,631.99 for helium delivered

through November 30, 1970. Thereafter, on June 18, 1971, it

paid the plaintiff $2,285,872.87, which defendant stated was

$232,557.68 less than plaintiff was due for helium delivered

from December 1, 1970, through March 28, 1971. This differ-

ence was explained by the Government as being $32,557.68

due the Government under an interim contract 14-09-0060-

3085 for storage of helium by the Government for the plain-

tiff from March 28 to April 30, 1971,* and $200,000 claimed

by the Government in a counterclaim filed by the Govern-

ment in this case for the value of certain helium delivered

by the plaintiff which was processed from natural gas ex-

tracted from land owned by the Government under leases

from the Government to third parties.’ The $2,285,872.87

included $532,431 for helium delivered from December 1,

1970, through December 25, 1970, and $1,753,442, for the

period from December 25, 1970, through March 28, 1971.

The Government has paid $1,786,000 to plaintiff for helium

delivered subsequent to the breach, which includes the $32,-

557.68 mentioned above. All the helium received for the

account of the Government has been paid for. The plain-

tiff contends that this $1,786,000 represents a part of the

damages due it for the breach by the Government. The

Government says it represents payment for helium received

under the contract. We think both theories are wrong. The

argument of the plaintiff would work against its interest

because if approved, it would have to give the Government

credit for the $1,786,000 on any damages it is awarded in

this case. Furthermore, this payment was not one for dam-

ages and cannot be so considered. The Government’s posi-

tion is likewise erroneous. The payment was made after the

plaintiff had terminated the contract on December 24, 1970,

and consequently, it was not and could not have been a pay-

ment under the contract. We conclude with respect to this

transaction that after the contract was terminated on De-

cember 24, 1970, the plaintiff offered to sell a quantity of

helium to the Government at a price of $12.41 per m.c.f.

*On or about March 26, 1971, the parties entered into an interim

contract for storage of helium for plaintiff by the Government

without prejudice to plaintiff’s rights to damages, for which stor-

age plaintiff agreed to pay specified fees. This storage continued

until September 28, 1972. The plaintiff has paid $502,545 for this

storage.

° This counterclaim has been deferred for later proceedings and

is not a matter to be decided by us at this time.

and the Government accepted the offer and received and

paid for it and the transaction was closed. There was a

complete accord and satisfaction between the parties with

reference to it. This course of dealing was separate and

apart from the contract and has no effect on any issue in

this case. We leave the parties where we find them with

respect to this sale and payment after the contract was

terminated.

We now consider the interim storage issue. As stated

above, the plaintiff has paid the Government the sum of

$902,545 for storage of helium for its account delivered

after March 28, 1971. This payment was made in accord-

ance with the agreement of the parties made on or about

March 26, 1971. Both parties agree that the title to the

stored helium is in the plaintiff and that the Government

will deliver it to the plaintiff on demand. Here again we

have a transaction entered into by the parties after the

termination of the contract that has nothing to do with the

contract itself nor any issues in this case. The parties

executed the storage contract at arm’s length and both

have complied with its terms. The following letter from

the plaintiff shows that it fully understood that the helium

was being stored for it by the Government and that it was

willing to pay, and did pay, the Government for such

storage:

Mr. Harold W. Lipper

Chief, Division of Helium

United States Department of the Interior

Bureau of Mines

Washington, D.C. 20240

Dear Mr. Lipper:

Enclosed is our check in the amount of $195,260.88,

which represents full payment of storage charges due

under the Interim Storage Contract through August

of 1972.

ad ee

By reason of our inability to find a sufficient market for

helium and the tremendous financial burden placed

upon us by Interior’s breach of the Helium Purchase

Contract, we can not justify the storage of additional

volumes of helium produced subsequent to September

28, either on a short-term or long-term basis. Thus, we

are not in a position to renew the Interim Storage Con-

tract.

We will, however, continue to pay storage charges ac-

cruing upon our helium remaining in storage after

September 28. Although we expect to pay you at the

rate specified in the Interim Storage Contract, we are

hopeful that more equitable storage charges might be

arranged,

You have acknowledged that the charges we have here-

tofore paid under the Interim Agreement cover the

redelivery of our helium. Therefore, we call upon In-

terior to continue the redelivery of helium to Kansas

Refined Helium as in the past.

In furtherance of the conservation of helium and in

mitigation of the losing party’s damages, we will con-

tinue tendering helium to Interior subsequent to Sep-

tember 28. It is understood that Interior’s acceptance

thereof will in no way prejudice either party’s legal

position.

Very truly yours,

/s/ 8S. F. Segnar

S. F. Segnar

President

Notwithstanding the foregoing facts, plaintiff seeks the

recovery of the $502,545 storage charges as a part of its

damages. We do not agree that it is entitled to such recov-

ery. Here again the parties entered into an interim storage

contract at arm’s length and both parties performed the

contract according to its terms. The Government stored the

helium for the plaintiff and will deliver it to the plaintiff

on demand. The plaintiff has paid for the storage according

to the interim contract. The transaction is complete and an

accord and satisfaction has been reached between the par-

ties. We leave them where we find them with regard to the

storage issue, which has nothing to do with the main issues

in the case before us. The plaintiff is not entitled to recover

such storage charges.

Paragraph 7.4 of the contract in issue provided a formula

to cover plaintiff’s potential liability to the lessee /pro-

ducers for the value of helium not sold to the defendant

under either a total price or projected unearned profit

theory of damages. The defendant contends that the plain-

tiff would no longer have any contingent liability to the

lessee/producers after either December 24, 1970, the date

plaintiff terminated the contract, or March 28, 1971, the

date defendant ceased to receive and pay for helium. The

damage issue raised is whether the contingent liability

is to be regarded as a potential cost of operation of the

plaintiff or a potential profit. By a stipulation following

trial, the parties deferred the resolution of this issue to

later proceedings. Accordingly, we do not decide it. These

claims have been the subject of other litigation. See North-

ern Natural Gas Co. v. Grounds, 441 F. 2d 704, 723 (10th

Cir. 1971), cert. denied, 404 U.S. 951; Ashland Oil Inc. vy.

Phillips Petroleum Co., 364 F.Supp. 6 (N.D. Okla. 1973).

The plaintiff has continued to operate its plant and ex-

tract helium and nitrogen from natural gas from the date

it terminated the contract on December 24, 1970, up to the

present time, claiming that it has done so and continues to

do so to mitigate defendant’s damages. This mitigation

claim lacks substance. The helium is vented into the air and

wasted. The plaintiff admits that the helium has no market

value. It is unreasonable in the extreme for the plaintiff to

say that for over 414 years it has continued to extract

valueless helium from the gas and wasted it in the air solely

for the purpose of mitigating defendant’s damages. \~

rules applicable to the right of a seller to continue the

manufacture and identification of goods to the contract are

to be found in Sections 2-704(2) and 2-709(1)(b) of the

Uniform Commercial Code. As stated by the court m ite

decision in Northern Helex Co. v. United States, 197 Ct. Cl.

118, 129, 455 F. 2d 546, 553 (1972):

* * * The guiding principle is whether, in the individ-

ual circumstances, the seller exercised ‘‘reasonable

commercial judgment’? in continuing to manufacture

and deliver, in the effort to mitigate damages, although

his obligation to perform had been discharged by the

buyer’s total breach. * * *

Defendant contends that since plaintiff’s facility was

continued in operation solely as an accommodation and

without charge to Northern, its parent corporation, and to

a sibling corporation, i.¢e., Gas Products, to whom plaintiff

owed no contract duty and the continued operation patently

was not performed in an effort to mitigate damages, plain-

tiff’s continued and continuing performance following

breach was not an exercise of ‘‘reasonable commercial

judgment’’ within the contemplation of the rule, Anderson,

Uniform Commercial Code, § 2-704:5, n.10 at 535, states

that ‘‘the matter of reasonable judgment is to a large de-

gree controlled by the concept of good faith.’’ It is obvious

that after the plaintiff terminated the contract on Decem-

ber 24, 1970, or after the Government quit accepting and

paying for helium on March 28, 1971, or after the plaintiff

quit storing helium in the Government facility on Septem-

ber 28, 1972, the plaintiff did not extract helium to mitigate

defendant’s damages but did so in order to furnish helium —

and nitrogen free gas to Northern and nitrogen to Gas

Products. The only mitigating circumstance shown by the

evidence were sales by the plaintiff after the termination of

the contract and during the years from 1971 through 1976

of quantities of helium to Kansas Refined Helium for the

total sum of $2,872,547. The Government is entitled to have

this sum credited to any damages that may be awarded to

the plaintiff against the Government in this case. The plain-

tiff claims expenses for transportation in connection with

this sale in the sum of $477,387 and travel expense in trying

to sell helium during 1971 and 1972 in the sum of $13,032.

The defendant contends, and we agree, that the plaintiff

did not prove that these amounts were correct, reasonable,

or necessary. All the proof that plaintiff offered was its

Exhibits 86E and F which were mere listings of these

claimed expenses. The plaintiff should have proven that

these expenses were spent, that the amounts were correct,

reasonable, and necessary, and such other facts regarding

them as were relevant. River Construction Corp. v. United

States, 159 Ct. Cl. 254, 271 (1962). Exhibits 86E and F show

that we are not being unduly technical about these items.

These exhibits are as follows:

NORTHERN HELEX COMPANY

Sales to Kansas Refined Helium

Year Volume (Mcf) Transportation Revenue

ere 2,351 $ 800 $ 22,335

ae 54,964 46,598 522,370

ee 60,000 105,288 570,000

denuke s 70,000 122,836 665,000

We aveéacn 80,000 140,384 760,000

1976........ 35,036 61,481 332,842

Totals. . 302,351 $477,387 $2,872,547

WDW: 23 March 1973

NORTHERN HELEX COMPANY

Travel Expenses Incurred Trying to Sell Helium

ss TTT TTT TTT TE TOT Ee Pre eon ae $4,778.70

Diieedtiveencndneeys Oeeeueeuedoanecacsecs 8,253.45

Salary and telephone expenses unkown.

Exhibit 86E was prepared and filed in court in 1973, yet it

shows transportation charges for the future years of 1974,

1975, and 1976. Obviously, these charges are mere estimates

and have not been incurred. Exhibit 86F does not show

what the travel expenses were, who incurred them nor any

other relevant fact regarding them. Ordinarily, we would

reject these claimed items of expense for lack of proof.

However, in view of the fact that further proceedings at

the trial level of this court will be required in this case, the

plaintiff should be afforded an opportunity to make the

proper proof of these items of expense, and if it does so, the

court will consider them as valid, mitigating expense claims.

The plaintiff flatly accuses the Government of wasting

helium because it will not accept plaintiff’s offer to furnish

the helium to the Government provided the Government

pays plaintiff the full contract price for it. In this regard

the plaintiff says:

* * * Tf defendant continues to reject the offer and

eauses the helium to be wasted, that is the Govern-

ment’s choice as long as the taxpayers permit such

irresponsible action. [Pltf’s Reply Brief at 81.]

This argument is unpersuasive. It is clear that the only

reason the plaintiff continues to extract helium from the

gas is to supply helium-free gas and nitrogen to its related

companies as a part of its integrated operations. It is ob-

vious that the plaintiff is not extracting the helium through

any patriotic motivation to preserve it as a natural re-

source for future generations. If that were the case, it

could donate the helium to the Government since it is wast-

ing the helium anyway. After all, it is the plaintiff, and not

the Government, that is wasting the helium into the atmos-

phere. That can hardly be said to be an irresponsible act

on the part of the Government. We are not advised whether

the plaintiff is wasting the helium voluntarily or is being

required or forced to do so by Northern, Gas Products,

Petrochemical or anyone else. If the wasting is an irrespon-

sible action, it is not that of the Government.

The Governinent cannot be excused for its breach of the

contract. The plaintiff is entitled to reeover common-law

damages for such breach. However, it is not easy to ealeu-

late such damages in a case as complex as this once. As a

seller of heliuiw, it is not entitled to consequential damages.

Anderson, Uniform Commercial Code, , 2-708: 15. Further-

more, remote and consequential damages are not recover-

able in a common-law suit for breach of contract. See Globe

Refining Co. v. Landa Cotton Oil Co., 190 US. 540, 543

(19053). This is especially true in suits against the United

States for the recovery of common-law damages, such as

the instant case. See Ramsey vy. United States, 121 Ct. Cl.

426, 101 FP. Supp. 353 (1951), cert. denied, 343 U.S. 977

(1952); Dale Constr. Co. v. United States, 168 Ct. Cl. 692,

138 (1964); Specialty Assembling & Packing Co. v. United

States, i+ Ct. Cl. 158, 175, 355 F. 2d 554, 567-68 (1966) ;

William Green Constr. Co. v. United States, 201 Ct. Cl. 616,

626-27, 477 EF. 2d 930, 936-37 (1973), cert. denied, 417 U.S.

909 (1974).

In the William Green Constr. Co. case we said:

* * And even in a common-law suit there would be

no recovery for general loss of business, the claimed

loss of the entire Green net worth, and losses on the

non-federal work—such damages are all deemed too

remote and consequential. See Ramsey v. United

States, 121 Ct. Cl. 426, 433-35, 101 F. Supp. 353, 357-58

(1951), cert. denied, 343 U.S. 977 (1952); Dale Constr.

Co. v. United States, 168 Ct. Cl. 692, 738 (1964); Spe-

cialty Assembling & Packing Co. v. United States, 174

Ct. Cl. 158, 175, 355 F.2d 554, 567-68 (1966).

In Ramsey v. United States, supra, we held:

Plaintiffs allege that the Government’s failure to pay

the money promptly was the immediate cause of the

corporation’s financial difficulties which resulted in a

reorganization under the Bankruptcy Act. In actions

for breach of contract the damages are ordinarily

limited to the natural and probable consequences of the

breach complained of, and the damages remotely or

consequently resulting from the breach are not al-

lowed. * * *

* * * ° °

The profits lost from the corporation’s over-all busi-

ness activities, because of its shortage of capital alleg-

edly occasioned by the Government’s failure to pay the

contract amounts when due, may not be recovered

either. It is important to bear in mind that the corpo-

ration’s claim is not for the anticipated profits of the

contracts in question, but is a claim for the anticipated

profits of its entire business enterprise. The lost prof-

its of these collateral undertakings, which the corpora-

tion was unable to carry out, are too remote to be

classified as a natural result of the Government’s delay

in payment, The statement of this court in Myerle v.

United States, supra, p. 26, [53 Ct. Cl. 1 (1897) ] fully

disposes of this elaim:

* * * But we think theré is a distinction by which

all questions of this sort can be easily tested. If the

profits are such as would have accrued and grown out

of the contract itself, as the direct and immediate re-

sults of its fulfillment, then they would form a just and

proper item of damages, to be recovered against the

delinquent party upon a breach of the agreement.

These are part and parcel of the contract itself, and

must have been in the contemplation of the parties

when the agreement was entered into. But if they are

such as would have been realized by the party from

other independent and collateral undertakings, al-

though entered into in consequence and on the faith of

the principal contract, then they are too uncertain and

remote to be taken into consideration as a part of the

damages occasioned by the breach of the contract in

suit. [Id. at 455, 454-35, 101 F. Supp. at 357-58.] [Em-

phasis su —- ote omitted. ]

or the costs of the operation of its plant to the end of th

contract term in connection with its non-federal work with

Npeculative, and consequential to be compensable as dam-

~s_OF course, the Diamtrtf+s-enttted +o+ecover its pecu-

niary loss Of anticipated and unearned profits. The diffi-

culty comes in determining what they are and how to eal-

culate them. One complicating factor in this ease is the fact

that the plaintiff constructed a plant at a cost of $11,500,000

to perform the contract and to participate in its integrated

operations.® The plaintiff still owns and operates the plant

for the benefit of its integrated processes. The plant had a

value at the time of the breach, not only as a physical

structure, but also for furnishing helium and nitrogen-free

gas and nitrogen to its related companies. The latter value

is a value that is excess to the value of the physical struc-

ture. [t is possible and probable that the fair market value

of the physical structure at the time of the breach was in

excess of the cost ($11,500,000) of the structure when it

was built, especially after the structure was depreciated at

five percent per annum. These excess values are values or

benefits the plaintiff has received by reason of its perform-

ance of the Government contract and which it has not ex-

pended nor exhausted, but which it still owns, possesses

and uses and will continue to use in its integrated opera-

tions. These excess values, whatever they may be, must be

considered in calculating plaintifi’s damages.

We hold that plaintiff’s damages must be determined

and calculated as follows:

ah was estimated that had the Government built a plant for th

extraction of helium, it would have cost $22,000,000.

its related companies, because such costs are too remote,.

(1) The excess, if any, of the fair market value of the

physical plant at the time of the breach over the original

cost of the plant ($11,500,000) depreciated in straight line

depreciation of five percent per annum should be deter-

mined. The resulting figure represents the excess value,

if any, of the physical plant at the time of the breach over

the original cost of the plant depreciated.

(2) The excess value of the plant at the time of the

breach occasioned by its continued operation in the ‘*inte-

grated’’ process of plaintiff and its related companies as

an on-going operation for the extraction of helium and ni-

trogen and the furnishing of helium-nitrogen-free gas and

nitrogen to plaintiff’s parent and sister companies should

be determined. This value is separate and distinct from

the excess value, if any, of the physical plant over its de-

preciated original cost of $11,500,000,

(3) The excess value of the physical plant, if any, over

the original cost of the plant depreciated should be added

to the excess value of the plant as an on-going and fune-

tioning plant that is operating and will continue to operate

in plaintiff’s integrated operations. The sum of these two

values represents the total excess value of the plaintiff in

its helium plant that has not been expended nor exhausted

by the performance of the contract with the Government,

but is an asset or benefit conferred on the plaintiff by its

performance of the Government contract and which it

owned, possessed, and used at the time of the breach and

still owns, possesses, and uses and will continue to own,

possess, and use in the future in its integrated operations.

(4) The sum of the excess values described in (1) and

(2) above should be added to the total stipulated antici-

pated manufacturing costs of $43,067,415 that the plaintiff

would have expended to the end of the contract term. This

addition results in the total anticipated costs and benefits

of the plaintiff attributable to the helium contract; 2.e.,

total cost and benefits not spent by plaintiff because of the

breach.

(5) The sum of the excess values of the plant and the an-

ticipated manufacturing costs should be subtracted from

the total anticipated revenues, before taxes, to the end of

the contract period in the sum of $80,255,000, The resulting

figure represents the anticipated profits from this contract

to the plaintiff, subject to the following deductions,

(6) From the foregoing anticipated profits, the proceeds

of the sale of helium to Kansas Refined Helium inthe sum

of $2,872,547, less any expenses properly proved{up py the

plaintiff as indicated above, must be subtracted, Meng with

savings found by the trial judge of $11,000 per vear to the

plaintiff if it did not operate the helium plant, and any

other savings to it by its non-performance of the contract

because of the breach. The resulting figure, discounted to

current value as of the date of entry of final judgment,

should place the plaintiff in as good a position as it weuld

have been in had the contract been fully performed.

The plaintiff contends that the anticipated revenues from

the contract should be esealated in accordance with the

Wholesale price index formula provided in Article 7.5(b) of

the contract. We do not agree. In our opinion this Article

would be applicable only in the event we awarded the plain-

tiff the full contract price as damages. Since we are award-

ing it only its anticipated profits as calculated above, the

escalation Article is irrelevant and should not be applied

after the date of the breach. After that date, the contract

was terminated and of no further force and effect. There

is no more reason to enforce the esealation Article than the

Article dealing with damages in case of termination (Ar-

ticle 13). Furthermore, if anticipated profits are escalated,

anticipated costs would have to be escalated also. In that

ease, the profits and costs would more or less offset each

other. Hlowever, the anticipated cost escalation might ex-

ceed the profit escalation and this would be detrimental to

ni ee ee

eee. tees

the plaintiff. We hold that the escalation Article is not

applicable. Accordingly, we do not reach nor decide the

controversy between the parties as to the proper years to

be selected as the base period from which to predict or

project the probable escalation of the wholesale price index

through 1983.

_ The plaintiff contends that it should be awarded interest

on its award of damages to offset the discount to current

value of its award. We recently considered the question of

interest in an in-depth opinion in the case of United States

v. Mescalero Apache Tribe, 207 Ct. Cl. (decided July

11, 1975) in which we held unequivocally that in non-con-

demnation cases interest cannot be awarded against the

Government in the absence of a statute, treaty or contract

providing for interest, and that this is true whether it is

called interest, penalty, offset or damages. The instant con-

tract does not provide for interest and we are without

authority to award it. The interest claim is denied.

Judgtnent is entered for the plaintiff for its anticipated

profits as damages for defendant’s breach of contract in ae-

cordance with this opinion, and the case is remanded to the

trial judge to determine such-damages under Rule 131(c¢),

and for other appropriate proceedings.

Cowen, Chief Judge, concurring:

The proceedings in this big and difficult case have reached

the stage where the principal issue to be decided is the meas-

ure of damages that should be used to compensate plaintiff

for the defendant’s breach of contract.

The Uniform Commercial Code does not apply to this

case; both parties agree that plaintiff’s damages should be

computed in accordance with common law principles, and the

court has followed that course. I:ven if we were to look to

the Code as a veneral guideline, we would be faced with a

sharp dispute between the parties as to which of its sections

relate to this case. Since the Code does not apply, we need

not resolve this dispute.

Whether plaintiff is entitled, as it asserts, to recover the

full contract price, or whether it should be compensated in

accordance with the court’s formula, is a mixed question of

law and fact. The answer is necessarily a conclusion to be

derived in substantial part from pertinent evidence and an

interpretation of certain provisions of the contract.

The principal negotiators for the contract, which was

executed on August 15, 1961, were Henry P. Wheeler, Jr.,

Assistant Director of the Bureau of Mines, who represented

the Government, and F.C. Nicholson, who began his employ-

ment with Northern Natural Gas Company in 1958, and was

a vice president of Northern during the negotiations. The

testimony of these men and the reports and memoranda

which they wrote shed much of the light provided by the

record on the issue of whether, during the negotiations, de-

fendant contemplated that, if it breached the contract, it

would be responsible for the cost of continuing the opera-

tion of the helium plant.

Taken as a whole, the testimony of Mr. Nicholson’ shows

that the Government was not interested in nor did it inquire

about plaintiff’s cost of constructing the helium plant, the

process to be used in extracting the helium, or the physical

connection or relation between the helium plant and other

units to be operated by Northern and its subsidiaries. The

representatives of the Government assumed that the helium

plant would be integrated with other facilities at Bushton,

but the probability of such integration was not mentioned

by the negotiators as a part of the consideration for the

contract price. The Government’s main concern was to

acquire helium from plaintiff at less than the cost of recov-

ering it in a plant constructed and operated by the Govern-

1 Nicholson Cross Examination Tr. 477-581.

ment. Thus, the contract price was developed on the basis of

what it would cost the Government to produce helium in its

own grass-roots plant—a plant independent of all other

operations (Nicholson Tr. 503).

The testimony of Mr. Wheeler accords in all material

repects with that of Mr, Nicholson. Mr. Wheeler stated that

the contract price was negotiated, not on the basis of the

cost of plaintiff’s plant, but on what the cost would be if the

Gevernment constructed its own plant and removed the

helium from the gas. He also testified that any references

made by the representatives of Northern Helex to an inte-

grated plant had no effect on the discussions relating to the

contract price.*

In the operation of the helium plant, a nitrogen methane

gas mixture is necessarily extracted in the process of reco-

vering helium. In the early part of 1970, following changes

in the contract between Northern and Gas Products, North-

ern began piping the nitrogen-methane mixture (referred

toas a ‘‘high-nitrogen, low-B.t.u. stream’’) from the helium

plant to the ethane plant. The purpose of this operation was

to use the small amount of methane in the mixture as fuel

and to reject or remove the nitrogen. The rejection of the

nitrogen was not necessary to the physical operation of the

ethane plant which could and did produce ethane without

the removal of nitrogen. However, the nitrogen was removed

so that the net B.t.u. value of the gas stream piped from the

helium plant would not be reduced by the removal of the

ethane. The gas residue was then piped into Northern’s

transmission lines for sale to its customers. Plaintiff’s claim

of entitlement to the full contract price is largely grounded

on its contention that the continued extraction of nitrogen

in plaintiff’s helium plant is essential to the process by

which the nitrogen is rejected in the ethane plant; that this

was contemplated when the contract was executed, and that

? Wheeler Tr. 675-677.

defendant then understood, or should have understood, that

a breach of the contract would make it liable for the costs

required to continue the operation of the helium plant. This

contention is contrary to the following testimony given by

Mr. Nicholson:

“Q * * * The helium company was not all concerned

under its contract with the Gevernment with the production

of nitrogen, was it?

‘*A The helium company was not at all concerned with the

production of nitrogen in the negotiations with the Govern-

ment for helium.”’ (Tr. 535)

The same conclusion is reached when one considers the

facts regarding the construction and operation of the several

facilities of Northern and its subsidiaries at the Bushton

complex. Gas Products LPG plant is a ‘self-supporting

grass-roots plant which was built in 1961 to remove propane

butane, isobutane, and natural gasoline from the gas stream

fed into it by Northern. The LPG plant can operate wholly

independently of the helium plant. The helium plant made its

first delivery to the Government on December 7, 1962. The

original plans for the design and construction of the helium

plant included special boilers which would burn the low

B.t.u. fuel left after the removal of helium. However, the

Federal Power Commission ruled that the nitrogen used in

this manner would have to be valued as a fuel and costed

on a volume basis. When this was found to be economically

disadvantageous, plaintiff reinjected the low B.t.u. stream

into the pipeline downstream from the helium facility.’ This

procedure continued until 1970, when the ethane plant

began operations.

Near the end of 1966, Northern decided to begin the ex-

traction of ethane and on July 3, 1967, filed an application

with the Federal Power Commission requesting authoriza-

tion for Northern to deliver additional volumes of gas to

’ Trial judge’s finding 111.

ee ee ee ee

~<a tieitte lath me 2

ee eee ee ee a eee eee Ee

es? ren rer LN

Gas Products for use in such extraction. Northern realized

that the extraction of ethane would reduce the B.t.u. con-

tent of the gas stream sold to its utility customers, and in

order to avoid a lengthy and complex hearing, Northern

stated that nitrogen would be extracted from the additional

volume of gas delivered to Gas Products to offset the B.t.u.

loss. Northern also assured its utility customers and the

Commission that the B.t.u. content of the gas stream which

Northern had been delivering to its utility customers would

not change by reason of the extraction of ethane.‘

On June 26, 1967, about the same time the application to

the Federal Power Commission was filed, the 1960 contract

between Northern and Gas Products was amended to pro-

vide for the delivery by Northe. 1 of additional quantities

of natural gas so that Gas Products could commence the

extraction of ethane. The contract provided that in its

ethane extraction process, Gas Products would not lower

the B.t.u. value of the residual gas to be returned to North-

ern for sale to its customers.°

Construction of the ethane facility was begun in 1969,

and the plant began operation early in 1970, Thereafter,

gas leaving the LPG plant, which formerly had been piped

direetly to the helium plant, was piped into the ethane

facility for processing prior to transmittal to the helium

plant. The high-nitrogen, low B.t.u, stream remaining in

plaintiff’s plant after removal of the helium was then di-

verted to the ethane facility and used to fuel that plant’s

special boilers.® This diversion was made so that nitrogen

could be removed at the ethane plant in compliance with

the FPC order and Northern’s assurances to the FPC and

its customers that the B.t.u. content of its gas stream would

not be lowered by the ethane extraction.’ As previously

*Trial judge’s finding 116.

5 Trial judge’s finding 127.

° Trial judge’s finding 111.

* Trial judge’s finding 116.

noted, it is not physically necessary to remove nitrogen

in order to extract ethane from natural gas.

There is no provision in the contract between plaintiff

and Northern, and there is no contract between plaintiff

and Gas Products which states that plaintiff is obligated

to remove nitrogen from natural gas.* Plaintiff receives no

payment for that operation. The application, which North-

ern filed with the Federal Power Commission regarding

the proposal for the extraction of ethane, made no ref-

erence to the extraction of nitrogen by the plaintiff nor was

there any statement that plaintiff was so obligated in order

to enable Gas Products to reject the nitrogen,

Several provisions of the contract further support the

conclusion that the Government did not contemplate that,

in the event it breached the contract, it would assume the

obligation of continuing the extraction of nitrogen in the

helium plant so that Gas Products could comply with its

1967 contract with Northern, Paragraph 1.1 of the contract

provides that the term ‘‘plant’’ means the helium extrae-

tion plant to be constructed and owned by seller ‘‘ whether

completed or under construction and whether separate

from or integrated with other facilities owned by

Seller. * * *’’ This provision is another indication that the

integration of plaintiff’s plant with other facilities in the

Northern complex was not a factor contemplated as a basis

for future liability by the Government. It is an expression

by the Government of a lack of concern as to whether the

helium plant would be a purely independent plant or

whether it would be integrated with other facilities.

I agree with Judge Skelton that the following articles

absolve the Government from any liability for the cost of

any operations or processes by Northern or Gas Products

that may have been integrated with the helium plant: Para-

graphs 31.2 and 31.3 of Article XX XI, which are quoted in

® Trial judge’s finding 125.

the court’s opinion, and Article XV, which provides that

‘feach party will be responsible for its own acts and the

results thereof.’’

While paragraph 31.3 of Article XXXI relates to the

assumption by plaintiff of risks attributable to any addi-.

tional facilities which it might construct during the term

of the contract, I agree with the defendant’s observation

that it necessarily follows that if the Government was re-

lieved of liability for any such facilities built by plaintiff,

it was all the more freed of any liability on account of any

other facilities built by Northern or others of its wholly

owned subsidiaries after the contract was executed. This

would inelude the facilities put in operation in 1970 by Gas

Products to reject the nitrogen in the stream which, con-

trary to the procedure previously followed, is now diverted

from the helium plant to Gas Products.

If, as plaintiff contends, the Government foresaw the

necessity for plaintiff to continue the operation of the

helium plant in order to permit the rejection of nitrogen

in the ethane plant, one wonders why, during the nego-

tiations, the Government made no inquiry about and was

given no detailed information, such as a blueprint or dia-

gram of the existing and planned facilities, or a description

of the physical connections among the various plants op-

erated or proposed to be operated by Northern and its sub-

sidiaries at the Bushton complex. One also wonders why

the Government, if it was to be bound by the contractual

obligations entered into between Northern and the plaintiff

and between Northern and Gas Products, did not insist that

it he given copies of such contracts or proposed contracts

at the time the negotiations were conducted. Northern, as

sole owner of the subsidiaries, could amend its contracts

with them at any time. Realizing this, the Government did

not concern itself with these intercorporate contractual ar-

rangements, because it did not contemplate that, in any

event, it would be bound by them,

In my view, the facts which have been reviewed above

clearly demonstrate that the Government did not foresee

the liability which plaintiff would now impose upon it.

Furthermore, it would be beyond the pale of reason to find

that the Government should have foreseen risks resulting

from the changing pattern of processes and operations of

Northern and its subsidiaries after the contract was ex-

ecuted. The plaintiff itself did not decide to change the

design of its helium plant until a ruling of the Federal

Power Commission caused it do so and to reinject the low

B.t.u. stream into the downstream pipeline.

Until December 11, 1967, when the Federal Power Com-

mission approved Northern’s application of July 3, 1967,

neither plaintiff, Northern, nor Gas Products knew that

Gas Products would be required to reject nitrogen in the

stream received from the helium plant in order to permit

Gas Products to produce ethane from the additional gas to

be delivered by Northern. Since these events occurred 6

years after the contract with the Government was entered

into, how could the Government possibly have foreseen an

obligation to keep the helium plant in operation in order

to permit the rejection of the nitrogen?

The fallacy of plaintiff’s position may be illustrated by

the following: Let us assume that the contract was in full

force and effect for a period of 12 years or until August 15,

1973, when it was breached by the Government. Let us also

assume that near the end of 1971, Northern discovers a

feasible process for recovering the nitrogen extracted by

plaintiff in the production of helium and utilizing the re-

covered nitrogen as a feed stock for the production of

ammonia. Northern thereupon creates a new wholly owned

subsidiary corporation, builds a plant for recovery of ni-

trogen, and enters into a contract with the new subsidiary

for that purpose. Then, for the second time after the con-

tract with the Government was executed, a change is made

in the diversion of the high-nitrogen, low B.t.u. stream

from the helium plant, and the streain is now piped to the

new nitrogen plant. After the contract is breached by the

Government, plaintiff takes the position that the helium

plant is now fully integrated with the new plant for the

production of nitrogen; that the Government should have

predicted and therefore should have foreseen these de-

velopments, and that it is now obligated to pay the full

contract price in order that the helium plant may enable

the nitrogen plant to carry out this newly integrated opera-

tion. Obviously, such a claim would be devoid of merit. In

my opinion, plaintiff’s claim for the full contract price is

also without merit.

Nicnots, Judge, concurring in part, dissenting in part:

I agree with much of the court’s opinion, but dissent as

to the vital matter of how we should treat the estimated

projection of cost of performance of $43,067,413, as stipu-

lated. The trial judge would not deduct this from the esti-

mated contract revenues, nor would I. The court disagrees.

By UCC § 2-709, if the buyer wrongfully refuses to pay

the purchase price, and the seller cannot sell the goods else-

where, the buyer remains liable for the price. By UCC

§ 2-708 (1) and (2), the buyer is entitled to a credit for

expenses saved the seller by the breach if, but only if, this

measure is adequate to put the seller in as good a position

as performance would have done. UCC does not directly

govern here, but the above rules do not differ materially

from those acknowledged by the court to apply at common

law. So far as I can tell, we differ as to issues of fact, more

than law.

If I contracted with Swift & Co. to buy all the squeal

produced by its pigs, and if I reneged, I would not expect

Swift & Co. to stop slaughtering pigs. I would, therefore,

under the UCC, expect that Swift & Co. would go on

slaughtering pigs, and any mitigating cost savings I could

show would have to take that into account and probably

would be slight indeed. Yet the court here, in an analagous

situation, demands that the group with which plaintiff is

affiliated, and with which it has integrated its operations,

should stop producing natural gas. Because it does not do

this, the court refuses to put plaintiff in as good a position

as it would have been in upon full performance.

The record herein shows without contradiction that the

Government always foresaw, and in a sense required, that

plaintiff would integrate into a commercial natural gas pro-

duction. Only thus could the cost be brought below the cost

of a non-integrated operation. Absent such integration, and

the cost savings to be expected therefrom, the Government

would have preferred to produce helium in its own plants.

To pretend that, under the contract, nothing but purchase

of helium was involved, is to substitute a sterile legalism

for the broad remedial relief the law prescribes against

an unexcused contract breach.

The court puts on its blinders so as to be able to say it

is putting the plaintiff in as good a position as it would

have been in upon full performance, the standard it gives

lip service to and should follow in reality. The court knows

from the record that the three-stage refrigeration process

at plaintiff’s plant produces, at the third stage, about

295°F.. and colder, a gas mixture, 72% helium and 27%

nitrogen, which the Government bought, and a liquid resi-

due, 26% methane, 73% nitrogen, and 0.01% helium, which

is good only for fuel in special low-BTU boilers which ex-

haust this helium and nitrogen into the air. Plaintiff could

not produce salable helium without producing these, too,

and they, with the methane and the purified natural gas,

are the usable products of plaintiff’s plant now that the

Government no longer will buy the helium. Stoppage of this

plant would disrupt the other elements of the integrated

system and apparently, cause a larger loss than the stipu-

lated cost, $43,067,413, incurred by keeping open.

rete se

The Chief Judge’s able concurrence became available

only after I had written the above, and requires further

specificity by me. I rely primarily on the trial judge’s

findings 26 and 79. Defendant did not except to these find-

ings except in particulars not here relevant. It desired ad-

ditions rather than deletions. They show that defendant

elected to contract with plaintiff to obtain a reasonable cost

to the Government, because the investment in the plant and

operating costs ‘‘could be spread over several other end-

produets rather than helium alone’’, and would ‘‘avoid the

necessity for the Government to undertake nitrogen re-

moval and possibly petrochemical operations as a neces-

sary, but basically unrelated, adjunct to helium conserva-

tion.’’ Presumably this necessity of embarking in petro-

chemical operations in the suppositious Government plant

was to spread the costs as a private, integrated plant would

do. In the March 30-31, 1961, negotiations, plaintiff advised

that the helium plant to be built would be ‘‘fully inte-

grated’’ with the Bushton liquids recovery plant, and that

‘*netrochemical facilities might be constructed and added

in the future.’’ Mr. Wheeler, government negotiator, ‘‘rec-

ognized that the helium extraction facilities would, in

most cases, be fully integrated with other facilities of the

contractor.”’

Finding 125, following a description of the integration

achieved after the contract date, reads in part: ‘‘ All of

these integrated operations are in implementation of

Northern’s original plans as executed through wholly

owned subsidiaries.’’ Defendant does not deny that this is

true, in its exceptions, but says only it is irrelevant be-

cause the Government contract was not with Northern, 7.e.,

it is irrelevant because of the legal theory urged in Judge

Skelton’s opinion.

In view of this, I do not see how it can be said that the

defendant could not have foreseen in general the measures

adopted by plaintiff in 1970, as the Chief Judge describes

them. Defendant’s officials did = ‘ «now exactly what plain-

tiff was going to do, but they expeeted plaintiff to exploit

to the full all the capabilities of its helium plant, They

could hardly have believed plaintiff would continue its

pre-1970 procedure of feeding back into the pipeline down-

stream from the plant the useless and detrimental nitrogen

it had gone to so much trouble and expense to extract. When

plaintiff stopped doing this, had it done otherwise some-

thing else than what it actually did, that something else

likely would have knit the helium plant into the other

plants in a way that would have been costly to unravel. If

it is true that before 1970, plaintiff could have stopped

producing helium without damage to the other —

this is because the integration in that period was incom-

plete.

The question is one of the inferences to be drawn from

the record. Our trier of fact drew his inferences, and we

are rejecting them, I believe, without respect for the pre-

sumption of correctness demanded by Rule 147(b). It seems

to me that the implication of this rule is that we do not dis-

regard numbered findings, but if we think the record does

not support them, we take them up individually and show

why. The Government did not in 1961 actually address itself

to what the damage consequences of a breach would be.

Finding 125 shows that a plan for integrated operation

existed, substantially the plan actually implemented before

the breach. Defendant knew the helium plant would be

made part of an integrated operation which might include

new petrochemical facilities. (Findings 26 and 79.) If the

Government did not obtain the details, the fault was its

own. However, it did not do this because it did not antici-

pate it was going to breach the contract. Therefore, it is

chargeable with what it could have learned. The Chief

Judge’s argument seems to imply that a party to a contract

who fails to inquire or consider what the consequences of

a future breach by it will be, thereby limits its liability for

damages in the event it actually commits such a breach. 7

do not think this is the law.

I do not get any help from Article XXXT, para. 91.3,

quoted by the court. It is ambiguous whether the ‘‘risk’’

referred to is the risk of unexcused breach by the Govern-

ment. The ‘legislative history’’ of the clause shows that

the parties had entirely different kinds of risks im mind.

American courts do not favor contract clauses to exeulpate

a party from the legal consequences of his own wrong. The

Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), deals

with this policy. See especially the fn. m Mr. Justice

Douglas’s dissent at p. 24. Thus the clause here involved

should be construed not to apply to the risk that a party

might wilfully breach the contract.

I would be willing to give credit for the excess in the

value of the plant over cost less depreciation et the time

of the breach, if the court means just after it. However, in

that event any deficiency in the fair market value, should

also be charged to the Government. Presumably such de-

ficieney, if it exists, is caused by the breach.

IN THE UNITED STATES COURT OF CLAIMS

TRIAL DIVISION

No. 454-70

(Filed December 3, 1974)

NorTHern Hetex ComMpany

Tue Unirep States

Report of Trial Judge to the Court *

Clarence T. Kipps, Jr., attorney of record for plaintiff.

John L. Rice, Miller & Chevalier, F. V. Roach, Ralph P.

Blodgett, Jim W. Krueger, Dean W. Wallace and Edward

J. Vandermark, of counsel.

Edward J. Friedlander, with whom was Acting Assist-

ant Attorney General Irving Jaffe, for defendant.

OPINION

SPECTOR, Trial Judge: This is an action for damages

for breach of contract. It has been characterized in coun-

sel’s brief as ‘‘one of the largest, most unique, and com-

plex ever presented to this Court,’’ a reasonably accurate

description."

Introduction

The case originates in an unusually long-term agree-

ment dated August 15, 1961, between plaintiff and defend-

ant, acting through the U.S. Department of the Interior

(‘‘Interior’’). Under it Interior agreed to purchase, and

plaintiff agreed to produce and supply, an estimated 13.5

billion cubic feet (b.c.f.) of helium gas mixture over a

* The trial judge’s recommended decision and conclusion of law

are submitted in accordance with Rule 134(h).

*The prayer for relief in plaintiff’s second amended petition

is $99,964,000.

period of 22 years, as part of a program for conservation

of this valuable and depleting natural resource, for the

long-range future needs of the Nation.

Plaintiff declared the contract at an end and filed suit

December 24, 1970. Extensive preliminary litigation ensued

on an expedited basis due to the sums involved and the

wasting nature of this resource. In response to cross-

motions for summary judgment, the court, on January

21, 1972, decided ‘‘the issues of materiality of the de-

fendant’s breach and of claimed waiver by the plaintiff

of that default.’’ It cautioned:

* * * Only those threshold issues of liability are

disposed of today; the critical questions of the validity

of the subsequent termination of the contract by the

Government and of the recovery of damages by the

plaintiff are not before us in any way. [7]

On the threshold issue of whether the contract had been

breached by defendant, the court concluded:

* * * We have, in short, not the slightest doubt

that the prolonged failure to pay large amounts was

a material breach of the contract. [*]

Noting ‘‘the harshness of a contrary result on our special

facts, where cessation of production was commercially

impossible and avoidance of waste most desirable,’’ and

where ‘‘continuation of performance reasonably served

to mitigate damages,’’ the court concluded as to the second

threshold issue that there ‘‘has therefore been no waiver

of defendant’s breach.’’*

2 Northern Helex Co. v. United States, 197 Ct. Cl. 118, 120, 455

F.2d 546, 548 (1972).

$197 Ct. Cl. at 125, 455 F.2d at 550.

*197 Ct. Cl. at 130, 132-33, 455 F.2d at 553, 554-55.

For these reasons, we hold that the Government’s

breach (through non-payment) was material and total,

justifying the contractor in considering the contract

at an end, and that Northern Helex has not waived

that breach. We stress, however, at the end of this

opinion as we did at the outset, that we in no way

pass upon plaintiff’s claim to damages, full or par-

tial, for this breach. This reservation includes the

question, among others, whether the Government’s

termination of the contract in January 1971 would

have been valid under the termination provision if

the contract had remained in effect. All those issues

relating to damages are not before us and we leave

them entirely open, without intimating any opinion or

tendency. * * * [*]

Other preliminary litigation flows from plaintiff’s mo-

tions, initiated with the filing of the petition, to permit

continuation of helium deliveries in mitigation of dam-

ages and in aid of conservation, not in furtherance of

performance of the contract which has been declared at

an end. Defendant controls this temporary solution be-

cause it owns the only storage facility capable of receiv-

ing and preserving helium in the quantities and for the

length of time required and contemplated by the conser-

vation program. During contract performance, plaintiff’s

extraction facilities constructed at Bushton, Kansas

(‘*Bushton’’), fed helium into defendant’s 425-mile pipe-

line system which extends from Bushton to defendant’s

Cliffside storage resevoir near Amarillo, Texas.°

On March 10, 1971, prior to the filing of defendant’s

answer, plaintiff sought such an order in mitigation of

°197 Ct. Cl. at 134, 455 F.2d at 555-56.

®° For a general description of this reservoir, sec Emeny v. United

States, 188 Ct. Cl. 1024, 412 F.2d 1319 (1969), a ‘‘taking’’ case.

damages and without prejudice to either party in the pend-

ing litigation. It was denied by the trial judge March 19,

1971, as beyond the power of the court at that juncture.

Negotiations with Interior were then underway which

could have rendered plaintiff’s motion academic. The court

affirmed, March 26, 1971, on advice that Interior had

agreed to store helium under an agreement to be negoti-

ated which would provide for payment of storage charges

by plaintiff. Denial of plaintiff’s motion was without preju-

dice to its ‘‘right to recover any damages to which the

court may find it is entitled, and without prejudice to

plaintiff’s right to renew its motion if warranted.’’

After it had ineurred about a half-million dollars in

charges payable to Interior under the negotiated interim

storage agreement, plaintiff, on September 12, 1972, re-

newed its motion to mitigate damages and conserve helium

for the benefit of the losing party pending the outcome

of this suit for damages. Interior had advised that it

would stop accepting helium for storage on September 28,

1972, absent extension of the agreement authorizing stor-

age solely at plaintiff’s expense, and plaintiff did not be-

lieve it should continue to incur large storage charges,

plus monthly costs in the hundreds of thousands of dol-

lars for operating the helium facilities, and unrecoverable

interest expense.

On September 27, 1972, plaintiff’s motion was denied

by the court which observed:

Insofar as plaintiff’s motion seeks to bring about

the mitigation of damages, the court sees no need to

compel defendant, against its will, to take that course;

if the defendant voluntarily elects not to mitigate

damages, any financial detriment it may ultimately

suffer will be of its own choosing. On the other hand,

plaintiff’s interests, to the extent it prevails with

respect to damages and recovers a monetary judg-

ment, will be fully protected by the judgment, and

will not be harmed by the failure of the defendant to

continue to receive and store helium. * * * Public Law

92-415, 86 Stat. 652, together with the law existing

prior te that statute, does not empower this court to

enter such a specific mandatory order solely on

grounds of conservation, no matter how great those

needs may be. [*]

Since September 28, 1972, when Interior turned off the

valve to its pipeline and storage resevoir, plaintiff has

continued to tender helium produced at its Bushton facili-

ty. It has not been accepted, ‘but has instead been vented

into the atmosphere.

Still other preliminary litigation relates to defendant’s

affirmative defense, one of the large issues in the case al-

luded to in the court’s opinion of January 21, 1972.° There-

in defendant undertakes to establish that since the con-

tract provided that the Secretary of the Interior might

terminate it under certain specified circumstances, and

since by letter of January 26, 1971 (subsequent to the

breach), he purported to terminate it effective March 28,

1971, plaintiff is not entitled to payment for helium pro-

duced after that date.

The contract provision, on which the affirmative defense

rests, is as follows:

12.1 The United States may terminate this contract

at any time if any of the following circumstances or

any other circumstance of similar nature should

occur which, in the opinion of the Secretary of the

Interior, would make the continued operation of

Seller’s plant and the continued purchase of helium-

gas mixture extracted therein unnecessary to accomp-

lish the purposes of the Act or any amendments there-

7199 Ct. Cl. 998-99.

®197 Ct. Cl. at 125, 134, 455 F.2d at 550, 555-56.

to: (1) the diseovery of large new natural helium

resources, or (2) a substantial diminution in belium

requirements. Upon such termination, the provisions

of paragraphs 9.4, 12.3 and 13.1 shall apply.

Because a number of the subissues in the case grow out

of the Government’s affirmative defense, other preliminary

litigation has swirled about comprehensive and often con-

troversial deposition and discovery proceedings relating

to those issues. Formal claims of executive privilege were

interposed by the Executive Office of the President, the

Director, Office Manpower and Budget, and the Secretary

of the Interior, culminating in orders prescribing in

camera examination of material sought, for appropriate

segregation.®

In somewhat related litigation, three oiker helium con-

tractors, engaged in the conservation program under simi-

lar but not identical contracts, procured an injunction

March 27, 1971,’ restraining the termination of their con-

tracts because the Secretary of the Interior had not filed

the necessary environmental impact statement mandated

by the National Environmental Policy Act (NEPA). The

preliminary injunction was sustained on appeal to the

10th Cireuit.™

Interior thereafter, on November 13, 1972, filed an en-

vironmentai impact statement addressed to these other

three contracts, but not to plaintiff’s contract. A decision of

June il, 1973, by the U.S. District Court for the District

ef Kansas,” finding the statement inadequate, was re-

versed by the 10th Cireuit on October 19, 1973, and the

® For example, see 198 Ct. Cl. 996-97 (1972).

** Idem, 455 F.2d 650 (1971).

12 361 F. Supp. 78.

injunction ordered dissolved." During the time the injune-

{ion was in effect, Interior received, paid for, and stored

helium produced by the other three contractors,

A successor Secretary of the Interior had, on February

2, 1973, sent a second termination notice to the other three

contractors to be effective 60 days thereafter, This second

notice did not purport to terminate plaintiff's contract,

Several other matters have been deferred for future

proceedings, These include defendant's counterelain for the

value of some helium delivered by plaintiff which was

processed from natural gas extracted from federally owned

lands under leases issued by the Government to third

parties, Defendant, on this account, has withheld $200,000

from amounts otherwise admittedly due,

Also deferred is determination of the amount of re-

covery by plaintiff under the above-quoted contract pro-

vision 12.1, should the court hold that the purported ter-

mination after breach was effective under that provision.

By stipulation following trial, the parties also deferred

the issue of reimbursement to plaintiff for any contingent

third party claims (by landowners and producers for the

helium content of their natural gas), These claims have

been the subject of still other litigation,

In summary, when trial and filing of all briefs were con-

cluded Oc ober 29, 1973, the following broadly-stated issues

remained for disposition:

On the affirmative defense alleged by the Government—

(a) The validity of a termination notice, under the

contract, after the contract no longer remained in

effect,

(b) The validity of a termination notice under the

contract, absent the filing of an environmental im-

pact statement pursuant to the NEPA,

"486 F.2d 995,

contract represented ‘‘the opinion of the Secretary of

the Interior,’’ as set forth in contract provision 12.1,

(d) A determination of the ‘purposes of the Act”’

(Helium Act of 1960), upon which the Secretary’s

opinion was to be premised, as set forth in contract

provision 12.1,

(e) Whether there was ‘‘the discovery of large new

natural helium resources,’’ rendering conservation un-

necessary,

(f) Whether there was a ‘substantial diminution

in helium requirements,’’ rendering conservation un-

necessary,

(a) Whether there was ‘any other circumstance

of similar nature’’ rendering conservation unnecessary,

On plaintiff's petition for damages for breach of con-

tract—

(h) The proper measure of damages at common

law.

(i) Whether the damages so measured are to be

diminished by the possibility that cireumstances war-

ranting exercise of the termination provision might

have occurred at some time in the future, but prior

to the contract expiration date,

(j) The facts underlying integration of the helium

extraction facilities with liquefied petroleum gas and

petrochemical operations, and the effeet of integration

upon the plaintiff’s ability to mitigate damages in the

amount of costs of performance, by cessation of

operations,

(k) Any other opportunities of the plaintiff to miti-

gate.

(1) The portion of the contract price allocable to

profit and, as raised by defendant, the issue of whether

that profit factor in the contract price is unconscion-

able.

The pertinent underlying and historical facts cut across

all of these issues and are, therefore, best set forth as a

chronology. They begin with the preliminary plans of the

parties and continue through the legislative background

of the helium conservation program, the contract negotia-

tions, the nature of and degree of integration of the indus-

trial facilities constructed, the uses of and needs for heli-

um past, present and projected, the nature of and quantity

of known helium resources, the administration of the he-

lium conservation program, the circumstances surrounding

purported termination of the program, and the efforts to

mitigate damages,

Preliminary Plans of the Parties

Northern Natural Gas Company (‘‘Northern’’) was regu-

larly engaged in the transmission of natural gas, In 1956

it initiated an investigation of diversification prospects,

specifically by expanded use of the ingredients in its nat-

ural gas streams, A study in early 1957 established the

feasibility of recovery of liquefied petroleum gas products

(*LPG’’) such as ethane, propane, butane and pentane

at some point on its gas collection and transmission system,

Also considered was the recovery of helium, in associa-

tion with nitrogen extraetion, for the following economic

reasons, Both these elements are noncombustible or inert

gases with no heating value, Other ingredients in natural

gas are combustible hydrocarbons with a heating value

mersured in British thermal units (B.t.u.’s). When non-

combustibles in a gas stream are extracted, the heating

value of the remainder increases proportionately, per-

mitting extraction of combustibles such as the above-de-

scribed LPG products without reduction of the B.t.u, level

below that in the original gas stream, Natural gas in

which the heating value has been maintained at about 1000

B.t.u.’s per cubie foot is readily salable on the fuel market.

Moreover, economies can be achieved by combining nitro-

gen rejection with helium and LPG recovery in one indus-

trial complex, Both helium and nitrogen have low lique-

faction temperatures and can be extracted only by a eryo-

genic process which drastically cools the natural gas to

a point where substantially all its ingredients are lique-

fied except helium and nitrogen remaining as a vapor,

Two major factors therefore contributed to Northern’s

diversification into the LPG and petrochemical industries.

All of Northern’s pipelines, which collect gas from a mul-

tiplicity of wells, intersect at Bushton, and Northern’s

main distribution system begins at this gathering point.

Because the gas streams collected at Bushton contain a

relatively high percentage of inerts (including the richest

known source of helium in the world), significant quanti-

ties of LPG products and other hydrocarbons can be ex-

tracted along with the inerts without adversely affecting

the heating value of the residue gus,

Northern was prepared to invest from $200 to $300

million in such a diversification project, and it retained

acknowledged experts in the field to plan and direct these

activities,

Independently, Interior was establishing a Helium Poli-

ey Working Group in 1957 to develop a national policy

and estimates of cost for a helium conservation program.

Headed by Under Seeretary of the Interior O, Hatfield

Chilson, the group included representatives of the Depart-

ments of Defense, Commerce and the Interior, the Atomic

Energy Commission, the Bureau of the Budget and the

Office of Defense Mobilization. In October 1957 its per-

tinent subcommittee recommended that the Government fi-

nance and build i3 new helium extraction facilities, the

first at Keyes, Oklahoma. It also recommended that seri-

ous consideration be given to inviting industry participa-

tion in the program,

On January 24, 1958, a comprehensive report on Na-

tional Helium Conservation Policy, thereafter known as

the ‘*Chilson Report,’’ was published recommending the

conservation of 32 b.e.f. of helium in underground storage

by the year 1975, It was anticipated then that this amount

would meet peacetime national requirements (Federal

agency and non-Federal) through the year 2000,

The Chilson Report contemplated greater participation

by private industry and recommended Government 9

chase of all helium produced by privately constructed

plants in the natural gas fields of Texas, Oklahoma and

Kansas, three of them on Northern’s pipeline system,

Should private industry not be interested, construction of

Government plants was recommended,

Many of the essential, basic and unique requirements

for helium are discussed in the Chilson Report, a subject

covered in greater detail in a later section of this opinion,

Suffice it to say that the group concluded;

* * * that present and foreseeable uses of helium

are highly essential to the welfare of the United States

—particularly with respect to its military strength—

and a conservation program of the magnitude dis-

cussed herein would be justified, Failure to extract

the recoverable helium that would be wasted to the

atmosphere in fuel gas in the absence of a conserva-

tion program over the next 15-20 years would be gross

wastage of a very limited and unique natural resource,

which could have the effect of reducing or slowing

down the rapid advance of scientific, technical, and

military developments in this Country,

A self-liquidating program was contemplated, supported

by helium sales, while at the same time providing the Na-

tion with conservation of 32 b.e.f. in underground storage

for the long-range future.

On April 15, and May 12, 1958, Northern’s exeeutives

met with representatives of Interior’s Bureau of Mines

(the ‘*Bureau’’) to discuss Northern’s plans to build an

integrated facility for nitrogen rejection, helium extraction

and LPG recovery, At the latter meeting there was speci-

fie discussion of a helium extraction contract in anticipa-

tion of enabling legislation,

It is clear that integrated facilities were contemplated

by the parties from the beginning as being to their mutual

advantage, Northern proposed a plan whereby the com-

pany would build and operate a petrochemical complex

processing about a billion enbie feet of natural gas a day

and extracting, infer alia, helium and nitrogen, Compen-

sation to the company would be based on costs and rea-

sonable profit on investment, allocable to helium,

Henry P. Wheeler, Jr., the Bureau’s Assistant Director

for Helium, considered the plan to have several advan-

tages, An integrated facility permitted maximum helium

recovery from Northern's natural gas, It would result in

a reasonable cost to the Government because investment

and operating costs could be spread over several other

end-products, rather than helium alone, The Government

would not have to guarantee a supply of helium-bearing

natural gas, Helium extraction would fit into Northern’s

overall operations, In an internal memorandum of the

second conference, Mr, Wheeler noted that the plan ‘would

avoid the necessity for the Government to undertake nitro-

gen removal and possibly petrochemical operations as a

necessary, but basically unrelated, adjunct to helium con-

servation,”’

Plans for the helium conservation program proceeded,

By April 25, 1958, President Eisenhower had approved

the Chilson Report. He thereafter included legislative

recommendations in his fiscal 1960 and 1961 budget mes-

sages. Interior, on August 19, 1958, publicly announced it

would seek new legislation authorizing conservation

through long-term contracts with private industry, Later

in 1958 the Bureau, which had theretofore been the sole

producer of helium, published an ‘‘open file’’ of technical

literature on the subject of helium extraction to assist

companies contemplating participation in the program,

Though not required, intergrated facilities were suggested

by the Bureau in these words:

* * * Those considering a process for helium extrac-

tion from natural gas might wish to accomplish other

things, such as extraction of ethane for petrochemical

processing, propane and butane as LPG, and pen-

tanes and heavier hydrocarbons in a natural gasoline

produet. Such plans would, of course, call for a more

complex system, Some may wish to remove nitrogen in

greater quantities than would be done if only a crude

helium-nitrogen mixture is removed, * * *

Meanwhile Northern participated in an informal dis-

cussion with the Federal Power Commission (‘*FPC’’)

concerning extraction of helium, nitrogen, and propane

from its gas streams, Throughout 1958 and into 1959 it

continued to investigate the possibility of participating

in the conservation program, Noting that Interior was

then selling helium to other Government awencies at its

actual cost (without profit) of $15.50 per th«,sand eubie

feet (m.c.f.), and to the public for $19 per m %., North-

ern considered entering and acquiring a major part of the

commercial market, and selling any surplus to ‘nterior,

By 1959 Northern had concluded it could successfully com-

pete with Interior and decided to go into the helium busi-

ness. In that respect, extraction of helium at various lo-

ee ee —

cations, in a separate helium extraction plant, and in plants

integrated with other operations, were among the various

possibilities considered,

In furtherance of this plan Northern, on January 13,

1959, formed a joint venture with Air Products and Chemi-

cals, Ine., which they called Helex Company. They planned

to build an extraction plant on Northern’s line near Sun-

ray, Texas. Air Products’ experience in extraction of

compressed gases and in the distribution of he um was

important to Northern.

Discussions between Northern and then Secretary of the

Interior Fred A, Seaton also continued throughout 1959

and 1960, but details had to be deferred pending passage

of the basie legislation. During this period Secretary Sea-

ton, appearing before the House Committee on Interior

and Insular Affairs, testified that constantly increasing

demands made it ‘‘absolutely necessary to engage in a

program of conservation of this utterly irreplaceable

natural resouree,’’

Late in 1959 Northern decided to forego the private

market opportunities in helium. It concluded that a long-

term conservation contract, as contemplated by the Gov-

ernment, would enable it to integrate its proposed helium,

LPG and petrochemical facilities. With a single buyer

it no longer needed Air Products’ marketing experience

and brought out the latter’s 40 percent interest in Helex

Company. In 1962 the name of this wholly owned sub-

sidiary was changed to Northern Helex Company

(‘*Helex’’),

By January 18, 1960, Northern’s plans for extensive

diversification had erystallized. An internally developed

master plan outlined an interrelated and interreliant com-

plex for extraction of helium and LPG products at Bush-

ton. Consulting engineers were engaged to investigate vari-

ous alternatives, The problems of transportation of ethane

from Bushton to proposed ethylene plant locations were

considered. Specific attention was given to the extraction

of the inerts, nitrogen and helium, so as to maintain the

B.t.u. value of the natural gas downstream of Bushton.

By June 1960 emphasis centered on initial contruction of

an LPG plant designed (at increased investment) te per-

mit the later addition of ethane and helium facilities.

It was planned to defer ethane extraction for the time

being and to proceed initially with construction of LPG

and helium facilities. Plans for the petrochemical com-

plex would, in turn, depend upon the successful operation

of the LPG and helium complex at Bushton. During the

first half of 1960 Northern formed a wholly owned sub-

sidiary, Northern Gas Products Company (‘‘Gas Prod-

ucts’’) as its instrumentality for extraction and market-

ing of propane, butanes, natural gasoline, and other hy-

droecarbons from its natural gas streams.

That the Government was also thinking in terms of

integrated facilities is further evidenced by an internal

memorandum of February 11, 1960, prepared by Interior’s

Mr. Wheeler in preparation for a congressional appear-

ance on the proposed helium legislation. In it he notes

that it was anticipated that private industry would inte-

grate its helium and other operations to permit extraction

of ethane and other hydrocarbons, and removal of nitro-

cen to upgrade the heating value of the residue gas.

Legislative Background of the

Helium Conservation Program

On February 19, 1960, Representative Walter Rogers

(Texas) introduced H.R. 10548 which eventually was en-

acted as the Helium Act Amendments of 1960 (*'1960

Helium Act’’). It was substantially similar to Interior’s

legislative proposal also presented that day. Both pro-

posals were based on the Chilson Report.

The 1960 Helium Act was enacted as an amendment

and revision of the Helium Act of March 3, 1925, previous-

ly amended in 1927 and 1937, and it was signed into law

by President Eisenhower on September 13, 1960, to be-

come effective March 1, 1961.

Bureau predictions of increasing helium requirements,

leveling off at 2 b.c.f. annually by the year 2000, had been

presented to Congress during its hearings. When H.R.

10548 was reported to the full House, it was stated, inter

alia, that then current consumption of helium was 80 times

the 1937 level, 70 percent of that consumption being by

the Department of Defense (DOD), the Atomie Energy

Commission (AEC), the National Aeronautics and Space

Administration (NASA), and other Federal agencies. The

report observed:

The upward trend in helium demand is expected to

continue into the future. Many present-day uses, in-

cluding those in the missile, nuclear energy, and in-

dustrial fields, are in early stages of development.

Other uses, involving extremely low temperatures in

the region of absolute zero, are still in the research

laboratory. Temperatures within 20° of absolute zero

cannot be attained without helium.

It was further noted that helium wasted in fuel gases

from the few fields with commercial quantities of helium,

was being wasted at 10 times the rate it was being cur-

rently consumed. If this waste were continued, helium-

bearing gas sources in the United States would not meet

national needs after 1980-85.

The report made mention of a section 14 of the bill,

added in Committee which ‘‘emphasizes the need to foster

individual initiative and avoid Government monopoly in

helium production and distribution as the volume of helium

produced and consumed increases, and declares that Gov-

ernment operations under the act should, with other

sources, be on a scale sufficient to assure a sustained sup-

ply of helium for essential Government activities.”

Section 14, later enacted as section 15, had been intro-

duced by Representative Stewart L. Udall (Arizona) on

behalf of his constituents, as confirmed by later discussion

of the bill on the House floor, to insure that the program

for production, storage and distribution of helium did not

remain, or become, a Government monopoly, and to foster

and encourage private enterprise. The Pinta Dome region

in Arizona was thought to contain nonwasting (unsuitable

for fuel gas) high helium content reserves.

The use of the phrase ‘‘essential Government activities’’

at the end of section 14 had no particular significance,

and it was not mentioned in Committee. It had not ap-

peared in the bill prior to the amendment offered by Repre-

sentative Udall. He testified at trial that he employed the

phrase only because he#ium in the defense effort was sig-

nificant, and he wanted to support passage of an amend-

ment insuring greater involvement by the private sector

by linking it with defense needs. He did not believe his

amendment in any way limited the purpose of the bill

to conservation of helium solely for the benefit of certain

specified Government agencies, nor did it detract from

the basic purpose of providing a broad, long-range con-

servation program for all national purposes. Defendant’s

present argument that the general ‘* purposes of the Act’’

(words employed later in contract provision 12.1) were

limited to supplying only the long-range requirements

of certain specified Government agencies is not supported

by the record. That purpose is stated as a minimum pur-

pose of the act, in the context of assuring the participation

of private industry.

In a section-by-section analysis, the report cites section

4 as directing all Federal agencies to purchase their ‘‘ma-

jor requirements for helium’’ from Interior, and as author-

izing the latter to sell helium for ‘‘ Federal, medical, scienti-

fic and commercial uses’’ as the Secretary may approve.

Floor debate began on May 2, 1960, and concluded with

passage of the bill by the House that same day. Debate

was consistent with the Committee report, stressing the

importance of helium, and the necessity of conserving a

precious nautral asset. Representative John P. Saylor

(Pennsylvania) stated, in urging passage, as a member of

the committee:

The purpose of this bill is to see to it that this great

natural asset, which is irreplaceable and is now being

wasted into the atmosphere, will be preserved and con-

served for the use not only of the agencies of Gov-

ernment but for all of the people of the United

States. * * *

In a similar vein, Representative J. Floyd Breeding

(Kansas), sponsor of an identical bill, stated:

The conservation program * * * has been developed

earefully over about a 2-year period, with the assist-

ance and cooperation of many informed persons in

Government, science, and industry. It calls for private

industry to participate through financing, building,

and operating helium plants, but it does not overlook

the Government’s dominant interest and responsibili-

ty for assuring the success of the program.

* * * [I]t is imperative that we take advantage of

the opportunity we now have to save this helium to

meet the defense and technologie needs of future

generations,

And Representative Rogers, the bill’s sponsor, ob-

served that the bill would hurt no one.

*** As a matter of fact, everyone can be helped

by it, not only the Department of Defense, not only

the country as a whole, but, actually, the user of the

gas of which helium is a component deposit. * * *

We are going to need it in much larger quantities in

the future than many anticipate at this time. ["*]

Senate Committee hearings on H.R. 10548 were held

on June 1 and 15, 1960,° and were to the same effect.

There was no specific reference to the latter portion of

section 14 but rather the discussion emphasized the broad

purposes of the act. A colloquy between Senator O’Maho-

ney and Interior witnesses is illustrative. Under Secretary

Elmer F. Bennett, in speaking of the growing ‘‘private’”’

use of helium, testified that ‘‘the time may come when

helium will be going into unessential uses * * * and at that

point we believed that there should be a reserved license

authority to direct the flow of helium into the essential

uses, as distinguished from the nonessential uses.’’ Mr.

Wheeler expanded on this testimony, stating:

*** Most of the helium that is used today, the two

largest uses, are the missile program and the atomic

energy program. The space program is a growing and

very important use of helium.

There are also very important new developments

in the field of eryogenics at extremely low tempera-

tures. We think all of these uses will expand in the

future and that new uses will be found for helium

Former Representative Walter Rogers testified at trial to the

same effect.

'* The Senate also considered a similar bill, 8. 3376, sponsored

by Senator Gordon Allott (Colorado).

that we do not even contemplate at the present

time. ["*]

In reporting to the Senate on June 30, 1960,’" the Com-

mittee added that:

* * * The long-term contracts contemplated under

this act would make it feas:vle for private industry

to negotiate with banks and other financial institu-

tions for the capital necessary to build separation

plants. * * *

The long-range objectives of the act were emphasized

by Interior’s witnesses before the Congress."* Interior had

been authorized subsequent to 1936 to produce and sell

helium for Government and non-Government uses, and to

conserve only its excess production in the Cliffside storage

area. With these amendments, it wanted broadened author-

ity to purchase helium for long-term conservation. It had

viewed the last part of section 15 (formerly 14) as a reservation

of the ‘‘Federal market’’ (both Government agencies anc. their

contractors) for Interior rather than private sellers, to ins ire the

self-liquidating feature of the aet. Ile did not view seetion 15 as

a limitation on the purposes for which helium was to be conserved,

as a wasting asset, for future national needs, but rather as a

limitation imposed on the ‘‘ Federal market.’’

Before the House subcommittee he had testified :

‘** * * We have received expressions of concern about the future

of helium from some of the country’s leading scientists * * * as

well as from many leaders in industry who van foresee a continuing

need for the physical properties afforded by helium alone of all

the elements.”’

7S. Rep. No. 1814, 86th Cong., 2d Sess.

® Before the Senate Committee Mr. Whecler ‘testified that the

bill ‘‘certainly broadens the scope of the program immediately,

from meeting current demands primarily to one of long-range con-

servation objectives.’’

estimated at the congressional hearings that by about 1985

annual demand would start exceeding supplies from all

known sources, Without conservation there was expected

to be only about 35 bef. in known helium resources by

1985; but with conservation of about 52 b.e.f. at Cliffside,

a total of 87 b.e.f. would be available.

Nor did Interior feel that supply and demand would

move at constant rates or that the program was expected

to respond to the short term, As Under Seeretary Ben-

nett testified:

It would be foolish for anyone to believe that our

helium resources will decline and the demand for he-

lium will increase at exactly the rates predicted in

the foregoing charts, It is an inescapable fact, how-

ever, that our resources are being depleted at a rapid

rate and that our need for helium is increasing year by

year,

Perhaps the known resources will be capable of

meeting our needs to 199% or the year 2000, instead

of 1985 as predicted in our estimates, At some time

in the future, we will surely need the helium that is

Seing wasted today,

Finally, Interior witnesses testified before Congress that

the Government would have to sponsor the long-term con-

servation program because it was economically disadvan-

tageous for private industry to do so on its own,

Relevant provisions of the act, as signed by the Presi-

dent September 13, 1960, are section 3 authorizing the

Secretary to enter into contracts not exceeding 25 years to

acquire helium or, in the alternative, to aequire helium

or helium-bearing natural gas by eminent domain; section

4 authorizing the Secretary to construct and operate helium

plants; section 5 authorizing the Secretary (following a

determination by the President) to license sale and trans-

portation of helium in interstate commerce; section 6 re-

quiring Government agencies to purchase all major helium

requirements from the Secretary, and authorizing sales

to others as the Secretary may détermine with provision

for repurchase if needed for Government use; and section

15 entitled ‘Individual enterprise in developing helium’’

fostering such enterprise in the development and distri-

bution of helium, Only in the last mentioned section does

the phrase ‘‘essential Government activities’’ appear,

It is concluded that the overall purposes of the Helium

Act Amendments of 1960 were to establish an effective

long-range helium program for the conservation of this

important natural resource to meet national needs in the

long-range future when reserves would be inadequate to

meet demand. Within this overall objective, the Helium

Act Amendments of 1960 were intended to cover a number

of more specific objectives, One of the specific purposes of

the act was to assure a sustained supply of helium for

essential Government needs, as a minimum, and those

needs had a priority. There is no evidence that the phrase

‘‘essential Government activities’? was intended to limit

the purposes of the act to supplying the needs of the

specifie Government agencies then using helium, to the ex-

clusion of other Government agencies which would in the

future be concerned with helium, Nor is there evidence of

an intent to distinguish Government (that is, agency)

needs from national needs, nor to differentiate between

the Government, and the needs of industries on which the

Government and the Nation depend, except to insure that

essential Government needs were met at the minimum,

It was also a purpose of the act to supply helium for

medical, scientific, and commercial uses not then readily

foreseeable, Another purpose of the act was to prevent the

continued waste of this valuable natural resource in fuel

gas being produced in the Hugoton-Panhandle fields,

which contained about 90 percent of the Nation’s helium

reserves, Still another important purpose of the act was

to establish a helium conservation program that would

pay for itself and stll provide for the storage of 40-50

b.e.f. of helium by 1985 for national needs, Finally, a

purpose of the act was to encourage and expressly pro-

vide for participation by individual enterprise in the de-

velopment and conservation of this country’s helium re-

sources.

The Contract Negotiations and the Contract

In a news release of Sepember 14, 1960, the day after

the act was signed, Secretary Seaton outlined Interior’s

plans for implementing the long-range helium conserva-

tion program. It was designed, he announced, to conserve

for future use about 62 bef. or irreplaceable helium

necessary to the Nation’s defense and industrial develop-

ment. Because it was anticipated that costs would vary

with location, the reasonableness of bids to be invited from

private industry were to be measured against the estimated

cost to the Government of producing the helium, plus allow-

ances for interest on investment, taxes, insurance and

profit. Interior desired minimum investment plants with-

out standby equipment, excess capacity or other unneces-

sary embellishments.

A report of July 8, 1960, to Northern prepared by Fluor

Corporation (‘‘Fluor’’), an engineering construction firm,

had recommended initial construction of an LPG plant with

provision for later addition of ethane and helium recovery

and nitrogen removal and so designed that helium-rich

natural gas could be segregated and fed to the helium

plant, thereby minimizing its size. In the late summer of

1960, Northern’s subsidiary, Gas Products, contracted

with Fluor for construction of the LPG plant at Bushton,

incorporating facilities permitting future recovery of

ethane,

In a supplement to its July 8th report, Fluor on Septem-

ber 15, 1960, provided the design of a helium recovery

plant to be constructed adjacent to the LPG complex. It

would process the helium-rich stream exiting from the

LPG plant, and be designed to reject 12 million standard

cubie feet per day of inerts (hel.um and nitrogen) by

extracting helium and segregating a low B.t.u, fuel stream

comprised of nitrogen and methane, The latter would sup-

ply the helium plant’s fuel needs and part of the LPG

plant’s fuel needs as well, The steam systems of the two

plants would be tied together and, in addition, the helium

plant would use certain eutilities supplied by the LPG

plant, ineluding clectrie power, propane refrigerant,

treated water, the cooling tower, make-up water and in-

strument air,

About the same time the Bureau's director, in an intern-

al memorandum to the Under Steretary, noted that a

factor to be considered when determining whether or not

to build Government plants was that some of the private

participants ‘*would integrate helium extraction with nitro-

gen removal, ethane extraction, and other operations not

independently feasible,’’ thus aiding the national economy

and better utilizing the ingredients in natural gas.

Interior and Northern embarked upon formal contract

negotiations February 23, 1961, They were concluded with

the execution of a contract August 15 between the Gov-

ernment acting through Interior, and Northern acting

through its wholly owned subsidiary, Helex.

An experienced, highly competent, negotiating team rep-

resented Interior headed by the earlier-mentioned Mr,

Wheeler, It ineluded the Bureau’s Chief of Property Man-

agement, Chief Petroleum Engineer, General Manager for

Helium Operations and Chief of Helium Resources, At

that time Interior had accumulated 40 vears of exclusive

experience in the building and operating of helium plants

In preparation for negotiations, Bureau engineers de-

veloped information concerning availability of helium-hear-

ing natural gas in various fields and pipelines, selected

possible extraction plant locations, and estimated the com-

parable costs of constructing and operating Government

plants at those locations, An outside consultant was re-

tained to develop a method of relating plant costs to plant

size and other variables, permitting Interior to evaluate

and compare cost features of proposals from private cor-

porations, Legal support was provided by the Office of the

Solicitor of Interior, This was the team which negotiated

with Northern and the three other companies selected out

of 14 which had submitted proposals,

Interior decided to employ the negotiation, rather than

the competitive bidding, method of award, It was coneluded

this could permit maximum conservation of helium because

Interior could select specific helium-rich gas sourees being

rapidly depleted to supply fuel markets; it could evaluate

the speed with which interested companies could move to

plant completion; and it could take into account a number

of technical factors affecting costs, which vary with loca-

tion.

At the first formal negotiating session on February 23,

1961, Mr. F.C. Nicholson, Northern's vice president and

chief negotiator, advised that his company was in. the

process of building an LPG plant at Bushton and would

he able to offer a multipurpose plant which would extract

helium, liquids and nitrogen, thus permitting a price ad-

vantage to Interior, On Mareh 80-31, the second meeting,

Northern advised Interior that the Bushton plant was a

liquids recovery plant; that the helium extraetion plant

would be fully integrated with it; and that petrochemical

facilities might be construeted and added in the future.

Draft contracts were exchanged by both sides and on May

16, 1961, Mr. Wheeler sent a memorandum to the members

of Interior’s negotiating board discussing terms of the

draft. In that memo he recognized that helium extraction

facilities would, in most cases, be fully integrated with

other facilities of Northern,

The Government’s prime concern was what it would cost

to build and to operate a Government ‘grass roots’? plant

(one independent of all other operations) at the contrac-

tor’s site, Interior’s engineers estimated that the Govern-

ment’s plant investment would be $22-23 million at North-

ern’s site, based on the plant size and gas supply con-

templated, It ealeulated unit costs for extraction and added

thereto typical industry costs such as interest, taxes and

insurance, An allowance was added for profit at 64 per-

cent on the unamortized total investment over a 20-year

period, although an actual return of up to 13 percent on

equity funding was contemplated by Interior’s negotiators,

To cover the value of the helium in natural gas, a process-

ing fee of $2 per me.f. of recoverable helium was also

added, That was the price the Government was paying for

helium-bearing gas at its Neves facility.

Interior’s estimate of the cost (without profit) of ex-

tracting helium in Government-owned plants was $15 per

me.f, and, if negotiations with private industry within that

“ange were unsuccessful, it was prepared to initiate con-

demnation proceedings and to construct and operate Gov-

ermuent facilities, As it entered upon negotiations with

Northern, it hoped to negotiate a contract price of $11.08

per mie.f. Northern was prepared to start at $12.50 per

m.e.f., and to go no lower than $8.50,

The final price negotiated was $11.24 per m.c.f., which

hoth negotiating teams considered fair and reasonable, It

was divided into two parts. Part 1 of the initial price was

established at 0.47 per me.f., representing the portion of

joint costs allocable to exploration, production, gathering,

extraction, processing, compression, transportation, and

storage allocable on a volumetric basis to the contained

,. ) ) ,

—. Part 2, in the amount of the balance of $10.77, was

i) US i ‘ ’ j ’ j j

0 : pe riodically adjusted for inflation or deflation, in ac-

nh “oe tg a prescribed formula keyed to the wholesale

rice index for all commoditi

ies, exclusive of f ;

ar Per arm products

In addition, if Helex were required to pay to unrelated

third parties (landowners and producers) amounts in sati

faction or settlement of claims by such parties to the helium

contained in the Hugoton area natural gas, the contr .

provided that the Government would reimburse Helex t

the extent that such amounts exceeded 28 percent of the

average of Part 2 of the contraet price in effect duri .

time covered by such claims." =

The helium gas mixture to be delivered under the con-

tract was to he about 60 percent helium, and it therefore

required purification by Interior, At purification costs of

2-3 per mef., the total initial Government cost of buvyi

and purifying helium delivered by plaintiff was $13-14 nn

met, Prior to November 1961, the Bureau had been sell r

ay helium to Federal agencies at its actual ale a

age _ hi price to non-Federal users had been

wags be ay ver 1961, the Bureau sold purified helium

0 all 85 per nef, a price which the Chief of the Bu-

reau’s Helium Activity deemed reasonable, and a price

which would support the self-liquidating features . h

helium conservation program. sere

Pg et 1960's when private producers first entered

von ae a — also sold purified helium at about $35

‘roo.e..., but by 1966 their e ‘titive pri se

so 0a. , ; Ir competitive price had dropped

‘ye LJ ‘ . ‘

. limited termination provision 12.1, earlier quoted

vo Y subject of intensive negotiations. Interior neno-

e ; e rie j j '

lated the provision with the intent of reserving an option

The contract provisi

ions relevar se conti

set forth in finding 93, it to these contingent claims are

to terminate only if continuation of this long-term program

was clearly no longer in the public interest or if it did not

make any sense to continue conserving helium, for example,

large new natural resources were discovered, or the need

for helium became non-existent. This is illustrated by Mr.

Wheeler’s testimony at trial, and in a deposition before

trial, introduced into evidence at trial:

** * My concern with regard to the termination pro-

vision was that the government not be locked into con-

tracts which for any reason would not—for any reason

would not be in the public interest.

but we had to provide for the possibility that some-

thing might happen which would make the contracts

clearly no longer in the public interest. nies

So my concern, whether or not it is expressed in that

contract, was a very broad concern that the govern-

ment not be locked into contracts which would clearly

not be in the public interest for some reason.

*** Tf * * * something would happen, that it just

didn’t make sense if there was no demand for it, that

we also wouldn’t be locked in to saving something for

no useful purpose.

In the same vein, Marling T. Ankeny, Director of the

Bureau, described the provision in a memoranduin of Sep-

tember 8, 1961, as follows:

Under paragraph 12.1, it was the intent of the

parties to provide for termination under circumstances

that would make continuation of the program unde-

sirable in the public interest, The two specific items

listed are of that nature. There was no intent to pro-

vide for arbitrary termination by the Government.

Nor was it contemplaied, as plaintiff proceeded to ful-

fill the objectives of the contract, that partial achievement

of those objectives would constitute grounds for termina-

tion. Interior expected to purchase and store all the helium

that plaintiff was obligated to produce and supply under

the contract. Nor did it intend that accomplishment of

another of its anticipated contract objectives, the develop-

ment of technology permitting extraction of helium from

leaner sources, would constitute grounds for termination.

When asked if he contemplated using improved technology

developed under the contract as a ground for terminating

the contract, Mr. Wheeler replied:

I have to answer your question no. We contemplated

that they would do that and we wanted them to do that,

and certainly we didn’t contemplate that if they did

what we intended for them to do in the contract it

would be a cause for terminating the contract.

Northern’s intent was in accord. During the protracted

negotiations on the wording of this provision, Northern

sought a very specific and limited termination right on the

part of the Government. It contemplated a long-term con-

tract and based its plans to integrate the helium plant

closely with the LPG facility, and later with petrochemical

operations, on that fact.

In the course of negotiations, Interior actually consid-

ered continuing the conservation program beyond the end

of the original 22-year term, and after execution of the

agreement, it gave consideration to enlarging the program

subject to appropriation of additional funds by Congress.

Interior, during negotiations, continued not only to con-

template the use of integrated facilities for the mutually

beneficial reasons earlier mentioned but, as Mr. Wheeler

testified, ‘‘deliberately made it possible’’ through para-

graph 31.3 of the contract.” Integration of facilities was

considered by [nterior’s General Manager for Helium Op-

erations to be the principal incentive to private helium

contractors, and a means of providing lower price to In-

terior, and stimulating technological advances. Further-

more, a high Federal investment would be avoided, and the

states would realize additional taxes from privately owned

and operated plants.

It is clear from the record that, in their negotiations,

hoth parties expected the contract to run for its entire

292_vear term. Both considered termination under the lim-

ited: circumstances spelled out in provision 12.1 to be a

- ante. OF

remote possibility.

Moreover, it was assumed that the discovery of new

natural helium resources would have to be ‘‘large,’’ or the

diminution in helium requirements ‘‘substantial,’’ viewed

in the long-range perspective of a conservation program,

before termination would be warranted. It was Mr. Wheel-

er’s understanding of the act that its purpose was to con-

serve helium for essential Governinent and non-Govern-

ment activities, and no distinction was made during nego-

tiation of the termination provision. The words ‘*substan-

tial diminution in helium requirements’? in provision 12.1

were intended to refer to long-range requirements of the

Nation as a whole.

His objective during negotiations was to conserve as

much helium as possible within the budgetary allocation

for use in the long-term future beginning at a time which

could not be estimated with precision. Historically, there

had been temporary periods of decreased helium demand

20**Tn connection with Seller’s plant, Seller at its sole risk, cost

and option may construct and operate, or cause to be constructed

and operated, facilities for extracting products other than helium

from the natural gas processed through said helium plant.’’

in the past, and the negotiators did not intend that such

temporary declines would support a decision to terminate.

On June 20, 1961, a contract in the form negotiated by

Nerthern was submitted to Helex’s board of directors, and

approved for execution by its officers. Thereafter, on July

6, the board authorized a contract with Fluor for actual

construction of a helium extraction plant near Bushton.

An internal report of August 4, 1961, presenting the agree-

ment with the Government to Northern’s board of directors

for ratification, stated that the unit price of $11.24 per

m.e.f, would yield a 12 percent after tax return on equity

investment. Projects had to earn that rate of return to

secure approval by Northern’s board. The report also pro-

posed an initial 57/43 debt to equity ratio to finance the

plant, the debt portion to be in the form of 5 percent bonds,

with redemption starting after 2 years.

On August 3, 1961, an appropriation bill became effective

authorizing Interior to enter into helium procurement con-

tracts with tiscal payments limited to $47,500,000. It further

authorized borrowing from Treasury of up to $10 million

for the program.

The contract was signed August 15, 1961, by Mr. Ankeny,

Director of the Bureau, on behalf of the Government, and

by Mr. Nicholson, viee president of Helex. It was also

approved by Secretary Udall. In essence it provided that

plaintiff would tender all the helium gas mixture produced

in its plant and the Government would pay for the volumes

tendered *‘whether taken or not,’’ up to an annual dollar

limitation of $9,500,000." Actual deliveries were to begin

not later than January 1, 1963. The term of the contract

was 22 years. Delivery was to be made at a point where the

pipeline, to be furnished by the Government, connected with

Helex’s measurement facilities at its plant, from whence

it would be taken to the Cliffside storage reservoir near

Amarillo, Texas.

21 With a Government option to exceed this amount.

It was Secretary Udall’s understanding when he

signed and approved plaintiff’s contract that Interior was

contracting to purchase helium for the long-range needs

of the country as a whole, including Government, com-

mercial, technological, scientific, or any other use then

known or thereafter developed.

Later in 1961 Interior entered into similar contracts

with Cities Service Helex, Inc., National Helium Corpora-

tion, and Phillips Petroleum Company, at initial contract

prices of $11.78, $11.78 and $10.30 per m.c.f., respectively.

The weighted average initial price on the four contracts

was $11.29 per m.c.f.

The Nature and Degree

of Integration of Plaintiff’s Facilities

By December 7, 1962, deliveries of helium under the

contract had begun. Northern had constructed an indus-

trial complex at Bushton comprised of two plants, the LPG

extraction facility operated by its subsidiary, Gas Prod-

ucts, and the helium extraction facility operated by its

subsidiary, Helex. The earlier projected ethane extraction

plant was added by Gas Products in 1969.

These three plants are totally integrated, both techno-

logically and physically. By way of general summary, nat-

ural gas from Northern’s pipelines enters the LPG facil-

ity where it is processed and cooled, and propane, butane,

isobutane and gasoline are extracted. One of the functions

of the LPG plan is to precondition the feed stock for sub-

sequent processing in the ethane and helium facilities by

removal of the heavy constituents, and cooling and de-

hydration of the gas stream. Gas leaving the LPG plant

enters the ethane extraction facility: which, inter alia, fur-

ther prepares the feed for the helium plant by reducing

the volume to be accommodated, and cooling and dehydrat-

ing it. The residual gas enters the helium plant where it is

split between helium and a low B.t.u. gas stream which

is returned to the ethane plant for use in its boilers,

thereby effecting nitrogen removal. The balance is returned

to Northern’s pipeline for transmission to its fuel cus-

tomers.

The utilities at the three plants are also fully integrated

at the Bushton complex in the interest of efficiency, re-

liability and safety. This interdependence and interrela-

tionship was planned from the outset with the design of

the LPG facility, the first of the three to be constructed at

Bushton.** When built the latter was the largest such ex-

traction plant in the free world.

Details of the LPG process are set forth in the find-

ings.** The gas stream exiting from the LPG plant was

originally piped directly to the helium plant. After the

ethane plant came on stream, it was piped to the ethane

plant, and thence to the helium plant. It is technologically

necessary to remove liquid hydrocarbons and any water

present from natural gas in order to process it for helium

extraction. The LPG plant accomplishes these functions

in a number of processes which would otherwise have had

to be provided by the helium plant. The helium plant

represented an initial capital investment of $11,500,000.

Had it been built independently of the LPG plant, it would

have initially cost $4,596,500 more.

The ethane extraction process is, in turn, integrated

with both the helium plan and the LPG plant.” It is de-

*2 Operation of the LPG plant was delayed until December 28,

1962, awaiting approval of the FPC under its jurisdiction over

natural gas transmission. Approval was granted conditioned upon

a reduction of rates to fuel customers, coupled with delivery of

increased volume, to balance the lowered B.t.u. value resulting

from extraction of LPG products. Until FPC approval, the helium

plant operated at a reduced level.

*9 Nos. 107-08.

*4 As detailed in finding 119.

signed to accept the helium-rich residue exiting from the

LPG plant, extract methane and ethane and to pipe further-

enriched helium-bearing gas at —30°F. to the helium plant

as its feed. Other residue is recycled to the LPG plant

for further extraction of LPG products.

Positioning of the ethane plant at this stage of the com-

plex at Bushton furnished several advantages. The re-

moval of additional volumes of heavier components up-

stream of the helium plant resulted in an approximate 20

percent decrease in the volume of gas the helium plant

then had to process,” substantially decreasing the helium

extraction cost. The ethane plant also better prepared the

helium plant feed gas by stabilizing feed conditions, The

helium plant was sensitive to these conditions and prone

to shutting down if they varied. The ethane plant also

extracted trace amounts of products missed in the LPG

extraction, and it dehydrated the helium plant feed, help-

ing to prevent freezing problems thereafter.

There were disadvantages in this arrangement rela-

tive to positioning the ethane plant elsewhere and down-

stream of the helium extraction, in that it increased the

ethane plant’s size and investment: It had been concluded

that the advantages outweighed the disadvantages.

The helium extraction plant is a huge facility employ-

ing eryogenic techniques which represented a substan-

tial advancement in the state of the art. By way of ex-

ample, much leaner gases were used as a feed stock for

helium ex.raction, and much larger quantities were proc-

essed each day than had ever been processed before. Ad-

vanced heat exchangers were developed, a single train

process was used for the first time on such large volumes

and, for the first time, eryogenie extraction processes were

used for such large volumes following an oil absorption

process as employed in the LPG plant. In sheer size, the

2° From about 470 to 410 million cubie feet (m.m.c.f.) per day.

helium facility was scaled up 20 times larger than any

that had ever been built before.

Helium extraction is accomplished by a process de-

scribed in detail in the findngs.*® Very simply stated, three

refrigeration stages were employed, Each involves a flash

column containing a series of chambers—seven in the first

stage, three in the second, and four in the third, Dehy-

drated and filtered gas under pressure is drastically re-

frigerated, eventually to —295°F. The cooling causes part

of it to liquefy. As it passes from chamber to chamber,

trapped gas in the liquid is released by sudden drops in

pressure.’ Liquid remaining at the conclusion of the first

two major stages is piped back to Northern.

The gas from the first chamber of the last flash column

(the third refrigeration stege), containing approximately

72 pereent helium and 27 percent nitrogen, is the helium

gas mixture piped to the Government.” The liquid re-

maining in the last chamber of the last stage contains

approximately 0.0L pereent helium, 73 pereent nitrogen

and 26 pereent methane, It is withdrawn as the low-B.t.u,

fuel burned in the ethane plant, in boilers specially de-

signed to handle such a high nitrogen, low-B.t.u, stream,

and dispose of the nitrogen. Thus nitrogen segregation

is intimately involved in the helium extraction process, Its

removal balances out the removal of ethane, maintaining

the B.t.u. value of the gas downstream of Bushton.”’ In

2° See Nos, 110-11,

* As gas in a carbonated beverage is released when the cap is

removed,

*Gas in the second and third chambers is reeveled to the first

chamber in order to extract the maximum amount of helium.

"On December 11, 1967, the FPC approved Northern's applica:

tion deseribing this procedure, Northern Natural Gas Co, FPC

Findings & Order, No, CP68-5,

this way the helium plant serves a function essential to

the ethane plant, as the latter and the LPG plant serve

functions essential to the helium extraction facility.

This advanced technology was not achieved without cost.

Major problems were encountered during the period 1962

through 1966 before full operating continuity and efficiency

were achieved, Many times during that period the helium

facility froze up and shut down, requiring a week each time

to defrost, Other major problems developed in this new

technology and were resolved,

On October 17, 1963, two explosions occurred causing

personal injuries and propery damage; and another oe-

curred on February 21, 1964. In one 11-month period, Oc-

tober 1, 1962 to September 1, 1963, there were 21 shut-

downs, 11 due to problems in the helium plant. Because of

the total integration of facilities at Bushton, each proe-

essing step is closely toleranced to the designed output of

the previous step, and a shutdown in any part of the

chain causes cessation of activity in the subsequent steps.

The LPG steps must be completed before either the ethane

or helium plants can produce. The helium steps must be

completed before the ethane plant ean produce, and facili-

ties at other locations rely on the production of the ethane

plant. If an initial step is shut down resulting in a loss of

all activity at Bushton, it takes about 75 hours, after cor-

rection of the problem, for startup and return of the com-

plex to full production. While operating continuity and

design efficiency were eventually achieved and the tech-

nological advances proved out, they were achieved at the

risk and expense of plaintiff under its fixed-price contract

with Interior.”

By the end of 1966 the helium and LPG plants had

proven themselves, and Northern proceeded with the third

phase of its original overall diversification plan. On March

* See contract provision 31.3, note 20 supra,

23, 1967, Northern Petrochemical Company (‘‘Petrochem-

iecal’’) was incorporated as a wholly owned subsidiary of

Northern to develop an ethylene petrochemical complex in

Joliet, Illinois, fed by the ethane extracted at Bushton

and piped to Joliet via another subsidiary’s pipeline.

Later that year Northern acquired three companies which

became divisions of Petrochemical, providing the latter

with marketable end products to be produced from its

ethylene-derived chemicals. Thereafter, Northern aequired

four more plastic conversion companies as divisions of

Petrochemical. Plans were also developed for a plant to be

completed in 1971 to derive ethylene from ethane. In the

meantime, ethane from the Bushton complex was con-

verted into ethylene under contract with another company

for use by Petrochemical.

The Petrochemical facility was completed and in oper-

ation on a 940-aecre site in Joliet by September 1971. This

olefins plant is designed to produce 800 million pounds of

ethylene and 200 million pounds of propylene each year

from Bushton feedstocks, including 204,500,000 gallons of

ethane, These feedstocks from Northern’s pipeline system

represent 78 percent of the manufacturing cost of ethy-

lene and propylene, As presently designed, the plant at

Joliet cannot operate on other than Bushton feedstocks,

although it could be modified at an estimated cost of $35

million, and with a 2'4-year delay, to process feedstocks

consisting of heavier hydrocarbons than those produced

at Bushton, In that respect the complex at Joliet is some-

what integrated with the LPG, ethane and helium facili-

ties at Bushton, although to a lesser extent than are the

three Bushton facilities with one another.

In the early 1960's Gas Products constructed an under-

ground storage field at Bushton, and product pipelines

from Bushton to Des Moines, lowa, and Wichita, Kansas.

The storage wells involved an initial capital investment

of about $5 million, Expansion of these storage facilities

to accommodate the ethane operations, in addition to pro-

ducing growth in other liquids marketing, increased the

initial storage investment from about $5 million to about

$12 million, The pipeline and related pumping and stor-

age, and the six terminal facilities in five states entailed

an initial capital investment of about $20 million, In Octo-

ber 1966 Gas Products filed with LCC for common carrier

status and created Hydrocarbon Transportation, Ine,

(‘*Transportation’’) as a wholly owned subsidiary. Trans-

portation now owns and operates all of that pipeline sys-

tem as a common carrier. Construction by Transportation

of a multiproducts pipeline from Bushton to Petrochemi-

eal’s plant near Joliet began in 1968, As a result the eapi-

tal investment in pipeline and related facilities has in-

creased from the initial $20 million to about $84 million.

The storage and pipeline system assures Petrochemical of

a supply of feedstocks of the proper type.

All of these integrated operations are in implementa-

tion of Northern’s original plans and the wholly owned

subsidiaries are the instrumentalities through which they

have been accomplished, A contract between Helex and

Northern dated July 28, 1961, states that Helex will, for

a term of 22 years (the term of its contract with the Gov-

ernment) accept up to 500 m.m.ecf. per day of Hugoton

area gas and extract helium therefrom, redelivering the

remainder (including the low-B.t.u. stream piped to the

ethane plant) to Northern, Pertinent provisions of the

contract are set forth in the findings," including a provision

mutually absolving the parties in case of a failure to de-

liver or to receive the Hugoton natural gas ennumerated

reasons such as accident, fires, floods, strikes, ete., or ‘any

other cause beyond the reasonable control of the party

failing to deliver or receive gas * * * provided, however,

such party shall promptly and diligently take such action as

* No, 126,

may be necessary and practicable to remove the cause and

resume the delivery or receipt of gas as the case may

be * * Pd

There is a similar contract between Northern and Gas

Products. Because of the services provided to one an-

other by the subsidiaries at Bushton, costs are allocated

based on the process supported thereby, in accordance with

a plan developed for Northern by the enginecring consult-

ant firm of Purvin & Gertz in March of 1962, and reviewed

periodically thereafter.”

As earlier described, nitrogen removal is so intricately

involved in the helium extraction process that the cost of

operating plaintiff’s plant would be substantially the same

whether plaintiff continued to produce and tender helium

to the Government under this contract, or modified the

plant to eliminate the helium extraction function. The

only step which could be eliminated would be the helium

recycle compressors at a nominal saving of $11,000 a year

in fuel costs.

The Administration of the

Helium Conservation Program

During administration of the contract, Interior con-

tinued to view the program as it had in recommending the

underlying legislation and in negotiating the contract,

namely, as one for conservation of helium for long-range

national requirements, This purpose was manifest when it

was secking appropriations, reporting on the program to

Congress, and in public pronouncements. For example,

when justifying Interior’s appropriation request for fis-

eal 1964, Acting Secretary John A. Carver, Jr., reported:

The helium conservation program is not a stock-

piling program aimed at assuring an adequate supply

—_— ——

" See findings 128.30,

of helium for some predetermined uses and for some

predetermined period of time. It is a conservation

program aimed at curtailing the wastage of valuable

natural resource in order that the resource will be

available to future Americans for whatever purpose

and at whatever time it is needed. * * *

In setting forth its objectives in administering the 1960

Helium Act, Interior stated in the ‘‘justification’’ section

of its requests for appropriations for fiscals 1967 through

1971:

Objectves

A. National goal: The single enduring national ob-

jective of the Bureau of Mines helium program is to

obtain maximum beneficial use of the natural helium

resources of the United States.

B. Contributory goals: The Bureau of Mines helium

program endeavors to achieve its national goal

through the accomplishment of three subsidiary ob-

jectives.

1. The production and sale of helium for current

beneficial use.

2. The acquisition and storage of helium that

would otherwise be wasted in order that this helium

may be used beneficially in the future.

3. Research that will contribute to a more effee-

tive utilization of the natural helium resources of

the United States now and in the future.

As outlined in connection with the legislative history, the

program was intended to be self-liquidating after being

financed initially by funds lent to Interior by Treasury,

as authorized by Congress. The borrowed funds, supple-

mented from time to time, were to be repaid with interest

from the proceeds of helium sales within 25 to 35 years.

To accomplish this, it was necessary for Interior to retain

most of the current helium market, Seetion 6 of the act

explicitly required Government agencies to purchase their

major requirements from Interior, and it was assumed

that the rest of the ‘*Federal market (Government con-

tractors and subcontractors) would do the same,

But in late 1961, Kerr-MeGee Oil Industries, Ine., began

to produce helium for sale outside of the conservation pro-

gram, selling to Government contractors, subcontractors,

and others, Initially it sold at the same price as Interior,

namely, $35 per m.ef. By the mid-1960's, however, addi-

tional private producers, including the three conservation

contractors other than plaintiff, also began to sell excess

production in competition with Interior, and their price

dropped to $25 per m.ec.f. In 1967 Interior’s current sales

began to decline as it maintained its $35 price, and a

greater share of the current market went to private pro-

ducers, The result was an estimated loss of sales of nearly

$95 million through 1972. These were sales which would

have otherwise supported the self-liquidating features of

the helium conservation program,

In order to stem the flow from these wounds, to some

extent self-inflicted, Interior proposed regulations in Octo-

ber 1968" wheh would have required Government con-

tractors and subcontractors (that is, the rest of the ‘‘Fed-

eral market’’) to buy their major requirements from In-

terior. However, this action was enjoined.” By August

1970 Interior had proposed the issuance of an Executive

Order directing Federal agencies to require their contrae-

tors, in their respective agreements, to buy helium from

Interior for use in performance of Government contracts,

But efforts to terminate the program had already begun

and no such Executive Order has ever been issued,

"33 Fed Reg, 5219-20,

" Air Reduction Co. v. Hickel, 420 F.2d 592 (D.C, Cir, 1969),

Termination and

‘‘The Opinion of the Secretary of the Interior’’

There is a nexus between these disappointing develop-

ments in the self-liquidating aspects of the conservation

program, and the efforts to terminate it. During 1969 the

Bureau of the Budget (‘‘BOB’’) selected the helium con-

servation program as one which could be eliminated to

save money. It was BOB’s opinion that the contracts were

no longer necessary and that the program should be can-

celed unless its budgetary impact could be substantially

reduced,

A study conducted by Interior in 1969 and 1970 (survey-

ing helium uses, conservation goals, legislation, and future

supply and demand) concluded that the problems were

primarily financial and could be solved; that the conser-

vation program was still required; and that the contracts

should be continued, although on a modified cost basis.

This was the position maintained by Interior throughout

the year 1970, and up to the point that termination no-

tices were dispatched, as hereinafter detailed.

In its report of March 5, 1970, responding to a congres-

sional inquiry, Interior forecast high, median and low

estimates of helium requirements through the year 2000.

Using 1968 demand as a base, it was predicted that domes-

tic use would rise steadily from the high 700 m.m.c.f., the

median 650 m.m.c.f., and the low 650 m.m.c.f. estimates

for 1970, to 3.6 b.c.f., 2.5 b.e.f., and 1.4 b.e.f. est mates

respectively in the year 2000. Total domestic uses between

1970 and 2000 were estimated respectively as 70.58 b.c.f.,

52.23 b.e.f., and 34.36 b.c.f.

Even the high estimate was deemed conservative because

it did not take into account new scientific or technological

breakthroughs and developments but simply expansion of

then known technology, and the normal growth of then

known applications. In fact, the low estimate assumed that

a future technological breakthrough might develop 2 lower

cost substitute for helium.

The largest end use predicted for the year 2000 was for

cryogenic applications, essentially in generation and trans-

mission of electric power, cryogenic research and magnetic

levitation. It was expected to rise from 47 m.m.c.f. in

1968 to between 450 and 800 m.m.c.f. by the year 2000.

Use for purging and pressurizing, principally in the space

program, was estimated to go from 340 m.m.c.f. in 1968

to between 100 and 600 m.m.c.f. by the turn of the century.

The low forecast assumed a substantial diminution in

space exploration, and the high a continuation of the cur-

rent level of space activity and some expansion.

The Office of Science and Technology in the Executive

Office of the President projected higher future require-

ments than Interior. On March 31, 1970, it estimated for

the Bureau that annual domestic demand would reach 6

b.e.f. by the year 2000, and 12.1 b.ec.f. by 2030. Its re-

port noted the possibility of very much larger uses. Refer-

ence was made to the very great potential for supercon-

ducting underground power lines, and to the fact that

magnets necessary for magnetohyvdrodynamic and fusion

generating facilities would certainly be superconductive.

In a study of the unique and essential qualities of helium,

the National Academy of Sciences concluded that the

‘Helium Conservation Program should be carefully re-

evaluated to determine if it can meet helium needs beyond

the early part of the 21st century. If such evaluation leaves

any question at all ahout the adequacy of the program, the

program should be extended without delay to apply to lower

concentrations of helium and more natural gas fields.’’

After the program had been ended by the events herein-

after related, the National Science Foundation, a respected

Federal agency, concluded in a

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