# Appendix — Northern Helex Co. v. United States > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385003_2230%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1976 - **Citation:** 429 U.S. 866 ## Text IN THE Supreme Court of the United States OcTOBER TERM, 1975 No $5- 1425 NORTHERN HELEX Company, Petitioner, v. 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 (c) Integration of utilities and processes 232-233 {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 il 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, v. Unirep States oF America, Respondent. APPENDIX TO PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF CLAIMS 2 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 - 3 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- D 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 6 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. 8 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. 9 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 10 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 11 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). 12 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 13 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) : 14 * * * 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- ———,s—t—tsst—CS™~ J ; . In view of these circumstances, the Working Group Omer re a 2.0 .. 0 R 0 is convinced that present and foreseeable uses of he- Total Federal Agencies 198.5 303.7 350.0 355.4 lium are highly essential to the welfare of the United | Non-Federal Users 83.0 100.0 120.0 140.0 ti : Siga ; ‘litar ol States—particularly with respect to its military Total 981.5 4037 470.0 4954 strength—and a conservation program of the magni- tude discussed 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 con- servation 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, techni- * End Use Breakdown in AEC eal, and military developments in this Country. 1958 1959 1960 24. The report gave consideration as of that time to ita ae the various sectors of the Nation’s helium usage, as Military application 17.1 19.3 19.8 j Production 48.5 60.0 62.2 follows: Reactor development 9.9 10.8 12.0 174 Private Helium Utilization, December 1955 Percent of Helium Used Each Purpose Percent of Total te on . Private Helium On Govt. Used This Purpose Contracts Other Welding 64.5 52.3 47.7 Leak detection 8.5 31.7 68.3 Titanium production & fabrication 7.5 83.9 16.1 Research 5.1 63.2 36.8 Controlled atmospheres 5.0 22.5 77.5 Medical 2.6 0.0 100.0 Transistors 2.3 67.1 32.9 Zirconium production 1.6 100.0 0.0 Aircraft components 1.5 99.0 1.0 Advertising and toy balloons 0.6 0.0 100.0 Lighter-than-air crafts 0.6 0.0 100.0 Miscellaneous 0.2 27.1 72.9 Total 100.0 “ 518 48.2 25. The program contemplated was to be self-liquidat- ing. The report called for the program to pay for itself out of helium sales while at the same time providing the Na- tion with conservation of 32 b.c.f. in underground storage for future needs. 26. On April 15, 1998, Northern’s executives held pre- liminary discussions with representatives of Interior’s Bureau of Mines (the ‘‘Bureau’’) at Amarillo, Texas, con- cerning Northern’s plans to build an integrated facility for nitrogen rejection, helium extraction and LPG recov- ery. As a result of this, Northern decided to follow up with more specific proposals. On May 12, 1998, its executives met with Henry P. Wheeler, Jr., the Bureau’s Assistant Director for Helium, and with two other representatives ltt iis al ae a a A a Te i A EL ALLL ALL AE LL ee ee ee Ne ee ee a 175 of Interior to discuss a helium extraction contract, in an- ticipation of the enactment of enabling legislation. North- ern proposed a plan whereby the company would build and operate a petrochemical plant and extract helium and nitrogen, processing thereby about a billion cubic feet of natural gas a day. The company would be compensated based upon the costs and reasonable profit on investment attributable to helium extraction. Mr. Wheeler, represent- ing the Bureau, considered the plan to have several ad- vantages. It provided maximum helium recovery from Northern’s natural gas; it resulted in a reasonable cost to the Government because the company’s investment and operating costs could be spread over several other end- products rather than helium alone; it did not require the Government to guarantee a supply of helium-bearing gas; and it would fit into the overall operations of Northern. Furthermore, as Mr. Wheeler noted for the Government in an internal memorandum of the conference, ‘‘ [i]t 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.”’ 27. On April 25, 1958, President Eisenhower approved the Chilson Report and the policy of helium conservation. He included recommendations for legislation in this area in his budget messages for fiscal years 1960 and 1961. 28. On August 6, 1958, Northern’s officials participated in an informal discussion with the Federal Power Com- mission concerning the extraction of helium, nitrogen, and propane from its natural gas streams. 29. Interior, on August 19, 1958, publicly announced that it was going to propose new legislation permitting it to conserve helium by means of long-term contracts with private industry for helium extraction from natural gas. 30. In the latter part of 1958, the Bureau published an ‘‘open file’? of technical literature on the subject of helium 176 extraction in order to assist those companies contemplat- ing participation in the conservation program. Although they were not required, integrated 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 pentanes and heavier hydrocarbons in a natural gasoline prod- uct. Such plans would, of course, call for a more com- plex system. Some may wish to remove nitrogen in greater quantities than would be done if only a erude helium-nitrogen mixture is removed. * * * 31. Throughout 1958 and into 1959 Northern continued to investigate the possibility of participating in the con- servation program by extraction of helium from its gas stream. Interior had been the sole extractor and supplier of helium up to that time. It had been selling helium to other Government agencies for its actual cost of $15.50 per thousand cubic feet (m.c.f.) and to the publie for $19 per m.c.f. Northern considered the possibility of eaptur- ing a major part of the commercial market and the fur- ther possibility of selling any surplus to Interior. Extrac- tion of helium at various locations and in a separate he- lium extraction plant, as well as in plants integrated with other operations, was considered. By 1959, Northern ulti- mately concluded that it could successfully compete with Interior and decided to go into the helium business. 32. Originally, and beginning on January 13, 1959, Northern’s instrumentality for this purpose was the Helex Company, a joint venture consisting of Northern and Air Products and Chemicals, Inc. Northern owned 60 percent of the Helex Company stock, and Air Products owned the balance. Helex Company was to build an extraction plant on Northern’s line near Sunray, Texas. Air Products was experienced in the extraction of compressed gases, and in 177 the distribution of helium, this marketing experience being important to Northern. 33. By letter of January 6, 1959, Northern formally advised then Secretary of Interior, Fred A. Seaton, of its interest in participating in the Government’s helium con- servation program. The Secretary responded by letter of January 28, 1959, stating inter alia, that Interior was in- terested in Northern’s plans but would have to delay dis- cussion of details pending passage of basie helium conser- vation legislation. Secretary Seaton also stated that In- terior planned to resubmit to Congress its proposal for legislation based upon the aforementioned Chilson Report. Meetings and correspondence between Interior and North- ern continued throughout 1959 and 1960. In the course of these discussions, Northern sought to demonstrate that it could produce helium by improved methods and at lower cost to the Government than the cost, without profit, of production in Government-owned and operated plants. 34. On February 18, 1959, Secretary Seaton appeared before the House Committee on Interior and Insular Af- fairs for his annual discussion with the Committee. Dur- ing his presentation, the Sevretary discussed Interior’s proposed helium legislation, stating: We are in the practical position now where we have these constantly increasing demands, particularly from Government, and a rather considerable increase in commercial demand, that is, in the sense of medi- cine and certain other uses, where we feel it is abso- lutely necessary to engage in a program of conserva- tion of this utterly irreplaceable natural resource, 35. In the latter part of 1959, Northern decided to fore- go the private market opportunities in helium because it concluded that a long-term helium conservation contract with the Government would enable it to integrate its he- lium, LPG and petrochemical facilities. Once Northern 178 made this decision it realized it would have but a single buyer, and would no longer need Air Products’ marketing experience. Accordingly, Northern bought out Air Prod- ucts’ 40 percent interest and thereafter operated Helex Company as a wholly owned subsidiary. In 1962, the sub- sidiary’s name was changed to Northern Helex Company. 36. In an internal report of September 14, 1959, North- ern had recommended incorporating LPG recovery with helium recovery in the event the company should build any helium plants. The report also pointed out that pro- posed helium conservation legislation excluded profits from helium recovery from Federal Power Commission («“FPC’’) jurisdiction, and it stated that a method needed to be developed whereby Northern could be assured that profits from LPG recovery would also be outside of FPC jurisdiction over natural gas. 37. By January 1960, the numerous studies initiated by Northern had resulted in an overall plan to more fully utilize the constituents of its natural gas streams by di- versifying into the LPG, helium, and petrochemical indus- tries. An internally developed master plan, dated January 18, 1960, outlined an interrelated and interreliant complex for extraction of helium and LPG products at Bushton. Also early in 1960, Northern initiated extensive review of the feasibility of constructing a plant to extract ethane, propane, isobutane, and heavier hydrocarbons from natural gas or, alternatively, a plant to separate only propane and heavier ingredients. Outside engineers were engaged to investigate the alternates, with consideration given to fu- ture separation of helium and nitrogen. Problems of trans- portation of ethane from Bushton to proposed ethylene plant locations were considered. Specific attention was given to the problem of maintaining the B.t.u. value of the natural gas downstream of Bushton by the extraction of the inerts, nitrogen and helium. By mid-June 1960, empha- sis had centered upon construction of an LPG plant with- 179 out ethane extraction for the time being, with considera- tion given to constructing the LPG plant in such a man. er as would permit later addition of ethane facilities and helium facilities. It was recognized that this would in- crease the investment in the LPG plant. 38. The immediate market for and feasibility of LPG and helium production permitted the initial construction of those facilities. In turn, plans for the petrochemical complex would depend upon the successful operation of the LPG and helium complex at Bushton. | 39. During the first half of 1960, Northern formed Northern Gas Products Company (‘‘Gas Products’’), a wholly owned subsidiary, to permit diversification into the extraction and marketing of liquid hydrocarbon products. Gas Products was Northern’s instrumentality for the ex- traction and marketing of propane, butanes, natural gaso- line, and other hydrocarbons from Northern’s natural gas streams. 40. In an internal memorandum dated February 11, 1960, made in preparation for a congressional appearance on the proposed helium legislation, Interior’s Mr. Wheeler noted that it was anticipated that private industry would integrate its helium and other operations to permit ex- traction of ethane and other hydrocarbons, and removal of nitrogen to upgrade the residue gas heating value. Legislative Background of the Helium Conservation Program 41. H.R. 10548, which eventually became the Helium Act Amendments of 1960 (‘*1960 Helium Act’’), was in- troduced before the House Subcommittee on Mines and Mining of the Committee on Interior and Insular Affairs on February 19, 1960, by Representative Walter Rogers (Texas). The bill was substantially similar to Intericr’s legislative proposal introduced before the subcommittee on the same day. 180 42. There is no evidence in the record that the Chilson Report, as such, was formally submitted to Congress. However, the record is clear that the report formed the basis for these subsequent helium conservation legislative proposals. 43. The Helium Act of March 3, 1925, 43 Stat. 1110, had been amended by the Act of March 3, 1927, 44 Stat. 1387, and again by the Act of September 1, 1937, 50 Stat. 885. It was finally amended and revised into its present form by this 1960 Helium Act, 74 Stat. 918, codified at 50 U.S.C. ¢ 167. The latest amendment was signed by Presi- dent Eisenhower on September 13, 1960 (106 cona. REc. 19,166 (1960)), and it became effective March 1, 1961. 44. The 1959 Bureau predictions that the Nation’s total demand for helium (including a small factor for exports), would rise to approximately 2 b.c.f. annually by the year 2000, and level off at that point, had formed the basis of Interior’s representations of future demand during the 1960 hearings which preceded the 1960 Helium Act. The following approximate helium requirements were forecast for the years from 1960 to 1973: 1959 Total Helium Demand Estimate Year Total Demand (Million Cubie Feet) Calendar Year Fiscal Year Basis Basis 1960 480 430 1961 565 520 1962 650 590 1963 735 675 1964 820 765 1965 910 860 1966 1020 960 1967 1120 1050 1968 1215 1150 1969 1305 1245 181 1959 Total Helium Demand Estimate (Cont’d) Year Total Demand (Million Cubic Feet) Calendar Year Fiseal Year Basis Basis 1970 1390 1335 1971 1470 1420 1972 1545 1500 1973 1620 1600 45. At the April 20, 1960, session of the House Commit- tee on Interior and Insular Affairs, Representative Stew- art L. Udall (Arizona), had introduced an amendment to the bill which eventually became section 15 of the 1960 Helium Act (50 U.S.C. § 167m), after approval by the Com- mittee. The amended provision (then numbered section 14 of the bill) read: It is the sense of the Congress that it is in the na- tional interest to foster and encourage individual en- terprise in the development and distribution of sup- plies of helium, and at the same time to provide, within economic limits, through the administration of this Act, a sustained supply of helium which, together with supplies available or exrected to become available otherwise, will be sufficient to provide for essential Government activities. Representative Udall introduced this amendment on be- half of his constituents in order to broaden Interior’s au- thority to allow private parties to develop and extract non- wasting high-helium content reserves which were not valu- able as natural gas sources, and to sell this helium to the Government for conservation. No mention of the purpose of the phrase ‘‘essential Government activities’? was made at this session, nor was any particular significance at- tached to it. Prior to this amendment offered by Repre- sentative Udall, the phrase ‘‘essential Government activ- ities’? did not appear in the bill. 182 46. Representative Udall testified at trial that he em- ployed the phrase only because the Government’s defense uses of helium were the most significant at the time the legislation was being considered, and therefore were men- tioned. He wanted to assure passage of his amendment en- couraging involvement of the private sector by convincing the other members of Congress that his amendment was consistent 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 conserva- tion program for all national purposes. The purpose of the amendment, as confirmed by later discussion of the bill on the floor of the House, was to insure that the program for production, storage and dis- tribution of helium did not remain, nor become, a Govern- ment monopoly. 47. When, on April 26, 1960, the House Committee re- ported H.R. 10548 to the full House, its message (H.R. REP. NO. 1552, 86th Cong., 2d Sess.) contained the following statements: Purpose The primary objective of H.R. 10548 is to furnish authority to the Department of the Interior to carry out an effective long-range program for the produc- tion, distribution, and storage of helium in order to assure a sustained supply, taking into account sup- plies from other sources, to meet essential Government needs. * * * = oe _ oe _ NEED The annual consumption of helium today in the United States is approximately 370 million cubic feet —that is, 80 times the 1937 leve:. Helium is essential to 183 our missile and atomic energy programs and is a valu- able industrial material. Seventy percent of the he- lium now being consumed is used directly by the De- partment of Defense, the Atomic Energy Commission, the National Aeronautics and Space Administration, and other Federal agencies. An additional 20 percent is used in industry on Federal defense and atomic energy contracts. Smaller, but important, quantities are used in hospitals and in research. 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 indus- trial fields, are in early stages of development. Other uses, involving extremely low temperatures in the re- gion of absolute zero, are still in the research labora- tory. Temperatures within 20° of absolute zero cannot be attained without helium. Helium is a limited natural resource found in only a few natural gasfields. The helium-bearing gas in the principal deposits in Texas, Oklahoma, and Kansas is being produced and marketed for fuel in the Midwest without regard to the concomitant waste of helium. The helium goes along with the combustible portion of the gas and passes through the gas burners into the atmosphere without serving any useful purpose. The volume of helium wasted daily in fuel gases is about 10 times as great as the present daily helium consumption in the United States. If this loss is al- lowed to continue unabated and if the demands for helium increase in the future as expected, the helium- bearing gas sources in the United States cannot be expected to be adequate for national needs past 1980- of what was antiel pated when the program was initiated in’ 1960, Present stockpile will take care of estimated es. sential Government requirementa (which the He. lium Aet Amendments were aimed at providing) through the year 2000, At current rates of con. sumption, the present stockpile will satiafy total demand for almost 40 years, Technological improvements since 1960 have re. duced the coat of extracting helium from leaner AOR, ~The above three points constitute ‘other eirewum- stances of similar nature’? within the meaning of the termination provisions in the helium econ. tracts, ~Sinee the Helium Aet Amendments of 1960 were paseed, there has been a discovery of a new he- liumerich fleld with estimated recoverable helium of from 5 to 15 billion eubie feet, The memorandum eoneluded: In light of the discussion above and the analysis and discussion which have taken place on this program, we believe that all of the points in the appeal have heen met and that the decision to terminate success fully withstands the appeal, ae Is) The budget decision assumes that the termination ac tion will be a Seeretarial determination, with an- nouncement in early January, that cireumatances exist which satisfy the termination provisions of the eon. tracts, * * * 151, Under Seeretary Russell understood this to mean that the budget, as finalived, would reflect a budget deter. mination that the helium contracts were to be terminated, 152, By letter of January 6, 1971, two U.S, Senators addressed questions to George Sehults, Director of OMB, regarding the proposed cancellation of the helium eon. tracts, On January 11, 1971, Deputy Assistant to the Presi. dent, John C, Whitaker, manually wrote the following note to Donald Rice, Assistant Direetor of OMB, at the top of this January 6 correspondence Aw I said you've got to talk on the hill before helium ia cancelled, 153. In a memorandum dated January 18; 1971, to Under Secretary Russell, Assistant Secretary Dole wrote : Regardless of the OMDB decision relative to the helium program, Tam of the opinion that a large as- sured supply of helium is essential for the future, The decision of OMB to cancel the present contracts will, 1 fear, jeopardize this assurance of a future sup. ply. ** Aasiatant Secretary Dole, in his deposition of January 28, 1078, atated that he was atill of the same view, In deseribing events in the week just prior to January 26, 1971, Harold Lipper, Chief of the Division of Helium, Bureau of Mines, stated in his deposition: Well, I think we have pretty well covered it: that the budwet situation was appealed; and the next thing 246 that T knew about is, we were asked for material that night be used in connection with possible termination of the contracts, iS4. During the week immediately prior to Tuesaday, January 26, 1971, Under Seeretary Russell again reviewed the helium conservation program, meeting with several people from the Mineral Resources and Solicitor’s OMees of Interior, for briefings, Termination of the contracts was discussed, butapecretary Russell wanted more specific in- formation as to possible bases for termination, In. re. sponse, by memorandum of Friday, January 22, L971, Aa- sistant Seeretary for Mineral Resources Dole submitted to Mr, Russell for hia review a draft document entitled *'Tormination of the Four Helium Purchase Contracts,” along with an outline of sources relied upon as the bases for statements in the draft, and copies of 19 documenta relating to helium and the helium program which were the sources of information, The draft was prepared by the Mineral Resources and Solicitor’s Offices of Interior, 155, On Saturday or Sunday, January 23 or 24, the text of a publication “Special Analyses, Budget of the United States Government, Miseal Year 1972’ was sent to the Government Printing OMlee from OMB for final printing, The text stated that Interior's minerals program budgetary demands would decrease for fiseal year 1972 due to: * * * [A] decision by the Seeretary of the Interior to terminate contract purchases of helium because of changes in anticipated future supply and demand, The budget, its summary, analysis, and appendix, as formally released on Friday, January 29, 1971, all indi. cated that the helium contracts would be terminated by the Secretary of Interior, 247 156, On the morning of Monday, January 25, 1971, Under Secretary Russell dictated a message via ear tele. phone for Assistant Seeretary Dole, In it Mr, Russell in- structed Mr, Dole to contact those members of Congress who would be concerned about the cancellation of the he. lium contracts, and to justify the cancellation to them, In conclusion Mr, Russell stated: The cancellations have to be handled in aueh a manner that (the decision to eaneel) ia the decision of the Secretary of the Interior and not the decision of the President or OMB or anyone else, (Of course, T realixe that you know this.) 157, In a note to Assistant Seeretary Dole from Under Seeretary Russell's secretary relating to helium, and dated January 25, 1971, there was a postaecript stating: PS, We have a large stack of material on this matter, Which the Solicitor'’s office brought down today, 158, By letter of Tuesday, January 26, 1971, Under Secretary Russell informed plaintiff and the three other contractors who had participated in Interior's helium eon. vorvation program, that their contracts were terminated, pursuant to article XT, para, 12.1, with purchases to cease effective at 8 aa, eat, Mareh 28, 1971, This letter is hereinafter referred to as the “ Ruasell Termination,’ or purported ‘Russell Termination.’ His letter was the aame is the draft whieh had been previously submitted to him on January 22, 1971, by the Mineral Resources and Solici- tor’a Offices of Interior, 159, In his letter Under Seeretary Russell deemed con. tinted purchases under the helium contracts ‘unnecessary to accomplish the purposes of the Helium Aet.’’ Pertinent text of the Russell Termination is as follows: 248 TERMINATION OF THE FOUR HELIUM PURCHASE CONTRACTS After careful and intensive review of the helium conservation program, T have reached the conclusion, pursuant to paragraph l2.1 of Artiele XTIL of each of the contracts listed below, that the continued operation of the below listed helium extraction planta under the terme of the contracts, as indicated, and the continued purchase of heliumegas mixture extracted in’ said plants are unnecessary to accomplish the purposes of the Helium Aet: The substantial diminution that has occurred in the requirements of helium for essential Government ae. tivities, the discoveries of new helium resources that have been made since the contracta were entered into, and the availability of helium, within eeonomie limite hocnuse of improved technology, from natural gases whieh would previously not have been so regarded hecause of low helium content—are all factors which underlie my conclusion, The primary objective of the Helium Aet is to ‘pro. vide, within economic limita, through the adminiatra- tion of this Act, a sustained supply of helium whieh, together with supplics available or expeeted to beeome available otherwise, will be sufficient to provide for oxsential Government activities’? Over the past four years, there has been a substantial diminution in the requirements of helium for essential Government ae. tivities, ‘The Government requirements fell from a hieh of 707 million eubie feet in 1966 to 222 million cuble feet in 1970, The Government requirements in N70 were 60° lower than they were in 1966, In the face of the experience over those 4 years, T cannot reach the conclusion that Government requirements for 249 helium will steadily inerease in the future, Indeed, there is no firm assurance whether or when they will increase, The five principal helium-using agencies of the Government have submitted to the Department of the Interior eatimates of their needs through the year 2000, Only one of the five agencies forecasts a marked increase in helium requirements, Yet, even if the agen. cles’ estimates should prove accurate, those estimated requirements can be satiafied through the year 1995— a quarter of a century—from helium which the Govern. ment now has in storage and whieh it will obtain from the operation of existing Government plants, In these cirevmeatances, the substantial diminution in Covern- mental requirements for helium since 1966 leads me to the view that the continued operation of the planta mentioned above and the continued purchase by the Government of heliumgtaa mixture extracted therein Ase unnecessary to accomplish the purposes of the Helium Aet, particularly when there are taken into aecount the new discoverion of helinm resources that have been made sinee the execution of the eon. tracta and the availability within eeonomie limita of helium from a much wider range of natural gases than was the ease before 1961, Discoveries, since the exeeution of the contracta, of new natural helium resourees of considerable magni- tude are another factor which, in my opinion, makes the continued operation of the five planta mentioned above and the continued purchase by the Government of helium-gas mixture extracted therein unnecessary to achieve the purposes of the Helium Aet, The Tip Top Field in Wyoming constitutes a proved reserve of approximately three billion eubie feet of helium and in estimated to contain an additional twelve billion cubie feet of helium, When other new discoveries made ONO since 1961 are taken into consideration, there exiat in the order of eight billion eubie feet of proved re- serves with the possibility of a total of twenty-four billion eubie feet, all of whieh is contained in shut-in fields as a constituent of natural gas which has no value as fuel, The helium eontent of the gases in these fields is three-tentha of one percent or more, and the gases are thus among the ‘richer’? gases so far as helium ia eoneerned, There are, therefore, large sourees of helium whieh will be available if, in the future, more helium is required for essential Govern. ment activities than is now in storage or will be re. covered in Government plants, In my opinion, it is reasonable to expect that helium eould be produced from these reserves at a coat to the Government in a range of #10 to #20 per thousand eubie feet, a range well within economic limits, urthermore, there has been such improvement in technology with reapeet to the extraction of helium that sources formerly disregarded or regarded as une economical may now be considered, At the time of the enactment of the Helium Aet Amendments of 1960, the alternative to reeovery of helium from the ‘richer’? gases was thought to be recovery from the air at conte of RL000 to #2000 per thousand eubie feet, Technology developed since the execution f the eon tracts has made it possible to recover helium from ‘loaner’? natural gasea—that is, gases with as little as 0.05 pereent helium, Evalwetion by the Bureau of Mines of published informe’ on on potential future discoverios of natural gas in ve United States shows that larwe volumes of natural gas containing about one-tenth of one percent helium ean be expeeted in the future; it appears to me that a range of from $40 to #70 per thousand eubie feet is a reasonable estimate of the cout of recovering helium from such gases and 251 that such costs would be within economic limits when viewed, as they must be, against the distant and un- certain future of helium requirements for essential Government activities. In my opinion, the ‘‘leaner’’ natural gases which will be discovered in tue future will afford additional large sources of heliam which may be recovered within economic limits to satisfy essential Government activities, if and when occasion requires, and therefore, the continued operation of the plants mentioned above and the continued purchase by the Government of helium-gas mixture extracted therein are unnecessary to accomplish the purpose of the Helium Act. 160. Under Secretary Russell was the highest ranking official of the Department of Interior on January 26, 1971. Ife had succeeded Secretary Hickel. Rogers C. B. Morton was sworn in as Secretary of Interior on January 29, 1971. 161. Under Secretary Russell continued with informal efforts to have funds included for helium conservation until the President’s fiscal year 1972 budget was presented on January 29, 1971. 162. Had Mr. Russell’s appeal to OMB been granted, and had funds been made available, he would have been in favor of continuing the conservation contracts. He was personally in favor of conserving all natural resources for which funds were available. He testified at trial as follows: Q. No, I’m asking you, assuming that your request had been granted, that your appeal had been granted and that funds were made available, would you have been in favor of continuing to extract helium from the Hugoton field? A. Yes, I would have been in favor of contining to buy as much helium as we had funds for. 252 It is concluded that Under Secretary Russell’s January 26, 1971, letter did not reflect his own opinion and his own determination that the circumstances set forth in the ‘*Termination’’ provision of the contract had been met. On the whole record, his action reflects rather that it was based on OMB refusal to approve further funds for the helium conservation program. 163. Without additional appropriations, Interior would not have been able to meet its obligations under the helium contracts. The only way funding could have been achieved without OMB approval was directly by Congress. How- ever, Interior could not request funds from Congress with- out OMB approval. Moreover, there appeared to be some opposition to the helium program in Congress at the time. 164. As indicated by his testimony at trial, Under Sec- retary Russell presently believes that the helium in the Hugoton field and elsewhere should be conserved, but that the limitations of the Helium Act do not permit continua- tion of the conservation program. He also believes that if all the helium now in the Hugoton-Panhandle fields were saved, it would serve a useful purpose in the future, and that conservation of helium is a far-sighted Government project. 165. It is Assistant Secretary of Interior Hollis M. Dole’s present personal view that the helium which had been conserved under the conservation program should continue to be conserved. Dr. E. F. Osborn, Director of the Bureau of Mines, personally believes that helium, as with all natural resources, should be saved for needs which will develop in the future. Harold Lipper, Chief of the Helium Activity in the Bureau of Mines, believed in 1970 that the conservation contracts should be continued with proper cost modifications, and personally helieves at the present time that helium should still be conserved. At his January 26, 1971, confirmation hearings, Secretary of Interior-designate Rogers C. B. Morton also evidenced 253 the personal view that helium, as a resource, ought to be conserved. The Termination Test Based on ‘*4 Substantial Diminution In Helium Requirements’’ 166. In September 1969 the five specific Federal agencies which were then the principal Government users of he- lium (NASA, Department of Defense, Atomic Energy Commission, Weather Bureau and the National Bureau of Standards) provided Interior with estimates of their helium requirements through the year 2000. Interior has received estimates from no other Federal agencies. With minor revisions by NASA in February 1970, ihe estimates stood as follows in January 1971: Time Annual requirements— Period Million Cubie Feet (m.m.c.f.) NASA DOD AEC WB NBS Total 1970-1972 150 60 95 04 2759 1973-1975 500 = 60 95 04 625.9 1976-1980 1,000 60 90 04 1,125.4 1981-1985 1,600 76 80 04 41,7404 1986-1990 1,600 76 7.0 OA 1,739.4 1991-1995 2,000 71 5.0 04 2,132.4 1996-2000 2,000 71 40 04 2,131.4 Total, 1970-2000 42,950 2,130 1,736 2220 124 47,0504 SSSSaaS These estimates do not reflect uses now or in the future by reason of research and development in electrical energy generation and transmission, transportation, or other po- tential uses not under the jurisdiction of the above-named agencies. 167. The AEC estimaie did not include helium forecasts for production of energy through the harnessing of nuclear 254 fusion, nor for private power company requirements, but solely AEC needs. Neither the Federal Power Commission nor any other agency was requested to supply estimates on the potential of helium for underground transmission of electrical energy through super-conducting cables. 168. In any event, even the five Government agencies upon which Mr. Russell relied for his statement that there has been a substantial @#=:ijon in Government need for helium forecast an annual requirement in excess of 2.13 b.c.f. of helium by 1990, a requirement which they expect to continue at least to the year 2000. When it sought passage of the Helium Act of 1960, In- terior supported its position in favor of the legislation with a lesser forecast than that, namely, an annual na- tional need of 2 b.c.f. by the year 2000. 169. To the extent that fluctuations in current sales of helium by both Interior and private producers may have a bearing upon the issue of whether there has been ‘‘a substantial diminution in helium requirements,’’ the fol- lowing sales figures have been estimated on a calendar year basis. The estimates are somewhat inexact since Interior was obliged to rely on the replies of private pro- ducers in response to inquiries as to their domestic and export sales. a Interior’s Estimated Helium Sale in U.S. (m.m.c.f.) Estimated Sales by Private Sales by Bureau of Mines Sales Total Domestie Total Export Sales Total Producers To Coml. USBM Subtotal Customers Sales Domestic Govt. To Fed. Calendar To Fed. Con- Agencies tractors Year 1960 1961 1962 1963 If 122 479 507 419 1965 1966 1968 400 1967 541 110 231 348 220 1969 1970 1971 1972 *Not available 256 170. The decline in Government helium requirements from 707 m.m.c.f. in 1966 to 222 m.m.c.f, in 1970, cited by Mr. Russell in support of the determination that there had been a substantial diminution in helium requirements, was addressed solely to the decline in amounts actually sold by the Bureau of Mines to Federal agencies and con- tractors. It did not include sales by the bureau to com- mercial customers, nor sales by private producers to Gov- ernment agencies, Government contractors, or others. 171. Because the self-liquidating features of the helium conservation program had already been circumvented, In- terior was unable, in January 1971, to determine how much helium was actually being used by the specified Gov- ernment agencies, and by their contractors and subcon- tracters, and was thus unable to determine how much helium was used for Government agency purposes, as op- posed to general and private purposes of the Nation. 172. In January 1971 the Department of Interior re- leased its annual official publication on Commodity Data Summaries, in which the Bureau of Mines reported on the supply and demand figures for helium. The bureau re- ported that, although domestic helium usage had declined from its peak in 1966, usage was expected to remain at the then present low level through 1971, but then to in- crease to between 3 and 5 b.c.f. annually by the year 2000 as new programs which were then in the conceptual stage became operational. 173. The Russell termination statement does not give consideration to helium requirements beyond the year 2000. 174. Present and proposed requirements for helium have been touched upon in prior findings. They are hereinafter enumerated in greater detail. 175. Generally, the major current uses of helium are for pressurizing and purging, controlled atmospheres, re- 257 search, welding, lifting gas, leak detection, eryogenics, chromatography, heat transfer and synthetic breathing mixtures. The primary pressurizing and purging use is in the space program, to pressurize and purge the engine, propellant ard various other systems in the space and launch vehicles, as well as ground support equipment. He- lium is used to maintain a controlled atmosphere for growing crystals for transistors, in processing fuels for nuclear energy purposes, and for cooling vacuum furnaces. In shielded are welding applications, helium permits high welding speeds and deep weld penetration. As a lifting gas, its primary use is in weather monitoring, and astro- nomical study. Helium provides a rapid and _ reliable method of checking for the absence of the most minute leaks in a variety of products, Helium is the preferred carrier gas in chromographic instruments used to deter- mine impurities in a variety of industrial products, es- pecially petroleum, chemical compounds and pharmaceu- ticals. It has various medical applications. As a breathing mixture, helium provides the ability to explore lower depths of the ocean. Each of these uses was acknowledged in the environmental impact statement filed by Interior on November 13, 1972, in connection with litigation ini- tiated by the other three conservation contractors (see findings 11, 224-27) to enjoin termination. 176. Presently under development is the use of helium in high temperature gas cooled nuclear reactors which employ helium because it does not become radioactive; because contaminants are easily removed; because it does not react chemically with reactor fuels or components; and because it permits higher operating temperatures, result- ing in higher operating efficiencies. In addition, when he- lium is employed, thermal pollution tends to be lower than from other nuclear or fossil fuel electric generating plants. The helium acts as a heat transfer medium, transferring heat from the nuclear reactor core to the steam generator 258 which produces steam to run the turbines wh'ech, in turn, produce electricity, Helium-cooled reactors have been constructed in the United States, England, and Germany, and a number of additional ones were on order by the eleetrie power indus. try as of the end of 1972, A good portion of future nuclear installations are likely to be helium-cooled breeder rene. tors, which produce new fuel supplies, Somewhat further into the future is the development of nuclear fusion power which promises to produce clean electrical energy, Helium-based technology would play a vital role in any such development both as a eoolant and in the magnetic confinement of fusionable plasma, 177. Because helium liquefles at —452.1°R, (only 7.6°R, above absolute zero) and is the only known element to re- main liquid down to termperatures approaching absolute zero, solidifying only under pressure, it is indispensable in the fleld of eryogenies, that is, a fleld of science employ. ing temperatures below —430°R, One physical phenome. non occurring in this temperature range is ‘supereondne- tivity.’’ Below a transition temperature characteristic of the material, many metals and alloys lose their resistance to the flow of electricity and become superconductors of loctricity, henee the term superconduectivity, The practical application of this phenomenon is that once an cleetric current is started in a superconduetor it Will flow indefinitely without loss of energy, and without the introduetion of new energy, as long as the system re. mains below the transition temperature, 178 On June 4, 1971, the President sent a message to the House of Representatives announcing his program to assure this country of an ample supply of clean energy, It included research and development efforts on magneto- hydrodynamie power eyeles, underground electric power 250 transmission, advanced nuclear reactor concepts, and con- trolled thermonuclear fusion, 179, Superconducting magnets, now in operation throughout the world, produce intense magnetic flelds at about one-tenth the cost of producing comparable magnetic fleld strength with conventional magnets, For example, a superconducting magnet constructed at Argonne National Laboratory cost $400,000 in refrigeration expense over a 10-year period, whereas electric power costs for a conven. tional magnet over that same period would have been #4 million, The uses for such magnets include research in high-energy or plasma physics, in suspension and guidance of high-speed land vehicles (hy use of the repulsion char. neteristic of magnets to achieve levitation), in control and containment of the fusion reaction, in cancer therapy, in loss-free energy storage, and in ore separation, 180, Japan, France, Poland, West Germany, and the Soviet Union, in addition to the United States, are engaged in research and development on generation of electric power by magnetohydrodynamie power eyeles (MED), a more efficient method of converting coal and other fossil fuels into electric energy by burning the fuel and passing the combustion products through a magnetic fleld at very high temperatures, This method of power generation would inerease the amount of energy extracted from fuel, while at the same time cutting costs and pollution, For economic full-seale power generation, an METD plant would require superconducting magnets whieh, in turn, require helium, 181, As part of the President’s energy program, on November 1, 1971, Interior contracted with Edison Elee- trie Institute, Ine, and Union Carbide Corporation (Linde Division), for research and development of an under- ground superconducting AC power transmission cable, Underground superconducting cables contained in pipes filled with liquid helium would permit transmission of large 260 blocks of power underground through congested areas with negligible loss of energy, and it is estimated that one such 20-inch pipe filled with liquid helium could carry more power than New York City was using as of September 1970, In addition to increasing the current-carrying ea- pacity of a cable system by a factor of 20, there is an indicated cost saving of about 50 percent in a supereon- ducting system over a conventional system of the same capacity, The Office of Science and Technology, Executive Office of the President, reported to Interior in March of 1970 that ‘the potential here is very great,’’ 182. Prototype superconducting electric motors have been built with up to 8,250 hp, and utilizing relatively less energy, Others are under development for various indus. trial applications, including steel and aluminum produe- tion, Use of these motors for ship propulsion systems has been of special interest to the U.S, Navy, where a prototype ship propulsion system is being fabricated, They are also of interest to Britain’s Ministry of Defense where proto- types have been built, Superconducting magnets have been used in Japan and Germany to magnetically levitate and support prototype high-speed trains, and the U.S, Depart- ment of Transportation has sponsored studies of such trains by the Ford Motor Company and Stanford Research Institute for high-speed, long-distance travel, This form of levitation is superior to an air cushion which creates problems, for example, when the train passes through a tunnel, 183, Some additional Federal agency on-going projects which involve the use of helium include; U.S, Air Foree support of research on airborne superconducting gen- erators and superconducting magnets; U.S, Army studies of energy storage and rotating machines; Department of Interior sponsorship of work on electric power transmis- sion and MHD; and Atomie Energy Commission sponsor. ship of work on power transmission and superconducting magnets for fusion reactors, 184. The Stanford Research Inatitute (' SRI"), a highly respected commercial research and analysis orga- nization, completed three projections of future domestic helium demand under contract with plaintilf or its parent Northern, as well as with other helium conservation con- tractors, The September 1900 study assumed, tnfer alia, that there would be an ample supply of helium to meet all requirements, and a continuation of present-day prices, The February 1971 and March 1973 studies used this same assumption, but also analyzed demand assuming a lower supply and consequently higher prices, namely, a doubling in price by the year 2000, again by 2025, and again by 2050, In each of these reports, the assumption was made that the helium conservation contracts entered into in 1961 would continue to completion, and that a high level of eco- nomie activity would prevail, While the 1969 estimate shows the inclusion of a small amount for exports, none is apparent in either the 1971 or 1973 reports, The esti- mates of probable annual requirements for selected future years were as follows: SRI Annual Helium Demand Projections Billion Cubie Feet Chet.) Ample Supply Lower Supply Yoar Report Report 1969 1971 1973 1969 =1971 = 1978 1975 1.5 11 8 — 11 8 1985 28 24 1.4 -— 2.4 14 2000 60 60 # «3.2 — 38 24 2025 79 #$%@W9 128 --- 8.0 6,2 2050 12.0 67.5 447 ~- 23.2 16.5 The 1971 report indicates changes that were made from the 1969 report as a result of subsequent research, The 19783 figures are lower than the 1971 estimates, primarily 262 due to two independent factors, One was an assumed sub- stantial drop in the birthrate which would induce a lower gross national product and hence reduced energy consump- tion, a prime area for helium demand, The other factor was a substantially reduced estinale of NASA activilies, — 185, Breaking the usage down into its components, the 1971 and 1978 reports estimated the following annual mounts would be used for eryogenic applications (electric power, eryogenic research and magnetic levitation), and aerospace requirements (pressurizing and purging) by the year 2000, SRI Estimated Annual Helium Usage in 2000 (b.e.f.) Cryogenic Acrospace 1971 —s«:1978 1971 (19738 Ample supply 921 810 1,600 150 Lower supply 640 625 1,400 90 186, With declining reserves expected after the normal expiration of these helium conservation contracts in the 1980's, SRI believed a lower supply to be the proper as- sumption, beginning in the next century, 187, The assumption of ample supply at set price was also the basis for Interior's projection of an annual de- mand of 2 b.e.f. of helium in its 1960 appearances before Congress when it strongly supported the helium conser- vation legislation, In 1970 Interior forecast an annual helium demand for the year 2000 within the range of 1.4 bef, and 3.6 bef. The high range was, moreover, not de- pendent upon new scientific or technological breakthroughs but simply normal growth of known applications, Interior, in facet, also used an SRI helium study dated 1969 in its final environmental impact statement supporting a later termination notice of February 2, 1973, 188, If the helium conservation program were termi- nated, and this resulted in a helium shortage, the cost of helium would be prohibitive, and large seale applications 263 would become economically unattractive, dampening de- mand, The only projections of future requirements deemed relevant, therefore, are those predicated upon a continu. ing conservation program and an ample supply of helium, 189, In January 1971, at the same time Under Seere- tary Russell stated in his termination notice that he eould not ‘freach the conclusion that Government requirements for helium will steadily inerease in the future,’ Interior published its annual 1971 Commodity Data Summaries under the names of Acting Seeretary Russell and the Di- rector of the Bureau of Mines, Tt forecasted that: Helium usage in the United States * * * should in- crease as new programs, now in the conceptual stage, enter developmental and operational phases, In the long-term, it is anticipated that helium usage will reach 3-5 billion eubie feet annually by the turn of the century, 190, In connection with the injunction litigation involv- ing the other three conservation contractors (see finding 11), Interior's Bonneville Power Administration, respond- ing to Interior's 1972 Draft Bnvironmental Impact State- ment, projected that by the year 2000 approximately 5 bef, of helium will be required annually for eleetrie power use, 191, Lawrenee Radiation Laboratory projected that within the next 50 years there will be 87 nuclear fusion plants requiring an inventory of from 20 to 30 bef, of helium, 192, There have been no official forecasts by Interior, nor any other ageney, indicating that helium usage will not increase above current levels, Differences of opinion have revolved solely around the degree of increase, not on whether an inerease will oceur, 193, The estimates of future helium requirements for just the five specified Federal agencies to which Under 4 Secretary Russell confined his termination notice were the same estimates Interior had made in February 1970 when it forecast continuously increasing need. They are eati- mates which did not take into account all governmental activities, such as those of the Department of Transporta- tion, navy ship propulsion and other Government-spon- sored or regulated activities, There were no new evalua- tions of requirements made between December 31, 1970, and January 26, 1971, when the termination notice was dispatehed, The Termination Test Based on “The Discovery of Large New Natural Helium Resources”’ 194, Generally speaking, substantially all of the known helium reserves of the United States contained in natural gas are being depleted as the gas is marketed for fuel, and the overwhelming bulk of it will be gone by about 1990, After that approximate date, helium extracted from nat- ural gas will have to come from previously conserved he- lium, from small quantities extractable from remaining ‘‘shut in’? (uneconomical) fields, or from helium diseov- eries, if any, made in the meantime, 195. Natural gas, primarily fuel gas, is the only known source of helium other than the atmosphere, and helium has never been reeovered from the atmosphere on a large scale, Recovery from the atmosphere requires enormous expenditures of energy, with resultant pollution and very high cost. 196. Helium may also be produced as a by-produet of the nuclear fusion of hydrogen, if and when nuclear fusion is ever developed for power production, but helium so produced would provide but a nominal percentage of antici- pated future requirements, 197, Helium in natural gas is associated with “helium. rich’? gases (natural gas with a helium content of 0.3 of 1 percent or greater), with ‘‘lean’’ streams (natural gas with 265 a helium content less than 0.3 of 1 percent), and ‘‘shut-in fields’’ (fields not now being produced for various reasons, e.g., the natural gas is not currently valuable for fuel). Shut-in fields may be either rich or lean in helium. 198. Estimates of helium reserves are categorized as ‘*proved,’’ ‘‘probable,’’ ‘‘possible,’’ or ‘‘speculative.’’ As used by Interior, ‘‘proved’’ reserves describes those which have demonstrated the ability to produce by either actual production or conclusive formation test. These reserves define the current estimated quantity of natural gas and natural gas liquids, which analysis of geologic and engi- neering data demonstrates with reasonable certainty, to be recoverable in the future from known oil and gas reser- voirs under existing economic and operating conditions. ‘‘Probable’’ reserves means reserves which are believed to exist, on the basis of some drilling, but which need fur- ther drilling and evaluation to be classified as proved. ‘*Possible’’ reserves are those which may result from new field discoveries in areas of established production. ‘*Spec- ulative’’ reserves are those which may result from new discoveries where sedimentary formations are present but there is no prior production history. 199. As of January 1, 1971, Interior estimated resources of helium in the following categories and amounts: (a) The proved reserves were compromised of 27.7 b.c.f. stored under the conservation program, in part under this contract, in the Cliffside field, plus 136.6 b.c.f in helium-rich natural gas, 10.3 b.c.f. of which were in shut-in fields. Eighty-three percent of this 136.6 b.c.f. was contained in three fields—the Hugoton field of Kansas, Oklahoma and Texas, the West Pan- handle field of Texas (the sources of gas being proc- essed by plaintiff), and the Keyes field of Oklahoma. The balance is contained in 98 small isolated gas fields throughout 10 states. 266 (b) The probable reserves were 16.8 b.c.f. in he- lium-rich natural gas, and 67.6 b.c.f. in lean gas. The rich gases all represented shut-in reserves, with 75 percent of the volume located in the Tip Top field of Wyoming. The lean gas reserves, however, were esti- mated from depleting sources, i.e., sources currently being used for fuel. (c) The possible and speculative reserves, estimated at 218.9 and 309.5 b.c.f., respectively, ranged in helium content from 0.006 percent to 0.278 pereent, averaging about 0.076 percent helium, and were located through- out the United States. As these were in yet to be dis- covered fields, none would be depleting as of January 1971. (d) Category of Reserve Estimated helium volume (b.c.f.) Proved: Depleting helium-rich fields: 126.3 Shut-in helium-rich fields: 10.3 Conservation storage: 27.7 164.3 164.3 Probable: Shut-in helium-rich fields 16.8 Depleting helium-lean fields 67.6 84.4 84.4 Possible: Nondepleting, lean helium content fields 218.9 Speculative: Nondepleting, lean helium content fields 309.5 200. The reason helium has never been recovered eco- nomically other than from natural fuel gas is its low con- 267 centration in the atmosphere, namely, 5 parts per million (0.0005 percent of the atmosphere). Extraction by this method requires that a relatively large volume of air be processed to recover a relatively small volume of helium. Thus, in order to extract 1 b.c.f. of helium from the atmos- phere, approximately 26,000 megawatts of energy would be required. This amounts to about one-tenth of the entire United States power capacity in 1972. Using present fossil fuel generating plants, this would produce 670,000 Ibs/hr of air pollutants and would increase thermal pollution by 4 trillion B.t.u.’s per day to produce 1 b.c.f. of helium. 201. The cost to extract helium alone from the atmos- phere would run between $1000 and $3000 per m.c.f. of helium extracted. Although present oxygen extraction plants could be converted to also extract helium, this method would also cost about $500 per m.c.f. of helium extracted, and only 475 m.m.c.f. would be anticipated to be produced annually by the year 2000, @ven if oxygen de- mand were to increase dramatically between now and then. For these reasons, Interior does not consider atmospheric extraction of helium as an alternative resource. 202. It is anticipated that our rich, proven, depleting reserves of helium in natural gas will be essentially gone by about 1990, and that the lean, probable, depleting re- serves will be essentially gone by about 1995. Most of the natural gas which is today being processed for fuel is expected to be gone by the end of the century. Beyond 1995, aside from shut-in and conservation storage under this program, substantial amounts of helium from lean natural gas sources are considered to be only ‘‘possible’’ or ‘‘speculative.’’ 203. Between 1995 and the year 2000, helium from fu- ture discoveries, overwhelmingly in the ‘‘possible’’ and ‘‘speculative’’ categories, is forecast to be available at about 15 b.c.f. of helium annually. From 2000 to the year 2030 helium from future discoveries, overwhelmingly in 268 the ‘‘speculative’’ category, is forecast to drop to an an- nual availability of about 4 b.c.f., with complete depletion soon thereafter. 204. Helium from these future ‘‘possible’’ or ‘‘specula- tive’’ lean streams could be produced by the Government at a cost (depending on the helium content) of from $40— $70 per m.c.f. to $175—$200 per m.c.f. The greater amount would be in the latter range. 205. It is technologically possible to recover helium from natural gas with helium content as low as 0.05 percent. 206. Interior anticipates that the Keyes and West Pan- handle fields will be depleted by 1985, thereby substantially reducing the annual availability of helium from fuel gas in 1986 and thereafter. For this reason, helium available from presently proven depleting fuel sources, assuming that all the contained helium was extracted and conserved there- from, would not after 1985 be able to meet even the annual low demand projected by SRI in 1971, nor the median or high annual demands predicted by Interior in 1970. Subse- quent to 1990, even the lowest projection by Interior could not be met from these sources. These estimates are, more- over, based only on presently known uses of helium. 207. Since 1961, an average of 8.4 b.c.f. of helium has annually flowed from proven helium reservoirs, along with the natural gas being withdrawn for fuel purposes. How- ever, only approximately 4.5 b.c.f. of this helium was an- nually extracted for use or storage, the balance being wasted into the atmosphere as it accompanied the natural gas to the fuel consumer. This usage or wastage has not been offset by discovery of large new natural helium re- sources. 208. The prospect of discovering a helium reserve in the future as large as that contained in the Hugoton-Panhandle fields is poor. These fields, which supply the gas for the conservation contracts, are the largest helium reserves 269 known to exist in the world. Natural gas reserves are a finite quantity and will be exhausted. There is a current crisis in natural gas supply. 209. Interior has conducted a helium survey program since 1917, analyzing almost 13,000 samples of gases from wells, fields and pipelines throughout the United States. From 1961 through 1970, with the exception of 1965, no sigiificant helium resources were found. Thus, as Interior annually reported to Congress during these years (in ac- cordance with the 1960 Helium Act), the helium reserves of the United States have progressively declined. The annual reports for 1971 and 1972 also failed to indicate any new discoveries of significant amounts of helium. 210. In 1961, the Tip Top field was discovered in a moun- tainous part of Wyoming but was plugged and abandoned because of the low heating value of its natural gas. In 1965 Interior completed its analysis of the helium content of the field. Interior estimates it contains about 3 of the 10.3 b.ec.f. of proved helium-rich reserves in shut-in fields; and about 12.4 of the 16.8 b.c.f. of ‘‘probable’’ helium-rich shut-in reserves which it has evaluated. These estimates are speculative. For example,. the recoverable reserve of helium--bearing gas in the Rattlesnake field on the Navajo Indian Reservation was variously estimated at 12.4, 47.3 and 17 b.c.f., but it actually produced about 1.2 b.c.f. 211. Only one exploratory well has been drilled in the helium-bearing region of the Tip Top field, and that was by the Mobil Oil Company in 1961 at a cost of about $800,000. Four to six such wells would be necessary to prove the field, as Interior advised Congress in 1969. For this reason, Interior cannot presently determine whether or not the approximately 3 b.c.f. of helium which it cate- gorizes as ‘‘proven’’ at Tip Top can actually be produced. Former Under Secretary of Interior Russell did not con- sider the field as proven, nor as a large reserve. The esti- mated ‘‘proved’’ helium reserve at Tip Top is less than 270 3 percent of the total United States reserves, and less than the amount which was being conserved annually under this conservation prograni. 212. Interior estimated in 1967 that the cost of produc- ing helium from the Tip Top field by the Government would then be $10.83 and $18.79 per m.c.f. The mountainous ter- rain at Tip Top and its remoteness from storage, trans- portation, purification and liquefaction facilities, make it difficult to estimate what it would cost to market or store helium from Tip Top. 213. The balance of the shut-in helium-rich reserves (approximately 7.3 b.c.f. estimated and classified by In- terior as proved, and 4.4 b.c.f. estimated and classified as probable) are contained in about 40 fields located in vari- ous parts of Montana, Wyoming, Utah, Colorado, Kansas, Arizona, New Mexico, Oklahoma, Texas and West Vir- ginia. Very few of these are located near existing extrac- tion, purification or storage facilities, and no estimate has been made of the cost of extracting helium therefrom, nor is it known whether they will be used as fuel gas, thus dissipating any helium contained therein. No estimate has been made of the cost of transporting gas from scattered points to a common gathering point where efficient extrac- tion facilities can be constructed, such as exist at Bushton. 214. Although a shut-in well may have been plugged and abandoned, i.e., filled with concrete, it is still possible for the gas in the well to have escaped since it was plugged. 215. In estimating the reserves in shut-in fields, In- terior has only estimated the amount of helium in the field, not the cost of extraction nor the amount of helium which could in fact be extracted. 216. Some of the shut-in helium-rich wells were tapped and sampled by Interior prior to 1960, when the 1960 He- lium Act was being considered by Congress. It was esti- mated, for example, in 1960 that the Pinta Dome area of 271 New Mexico contained 1.5 b.c.f. of helium, an amount not then considered significant in relation to the proposed conservation program. It is currently estimated that only 23 m.m.c.f. are available at Pinta Dome. 217. As of January 1, 1971, Interior had approximately 38.8 b.c.f. of helium in storage or under its control. 27.7 b.c.f. had already been stored, 3 b.c.f. was estimated as native to the Cliffside storage field, 7.3 b.c.f. was expected from Government-owned helium plants, and 0.8 b.c.f. was expected to be delivered by the conservation contractors, including plaintiff, between January 1, 1971, and the end of March 1971, when termination was supposed to have taken effect. By February 1973, approximately 44.5 b.c.f. of helium was in Interior’s control or in storage. None of the helium stored by Interior has yet been used. 218. The estimate of future helium availability made by Under Secretary Russell, in connection with this ter- mination netice, was based upon a September 1969 Interior report. No new evaluations of future helium availability existed between December 31, 1970, and January 26, 1971. There were no significant discoveries of helium reserves in the 6 months prior to January. 1971. No pertinent data was provided to Mr. Russell in January 1971 that was not available to him on December 31, 1970. The Termination Test Based on ** Any Other Circumstance of Similar Nature’’ 219. Prior to the 1960 Helium Act, helium had not been recovered from gas streams containing less than 0.9 per- cent helium. Since 1960, helium has been extracted by these helium conservation contractors from gas containing 0.4 percent helium. 220. Helex agreed to and did extend the technology and the state of the art so as to permit the economical recovery of 90 percent of the helium from streams containing 0.46 percent helium. Other advances in technology which were 972 achieved by plaintiff and the other helium contractors in the performance of their contracts, and at their sole risk, were the development of very large-scale processing facil- ities and the development of more efieiont heat exchangers, making it economically possible to extract helium from these lower-helinm content sources, 221, Under Seeretary Russell relied in part on these improvements in technology making possible recovery of helium from leaner sources as ‘the discovery of large new natural helium resources’? warranting termination of the contract. He also relied in part upon a duly 1969 report by the Bureau of Mines which indicated that high operating efficiencies and economies could be achieved in processing gases With helium content wader 0.3 percent, based upon the processes and plants actually developed by the helium conservation contractors, and as contemplated by the bu- reau’s engineers When the contracts were being negotiated, 222. Were a new helium phint to be built by the Govern- ment today, it would employ essentially the same technol. ogy as that developed in the construction and operation of plaintiff's helium plant, 228, When plaintiff's contract was being negotiated, the Government wanted plaintiff to prove that their advanced technology could in actuality extract helium economically from lower helium content natural gas streams, The Gov- ernment did not intend that the contract would be termi- nated should plaintif? achieve a result contemplated by the contract, Frem the inception of the contract through late 1970, Interior did not consider the development of this technology by plaintiff as a basis for termination of plaintiff's contract, Compliance With the National Environmental Policy Act as a Condition Precedent to Termination 224, The National Environmental Policy Act of 1970 (42 U.S.C, § 4821, ef seq.) required the Secretary of the 278 Interior to consider the environmental consequences of the proposed termination action, and section 4332 required Interior to file an environmental impact statement prior to tuking action to terminate the helium conservation con- tracts, 225. Under Seeretary Russell had neither considered the environmental consequences of his termination action, nor filed an environmental impact statement dealing with the termination when he issued the termination letters of January 26, 1971, On March 27, 1971, one day prior to the date the termination was stated by Mr, Russell to become effective, the U.S, Distriet Court for the Distriet of Kan- sas, in National Helium Corp, v. Morton, 826 F. Supp, 151, a suit brought by the three other helium conservation eon- tractors, temporarily enjoined Interior from terminating their contracts on the grounds that Interior had not com- plied with the act (*NEP.A"'), and had not filed the neces- sary statement required by the act, The injunction was sustained on appeal, the court stating: ** * It is undeniable that the Act compels the De- partment to comply with its provisions when action is being taken having to do with a depletable resource, Ilere also there is evidence of ‘new and expanding technological advances’? directly related to the need for an application of this resource, It is undisputed that the Secretary has not con- sidered the environmental impact and has not taken any steps to fulfill the requirements of the NEPA, In- decd the Seeretary has not even followed the regula- tions of his own Interior Department purporting to implement the statute, * * * Having concluded that the court had jurisdiction in this cause and that the NEPA fully applies to the action here involved, it follows that the District Court O74 acted properly in enjoining the termination program, at least pending the compliance by the Seeretary with the NEPA, [455 F.2d 650, 656-57 (10th Cir, 1971).] 226. Interior thereafter filed an environmental impact statement on November 18, 1972. It purported to cover the environmental impact of terminating the other three con- servation contracts, but not the one which is the subject of this suit for breach of contract, No environmental state- ment addressed to this contract has ever been issued, 227. The statement issued with respect to the other three contracts was held to be inadequate on June 11, 1978, by the U.S, Distriet Court for the District of Kansas, On appeal it was found to be adequate by the 10th Cireuit, October 19, 1978 (486 F.2d 995), That court direeted the district court to dissolve the injunetion affecting the other three contractors, (486 F.2d at 1005.) The Second Termination Notice 228. When Interior filed its environmental impact state- ment in November 1972, the five specifie Federal agencies whose requirements had been relied upon to support the purported Russell termination, were provided an opportun- ity to revise their estimates of future requirements, The greatest change oceurred in NASA requirements, On July 12, 1972, NASA advised Interior that on the basis of a detailed evaluation it anticipated its annual usage would climb from the then 76 tigned. te about 95 tae. by 1990, NASA stated that it had no basis for determining its needs for the 1990's but speculated they would not ex- coed 190 mam.e.f, annually during that period, Two months earlier NASA had reported to Interior that it expeeted lower consumption than it had anticipated in 1969, but that it had ‘*no basis for a meaningful, quantitative esti- mate of fits] long-range helium requirements.’’ The ad. justed usage estimate in November 1972, ineluded in In- terior’s in.pact statement, was: ai Time Period ANNUAL requirements (mme.f.) NASA DOD AEC WB NBS _ Total 1972 76 60 43 O05 0.6 189.1 1973-1975 84 60 43 05 0.6 197.1 1976-1980 63 60 44 0.0 0.6 176.6 LOS1.1985 79 76 44 8.0 0.6 207.6 1986-1990 Me) 76 45 7.0 0.6 223.6 1991-1995 150 71 45 5.0 0.6 271.6 1996-2000 150 71 46 4.0 0.6 271.6 Total 8,018 2,130 1305 222.0 40.0 6,710.0 (All totals may not add as some agencies gave average annual use and a total use figure for the 1972-2000 period.) 229. In response to Interior's draft environmental im- pact statement, as a condition precedent to termination of the helium purchase contracts, Interior's Bonneville Power Administration (which was not one of the five Federal using agencies) advised the Direetor of the Bureau of Mines by letter of July 6, 1972, that it projected 5 bef, of helium would be required annually for electrical power use alone by the year 2000, 230, By letter of February 2, 1973, Seeretary of In- terior Morton again notified Cities Serviee Helex, Ine, National Helium Corporation and the Phillips Petroleum Company, the three conservation contractors who had pro- cured an injunction, that their helium contracts were ter- minated, effective at 8 am,, e.s.t., GO days later (herein. after the ** Morton termination’’), The notice did not state that it was intended to terminate plaintiff’s contract nor did it purport to do se, Attached to the termination letter Wis a statement containing an evaluation of the environ. mental consequences of the termination of the three con- tracts, and the contractual reasons on which termination was predicated, 276 231. Seeretary Morton stated that these other three contracts were being terminated pursuant to their respee- tive contract paragraphs 12.1, provisions which were iden- tical in material respects to paragraph 12.1 of plaintiff's contract, Onee again the grounds stated were essentially assertions of a substantial diminution in helium require- ments, the discovery of large new natural helium resources, and the ability to economically recover helium from lean gas. He asserted, as had the purported Russell termina- tion, that the purposes of the 1960 [lelium Aet were to provide for ‘essential Government activities,’’ purposes wifich he concluded would not be frustrated by termination of these contracts, 232. With respect to the grounds based on a substantial diminution in helium requirements, Secretary Morton re- lied on actual, current usage figures by the five specific Government agencies, and asserted that they had increased from 355 m.m.e.f. in fiseal vear 1960 to 684 m.m.c.f. in fiseal year 1966, then decreased to 280 m.m.ec.f. in fiseal year 1972. Unlike the Russell termination notice, these figures included not only sales by the bureau to Government agen- cies, but also a rough estimate of the amount of helium which might have been procured from private producers, 233. The Seeretary also asserted that the revised pro- jections of future use by the five helium using agencies showed a drop from an estimated need of 46.5 b.e.f. from 1972 to the vear 2000, to an estimated need of 6.7 bef, for that period, This usage could, he stated, be met with the estimated 44.5 b.ef. of helium Interior then had either stored or within its control, He dismissed all estimates of need beyond the year 2000 as conjectural, and beyond the purposes of the helium legislation. 234. Although he denied that the purposes of the helium legislation were to provide for other than those five agen- cies, he also analyzed the total domestic helium demand, excluding exports, and asserted a dimunition in that de- mand as well, His figures showed an increase from 415 mm.e.f, in fiseal year 1960 to 897 mm.e.f. in fiseal year 1967, then a decrease to 440 mm.e.f, in fiseal yo v 1972. However, at trial it was shown that charting these esti- mates on a calendar year basis would have indicated an increase from 441 mam.e.f in ealendar year 1971 to 475 mine. in calendar year 1972, In any event, comparing his figures with Interior's 1959 projections as presented to Congress, he showed demand falling substantially short of projections from fiseal year 1963 through fiseal year 1972. 235. Secretary Morton also pointed to the 1969 Interior projections of future need, and the SRI 1969 and 1971 forecasts, contending that Interior's 1969 low estimate of 33 bef. from 1972 through the year 2000 was more reliable than either the high 69 b.ef. or median 51 b.ef. Interior estimates, or the 87 b.ef., 76 bef, or 68 bef, estimates of SRI, or even Interior's 1959 projection of 55 b.ef. for this period, He argued that only the Interior’s 1969 low esti- mate (33 bef.) took into account diminished use of helium in the space program, 236. With respect to the termination grounds based on the discovery of large new natural helium resources, the only addition Seeretary Morton made to those alleged in the prior Russell termination notice was the discovery of another 2.3 b.e.f. of proved shut-in rich reserves, but he revised the total probable shut-in rich reserves down to 17 bet. as of January 1971, 237. As had the Russell termination statement, Seere- tary Morton cited 218.9 b.e.f. of possible helium reserves, and 309.5 b.e.f of speculative reserves, which he asserted were now capable of economical extraction due to the im- proved technology developed by plaintiff and the other conservation contractors as previously deseribed, 238. Both the Russell and Morton terminations were issued after this litigation had been initiated on December 278 24, 1970. Both were prepared within the office of the So- licitor of Interior. 239, When the Morton termination statement was issued, Interior could, at best, only roughly estimate what amount of helium was being used by the five Government agencies, their contractors and subcontractors, and what amount was being used otherwise. Interior was not able to identify with any degree of specificity the amount of helium sold by private producers (including the other conservation con- tractors) to Government contractors and subcontractors, Its estimate of Government usage was based upon analysis of its own records, and talks with some Government con- tractors and agencies. Similarly, in estimating total do- mestic demand, Interior arrived at its figures by asking private producers what amounts they produced, and by assuming a very limited storage capacity. 240. Secretary Morton’s determination of a substan- tial dimunition in future need was based largely upon statistics he regarded as indicating a drop in demand for helium during the immediately preceding few years, How- ever, it was Interior's position, in response to criticism of the program from OMB in March of 1970, and from the GAO in September 1969, that short-term changes in de- mand cannot reliably be used to predict the long-term fu- ture need contemplated by the act. As in the case of the Russell termination statement, the Morton termination statement does not give consideration to national helium requirements past the year 2000, 241. Even on the assumption that the ‘substantial dimunition in helium requirements’’ test is addressed solely to the needs of the five specified Government agen- cies, a determination cannot be made that these essential Government activities will have an assured supply of he- lium in the future. When the test is addressed to national needs, including the present and future needs for ample supplies of clean energy, industrial activities, transporta- 279 tion, scientific and technological activities, it is obvious that essential Government activities are further adversely affected since Government activities are interrelated with industrial activities. 242. On June 6, 1974, the following bill (H.R. 15252, 93d Cong., 2d Sess.) was introduced in the House of Represent- atives and referred to the Committee on Interior and In- sular Affairs: A Br. To authorize and direct the Secretary of the Interior to conserve and store helium. Be it enacted by the Senate and House of Represent- atives of the United States of America in Congress assembled, That this Act may be cited as the ‘‘ Helium Storage Act of 1974’’. sec. 2. The Congress declares that helium is a wast- ing national asset and its depletion to the atmosphere is not in keeping with the national interest of conserv- ing our natural resources, and in order to promote the general welfare and provide for the national security, it is the policy of the Federal Government to provide for the conservation and storage of helium to meet existing and potential future requirements. sec. 3. For the purpose of cons: ving and storing helium extracted from natural gas, the Secretary of the Interior shall, so long as non-Federal helium ex- traction facilities are in operation, at the election of such non-Federal facilities and without storage ex- pense, accept, collect, receive, and store crude helium in the existing Federal helium pipeline and storage sys- tem, and conserve, hold, and store the same in the ex- isting Federal underground storage facility. sec. 4. The provisions of section 3 of this Act shall impose no additional requirement on the Federal Gov- 280 ernment to expand the existing Federal helium pipe- line and sec. 5. The Secretary of the Interior shall at no ex- pense to the non-Federal helium extraction facility re- deliver, upon demand, not more than 92 per centum of the helium received at a rate not greater than the vol- ume rate at collection so long as the Federal Govern- ment operates and maintains the existing Federal pipe- line and storage system. sec. 6. There are authorized to be appropriated such sums as necessary to carry out the purpose of this Act. Computation of Damages for Breach of Contract at Common Law 243. The ability of plaintiff to extract and tender he- lium to the Government through the remainder of the contract period ending August 15, 1983, has been stipu- lated. The parties have stipulated that if plaintiff’s con- tract had remained in effect during the period December 24, 1970, through August 15, 1983, it would have delivered to the United States 6.467 b.c.f. of contained helium. The quantity of such contained helium which would have been delivered each year is as follows: Contained Helium (cubic feet) 12/24-12/31/70 14,900,000 1971 599,600,000 1972 614,100,000 1973 590,600,000 1974 569,700,000 1975 548,800,000 1976 525,800,000 1977 506,500,000 281 1978 487,200,000 1979 468,900,000 1980 450,600,000 1981 430,800,000 1982 410,900,000 1/1-8/15/83 248,600,000 6,467,000,000 244. At the contract price of $12.41 per m.c.f. in effect on December 24, 1970, the contract price for the 6.467 b.c.f. of helium that Helex would have delivered during the period December 24, 1970, through August 15, 1983, is $80,255,000 (without adjustment for the wholesale price index as required by the contract), in the following annual amounts: Year Contract Price 1970 $ 185,000 1971 7,441,000 1972 7,621,000 1973 7,329,000 1974 7,070,000 1975 6,811,000 1976 6,525,000 1977 6,286,000 1978 6,046,000 1979 5,819,000 1980 5,592,000 1981 5,346,000 1982 5,099,000 1983 3,085,000 $ 80,255,000 245. Article 7.3(b) of the contract provided for a pe- riodic adjustment in the contract price, geared to the wholesale price indes, in these terms: 282 7.3 For the purposes of unit price adjustments provided for in this paragraph 7.3 the initial unit price of eleven dollars and twenty-four cents ($11.24) is considered to consist of two parts, which are described below, each of which shall be adjusted in the following manner, and the unit price payable hereunder shall be adjusted accordingly, to wit: (b) Part 2 of the initial unit price shall be ten dollars and seventy-seven cents ($10.77). This amount represents the major portion of the initial unit price and is equal to the initial price less the amount spe- cified in the preceding subparagraph (a) which shall be adjusted separately. This part of the initial unit price shall be adjusted at the beginning of the second contract year and at the beginning of each contract vear thereafter. This part of the initial unit price shall be increased three-fourths of one cent ($0.0075) for each one-tenth (0.1) point of increase in the whole- sale price index for all commodities exclusive of farm products and food above a base wholesale price index as hereinafter defined or decreased three-fourths of one cent ($0.0075) for each one-tenth (0.1) point of decrease in the wholesale price index for all commod- ities exclusive of farm products and food below the base wholesale price index. The base wholesale price index as used herein shall be one hundred and twenty- eight and three tenths (128.3) which is the arith- metical average of the monthly wholesale price in- dexes for all commodities other than farm products and food for the 1960 ealendar year, as published by the Bureau of Labor Statistics, United States Depart- ment of Labor, relative to the base period 1947-1949. The wholesale price index used in each adjustment shall be the arithmetical average of the monthly whole- sale price indexes relative to the base period 1947- 1949 for all commodities other than farm products and 283 food for twelve (12) calendar months, April through March, preceding the contract year for which adjust- ment is made; and in the event that this index is pub- lished by the Bureau of Labor Statistics relative to a base period other than 1947-1949, the wholesale price index used in each adjustment period shall be the arithmetical average of the monthly wholesale price indexes for all commodities other than farm products and food for the twelve (12) calendar months de- scribed above as related to the 1947-1949 period. If for avy reason and at any time it should become im- poss...e or impracticable to determine the adjustment in this part of the intial unit price as afore-described, the parties hereto agree that they will mutually deter- mine a different method of accomplishing the adjust- ment in accordance with the intent of this subpara- graph. 246. The parties are in conflict as to what years should be selected as a base period from which to predict or proj- ect the probable escalation of the wholesale price index through 1983. Pursuant te the above-quoted article 7.3(b), this determines what the contract price would have been had the contract run to completion. At trial the parties each presented projections of future changes in the whole- sale price index. Both used the same method and mathe- matical techniques. They examined past behavior of the index in order to develop a curve or line based thereon which, extended, would provide projections of future trends. The shape of the curve or line developed depends primarily on two factors, the type of formula employed to fit a trend curve to past or base period experience, and the years selected as a base period to which to fit the trend curve. 247. The Government contends that the base period should be 1947-1971, from which the 1971-1983 wholesale price indexes should be extrapolated. No specific reason is given for the choice of 1947 as the point of beginning. It is 284 speculated that 1947 was chosen because it provides a 25- year period prior to the 1971 ‘‘termination,’’ and 25 years is considered one convenient base period. The Government urged that the 1947-1971 period should be used as a base on the assumption that the average rate of increase from 1971-1982 would be the same as the rate of increase during the 25-year period just prior thereto. 248. The plaintiff introduced three distinct bases. Al- ternate A is based on the period 1947-1959; Alternate B on the period 1967-1971. Plaintiff urges that the years 1960-1966 should not be embraced in a base period from which to extrapolate because it was an unusual and un- typical period of economic ‘‘stagnation’’ in which the wholesale price index remained virtually unchanged. There- fore it is rejected as not representative of what is likely to oceur in the next 10 years. Alternative B is urged as the more realistic period. The only reference to 1947 as a start that appears (although not suggested by the parties) is that article 7.3(b) of the contract, the escalation clause, ealls for use of wholesale price indexes to be relative to the wholesale price index of 1947-1949, 7.e., taking the in- dex for 1947-1949 as 100, the index for 1960, when this con- tract was negotiated, was set at 128.3 relative to the 1947- 1949 period. This was done because the increases were tied to increases in the Department of Labor, Bureau of Labor Statistics, indexes which were at that time computed rela- tive to the 1947-1949 period. 249. The reason why plaintiff also selected 1947 as the starting year of its Alternate A is not apparent either. 250. In addition to plaintiff’s Alternates A and B, it presented a third Alternate C which assumed 1941 as the point of beginning, and extended to 1971 without exclu- sions. From this base period of 31 years, wholesale price indexes were extrapolated and the related contract prices caleulated for the years 1970-1983. 285 251. Plaintiff did not urge this base period until the very end of the trial. In fact, the exhibits presenting it were the very last pieces of evidence offered by plaintiff as part of ‘‘additional’’ evidence presented after close of the main part of the trial. They were admitted without ob- jection by defendant. Only one allusion to the use of 1941- 1971 as a base period was made prior to the end of the trial itself. During cross-examination of Miss Stapleton, the Government’s economist, plaintiff’s attorney asked the witness what the effect would be if the period 1941-1971 was used. When the witness answered that she had no idea and would have to compute it, plaintiff’s attorney did not pursue the matter. 252. No reason was given for using 1941 as a start until the proposed findings were submitted. There plaintiff urged 1941 as the beginning of the 1941-1960 period used in 1961, in the course of negotiation of this contract by the Government’s chief negotiator, Mr. Wheeler, to anticipate the maximum amount of money the Government would be liable for in any year under the article 7.5(b) escalation clause. 253. On September 19, 1961, slightly over a month after this contract was signed, Mr. Wheeler described the price features of the contract in a memo to the files. He noted that the contract required the Government to pay up to $9,500,000 a year under the contract. He also noted that the $9,500,000 figure was developed from the probable con- tract price increases which were projected from the 1941- 1960 history of the wholesale price index. 254. The contract price per year for the amounts of helium that would have been delivered by plaintiff if its contract had remained in effect during the period Decem- ber 24, 1970, through August 15, 1983, adjusted in acecord- ance with article 7.3(b), and using a wholesale price pro- jection with a 1941-1971 base period (Alternate C) is as follows: 286 Contract Price (in thousands) Total Contract Year At $12.41/m.c.f WPI Adj. % Increase Price 1970 $ 185 = — 0.00 $ 185 1971 7,441 128 1.72 7,569 1972 7,621 536 7.03 8,157 1973 7,329 887 12.12 8,216 1974 7,070 1,038 14.68 8,108 1975 6,811 1,174 17.24 7,985 1976 6,525 1,298 19.89 7,823 1977 6,286 1,423 22.64 7,709 1978 6,046 1,538 25.44 7,584 1979 5,819 1,647 28.30 7,466 1980 5,592 1,747 31.24 7,339 1981 5,346 1,833 34.29 7,179 1982 5,099 1,907 37.40 7,006 1983 3,085 1,214 39.35 4,299 Total $ 80,255 $ 16,370 $ 96,625 255. In making the above computation in August 1973, plaintiff employed a wholesale price index figure of 164.1 for calendar 1973. The actual rise in the wholesale price index for 1973, as shown by Bureau of Labor Statistics, was 170.9. Judicial notice can also be taken of the fact that. inflationary pressures have exceeded normal projections in 1974. Reduction of Damages to Take Account of Present Value 256. Defendant raises the issue that the amount claimed by plaintiff must, if allowed, be reduced to take account of present value. Plaintiff, while not contesting the reason- ableness of the basic concept that the present payment of amounts due over [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385003_2230%3A2. Public record. Not legal advice.